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QuickLinks -- Click here to rapidly navigate through this document AMENDED AND RESTATED STANDSTILL AND STOCK RESTRICTION AGREEMENT by and among COMMERCE ONE, INC., NEW COMMERCE ONE HOLDING, INC. and SAP AG JUNE 28, 2001 -------------------------------------------------------------------------------- TABLE OF CONTENTS         Page -------------------------------------------------------------------------------- ARTICLE I DEFINITIONS   1 ARTICLE II STANDSTILL OBLIGATIONS AND TRANSFER RESTRICTIONS   6   2.1   The Purchaser's Standstill Obligations   6   2.2   The Purchaser's Transfer Restrictions   7   2.3   Company Notice to Purchaser   10 ARTICLE III VOTING OBLIGATIONS   10   3.1   The Purchaser's Voting Obligations   10 ARTICLE IV MISCELLANEOUS   10   4.1   Governing Law; Jurisdiction and Venue   10   4.2   Survival   11   4.3   Assignment   11   4.4   Third Party Beneficiaries   11   4.5   Entire Agreement; Amendment   11   4.6   Notices, etc   12   4.7   Delays or Omissions   12   4.8   Expenses   12   4.9   Specific Performance   12   4.10   Stop Transfer Orders; Legends   12   4.11   Further Assurances   12   4.12   Facsimile; Counterparts   12   4.13   Severability   12   4.14   Interpretation   12   4.15   Attorneys' Fees   13 i -------------------------------------------------------------------------------- EXECUTION COPY AMENDED AND RESTATED STANDSTILL AND STOCK RESTRICTION AGREEMENT     This Amended and Restated Standstill and Stock Restriction Agreement (hereinafter the "Agreement") is made as of June 28, 2001 by and between Commerce One, Inc., a Delaware corporation (the "Company"), New Commerce One Holding, Inc., a Delaware corporation ("New Commerce One Holding") and SAP Aktiengesellschaft, a stock corporation incorporated under the laws of the Federal Republic of Germany (the "Purchaser").     WHEREAS, subject to the terms and conditions of the Share Purchase Agreement by and between the Company and SAP AG dated June 14, 2000 (the "Prior Share Purchase Agreement) the Company sold shares of its common stock to the Purchaser.     WHEREAS, in connection with the Prior Share Purchase Agreement, the Company and the Purchaser entered into, and are a party to, that certain Standstill and Stock Restriction Agreement dated as of June 14, 2000 (the "Prior Standstill and Stock Restriction Agreement").     WHEREAS, subject to the terms and conditions of the Share Purchase Agreement, of even date herewith, by and between the Company and the Purchaser (the "Share Purchase Agreement"), the Company has agreed to sell additional shares of its common stock to the Purchaser.     WHEREAS, as a condition precedent to the Company entering into the Purchase Agreement and completing the purchase contemplated therein, simultaneously with entering into the Share Purchase Agreement, the parties have agreed to amend and restate in its entirety the Prior Standstill and Stock Restriction Agreement;     WHEREAS, New Commerce One Holding will assume all of the rights and obligations of Commerce One hereunder upon the consummation of the reorganization of Commerce One into a holding company structure with New Commerce One Holding as the publicly-traded holding company; and     NOW THEREFORE, in consideration of the covenants and promises set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree, effective upon the Closing (as defined in the Share Purchase Agreement) the Prior Standstill and Stock Restriction Agreement is hereby amended and restated in its entirety as set forth herein. ARTICLE I DEFINITIONS     For the purpose of this Agreement, the following terms shall have the meanings specified with respect thereto below:     "Affiliate" shall have the meaning set forth in Rule 12b-2 of the rules and regulations promulgated under the Exchange Act; provided, however, that for purposes of this Agreement, the Purchaser and its Affiliates, on the one hand, and the Company and its Affiliates, on the other, shall not be deemed to be "Affiliates" of one another.     "Beneficially Own," "Beneficially Owned," or "Beneficial Ownership" shall have the meaning set forth in Rule 13d-3 of the rules and regulations promulgated under the Exchange Act.     "Board Approval" shall mean the affirmative vote of a majority of the Disinterested Directors of the Company or a unanimous written consent of the Board of Directors of the Company duly obtained in accordance with the applicable provisions of the Company's certificate of incorporation, bylaws and applicable law.     "Change in Control of the Company" shall mean any of the following: (i) a merger, consolidation or other business combination or transaction to which the Company is a party if the stockholders of the 1 -------------------------------------------------------------------------------- Company immediately prior to the effective date of such merger, consolidation or other business combination or transaction, as a result of such share ownership, have Beneficial Ownership of voting securities representing less than 50% of the Total Current Voting Power of the surviving entity following such merger, consolidation or other business combination or transaction; (ii) an acquisition by any person, entity or 13D Group of direct or indirect Beneficial Ownership of Voting Stock of the Company resulting in such person, entity or 13D Group having direct or indirect Beneficial Ownership of 50% or more of the Total Current Voting Power of the Company; (iii) an acquisition by any Competitor of direct or indirect Beneficial Ownership of Voting Stock of the Company resulting in such Competitor having director indirect Beneficial Ownership of 15% or more of the Total Current Voting Power of the Company; (iv) a sale of all or substantially all of the assets of the Company; (v) a liquidation or dissolution of the Company; (vi) the institution of any proceeding by or against the Company under the provisions of any insolvency or bankruptcy law which is not dismissed within ninety (90) days, the appointment of a receiver of a material portion of the assets or property of the Company, or the issuance of an order for an execution on a material portion of the property of the Company pursuant to a judgment which is not dismissed within ninety (90) days; or (vii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved, other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in the preceding clauses) cease for any reason to constitute a majority of the Board of Directors of the Company then in office.     "Company Common Stock" shall mean shares of the Common Stock of the Company.     "Company Competitor" shall mean (i) Ariba Inc., BEA Systems, Inc., Clarus Corporation, Oracle Corporation, International Business Machines corporation, i2 Technologies, Inc., Manugistics Group, Inc., Microsoft Corporation, Peoplesoft, Inc., SeeBeyond Technology Corporation, Siebel Systems, Inc., VerticalNet, Inc. and WebMethods, Inc. and their successors, (ii) any person in which any of the persons set forth in clause (i) own more than twenty percent (20%) of the Total Current Voting Power of such person or (iii) any person with which any of the persons set forth in clause (a) have a strategic alliance or similar agreement that provides for the joint offering of a solution that substantially competes with a solution offered by the Company.     "Competitor" shall mean (i) Oracle Corporation, International Business Machines Corporation, i2 Technologies, Inc., J.D. Edwards & Company, Manugistics Group, Inc., Peoplesoft, Inc., Baan Company, N.V., Siebel Systems, Inc. and Ariba Inc. and their successors, (ii) any person in which any of the persons set forth in clause (i) own more than twenty percent (20%) of the Total Current Voting Power of such person or (iii) any person with which any of the persons set forth in clause (i) have a strategic alliance or similar agreement that provides for the joint offering of a solution that substantially competes with a solution offered by SAPMarkets, Inc. or its Affiliates.     "Competitor Offer" shall mean (i) a bona fide public tender offer subject to the provisions of Regulation 14D of the rules and regulations promulgated under the Exchange Act made by a Competitor when first commenced within the meaning of Rule 14d-2(a) of the rules and regulations promulgated under the Exchange Act, by a person or 13D Group (which is not made by and does not include the Purchaser or any Affiliate of the Purchaser) to purchase or exchange for cash or other consideration any Voting Stock and which consists of an offer that, if consummated, would result in the Competitor having Beneficial Ownership of Voting Stock of the Company representing more than 15% of the Total Current Voting Power of the Company or (ii) the execution of a definitive agreement between the Company and a Competitor that provides for the Competitor acquiring Beneficial 2 -------------------------------------------------------------------------------- Ownership of Voting Stock of the Company, which if consummated, would result in the Competitor Beneficially Owning more than 15% of the Total Current Voting Power of the Company.     "Confidentiality Agreement" shall mean the Confidentiality Agreement among the Purchaser, the Company and New Commerce One Holding attached as Exhibit A to the Investor Rights Agreement among the Company, New Commerce One Holding and the Purchaser.     "Control" or "Controlled by" shall have the meaning set forth in Rule 12b-2 of the rules and regulations promulgated under the Exchange Act.     "Disinterested Director" means a member of the Board of Directors of the Company who is not (i) an employee or consultant of Purchaser or any of its Affiliates; (ii) a member of the Board of Directors of Purchaser or any of its Affiliates; or (iii) the holder of more than three percent (3%) of the voting stock of Purchaser or any of its Affiliates.     "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.     "Fair Market Value" means, as of any date of determination, (i) in the case of equity securities, the simple average of (x) the simple average of the closing price per share of common stock of the Company on the Nasdaq Stock Market (or such other market or exchange on which such common stock is listed or quoted) for the twenty (20) days preceding such date of determination and (y) the weighted average of the closing price per share of common stock of the Company on the Nasdaq Stock Market (or such other market or exchange on which such common stock is listed or quoted) for the twenty (20) days preceding such date of determination, such weighed average to be calculated based on the daily trading volume of the common stock as reported on the Nasdaq Stock Market (or such other market or exchange on which such common stock is listed or quoted) during such period, and (ii) in the case of property other than cash or publicly-traded securities, the fair market value of such property on such date of determination as determined in good faith by a majority of the Supervisory Board (Aufsichtsrat) of the Purchaser; provided, however, if the Company disputes such determination, then the fair market value shall be as determined by two Investment Banks, with one Investment Bank to be selected by each of the Company and the Purchaser for such purpose. Each such Investment Bank shall determine the fair market value and shall deliver its written valuation to the Company and the Purchaser within thirty (30) days after selection. In the event that such Investment Banks do not agree on the fair market value, the fair market value shall be the average of the two valuations, except that if the higher of the two valuations is greater than twice the lower valuation, the Investment Banks shall select another Investment Bank of similar qualifications who shall determine the fair market value independently of such selection in accordance with the procedures specified in the foregoing sentence. None of the Company, the Purchaser or the initial Investment Banks shall provide the third Investment Bank with information regarding the valuation of the initial Investment Banks. The valuation of the third Investment Bank shall be arithmetically averaged with the two prior valuations and the valuation farthest from the average of the three valuations shall be disregarded. The fair market value shall be the average of the two remaining valuations. The Company and the Purchaser shall each pay one-half of the expense of the valuation.     "Non-Voting Convertible Securities" shall mean any securities of the Company that are convertible into, exchangeable for or otherwise exercisable to acquire Voting Stock of the Company, including convertible securities, warrants, rights or options to purchase Voting Stock of the Company.     "Opposed Tender Offer" shall mean a Third Party Tender Offer pursuant to which the Board of Directors of the Company, pursuant to Rule 14e-2 of the rules and regulations promulgated under the Exchange Act, has publicly published, sent or given to security holders of the Company a statement disclosing that the Company recommends rejection of the Third Party Tender Offer.     "Open Market Transaction" shall mean resales on the open market through unsolicited broker's transactions or through transactions directly with a market maker in which the market maker is not 3 -------------------------------------------------------------------------------- soliciting purchasers of the shares on behalf of the Purchaser, its Affiliates, or any 13G Group of which Purchaser or any Affiliate of Purchaser is a party on the Nasdaq National Market or such other exchange or public quotation system upon which the Company Common Stock trades.     "person" shall mean an individual, corporation, partnership, limited liability company, association, trust, or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.     "Purchaser Controlled Entity" shall mean an entity of which the Purchaser collectively owns not less than a majority of the outstanding voting power entitled to vote in the election of directors of such entity (or, in the event the entity is not a corporation, the governing members, board or other similar body of such entity).     "Rights Plan" shall mean the Preferred Stock Rights Agreement, dated as of June 18, 2001, between Commerce One, Inc., a Delaware corporation and Fleet National Bank, as amended from time to time, or any successor thereto, or any other stockholder rights plan (commonly referred to as a "poison pill") adopted by the Company.     "Rule 144" shall mean Rule 144 as promulgated under the Securities Act.     "SEC" shall mean the U.S. Securities and Exchange Commission.     "Securities Act" shall mean the Securities Act of 1933, as amended.     "Shares" shall mean the shares of Company Common Stock held by Purchaser as of the date of this Agreement and the shares of Company Common Stock sold by the Company to Purchaser on the date hereof or hereafter (including without limitation the shares sold pursuant to the Share Purchase Agreement) together with all securities of Company issued with respect to such shares pursuant to the reorganization of the Company into a holding company structure, stock splits, stock dividends and similar events.     "Standstill Limit" shall mean 23% of the Total Current Voting Power of the Company, as the same may be adjusted in accordance with the provisions of this Agreement or by the written agreement of the parties hereto.     "Standstill Period" shall mean the period beginning on the date hereof and ending on the occurrence of a Standstill Termination Event.     "Standstill Reinstatement Event" shall mean the occurrence of the withdrawal or termination (including, without limitation, as a result of a temporary restraining order or an injunction issued by a governmental entity) of a Competitor Offer prior to the third anniversary of the date of this Agreement.     "Standstill Revised Limit" shall mean the percentage of the Total Current Voting Power of the Company represented by all Voting Stock held by Purchaser as of the occurrence of a Standstill Reinstatement Event.     "Standstill Termination Event" shall mean the earliest to occur of the following: (i) a Change in Control of the Company (other than a Change in Control of the Company involving the Purchaser or any Affiliate of the Purchaser or a 13D Group of which Purchaser or any Affiliate of Purchaser is a member), (ii) a Competitor Offer or (iii) the third anniversary of the date of this Agreement, provided, however, that upon a Standstill Reinstatement Event, the Standstill Termination Event triggered by a Competitor Offer shall not be deemed to have occurred and the Standstill Period shall be deemed to be reinstated so long as no other Standstill Termination Event shall have occurred and, provided, further, that if upon a Standstill Reinstatement Event the Standstill Revised Limit is greater than the Standstill Limit, then the Standstill Revised Limit and not the Standstill Limit shall thereafter be deemed the Standstill Limit for all purposes hereunder. 4 --------------------------------------------------------------------------------     "Strategic Alliance Agreement" shall mean the Strategic Alliance Agreement dated September 18, 2000 among the Company, Purchaser and SAPMarkets, Inc., as amended to date and as may be amended hereafter, and any successor or replacement agreement.     "Strategic Alliance Agreement Termination" shall mean the expiration or sooner termination of the Strategic Alliance Agreement in accordance with its terms, other than a termination by the Company due to a material breach by Purchaser.     "Third Party Tender Offer" shall mean a bona fide public tender offer subject to the provisions of Regulation 14D of the rules and regulations promulgated under the Exchange Act when first commenced within the meaning of Rule 14d-2(a) of the rules and regulations promulgated under the Exchange Act, by a person or 13D Group (which is not made by and does not include any of the Company, the Purchaser or any Affiliate of the Purchaser) to purchase or exchange for cash or other consideration any Voting Stock and which consists of an offer to acquire more than 50% of the Total Current Voting Power of the Company.     "Total Current Voting Power" shall mean, with respect to any entity, at the time of determination of Total Current Voting Power, the total number of votes which may be cast in the election of members of the board of directors of the corporation if all securities entitled to vote in the election of such directors are present and voted (or, in the event the entity is not a corporation, the governing members, board or other similar body of such entity).     "Total Shares" shall mean the number of shares of Company Common Stock Beneficially Owned by the Purchaser on the date of this Agreement plus all shares of Company Common Stock that the Purchaser acquires Beneficial Ownership of on the date hereof or hereafter (as adjusted for reorganizations, stock splits, stock dividends and similar events).     "Transfer" shall mean any direct or indirect sale, transfer, pledge, contract to sell, sale of any option or contract to purchase, purchase of any option or contract to sell, grant of any option, right or warrant to purchase, transfer of the economic risk of ownership of, or other disposition.     "Transfer Ceiling" shall be equal to 10% of the Shares commencing on the Closing Date, shall increase to 30% of the Shares commencing on the first anniversary of the Closing Date and shall further increase to 50% of the Shares commencing on the second anniversary of the Closing Date.     "Transfer Restriction Termination Date" shall mean the earlier of (i) the date a Change of Control of the Company occurs, (ii) the date of a Strategic Alliance Agreement Termination or (iii) the third anniversary of the date of this Agreement.     "Voting Stock" shall mean shares of the Company Common Stock and any other securities of the Company having the ordinary power to vote in the election of members of the Board of Directors of the Company.     "Written Approval" shall mean a certificate signed by the Secretary of the Company evidencing Board Approval.     "13D Group" means any group of persons that would be required under Section 13(d) of the Exchange Act, and the rules and regulations promulgated thereunder, to file a statement on Schedule 13D or Schedule 13G with the SEC as a "person" within the meaning of Section 13(d)(3) of the Exchange Act if such group Beneficially Owned Voting Stock representing more than 5% of any class of Voting Stock then outstanding. 5 -------------------------------------------------------------------------------- ARTICLE II STANDSTILL OBLIGATIONS AND TRANSFER RESTRICTIONS     2.1  The Purchaser's Standstill Obligations.       (a) During the Standstill Period, none of Purchaser, any Purchaser Controlled Entity, Affiliate of Purchaser or any 13D Group of which Purchaser or any of its Affiliates is a member shall, without first obtaining Written Approval, directly or indirectly, acquire or Beneficially Own Voting Stock in excess of the Standstill Limit or authorize or make a tender offer, exchange offer or other offer to acquire Voting Stock, if the effect of such acquisition would be to increase the percentage of Total Current Voting Power of the Company represented by all Voting Stock Beneficially Owned by Purchaser, any Purchaser Controlled Entity or Affiliate of Purchaser (and any 13D Group of which Purchaser or any of its Affiliates is a party) to more than the Standstill Limit.     (b) Purchaser shall not be deemed to have violated its covenants under this Section 2.1 solely by virtue of (and only to the extent of) any increase in the aggregate percentage of the Total Current Voting Power of the Company represented by Voting Stock Beneficially Owned by Purchaser, its Purchaser Controlled Entities, or its Affiliates if such increase is the result of a recapitalization of the Company, a repurchase of securities by the Company or other actions taken by the Company or any of its Affiliates that have the effect of reducing the Total Current Voting Power of the Company.     (c) During the Standstill Period, Purchaser shall promptly (and in no case later than 10 calendar days after such event) notify the Company in writing if the aggregate Beneficial Ownership of Voting Stock of Purchaser and its Purchaser Controlled Entities and Affiliates (and any 13D Group of which Purchaser or any of its Affiliates is a party) exceeds the aggregate Beneficial Ownership of Voting Stock specified in Purchaser's most recent prior notice to the Company under this Section 2.1(c) (or if no such notice has yet been given, the aggregate Beneficial Ownership of Voting Stock purchased pursuant to the Purchase Agreement together with the Purchaser's aggregate Beneficial Ownership of Voting Stock as represented and warranted by Purchaser in the Share Purchase Agreement) by more than 1% of the outstanding Voting Stock. Such notice shall specify the amount of Voting Stock Beneficially Owned by Purchaser and its Purchaser Controlled Entities and Affiliates (and any 13D Group of which Purchaser or any its Affiliates is a party) as of the date of the notice. Notwithstanding any provision of this Section 2.1(c) to the contrary, the provisions of this Section 2.1(c) requiring notice to the Company shall be deemed satisfied by the delivery by Purchaser to the Company of any Schedule 13D or Schedule 13G filed by Purchaser with respect to the Voting Stock (or any amendment thereto) provided that such Schedule 13D or Schedule 13G specifies Purchaser's aggregate Beneficial Ownership of Voting Stock.     (d) During the Standstill Period, Purchaser and its Purchaser Controlled Entities and Affiliates (and any 13D Group to which Purchaser and its Affiliates is party) shall not, without first obtaining Written Approval, solicit or participate in any solicitation of proxies with respect to any Voting Stock, nor shall they seek to advise or influence any person with respect to the voting of any Voting Stock (other than as otherwise provided or contemplated by this Agreement).     (e) During the Standstill Period, neither Purchaser or any of its Purchaser Controlled Entities or Affiliates (nor any 13D Group of which Purchaser or any of its Affiliates is party) shall, without first obtaining Written Approval, deposit any Voting Stock in a voting trust or, except as otherwise provided or contemplated herein, subject any Voting Stock to any arrangement or agreement with any third party with respect to the voting of such Voting Stock.     (f)  During the Standstill Period, neither Purchaser nor any of its Purchaser Controlled Entities or Affiliates shall, without first obtaining Written Approval, join a 13D Group (other than a group comprising solely Purchaser and its Affiliates) for the purpose of acquiring, holding, voting or disposing of Voting Stock or Non-Voting Convertible Securities. 6 --------------------------------------------------------------------------------     (g) During the Standstill Period, neither Purchaser nor any of its Purchaser Controlled Entities or Affiliates (nor any 13D Group of which Purchaser or any of its Affiliates is party) shall, without first obtaining Written Approval, act, alone or in concert with others, directly or indirectly, to seek, or state any intention to seek, amendment and rescission of this Agreement or make any proposal to amend, support any proposal to amend or rescind, or publicly comment on any proposal to amend or rescind, the Rights Plan, in the case of each proposal, that is not recommended for approval by the Company's Disinterested Directors.     (h) During the Standstill Period, neither Purchaser nor any of its Purchaser Controlled Entities or Affiliates (nor any 13D Group of which Purchase or any of its Affiliates is party) shall, without first obtaining Written Approval, act, alone or in concert with others, directly or indirectly, to publicly state its intention or desire to acquire the Company or all or a material portion of assets of the Company (including, without limitation, upon expiration of the Standstill Period), engage in transaction that would result in a Change of Control of the Company (including, without limitation, upon expiration of the Standstill Period) or take any other action which would otherwise be prohibited under this Section 2.1.     (i)  During the Standstill Period, neither Purchaser nor any of its Purchaser Controlled Entities or Affiliates (nor any 13D Group of which Purchaser or any of its Affiliates is party) shall, without first obtaining Written Approval, otherwise act, alone or in concert with others, to seek control the management, Board of Directors or policies of the Company.     (j)  Nothing contained in this Section 2.1 shall prevent the Purchaser from (i) making an offer to the Board of Directors to acquire additional shares of Company Common Stock, provided, however, that such offer is made on a confidential basis and would not reasonably be expected to require the Company to make public disclosure of such offer and (ii) from speaking in the ordinary course with other stockholders of the Company, so long as Purchaser complies with the other provisions of this Section 2.1.     2.2  The Purchaser's Transfer Restrictions.       (a) Purchaser shall not (and shall cause any Purchaser Controlled Entity not to), until the Transfer Restriction Termination Date, Transfer any Shares except:      (i) to the Company;     (ii) to a Purchaser Controlled Entity so long as such Purchaser Controlled Entity agrees, by executing a counterpart to this Agreement, to (A) hold such Shares subject to all of the provisions of this Agreement as if it were the Purchaser, and (B) promptly transfer such Shares to Purchaser or another Purchaser Controlled Entity if, prior to the six year anniversary of the Closing Date, it ceases to be a Purchaser Controlled Entity;     (iii) in response to a bona fide public tender offer or exchange offer subject to Regulation 14D or Rule 13e-3 of the rules and regulations promulgated under the Exchange Act for cash or other consideration that is made by or on behalf of the Company;     (iv) in response to a Third Party Tender Offer with respect to which the Board of Directors of the Company shall have recommended to the stockholders of the Company that they accept such offer pursuant to Rule 14d-9 of the rules and regulations promulgated under the Exchange Act and shall have not withdrawn such recommendation prior to such transfer;     (v) in response to an Opposed Tender Offer, provided, however, that Purchaser's tender of shares into such Opposed Tender Offer is expressly conditioned upon receipt by the person making such Opposed Tender Offer of valid tenders which are not revoked or withdrawn as of the "scheduled expiration date" as set forth in the bidder's offer to purchaser or other disclosure pursuant to Item 1004(a)(1)(iii) of Regulation M-A of the rules and regulations promulgated by 7 -------------------------------------------------------------------------------- the SEC, or any extension of such scheduled expiration or the expiration of any "subsequent offering period" as set forth in Rule 14d-11 of the rules and regulations promulgated under the Exchange Act, as the case may be, of shares of Voting Stock representing at least fifty-one percent (51%) of the Total Current Voting Power of the Company by persons other than the Purchaser, any Purchaser Controlled Entity, its Affiliates and any 13D Group of which Purchaser or any of its Affiliates is party.     (vi) in connection with a Change in Control of the Company that has received Board Approval.    (vii) in a Transfer that (A) when taken together with all prior Transfers of Shares by Purchaser and its Affiliates does not exceed the Transfer Ceiling then applicable; (B) is made in compliance with Rule 144 of the rules and regulations promulgated under the Securities Act, pursuant to an effective registration statement filed with the SEC, or pursuant to any other transaction in which the Company has received an opinion of counsel reasonably acceptable to the Company that an exemption from registration is available; and (C) is made without public disclosure other than as may be required pursuant to Rule 144 of the rules and regulations promulgated under the Securities Act, pursuant to disclosure requirements of Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, or under other applicable law, in each case solely to the minimum extent required under such rule, regulation or law, in the Purchaser's reasonable judgment.     (b) Other than Transfers of the type described in Section 2.2(a)(i) through Section 2.2(a)(vi) hereof, Purchaser shall not (and shall cause any Purchaser Controlled Entity not to), until the 54 month anniversary of the Closing Date, Transfer any Shares to any Person or 13D Group in a transaction other than an Open Market Transaction hereunder without first offering such Shares to the Company on the following terms and conditions:      (i) The Purchaser shall give prior written notice (the "Transfer Notice") to the Company in writing of its intention to Transfer Shares, specifying the name of the proposed purchaser or transferee, the number of Shares proposed to be the subject of such Transfer, the proposed price therefor and the other material terms upon which such disposition is proposed to be made.     (ii) The Company shall have the right, exercisable by written notice given by the Company to Purchaser within ten (10) business days after receipt of such Transfer Notice (the "Response Notice"), to purchase all, but not less than all, of the Shares specified in such Transfer Notice for cash at the price per share specified in the Transfer Notice or, if consideration other than cash is specified in the Transfer Notice, in an amount equal to the Fair Market Value of such non-cash consideration. Such right shall not be conditional upon the Company having sufficient financing, at the time the right arises, to purchase the Shares; provided, however, in any event the Company is required to obtain such financing within the time period set forth in Section 2.2(b)(iii).     (iii) If the Company exercises its right of first refusal hereunder, the closing of the purchase of the Shares with respect to which such right has been exercised (the "First First Refusal Closing") shall take place within twenty-five (25) business days after the Company delivers the Response Notice to the Purchaser or, if later due to the need to determine the Fair Market Value of any non-cash consideration, within five (5) business days of such determination of the Fair Market Value of any non-cash consideration. Upon exercise of its right of first refusal, the Company and Purchaser shall be legally obligated to consummate the purchase and sale contemplated thereby and shall use their respective best efforts to secure any approvals required in connection therewith.     (iv) If the Company does not exercise its right of first refusal hereunder within the time specified for such exercise in Section 2.2(b)(ii), the Purchaser shall be free, during the sixty 8 -------------------------------------------------------------------------------- (60) business day period following the expiration of such time for exercise, to Transfer or tender for Transfer those Shares specified in such Transfer Notice with respect to which the Company has not exercised its first refusal rights (but not less than the total number of Shares specified in the Transfer Notice) to the proposed purchaser or transferee specified in such Transfer Notice and on terms not significantly less favorable to the Purchaser than the terms specified in such Transfer Notice.     (v) The Company may assign its right of first refusal under this Section 2.2(b) to any other person or persons except a Purchaser Competitor, provided such persons or persons have the financial ability to complete such purchase, as determined by the Company and Purchaser, each with good faith and in the exercise of its reasonable business discretion. In the event that the Company assigns its right of first refusal under this Section 2.2(b)(v) to any person or persons, such persons or person exercise the right to purchase Shares from the Purchaser pursuant to Section 2.2(b)(ii) and Section 2.2(b)(iii) and such person or persons breaches their obligation to purchase such Shares from Purchaser, the Purchaser may Transfer such Shares in accordance with Section 2.2(b)(iv); provided, however, that in such case the sixty (60) day period shall run from the date of the breach.     (c) Other than Transfers of the type described in Section 2.2(a)(i) through Section 2.2(a)(vi), Purchaser shall not (and shall cause any Purchaser Controlled Entity not to), from the Closing Date until the sixth anniversary of the Closing Date, Transfer any of Shares to any person or 13D Group of which Purchaser has knowledge, after reasonable inquiry, is a Company Competitor (other than through Open Market Transactions).     (d) Other than Transfers of the type described in Section 2.2(a)(i) through Section 2.2(a)(vi) hereof, until the third anniversary of the Closing Date, Purchaser shall not (and shall cause any Purchaser Controlled Entity not to)      (i) Transfer in one or a series of Open Market Transactions (A) more than five percent (5%) of the Shares in any single five (5) consecutive trading day period, or (B) more than two percent (2%) of the Shares in any single trading day;     (ii) Transfer more than fifty percent (50%) of the Shares in any six month period in Open Market Transactions, or Transfer any Shares in a Transfer which is not an Open Market Transaction unless the transferee agrees to be bound by the restrictions set forth in this Section 2.2(d)(ii); or     (iii) Transfer any Shares to any Person or 13D Group of which Purchaser has knowledge, after reasonable inquiry, will hold (including the Shares to be received in the transfer) more than ten percent (10%) of the Current Voting Power of the Company (other than through Open Market Transactions); provided, however, the restrictions set forth in this Section 2.2(d)(iii) shall not apply following a Strategic Alliance Agreement Termination that occurs prior to the third anniversary of the Closing Date.     (e) During the pendency of a Competitor Offer, (i) the restrictions on Transfer set forth in Section 2.2(a) and Section 2.2(d) hereof shall be suspended and (ii) the time period for the Company to provide a Response Notice pursuant to Section 2.2(b)(ii) shall be reduced to five (5) business days after receipt of the Transfer Notice and the time period for the First Refusal Closing shall be reduced to fifteen (15) business days after the Company delivers the Response Notice to Purchaser.     (f)  Any attempted Transfer of any of the Total Shares by a Purchaser, a Purchaser Controlled Entity or any other person that is a party to this Agreement that is not in compliance with this Section 2.2, shall be null and void ab initio. 9 --------------------------------------------------------------------------------     2.3  Company Notice to Purchaser.  In the event that, during the Standstill Period, the Company's Board of Directors resolves to seek a potential acquiror of the Company, and directs the Company's executive officers to seek offers from multiple (three or more) potential acquirors, the Company shall within five (5) days of such resolution give written notice of the Company's intention to seek offers for the acquisition of the Company. Such notice shall be kept confidential by Purchaser pursuant to the terms of the Confidentiality Agreement. ARTICLE III VOTING OBLIGATIONS     3.1  The Purchaser's Voting Obligations.       (a) During the Standstill Period, Purchaser shall take such action as may be required so that all Voting Stock Beneficially Owned by Purchaser (and shall cause any Voting Stock Beneficially Owned by a Purchaser Controlled Entity and shall use commercially reasonable efforts to cause any Voting Stock Beneficially Owned by an Affiliate of Purchaser or any 13D Group of which Purchaser or any Affiliate of Purchaser is a party) is voted or cast in the same manner and proportion as the votes cast by the holders of Voting Stock other than Purchaser, any Purchaser Controlled Entity, any Affiliate of Purchaser and any 13D Group of which Purchaser or any Affiliates of Purchaser is a party, with respect to (i) nominees to the Board of Directors of the Company, and (ii) any proposal of a stockholder of the Company to amend or rescind the Rights Plan or this Agreement.     (b) During the Standstill Period, Purchaser, as a holder of Voting Stock, shall be present, in person or by proxy, (and shall cause any Purchaser Controlled Entity holding Voting Stock to be so present and shall use commercially reasonable efforts to cause its Affiliates holding Voting Stock and any 13D Group of which Purchaser or any Affiliate of Purchaser is a party and which holds Voting Stock to be so present) at all meetings of stockholders of the Company so that all shares of Voting Stock Beneficially Owned by such Persons may be counted for purposes of determining the presence of a quorum at such meetings.     (c) During the Standstill Period, in connection with any merger, consolidation or other reorganization which is approved by the Company's Board of Directors which is proposed to be accounted for as a pooling-of-interests transaction, Purchaser hereby covenants to enter into (and to cause any Purchaser Controlled Corporation to enter into and to use commercially reasonable efforts to cause any Affiliate of Purchaser and any 13D Group of which Purchaser or any Affiliate of Purchaser is a party to enter into) a standard pooling affiliate lock-up agreement if requested by the Company and if required to maintain pooling-of-interests treatment with respect to such transaction (based upon the recommendation of an independent accounting firm retained by either the Company or the potential acquiror of the Company). ARTICLE IV MISCELLANEOUS     4.1  Governing Law; Jurisdiction and Venue.       (a) This Agreement is to be construed in accordance with and governed by the internal laws of the State of Delaware without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of Delaware to the rights and duties of the parties. 10 --------------------------------------------------------------------------------     (b) Any legal action or other legal proceeding relating to this Agreement or the enforcement of any provision of this Agreement may be brought or otherwise commenced in any state or federal court located in the State of Delaware. Each party to this Agreement:      (i) expressly and irrevocably consents and submits to the jurisdiction of each state and federal court located in the State of Delaware (and each appellate court located in the State of Delaware in connection with any such legal proceeding, including to enforce any settlement, order or award;     (ii) agrees that each state and federal court located in the State of Delaware shall be deemed to be a convenient forum; and     (iii) waives and agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any state or federal court located in the State of Delaware, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, that the venue of such proceeding is improper or that this Agreement or the subject matter hereof or thereof may not be enforced in or by such court.     (c) Each party hereto agrees to the entry of an order to enforce any resolution, settlement, order or award made pursuant to this Section 4.1 by the state and federal courts located in the State of Delaware and in connection therewith hereby waives, and agrees not to assert by way of motion, as a defense, or otherwise, any claim that such resolution, settlement, order or award is inconsistent with or violative of the laws or public policy of the laws of the State of Delaware or any other jurisdiction.     4.2  Survival.  The representations, warranties, covenants and agreements made herein shall survive any investigation made by Purchaser and the closing of the transactions contemplated by the Purchase Agreement.     4.3  Assignment.  Except as expressly provided in this Agreement, no party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other parties; provided, however, that Purchaser may, without the prior written approval of the Company, assign this Agreement and its rights and obligations hereunder in connection with a transfer of any Voting Stock as provided in Section 2.2 hereof and, provided, further, the parties agree that, in the event that the reorganization of Commerce One into a holding company structure is consummated, New Commerce One Holding (as the publicly-traded holding company of Commerce One) shall without any further action of the parties automatically assume all of Commerce One's rights and obligations hereunder and, except as the context requires otherwise, all references herein to Commerce One shall be deemed to be references to New Commerce One Holding. Except as expressly provided herein, any assignment of rights or delegation of duties under this Agreement by a party without the prior written consent of other parties shall be void ab initio. Subject to this Section 4.3, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns.     4.4  Third Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and, except as expressly provided herein, are not for the benefit of, nor may any provision hereof or thereof be enforced by, any other Person.     4.5  Entire Agreement; Amendment.  This Agreement and the agreements referred to herein constitute the full and entire understanding and agreement between the parties with regard to the subject hereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein and in the agreements referred to herein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought. 11 --------------------------------------------------------------------------------     4.6  Notices, etc.  All notices and other communications required or permitted hereunder shall be made in the manner and to the addresses set forth in the Purchase Agreement.     4.7  Delays or Omissions.  Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to a party under this Agreement shall impair any such right, power or remedy nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of 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 or default theretofore or thereafter occurring.     4.8  Expenses.  Except as otherwise specifically provided herein, the Company and Purchaser shall bear their own expenses incurred with respect to this Agreement and the transactions contemplated hereby.     4.9  Specific Performance.  The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific intent or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions, without bond, to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which they may be entitled by law or equity, and any party sued for breach of this Agreement expressly waives any defense that a remedy in damages would be adequate.     4.10  Stop Transfer Orders; Legends.  The stock certificates representing the Shares shall bear legends, and be subject to stop transfer orders as provided in the Purchase Agreement.     4.11  Further Assurances.  The parties hereto 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 or documents as any other party may reasonably request from time to time in order to carry out the intent and purposes of this Agreement and the consummation of the transactions contemplated hereby. Neither the Company nor Purchaser shall voluntarily undertake any course of action inconsistent with satisfaction of the requirements applicable to them set forth in this Agreement and each shall promptly do all such acts and take all such measures as may be appropriate to enable them to perform as early as practicable the obligations herein and therein required to be performed by them.     4.12  Facsimile; Counterparts.  This Agreement may be executed by facsimile and in any number of counterparts, all of which together shall constitute one and the same instrument. This Agreement shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered to the other parties, it being understood that all parties need not sign the same counterpart.     4.13  Severability.  In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided, however, that no such severability shall be effective if it materially changes the economic impact of this Agreement on any party.     4.14  Interpretation.       (a) The various section headings are inserted for purposes of reference only and shall not affect the meaning or interpretation of this Agreement or any provision hereof. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms.     (b) Each party hereto acknowledges that it has been represented by competent counsel and participated in the drafting of this Agreement, and agrees that any applicable rule of construction to 12 -------------------------------------------------------------------------------- the effect that ambiguities are to be resolved against the drafting party shall not be applied in connection with the construction or interpretation of this Agreement.     (c) When a reference is made in this Agreement to a Section, Exhibit or Schedule, such reference shall be to a Section of, Exhibit to or Schedule to this Agreement unless otherwise indicated.     (d) When a reference is made to a statute, rule, regulation or form, such reference shall be deemed to be a reference to such statute, rule, regulation or form as it may, from time to time, be in effect, amended, or superceded by a successor statute, rule, regulation or form.     4.15  Attorneys' Fees.  In any action at law or suit in equity in relation to this Agreement, the prevailing party in such action or suit shall be entitled to receive a reasonable sum for its attorneys' fees and all other reasonable costs and expenses incurred in such action or suit. [The remainder of this page intentionally left blank] 13 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.     COMMERCE ONE, INC.     By: /s/ PETER F. PERVERE    -------------------------------------------------------------------------------- Name: Peter F. Pervere Title: Senior Vice President and Chief Financial Officer     NEW COMMERCE ONE HOLDING, INC.     By: /s/ PETER F. PERVERE    -------------------------------------------------------------------------------- Name: Peter F. Pervere Title: Senior Vice President and Chief Financial Officer     SAP AG     By: /s/ WERNER BRANDT    -------------------------------------------------------------------------------- Name: Werner Brandt Title:     By: /s/ MICHAEL JUNGE    -------------------------------------------------------------------------------- Name: Michael Junge Title: General Counsel [Signature page to Amended and Restated Standstill and Stock Restriction Agreement] -------------------------------------------------------------------------------- QuickLinks TABLE OF CONTENTS AMENDED AND RESTATED STANDSTILL AND STOCK RESTRICTION AGREEMENT ARTICLE I DEFINITIONS ARTICLE II STANDSTILL OBLIGATIONS AND TRANSFER RESTRICTIONS ARTICLE III VOTING OBLIGATIONS ARTICLE IV MISCELLANEOUS

EXHIBIT 10(a)(4) Huntington The Huntington National Bank 18000 Jefferson Park Drive - Suite 102 Middleburg Heights, Ohio 44130 216 515-0362 Fax 216 515-0179 August 1,200l Gregory M. Zoloty Vice President Hickok Incorporated 10514 Dupont Avenue Cleveland, Ohio 44108-1399 Dear Mr. Zoloty: Currently Hickok Inc.‘s credit agreement requires the company to maintain $7MM in working capital. Due to a downturn in business, the company projects violating the covenant at 6-30-01 (which is their third quarter) when working capital is projected to be $6.9MM. Company prepared projections show the company being in compliance by 9-30-O1. Huntington National Bank will amend the working capital covenant to $6MM until 12-31-01 at which time it will revert to $7MM. Please acknowledge acceptance of this amendment by signing the enclosed copy of this letter and return to me in the enclosed envelope. Sincerely, /s/ TERRY D. CORENO Terry D. Coreno Vice President Bob Bauman /s/ ROBERT L. BAUMAN 8/3/01 Agree to the amendment above Date

  EXHIBIT 10.7 EMPLOYMENT AGREEMENT      This EMPLOYMENT AGREEMENT (the “Agreement”) is entered into by and between Washington Gas Light Company (the “Company” or the “Utility”) and James H. DeGraffenreidt, Jr. (the “Executive”), as of the 14th day of December, 2001. RECITALS      The Board of Directors of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company or its parent company, WGL Holdings, Inc. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control of the Company or WGL Holdings, Inc., to encourage the Executive’s full attention and dedication to the interests of the Company currently and in the event of any threatened or pending Change of Control of the Company or WGL Holdings, Inc. and to provide the Executive with compensation and benefits arrangements upon such a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. AGREEMENT      NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:      1.      Certain Definitions. (a) The “Effective Date” shall mean the first date during the Change of Control Period (as defined in Section l(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive’s employment with the Company is terminated within twelve months prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the “Effective Date” shall mean the date immediately prior to the date of such termination of employment. 1 --------------------------------------------------------------------------------        (b)      The “Change of Control Period” shall mean the period commencing on the date hereof and ending on the second anniversary of the Effective Date.        2.      Change of Control. For the purpose of this Agreement, a “Change of Control” shall mean:        (a)     The acquisition by any 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 (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i) the then-outstanding shares of common stock of WGL Holdings, Inc. or (ii) the combined voting power of the then-outstanding voting securities of WGL Holdings, Inc. entitled to vote generally in the election of directors; provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from WGL Holdings, Inc., (ii) any acquisition by WGL Holdings, Inc. or any corporation controlled by or otherwise affiliated with WGL Holdings, Inc., (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by WGL Holdings, Inc. or any corporation controlled by or otherwise affiliated with WGL Holdings, Inc.; or (iv) any transaction described in clauses (i), (ii), and (iii) of subsection (d) of this Section 2; or        (b)     Individuals who, as of the close of business on November 1, 2000, constituted the Board of Directors of WGL Holdings, Inc. (the “Incumbent WGL Holdings, Inc. Board”) cease for any reason to constitute at least a majority of the Board of Directors of WGL Holdings, Inc.; provided, however, that any individual becoming a director subsequent to November 1, 2000 whose election, or nomination for election by WGL Holdings, Inc.’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent WGL Holdings, Inc. Board shall be considered as though such individual were a member of the Incumbent WGL Holdings, Inc. Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Incumbent WGL Holdings, Inc. Board; or        (c)     The acquisition by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i) the then-outstanding shares of common stock 2 --------------------------------------------------------------------------------     of the Utility or (ii) the combined voting power of the then-outstanding voting securities of the Utility entitled to vote generally in the election of directors, provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Utility, (ii) any acquisition by the Utility or any corporation controlled by or otherwise affiliated with the Utility, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Utility or any corporation controlled by or otherwise affiliated with the Utility; or (iv) any transaction described in clauses (i) and (ii) of subsection (e) of this Section 2; or        (d)     Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the WGL Holdings, Inc. (a “Business Combination”), in each case unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding WGL Holdings, Inc. common stock and outstanding WGL Holdings, Inc. voting securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the outstanding WGL Holdings, Inc. common stock and outstanding WGL Holdings, Inc. voting securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of WGL Holdings, Inc. or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 30% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination, or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent WGL Holdings, Inc. Board at the time of the execution of the initial agreement, or of such Incumbent WGL Holdings, Inc. Board, providing for such Business Combination; or        (e)     Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Utility (a “Utility Business Combination”), in each case 3 --------------------------------------------------------------------------------     unless, following such Utility Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, directly or indirectly, respectively, of the outstanding Utility common stock and the outstanding Utility voting securities immediately prior to such Utility Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Utility Business Combination in substantially the same proportions as their ownership, immediately prior to such Utility Business Combination, of the outstanding Utility common stock and outstanding Utility voting securities, as the case may be, and (ii) no Person (excluding any corporation resulting from such Utility Business Combination or any employee benefit plan (or related trust) of the Utility or such corporation resulting from such Utility Business Combination) beneficially owns, directly or indirectly, 30% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Utility Business Combination, or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Utility Business Combination; or        (f)     Approval by the shareholders of WGL Holdings, Inc. of a complete liquidation or dissolution of WGL Holdings, Inc.      3.     Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the second anniversary of such date (the “Employment Period”).      4.     Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive’s position, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive’s services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location; and      (ii)      During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge 4 --------------------------------------------------------------------------------   the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of the activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive’s responsibilities to the Company.      (b)      Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary (“Annual Base Salary”), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the 12-month period immediately preceding the month in which the Effective Date occurs. As used herein, “Annual Base Salary” will include all wages or salary paid to the Executive and will be calculated before any salary reduction or deferrals, including but not limited to reductions made pursuant to Sections 125 and 401(k) of the Internal Revenue Code of 1986, as amended. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term “affiliated companies” shall include any company controlled by, controlling or under common control with the Company.      (ii)      Annual Incentive. In addition to Annual Base Salary, the Executive shall earn annual incentive compensation (the “Annual Incentive”) for each fiscal year ending during the Employment Period, at least equal to that available to other peer executives of the Company and its affiliated companies. Each such Annual Incentive shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Incentive is awarded, unless the Executive shall elect to defer the receipt of such Annual Incentive. In the event the Executive is terminated during the 5 --------------------------------------------------------------------------------   Employment Period, the Executive’s Annual Incentive for the most recent year shall be prorated for the portion of that year that the Executive worked in the manner set forth in Section 6(a)(i)(A)(2).      (iii)      Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.      (iv)      Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive’s beneficiaries, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.      (v)     Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 6 --------------------------------------------------------------------------------        (vi)     Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.      (vii)      Office. During the Employment Period, the Executive shall be entitled to an office at least equal to that of other peer executives of the Company and its affiliated companies.      (viii)      Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.      5.     Termination of Employment. (a) Death or Disability. The Executive’s employment shall terminate automatically upon the Executive’s death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties. For purposes of this Agreement, “Disability” shall mean the absence of the Executive from the Executive’s duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative.      (b)      Cause. The Company may terminate the Executive’s employment during the Employment Period for Cause. For purposes of this Agreement, “Cause” shall mean: 7 --------------------------------------------------------------------------------          (i)     the willful and continued failure of the Executive to perform substantially the Executive’s duties with the Company or one of its affiliates (other than any such failure from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive’s duties, or        (ii)     the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Company. 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 the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the 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 such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.      (c)  Good Reason. The Executive’s employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, “Good Reason” shall mean:        (i)     the assignment to the Executive of any duties inconsistent in any material respect with the Executive’s position as contemplated by Section 4(a) of this Agreement, excluding for this purpose an isolated, insubstantial and inadvertent action which is remedied by the Company promptly after receipt of notice thereof given by the Executive;        (ii)     any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure which is remedied by the Company promptly after receipt of notice thereof given by the Executive; 8 --------------------------------------------------------------------------------          (iii)     if there is a Change of Control, merger, acquisition or other similar affiliation with another entity and Executive does not continue as the Chairman and Chief Executive Officer of the most senior resulting entity;        (iv)     failure by the Company to reimburse the Executive for expenses related to a required relocation;        (v)     any required relocation of the Executive more than thirty five miles from Washington, D.C., other than on a temporary basis (less than two months);        (vi)     any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement; or        (vii)     any failure by the Company to comply with and satisfy Section 11 (c) of this Agreement.      (d)      Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.      (e)      Date of Termination. “Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive’s employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive’s employment is 9 --------------------------------------------------------------------------------   terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be.      6.     Obligations of the Company upon Termination During Employment Period. (a) Good Reason, Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive’s employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason:        (i)     the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts:        A.      the sum of (1) the Executive’s Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the Target Annual Incentive (as defined in the Executive Compensation Plan of the Company) in the fiscal year of the Executive’s Termination and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not therefore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the “Accrued Obligations”); and        B.     Subject to the provisions of Section 9, the amount equal to three times the Executive’s Highest Pay. For purposes of this Agreement, Highest Pay shall mean the sum of (1) the Executive’s Annual Base Salary, plus (2) the highest of the Executive’s Annual Incentive actually earned for the last three full fiscal years.        (ii)     for three years after the Executive’s Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive’s beneficiaries at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive’s employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the 10 --------------------------------------------------------------------------------     Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. After this three-year term, the Executive shall immediately be eligible for COBRA benefits. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period;        (iii)     to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”);        (iv)     the Company shall credit the Executive with up to an additional three years of benefit service under the Company’s Supplemental Executive Retirement Plan (the “SERP”), but in no event shall such additional years of benefit service result in total years of benefit service exceeding the maximum under the SERP;        (v)     the Company shall, at its sole expense as incurred, provide the Executive with reasonable outplacement services the scope and provider of which shall be selected by the Executive in the Executive’s sole discretion; and        (vi)     immediately prior to termination of the Executive’s employment, all restricted stock grants made to the Executive which are outstanding at the time of such event shall be accelerated and vest.      (b)      Death. If the Executive’s employment is terminated by reason of the Executive’s death during the Employment Period, this Agreement shall terminate without further obligations to the Executive’s legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executive’s estate and/or 11 --------------------------------------------------------------------------------   beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peers and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive’s estate and/or the Executive’s beneficiaries, as in effect on the date of the Executive’s death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries.      (c)      Disability. If the Executive’s employment is terminated by reason of the Executive’s Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term “Other Benefits” as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive’s beneficiaries, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families.      (d)      Cause: Other than for Good Reason. If the Executive’s employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) the Executive’s Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.      7.     Nonexclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, 12 --------------------------------------------------------------------------------   program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement.      8.     Full Settlement. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment.      9.     Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.      (b)      Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by such certified public accounting firm as may be designated by the Company 13 --------------------------------------------------------------------------------   (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Company shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (“Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.      (c)      In the event the Internal Revenue Service (“IRS”) subsequently challenges the Excise Tax computation herein described, then the Executive shall notify the Company in writing of any claim by the IRS that, if successful, would require the payment by the Executive of additional Excise Taxes. Such notification shall be given no later than ten days after the Executive receives written notice of such claim. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which the Executive gives notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim and that it will bear the costs and provide the indemnification as required by this sentence, the Executive shall cooperate with the Company in good faith in order effectively to contest such claim and permit the Company to participate in any proceedings relating to such claim. In the event a final determination is made with respect to the IRS claim, or in the event the Company chooses not to further challenge such claim, then the Company shall reimburse the Executive for the additional Excise Tax owed to the IRS in excess of the Excise Tax calculated by the Accounting Firm. The Company shall also reimburse the Executive for all interest and penalties related to the underpayment of such Excise Tax. The 14 --------------------------------------------------------------------------------   Company will also reimburse the Executive for all federal and state income tax and employment taxes thereon.      10.     Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive’s employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive’s employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.      11.     Successors & Assigns. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.      (b)      This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.      (c)      The Company will require any successor or any party that acquires control of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company or any party that acquires control of the Company to assume expressly 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. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.      12.     Miscellaneous. (a) Governing Law; Headings; Amendment. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended 15 --------------------------------------------------------------------------------   or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.      (b)  Notices. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:   If to the Executive: at the address for Executive that is on file with the Company   If to the Company: Washington Gas Light Company 1100 H Street, N.W. Washington, D.C. 20080 ATTN: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.      (c)      Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.      (d)      Withholding. The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.      (e)      Waiver. The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right under this Agreement.      (f)      At Will Employment. The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is “at will” and, subject to Section l(a) hereof, prior to the Effective Date, the Executive’s employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights 16 --------------------------------------------------------------------------------   under this Agreement. From and after the Effective Date this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof.      (g)      Arbitration. In the event of any dispute between the parties regarding this Agreement, the parties shall submit to binding arbitration, conducted in Washington, DC or in Virginia within 25 miles of Washington, DC. The arbitration shall be conducted pursuant to the rules of the American Arbitration Association. Each of the parties shall select one arbitrator, who shall not be related to, affiliated with or employed by that party. The two arbitrators shall, in turn, select a third arbitrator. The decision of any two of the arbitrators shall be binding upon the parties, and may, if necessary, be reduced to judgment in any court of competent jurisdiction. Notwithstanding the foregoing, the parties expressly agree that nothing herein in any way precludes Company from seeking injunctive relief or declaratory judgment through a court of competent jurisdiction with respect to a breach (or an alleged breach) of any covenant not to compete or of any confidentiality covenant contained in this Agreement. In the event the Executive pursues arbitration pursuant to this Section herein, the Executive shall be compensated up to $150,000 in legal costs.      (h)      Pooling of Interests Accounting. In the event any provision of this Agreement would prevent the use of pooling of interests accounting in a corporate transaction involving the Company and such transaction is contingent upon pooling of interests accounting, then that provision shall be deemed amended or revoked to the extent required to preserve such pooling of interests. The Executive will, upon advice from the Company, take (or refrain from taking, as appropriate) all actions necessary or desirable to ensure that pooling of interests accounting is available.      (i)     Effect of Prior Agreements. This Agreement contains the entire understanding between the parties hereto and supersedes the Employment Agreement dated November 1, 2000 between the Company and the Executive. 17 --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.       --------------------------------------------------------------------------------   Name: James H. DeGraffenreidt, Jr.       WASHINGTON GAS LIGHT COMPANY         -------------------------------------------------------------------------------- By: Daniel J. Callahan, III Title: Chairman           Human Resources Committee 18

Consulting Agreement This Consulting Agreement is made as of May 4, 2001, between CTN Media Group, Inc., a Delaware corporation (“CTN”), and C. Thomas McMillen (“Consultant”). In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Consulting Relationship:  CTN hereby hires Consultant upon the terms and conditions set forth in this Agreement for the period beginning on the date hereof and ending as provided in Paragraph 4 hereof (the “Consulting Period”).     2. Position and Duties:  During the Consulting Period, Consultant shall provide services to CTN in connection with sales and promotions specifically attempting to secure sales from contacts of Consultant.  Prior to contacting any prospect or accepting any deal, Consultant shall obtain the consent of CTN, through Tom Rocco. 3.          Base Compensation and Benefits.   a. Consultant shall receive a percentage commission (the “Commission Bonus”) equal to ten percent (10%) of any net revenue (after any applicable agency fees), including barter revenue, actually received by CTN from new sales procured by Consultant for CTN, which is entered into during the Consulting Period (“Commissionable Receipts”).  The Commission Bonus shall be paid to Consultant monthly for Commissionable Receipts for the previous month.  CTN shall provide an accounting of earned Commission Bonuses to Consultant on a monthly basis during the Consulting Period and at least every twelve (12) months after the Consulting Period has expired (the “Expiration Date”).  After the Expiration Date, Consultant shall be entitled to the ten percent (10%) Commission Bonus for the remaining term of any advertising contract in existence on the Expiration Date, and a five percent (5%) Commission Bonus (rather than 10%) for the first written renewal contract for an advertiser for which Consultant previously was paid a Commission Bonus during the Consulting Period of this Agreement.  In addition to the Commission Bonus, if Commissionable Receipts during the term of this Agreement exceed $500,000, Consultant shall receive an additional $10,000 bonus and if the Commissionable Receipts during the term of this Agreement exceed $1,000,000, Consultant shall receive an additional $25,000 bonus.         b. CTN shall reimburse Consultant for reasonable pre-approved expenses incurred in the course of performing the duties under this Agreement in accordance with CTN's policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to CTN's requirements with respect to reporting and documentation of such expenses.  However, in no event shall such expenses be reimbursed by CTN prior to the closing of the sale generated by Consultant to which the expenses relate.       4. Term:  The "Consulting Period" shall commence on May 4, 2001 (the “Effective Date”) and shall terminate upon ten (10) days written notice by either party to the other.   5. Confidential Information: The Consultant acknowledges that the information, observations and data obtained by him while performing services for CTN concerning the business or affairs of CTN (“Confidential Information”) are the property of CTN. Therefore, Consultant agrees that, except in the performance of duties for CTN, that Consultant shall not during the Consulting Period or for two (2) years after the termination of this Agreement, for any reason whatsoever, disclose to any unauthorized person or use for his own account any Confidential Information without prior written consent of CTN, except (i) to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of Consultant's wrongful acts or wrongful omissions to act, (ii) as necessary to comply with compulsory legal process, provided that Consultant shall provide prior notice to CTN regarding such disclosure and CTN, as applicable, shall have the right to contest such disclosure, (iii) as necessary to counsel and other professional advisors retained by the Consultant, subject to the attorney/client privilege or a valid and binding non–disclosure agreement between Consultant and such professional and (iv) disclosures of information obtained from a third party free of restrictions or disclosure of information in Consultant's possession prior to the date hereof which was obtained from a source other than CTN or its predecessors. Consultant shall deliver to CTN at CTN’s request and expense, at the termination of this Agreement, all memoranda, notes, plans, records, reports, computer tapes and software and other documents and data (and copies thereof) relating to Confidential Information, Work Product or the business of CTN which it may then possess or have under its or his control.         6. Inventions and Patents: Consultant agrees that all ideas, concepts, marketing strategies, management techniques, product development, methods, designs, analyses, drawings, reports, and all similar or related information which relates to CTN actual or anticipate business, research and development or existing or future products or services and which are conceived, developed or made by Consultant while performing services for CTN (“Work Product”) belong to CTN.  Consultant will promptly disclose such Work Product to CTN and perform all actions reasonably requested by CTN (whether during or after the Consulting Period) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments).         7. Non-Compete, Non-Solicitation.           a. Consultant acknowledges that in the course of providing services for CTN he will become familiar with CTN's trade secrets and with other confidential information concerning CTN and that his services will be of special, unique and extraordinary value to CTN. Therefore, Consultant agrees that, during the Consulting Period and for two years after the termination of this Agreement, such termination being for any reason whatsoever (the “Non-Compete Period”), he shall not directly or indirectly own, manage, control, consult with, render services for, or in any other manner engage in any business competing with the businesses of CTN, which is an information or entertainment network and which has as its primary business marketing to colleges or universities (the “Business”) within any geographical area in which CTN engages or plans to engage in such businesses, which is expected to be the United States of America.  Notwithstanding the foregoing, nothing herein shall prohibit Consultant from being a passive owner of not more than 5% of the outstanding stock of any class of a company which is publicly traded that competes with the Business, so long as Consultant has no active participation in the management or the business of such company.     b. During the Non-Compete Period, Consultant shall not directly or indirectly, on behalf of any Person in the Business solicit, encourage, entice or induce (or attempt to do any of the foregoing) a customer of Company with whom Consultant had contact while providing services for CTN to cease doing business with Company.         c. During the Consulting Period and for eighteen (18) months thereafter, Consultant shall not directly or indirectly through another entity (i) knowingly solicit, encourage, entice or induce or attempt to induce any employee of the company to leave the employ of CTN, or in any way interfere with the relationship between CTN and any employee thereof, (ii) knowingly hire any person who was an employee of CTN at any time during the Consulting Period or (iii) knowingly induce or attempt to induce any customer, supplier, licensee or other business relation of CTN or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and CTN.       8. Enforcement.:  If, at the time of enforcement of paragraphs 5, 6 or 7 of this Agreement, a court holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope and area. Because Consultant’s services are unique and because the Consultant has access to Confidential Information and Work Product, the parties hereto agree that money damages would be an inadequate remedy for any breach of this Agreement. Therefore, in the event a breach or threatened breach of this Agreement, CTN or its successors or assigns may, in addition to other rights and remedies existing in their favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce, or prevent any violations of, the provision hereof (without posting a bond or other security).       9. Consultant Representations:  Consultant hereby represents and warrants to CTN that (i) the execution, delivery and performance of this Agreement by Consultant does not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which Consultant is a party or by which he is bound, (ii) Consultant is not a party to or bound by any consulting agreement, employment agreement, non–compete agreement or confidentiality agreement with any other person or entity, except as previously disclosed to the Company, which would prohibit his performance under this Agreement, and (iii) upon the execution and delivery of this Agreement to the Company, this Agreement shall be valid and binding obligation of Consultant, enforceable in accordance with its terms.       10. Notices:  Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, mailed by first class mail (postage prepaid and return receipt requested) or sent by telecopy or reputable overnight courier service (charges prepaid) to the recipient at the address or telecopy number below indicated:       a. Notice to Consultant:     C. Thomas McMillen     8401 Corporate Drive     Suite 550     Landover, MD  20785     b. Notices to CTN:     CTN Media Group, Inc.     3350 Peachtree Road, Suite 1500     Atlanta, Georgia  30326     Telecopy No.: (404) 257-9517     Attention:  Neil H. Dickson Or such other address or telecopy number or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party, any notice under this Agreement will be deemed to have been given when so delivered or sent or, if mailed, five days after deposit in the U.S. Mail. 11. Severability:  Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective and valid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.     12. Complete Agreement:  This Agreement and those documents expressly referred to herein and other documents of even date herewith embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.  This Agreement supersedes any previous Consulting Agreements between Consultant and CTN.  This Agreement is governed under the laws of the state of Georgia.     13. Counterparts:  This Agreement may be executed in separate counterparts, each of which to be an original and all of which taken together constitute one and the same agreement.     14. Successors and Assigns:  This Agreement is intended to bind and inure to the benefit of and be enforceable by all parties and their respective heirs, successors and assigns, except that Consultant nor CTN may not assign its rights or delegate his obligations hereunder without the prior written consent of the other party.     15. Amendment and Waiver:  The provisions of this Agreement may be amended or waived with the prior written consent of CTN and Consultant, and no course of conduct or failure or delay in enforcing the provisions of this Agreement shall affect the validity, binding effect or enforceability of this Agreement.     16. Independent Contractor:  Consultant does hereby agree and acknowledge that he is an independent contractor, which controls his own day-to-day activities and is not an employee, joint venturer or partner of CTN.  Further, the Consultant shall not have the ability to bind CTN and all advertising sold must be approved by CTN. Consultant shall indemnify and hold harmless CTN for any taxes owed by Consultant which may be assessed against CTN. In Witness Whereof, the parties hereto have executed this Agreement as of the date first written above.     CTN MEDIA GROUP, INC.             By:              /s/ Neil H. Dickson       --------------------------------------------------------------------------------   Its:              Executive Vice President       --------------------------------------------------------------------------------       5/21/01           Consultant:                            /s/ C. Thomas McMillen     --------------------------------------------------------------------------------   C. Thomas McMillen 5/21/01  

UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Vermont Yankee Nuclear Power Corporation Boylston Municipal Light Department, et al.,            v. Vermont Yankee Nuclear Power Corporation, et al. ) ) ) ) ) ) ) ) ) ) ) ) ) Docket Nos. EC00-46-000, EC00-46-01, ER00-1027-000, ER00-1027-001, ER00-1027-002, ER00-1028-000, ER00-1028-001, ER00-1029-000, and ER00-1029-001 Docket No. EL00-86-000   SETTLEMENT AGREEMENT Article I BACKGROUND 1.1       Parties             This Settlement Agreement ("Agreement") dated June 25, 2001, is made and sponsored jointly by and among Vermont Yankee Nuclear Power Corporation ("Vermont Yankee"), Cambridge Electric Light Company, Central Vermont Public Service Corporation, Central Maine Power Company, The Connecticut Light and Power Company, Green Mountain Power Corporation, New England Power Company, Public Service Company of New Hampshire, and Western Massachusetts Electric Company (the foregoing eight parties being referred to herein collectively as the "Sponsors"), the Vermont Department of Public Service ("VDPS"), Boylston Municipal Light Department, Braintree Electric Light Department, City of Chicopee Municipal Lighting Plant, Danvers Electric Division, Georgetown Municipal Light Department, Hingham Municipal Light Plant, City of Holyoke Gas & Electric Department, Hudson Light and Power Department, Hull Municipal Lighting Plant, Ipswich Municipal Light Department, Marblehead Municipal Light Department, Middleborough Gas and Electric Department, Middleton Municipal Light Department, North Attleborough Electric Department, Paxton Municipal Light Department, Peabody Municipal Light Plant, Shrewsbury's Electric Light Plant, Sterling Municipal Light Department, Taunton Municipal Lighting Plant, Wakefield Municipal Light Department, West Boylston Municipal Lighting Plant, and Westfield Gas & Electric Light Department (the foregoing twenty-two parties being referred to collectively herein as the "Massachusetts Municipals"), the Connecticut Municipal Electric Energy Cooperative ("CMEEC"), and, solely with respect to Article II and Article VI hereof, Vermont Electric Power Company ("VELCO"). Each of the foregoing signatories is referred to herein as a "Party" and they are referred to collectively herein as the "Parties." 1.2       Factual Background (A)       Commission Proceedings             On January 6, 2000, Vermont Yankee, VELCO, and AmerGen Vermont filed with the Commission certain applications and rate schedules associated with the proposed sale of the Vermont Yankee Nuclear Power Station (the "Plant"). Vermont Yankee currently sells the entire output of the Plant at wholesale to the Sponsors pursuant to wholesale power contracts on file with the Commission (the "Power Contracts"), and a portion of that output is resold by certain Sponsors to the Massachusetts Municipals, CMEEC, and other municipal and cooperative utilities pursuant to wholesale power contracts on file with the Commission (the "Secondary Power Contracts"). The rate schedules filed with the January 6, 2000 application included amendments to the Power Contracts to effect changes associated with the proposed sale of the Plant (the "2000 Amendatory Agreements"). On June 29, 2000, the Commission issued an order in Docket Nos. EC00-46-000, et al., granting the authorizations required under section 203 of the Federal Power Act, 16 U.S.C. Section 824b, in connection with the proposed sale of the plant, accepting the associated rate schedules for filing, and establishing hearing procedures and an investigation with respect to the 2000 Amendatory Agreements. Vermont Yankee Nuclear Power Corp., 91 FERC Paragraph 61,325 (2000) ("June 29 Order"). On July 31, 2000, the Massachusetts Municipals filed a petition for rehearing and request for clarification of the June 29 Order.             On June 22, 2000, the Massachusetts Municipals filed a Complaint against Vermont Yankee and the Sponsors, alleging that Vermont Yankee had improperly collected certain transaction costs associated with the proposed sale of the Plant under the Power Contracts' formula rates and that the Massachusetts Municipals were entitled to certain refunds of amounts they had paid into Vermont Yankee's decommissioning trust funds. On August 31, 2000, the Commission issued an order in Docket No. EL00-86-000 setting the complaint for investigation and hearing and consolidating those proceedings with the proceeding in Docket No. ER00-1029-000 established in the June 29 Order. Boylston Municipal Light Dep't, et al. v. Vermont Yankee Nuclear Power Corp., 92 FERC Paragraph 61,185 (2000) ("August 31 Order").             The consolidated proceedings were assigned to Presiding Administrative Law Judge Jacob Leventhal for hearing. At the participants' request, Administrative Law Judge Joseph R. Nacy was appointed as a Settlement Judge. Proceedings before Judge Leventhal were suspended. (B)       Termination of Sale and Settlement             The Parties and other participants in these consolidated proceedings have negotiated with the assistance of Judge Nacy and the Commission's Trial Staff to resolve their differences. During the course of those negotiations, the agreements for the sale of the Plant to AmerGen and the sale of certain transmission switchyard facilities to VELCO were terminated, following the failure of that transaction to obtain a necessary regulatory approval from the Vermont Public Service Board.             As a result of the negotiations, the Parties have reached agreement on a settlement that would resolve (or defer to future proceedings) all pending issues in these consolidated proceedings. All terms of that settlement are set forth in this Agreement. Article II WITHDRAWAL OF APPLICATIONS AND TERMINATION OF PROCEEDINGS RELATING TO THE PROPOSED SALE OF THE PLANT 2.1       In light of termination of the agreements for the proposed sale of the Plant to AmerGen and certain transmission switchyard facilities to VELCO, and upon Commission Acceptance (i.e., final acceptance or approval of this Agreement without modification in accordance with Section 6.6 below), the Parties agree as follows:   2.1.1   The applications filed on June 6, 2000, as amended, in Docket Nos. EC00-46-000, et al., that were the subject of the June 29 Order, including, without limitation, the 2000 Amendatory Agreements, shall be deemed by the filing and Commission Acceptance of this Agreement to be withdrawn by the applicants; 2.1.2   All requests for rehearing of the June 29 Order shall be deemed by the filing and Commission Acceptance of this Agreement to be withdrawn; 2.1.3   The Complaint filed by the Massachusetts Municipals on June 22, 2000 in Docket No. EL00-86-000 that was the subject of the August 31 Order shall be deemed by the filing and Commission Acceptance of this Agreement: (a) to be satisfied and dismissed with respect to the claim regarding transaction costs, in accordance with Commission Rule 206(j); and (b) to be withdrawn without prejudice (as provided in Section 3.1.4) by the complainants with respect to all other claims; and 2.1.4   The submission of this Agreement should be treated by the Commission as a request by the Parties that the Commission vacate the June 29 Order and the August 31 Order and the Parties agree to urge the Commission to take that action. 2.2       The Parties agree that the withdrawal of applications, complaints and other pleadings in accordance with Section 2.1 is without prejudice to the right of any Party to submit in the future any application, complaint or other pleading and to take any position or present any claim or argument therein in connection with any new transaction for the sale or other disposition of the Plant. Article III REFUND ELIGIBILITY AND TRANSACTION COSTS 3.1       Pursuant to Section 3.2 and Section 4.2, Vermont Yankee shall provide certain refunds and credits to the Sponsors and to certain wholesale customers of the Sponsors. The Parties agree that the eligibility for and certain aspects of the mechanics of those refunds and credits will be determined in accordance with the provisions of this Section 3.1.   3.1.1   Any customer with obligations and entitlements to purchase a specified percentage share of the power and energy produced by the Plant and to pay a like percentage of Vermont Yankee's costs pursuant to a contract with one or more Sponsors (or with an intermediary acting on behalf of one or more Sponsors) entered into on or before January 1, 1983, and whose obligations and entitlements relating to the Plant expire, by the terms of the contract in effect as of the date of this Agreement, on or before January 1, 2003, shall be eligible for credits pursuant to Section 3.2 and Section 4.2, provided the customer makes a timely election pursuant to Section 3.1.2. 3.1.2   Any customer eligible under Section 3.1.1 shall, within twenty (20) days of the submission of this Agreement to the Commission, notify Vermont Yankee in writing if it elects to receive the refunds and credits pursuant to Section 3.2 or Section 4.2, or both. Such notifications may be made on behalf of eligible customers by their legal or other representatives. Each customer making such a timely election is referred to herein as an "Electing Short-Term Purchaser" or "ESP." 3.1.3   The Sponsors and Vermont Yankee, as billing agent for certain Sponsors under their contracts with the ESPs, shall provide the credits provided for in Section 3.2 or Section 4.2 or both, in accordance with the election of each ESP, directly to the ESPs in accordance with those provisions. If an ESP is billed by another entity (other than Vermont Yankee) on behalf of one or more Sponsors, such Sponsors shall cause the billing entity to provide such ESP its appropriate share of the credit provided to the Sponsor by Vermont Yankee in Section 3.2 and/or Section 4.2, as applicable, in accordance with those provisions and the billing terms of the contract between the billing entity and the ESP. If an ESP is billed directly by an individual Sponsor, such Sponsor shall provide such ESP its appropriate share of the credit provided to the Sponsor by Vermont Yankee in Section 3.2 and/or Section 4.2, as applicable, in accordance with those provisions and the billing terms of the contract between the Sponsor and the ESP. 3.1.4   The election of an ESP under Section 3.1.2 shall be without prejudice to its assertion in any future proceeding of any claim against Vermont Yankee or any Sponsor, including without limitation a claim withdrawn without prejudice in accordance with Section 2.1.3(b), other than a claim for additional refunds, credits or other relief with respect to (i) the transaction costs associated with either the proposed Plant sale to AmerGen or a New Transaction, except as such claims are specifically preserved in Section 3.5 and/or arise from a violation of this Agreement, or (ii) decommissioning charges collected by Vermont Yankee or by any Sponsor from an ESP for the period prior to the effective date of superseding rates, except as such claims are specifically reserved in Section 4.3.3(a) and/or arise from a violation of this Agreement. 3.2       Vermont Yankee (or other entity billing an ESP on behalf of one or more Sponsors or an individual Sponsor pursuant to Section 3.1.3) will refund to the Sponsors and to the ESPs, as applicable, all amounts paid by ESPs with respect to transaction costs associated with the AmerGen transaction ("AmerGen Transaction Costs"). The total amount (the "Transaction Refund Amount") shall be determined pursuant to Section 3.3. Vermont Yankee (and, where possible, the other billing agents or individual Sponsors) will reflect the refunds in the first bills rendered under the Power Contracts and the Secondary Power Contracts after the Settlement Effective Date, as defined in Section 6.1, for all ESPs who have provided their notice(s) under Section 3.1.2 prior to Vermont Yankee's preparation of said bills. The refunds to the remaining ESPs (if any) shall be reflected on the next bills issued following their provision of the Section 3.1.2 notice. Vermont Yankee shall be authorized to recover the Transaction Refund Amount in accordance with Section 3.4. Vermont Yankee's AmerGen Transaction Costs shall include:   3.2.1   Earnest money and/or other payments toward credit insurance; and 3.2.2   All other costs associated with the AmerGen transaction, including, without limitation, the costs of legal and other advisors and the time of Vermont Yankee personnel recorded in connection with the transaction. A schedule showing the amount of AmerGen Transaction Costs incurred by Vermont Yankee through the date of this Agreement is attached to the Agreement as an Appendix. 3.3       The Transaction Refund Amount shall equal the sum of (a) the product of (i) the total amount of Vermont Yankee's AmerGen Transaction Costs, and (ii) the percentage ("Credit Percentage") equal to the total of the individual percentages of the power and energy from the Plant for which the ESPs are responsible, plus (b) interest on each portion thereof calculated in accordance with the Commission's regulations. Vermont Yankee shall allocate the Transaction Refund Amount to the Sponsors and the ESPs in proportion to the ESPs' respective shares of the Credit Percentage. 3.4       Except as provided in Section 6.1.1, Vermont Yankee shall recover the Transaction Refund Amount by amortizing it in equal monthly amounts over the remaining license life of the Plant, with carrying charges equal to Vermont Yankee's weighted average cost of capital, commencing with the first bills rendered under the Power Contracts after the Settlement Effective Date. Such amounts shall be payable under the Secondary Power Contracts in accordance with their terms. 3.5       Vermont Yankee will not treat transaction costs of the types described in Sections 3.2.1 and 3.2.2 associated with a new transaction involving the sale of the Plant ("New Transaction Costs" and "New Transaction," respectively) as an expense eligible for immediate recovery under the Power Contracts. Instead, Vermont Yankee will book and defer all such costs and recover them through amortization over the remaining license life of the Plant, with carrying charges equal to Vermont Yankee's weighted average cost of capital, starting with the first bills issued following the financial closing of a New Transaction. Other Parties agree that the manner and timing of recovery of New Transaction Costs provided in this Section are not subject to future challenge, but Parties other than Vermont Yankee reserve the right to challenge (a) whether particular costs fall within the definition of New Transaction Costs (provided that, upon a determination that a particular cost should not have been booked and deferred as a New Transaction Cost under this section, that cost may be promptly expensed if otherwise permitted under applicable contracts and FERC requirements); (b) whether particular costs that were expensed should have been booked and deferred as New Transaction Costs (provided that, upon a determination that such a cost should have been deferred, Vermont Yankee shall refund amounts collected with respect to that cost, with interest, and shall recover that cost pursuant to this Section); and/or (c) the prudence of Vermont Yankee's incurrence of particular New Transaction Costs. If a New Transaction does not close by July 1, 2004, Vermont Yankee may apply to the Commission for authorization to recover New Transaction Costs, provided that Vermont Yankee will bear the burden of justifying recovery of such costs and any party may take any position in response to such application, including opposing recovery in whole, or in part, on any basis. Article IV DECOMMISSIONING FUNDING 4.1       Reduction in Decommissioning Charges   4.1.1   Commencing with the Settlement Effective Date, Vermont Yankee's monthly charges for decommissioning will be reduced to one-twelfth of the annual level shown in Section 4.1.3. 4.1.2   The decommissioning charges established by Section 4.1.1 shall remain in effect from the Settlement Effective Date through the first to occur of:   (a) (b) The financial closing of the New Transaction; or The date on which the Commission permits a revised schedule of decommissioning charges to take effect under section 205 or section 206 of the FPA, provided that no party shall propose an effective date for a revised schedule of decommissioning charges that is earlier than January 1, 2003, except as provided in Section 4.3.3.   4.1.3   The annual level of decommissioning charges (the "Settlement Decommissioning Level"), which shall be in effect for the period beginning with the Settlement Effective Date and ending in accordance with Section 4.1.2, shall be $11.4 million. 4.2       Treatment of ESPs' Decommissioning Charges   4.2.1   Vermont Yankee (or other entity billing an ESP on behalf of one or more Sponsors or an individual Sponsor pursuant to Section 3.1.3) shall provide to each appropriate Sponsor and to each ESP a credit (the "ESP Credit Amount") equal, for each ESP, to:   (a) (b) (c) the difference over the period from January 1, 2000 through the day preceding the Settlement Effective Date between (1) the annual decommissioning collection level that was the basis for the ESP's decommissioning payments during the period, and (2) the Settlement Decommissioning Level; multiplied by the ESP's proportionate share of the Credit Percentage, plus interest calculated in accordance with Section 35.19a of the Commission's regulations.   4.2.2   Vermont Yankee (and, where possible, the other billing agents or individual Sponsors) will begin reflecting the ESP Credit Amounts on the first bills rendered under the Power Contracts and the Secondary Power Contracts after the Settlement Effective Date, as defined in Section 6.1, for all ESPs who have provided their notice(s) under Section 3.1.2 prior to Vermont Yankee's preparation of said bills. The ESP Credit Amounts for the remaining ESPs (if any) shall first be reflected on the next bills issued following their provision of the Section 3.1.2 notice. Each ESP shall receive its ESP Credit Amount as an offset to its decommissioning payment that would otherwise be due, up to the full amount payable by the ESP to the decommissioning trust funds for the month. Any remaining balance of an ESP's ESP Credit Amount shall be carried over, together with interest calculated in accordance with Section 35.19a of the Commission's regulations, and shall be applied as an offset to its decommissioning payment that would otherwise be due on subsequent monthly bills, provided that the credit in any month shall not exceed the total amount payable by the ESP in that month with respect to decommissioning. The process of carrying over (with interest) the remaining ESP Credit Amount, and applying the carried-over amounts as offsets, shall continue until the full amount of the ESP Credit Amount has been credited to the ESP. 4.2.3   If, as a result of a New Transaction or otherwise, the process of offsetting the ESPs' decommissioning payment obligations through the ESP Credit Amounts as contemplated under this Section 4.2 ends before the ESP Credit Amounts (including accrued interest) have been fully provided to the ESPs, Vermont Yankee shall make lump-sum refunds of all remaining ESP Credit Amounts (including accrued interest) to the appropriate Sponsors, which shall pass through the remaining ESP Credit Amounts (with interest) to the ESPs. 4.3       Superseding Decommissioning Charges   4.3.1   Any Party proposing a superseding schedule of decommissioning charges shall be free to base its proposal on any principles, subject to the Commission's approval, except:   (a) (b) No proposal shall seek to adjust decommissioning charges collected for the period prior to the effective date of a new filing under section 205 or 206 of the FPA as permitted by Section 4.1.2(b), except as provided in Section 4.3.3; and The level of decommissioning charges specified in Section 4.1.3 shall not be precedential and shall not be cited as reflecting any party's view of an appropriate level of decommissioning charges.   4.3.2   If a New Transaction has not closed by July 1, 2004, and Vermont Yankee has not already made a rate filing with the Commission under section 205 (other than a filing limited in accordance with Commission policy to adjust accruals for post-retirement benefits expenses), then Vermont Yankee shall make a rate filing under section 205 of the FPA by September 1, 2004, which shall include any necessary adjustments to decommissioning charges to reflect Vermont Yankee's latest estimate of the costs of decommissioning the Plant, and other relevant factors, to take effect no later than January 1, 2005. Vermont Yankee shall not collect any charges for decommissioning other than charges based on the Settlement Decommissioning Level except pursuant to a superseding rate filing that is permitted to go into effect by the Commission. 4.3.3   Nothing in this Agreement shall prohibit:   (a) (b) (c) any ESP from filing an application under section 206 of the Federal Power Act, 16 U.S.C. Section 824e, prior to December 1, 2002, seeking adjustment to, and/or refunds of, decommissioning charges paid under its contract with one or more Sponsors (including without limitation amounts paid, in cash or through application of credits, for decommissioning collections from and after January 1, 2000 in accordance with this Agreement), where said application is based on (i) the terms of a New Transaction or (ii) the fact (if it has transpired) that Vermont Yankee still owns the Plant and has applied to the Nuclear Regulatory Commission ("NRC") before December 31, 2002 to extend the term of the Plant's operating license beyond 2012; any Sponsor from filing an application under section 206 of the Federal Power Act, 16 U.S.C. Section 824e, prior to December 1, 2002, seeking additional decommissioning funding from any ESP, where said application is based on the fact (if it has transpired) that Vermont Yankee still owns the Plant and Vermont Yankee's Board of Directors has, before December 1, 2002, adopted a resolution to retire the Plant early; or any other Party from taking any position in response to any such application, if filed, including opposing any relief requested on any ground (other than a claim that the application is barred by the Agreement). 4.4.       In the event Vermont Yankee is required to borrow funds to bring the decommissioning trust funds to an agreed level in connection with a New Transaction, for any remaining portion of the period beginning with the Settlement Effective Date and ending on January 1, 2003, Vermont Yankee shall not impose monthly charges to recover amounts from Sponsors or ESPs with respect to repaying such borrowing that exceed the monthly charges for decommissioning that would have been paid under this Agreement but for the New Transaction. This section shall not restrict Vermont Yankee's ability to seek recovery of amounts relating to any other borrowing, including, if Vermont Yankee secures funds both to bring the decommissioning trust funds to an agreed level and for other purposes related to a New Transaction in a single borrowing, recovery of amounts relating to the portion of the borrowing associated with such other purposes. 4.5       Until the financial closing of a New Transaction or until otherwise ordered by FERC or agreed by any affected Party, Vermont Yankee shall provide the VDPS and any other Party that so requests with a quarterly report of decommissioning trust fund performance, including identification of book values, current market values, and after-tax values of each category of investments in the qualified and non-qualified funds, as reported to Vermont Yankee by the funds' managers. Article V MODIFICATION TO FORMULA RATE 5.1       Commencing with the Settlement Effective Date, Vermont Yankee shall modify the formula rate under the Power Contracts to eliminate the collection of amounts from the Sponsors to fund the Low-level Rad-waste Disposal Reserve created by the Commission's acceptance of the June 16, 1994, Settlement Agreement in Docket No. ER94-1370 in its order of September 2, 1994. The balance in the reserve will be applied to offset low-level rad-waste disposal costs. After the reserve is depleted, low-level rad-waste disposal costs that would formerly have been funded by the reserve will be recovered by Vermont Yankee as an operating expense when incurred, or, if incurred after decommissioning commences, as decommissioning expenses. Notwithstanding anything in the preceding sentence, the Parties other than Vermont Yankee reserve the right to raise issues with respect to (a) whether particular costs are appropriately considered low-level rad-waste disposal costs that would have formerly been funded by the reserve; and/or (b) the prudence of Vermont Yankee's incurrence of particular low-level rad-waste disposal costs. Article VI EFFECTIVE DATE AND OTHER TERMS AND CONDITIONS 6.1       This Agreement shall take effect on the date (the "Settlement Effective Date") determined as follows:   6.1.1   Concurrent with the submission of this Agreement to the Commission, the Parties shall jointly submit a motion asking FERC for permission to implement the credits and rate reductions as provided for in the Agreement on an interim basis as of June 1, 2001, if conditions specified in the motion are satisfied or, otherwise, the first day of the calendar month following Commission action on the motion. The motion shall provide for and be contingent upon the Commission's authorizing Vermont Yankee and the Sponsors to recoup the full amount of any credits and rate reductions so implemented, together with interest determined in accordance with Section 35.19a of the Commission's regulations, by adding the amount to their next monthly bills rendered under the Power Contracts and Secondary Power Contracts, following the issuance of a Commission order on review of the Agreement that fails to accept or approve the Agreement in its entirety. The Parties' aim and intention is to receive Commission approval of the joint motion such that the Settlement Effective Date will be June 1, 2001, if possible. 6.1.2   If the Commission denies the joint motion for interim implementation referred to in Section 6.1.1, the Settlement Effective Date shall be the date the Commission authorizes the Agreement to take effect. The Parties request a Settlement Effective Date of August 1, 2001 in that instance. If the Commission authorizes a Settlement Effective Date prior to the date of the Commission's order accepting or approving this Agreement, the credits and refunds provided shall be implemented by credits to the next bills rendered by Vermont Yankee and, as applicable, the Sponsors.   6.2       Unless specifically modified by this Agreement, the provisions of previous settlement agreements resolving wholesale rate proceedings filed by Vermont Yankee shall remain in effect. 6.3       The making of this Agreement shall not be deemed in any respect to constitute an admission by any party that any allegation or contention in this proceeding is true and valid. 6.4       The execution of this Agreement by any party and its acceptance or approval by the Commission shall not in any respect constitute a determination by the Commission as to the merits of any allegation or contentions made in these proceedings nor constitute approval of, or precedent regarding, any principle or issue in these proceedings. In particular, this Agreement shall not in any way be construed as establishing any precedent or policy. This Agreement shall not constitute precedent with respect to the appropriate level of funds necessary to decommission the Plant. 6.5       The discussions that have produced this Agreement have been conducted on the explicit understanding that they are subject to the protection of Rule 602(e) of the Commission's Rules of Practice and Procedure. All offers of settlement 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, and are not to be used in any manner in connection with these or other proceedings, except as may be necessary to enforce the terms of this Agreement. However, this paragraph shall not bar any Party's use in future proceedings of non-confidential factual information included in any Party's pleadings, testimony or other formal documents submitted in the course of the proceedings in Docket Nos. EC00-46 et al. and EL00-86. 6.6       This Agreement expressly is conditioned upon the Commission's final acceptance or approval of all provisions hereof without change or condition. In the event the Commission does not by order accept or approve the Agreement in its entirety, then, it shall be deemed withdrawn and shall not constitute any part of the record in these proceedings or be used for any other purpose and each of its provisions shall be deemed null and void. 6.7       Any number of counterparts of this Agreement may be executed. Each shall have the same force and effect as an original instrument, and as if all signatories to all the counterparts had signed the same instrument. __________________________________ Kenneth G. Jaffe, Counsel On Behalf of Vermont Yankee Nuclear Power Corporation __________________________________ Kathleen L. Mazure, Counsel Janice L. Lower, Counsel On Behalf of the Vermont Department of Public Service __________________________________ Margaret A. McGoldrick, Counsel On Behalf of the Massachusetts Muncipals and CMEEC __________________________________ Terry L. Schwennesen, Vice President, Generation Investments On Behalf of New England Power Company __________________________________ Nancy Rowden Brock, Chief Financial Officer On Behalf of Green Mountain Power Company __________________________________ Kent Brown, Senior Vice President, Engineering and Operations On Behalf of Central Vermont Public Service Corporation __________________________________ Monique Rowtham-Kennedy, Counsel, On Behalf of The Connecticut Light and Power Company, Public Service Company of New Hampshire, and Western Massachusetts Electric Company __________________________________ Robert Martin, On Behalf of Cambridge Electric Light Company __________________________________ Robert S. Mahoney, Counsel, On Behalf of Central Maine Power Company __________________________________ Heidi Werntz, Counsel, On Behalf of Vermont Electric Power Company

Exhibit 10.35 OFFICE LEASE              THIS OFFICE LEASE ("Lease") is made between SPIEKER PROPERTIES, L.P., a California limited partnership ("Landlord"), and AVI BIOPHARMA, INC., an Oregon corporation, ("Tenant"), as of May 8, 2001, (the "date of this Lease"). BASIC LEASE INFORMATION BUILDING:     Benjamin Franklin Plaza, One SW Columbia Street, Portland, OR  97258 DESCRIPTION OF PREMISES:  Suite 1105 (the Premises is as outlined in red on Exhibit B) RENTABLE AREA OF PREMISES:  Approximately 2,543 rentable square feet PERMITTED USE: General Office Use SCHEDULED TERM COMMENCEMENT DATE:  August 1, 2001 SCHEDULED INITIAL TERM: Thirty-six (36)months SCHEDULED EXPIRATION DATE:  July 31, 2004 BASE RENT:   (a) Initial Annual Base Rent: $64,846.50  ($25.50/rsf/year)   (c)  Subject to increase pursuant to Paragraph 3.1(b) as follows:   (b) Initial Monthly Installment of Base Rent:  $5,404.00   08/01/02 – 07/31/03  $5,563.00 per month ($26.25/rsf/year) 08/01/03 – 07/31/04  $5,722.00 per month    ($27.00/rsf/year) SECURITY DEPOSIT: Tenant shall maintain existing security deposit on account in the amount of $3,659.00 BASE YEAR FOR OPERATING EXPENSES:  Calendar Year 2001 TENANT'S PROPORTIONATE SHARE OF BUILDING:  0.96% TENANT’S NAICS CODE: 325412 TENANT CONTACT: Name: Alan Timmins   Telephone Number: 503.227.0554   FAX: 503.227.0751       ADDRESSES FOR NOTICES: To:  Tenant To:  Landlord                 One SW Columbia Street, Suite 1105 One SW Columbia Street, Suite 445       Portland, OR  97258 Portland, OR  97258       Attn: Alan Timmins Attn: Vice President       FAX:  503.227.0751 FAX:  503.973.5453   TENANT’S BILLING ADDRESS: Not Applicable LANDLORD’S REMITTANCE ADDRESS:  Spieker Properties, P.O. Box 3900, Department 30301, Portland, OR  97208 GUARANTOR:  Not Applicable              IN WITNESS WHEREOF, the parties hereto have executed this Lease, consisting of the foregoing Basic Lease Information, the following Standard Lease Provisions consisting of Paragraphs 1 through 22 (the "Standard Lease Provisions") and Exhibits A, B, C and D, all of which are incorporated herein by this reference (collectively, this “Lease”).  In the event of any conflict between the provisions of the Basic Lease Information and the provisions of the Standard Lease Provisions, the Standard Lease Provisions shall control. "Landlord"     "Tenant"           SPIEKER PROPERTIES, L.P., a California limited partnership,   AVI BIOPHARMA, INC., an Oregon corporation           By:  Spieker Properties, Inc., a Maryland corporation, its general partner                 By:   By:     -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   Lynda M. Clarke     Alan Timmins             Its: Vice President   Its: President, Chief Operating Officer           Date:   Date:   -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- STANDARD LEASE PROVISIONS 1.          Premises.  Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, subject to all of the terms and conditions set forth herein, those certain premises (the "Premises") described in the Basic Lease Information and as outlined in red or as shown in the cross-hatched markings on the floor plan attached hereto as Exhibit B.  The parties agree that for all purposes hereunder the Premises shall be stipulated to contain the number of square feet of rentable area described in the Basic Lease Information.  The Premises are located in that certain office building (the "Building") whose street address is as shown in the Basic Lease Information.  The Building is located on that certain land which is also improved with landscaping, parking facilities and other improvements and appurtenances.  Such land, together with all such improvements and appurtenances and the Building, are all or part of a project which may consist of more than one building and additional facilities, as described in the Basic Lease Information (collectively referred to herein as the "Project").  However, Landlord reserves the right to make such changes, additions and/or deletions to such land, the Building and the Project and/or the common areas and parking or other facilities thereof as it shall determine from time to time. 2.          Term.              (a)         Unless earlier terminated in accordance with the provisions hereof, the term of this Lease (the "Term") shall be as set forth in the Basic Lease Information; provided, however, in the event the Term Commencement Date (defined below) occurs on a date other than the first day of a calendar month, there shall be added to the Term the partial month (“Partial Lease Month”) from the Term Commencement Date to (but not including) the first day of the calendar month following the Term Commencement Date.              (b)        Subject to the provisions of this Paragraph 2, the Term shall commence on the date (the "Term Commencement Date") which is the earlier of the date Landlord delivers the Premises to Tenant or the date Tenant takes possession or commences use of any portion of the Premises for any business purpose (including moving in).  If this Lease contemplates the construction of tenant improvements in the Premises by Landlord, Landlord shall be deemed to have delivered the Premises to Tenant on the date determined by Landlord's space planner to be the date of substantial completion of the work to be performed by Landlord (as described in the Improvement Agreement, if any, attached hereto as Exhibit C) (the “Improvement Agreement”).  Notwithstanding the foregoing, in the event that Landlord is delayed in delivering the Premises by reason of any act or omission of Tenant, the Term Commencement Date shall be (unless Tenant takes possession or commences use of the Premises prior thereto) the date the Premises would have been delivered by Landlord had such Tenant caused delay(s) not occurred.  This Lease shall be a binding contractual obligation effective upon execution hereof by Landlord and Tenant, notwithstanding the later commencement of the Term.  Tenant acknowledges that Tenant has inspected and accepts the Premises in their present condition, “as is”, except for tenant improvements (if any) to be constructed by Landlord in the Premises pursuant to the Improvement Agreement, if any.              (c)         In the event the Term Commencement Date is delayed or otherwise does not occur on the Scheduled Term Commencement Date specified in the Basic Lease Information, this Lease shall not be void or voidable, the Term shall not be extended (except as provided in Paragraph 2(a)), and Landlord shall not be liable to Tenant for any loss or damage resulting therefrom; provided that Tenant shall not be liable for any Rent (defined below) for any period prior to the Term Commencement Date except as may otherwise be provided in this Lease.  Landlord may deliver to Tenant Landlord's standard form “Start-Up Letter” for Tenant's acknowledgment and confirmation of the Term Commencement Date.  Tenant shall execute and deliver such Start-Up Letter to Landlord within five (5) days after receipt thereof, but Tenant’s failure or refusal to do so shall not negate Tenant’s acceptance of the Premises or affect determination of the Term Commencement Date. 3.          Rent and Operating Expenses.              3.1        Base Rent              (a)         Subject to the provisions of this Paragraph 3.1, Tenant agrees to pay during the Term as Base Rent for the Premises the sums specified in the Basic Lease Information (as increased from time to time as provided in the Basic Lease Information or as may otherwise be provided in this Lease) ("Base Rent").              (b)        Base Rent shall increase as set forth in the Basic Lease Information or as may otherwise be provided in this Lease.              (c)         Except as expressly provided to the contrary herein, Base Rent shall be payable in equal consecutive monthly installments, in advance, without deduction or offset, commencing on the Term Commencement Date and continuing on the first day of each calendar month thereafter.  However, the first full monthly installment of Base Rent shall be payable upon Tenant's execution of this Lease.  If the Term Commencement Date is a day other than the first day of a calendar month, then the Rent for the Partial Lease Month (the "Partial Lease Month Rent") shall be prorated based on a month of 30 days.  The Partial Lease Month Rent shall be payable by Tenant on the first day of the calendar month next succeeding the Term Commencement Date.  Base Rent, all forms of additional rent payable hereunder by Tenant and all other amounts, fees, payments or charges payable hereunder by Tenant (collectively, “Additional Rent”) shall (i) each constitute rent payable hereunder (and shall sometimes collectively be referred to herein as "Rent"), (ii) be payable to Landlord in lawful money of the United States when due without any prior demand therefor, except as may be expressly provided to the contrary herein, and (iii) be payable to Landlord at Landlord’s Remittance Address set forth in the Basic Lease Information or to such other person or to such other place as Landlord may from time to time designate in writing to Tenant. Any Rent or other amounts payable to Landlord by Tenant hereunder for any fractional month shall be prorated based on a month of 30 days.              3.2        Operating Expenses.              (a)         Subject to the provisions of this Lease, Tenant shall pay to Landlord pursuant to this Paragraph 3.2 as Additional Rent an amount equal to Tenant's Proportionate Share (defined below) of the excess, if any, of Operating Expenses (defined below) allocable to each Expense Year (defined below) over Operating Expenses allocable to the Base Year (the “Base Year”) specified in the Basic Lease Information (“Base Year Operating Expenses”). Base Year Operating Expenses shall not include market-wide labor-rate increases due to extraordinary circumstances, including, but not limited to, boycotts and strikes, and utility rate increases due to extraordinary circumstances including, but not limited to, conservation surcharges, boycotts, embargoes or other shortages, or amortized costs relating to capital improvements.  "Tenant's Proportionate Share" is, subject to the provisions of this Paragraph 3.2, the percentage number (representing the Premises’ share of the Building and the Project) set forth in the Basic Lease Information.  An "Expense Year" is any calendar year after the Base Year any portion of which falls within the Term.              (b)        "Operating Expenses" means all costs, expenses and obligations incurred or payable by Landlord because of or in connection with the operation, ownership, repair, replacement, restoration, management or maintenance of the Project during or allocable to the Base Year or an Expense Year (as applicable) during the Term (other than costs, expenses or obligations specifically attributable to Tenant or other tenants of the Building or Project), all as determined by sound accounting principles reasonably selected by Landlord and consistently applied, including without limitation the following:                            (i)          All property taxes, assessments, charges or impositions and other similar governmental ad valorem or other charges levied on or attributable to the Project (including personal and real property contained therein) or its ownership, operation or transfer, and all taxes, charges, assessments or similar impositions imposed in lieu or substitution (partially or totally) of the same (collectively, "Taxes").  "Taxes" shall also include (A) all taxes, assessments, levies, charges or impositions on any interest of Landlord in the Project, the Premises or in this Lease, or on the occupancy or use of space in the Project or the Premises; or on the gross or net rentals or income from the Project, including, without limitation, any gross income tax, excise tax, sales tax or gross receipts tax levied by any federal, state or local governmental entity with respect to the receipt of Rent; or (B) any possessory taxes charged or levied in lieu of real estate taxes; and                            (ii)         The cost of all utilities, supplies, equipment, tools, materials, service contracts, janitorial services, waste and refuse disposal, landscaping, and insurance (with the nature and extent of such insurance to be carried by Landlord to be determined by Landlord in its sole and absolute discretion); insurance deductibles; compensation and benefits of all persons who perform services connected with the operation, management, maintenance or repair of the Project; personal property taxes on and maintenance and repair of equipment and other personal property; costs and fees for administration and management of the Project, whether by Landlord or by an independent contractor, and other management office operational expenses; rental expenses for or a reasonable allowance for depreciation of, personal property used in the operation, management, maintenance or repair of the Project, license, permit and inspection fees; and all inspections, activities, alterations, improvements or other matters required by any governmental or quasi-governmental authority or by Regulations (defined below), for any reason, including, without limitation, capital improvements, whether capitalized or not; all capital additions, repairs, replacements and improvements made to the Project or any portion thereof by Landlord (A) of a personal property nature and related to the operation, repair, maintenance or replacement of systems, facilities, equipment or components of (or which service) the Project or portions thereof, (B) required or provided in connection with any existing or future applicable municipal, state, federal or other governmental statutes, rules, requirements, regulations, laws, standards, orders or ordinances including, without limitation, zoning ordinances and regulations, and covenants, easements and restrictions of record (collectively, “Regulations”), (C) which are designed to improve the operating efficiency of the Project, or (D) determined by Landlord to be required to keep pace or be consistent with safety or health advances or improvements (with such capital costs to be amortized over such periods as Landlord shall determine with a return on capital at such rate as would have been paid by Landlord on funds borrowed for the purpose of constructing such capital items); common area repair, resurfacing, replacement, operation and maintenance; security systems or services, if any, deemed appropriate by Landlord (but without obligation to provide the same); and any other cost or expense incurred or payable by Landlord in connection with the operation, ownership, repair, replacement, restoration, management or maintenance of the Project.                            (iii)        Notwithstanding anything in this Lease to the contrary, in no event shall the component of Operating Expenses for any Expense Year consisting of electrical costs be less than the component of Base Year Operating Expenses consisting of electrical costs.              (c)         Variable items of Operating Expenses (e.g., expenses that are affected by variations in occupancy levels) for the Base Year and each Expense Year during which actual occupancy of the Project is less than ninety-five percent (95%) of the rentable area of the Project shall be appropriately adjusted, in accordance with sound accounting principles reasonably selected by Landlord, to reflect ninety-five percent (95%) occupancy of the existing rentable area of the Project during such period.              (d)        Prior to or shortly following the commencement of (and from time to time during) each Expense Year of the Term following the Term Commencement Date, Landlord shall have the right to give to Tenant a written estimate of Tenant's Proportionate Share of the projected excess, if any, of the Operating Expenses for the Project for such year over the Base Year Operating Expenses.  Commencing with the first day of the calendar month following the month in which such estimate was delivered to Tenant, Tenant shall pay such estimated amount (less amounts, if any, previously paid toward such excess for such year) to Landlord in equal monthly installments over the remainder of such calendar year, in advance on the first day of each month during such year (or remaining months, if less than all of the year remains).  Subject to the provisions of this Lease, Landlord shall endeavor to furnish to Tenant within a reasonable period after the end of each Expense Year, a statement (a "Reconciliation Statement") indicating in reasonable detail the excess, if any, of Operating Expenses allocable to such Expense Year over Base Year Operating Expenses and the parties shall, within thirty (30) days thereafter, make any payment or allowance necessary to adjust Tenant's estimated payments to Tenant's actual share of such excess as indicated by such annual Reconciliation Statement.              (e)         Tenant shall pay ten (10) days before delinquency all taxes and assessments levied against any personal property or trade fixtures of Tenant in or about the Premises.  If any such taxes or assessments are levied against Landlord or Landlord's property or if the assessed value of the Project is increased by the inclusion therein of a value placed upon such personal property or trade fixtures, Tenant shall, within ten (10) days of demand, reimburse Landlord for the taxes and assessments so levied against Landlord, or any such taxes, levies and assessments resulting from such increase in assessed value.              (f)         Any delay or failure of Landlord in (i) delivering any estimate or statement described in this Paragraph 3.2, or (ii) computing or billing Tenant's Proportionate Share of excess Operating Expenses shall not (A) constitute a waiver of its right to subsequently deliver such estimate or statement or require any increase in Rent contemplated by this Paragraph 3.2, or (B) in any way waive or impair the continuing obligations of Tenant under this Paragraph 3.2.  Provided that Tenant is not then in default under this Lease, subject to compliance with Landlord’s standard procedures for the same, Tenant shall have the right, upon the condition that Tenant shall first pay to Landlord the amount in dispute, to have independent certified public accountants of national standing (who are not compensated on a contingency basis) of Tenant’s selection (and subject to Landlord’s reasonable approval) review Landlord’s Operating Expense books and records relating to the Expense Year subject to a particular Reconciliation Statement during the sixty-day period following delivery to Tenant of the Reconciliation Statement for such Expense Year.  If such review discloses a liability for a refund in excess of ten percent (10%) of Tenant’s Proportionate Share of Operating Expenses previously reported, the cost of such review shall be borne by Landlord; otherwise such cost shall be borne by Tenant.  Tenant waives the right to dispute or contest, and shall have no right to dispute or contest, any matter relating to the calculation of Operating Expenses or other forms of Rent under this Paragraph 3.2 with respect to each Expense Year for which a Reconciliation Statement is given to Tenant if no claim or dispute with respect thereto is asserted by Tenant in writing to Landlord within sixty (60) days of delivery to Tenant of the original or most recent Reconciliation Statement with respect thereto. 4.          Delinquent Payment; Handling Charges.  In the event Tenant is more than three (3) days late in paying any amount of Rent or any other payment due under this Lease, Tenant shall pay Landlord, within ten (10) days of Landlord's written demand therefor, a late charge equal to five percent (5%) of the delinquent amount, or $150.00, whichever amount is greater.  In addition, any amount due from Tenant to Landlord hereunder which is not paid within ten (10) days of the date due shall bear interest at an annual rate (the "Default Rate") equal to twelve percent (12%). 5.          Security Deposit.  Contemporaneously with the execution of this Lease, Tenant shall pay to Landlord the amount of Security Deposit (the “Security Deposit”) specified in the Basic Lease Information, which shall be held by Landlord to secure Tenant's performance of its obligations under this Lease. Landlord is hereby granted a security interest in the Security Deposit in accordance with applicable law.  The Security Deposit is not an advance payment of Rent or a measure or limit of Landlord's damages upon a default by Tenant or an Event of Default (defined below).  If Tenant defaults with respect to any provision of this Lease, Landlord may, but shall not be required to, use, apply or retain all or any part of the Security Deposit (a) for the payment of any Rent or any other sum in default, (b) for the payment of any other amount which Landlord may spend or become obligated to spend by reason of such default by Tenant, and (c) to compensate Landlord for any other loss or damage which Landlord may suffer by reason of such default by Tenant.  If any portion of the Security Deposit is so used or applied, Tenant shall, within ten (10) days after demand therefor by Landlord, deposit with Landlord cash in an amount sufficient to restore the Security Deposit to the amount required to be maintained by Tenant hereunder.  Within a reasonable period following expiration or the sooner termination of this Lease, provided that Tenant has performed all of its obligations hereunder, Landlord shall return to Tenant the remaining portion of the Security Deposit. The Security Deposit may be commingled by Landlord with Landlord's other funds, and no interest shall be paid thereon.  If Landlord transfers its interest in the Premises, then Landlord may assign the Security Deposit to the transferee and thereafter Landlord shall have no further liability or obligation for the return of the Security Deposit.  Tenant hereby waives the provisions of all provisions of any Regulations, now or hereinafter in force, which restricts the amount or types of claim that a landlord may make upon a security deposit or imposes upon a landlord (or its successors) any obligation with respect to the handling or return of security deposits. 6.          Landlord's Obligations.              6.1        Services.  Subject to the provisions of this Lease, Landlord shall use good faith efforts to furnish to Tenant during the Term (a) city or utility company water at those points of supply provided for general use of the tenants of the Building; (b) subject to mandatory and voluntary Regulations, heating and air conditioning during ordinary business hours of generally recognized business days designated by Landlord (which in any event shall not include Saturdays, Sundays or legal holidays) (“Business Hours) for the Building at such temperatures and in such amounts as Landlord reasonably determines is appropriate for normal comfort for normal office use in the Premises; (c) janitorial services to the Premises on weekdays, other than on legal holidays, for Building-standard installations; (d) nonexclusive passenger elevator service; and (e) adequate electrical current during such Business Hours for equipment that does not require more than 110 volts and whose electrical energy consumption does not exceed normal office usage in a premises of the size of the Premises, as determined by Landlord.  If Tenant desires any of the services specified in this Paragraph 6.1 at any time other than during Business Hours, then subject to such nondiscriminatory conditions and standards as Landlord shall apply to the same, upon the written request of Tenant, such services shall be supplied to Tenant in accordance with Landlord’s customary procedures for the Building, including such advance request deadlines as Landlord shall require from time to time, and Tenant shall pay to Landlord Landlord's then customary charge for such services within ten (10) days after Landlord has delivered to Tenant an invoice therefor.  Landlord reserves the right to change the supplier or provider of any such service from time to time.  Tenant shall not have the right to obtain any such service for the Premises directly from a supplier or provider of such service except as provided in Paragraph 6.4 below.              6.2        Excess Utility Use.  Landlord shall not be required to furnish electrical current for, and Tenant shall not install or use, without Landlord's prior written consent, any equipment (a) that requires more than 110 volts, (b) whose operation is in excess of, or inconsistent with, the capacity of the Building (or existing feeders and risers to, or wiring in, the Premises) or (c) whose electrical energy consumption exceeds normal office usage of up to three (3) watts of connected load per usable square foot ("Standard Usage").  Subject to the provisions of this Paragraph 6.2, if Tenant's consumption of electricity exceeds the electricity to be provided by Landlord above or Standard Usage (which shall be determined by separate metering to be installed at Tenant’s expense or by such other method as Landlord shall reasonably select), Tenant shall pay to Landlord Landlord's then customary charge for such excess consumption within ten (10) days after Landlord has delivered to Tenant an invoice therefor.              6.3        Restoration of Services.  Following receipt of Tenant's request to do so, Landlord shall use good faith efforts to restore any service specifically to be provided under Paragraph 6.1 that becomes unavailable and which is in Landlord's reasonable control to restore; provided, however, that in no case shall the unavailability of such services or any other service (or any diminution in the quality or quantity thereof) or any interference in Tenant’s business operations within the Premises render Landlord liable to Tenant or any person using or occupying the Premises under or through Tenant (including, without limitation, any contractor, employee, agent, invitee or visitor of Tenant) (each, a "Tenant Party") for any damages of any nature whatsoever caused thereby, constitute a constructive eviction of Tenant, constitute a breach of any implied warranty by Landlord, or entitle Tenant to any abatement of Tenant's rental obligations hereunder.              6.4        Telecommunications Services.  Tenant may contract separately with providers of telecommunications or cellular products, systems or services for the Premises.  Even though such products, systems or services may be installed or provided by such providers in the Building, in consideration for Landlord’s permitting such providers to provide such services to Tenant, Tenant agrees that Landlord and the Landlord Indemnitees (defined below) shall in no event be liable to Tenant or any Tenant Party for any damages of any nature whatsoever arising out of or relating to the products, systems or services provided by such providers (or any failure, interruption, defect in or loss of the same) or any acts or omissions of such providers in connection with the same or any interference in Tenant’s business caused thereby.  Tenant waives and releases all rights and remedies against Landlord and the Landlord Indemnitees that are inconsistent with the foregoing. 7.          Improvements, Alterations, Repairs and Maintenance.              7.1        Improvements; Alterations.  Any alterations, additions, deletions, modifications or utility installations in, of or to the improvements contained within the Premises (collectively, "Alterations") shall be installed at Tenant's expense and only in accordance with detailed plans and specifications, construction methods, and all appropriate permits and licenses, all of which have been previously submitted to and approved in writing by Landlord, and by a professionally qualified and licensed contractor and subcontractors approved by Landlord.  No Alterations in or to the Premises may be made without (a) Landlord's prior written consent and (b) compliance with such reasonable requirements and construction regulations concerning such Alterations as Landlord may impose from time to time.  Landlord will not be deemed to unreasonably withhold its consent to any Alteration that violates Regulations, may affect or be incompatible with the Building's structure or its HVAC, plumbing, telecommunications, elevator, life-safety, electrical, mechanical or other basic systems, or the appearance of the interior common areas or exterior of the Project, or which may interfere with the use or occupancy of any other portion of the Project.  All Alterations made in or upon the Premises shall, (i) at Landlord's option, either be removed by Tenant prior to the end of the Term (and Tenant shall restore the portion of the Premises affected to its condition existing immediately prior to such Alteration), or shall remain on the Premises at the end of the Term, (ii) be constructed, maintained, insured and used by Tenant, at its risk and expense, in a first-class, good and workmanlike manner, and in accordance with all Regulations, and (iii) shall be subject to payment of Landlord’s standard alterations supervision fee.  If any Alteration made or initiated by Tenant or the removal thereof shall cause, trigger or result in any portion of the Project outside of the Premises, any portion of the Building's shell and core improvements (including restrooms, if any) within the Premises, or any Building system inside or outside of the Premises being required by any governmental authority to be altered, improved or removed, or may otherwise potentially affect such portions of the Project or any other tenants of the Project, Landlord shall have the option (but not the obligation) of performing the same at Tenant's expense, in which case Tenant shall pay to Landlord (within ten (10) days of Landlord’s written demand) in advance Landlord’s reasonable estimate of the cost of such work, and any actual costs of such work in excess of Landlord’s estimate, plus an administrative charge of fifteen percent (15%) thereof.  At least ten (10) days before beginning construction of any Alteration, Tenant shall give Landlord written notice of the expected commencement date of that construction to permit Landlord to post and record a notice of non-responsibility.  Upon substantial completion of construction, if the law so provides, Tenant shall cause a timely notice of completion to be recorded in the office of the recorder of the county in which the Building is located.              7.2        Repairs and Maintenance.  Tenant shall maintain at all times during the Term the Premises and all portions and components of the improvements and systems contained therein in a first-class, good, clean, safe, and operable condition, and shall not permit or allow to remain any waste or damage to any portion of the Premises.  Tenant shall repair or replace, as needed, subject to Landlord's direction and supervision, any damage to the Building or the Project caused by Tenant or any Tenant Party.  If any such damage occurs outside of the Premises or relates to any Building system, or if Tenant fails to perform Tenant’s obligations under this Paragraph 7.2 or under any other paragraph of this Lease within ten (10) days’ after written notice from Landlord (except in the case of an emergency, in which case no notice shall be required), then Landlord may elect to perform such obligations and repair such damage itself at Tenant's expense.  The cost of all repair or replacement work performed by Landlord under this Paragraph 7.2, plus an administrative charge of fifteen percent (15%) of such cost, shall be paid by Tenant to Landlord within ten (10) days of receipt of Landlord’s invoice therefor as Additional Rent.  Tenant hereby waives all common law and statutory rights or provisions inconsistent herewith, whether now or hereinafter in effect.  Landlord shall use reasonable efforts to maintain the common areas of the Project at all times during the Term with the cost thereof constituting an Operating Expense under Paragraph 3.2.              7.3        Mechanic’s Liens.  Tenant shall not cause, suffer or permit any mechanic's or materialman's lien, claim, or stop notice to be filed or asserted against the Premises, the Building or any funds of Landlord for any work performed, materials furnished, or obligation incurred by or at the request of Tenant or any Tenant Party.  If any such lien, claim or notice is filed or asserted, then Tenant shall, within ten (10) days after Landlord has delivered notice of the same to Tenant, either (a) pay and satisfy in full the amount of (and eliminate of record) the lien, claim or notice or (b) diligently contest the same and deliver to Landlord a bond or other security therefor in substance and amount (and issued by an issuer) satisfactory to Landlord. 8.          Use.  Tenant shall continuously occupy and use the Premises only for general office use or uses incidental thereto, all of which shall be consistent with the standards of a first class office project (the "Permitted Use") and shall comply, at Tenant's expense, with all Regulations relating to the use, condition, alteration, improvement, access to, and occupancy of the Premises, including without limitation, Regulations relating to Hazardous Materials (defined below).  Should any Regulation now or hereafter be imposed on Tenant or Landlord by any governmental body relating to the use or occupancy of the Premises or the Project common areas by Tenant or any Tenant Party or concerning occupational, health or safety standards for employers, employees, or tenants, then Tenant agrees, at its sole cost and expense, to comply promptly with such Regulations if such Regulations relate to anything within the Premises or if compliance with such Regulations is within the control of Tenant and applies to an area outside of the Premises.  Tenant shall conduct its business and shall cause each Tenant Party to act in such a manner as to (a) not release or permit the release of any Hazardous Material in, under, on or about the Project in violation of any Regulations, (b) use or store any Hazardous Materials (other than incidental amounts of cleaning and office supplies) in or about the Premises or (c) not create or permit any nuisance or unreasonable interference with or disturbance of other tenants of the Project or Landlord in its management of the Project or (d) not create any occupancy density in the Premises or parking density with respect to Tenant and any Tenant Party at the Project greater than those specified in the Basic Lease Information.  "Hazardous Material" means any hazardous, explosive, radioactive or toxic substance, material or waste which is or becomes regulated by any local, state or federal governmental authority or agency, including, without limitation, any material or substance which is (i) defined or listed as a "hazardous waste," "extremely hazardous waste," "restricted hazardous waste," "hazardous substance," "hazardous material," "pollutant" or "contaminant" under any Regulation, (ii) a flammable explosive, (iii) a radioactive material, (iv) a polychlorinated biphenyl, (v) asbestos or asbestos containing material, or (vi) a carcinogen. 9.          Assignment and Subletting.              9.1        Transfers; Consent.  Tenant shall not, without the prior written consent of Landlord, (a) assign, transfer, mortgage, hypothecate, or encumber this Lease or any estate or interest herein, whether directly, indirectly or by operation of law, (b) permit any other entity to become a Tenant hereunder by merger, consolidation, or other reorganization, (c) if Tenant is a corporation, partnership, limited liability company, limited liability partnership, trust, association or other business entity (other than a corporation whose stock is publicly traded), permit, directly or indirectly, the transfer of any ownership interest in Tenant so as to result in (i) a change in the current control of Tenant, (ii) a transfer of twenty-five percent (25%) or more in the aggregate in any twelve (12) month period in the beneficial ownership of such entity or (iii) a transfer of all or substantially all of the assets of Tenant, (d) sublet any portion of the Premises, or (e) grant any license, concession, or other right of occupancy of or with respect to any portion of the Premises, or (f) permit the use of the Premises by any party other than Tenant or a Tenant Party (each of the events listed in this Paragraph 9.1 being referred to herein as a "Transfer").  If Tenant requests Landlord's consent to any Transfer, then at least twenty (20) business days prior to the effective date of the proposed Transfer, Tenant shall provide Landlord with a written description of all terms and conditions of the proposed Transfer and all consideration therefor (including a calculation of the Transfer Profits described below), copies of the proposed documentation, and the following information relating to the proposed transferee: name and address; information reasonably satisfactory to Landlord concerning the proposed transferee's business and business history; its proposed use of the Premises; banking, financial, and other credit information; and general references sufficient to enable Landlord to determine the proposed transferee's creditworthiness and character.  Landlord shall not unreasonably withhold its consent to any assignment or subletting of the Premises, provided that the parties agree that it shall be reasonable for Landlord to withhold any such consent if, without limitation, Landlord determines in good faith that (A) the proposed transferee is not of a reasonable financial standing or is not creditworthy, (B) the proposed transferee is a governmental agency, (C) the proposed transferee, or any affiliate thereof, is then an occupant in the Project or has engaged in discussions with Landlord concerning a direct lease of space in the Project,  (D) the proposed Transfer would result in a breach of any obligation of Landlord or permit any other tenant in the Project to terminate or modify its lease, (E) there is then in effect an uncured Event of Default, (F) the Transfer would increase the occupancy density or parking density of the Project or any portion thereof, (G) the Transfer would result in an undesirable tenant mix for the Project, as determined in good faith by Landlord, (H) the proposed transferee does not enjoy a good reputation, as a business or as a tenant; or (I) any guarantor of the Lease does not consent to such Transfer in a form satisfactory to Landlord.  Any Transfer made without Landlord's consent shall be void and, at Landlord's election, shall constitute an Event of Default by Tenant.  Tenant shall also, within ten (10) days of written demand therefor, pay to Landlord $500 as a review fee for each Transfer request, and reimburse Landlord for its reasonable attorneys' fees and all other costs incurred in connection with considering any request for consent to a proposed Transfer.  If Landlord consents to a proposed Transfer, then the proposed transferee shall deliver to Landlord Landlord’s standard form transfer consent and agreement whereby the proposed transferee expressly assumes the Tenant's obligations hereunder.  Landlord's consent to a Transfer shall not release Tenant from its obligations under this Lease (or any guarantor of this Lease of its obligations with respect thereto), but rather Tenant and its transferee shall be jointly and severally liable for all obligations under this Lease allocable to the space subject to such Transfer.  Landlord's consent to any Transfer shall not waive Landlord's rights as to any subsequent Transfers.  In the event of any claim by Tenant that Landlord has breached its obligations under this Paragraph 9.1, Tenant’s remedies shall be limited to recovery of its out-of-pocket damages and injunctive relief.              9.2        Cancellation and Recapture.  Notwithstanding Paragraph 9.1, Landlord may (but shall not be obligated to), within ten (10) business days after submission of Tenant's written request for Landlord's consent to an assignment or subletting, cancel this Lease as to the portion of the Premises proposed to be sublet or subject to an assignment of this Lease (“Transfer Space”) as of the date such proposed Transfer is proposed to be effective and, thereafter, Landlord may lease such portion of the Premises to the prospective transferee (or to any other person or entity or not at all) without liability to Tenant.  If Landlord shall not cancel this Lease within such ten (10) business day period and notwithstanding any Landlord consent to the proposed Transfer, Tenant shall pay to Landlord, immediately upon receipt thereof, the entire excess ("Transfer Profits") of all compensation and other consideration paid to or for the benefit of Tenant (or any affiliate thereof) for the Transfer in excess of Base Rent and Additional Rent payable by Tenant hereunder (with respect to the Transfer Space) during the remainder of the Term (after straight-line amortization of any reasonable brokerage commissions and tenant improvement costs paid by Tenant in connection with the Transfer over the term of the Transfer).  In any assignment or subletting undertaken by Tenant, Tenant shall diligently seek to obtain the maximum rental amount available in the marketplace for comparable space available for primary leasing. 10.        Insurance, Waivers, Subrogation and Indemnity.              10.1     Insurance.  Tenant shall maintain throughout the Term each of the insurance policies described on Exhibit D attached hereto and shall otherwise comply with the obligations and requirements provided on Exhibit D.              10.2     Waiver of Subrogation.  Landlord and Tenant each waives any claim, loss or cost it might have against the other for any injury to or death of any person or persons, or damage to or theft, destruction, loss, or loss of use of any property (a "Loss"), to the extent the same is insured against (or is required to be insured against under the terms hereof) under any “all risk” property damage insurance policy covering the Building, the Premises, Landlord's or Tenant's fixtures, personal property, leasehold improvements, or business, regardless of whether the negligence of the other party caused such Loss.              10.3     Indemnity.  Subject to Paragraph 10.2, Tenant shall indemnify, defend and hold Landlord, Spieker Properties, Inc., and each of their respective directors, shareholders, partners, lenders, members, managers, contractors, affiliates and employees (collectively, "Landlord Indemnitees") from and against all claims, demands, proceedings, losses, obligations, liabilities, causes of action, suits, judgments, damages, penalties, costs and expenses (including, without limitation, reasonable attorneys' fees and court costs) arising from or asserted in connection with the use or occupancy of the Premises by Tenant or any Tenant Party, including, without limitation, by reason of any release of any Hazardous Materials by Tenant or any Tenant Party in, under, on, or about the Project, or any negligence or misconduct of Tenant or of any Tenant Party in or about the Premises, or Tenant's breach of any of its covenants under this Lease, except in each case to the extent arising from the gross negligence or willful misconduct of Landlord or any Landlord Indemnitee.  Except to the extent expressly provided in this Lease, Tenant hereby waives all claims against and releases Landlord and each Landlord Indemnitee for any injury to or death of persons, damage to property or business loss in any manner related to (i) Tenant’s use and occupancy of the Premises, (ii) acts of God, (iii) acts of third parties, or (iv) any matter outside of the reasonable control of Landlord.  This Paragraph 10.3 shall survive termination or expiration of this Lease. 11.        Subordination; Attornment.              11.1     Subordination.  This Lease is subject and subordinate to all present and future ground or master leases of the Project and to the lien of all mortgages or deeds of trust (collectively, "Security Instruments") now or hereafter encumbering the Project, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of any such Security Instruments, unless the holders of any such mortgages or deeds of trust, or the lessors under such ground or master leases (such holders and lessors are sometimes collectively referred to herein as "Holders") require in writing that this Lease be superior thereto.  Notwithstanding any provision of this Paragraph 11 to the contrary, any Holder of any Security Instrument may at any time subordinate the lien of its Security Instrument to this Lease without obtaining Tenant's consent by giving Tenant written notice of such subordination, in which event this Lease shall be deemed to be senior to the Security Instrument in question.  Tenant shall, within fifteen (15) days of request to do so by Landlord, execute, acknowledge and deliver to Landlord such further instruments or assurances as Landlord may deem necessary or appropriate to evidence or confirm the subordination or superiority of this Lease to any such Security Instrument; provided, however, that at the request of Tenant made within five (5) days of any such Landlord request, Landlord shall use commercially reasonable efforts to obtain for the benefit of Tenant such Holder’s standard nondisturbance agreement.  Tenant hereby irrevocably authorizes Landlord to execute and deliver in the name of Tenant any such instrument or instruments if Tenant fails to do so within said fifteen (15) day period.              11.2     Attornment.  Tenant covenants and agrees that in the event that any proceedings are brought for the foreclosure of any mortgage or deed of trust, or if any ground or master lease is terminated, it shall attorn, without any deductions or set-offs whatsoever, to the purchaser upon any such foreclosure sale, or to the lessor of such ground or master lease, as the case may be, if so requested to do so by such purchaser or lessor, and to recognize such purchaser or lessor as "Landlord" under this Lease.  If requested, Tenant shall enter into a new lease with that successor on the same terms and conditions as are contained in this Lease (for the unexpired portion of the Term then remaining). 12.        Rules and Regulations.  Tenant shall comply, and shall cause each Tenant Party to comply, with the Rules and Regulations of the Building which are attached hereto as Exhibit A, and all such nondiscriminatory modifications, additions, deletions and amendments thereto as Landlord shall adopt in good faith from time to time. 13.        Condemnation.  If the entire Project or Premises are taken by right of eminent domain or conveyed by Landlord in lieu thereof (a "Taking"), this Lease shall terminate as of the date of the Taking.  If any part of the Project becomes subject to a Taking and such Taking will prevent Tenant from conducting its business in the Premises in a manner reasonably comparable to that conducted immediately before such Taking for a period of more than one hundred eighty (180) days, then Tenant may terminate this Lease as of the date of such Taking by giving written notice to Landlord within thirty (30) days after the Taking, and all Rent paid or payable hereunder shall be apportioned between Landlord and Tenant as of the date of such Taking.  If any material portion, but less than all, of the Project, Building or the Premises becomes subject to a Taking, or if Landlord is required to pay any of the proceeds received for a Taking to any Holder of any Security Instrument, then Landlord may terminate this Lease by delivering written notice thereof to Tenant within thirty (30) days after such Taking, and all Rent paid or payable hereunder shall be apportioned between Landlord and Tenant as of the date of such Taking.  If this Lease is not so terminated, then Base Rent thereafter payable hereunder shall be abated for the duration of the Taking in proportion to that portion of the Premises rendered untenantable by such Taking.  If any Taking occurs, then Landlord shall receive the entire award or other compensation for the land on which the Project is situated, the Project, and other improvements taken, and Tenant may separately pursue a claim (to the extent it will not reduce Landlord's award) against the condemnor for the value of Tenant's personal property which Tenant is entitled to remove under this Lease and moving and relocation costs.  Landlord and Tenant agree that the provisions of this Paragraph 13 and the remaining provisions of this Lease shall exclusively govern the rights and obligations of the parties with respect to any Taking of any portion of the Premises, the Building, the Project or the land on which the Building is located, and Landlord and Tenant hereby waive and release each and all of their respective common law and statutory rights inconsistent herewith, whether now or hereinafter in effect. 14.        Fire or Other Casualty.              14.1     Repair Estimate; Right to Terminate.  If all or any portion of the Premises, the Building or the Project is damaged by fire or other casualty (a "Casualty"), Landlord shall, within ninety (90) days after Landlord’s discovery of such damage, deliver to Tenant its good faith estimate (the "Damage Notice") of the time period following such notice needed to repair the damage caused by such Casualty.  Landlord may elect to terminate this Lease in any case where (a) any portion of the Premises or any material portion of the Project are damaged and (b) either (i) Landlord estimates in good faith that the repair and restoration of such damage under Paragraph 14.2 ("Restoration") cannot reasonably be completed (without the payment of overtime) within two hundred (200) days of Landlord's actual discovery of such damage, (ii) the Holder of any Security Instrument requires the application of any insurance proceeds with respect to such Casualty to be applied to the outstanding balance of the obligation secured by such Security Instrument, (iii) the cost of such Restoration is not fully covered by insurance proceeds available to Landlord and/or payments received by Landlord from tenants, or (iv) Tenant shall be entitled to an abatement of rent under this Paragraph 14 for any period of time in excess of thirty-three percent (33%) of the remainder of the Term.  Such right of termination shall be exercisable by Landlord by delivery of written notice to Tenant at any time following the Casualty until forty-five (45) days following the later of (A) delivery of the Damage Notice or (B) Landlord's discovery or determination of any of the events described in clauses (i) through (iv) of the preceding sentence, and shall be effective upon delivery of such notice of termination (or if Tenant has not vacated the Premises, upon the expiration of thirty (30) days thereafter).              14.2     Repair Obligation; Abatement of Rent.  Subject to the provisions of Paragraph 14.1, Landlord shall, within a reasonable time after the discovery by Landlord of any damage resulting from a Casualty, begin to repair the damage to the Building and the Premises resulting from such Casualty and shall proceed with reasonable diligence to restore the Building and Premises to substantially the same condition as existed immediately before such Casualty, except for modifications required by Regulations, and modifications to the Building or the Project reasonably deemed desirable by Landlord; provided, however, that Landlord shall not be required as part of the Restoration to repair or replace any of the Alterations, furniture, equipment, fixtures, and other improvements which may have been placed by, or at the request of, Tenant or other occupants in the Building or the Premises. Landlord shall have no liability for any inconvenience or annoyance to Tenant or injury to Tenant's business as a result of any Casualty, regardless of the cause therefor.  Base Rent, and Additional Rent payable under Paragraph 3.2, shall abate if and to the extent a Casualty damages the Premises or common areas in the Project required and essential for access thereto and as a result thereof all or a material portion of the Premises are rendered unfit for occupancy, and are not occupied by Tenant, for the period of time commencing on the date Tenant vacates the portion of the Premises affected on account thereof and continuing until the date the Restoration to be performed by Landlord with respect to the Premises (and/or required common areas) is substantially complete, as determined by Landlord's architect.  Landlord and Tenant agree that the provisions of this Paragraph 14 and the remaining provisions of this Lease shall exclusively govern the rights and obligations of the parties with respect to any and all damage to, or destruction of, all or any portion of the Premises or the Project by Casualty, and Landlord and Tenant hereby waive and release each and all of their respective common law and statutory rights inconsistent herewith, whether now or hereinafter in effect. 15.        Parking.  Tenant shall have the right to the nonexclusive use of such portion of the parking facilities of the Project as are designated by Landlord from time to time for such purpose for the parking of passenger-size motor vehicles used by Tenant and Tenant Parties only and are not transferable without Landlord’s approval.  The use of such parking facilities shall be subject to the parking rules and regulations, as such rules and regulations may be modified by Landlord from time to time, for the use of such facilities.  Tenant and the Tenant Parties shall not use more than Tenant’s allocated number of parking spaces (based on the parking density for the Project established by Landlord) at any time.  Tenant shall have the use of up to and not exceeding two (2) unreserved parking stalls based upon the building’s parking ratio of .75/1,000 rentable square feet, at the prevailing monthly market rate per stall. 16.        Events of Default.  Each of the following occurrences shall be an "Event of Default" and shall constitute a material default and breach of this Lease by Tenant:  (a) any failure by Tenant to pay any installment of Base Rent, Additional Rent or to make any other payment required to be made by Tenant hereunder when due; (b) the abandonment or vacation of the Premises by Tenant, provided, however, that unless Tenant is using the Premises for a retail use, abandonment or vacation of the Premises shall not be an Event of Default so long as no other Event of Default has occurred hereunder and provided Tenant has given Landlord five (5) days’ prior written notice of its intent to vacate the Premises; (c) any failure by Tenant to execute and deliver any estoppel certificate or other document or instrument described in Paragraphs 10 (insurance), 11 (subordination) or 21.2 (estoppel certificates) requested by Landlord, where such failure continues for five (5) days after delivery of written notice of such failure by Landlord to Tenant; (d) any failure by Tenant to fully perform any other obligation of Tenant under this Lease, where such failure continues for thirty (30) days (except where a shorter period of time is specified in this Lease, in which case such shorter time period shall apply) after delivery of written notice of such failure by Landlord to Tenant; (e) the voluntary or involuntary filing of a petition by or against Tenant or any general partner of Tenant (i) in any bankruptcy or other insolvency proceeding, (ii) seeking any relief under any state or federal debtor relief law, (iii) for the appointment of a liquidator or receiver for all or substantially all of Tenant's property or for Tenant's interest in this Lease, or (iv) for the reorganization or modification of Tenant's capital structure (provided, however, that if such a petition is filed against Tenant, then such filing shall not be an Event of Default unless Tenant fails to have the proceedings initiated by such petition dismissed within sixty (60) days after the filing thereof); (f) the default of any guarantor of Tenant's obligations hereunder under any guaranty of this Lease, the attempted repudiation or revocation of any such guaranty, or the participation by any such guarantor in any other event described in this Paragraph 16 (as if this Paragraph 16 referred to such guarantor in place of Tenant); or (g) any other event, act or omission which any other provision of this Lease identifies as an Event of Default.  Any notice of any failure of Tenant required under this Paragraph 16 shall be in lieu of, and not in addition to, any notice required under any Regulation. 17.        Remedies.  Upon the occurrence of any Event of Default by Tenant, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity (all of which remedies shall be distinct, separate, and cumulative), the option to pursue any one (1) or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever:              (a)         Terminate this Lease, and Landlord may recover from Tenant the following:  (i) the worth at the time of any unpaid rent which has been earned at the time of such termination; plus (ii) 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 rental loss that Tenant proves could have been reasonably avoided; plus (iii) 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 rental loss that Tenant proves could have been reasonably avoided; plus (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom (specifically including, without limitation, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant); and (v) at Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.  The term "rent" as used in this Paragraph 17(a) shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others.  As used in Paragraphs 17(a)(i) and (ii), above, the "worth at the time of award" shall be computed by allowing interest at the Default Rate, but in no case greater than the maximum amount of such interest permitted by law.  As used in Paragraph 17(a)(iii) above, the "worth at the time of award" 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%).              (b)        If Landlord does not elect to terminate this Lease on account of any Event of Default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all Rent as it becomes due.              (c)         Landlord shall at all times have the rights and remedies (which shall be cumulative with each other and cumulative and in addition to those rights and remedies available under Paragraphs 17(a) and 17(b) above, or any law or other provision of this Lease), without prior demand or notice except as required by applicable law, to seek any declaratory, injunctive, or other equitable relief, to use self-help remedies, and to specifically enforce this Lease, or restrain or enjoin a violation or breach of any provision hereof.              (d)        Following the occurrence of three instances of payment of Rent more than ten (10) days late in any twelve (12) month period, the late charge set forth in Paragraph 4 shall apply from the date payment was due and Landlord may, without prejudice to any other rights or remedies available to it, upon written notice to Tenant, require that all remaining monthly installments of Rent payable under this Lease shall be payable by cashier's check or electronic funds transfer three (3) months in advance, and may require that Tenant increase the Security Deposit to an amount equal to three times the current month’s Rent at the time of the most recent default.  In addition, (i) upon the occurrence of an Event of Default by Tenant, if the Premises or any portion thereof are sublet, Landlord may, at its option and in addition and without prejudice to any other remedies herein provided or provided by law, collect directly from the sublessee(s) all rentals becoming due to the Tenant and apply such rentals against other sums due hereunder to Landlord; (ii) without prejudice to any other right or remedy of Landlord, if Tenant shall be in default under this Lease, Landlord may cure the same at the expense of Tenant (A) immediately and without notice in the case (1) of emergency, (2) where such default unreasonably interferes with any other tenant in the Building, or (3) where such default will result in the violation of any Regulation or the cancellation of any insurance policy maintained by Landlord, and (B) in any other case if such default continues for ten (10) days following the receipt by Tenant of notice of such default from Landlord and all costs incurred by Landlord in curing such default(s), including, without limitation, attorneys' fees, shall be reimbursable by Tenant as Rent hereunder upon demand, together with interest thereon, from the date such costs were incurred by Landlord, at the Default Rate; and (iii) Tenant hereby waives for Tenant and for all those claiming under Tenant all rights now and hereafter existing to redeem by order or judgment of any court or by any legal process or writ, Tenant's right of occupancy of the Premises after any termination of this Lease. 18.        Surrender of Premises.  No act by Landlord shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept a surrender of the Premises shall be valid unless it is in writing and signed by Landlord.  At the expiration or earlier termination of this Lease, Tenant shall deliver to Landlord all keys (including any electronic access devices and the like) to the Premises, and Tenant shall deliver to Landlord the Premises in the same condition as existed on the date Tenant originally took possession thereof, ordinary wear and tear excepted, provided that ordinary wear and tear shall not include repair and clean up items.  By way of example, but without limitation, repair and clean up items shall include cleaning of all interior walls, carpets and floors, replacement of damaged or missing ceiling or floor tiles, window coverings or cover plates, removal of any Tenant-introduced markings, and repair of all holes and gaps and repainting required thereby, as well as the removal requirements below.  In addition, prior to the expiration of the Term or any sooner termination thereof, (a) Tenant shall remove such Alterations as Landlord shall request and shall restore the portion of the Premises affected by such Alterations and such removal to its condition existing immediately prior to the making of such Alterations, (b) Tenant shall remove from the Premises all unattached trade fixtures, furniture, equipment and personal property located in the Premises, including, without limitation, phone equipment, wiring, cabling and all garbage, waste and debris, and (c) Tenant shall repair all damage to the Premises or the Project caused by any  such removal including, without limitation, full restoration of all holes and gaps resulting from any such removal and repainting required thereby.  All personal property and fixtures of Tenant not so removed shall, to the extent permitted under applicable Regulations, be deemed to have been abandoned by Tenant and may be appropriated, sold, stored, destroyed, or otherwise disposed of by Landlord without notice to Tenant and without any obligation to account for such items. 19.        Holding Over.  If Tenant holds over after the expiration or earlier termination of the Term hereof, with or without the express or implied consent of Landlord, Tenant shall become and be only a tenant at sufferance at a daily rent equal to one-thirtieth of the greater of (a) the then prevailing monthly fair market rental rate as determined by Landlord in its sole and absolute discretion, or (b) two hundred percent (200%) of the monthly installment of Base Rent (and estimated Additional Rent payable under Paragraph 3.2) payable by Tenant immediately prior to such expiration or termination, and otherwise upon the terms, covenants and conditions herein specified, so far as applicable, as reasonably determined by Landlord.  Neither any provision hereof nor any acceptance by Landlord of any Rent after any such expiration or earlier termination (including, without limitation, through any “lockbox”) shall be deemed a consent to any holdover hereunder or result in a renewal of this Lease or an extension of the Term, or any waiver of any of Landlord's rights or remedies with respect to such holdover.  Notwithstanding any provision to the contrary contained herein, (i) Landlord expressly reserves the right to require Tenant to surrender possession of the Premises upon the expiration of the Term or upon the earlier termination hereof or at any time during any holdover, and the right to assert any remedy at law or in equity to evict Tenant and collect damages in connection with any such holdover, and (ii) Tenant shall indemnify, defend and hold Landlord harmless from and against any and all claims, demands, actions, proceedings, losses, damages, liabilities, obligations, penalties, costs and expenses, including, without limitation, all lost profits and other consequential damages, attorneys' fees, consultants' fees and court costs incurred or suffered by or asserted against Landlord by reason of Tenant's failure to surrender the Premises on the expiration or earlier termination of this Lease in accordance with the provisions of this Lease. 20.        Substitution Space.  Upon at least sixty (60) days’ prior written notice, Landlord may relocate Tenant within the Project (or to any other facility owned by Landlord within the vicinity of the Project) to space which is comparable in size, utility and condition to the Premises.  If Landlord relocates Tenant, Landlord shall (a) reimburse Tenant for Tenant's reasonable out-of-pocket expenses for moving Tenant's furniture, equipment and supplies from the Premises to the relocation space and for reprinting Tenant's stationery of the same quality and quantity as Tenant's stationery supply on hand immediately before Landlord's notice to Tenant of the exercise of this relocation right, and (b) improve the relocation space with improvements substantially similar to those Landlord is committed to provide or has provided in the Premises under this Lease.  Upon such relocation, the relocation space shall be deemed to be the Premises and the terms of this Lease shall remain in full force and shall apply to the relocation space; provided, however, that (i) if the rentable area of the relocation space is smaller than rentable area of the Premises, then Tenant shall be entitled (from and after the relocation date) to a reduction in Base Rent in proportion to the reduction in the rentable area of the Premises, with a corresponding reduction in Tenant's Proportionate Share and (ii) if the rentable area of the relocation space is larger than the rentable area of the Premises, then the Base Rent and Tenant's Proportionate Share shall not be modified in any way. 21.        Miscellaneous.              21.1     Landlord Transfers and Liability.  Landlord may, without restriction, sell, assign or transfer in any manner all or any portion of the Project, any interest therein or any of Landlord's rights under this Lease.  If Landlord assigns its rights under this Lease, then Landlord shall automatically be released from any further obligations hereunder, provided that the assignee thereof assumes in writing all of Landlord’s obligations hereunder accruing after such assignment.  The liability of Landlord to Tenant for any default by Landlord under the terms of this Lease or with respect to any obligation or liability related to the Premises or the Project shall be recoverable only from the interest of Landlord in the Project, and neither Landlord nor any affiliate thereof shall have any personal liability with respect thereto and in no case shall Landlord be liable to Tenant for any lost profits, damage to business, or any form of special, indirect or consequential damage on account of any breach of this Lease.              21.2     Estoppel Certificates; Financial Statements.  At any time and from time to time during the Term, Tenant shall, without charge, execute, acknowledge and deliver to Landlord within ten (10) days after Landlord's request therefor, an estoppel certificate in recordable form containing such factual certifications and other provisions as are found in the estoppel certificate forms requested by institutional lenders and purchasers.  Tenant agrees in any case that (a) the foregoing certificate may be relied on by anyone holding or proposing to acquire any interest in the Project from or through Landlord or by any mortgagee or lessor or prospective mortgagee or lessor of the Project or of any interest therein and (b) the form of estoppel certificate shall be in the form of, at Landlord's election, the standard form of such present or prospective lender, lessor or purchaser (or any form substantially similar thereto), or any other form that Landlord shall reasonably select.  At the request of Landlord from time to time, Tenant shall provide to Landlord within ten (10) days of Landlord’s request therefor Tenant’s and any guarantor’s current financial statements.              21.3     Notices.  Notices, requests, consents or other communications desired or required to be given by or on behalf of Landlord or Tenant under this Lease shall be effective only if given in writing and sent by (a) registered or certified United States mail, postage prepaid, (b) nationally recognized express mail courier that provides written evidence of delivery, fees prepaid, or (c) facsimile and United States mail, postage prepaid, and addressed as set forth in the Basic Lease Information, or at such other address in the State of Oregon as may be specified from time to time, in writing, or, if to Tenant, at the Premises.  Any such notice, request, consent, or other communication shall only be deemed given (i) if sent by registered or certified United States mail, on the day it is officially delivered to or refused by the intended recipient, (ii) if sent by nationally recognized express mail courier, on the date it is officially recorded by such courier, (iii) if delivered by facsimile, on the date the sender obtains written telephonic confirmation that the electronic transmission was received, or (iv) if delivered personally, upon delivery or, if refused by the intended recipient, upon attempted delivery.              21.4     Payment by Tenant; Non-Waiver.  Landlord's acceptance of Rent (including, without limitation, through any “lockbox”) following an Event of Default shall not waive Landlord's rights regarding such Event of Default.  No waiver by Landlord of any violation or breach of any of the terms contained herein shall waive Landlord's rights regarding any future violation of such terms.  Landlord's acceptance of any partial payment of Rent shall not waive Landlord's rights with regard to the remaining portion of the Rent that is due, regardless of any endorsement or other statement on any instrument delivered in payment of Rent or any writing delivered in connection therewith; accordingly, Landlord's acceptance of a partial payment of Rent shall not constitute an accord and satisfaction of the full amount of the Rent that is due.              21.5     Certain Rights Reserved by Landlord.  Landlord hereby reserves and shall have the following rights with respect to the Premises and the Project:  (a) to decorate and to make inspections, repairs, alterations, additions, changes, or improvements, whether structural or otherwise, in and about the Project, the Building, the Premises or any part thereof; to enter upon the Premises and, during the continuance of any such work, to temporarily close doors, entryways, public space, and corridors in the Project or the Building; to interrupt or suspend temporarily Building services and facilities; to change the name of the Building or the Project; and to change the arrangement and location of entrances or passageways, doors, and doorways, corridors, elevators, stairs, restrooms, common areas, or other public parts of the Building or the Project; (b) to take such measures as Landlord deems advisable in good faith for the security of the Building and its occupants; to temporarily deny access to the Building to any person; and to close the Building after ordinary business hours and on Sundays and Holidays, subject, however, to Tenant's right to enter when the Building is closed after ordinary business hours under such rules and regulations as Landlord may reasonably prescribe from time to time during the Term; and (c) to enter the Premises at reasonable hours (or at any time in an emergency) to perform repairs, to take any action authorized hereunder, or to show the Premises to prospective purchasers or lenders, or, during the last six (6) months of the Term, prospective tenants.              21.6     Miscellaneous.  If any clause or provision of this Lease is illegal, invalid, or unenforceable under present or future laws, then the remainder of this Lease shall not be affected thereby.  This Lease may not be amended except by instrument in writing signed by Landlord and Tenant. No provision of this Lease shall be deemed to have been waived by Landlord unless such waiver is in writing signed by Landlord.  The terms and conditions contained in this Lease shall inure to the benefit of and be binding upon the parties hereto, and upon their respective successors in interest and legal representatives, except as otherwise herein expressly provided.  This Lease constitutes the entire agreement between Landlord and Tenant regarding the subject matter hereof and supersedes all oral statements and prior writings relating thereto.  Tenant and the person or persons signing on behalf of Tenant represent and warrant that Tenant has full right and authority to enter into this Lease, and that all persons signing this Lease on its behalf are authorized to do so.  If Tenant is comprised of more than one party, each such party shall be jointly and severally liable for Tenant's obligations under this Lease.  All exhibits and attachments attached hereto are incorporated herein by this reference.  This Lease shall be governed by and construed in accordance with the laws of the State of Oregon.  In any action which Landlord or Tenant brings to enforce its respective rights hereunder, the unsuccessful party shall pay all costs incurred by the prevailing party, including without limitation, reasonable attorneys’ fees and court costs.  Landlord is a real estate organization licensed by the State of Oregon.  Tenant shall not record this Lease or any memorandum hereof.  TO THE MAXIMUM EXTENT PERMITTED BY LAW, LANDLORD AND TENANT EACH WAIVE RIGHT TO TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF OR WITH RESPECT TO THIS LEASE.  Submission of this Lease to Tenant does not constitute an option or offer to lease and this Lease is not effective otherwise until execution and delivery by both Landlord and Tenant.  This Lease may be executed in any number of counterparts, each of which shall be deemed an original. Time is of the essence as to the performance of each covenant hereunder in which time of performance is a factor.   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] EXHIBIT A RULES AND REGULATIONS 1. Driveways, sidewalks, halls, passages, exits, entrances, elevators, escalators and stairways shall not be obstructed by tenants or used by tenants for any purpose other than for ingress to and egress from their respective premises.  The driveways, sidewalks, halls, passages, exits, entrances, elevators and stairways are not for the use of the general public and Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence, in the judgment of Landlord, shall be prejudicial to the safety, character, reputation and interests of the Building, the Project and its tenants, provided that nothing herein contained shall be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of such tenant’s business unless such persons are engaged in illegal activities.  No tenant, and no employees or invitees of any tenant, shall go upon the roof of any Building, except as authorized by Landlord.  No tenant, and no employees or invitees of any tenant shall move any common area furniture without Landlord’s consent.     2. No sign, placard, banner, picture, name, advertisement or notice, visible from the exterior of the Premises or the Building or the common areas of the Building shall be inscribed, painted, affixed, installed or otherwise displayed by Tenant either on its Premises or any part of the Building or Project without the prior written consent of Landlord in Landlord’s sole and absolute discretion.  Landlord shall have the right to remove any such sign, placard, banner, picture, name, advertisement, or notice without notice to and at the expense of Tenant, which were installed or displayed in violation of this rule.  If Landlord shall have given such consent to Tenant at any time, whether before or after the execution of Tenant’s Lease, such consent shall in no way operate as a waiver or release of any of the provisions hereof or of the Lease, and shall be deemed to relate only to the particular sign, placard, banner, picture, name, advertisement or notice so consented to by Landlord and shall not be construed as dispensing with the necessity of obtaining the specific written consent of Landlord with respect to any other such sign, placard, banner, picture, name, advertisement or notice.       All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant by a person or vendor approved by Landlord and shall be removed by Tenant at the time of vacancy at Tenant’s expense.     3. The directory of the Building or Project will be provided exclusively for the display of the name and location of tenants only and Landlord reserves the right to charge for the use thereof and to exclude any other names therefrom.     4. No curtains, draperies, blinds, shutters, shades, screens or other coverings, awnings, hangings or decorations shall be attached to, hung or placed in, or used in connection with, any window or door on the Premises without the prior written consent of Landlord.  In any event with the prior written consent of Landlord, all such items shall be installed inboard of Landlord’s standard window covering and shall in no way be visible from the exterior of the Building.  All electrical ceiling fixtures hung in offices or spaces along the perimeter of the Building must be fluorescent or of a quality, type, design, and bulb color approved by Landlord.  No articles shall be placed or kept on the window sills so as to be visible from the exterior of the Building.  No articles shall be placed against glass partitions or doors which Landlord considers unsightly from outside Tenant’s Premises.     5. Landlord reserves the right to exclude from the Building and the Project, between the hours of 6 p.m. and 8 a.m. and at all hours on Saturdays, Sundays and legal holidays, all persons who are not tenants or their accompanied guests in the Building.  Each tenant shall be responsible for all persons for whom it allows to enter the Building or the Project and shall be liable to Landlord for all acts of such persons.       Landlord and its agents shall not be liable for damages for any error concerning the admission to, or exclusion from, the Building or the Project of any person.       During the continuance of any invasion, mob, riot, public excitement or other circumstance rendering such action advisable in Landlord’s opinion, Landlord reserves the right (but shall not be obligated) to prevent access to the Building and the Project during the continuance of that event by any means it considers appropriate for the safety of tenants and protection of the Building, property in the Building and the Project.     6. All cleaning and janitorial services for the Building and the Premises shall be provided exclusively through Landlord.  Except with the written consent of Landlord, no person or persons other than those approved by Landlord shall be permitted to enter the Building for the purpose of cleaning the same.  Tenant shall not cause any unnecessary labor by reason of Tenant's carelessness or indifference in the preservation of good order and cleanliness of its Premises.  Landlord shall in no way be responsible to Tenant for any loss of property on the Premises, however occurring, or for any damage done to Tenant's property by the janitor or any other employee or any other person.     7. Tenant shall see that all doors of its Premises are closed and securely locked and must observe strict care and caution that all water faucets or water apparatus, coffee pots or other heat-generating devices are entirely shut off before Tenant or its employees leave the Premises, and that all utilities shall likewise be carefully shut off, so as to prevent waste or damage.  Tenant shall be responsible for any damage or injuries sustained by other tenants or occupants of the Building or Project or by Landlord for noncompliance with this rule.  On multiple–tenancy floors, all tenants shall keep the door or doors to the Building corridors closed at all times except for ingress and egress.     8. Tenant shall not use any method of heating or air-conditioning other than that supplied by Landlord.  As more specifically provided in Tenant’s lease of the Premises, Tenant shall not waste electricity, water or air–conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the Building’s heating and air–conditioning, and shall refrain from attempting to adjust any controls other than room thermostats installed for Tenant’s use.     9. Landlord will furnish Tenant free of charge with two keys to each door in the Premises.  Landlord may make a reasonable charge for any additional keys, and Tenant shall not make or have made additional keys.  Tenant shall not alter any lock or access device or install a new or additional lock or access device or bolt on any door of its Premises, without the prior written consent of Landlord.  If Landlord shall give its consent, Tenant shall in each case furnish Landlord with a key for any such lock.  Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys for all doors which have been furnished to Tenant, and in the event of loss of any keys so furnished, shall pay Landlord therefor.     10. The restrooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown into them.  The expense of any breakage, stoppage, or damage resulting from violation of this rule shall be borne by the tenant who, or whose employees or invitees, shall have caused the breakage, stoppage, or damage.     11. Tenant shall not use or keep in or on the Premises, the Building or the Project any kerosene, gasoline, or inflammable or combustible fluid or material.     12. Tenant shall not use, keep or permit to be used or kept in its Premises any foul or noxious gas or substance.  Tenant shall not allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors and/or vibrations or interfere in any way with other tenants or those having business therein, nor shall any animals or birds be brought or kept in or about the Premises, the Building, or the Project.   13. No cooking shall be done or permitted by any tenant on the Premises, except that use by the tenant of Underwriters’ Laboratory (UL) approved equipment, refrigerators and microwave ovens may be used in the Premises for the preparation of coffee, tea, hot chocolate and similar beverages, storing and heating food for tenants and their employees shall be permitted.  All uses must be in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations and the Lease.     14. Except with the prior written consent of Landlord, Tenant shall not sell, or permit the sale, at retail, of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise in or on the Premises, nor shall Tenant carry on, or permit or allow any employee or other person to carry on, the business of stenography, typewriting or any similar business in or from the Premises for the service or accommodation of occupants of any other portion of the Building, nor shall the Premises be used for the storage of merchandise or for manufacturing of any kind, or the business of a public barber shop, beauty parlor, nor shall the Premises be used for any illegal, improper, immoral or objectionable purpose, or any business or activity other than that specifically provided for in such Tenant’s Lease.  Tenant shall not accept hairstyling, barbering, shoeshine, nail, massage or similar services in the Premises or common areas except as authorized by Landlord.     15. If Tenant requires telegraphic, telephonic, telecommunications, data processing, burglar alarm or similar services, it shall first obtain, and comply with, Landlord’s instructions in their installation.  The cost of purchasing, installation and maintenance of such services shall be borne solely by Tenant.     16. Landlord will direct electricians as to where and how telephone, telegraph and electrical wires are to be introduced or installed.  No boring or cutting for wires will be allowed without the prior written consent of Landlord.  The location of burglar alarms, telephones, call boxes and other office equipment affixed to the Premises shall be subject to the prior written approval of Landlord.     17. Tenant shall not install any radio or television antenna, satellite dish, loudspeaker or any other device on the exterior walls or the roof of the Building, without Landlord’s consent.  Tenant shall not interfere with radio or television broadcasting or reception from or in the Building, the Project or elsewhere.     18. Tenant shall not mark, or drive nails, screws or drill into the partitions, woodwork or drywall or in any way deface the Premises or any part thereof without Landlord’s consent.  Tenant may install nails and screws in areas of the Premises that have been identified for those purposes to Landlord by Tenant at the time those walls or partitions were installed in the Premises.  Tenant shall not lay linoleum, tile, carpet or any other floor covering so that the same shall be affixed to the floor of its Premises in any manner except as approved in writing by Landlord.  The expense of repairing any damage resulting from a violation of this rule or the removal of any floor covering shall be borne by the tenant by whom, or by whose contractors, employees or invitees, the damage shall have been caused.     19. No furniture, freight, equipment, materials, supplies, packages, merchandise or other property will be received in the Building or carried up or down the elevators except between such hours and in such elevators as shall be designated by Landlord.       Tenant shall not place a load upon any floor of its Premises which exceeds the load per square foot which such floor was designed to carry or which is allowed by law.  Landlord shall have the right to prescribe the weight, size and position of all safes, furniture or other heavy equipment brought into the Building.  Safes or other heavy objects shall, if considered necessary by Landlord, stand on wood strips of such thickness as determined by Landlord to be necessary to properly distribute the weight thereof.  Landlord will not be responsible for loss of or damage to any such safe, equipment or property from any cause, and all damage done to the Building by moving or maintaining any such safe, equipment or other property shall be repaired at the expense of Tenant.       Business machines and mechanical equipment belonging to Tenant which cause noise or vibration that may be transmitted to the structure of the Building or to any space therein to such a degree as to be objectionable to Landlord or to any tenants in the Building shall be placed and maintained by Tenant, at Tenant’s expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration.  The persons employed to move such equipment in or out of the Building must be acceptable to Landlord.     20. Tenant shall not install, maintain or operate upon its Premises any vending machine without the written consent of Landlord.     21. There shall not be used in any space, or in the public areas of the Project either by Tenant or others, any hand trucks except those equipped with rubber tires and side guards or such other material handling equipment as Landlord may approve.  Tenants using hand trucks shall be required to use the freight elevator, or such elevator as Landlord shall designate.  No other vehicles of any kind shall be brought by Tenant into or kept in or about its Premises.     22. Each tenant shall store all its trash and garbage within the interior of the Premises.  Tenant shall not place in the trash boxes or receptacles any personal trash or any material that may not or cannot be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the city, without violation of any law or ordinance governing such disposal.  All trash, garbage and refuse disposal shall be made only through entry-ways and elevators provided for such purposes and at such times as Landlord shall designate.  If the Building has implemented a building-wide recycling program for tenants, Tenant shall use good faith efforts to participate in said program.     23. Canvassing, soliciting, distribution of handbills or any other written material and peddling in the Building and the Project are prohibited and each tenant shall cooperate to prevent the same.  No tenant shall make room–to–room solicitation of business from other tenants in the Building or the Project, without the written consent of Landlord.     24. Landlord shall have the right, exercisable without notice and without liability to any tenant, to change the name and address of the Building and the Project.     25. Landlord reserves the right to exclude or expel from the Project any person who, in Landlord’s judgment, is under the influence of alcohol or drugs or who commits any act in violation of any of these Rules and Regulations.     26. Without the prior written consent of Landlord, Tenant shall not use the name of the Building or the Project or any photograph or other likeness of the Building or the Project in connection with, or in promoting or advertising, Tenant’s business except that Tenant may include the Building’s or Project’s name in Tenant’s address.     27. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.     28. Tenant assumes any and all responsibility for protecting its Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed.     29. The requirements of Tenant will be attended to only upon appropriate application at the office of the Building by an authorized individual.  Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employees of Landlord will admit any person (tenant or otherwise) to any office without specific instructions from Landlord.   30. Landlord reserves the right to designate the use of the parking spaces on the Project.  Tenant or Tenant’s guests shall park between designated parking lines only, and shall not occupy two parking spaces with one car.  Parking spaces shall be for passenger vehicles only; no boats, trucks, trailers, recreational vehicles or other types of vehicles may be parked in the parking areas (except that trucks may be loaded and unloaded in designated loading areas).  Vehicles in violation of the above shall be subject to tow–away, at vehicle owner’s expense.  Vehicles parked on the Project overnight without prior written consent of the Landlord shall be deemed abandoned and shall be subject to tow–away at vehicle owner’s expense.  No tenant of the Building shall park in visitor or reserved parking areas.  Any tenant found parking in such designated visitor or reserved parking areas or unauthorized areas shall be subject to tow-away at vehicle owner’s expense.  The parking areas shall not be used to provide car wash, oil changes, detailing, automotive repair or other services unless otherwise approved or furnished by Landlord.  Tenant will from time to time, upon the request of Landlord, supply Landlord with a list of license plate numbers of vehicles owned or operated by its employees or agents.     31. No smoking of any kind shall be permitted anywhere within the Building, including, without limitation, the Premises and those areas immediately adjacent to the entrances and exits to the Building, or any other area as Landlord elects.  Smoking in the Project is only permitted in smoking areas identified by Landlord, which may be relocated from time to time.     32. If the Building furnishes common area conferences rooms for tenant usage, Landlord shall have the right to control each tenant’s usage of the conference rooms, including limiting tenant usage so that the rooms are equally available to all tenants in the Building.  Any common area amenities or facilities shall be provided from time to time at Landlord’s discretion.     33. Tenant shall not swap or exchange building keys or cardkeys with other employees or tenants in the Building or the Project.     34. Tenant shall be responsible for the observance of all of the foregoing Rules and Regulations by Tenant’s employees, agents, clients, customers, invitees and guests.     35. These Rules and Regulations are in addition to, and shall not be construed to in any way modify, alter or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of any premises in the Project.     36. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant or tenants, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all tenants of the Building.              Landlord reserves the right to make such other and reasonable rules and regulations as in its judgment may from time to time be needed for safety and security, for care and cleanliness of the Building and the Project and for the preservation of good order therein.  Tenant agrees to abide by all such Rules and Regulations herein stated and any additional rules and regulations which are adopted. EXHIBIT B FLOOR PLAN EXHIBIT C LEASE IMPROVEMENT AGREEMENT     1. In consideration of the mutual covenants contained in the Lease of which this Exhibit C is a part, Landlord agrees to perform the following initial tenant improvement work in the Premises (“Tenant Improvements”)             • Clean carpets throughout the Premises.         • Provide touch-up paint where necessary within the Premises.         • Provide a total of two (2) new duplex electrical outlets, as shown on the attached Exhibit B.         • All other improvements are subject to Landlord’s review and approval, and shall be made at Tenant’s sole cost and responsibility.       2. All the Tenant Improvements described above shall be performed by Landlord at its cost and expense using Building Standard materials and in the Building Standard manner.  As used herein, “Building Standard” shall mean the standards for a particular item selected from time to time by Landlord for the Building or such other standards as may be mutually agreed upon between Landlord and Tenant in writing.         3. Without limiting the “as-is” provisions of the Lease, Tenant accepts the Premises in its “as-is” condition and acknowledges that Landlord has no obligation to make any changes or improvements to the Premises or to pay any costs expended or to be expended in connection with any such changes or improvements, other than the Tenant Improvements specified in Paragraph 1 of this Exhibit C.         4. Tenant shall not perform any work in the Premises (including, without limitation, cabling, wiring, fixturization, painting, carpeting, replacements or repairs) except in accordance with Paragraph 7.1 of the Lease.       EXHIBIT D  INSURANCE Tenant’s Insurance.  Tenant shall, at Tenant’s sole cost and expense, procure and keep in effect from the date of this Lease and at all times until the end of the Term, the following insurance coverage: 1. Property Insurance.  Insurance on all personal property and fixtures of Tenant and all improvements made by or for Tenant to the Premises on an “All Risk” or “Special Form” basis, for the full replacement value of such property.     2. Liability Insurance.  Commercial General Liability insurance written on an ISO CG 00 01 10 93 or equivalent form, on an occurrence basis, with a per occurrence limit of at least $2,000,000, and a minimum general aggregate limit of at least $3,000,000, covering bodily injury and property damage liability occurring in or about the Premises or arising out of the use and occupancy of the Premises or the Project by Tenant or any Tenant Party.  Such insurance shall include contractual liability coverage insuring Tenant’s indemnity obligations under this Lease, and shall be endorsed to name Landlord, any Holder of a Security Instrument and any other party specified by Landlord as an additional insured with regard to liability arising out of the ownership, maintenance or use of the Premises.     3. Worker’s Compensation and Employer’s Liability Insurance.  (a) Worker’s Compensation Insurance as required by any Regulation, and (b) Employer’s Liability Insurance in amounts not less than $1,000,000 each accident for bodily injury by accident and for bodily injury by disease, and for each employee for bodily injury by disease.     4. Commercial Auto Liability Insurance.  Commercial auto liability insurance with a combined limit of not less than One Million Dollars ($1,000,000) for bodily injury and property damage for each accident.  Such insurance shall cover liability relating to any auto (including owned, hired and non-owned autos).     5. Alterations Requirements.  In the event Tenant shall desire to perform any Alterations, Tenant shall deliver to Landlord, prior to commencing such Alterations (i) evidence satisfactory to Landlord that Tenant carries “Builder’s Risk” insurance covering construction of such Alterations in an amount and form approved by Landlord, (ii) such other insurance as Landlord shall nondiscriminatorily require, and (iii) a lien and completion bond or other security in form and amount satisfactory to Landlord.     6. General Insurance Requirements.  All Tenant’s coverages described in thisExhibit D shall be endorsed to (i) provide Landlord with thirty (30) days’ notice of cancellation or change in terms; (ii) waive all rights of subrogation by the insurance carrier against Landlord; and (iii) be primary and non-contributing with Landlord’s insurance.  If at any time during the Term the amount or coverage of insurance which Tenant is required to carry under this Exhibit D is, in Landlord’s reasonable judgment, materially less than the amount or type of insurance coverage typically carried by owners or tenants of properties located in the general area in which the Premises are located which are similar to and operated for similar purposes as the Premises or if Tenant’s use of the Premises should change with or without Landlord’s consent, Landlord shall have the right to require Tenant to increase the amount or change the types of insurance coverage required under this Exhibit D.  All insurance policies required to be carried by Tenant under this Lease shall be written by companies rated AVII or better in “Best’s Insurance Guide” and authorized to do business in the State of Oregon.  Deductible amounts under all insurance policies required to be carried by Tenant under this Lease shall not exceed $10,000 per occurrence.  Tenant shall deliver to Landlord on or before the Term Commencement Date, and thereafter at least thirty (30) days before the expiration dates of the expired policies, certified copies of Tenant’s insurance policies, or a certificate evidencing the same issued by the insurer thereunder, and, if Tenant shall fail to procure such insurance, or to deliver such policies or certificates, Landlord may, at Landlord’s option and in addition to Landlord’s other remedies in the event of a default by Tenant under the Lease, procure the same for the account of Tenant, and the cost thereof (with interest thereon at the Default Rate) shall be paid to Landlord as Additional Rent. Landlord’s Insurance.  All insurance maintained by Landlord shall be for the sole benefit of Landlord and under Landlord’s sole control. 1. Property Insurance.  Landlord agrees to maintain property insurance insuring the Building against damage or destruction due to risk including fire, vandalism, and malicious mischief in an amount not less than the replacement cost thereof, in the form and with deductibles and endorsements as selected by Landlord.  At its election, Landlord may instead (but shall have no obligation to) obtain “All Risk” coverage, and may also obtain earthquake, pollution, and/or flood insurance in amounts selected by Landlord.     2. Optional Insurance.  Landlord, at Landlord’s option, may also (but shall have no obligation to) carry (i) insurance against loss of rent, in an amount equal to the amount of Base Rent and Additional Rent that Landlord could be required to abate to all Building tenants in the event of condemnation or casualty damage for a period of twelve (12) months; and (ii) liability insurance and such other insurance as Landlord may deem prudent or advisable, including, without limitation, liability insurance in such amounts and on such terms as Landlord shall determine.  Landlord shall not be obligated to insure, and shall have no responsibility whatsoever for any damage to, any furniture, machinery, goods, inventory or supplies, or other personal property or fixtures which Tenant may keep or maintain in the Premises, or any leasehold improvements, additions or alterations within the Premises.    

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.28 June 19, 2001 Michael Cottle VP, Sales HearMe Dear Michael, You are among a select group of executives who we believe are crucial to HearMe's transition over the next six months based on your relationships with customers, vendors and employees. The Compensation Committee of the Board of Directors has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of HearMe's executive team, including yourself, to their assigned duties without distraction in the face of potentially disruptive circumstances arising from the possibility of a change in control of the Company and/or the Company's dissolution. If you remain employed with the Company and devote your full attention and time, during normal business hours, to the business and affairs of the Company, and use your best efforts to perform faithfully and efficiently such responsibilities for the next several months, the Company will do the following. •You will be eligible to receive a retention bonus in the amount of $50,000 (less applicable taxes). To earn this retention bonus you must remain an employee in good standing through November 30, 2001. The retention bonus will be paid on November 30, 2001, or earlier in the event HearMe is either acquired by another company (in which case payment will be on the close of the transaction) or, if HearMe terminates your employment without "cause," on the last day of your employment. •You will be eligible to have up to $110,000 of the note you issued to HearMe in connection with your purchase of shares of HearMe common stock forgiven, and your shares repurchased by HearMe. We refer to this as the Stock Repurchase. To earn this benefit you must remain an employee in good standing through November 30, 2001. The Stock Repurchase will be effective on November 30th, or earlier either in the event HearMe is acquired by another company (in which case it will occur on the close of the transaction) or, if HearMe terminates your employment without "cause," on the last day of your employment. •You have been granted an option to purchase 100,000 shares of HearMe common stock with an exercise price of $0.40 per share. This option was granted to you on April 23 2001. All of these options (100%) will vest on the earlier date of the closing date of the sale of the Company or February 28, 2002. •You will be eligible for an extension of your exercise period for all vested options from the 90 days provided in your option agreement to one year following your termination of your employment if you remain an employee of HearMe in good standing through November 30, 2001. The retention bonus, stock repurchase, options, and the extension of your exercise period are based on the premise that you stay with HearMe and perform at or above the expectation level in your position. This letter does not change the at-will nature of your employment relationship with HearMe. The specifics of the terms and conditions under which the benefits described above are being offered to you are described in more detail in the attached Exhibit A: HearMe, Change of Control/Retention Agreement. Please read and sign this Agreement. -------------------------------------------------------------------------------- Thank you for your continued support and hard work. Sincerely, Rob Csongor Chief Executive Officer Acknowledge receipt by signing below and returning original to John Alexander. Signature:      --------------------------------------------------------------------------------   Date:      -------------------------------------------------------------------------------- Name:   Michael Cottle         2 -------------------------------------------------------------------------------- EXHIBIT A HEARME CHANGE OF CONTROL / RETENTION AGREEMENT     This Change of Control / Retention Agreement (the "Agreement") is made and entered into by and between Mike Cottle (the "Employee") and HearMe (the "Company"), effective as of the latest date set forth by the signatures of the parties hereto below (the "Effective Date"). RECITALS     A.  It is expected that the Company from time to time will consider the possibility of an acquisition by another company or other change of control. Additionally, a number of activities will be required of the Employee that are outside the normal scope of his or her responsibility in the event that the Company elects to dissolve. The Board of Directors of the Company (the "Board") recognizes that such considerations can be a distraction to the Employee and can cause the Employee to consider alternative employment opportunities. The Board has determined that it is in the best interests of the Company and its stockholders and creditors to assure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company and notwithstanding any increased duties required of him or her in the future.     B.  The Board believes that it is in the best interests of the Company, its stockholders and its creditors to provide the Employee with an incentive to continue his/her employment and to motivate the Employee to maximize the value of the Company, for the benefit of its stockholders and/or creditors, despite the possibility of a Change of Control and/or dissolution.     C.  The Board believes that it is necessary and appropriate to provide the Employee with certain benefits in order to provide the Employee with incentives and encouragement to remain with the Company notwithstanding the possibility of a Change of Control and/or dissolution.     D.  Certain capitalized terms used in the Agreement are defined in Section 8 below.     The parties hereto agree as follows:     1.  Term of Agreement.  This Agreement shall terminate on the date that all obligations of the parties hereto with respect to this Agreement have been satisfied.     2.  At-Will Employment.  The Company and the Employee acknowledge that the Employee's employment is and shall continue to be at-will, as defined under applicable law. If the Employee's employment terminates for any reason, whether with or without Cause and with or without notice, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be available in accordance with the Company's established employee plans or pursuant to other written agreements with the Company.     3.  Retention Bonus.  In order to incent the Employee to remain employed with the Company for the next several months and provide added stockholder and creditor value during this difficult and uncertain business climate, Employee will be eligible to receive a cash bonus of $50,000, less applicable tax withholdings. To earn this retention bonus you, the Employee must remain an employee in good standing through November 30, 2001. This means that the Company shall not have terminated the Employee's employment for Cause (including a deemed termination under the definition below) prior to November 30, 2001. This retention bonus will be paid on November 30th, or earlier as follows: (a) in the event the Company undergoes a Change of Control that closes prior to November 30, 2001, on the closing date of the transaction, or (b) in the event the Company terminates the Employee's employment without Cause prior to November 30, 2001, on the last day of his or her employment. If 3 -------------------------------------------------------------------------------- the Employee's employment terminates prior to November 30, 2001 for any reason other than as a result of the Company's terminating his or her employment for Cause, the Employee shall not be entitled to payment of any portion of the retention bonus.     4.  Stock Repurchase.  In order to incent the Employee to remain employed with the Company for the next several months and provide added stockholder and creditor value during this difficult and uncertain business climate, the Company shall, at the request of the Employee, repurchase all of the shares of Common Stock purchased by the Employee pursuant to the stock option exercise(s) listed on Schedule 1 hereto for a purchase price equal to the fair market value of the Company's Common Stock as of the date of the repurchase. The purchase price for such repurchase will be paid by canceling a corresponding amount of the promissory note(s) dated November 22, 1998, issued by the Employee to the Company in payment of the exercise price for the shares purchased in connection with the option exercise(s) listed on Schedule 1. The Company also will forgive up to $110,000 of the excess of the outstanding balance of such promissory note(s) over the portion of such promissory note canceled in payment for the repurchased shares as provided in the preceding sentence (the "Loan Forgiveness"). As part of the Loan Forgiveness, accrued interest that resulted from the note for the repurchased shares will be forgiven at the time of the repurchase. The repurchase of the stock provided for in this Section 4, and the Loan Forgiveness, will be effective on November 30, 2001, or earlier as follows: (a) in the event the Company undergoes a Change of Control that closes prior to November 30, 2001, on the closing date of the transaction, or (b) in the event the Company terminates the Employee's employment without Cause prior to November 30, 2001, on the last day of his or her employment. If the Employee's employment terminates prior to November 30, 2001 for any reason other than as a result of the Company's terminating his or her employment for Cause, the Employee shall not be entitled to require the Company to repurchase his or her shares.     In addition, the Company shall make a cash payment to the Employee to reimburse him or her for federal and California income and employment taxes payable by him or her with respect to the income the Employee recognizes as a result of (i) the Loan Forgiveness and (ii) the cash payment provided for by this sentence. The Company shall pay such amount to the Employee at the times of the Loan Forgiveness (which shall be deemed paid to the Employee by payment of such withholding taxes on his or her behalf). The amount of the taxes required to be made to the Employee under this Section 4 shall be based on the Employee's actual marginal income tax rates on the income recognized as a result of the payments under this Agreement.     5.  Option Grant.  In order to incent the Employee to continue to build shareholder value and remain employed with the Company for the next several months and provide added stockholder and creditor value during this difficult and uncertain business climate, the Company has granted the Employee an option (the "Option") to purchase 100,000 shares of Common Stock of the Company with an exercise price of $0.40 per share. The Option was granted on April 23, 2001, is a nonstatutory stock option under applicable tax law, has a term of ten (10) years, and is subject to the terms and conditions of the Company's 1999 Stock Incentive Plan and a standard stock option agreement. The Option will vest in full (meaning that the Employee will be able to exercise and retain all (100%) of shares underlying the Option) on the earlier date of the closing date of a Change of Control of the Company, February 28, 2002, or the date Employee is terminated by the Company without Cause.     6.  Extension of Exercise Period.  As further incentive for the Employee's continuing employment, the Company will allow him or her to receive an extension of the period in which he or she has to exercise all vested (as of the date the Employee's employment terminates) options held by him or her from the 90 days provided for in the applicable option agreements to one year following the termination of employment. The opportunity for an extension of the option exercise period shall be available if the Employee remains employed until the earlier to occur of (a) November 30, 2001, (b) the closing date of the Company, or (c) the date the Company terminates the Employee's employment without Cause. Except as provided in the prior sentence, this extension shall not be 4 -------------------------------------------------------------------------------- available in the event the Employee's employment terminates prior to November 30, 2001 for any reason other than a termination without Cause by the Company. Any requested extension to the exercise period shall be effective as of (a) November 30, 2001, (b) the closing date of the Company, or (c) the date the Company terminates the Employee's employment without Cause.     7.  Other Terminations.  Other than as specified above in this Agreement, the Employee shall not be entitled to any benefits or payments in connection with termination of his or her employment with the Company (other than those benefits to which he or she is entitled under then-applicable Company policies or applicable law). If the Employee's employment is terminated for Cause (including a deemed termination under the definition below), he or she shall not be entitled to any benefits provided for under this Agreement. In the event of the Employee's death or termination of his or her employment as a result of a Disability, in either case occurring before the date on which this Agreement provides that a benefit is to be provided, then the Employee (or his or her heirs) shall not be entitled to any such benefit.     8.  Definition of Terms.  The following terms referred to in this Agreement shall have the following meanings:     (a)  Cause.  "Cause" for termination of the Employee's employment with the Company shall exist in the event of (i) an act of personal dishonesty taken by the Employee in connection with his or her responsibilities as an employee and intended to result in substantial personal enrichment of the Employee, (ii) Employee's being convicted of, or entering a plea of nolo contendre to, a felony, or (iii) a willful act by the Employee which constitutes misconduct and which is injurious to the Company; or material violations of this Agreement, any other agreement between the Employee and the Company (including without limitation any confidentiality, proprietary information and inventions assignment agreement(s)) or of Employer's written policies as set forth in Employer's employee handbook. In addition, "Cause" for termination of the Employee's employment shall exist, whether or not the Company chooses to terminate his or her employment, such that the Employee's employment shall be deemed to have terminated for Cause, for purposes of this Agreement only, in the event of the Employee's failure to devote his or her full time and attention, during normal business hours, to the business and affairs of the Company in a manner that meets or exceeds the Board's performance expectations with respect to an officer holding the Employee's position, provided that in the event the Employee's performance falls below this level, the Company shall provide notice to the Employee of such performance shortfall and, if the shortfall is curable, the Employee shall have five (5) business days in which to cure the shortfall.     (b)  Change of Control.  "Change of Control" means the occurrence of any of the following events:      (i) Any "person" (as such term is used in Sections 13(d) and 14(d) Section 13(d) of the Securities Exchange Act of 1934, as amended is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company's then outstanding voting securities without the approval of the Board of Directors of the Company; or     (ii) A merger or consolidation of the Company, whether or not approved by the Board of Directors of the Company, other than a merger or consolidation which would result in holders of more than fifty percent (50%) of the voting power represented by the voting securities of the Company outstanding immediately prior thereto continuing to hold (either by the voting securities remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company, or such surviving entity outstanding immediately after such merger or consolidation, or the Company sells all or substantially all of the Company's assets. 5 --------------------------------------------------------------------------------     (c)  Disability.  "Disability" shall mean that the Employee has been unable to perform his or her Company duties as the result of his or her incapacity due to physical or mental illness, and such inability, at least 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative (such Agreement as to acceptability not to be unreasonably withheld). Termination resulting from Disability may be effected only after at least 30 days' written notice by the Company of its intention to terminate the Employee's employment as a result of the Disability. In the event that the Employee resumes the performance of substantially all of his or her duties hereunder before the termination of his or her employment becomes effective, the notice of intent to terminate shall automatically be deemed to have been revoked.     9.  Successors.       (a)  Company's Successors.  Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company's business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term "Company" shall include any successor to the Company's business and/or assets which executes and delivers the assumption agreement described in this Section 9(a) or which becomes bound by the terms of this Agreement by operation of law.     (b)  Employee's Successors.  The terms of this Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.     10.  Miscellaneous Provisions.       (a)  Waiver.  No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Employee and by an authorized officer of the Company (other than the Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.     (b)  Whole Agreement.  No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof. This Agreement represents the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior arrangements and understandings regarding same matter. This Agreement supercedes any arrangements in any offer letters, addendums to offer letters or any other agreements.     (c)  Choice of Law.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California, with the exception of its conflict of laws provisions.     (d)  Severability.  The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.     (e)  Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument. 6 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year set forth below.     HEARME             By:             Title:   Chief Executive Officer     Date:      --------------------------------------------------------------------------------   , 2001     Michael Cottle         Date:      --------------------------------------------------------------------------------   , 2001 7 -------------------------------------------------------------------------------- Schedule 1 List of Stock Options Affected by Stock Repurchase Date of Note --------------------------------------------------------------------------------   Loan Forgiven --------------------------------------------------------------------------------   Total Loan --------------------------------------------------------------------------------   Total Underlying Shares --------------------------------------------------------------------------------   Price Per Share (Basis) --------------------------------------------------------------------------------   Interest Rate --------------------------------------------------------------------------------   Shares Repurchased on Forgiveness -------------------------------------------------------------------------------- 11/22/1998   $ 110,000   $ 179,994   120,000   $ 1.500   4.51 % 73,336 8 -------------------------------------------------------------------------------- QuickLinks EXHIBIT A HEARME CHANGE OF CONTROL / RETENTION AGREEMENT RECITALS Schedule 1

EXHIBIT 10.120 AMENDED AND RESTATED EMPLOYMENT AGREEMENT   THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), effective as of the 30th day of May, 2001 (the "Effective Date"), by and among VISION TWENTY-ONE, INC., a Florida corporation, ("Vision 21"), MEC HEALTH CARE, INC., a Maryland corporation ("MEC"), BLOCK VISION, INC., a New Jersey corporation ("Block Vision"; Vision 21, MEC and Block Vision may be collectively referred to as the "Company"), and Andrew Alcorn (the "Executive"). WHEREAS, the Executive has served the Company as an executive officer and/or key employee of Vision 21 and Block Vision in accordance with the terms of an Employment Agreement dated August 1, 1999, as amended effective December 31, 1999, as thereafter amended and restated effective July 31, 2000 and as thereafter further amended effective November 10, 2000 (the "Original Agreement"); WHEREAS, the Company wishes to assure itself of the continued services of the Executive for the period provided in this Agreement and the Executive is willing to continue to serve in the employ of the Company for such period; and WHEREAS, the Company and the Executive wish to further amend and restate the Original Agreement effective as of the Effective Date in accordance with the terms and conditions hereinafter set forth. NOW THEREFORE, in consideration of the mutual covenants herein contained, the parties, intending to be legally bound, hereby agree as follows: 1. EMPLOYMENT The Company hereby agrees to employ the Executive as President of the Company upon the terms and conditions herein contained, and the Executive hereby agrees to accept such employment for the term described below. The Executive shall have such powers and responsibilities consistent with his position as President as the Chief Executive Officer may assign to him. Throughout the term of this Agreement, the Executive shall devote his best efforts and substantially all of his business time and services to the business and affairs of the Company. This shall include business travel by the Executive at a level consistent with the reasonable business needs of the Company consistent with past practice. If the Company elects to relocate the Executive's principal place of business outside of the central New Jersey area without the Executive's consent, the provisions of Section 5 (a) shall apply. The Executive also agrees to serve as a member of the Board of Directors of the Company, if requested, for no additional compensation, during the term of this Agreement. 2. TERM OF AGREEMENT The initial term (the "Initial Term") of employment under this Agreement shall be for a period of five years and five months, which Initial Term commenced on July 31, 2000and one-half (5 1/2) years and shall end on December 31, 2005. After the expiration of the Initial Term, the term of the Executive's employment hereunder may be extended by mutual consent of the parties hereto. The parties shall each endeavor to give to the other written notice of their intentions regarding renewal of this Agreement at least ninety (90) days prior to the expiration of the Initial Term, or any renewal term, and any such renewal shall be conditioned upon the execution and delivery of an appropriate amendment to this Agreement. If the Company does not offer the Executive the opportunity to renew this Agreement at the expiration of the Initial Term on terms at least as favorable as those in effect immediately prior to the expiration of the Initial Term, the Company shall be obligated to make a series of monthly payments to the Executive for twelve (12) months from the date of the expiration of the Initial Term. Each monthly payment shall be equal to one twelfth (1/12th) of the Executive's annual base salary in effect during the last twelve (12) months of the Initial Term. Notwithstanding the foregoing, the Company shall be entitled to terminate this Agreement immediately, subject to a continuing obligation to make any payments required under Section 5 below, if the Executive (i) becomes disabled as described in Section 5(b), (ii) is terminated for Cause, as defined in Section 5(c), or (iii) voluntarily terminates his employment before the expiration of the Initial Term or any renewal term of this Agreement, as described in Section 5(d). 3. SALARY AND BONUS INCENTIVES The Executive shall receive a base salary during the term of this Agreement at a rate of not less than $275,000 per annum, payable in biweekly installments consistent with the Company's normal payroll schedule. The Executive's annual base salary during the term of this Agreement may be increased as deemed appropriate by the Board. The Executive shall also be entitled to receive the following incentive bonuses from the Company: (a) Covenant Compliance Bonus. The Executive shall be paid a compliance bonus (the "Covenant Compliance Bonus"), equal to ten percent (10%) of the Executive's annual base salary, if (i) the Company is in compliance with the covenants contained in Section 8 of the Amended and Restated Credit Agreement dated November 10, 2000, as amended March 31, 2001 (the "Credit Agreement") among the Company, the Bank of Montreal as Agent, and the other lenders party thereto (collectively, the "Lenders"), except for the covenants contained in Sections 8.25 and 8.26 of the Credit Agreement captioned "Minimum EBITDA" and "Interest Coverage Ratio," respectively, and (ii) the Company has maintained EBITDA and an interest coverage ratio as set forth on Schedule 3(b) annexed hereto (collectively, the "Covenants"). An amount equal to twenty-five percent (25%) of the Covenant Compliance Bonus shall be paid to the Executive for each fiscal quarter during which the Company either maintained comp liance with the Covenants or the Lenders waived compliance with any one or more of the Covenants with which the Company was not in compliance. or the banks a party to the New Credit Agreement (collectively, the "Banks") waived compliance with the New Credit Facility Covenants. Each quarterly payment shall be made to the Executive within ten (10) days of the (i) delivery by the Company's Chief Financial Officer to the Lenders of the compliance certificate required under the Credit Agreement., or (ii) the Bank's waiver of the New Credit Facility Covenants. A copy of such compliance certificate shall also be delivered to the Compensation Committee of the Board at the time that it is provided to the Lenders. (b) Performance Bonus. The Executive shall be paid a performance bonus (the "Performance Bonus") equal to the following percentage of the Executive's annual base salary (as in effect on the last day of the applicable fiscal year), if the following percentage of the EBITDA Target for the applicable fiscal year is achieved: Percentage of Annual Base Salary   Percentage of EBITDA TARGET 20%   95-105% 25%   106-115% 35%   116-120% 40%   121-125% 50%   126% plus If earned, the Performance Bonus shall be paid to the Executive within ninety (90) days of the end of the applicable fiscal year. Unless revised by mutual consent of the Company and the Executive, the EBITDA Target for the fiscal years 2001 and 2002 shall be as follows: Fiscal Year EBITDA Target 2001 $6,589,000 2002 $7,867,000 The EBITDA Target for the fiscal years 2003, 2004 and 2005 will be determined by the Board of Directors. For purposes hereof, EBITDA shall have the meaning given to such term in the Credit Agreement, except that (i) EBITDA shall be limited to the EBITDA of the Company's managed care division less general corporate overhead, and shall exclude EBITDA for the Company's ASC/RSC division, (ii) EBITDA shall be calculated before consideration of any bonus amounts earned pursuant to this Agreement or earned pursuant to any other agreement between the Company and an executive containing bonus arrangements similar to those contained in this Agreement, and (iii) EBITDA for fiscal year 2001 shall exclude the impact of the reversal of restructuring related accruals booked in fiscal year 2000 or earlier. (c) Sale Bonus. The Executive shall be paid a sale bonus ( the "Sale Bonus") if the Company is sold pursuant to a merger, sale of assets or sale of stock as a result of the Company's inability, after commercially reasonable efforts are made, to refinance the Company's indebtedness to the Lenders under the Credit Agreement, other than due to the Company's default under the Credit Agreement, by the initial maturity of the Credit Agreement (hereinafter, a "Sale Event"), as follows: if the Sale Event occurs subsequent to the initial maturity of the Credit Agreement,second anniversary of the Effective Date but prior to the expiration of the Initial Term or any renewal term of this Agreement, the executive management team of the Company shall be entitled to receive an amount equal to two and one-half percent (2 1/2%) of the gross sales price realized by the Company from the Sale Event (the "Management Bonus"), and the Executive shall be entitled to receive an amount equal to twen ty-one and 43/100 percent (21.43%) of the Management Bonus at the closing of the Sale Event. For purposes hereof, the following individuals shall constitute the executive management team of the Company: Mark Gordon, O.D.; Andrew Alcorn; Ellen Gordon; Richard Jones; and Howard Levin, O.D. If any of such individuals cease to be employed by the Company, the Chief Executive Officer of the Company may allocate such individual's percentage of the Management Bonus to another individual, or reallocate the Management Bonus among the remaining members of the executive management team named in this Section 3 (d), subject to the approval of the Board of Directors or the appropriate committee thereof. 4. ADDITIONAL COMPENSATION AND BENEFITS The Executive shall receive the following additional compensation and welfare and fringe benefits: (a) Stock Options. Pursuant to the terms of a separate Stock Option Agreement, the Executive shall be granted such number of stock options under the Vision 21 Stock Incentive Plan as the Board of Directors of Vision 21 shall deem appropriate. Such option grant shall be made to the Executive within a reasonable period of time, subject to shareholder approval of an amendment to Vision 21's Certificate of Incorporation increasing the number of authorized shares of Vision 21 common stock (the "Shareholder Approval"). Provided that there is no Change in Corporate Control as described in Section 6, the Company's postponement of the shareholders meeting and/or determination not to convene the shareholders meeting to obtain Shareholder Approval shall not be deemed to be a breach by the Company of its obligations under this Section 4 (a). Notwithstanding the foregoing, should the Company's inside directors determine to proceed with the shareholders meeting to obtain Shareholder Ap proval and the shareholders meeting is not convened because the Company's outside directors do not agree with such determination, the Company's failure to obtain Shareholder Approval shall be deemed to be a breach by the Company of its obligations under this Section 4 (a) if the Company does not have a sufficient number of shares of its common stock to reserve for issuance upon exercise of the stock options required to be granted to the Executive hereunder. (b) Medical Insurance. During the term of this Agreement, the Company shall provide the Executive and his dependents, at no cost to them, with health insurance coverage on terms at least as favorable as those provided to the Executive under the Original Agreement. The Executive shall also be entitled to receive life and disability insurance coverage on the same basis as such coverage is made available to other executives from time to time. (c) Business Expenses. The Company shall reimburse the Executive for all reasonable expenses he incurs in promoting the Company's business, including expenses for travel, entertainment of business associates service and usage charges for business use of cellular phones and similar items, upon presentation by the Executive from time to time of an itemized account of such expenditures. The Executive shall be entitled to use the use of a Company credit card for charging business expenses, in accordance with the Company's policy for executive employees. (d) Automobile. The Company will provide the Executive with the use of a leased automobile. The Executive may select the make and model desired, up to a maximum monthly lease payment (including taxes) of $800. The Company will also cover the costs of routine maintenance, fuel and liability insurance for the leased vehicle. The Executive will be responsible for appropriately reporting his personal use of the vehicle for income tax purposes. (e) Vacation and Other Absences. The Executive shall be entitled to six (6) weeks paid vacation during each year of this Agreement, in addition to such other paid absences, whether for illness, holidays, personal time or any similar purposes in accordance with the plans, policies, programs and practices of the Company established for senior executives of the Company from time to time. In addition to the benefits provided pursuant to the preceding paragraphs of this Section 4, the Executive shall be eligible to participate in such other executive compensation and retirement plans of the Company as are applicable generally to other officers, and in such indemnification or liability insurance arrangements, welfare benefit plans, programs, practices and policies of the Company as are generally applicable to other key employees. 5. PAYMENTS UPON TERMINATION Involuntary Termination . (1) If the Executive's employment is terminated by the Company during the term of this Agreement, other than for (i) death, (ii) disability as described in Section 5 (b), (iii)"Cause" as described in Section 5 (c), or (iv) a voluntary termination by the Executive as described in this Section 5 (d), the Company shall be obligated to: (A) make a lump sum payment upon such termination to the Executive in an amount equal to the sum of the following: (i) the amount of the Executive's annual base salary paid during the twelve (12) months immediately preceding such termination; and (ii) the amount of the Covenant Compliance Bonus and Performance Bonus, if any, earned under Section 3 for the fiscal year immediately preceding such termination; and (B) commencing with the pay date immediately following such termination, pay to the Executive, in equal consecutive installments, paid in accordance with the Company's normal payroll schedule, but no less frequently than monthly, an amount equa l to the Executive's annual base salary paid during the twelve (12) months immediately preceding such termination (the "Installment Termination Payments"). Each Installment Termination Payment shall be reduced by all amounts the Executive is then receiving as compensation for services performed in any position with any new employer (including a position as an officer, employee, consultant or agent, or self-employment as a partner or sole proprietor). (2) If a "Change in Corporate Control" as described in Section 6 occurs, whether or not the Executive's employment with the Company is terminated following the Change in Corporate Control, the Company shall be obligated to make a lump sum payment upon such Change in Corporate Control to the Executive in an amount equal to the sum of the following: (i) the amount of the Executive's annual base salary paid during the twelve (12) months immediately preceding the Change in Corporate Control, multiplied by two (2); and (ii) the amount of the Covenant Compliance Bonus and Performance Bonus, if any, earned under Section 3 for the fiscal year immediately preceding the Change in Corporate Control (the "Change in Corporate Control Payment"). If the Executive's employment is terminated by the Company pursuant to Section 5 (a) (1) at any time subsequent to the occurrence of a Change in Corporate Control pursuant to Section 6 (b) (1), (2) or (4), the Company shall not be obligated to make th e severance payments to the Executive pursuant to Section 5 (a) (1), provided that the Change in Corporate Control Payment was made to the Executive upon the Change in Corporate Control. If the Executive's employment is terminated by the Company pursuant to Section 5 (a) (1) at any time subsequent to the occurrence of a Change in Corporate Control pursuant to Section 6 (b) (3), the Company shall be obligated to make the severance payments to the Executive pursuant to Section 5 (a) (1) in accordance with its terms. For purposes of this Section 5 (a) (1) and (2), if the termination or Change in Corporate Control occurs prior to August 1, 2001, the annual base salary amount used to calculate the severance payments due to the Executive hereunder shall be the annual base salary in effect on the Effective Date. In addition to the other payments to be made to Executive in accordance with this Section 5 (a) (1) and (2), the Executive shall also receive such non-forfeitable benefits already earned and payable to him under the terms of any deferred compensation, incentive or other benefit plan maintained by the Company, payable in accordance with the terms of the applicable plan. If the Company should, during the term of this Agreement, require the Executive to relocate his business office outside of the central New Jersey area, the Executive shall have the right, within sixty (60) days following this request, to resign from employment and have such resignation be deemed to be an involuntary termination triggering the severance provisions of this Section 5 (a). If the Company defaults in its obligation to make any severance payments required to be paid under Section 5 (a) (1) or (2) or under Section 2: (i) the provisions of Section 10 shall be inoperable; (ii) the entire unpaid balance of the severance payments shall become immediately due and payable; and (iii) if the Executive prevails in any suit commenced by the Executive to collect such severance payments, all costs and expenses of such suit incurred by the Executive, including reasonable attorneys' fees, shall be paid by the Company to the Executive. (b) Disability. The Company shall be entitled to terminate this Agreement, if the Board of Directors determines that the Executive has been unable to attend to his duties for at least ninety (90) days because of a medically diagnosable physical or mental condition, and has received a written opinion from a physician acceptable to the Board that such condition prevents the Executive from resuming full performance of his duties and is likely to continue for an indefinite period. Upon such termination, the Company shall pay to Executive a monthly disability benefit equal to one twenty-fourth (1/24th) of his current annual base salary at the time he became permanently disabled. Payment of such disability benefit shall commence on the last day of the month following the date of the termination by reason of permanent disability and cease with the earliest of (i) the month in which the Executive returns to active employment, either with the Company or otherwise, (ii) the e nd of the Initial Term of this Agreement, or the current renewal term, as the case may be, or (iii) the twenty-fourth month after the date of the termination. Any amounts payable under this Section 5 (b) shall be reduced by any amounts paid to the Executive under any long-term disability plan or other disability program or insurance policies maintained or provided by the Company. (c) Termination for Cause. If the Executive's employment is terminated by the Company for Cause, the amount the Executive shall be entitled to receive from the Company shall be limited to his base salary accrued through the date of termination, and any nonforfeitable benefits already earned and payable to the Executive under the terms of deferred compensation or incentive plans maintained by the Company. For purposes of this Agreement, the term "Cause" shall be limited to (i) any action by the Executive involving a willful material disloyalty to the Company, such as embezzlement, fraud, misappropriation of corporate assets or a breach of the covenants set forth in Sections 9 and 10 below; or (ii) the Executive being convicted of a felony; or (iii) the Executive being convicted of any lesser crime or offense committed in connection with the performance of his duties hereunder or involving moral turpitude; or (iv) the intentional and willful failure by the Executive to substantially perform his duties hereunder as directed by the Chief Executive Officer of Vision 21 (other than any such failure resulting from the Executive's incapacity due to physical or mental disability). No termination shall occur under subsection (iv) of this Section 5 (c) unless the Executive shall have first received written notice from the Chief Executive Officer advising of the acts or omissions that constitu te the failure to perform his duties, and such failure continues after he shall have had a reasonable opportunity, not to exceed thirty (30) days, to correct the acts or omissions complained of. (d) Voluntary Termination by the Executive. If the Executive resigns or otherwise voluntarily terminates his employment before the end of the Initial Term or any renewal term of this Agreement, the amount the Executive shall be entitled to receive from the Company shall be limited to his base salary accrued through the date of termination, and any nonforfeitable benefits already earned and payable to the Executive under the terms of any deferred compensation or incentive plans of the Company. For purposes of this paragraph, a resignation by the Executive shall not be deemed to be voluntary if the Executive resigns during the period of three months after the date (1) he is assigned to a position of lesser rank (other than for Cause, or by reason of permanent disability), (2) he is assigned duties materially inconsistent with his position, or (3) the Company breaches any of its material obligations hereunder. 6. EFFECT OF CHANGE IN CORPORATE CONTROL (a) In the event of a Change in Corporate Control, the provisions of Section 5 (a) of this Agreement shall apply, and any stock options granted to the Executive under Vision 21's Stock Incentive Plan shall become immediately vested in full and exercisable in full. (b) For purposes of this Agreement, a "Change in Corporate Control" shall include any of the following events: (1) The acquisition in one or more transactions of more than thirty percent (30%) of Vision 21's outstanding Common Stock by any corporation, or other person or group (within the meaning of Section 14(d) (3) of the Securities Exchange Act of 1934, as amended), excluding any Vision 21 Common Stock issued pursuant to acquisition(s) in connection with the restructuring of the Company's (i) credit facility with the Lenders in accordance with the Credit Agreement, or (ii) obligations to unsecured creditors in accordance with the Plan of Restructuring referred to in the Credit Agreement. at or about the time of the closing of the New Credit Agreement; (2) Any merger or consolidation of Vision 21 into or with another corporation in which Vision 21 is not the surviving entity, or any transfer or sale of substantially all of the assets of the Company or any merger or consolidation of Vision 21 into or with another corporation in which Vision 21 is the surviving entity and, in connection with such merger or consolidation, all or part of the outstanding shares of Vision 21 Common Stock shall be changed into or exchanged for other stock or securities of any other person, or cash, or any other property. (3) Any election of persons to the Board of Directors of Vision 21 which causes a majority of the Board of Directors of Vision 21 to consist of persons other than those persons who were members of the Board of Directors of Vision 21 on the Effective Date (hereinafter, the "Current Board"); provided that, a Change in Corporate Control shall not be deemed to have occurred if (i) there is a change in the majority of the Current Board as a result of nominations made by the Current Board or nominations made by persons who were themselves nominated by the Current Board, or (ii) there is a change in the Current Board resulting from any termination as a member of the Current Board by any executive of the Company either for Cause or due to such individual's desire to terminate his position on the Current Board. (4) Any person or group of persons, successfully completes a tender offer for at least fifty-one percent (51%) of Vision 21's Common Stock; provided that, no acquisition of stock by any person in a public offering or private placement of Vision 21's common stock approved by the Board of Directors of Vision 21 in office immediately preceding the time of such transaction shall be considered a Change in Corporate Control. (c) Notwithstanding anything else in this Agreement, the amount of severance compensation payable to the Executive as a result of a Change in Corporate Control under this Section 6, or otherwise, shall be limited to the maximum amount the Company would be entitled to deduct pursuant to Section 280G of the Internal Revenue Code of 1986, as amended. 7. DEATH If the Executive dies during the term of this Agreement, the Company shall pay to the Executive's estate a lump sum payment equal to the sum of (i) the Executive's base salary accrued through the date of death, (ii) the total unpaid amount of any bonuses earned with respect to the fiscal year of the Company most recently ended, and (iii) an amount equal to twelve (12) months of the Executive's base salary at the rate in effect on the date of death. In addition, the death benefits payable by reason of the Executive's death under any retirement, deferred compensation or other employee benefit plans maintained by the Company for other employees generally shall be paid to the beneficiary designated by the Executive in accordance with the terms of the applicable plan or plans. If the Company seeks to obtain insurance coverage to fund the Company's obligation to the Executive under subsection (iii) of this Section 7, the Executive shall cooperate with the Company in its efforts to obtain such coverage. 8. WITHHOLDING The Company shall, to the extent permitted by law, have the right to withhold and deduct from any payment hereunder any federal, state or local taxes of any kind required by law to be withheld with respect to any such payment.   9. PROTECTION OF CONFIDENTIAL INFORMATION The Executive agrees that he will keep all confidential and proprietary information of the Company or relating to its business (including, but not limited to, information regarding the Company's customers, pricing policies, methods of operation, proprietary computer programs and trade secrets) confidential, and that he will not (except with the Company's prior written consent, subject to Board approval), while in the employ of the Company or thereafter, disclose any such confidential information to any person, firm, corporation, association or other entity, other than in furtherance of his duties hereunder, and then only to those with a "need to know." The Executive shall not make use of any such confidential information for his own purposes or for the benefit of any person, firm, corporation, association or other entity (except the Company) under any circumstances during or after the term of his employment. The foregoing shall not apply to any information which is already in the p ublic domain, or is generally disclosed by the Company or is otherwise in the public domain at the time of disclosure. The provisions of this Section 9 shall not apply to the Executive's know how to the extent utilized by him in any subsequent employment that is not in violation of this Section 9. The Executive recognizes that because his work for the Company will bring him into contact with confidential and proprietary information of the Company, the restrictions of this Section 9 are required for the reasonable protection of the Company and its investments and for the Company's reliance on and confidence in the Executive. 10. COVENANT NOT TO COMPETE The Executive hereby agrees that he will not, either during the term of this Agreement or during the period of twenty-four (24) months from the time the Executive's employment under this Agreement is terminated, engage in any business activities on behalf of any enterprise which competes with the Company in any business in which the Company is now engaged or any other business in which the Company is actively engaged at the time of the termination. The Executive will be deemed to be engaged in such competitive business activities if he participates in such a business enterprise as an employee, officer, director, consultant, agent, partner, proprietor, or other participant. Notwithstanding the foregoing, the Executive will not be considered to violate this covenant not to compete by reason of (i) employment with a full-service health maintenance organization, provided that the primary function of the Executive for such HMO is not related to a competitive business activity, or (ii) t he ownership of no more than five percent (5%) of the stock of a publicly traded corporation engaged in a competitive business. The Executive agrees that he shall not, at any time during the period of twenty-four months from the time his employment under this Agreement ceases (for whatever reason): (i) solicit any employee or full-time consultant of the Company, or any individual who was an employee or full-time consultant of the Company during the six (6) month period preceding the Executive's termination of employment, for the purposes of hiring or retaining such employee or consultant; or (ii) solicit any present or prospective client of the Company for the purpose of offering such client services or products that are similar to those the Company is actively engaged in providing at the time of the Executive's termination. The Executive shall be automatically discharged from any obligations under this Section 10 if the Company breaches its obligations to the Executive under Section 2 or under Section 5 (a) (1) or (2) of this Agreement. 11. INJUNCTIVE RELIEF The Executive acknowledges and agrees that it would be difficult to fully compensate the Company for damages resulting from the breach or threatened breach of the covenants set forth in Sections 9 and 10 of this Agreement and accordingly agrees that the Company shall be entitled to temporary and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, to enforce such provisions in any action or proceeding instituted in any United States District Court or in any State court having subject matter jurisdiction. This provision with respect to injunctive relief shall not, however, diminish the Company's right to claim and recover damages. It is expressly understood and agreed that although the parties consider the restrictions contained in this Agreement to be reasonable, if a court determines that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction on the activities of the Executive, no such provision of this Agreement shall be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such extent as such court may judicially determine or indicate to be reasonable. 12. SEPARABILITY 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. 13. BINDING EFFECT; COMPANY LIABILITY JOINT AND SEVERAL. This Agreement shall be binding upon and inure to the benefit of the heirs and representatives of the Executive, but neither this Agreement nor any rights hereunder shall be assignable or otherwise subject to hypothecation by the Executive. This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of Vision 21, MEC and Block Vision and each of Vision 21, MEC and Block Vision shall be jointly and severally liable to the Executive for all obligations imposed on the Company and owing to the Executive under this Agreement. 14. ENTIRE AGREEMENT Upon execution of this Agreement by all of the parties hereto, the Original Agreement shall be deemed amended and restated as set forth in this Agreement. As of the Effective Date, this Agreement represents the entire agreement of the parties and shall supersede any and all previous contracts, arrangements or understandings between the Company and the Executive. This Agreement may be amended at any time by mutual written agreement of the parties hereto. 15. GOVERNING LAW This Agreement shall be construed, interpreted, and governed in accordance with the laws of the State of Florida, other than the conflict of laws provisions of such laws. IN WITNESS WHEREOF, each of Vision 21, MEC and Block Vision have caused this Agreement to be duly executed, and the Executive has hereunto set his hand, as of the day and year first above written. VISION TWENTY- ONE, INC. /s/ Mark Gordon By:_________________________________ Name: Mark Gordon Title: Chief Executive Officer MEC HEALTH CARE, INC /s/ Mark Gordon By__________________________________ Name: Mark Gordon Title: President     BLOCK VISION, INC. /s/ Audrey Weinstein By:__________________________________ Name: Audrey Weinstein Title: Senior Vice President EXECUTIVE: /s/ Andrew Alcorn ____________________________________ Andrew Alcorn.  Schedule 3(b) Minimum EBITDA. As of the last day of each fiscal quarter of the Company, the Company shall maintain EBITDA for the four fiscal quarters then ended of not less than: FISCAL QUARTER ENDING ON OR ABOUT   MINIMUM EBITDA       12/31/00   $ 500,000 03/31/01   $1,500,000 06/30/01   $2,900,000 09/30/01   $4,600,000 12/31/01   $5,600,000 03/31/02   $6,300,000 06/30/02   $6,400,000 09/30/02   $6,500,000 12/31/02   $6,700,000 03/31/03   $6,700,000 06/30/03   $6,700,000 09/30/03 and thereafter   $6,700,000 ; provided that EBITDA shall be calculated on December 31, 2000, for the one fiscal quarter then ended; on March 31, 2001, for the two fiscal quarters then ended; and on June 30, 2001, for the three fiscal quarters then ended. Interest Coverage Ratio. As of the last day of each fiscal quarter of the Company, the Company shall maintain a ratio of (a) EBITDA for the four fiscal quarters of the Company then ended to (b) Interest Expense for the same four fiscal quarters of the Company then ended, of not less than: FISCAL QUARTER ENDING ON OR ABOUT INTEREST COVERAGE RATIO 12/31/00 .40 to 1.0 03/31/01 .65 to 1.0 06/30/01 .85 to 1.0 09/30/01 1.05 to 1.0 12/31/01 1.35 to 1.0 03/31/02 1.50 to 1.0 06/30/02 1.50 to 1.0 09/30/02 1.60 to 1.0 12/31/02 1.50 to 1.0 03/31/03 1.40 to 1.0 06/30/03 1.30 to 1.0 09/30/03 and thereafter 1.25 to 1.0 ; provided that EBITDA and Interest Expense shall be calculated on December 31, 2000, for the one fiscal quarter then ended; on March 31, 2001, for the two fiscal quarters then ended; and on June 30, 2001 for the three fiscal quarters then ended. For purposes hereof, the terms "EBITDA" and "Interest Expense" shall have the meanings given to such terms in the Credit Agreement.

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.12.6 CONSENT AND FIFTH AMENDMENT TO CREDIT AGREEMENT     CONSENT AND FIFTH AMENDMENT TO CREDIT AGREEMENT, dated as of June 1, 2001 (this "Amendment") to the Credit Agreement, dated as of September 26, 1996 (the "Credit Agreement"), among Univision Communications Inc. (the "Borrower"), certain lenders party thereto (collectively, the "Lenders"), BNP Paribas (f/k/a Banque Paribas) and The Chase Manhattan Bank, as Managing Agents (collectively, the "Managing Agents"), and The Chase Manhattan Bank, as Administrative Agent (in such capacity, the "Administrative Agent"). R E C I T A L S     A.  The Borrower and the Lenders have agreed to amend the Credit Agreement for the purpose of allowing the Borrower or its Subsidiaries to make additional investments in businesses in the Media/Communications Business, on the terms and conditions set forth herein.     B.  The undersigned are all of the parties to the aforesaid Credit Agreement. Unless otherwise expressly provided in this Amendment or unless the context otherwise requires, the terms defined in the Credit Agreement shall have their defined meanings when used in this Amendment. AGREEMENT     SECTION 1. Consent. Notwithstanding anything to the contrary contained in the Credit Agreement, the undersigned hereby consents to the mandatory prepayments under Section 2.6(b) of the Credit Agreement with respect to Excess Cash Flows for the fiscal year ended December 31, 2000 being made on or prior to September 29, 2001.     SECTION 2. Amendment to Credit Agreement. Effective as of the date first set forth above, the definition of "Other Media/Communications Investments" appearing in Section 1.1 of the Credit Agreement is hereby amended by deleting the amount "$400,000,000" and inserting in lieu thereof the amount "$800,000,000".     SECTION 3. This Amendment shall become effective, as of the date first above written, upon satisfaction of the following:     (a) this Amendment shall have been executed by each of the Borrower and the Majority Lenders and counterparts of this document so executed shall have been delivered to the Administrative Agent;     (b) the Administrative Agent shall have received evidence acceptable to the Administrative Agent in its sole judgment of the Guarantors' consent to this Amendment;.     (c) the representations and warranties contained in the Credit Agreement and in each other Loan Document and certificate or other writing delivered to the Lenders prior to or on the effective date hereof are correct on and as of such date except to the extent that such representations and warranties expressly relate to an earlier date and no Default has occurred and is continuing or would result from the execution, delivery and performance of this Amendment and the Administrative Agent shall have received a certificate from a Responsible Officer of the Borrower certifying these statements; and     (d) the Managing Agents and the Administrative Agent shall have received payment of all fees, costs, expenses and taxes accrued and unpaid and otherwise due and payable on or before the effective date hereof by the Borrower in connection with this Amendment.     SECTION 4. Representations and Warranties. (a) The Borrower represents and warrants that it has duly authorized and approved the execution and delivery of, and the performance by the Borrower of the obligations on its part contained in, the Credit Agreement as amended by this Amendment, and the -------------------------------------------------------------------------------- Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligation of the Borrower enforceable in accordance with the terms thereof.     (b) The Borrower represents and warrants that to the best of the Borrower's knowledge, all approvals, consents and orders of, or filings with, any governmental authority, legislative body, board, agency or commission having jurisdiction which would constitute a condition precedent to the due performance by the Borrower of its Obligations, or the absence of which would cause a Material Adverse Effect, have been duly obtained.     SECTION 5. Miscellaneous. (a) This Amendment shall be binding upon the successors and assigns of the Borrower and the Lenders and shall, together with the rights and remedies of the Lenders hereunder, inure to the benefit of the Lenders and their successors and assigns.     (b) This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Loan Document other than as specified herein.     (c) Except as expressly set forth herein, all provisions of the Credit Agreement and all other Loan Documents shall continue in full force and effect.     (d) This Amendment may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts 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 Amendment.     (e) This 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 the choice of law rules). --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the undersigned have caused this instrument to be duly executed as of the date first above written.     UNIVISION COMMUNICATIONS INC.     By:   /s/ C. DOUGLAS KRANWINKLE    --------------------------------------------------------------------------------         Name: Title:   C. Douglas Kranwinkle Executive Vice President     THE CHASE MANHATTAN BANK, as Administrative Agent, as a Managing Agent and as a Lender     By:   /s/ TRACEY NAVIN EWING    --------------------------------------------------------------------------------         Name: Title:   Tracey Navin Ewing Vice President     BNP PARIBAS (f/k/a Banque Paribas), as a Managing Agent and as a Lender     By:   /s/ BRIAN A. STAPF    --------------------------------------------------------------------------------         Name: Title:   Brian A. Stapf Vice President     By:   /s/ ERIC TOIZER    --------------------------------------------------------------------------------         Name: Title:   Eric Toizer Director --------------------------------------------------------------------------------     SIGNATURE PAGE TO CONSENT AND FIFTH AMENDMENT TO CREDIT AGREEMENT, DATED AS OF JUNE 1, 2001, TO THE CREDIT AGREEMENT, DATED AS OF SEPTEMBER 26, 1996, AMONG UNIVISION COMMUNICATIONS INC., CERTAIN LENDERS PARTY THERETO, BNP PARIBAS (F/K/A BANQUE PARIBAS) AND THE CHASE MANHATTAN BANK, AS MANAGING AGENTS, AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT     NAME OF INSTITUTION:     THE BANK OF NEW YORK --------------------------------------------------------------------------------     By:   /s/ JOHN C. LAMBERT    --------------------------------------------------------------------------------         Name: Title: John C. Lambert Senior Vice President --------------------------------------------------------------------------------     SIGNATURE PAGE TO CONSENT AND FIFTH AMENDMENT TO CREDIT AGREEMENT, DATED AS OF JUNE 1, 2001, TO THE CREDIT AGREEMENT, DATED AS OF SEPTEMBER 26, 1996, AMONG UNIVISION COMMUNICATIONS INC., CERTAIN LENDERS PARTY THERETO, BNP PARIBAS (F/K/A BANQUE PARIBAS) AND THE CHASE MANHATTAN BANK, AS MANAGING AGENTS, AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT     NAME OF INSTITUTION:     SOCIETE GENERALE --------------------------------------------------------------------------------     By:   /s/ MARK VIRGIL    --------------------------------------------------------------------------------         Name: Title: Mark Virgil Director --------------------------------------------------------------------------------     SIGNATURE PAGE TO CONSENT AND FIFTH AMENDMENT TO CREDIT AGREEMENT, DATED AS OF JUNE 1, 2001, TO THE CREDIT AGREEMENT, DATED AS OF SEPTEMBER 26, 1996, AMONG UNIVISION COMMUNICATIONS INC., CERTAIN LENDERS PARTY THERETO, BNP PARIBAS (F/K/A BANQUE PARIBAS) AND THE CHASE MANHATTAN BANK, AS MANAGING AGENTS, AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT     NAME OF INSTITUTION:     The Industrial Bank of Japan, Limited --------------------------------------------------------------------------------     By:   /s/ STEVEN SAVOLDELLI    --------------------------------------------------------------------------------         Name: Title: Steven Savoldelli Vice President and Manager --------------------------------------------------------------------------------     SIGNATURE PAGE TO CONSENT AND FIFTH AMENDMENT TO CREDIT AGREEMENT, DATED AS OF JUNE 1, 2001, TO THE CREDIT AGREEMENT, DATED AS OF SEPTEMBER 26, 1996, AMONG UNIVISION COMMUNICATIONS INC., CERTAIN LENDERS PARTY THERETO, BNP PARIBAS (F/K/A BANQUE PARIBAS) AND THE CHASE MANHATTAN BANK, AS MANAGING AGENTS, AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT     NAME OF INSTITUTION:     BNP Paribas --------------------------------------------------------------------------------     By:   /s/ BRIAN A. STAPF    --------------------------------------------------------------------------------         Name: Title: Brian A. Stapf Vice President     By:   /s/ ERIC TOIZER    --------------------------------------------------------------------------------         Name: Title: Eric Toizer Director --------------------------------------------------------------------------------     SIGNATURE PAGE TO CONSENT AND FIFTH AMENDMENT TO CREDIT AGREEMENT, DATED AS OF JUNE 1, 2001, TO THE CREDIT AGREEMENT, DATED AS OF SEPTEMBER 26, 1996, AMONG UNIVISION COMMUNICATIONS INC., CERTAIN LENDERS PARTY THERETO, BNP PARIBAS (F/K/A BANQUE PARIBAS) AND THE CHASE MANHATTAN BANK, AS MANAGING AGENTS, AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT     NAME OF INSTITUTION:     CIBC Inc. --------------------------------------------------------------------------------     By:   /s/ M. BETH MILLER    --------------------------------------------------------------------------------         Name: Title: M. Beth Miller Authorized Signatory --------------------------------------------------------------------------------     SIGNATURE PAGE TO CONSENT AND FIFTH AMENDMENT TO CREDIT AGREEMENT, DATED AS OF JUNE 1, 2001, TO THE CREDIT AGREEMENT, DATED AS OF SEPTEMBER 26, 1996, AMONG UNIVISION COMMUNICATIONS INC., CERTAIN LENDERS PARTY THERETO, BNP PARIBAS (F/K/A BANQUE PARIBAS) AND THE CHASE MANHATTAN BANK, AS MANAGING AGENTS, AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT     NAME OF INSTITUTION:     SUN TRUST BANK --------------------------------------------------------------------------------     By:   /s/ THOMAS C. KING, JR.    --------------------------------------------------------------------------------         Name: Title: Thomas C. King, Jr. Vice President --------------------------------------------------------------------------------     SIGNATURE PAGE TO CONSENT AND FIFTH AMENDMENT TO CREDIT AGREEMENT, DATED AS OF JUNE 1, 2001, TO THE CREDIT AGREEMENT, DATED AS OF SEPTEMBER 26, 1996, AMONG UNIVISION COMMUNICATIONS INC., CERTAIN LENDERS PARTY THERETO, BNP PARIBAS (F/K/A BANQUE PARIBAS) AND THE CHASE MANHATTAN BANK, AS MANAGING AGENTS, AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT     NAME OF INSTITUTION:     THE BANK OF NOVA SCOTIA --------------------------------------------------------------------------------     By:   /s/ BRENDA S. INSULL    --------------------------------------------------------------------------------         Name: Title: Brenda S. Insull Authorized Signatory --------------------------------------------------------------------------------     SIGNATURE PAGE TO CONSENT AND FIFTH AMENDMENT TO CREDIT AGREEMENT, DATED AS OF JUNE 1, 2001, TO THE CREDIT AGREEMENT, DATED AS OF SEPTEMBER 26, 1996, AMONG UNIVISION COMMUNICATIONS INC., CERTAIN LENDERS PARTY THERETO, BNP PARIBAS (F/K/A BANQUE PARIBAS) AND THE CHASE MANHATTAN BANK, AS MANAGING AGENTS, AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT     NAME OF INSTITUTION:     BANK OF MONTREAL --------------------------------------------------------------------------------     By:   /s/ W. T. CALDER    --------------------------------------------------------------------------------         Name: Title: W. T. Calder Managing Director --------------------------------------------------------------------------------     SIGNATURE PAGE TO CONSENT AND FIFTH AMENDMENT TO CREDIT AGREEMENT, DATED AS OF JUNE 1, 2001, TO THE CREDIT AGREEMENT, DATED AS OF SEPTEMBER 26, 1996, AMONG UNIVISION COMMUNICATIONS INC., CERTAIN LENDERS PARTY THERETO, BNP PARIBAS (F/K/A BANQUE PARIBAS) AND THE CHASE MANHATTAN BANK, AS MANAGING AGENTS, AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT     NAME OF INSTITUTION:     FIRST HAWAIIN BANK --------------------------------------------------------------------------------     By:   /s/ SHANNON SANSEVERO    --------------------------------------------------------------------------------         Name: Title: Shannon Sansevero Media Finance Officer --------------------------------------------------------------------------------     SIGNATURE PAGE TO CONSENT AND FIFTH AMENDMENT TO CREDIT AGREEMENT, DATED AS OF JUNE 1, 2001, TO THE CREDIT AGREEMENT, DATED AS OF SEPTEMBER 26, 1996, AMONG UNIVISION COMMUNICATIONS INC., CERTAIN LENDERS PARTY THERETO, BNP PARIBAS (F/K/A BANQUE PARIBAS) AND THE CHASE MANHATTAN BANK, AS MANAGING AGENTS, AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT     NAME OF INSTITUTION:     FLEET NATIONAL BANK --------------------------------------------------------------------------------     By:   /s/ SRBUI SEFERIAN    --------------------------------------------------------------------------------         Name: Title: Srbui Seferian Assistant Vice President --------------------------------------------------------------------------------     SIGNATURE PAGE TO CONSENT AND FIFTH AMENDMENT TO CREDIT AGREEMENT, DATED AS OF JUNE 1, 2001, TO THE CREDIT AGREEMENT, DATED AS OF SEPTEMBER 26, 1996, AMONG UNIVISION COMMUNICATIONS INC., CERTAIN LENDERS PARTY THERETO, BNP PARIBAS (F/K/A BANQUE PARIBAS) AND THE CHASE MANHATTAN BANK, AS MANAGING AGENTS, AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT     NAME OF INSTITUTION:     FIRST UNION NATIONAL BANK --------------------------------------------------------------------------------     By:   /s/ PATRICK D. FINN    --------------------------------------------------------------------------------         Name: Title: Patrick D. Finn Senior Vice President --------------------------------------------------------------------------------     SIGNATURE PAGE TO CONSENT AND FIFTH AMENDMENT TO CREDIT AGREEMENT, DATED AS OF JUNE 1, 2001, TO THE CREDIT AGREEMENT, DATED AS OF SEPTEMBER 26, 1996, AMONG UNIVISION COMMUNICATIONS INC., CERTAIN LENDERS PARTY THERETO, BNP PARIBAS (F/K/A BANQUE PARIBAS) AND THE CHASE MANHATTAN BANK, AS MANAGING AGENTS, AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT     NAME OF INSTITUTION:     BANK OF AMERICA, N.A. --------------------------------------------------------------------------------     By:   /s/ THOMAS J. KANE    --------------------------------------------------------------------------------         Name: Title: Thomas J. Kane Principal --------------------------------------------------------------------------------     SIGNATURE PAGE TO CONSENT AND FIFTH AMENDMENT TO CREDIT AGREEMENT, DATED AS OF JUNE 1, 2001, TO THE CREDIT AGREEMENT, DATED AS OF SEPTEMBER 26, 1996, AMONG UNIVISION COMMUNICATIONS INC., CERTAIN LENDERS PARTY THERETO, BNP PARIBAS (F/K/A BANQUE PARIBAS) AND THE CHASE MANHATTAN BANK, AS MANAGING AGENTS, AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT     NAME OF INSTITUTION:     ABN AMROBank N.V. --------------------------------------------------------------------------------     By:   /s/ THOMAS ROGERS    --------------------------------------------------------------------------------         Name: Title: Thomas Rogers Group Vice President     By:   /s/ THOMAS CHA    --------------------------------------------------------------------------------         Name: Title: Thomas Cha Corporate Banking Officer --------------------------------------------------------------------------------     SIGNATURE PAGE TO CONSENT AND FIFTH AMENDMENT TO CREDIT AGREEMENT, DATED AS OF JUNE 1, 2001, TO THE CREDIT AGREEMENT, DATED AS OF SEPTEMBER 26, 1996, AMONG UNIVISION COMMUNICATIONS INC., CERTAIN LENDERS PARTY THERETO, BNP PARIBAS (F/K/A BANQUE PARIBAS) AND THE CHASE MANHATTAN BANK, AS MANAGING AGENTS, AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT     NAME OF INSTITUTION:     CITY NATIONAL BANK --------------------------------------------------------------------------------     By:   /s/ AARON COHEN    --------------------------------------------------------------------------------         Name: Title: Aaron Cohen Vice President --------------------------------------------------------------------------------     SIGNATURE PAGE TO CONSENT AND FIFTH AMENDMENT TO CREDIT AGREEMENT, DATED AS OF JUNE 1, 2001, TO THE CREDIT AGREEMENT, DATED AS OF SEPTEMBER 26, 1996, AMONG UNIVISION COMMUNICATIONS INC., CERTAIN LENDERS PARTY THERETO, BNP PARIBAS (F/K/A BANQUE PARIBAS) AND THE CHASE MANHATTAN BANK, AS MANAGING AGENTS, AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT     NAME OF INSTITUTION:     UNION BANK OF CALIFORNIA, N.A. --------------------------------------------------------------------------------     By:   /s/ MOLLY L. TONEY    --------------------------------------------------------------------------------         Name: Title: Molly L. Toney Assistant Vice President --------------------------------------------------------------------------------     SIGNATURE PAGE TO CONSENT AND FIFTH AMENDMENT TO CREDIT AGREEMENT, DATED AS OF JUNE 1, 2001, TO THE CREDIT AGREEMENT, DATED AS OF SEPTEMBER 26, 1996, AMONG UNIVISION COMMUNICATIONS INC., CERTAIN LENDERS PARTY THERETO, BNP PARIBAS (F/K/A BANQUE PARIBAS) AND THE CHASE MANHATTAN BANK, AS MANAGING AGENTS, AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT     NAME OF INSTITUTION:     THE DAI-ICHI KANGYO BANK, LTD. --------------------------------------------------------------------------------     By:   /s/ MARVIN—MIREL LAZAR    --------------------------------------------------------------------------------         Name: Title: Marvin—Mirel Lazar Vice President -------------------------------------------------------------------------------- QuickLinks EXHIBIT 10.12.6 CONSENT AND FIFTH AMENDMENT TO CREDIT AGREEMENT AGREEMENT

EXHIBIT 10.5 FOURTH AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT THIS FOURTH AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT ("this Amendment") is entered into on the 14th day of April, 1998, to be effective April 1, 1998 (the "Effective Date"), by and among MMI PRODUCTS, INC., a Delaware corporation ("Borrower"), FLEET CAPITAL CORPORATION, a Rhode Island corporation, successor by merger to Fleet Capital Corporation, a Connecticut corporation, formerly known as Shawmut Capital Corporation, a Connecticut corporation, successor in interest by assignment to Barclays Business Credit, Inc., a Connecticut corporation ("Fleet"), and TRANSAMERICA BUSINESS CREDIT CORPORATION, a Delaware corporation ("Transamerica") (Fleet and Transamerica are collectively referred to as "Lenders" and each as a "Lender"), and Fleet, as collateral agent for Lenders ("Collateral Agent"). RECITALS A. Borrower, Lenders and Collateral Agent have entered into that certain Amended and Restated Loan and Security Agreement, dated as of December 13, 1996, as amended by (i) that certain First Amendment to the Amended and Restated Loan and Security Agreement, dated as of April 15, 1997, (ii) that certain Second Amendment to the Amended and Restated Loan and Security Agreement, dated as of June 11, 1997, and (iii) that certain Third Amendment to the Amended and Restated Loan and Security Agreement, dated as of February 18, 1998 (as amended, the "Loan Agreement"). B. Borrower, Lenders and Collateral Agent desire to amend the Loan Agreement and the Other Agreements to allow and provide for an increase in the maximum limit of the undrawn portions of all outstanding Letters of Credit from $10,000,000 to $20,000,000, to amend the Letter of Credit fees charged by the Lenders, to increase the maximum limit on Capital Expenditures from $6,000,000 during any fiscal year to $10,000,000, and to allow and provide for certain other matters, all as hereafter set forth. 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 Amendment are defined in the Loan Agreement, as amended hereby, unless otherwise stated. ARTICLE 11 Amendments Effective as of the Effective Date hereof, the Loan Agreement is hereby amended as follows:   2.01 Amendment to Section 2.3 of the Loan Agreement; Addition of Certain Definitions. Section 2.3 of the Loan Agreement is hereby amended by deleting the first sentence therefrom and inserting the following sentence in lieu thereof: "2.3 Letters of Credit. Upon written request made by Borrower and received by Collateral Agent at least five (5) Business Days prior to the date upon which a Letter of Credit is requested to be issued, Collateral Agent (on behalf of Lenders, in accordance with their respective Revolving Credit Percentages) may, in its sole discretion, issue or cause a Letter of Credit to be issued for the account of Borrower, provided that the aggregate undrawn portion of all Letters of Credit outstanding at any time shall not exceed $20,000,000." 2.02 Amendment to Section 3.2 (C) of the Loan Agreement; Fees and Charges. Section 3.2(C) of the Loan Agreement is hereby amended by deleting the first sentence therefrom and inserting the following sentence in lieu thereof: "(C) Letter of Credit Fees. As additional consideration for the issuance of Letters of Credit for Borrower's account pursuant to Section 2.3 hereof, and in addition to any other fees customarily charged by the issuer of the Letter of Credit, Borrower agrees to pay to Collateral Agent, for the account of Lenders in accordance with their respective Revolving Credit Percentages, an amount equal to (i) two percent (2%) per annum of the aggregate face amount of Letters of Credit outstanding from time to time with respect to standby Letters of Credit, and (ii) one percent (1%) per annum of the aggregate face amount of Letters of Credit outstanding from time to time with respect to documentary Letters of Credit, which fees shall be deemed fully earned upon issuance of each Letter of Credit, shall be due and payable on the first Business Day of each month and shall not be subject to rebate or proration upon the termination of this Agreement for any reason." 2.03 Amendment to Section 9.2 (K) of the Loan Agreement; Capital Expenditures. Section 9.2 (K) of the Loan Agreement is hereby amended by deleting the same and inserting the following language in lieu thereof: "(K) Capital Expenditures. Make Capital Expenditures (including, without limitation, the annual cash payments in respect of Capital Leases incurred during the fiscal year in question, but excluding any expenses incurred by Borrower pursuant to (i) the Environmental Plan which are capitalized or (ii) Permitted Business Acquisitions) which, in the aggregate, as to Borrower and its Subsidiaries, exceed $10,000,000 during any fiscal year of Borrower." ARTICLE III Conditions Precedent 3.01 Conditions to Effectiveness. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent, unless specifically waived in writing by Lenders: (a) Collateral Agent shall have received on behalf of the Lenders: (i) this Amendment, duly executed by Borrower; (ii) a consent, ratification and release executed by Guarantor, in form and substance satisfactory to Lenders; and (iii) such additional documents, instruments and information as Collateral Agent, Lenders or their legal counsel may reasonably request. (b) The representations and warranties contained herein and in the Loan Agreement and the Other Agreements, as each is amended hereby, shall be true and correct as of the date hereof, as if made on the date hereof, (c) No Default or Event of Default shall have occurred and be continuing, unless such Event of Default has been specifically waived in writing by Lenders; and (d) All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all documents, instruments and other legal matters incident thereto shall be satisfactory to Collateral Agent, Lenders and their legal counsel. ARTICLE IV Limited Waiver   4.01 Except as otherwise specifically provided for in this Amendment, nothing contained herein shall be construed as a waiver by Collateral Agent or Lenders of any covenant or provision of the Loan Agreement, the Other Agreements, this Amendment, or of any other contract or instrument between Borrower, Collateral Agent and/or Lenders, and the failure of Collateral Agent or Lenders 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 Collateral Agent or Lenders to thereafter demand strict compliance therewith. Collateral Agent and Lenders hereby reserve all rights granted under the Loan Agreement, the Other Agreements, this Amendment and any other contract or instrument between Borrower, Collateral Agent and Lenders. ARTICLE V Ratifications, Representations and Warranties 5.01 Ratifications. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Loan Agreement and the Other Agreements, and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Loan Agreement and the Other Agreements are ratified and confirmed and shall continue in full force and effect. Borrower, Collateral Agent and Lenders agree that the Loan Agreement and the Other Agreements, 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 Collateral Agent and Lenders that (a) the execution, delivery and performance of this Amendment and any and all Other Agreements 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 Agreement 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 Default or Event of Default under the Loan Agreement, as amended hereby, has occurred and is continuing, unless such Default or Event of Default has been specifically waived in writing by Collateral Agent and Lenders; (d) Borrower is in full compliance with all covenants and agreements contained in the Loan Agreement and the Other Agreements, as amended hereby; and (e) Borrower has not amended its Certificate Incorporation or its Bylaws since the date of the Loan Agreement, except for a restatement of the Certificate of Incorporation which merely restates and integrates, but does not further amend, the Certificate of Incorporation. ARTICLE VI Miscellaneous Provisions 6.01 Survival of Representations and Warranties. All representations and warranties made in the Loan Agreement or any Other Agreement, including, without limitation, any document furnished in connection with this Amendment, shall survive the execution and delivery of this Amendment and the Other Agreements, and no investigation by Collateral Agent or Lenders or any closing shall affect the representations and warranties or the right of Collateral Agent or Lenders to rely upon them. 6.02 Reference to Loan Agreement. Each of the Loan Agreement and the Other Agreements, 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 the Loan Agreement and such Other Agreements to the Loan Agreement shall mean a reference to the Loan Agreement as amended hereby. 6.03 Expenses of Collateral Agent and Lenders. As provided in the Loan Agreement, Borrower agrees to pay on demand all costs and expenses incurred by Collateral Agent and Lenders in connection with the preparation, negotiation, and execution of this Amendment and the Other Agreements executed pursuant hereto and any and all amendments, modifications, and supplements thereto, including, without limitation, the costs and fees of Collateral Agent's and Lenders' legal counsel, and all costs and expenses incurred by Collateral Agent and Lenders in connection with the enforcement or preservation of any rights under the Loan Agreement, as amended hereby, or any Other Agreements, including, without limitation, the costs and fees of Collateral Agent's and Lenders' legal counsel. 6.04 Severability. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. 6.05 Successors and Assigns. This Amendment is binding upon and shall inure to the benefit of Collateral Agent, Lenders and Borrower and their respective successors and assigns, except that Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of Collateral Agent. 6.06 Counterparts. This Amendment may be executed by one or more of the parties hereto in any number of separate 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 Collateral Agent or Lenders 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 Amendment are for convenience only and shall not affect the interpretation of this Amendment. 6.09 Applicable Law. THIS AMENDMENT AND ALL OTHER AGREEMENTS 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 TEXAS. 6.10 Release. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL, OR ANY PART OF ITS LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM COLLATERAL AGENT OR LENDERS. BORROWER HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES COLLATERAL AGENT AND LENDERS, THEIR PREDECESSORS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH THE BORROWER MAY NOW OR HEREAFTER HAVE AGAINST COLLATERAL AGENT AND/OR LENDERS, THEIR PREDECESSORS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR OTHER AGREEMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT. 6.11 Final Agreement. THE LOAN AGREEMENT AND THE OTHER AGREEMENTS, EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE LOAN AGREEMENT AND THE OTHER AGREEMENTS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER AND MAJORITY LENDERS.     [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]   IN WITNESS WHEREOF, this Amendment has been executed on the date first above-written, to be effective on the Effective Date.     "BORROWER"   MMI PRODUCTS, INC.   By:/s/   Robert N. Tenczar   Name: Robert N. Tenczar   Title: Chief Financial Officer   "LENDERS"   FLEET CAPITAL CORPORATION       By:/s/ Joy L. Bartholomew   Joy L. Bartholomew,   Vice President   TRANSAMERICA BUSINESS CREDIT CORPORATION       By: /s/ R.L. Heinz   Name: R.L. Heinz   Title: S.V.P.   "COLLATERAL AGENT"   FLEET CAPITAL CORPORATION       By:/s/  Joy L. Bartholomew   Joy L. Bartholomew,   Vice President   CONSENT, RATIFICATION AND RELEASE The undersigned, hereby consents to the terms of the within and foregoing Amendment, confirms and ratifies the terms of its guaranty agreement, and acknowledges that its guaranty agreement is in full force and effect, that it has no defense, counterclaim, set-off or any other claim to diminish its liability under such document, that its consent is not required to the effectiveness of the within and foregoing document, and that no consent by it is required for the effectiveness of any future amendment, modification, forbearance or other action with respect to the Loans, the Collateral, or any of the Other Agreements. THE UNDERSIGNED HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES COLLATERAL AGENT AND LENDERS, THEIR PREDECESSORS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH THE UNDERSIGNED MAY NOW OR HEREAFTER HAVE AGAINST COLLATERAL AGENT OR LENDERS, THEIR PREDECESSORS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR OTHER AGREEMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT.   "GUARANTOR"   MERCHANTS METALS HOLDING COMPANY       By: /s/   Robert N. Tenczar   Name: Robert N. Tenczar   Title: Vice President - Finance

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.68 AMENDMENT NO. 1 TO AMENDED, RESTATED AND CONSOLIDATED MASTER LEASE OF LAND AND IMPROVEMENTS     THIS AMENDMENT NO. 1 TO AMENDED, RESTATED AND CONSOLIDATED MASTER LEASE OF LAND AND IMPROVEMENTS (this "Amendment"), dated as of October 8, 1999, is entered into by and between:     (1) ADOBE SYSTEMS INCORPORATED, a Delaware corporation ("Tenant"); and     (2) SUMITOMO BANK LEASING AND FINANCE, INC., a Delaware corporation ("Landlord"). RECITALS     A.  Tenant and Landlord are parties to that certain Amended, Restated and Consolidated Master Lease of Land and Improvements, dated as of August 11, 1999 (the "Lease").     B.  In connection with the Lease, Landlord entered into a Participation Agreement, dated as of August 11, 1999, with Tenant, certain financial institutions from time to time parties thereto (the "Rent Purchasers") and ABN AMRO Bank N.V., as agent for the Rent Purchasers (in such capacity, "Administrative Agent"), and a Rent Purchase Agreement, dated as of August 11, 1999, with the Rent Purchasers and Administrative Agent, pursuant to which the Rent Purchasers purchased an interest in the Lease from Landlord.     C.  Tenant has requested that the insurance provisions in the Lease be amended and Landlord is willing so to amend the Lease upon the terms and subject to the conditions set forth in this Amendment. AGREEMENT     NOW, THEREFORE, in consideration of the above recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Tenant and Landlord hereby agree as follows:     1.  Definitions, Interpretation.  All capitalized terms defined above and elsewhere in this Amendment shall be used herein as so defined. Unless otherwise defined herein, all other capitalized terms used herein shall have the respective meanings given to those terms Appendix A to the Lease. The rules of construction set forth in Appendix A to the Lease shall, to the extent not inconsistent with the terms of this Amendment, apply to this Amendment and are hereby incorporated by reference.     2.  Amendments to Lease.  Subject to the satisfaction of the conditions set forth in Paragraph 5 below, the Lease is hereby amended as follows: (a)Clause (b) of Section 9.3 is amended to read in its entirety as follows: (b)on and after September 15, 1999, earthquake coverage for the Improvements (excluding any Tenant's Property) in an amount not less than $10,000,000, with a deductible not more than five percent (5%) of than the total value of the Improvements insured; and (b)The fifth sentence of Section 9.4 is amended to read in its entirety as follows: The certificates shall state that such insurance is in full force and effect and that coverage will not be reduced below the amounts required under this Article IX or otherwise limited or canceled without ten (10) days' prior written notice to Landlord and Administrative Agent in the case of any cancellation for non-payment of premiums and thirty (30) days' prior written notice to Landlord and Administrative Agent in the case of any reduction, limitation or cancellation for any other reason. --------------------------------------------------------------------------------     3.  Waiver.  Subject to the satisfaction of the conditions set forth in Paragraph 5 below, Landlord hereby waives any Event of Default arising out of Tenant's failure to provide earthquake insurance with a deductible of not more than $1,000,000 or a certificate of insurance stating that coverage will not be canceled without thirty (30) days' prior written notice.     4.  Representations and Warranties.  Tenant hereby represents and warrants to Landlord, the Rent Purchasers and Administrative Agent that the following are true and correct on the date of this Amendment and that, after giving effect to the amendments set forth in Paragraph 2 above, the following will be true and correct on the Effective Date (as defined below):     (a) The representations and warranties of Tenant set forth in Section 21.18 of the Lease and in the other Operative Documents are true and correct in all material respects as if made on such date (except for representations and warranties expressly made as of a specified date, which shall be true as of such date);     (b) No Default has occurred and is continuing; and     (c) All of the Operative Documents are in full force and effect. (Without limiting the scope of the term "Operative Documents," Tenant expressly acknowledges in making the representations and warranties set forth in this Paragraph 4 that, on and after the date hereof, such term includes this Amendment.)     5.  Effective Date.  The amendments effected by Paragraph 2 above and the waiver effected by Paragraph 3 above shall become effective on the date (the "Effective Date") that Landlord and Administrative Agent receive each of the following, each in form and substance satisfactory to Landlord and Administrative Agent and their respective counsel:     (a) The Consent to Amendment duly executed by Majority Rent Purchasers;     (b) This Amendment duly executed by Tenant and Landlord;     (c) All fees and expenses payable to Landlord, the Rent Purchasers and Administrative Agent on or prior to the Effective Date;     (d) All fees and expenses of Landlord's and Administrative Agent's counsels through the Effective Date, to the extent set forth in statements of such counsels delivered to Lessee on or before the Effective Date; and     (e) Such other evidence as Landlord or Administrative Agent may reasonably request to establish the accuracy and completeness in all material respects of the representations and warranties and the compliance with the terms and conditions contained in this Amendment and the other Operative Documents.     6.  Effect of this Amendment.  On and after the Effective Date, each reference in the Lease and the other Operative Documents to the Lease shall mean the Lease as amended hereby. Except as specifically amended above, (a) the Lease and the other Operative Documents shall remain in full force and effect and are hereby ratified and affirmed and (b) the execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power, or remedy of Landlord, the Rent Purchasers or Administrative Agent, nor constitute a waiver of any provision of the Lease or any other Operative Document.     7.  Miscellaneous.       (a) Counterparts. This Amendment may be executed in any number of identical counterparts, any set of which signed by all the parties hereto shall be deemed to constitute a complete, executed original for all purposes. 2 --------------------------------------------------------------------------------     (b) Headings. Headings in this Amendment are for convenience of reference only and are not part of the substance hereof.     (c) Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of California without reference to conflicts of law rules. [Signature pages follow] 3 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, Tenant and Landlord have caused this Amendment to be executed as of the day and year first above written. TENANT:   ADOBE SYSTEMS INCORPORATED     By:   /s/ HAROLD L. COVERT    --------------------------------------------------------------------------------         Name: Harold L. Covert Title: Executive Vice President and CFO LANDLORD:   SUMITOMO BANK LEASING AND FINANCE, INC.     By:   /s/ BRETT DELONG    --------------------------------------------------------------------------------         Name: Brett DeLong Title: Managing Director 4 -------------------------------------------------------------------------------- CONSENT TO AMENDMENT     The undersigned hereby consents to the execution of Amendment No. 1 to Amended, Restated and Consolidated Master Lease of Land and Improvements between Adobe Systems Incorporated, as Tenant, and Sumitomo Bank Leasing and Finance, Inc., as Landlord, in the form attached hereto as Exhibit A and to the amendment and waiver contained therein. RENT PURCHASERS:   ABN AMRO BANK N.V.         By: /s/ JAMIE DILLON    --------------------------------------------------------------------------------     Name: Jamie Dillon Title: Group Vice President     By: /s/ NIA M. MILLER    --------------------------------------------------------------------------------     Name: Nia M. Miller Title: Assistant Vice President     Date: October 8, 1999     BANK OF AMERICA, N.A.     By: /s/ JAMES KORHOMEN    --------------------------------------------------------------------------------     Name: James Korhomen Title:     Date: October 6, 1999     BANK HAPOALIM B.M.     By: /s/ JOHN RIO      /s/ PAUL WATSON          --------------------------------------------------------------------------------     Name: John Rio   Paul Watson     Title: Vice President   Vice President     Date: October 8, 1999     BANK OF MONTREAL     By:    --------------------------------------------------------------------------------     Name: Title:     Date: 5 --------------------------------------------------------------------------------     BANQUE NATIONALE DE PARIS     By: /s/ MICHAEL D. MCCORRISTON   /s/ JEFFREY S. KAJISA          --------------------------------------------------------------------------------     Name: Michael D. McCorriston   Jeffrey S. Kajisa     Title: Vice President   Vice President     Date: October 8, 1999     BANK ONE, NA (f/k/a THE FIRST NATIONAL BANK OF CHICAGO)     By: /s/ MARK A. ISLEY    --------------------------------------------------------------------------------     Name: Mark A. Isley Title: First Vice President     Date: October 8, 1999     FIRST UNION NATIONAL BANK     By: /s/ PAUL L. MILLER    --------------------------------------------------------------------------------     Name: Paul L. Miller Title: Vice President     Date: October 6, 1999     FLEET NATIONAL BANK     By: /s/ MATHEW M. GLAUNINGER    --------------------------------------------------------------------------------     Name: Mathew M. Glauninger Title: Senior Vice President     Date: October 5, 1999     THE INDUSTRIAL BANK OF JAPAN, LIMITED     By: /s/ HEN IWAPA    --------------------------------------------------------------------------------     Name: Hen Iwapa Title: Senior Vice President and Manager         Date: October 8, 1999     6 --------------------------------------------------------------------------------     KEYBANK NATIONAL ASSOCIATION     By: /s/ MARY K. YOUNG    --------------------------------------------------------------------------------     Name: Mary K. Young Title: Assistant Vice President         Date: October 5, 1999         MELLON BANK, N.A.     By: /s/ LAWRENCE C. IVEY    --------------------------------------------------------------------------------     Name: Lawrence C. Ivey Title: Vice President         Date: October 7, 1999         THE NORTHERN TRUST COMPANY     By: /s/ DAVID J. MITCHELL    --------------------------------------------------------------------------------     Name: David J. Mitchell Title: Vice President         Date: October 7, 1999         THE ROYAL BANK OF SCOTLAND PLC     By: /s/ KAREN L. STEFANCIC    --------------------------------------------------------------------------------     Name: Karen L. Stefancic Title: Vice President         Date: October 8, 1999     7 --------------------------------------------------------------------------------     UBS AG, Stamford Branch         By: /s/ ROBERT H. RILEY III    --------------------------------------------------------------------------------     Name: Robert H. Riley III Title: Executive Director         By: /s/ WILFRED SAINT    --------------------------------------------------------------------------------     Name: Wilfred Saint Title: Associate Director, Loan Portfolio           Support, US         Date: October 8, 1999     8 -------------------------------------------------------------------------------- EXHIBIT A AMENDMENT NO. 1 TO AMENDED, RESTATED AND CONSOLIDATED MASTER LEASE OF LAND AND IMPROVEMENTS     THIS AMENDMENT NO. 1 TO AMENDED, RESTATED AND CONSOLIDATED MASTER LEASE OF LAND AND IMPROVEMENTS (this "Amendment"), dated as of            , 1999, is entered into by and between:     (1) ADOBE SYSTEMS INCORPORATED, a Delaware corporation ("Tenant"); and     (2) SUMITOMO BANK LEASING AND FINANCE, INC., a Delaware corporation ("Landlord"). RECITALS     A.  Tenant and Landlord are parties to that certain Amended, Restated and Consolidated Master Lease of Land and Improvements, dated as of August 11, 1999 (the "Lease").     B.  In connection with the Lease, Landlord entered into a Participation Agreement, dated as of August 11, 1999, with Tenant, certain financial institutions from time to time parties thereto (the "Rent Purchasers") and ABN AMRO Bank N.V., as agent for the Rent Purchasers (in such capacity, "Administrative Agent"), and a Rent Purchase Agreement, dated as of August 11, 1999, with the Rent Purchasers and Administrative Agent, pursuant to which the Rent Purchasers purchased an interest in the Lease from Landlord.     C.  Tenant has requested that the insurance provisions in the Lease be amended and Landlord is willing so to amend the Lease upon the terms and subject to the conditions set forth in this Amendment. AGREEMENT     NOW, THEREFORE, in consideration of the above recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Tenant and Landlord hereby agree as follows:     1.  Definitions, Interpretation.  All capitalized terms defined above and elsewhere in this Amendment shall be used herein as so defined. Unless otherwise defined herein, all other capitalized terms used herein shall have the respective meanings given to those terms Appendix A to the Lease. The rules of construction set forth in Appendix A to the Lease shall, to the extent not inconsistent with the terms of this Amendment, apply to this Amendment and are hereby incorporated by reference.     2.  Amendments to Lease.  Subject to the satisfaction of the conditions set forth in Paragraph 5 below, the Lease is hereby amended as follows: (a)Clause (b) of Section 9.3 is amended to read in its entirety as follows: (b)on and after September 15, 1999, earthquake coverage for the Improvements (excluding any Tenant's Property) in an amount not less than $10,000,000, with a deductible not more than five percent (5%) of than the total value of the Improvements insured; and (b)The fifth sentence of Section 9.4 is amended to read in its entirety as follows: The certificates shall state that such insurance is in full force and effect and that coverage will not be reduced below the amounts required under this Article IX or otherwise limited or canceled without ten (10) days' prior written notice to Landlord and Administrative Agent in the case of any cancellation for non-payment of premiums and thirty (30) days' prior written 9 -------------------------------------------------------------------------------- notice to Landlord and Administrative Agent in the case of any reduction, limitation or cancellation for any other reason.     3.  Waiver.  Subject to the satisfaction of the conditions set forth in Paragraph 5 below, Landlord hereby waives any Event of Default arising out of Tenant's failure to provide earthquake insurance with a deductible of not more than $1,000,000 or a certificate of insurance stating that coverage will not be canceled without thirty (30) days' prior written notice.     4.  Representations and Warranties.  Tenant hereby represents and warrants to Landlord, the Rent Purchasers and Administrative Agent that the following are true and correct on the date of this Amendment and that, after giving effect to the amendments set forth in Paragraph 2 above, the following will be true and correct on the Effective Date (as defined below):     (a) The representations and warranties of Tenant set forth in Section 21.18 of the Lease and in the other Operative Documents are true and correct in all material respects as if made on such date (except for representations and warranties expressly made as of a specified date, which shall be true as of such date);     (b) No Default has occurred and is continuing; and     (c) All of the Operative Documents are in full force and effect. (Without limiting the scope of the term "Operative Documents," Tenant expressly acknowledges in making the representations and warranties set forth in this Paragraph 4 that, on and after the date hereof, such term includes this Amendment.)     5.  Effective Date.  The amendments effected by Paragraph 2 above and the waiver effected by Paragraph 3 above shall become effective on the date (the "Effective Date") that Landlord and Administrative Agent receive each of the following, each in form and substance satisfactory to Landlord and Administrative Agent and their respective counsel:     (a) The Consent to Amendment duly executed by Majority Rent Purchasers;     (b) This Amendment duly executed by Tenant and Landlord;     (c) All fees and expenses payable to Landlord, the Rent Purchasers and Administrative Agent on or prior to the Effective Date;     (d) All fees and expenses of Landlord's and Administrative Agent's counsels through the Effective Date, to the extent set forth in statements of such counsels delivered to Lessee on or before the Effective Date; and     (e) Such other evidence as Landlord or Administrative Agent may reasonably request to establish the accuracy and completeness in all material respects of the representations and warranties and the compliance with the terms and conditions contained in this Amendment and the other Operative Documents.     6.  Effect of this Amendment.  On and after the Effective Date, each reference in the Lease and the other Operative Documents to the Lease shall mean the Lease as amended hereby. Except as specifically amended above, (a) the Lease and the other Operative Documents shall remain in full force and effect and are hereby ratified and affirmed and (b) the execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power, or remedy of Landlord, the Rent Purchasers or Administrative Agent, nor constitute a waiver of any provision of the Lease or any other Operative Document. 10 --------------------------------------------------------------------------------     7.  Miscellaneous.       (a) Counterparts. This Amendment may be executed in any number of identical counterparts, any set of which signed by all the parties hereto shall be deemed to constitute a complete, executed original for all purposes.     (b) Headings. Headings in this Amendment are for convenience of reference only and are not part of the substance hereof.     (c) Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of California without reference to conflicts of law rules. [Signature pages follow] 11 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, Tenant and Landlord have caused this Amendment to be executed as of the day and year first above written. TENANT:   ADOBE SYSTEMS INCORPORATED     By:      --------------------------------------------------------------------------------         Name: Title: LANDLORD:   SUMITOMO BANK LEASING AND FINANCE, INC.     By:      --------------------------------------------------------------------------------         Name: Title: 12 -------------------------------------------------------------------------------- QuickLinks Exhibit 10.68 AMENDMENT NO. 1 TO AMENDED, RESTATED AND CONSOLIDATED MASTER LEASE OF LAND AND IMPROVEMENTS RECITALS AGREEMENT CONSENT TO AMENDMENT EXHIBIT A AMENDMENT NO. 1 TO AMENDED, RESTATED AND CONSOLIDATED MASTER LEASE OF LAND AND IMPROVEMENTS RECITALS AGREEMENT

EXHIBIT 10.6   September 19, 2001   Steven Seelig 775 Kent Elmhurst, IL  60126   Re:          Retention Plan   Dear Steve:                   As you may be aware the BP 13D filing indicates that multiple options for the divestiture of BP’s holdings in Vysis will be reviewed. Such options may include a merger or sale of the business.  Therefore, in order to help encourage your continued focused attention on the on-going success of Vysis, Inc (“Vysis”) and its affiliates (“the Company”) and to encourage you to remain employed by the Company during a potential period of transition which may result in a change in control of Vysis, the Board of Directors of Vysis has authorized the establishment of a Retention Plan which will include payment to you of a “Retention Bonus”.  This Retention Bonus will be payable in the event a Change in Control (as defined below) occurs and if certain other minimal terms and conditions are met.  The following describes your Retention Bonus Plan and the terms and conditions relating to the Retention Bonus payment:                   1.             If you satisfy the terms and conditions described below, the Company will pay you a Retention Bonus in an amount equal to 9 (nine) months of your annual base salary (not including any bonus or incentive payments or other types of compensation whatsoever) in effect immediately prior to the closing date of a Change in Control, as defined in the Vysis, Inc. Severance Program adopted by Vysis, Inc. on August 17, 2001 (the “Transaction Closing Date”).                   2.             In order to receive payment of the Retention Bonus, you must remain employed by the Company for ninety (90) days after the Transaction Closing Date (the “Payment Date”); provided, however, that if your employment is terminated (i) by the Company for reasons other than Cause or (ii) by death or disability, after the Transaction Closing Date but before the Payment Date, you will nonetheless receive payment of the Retention Bonus.  For this purpose, the term “Cause” shall mean any of the following:  (A) you have engaged in willful conduct involving misappropriation, dishonesty, or serious moral turpitude which is demonstrably and materially injurious to the Company or (B) you are convicted of a felony.                   3.             The Retention Bonus shall be paid to you on the Payment Date, provided that you remain employed on that date.  If your employment is terminated by the Company before the Payment Date for reasons of death or disability or for reasons other than Cause, the Retention Bonus shall be paid to you on the day your employment is terminated.                   4.             The Retention Bonus will be subject to such deductions as may be required to be made pursuant to law, government regulations or order or by agreement with you.                 5.             If you find it necessary to bring any legal action for the enforcement of this agreement, or because of an alleged dispute, breach or default in connection with any of the provisions of this agreement, and if you are the prevailing party in such action, Vysis shall reimburse you for your reasonable attorneys' fees and any other costs that you incur in connection with such action.  Any payments pursuant to this paragraph 5 shall be in addition to any other relief to which you may be entitled as a result of such action.                   6.             The parties hereto agree to maintain the existence of this Agreement and the terms thereof confidential and shall not disclose them to any third parties (other than Vysis management officials and administrative personnel necessary to effectuate the terms of this Agreement and/or counsel for the parties, their respective tax advisors and accountants and Employee’s immediate family), except as required by law.                   7.             The Company’s obligations under this Agreement shall be governed by the laws of the State of Illinois.  If a Change of Control has not occurred by August 17, 2002, this Agreement shall automatically terminate as of such date.                   If you have any questions regarding the foregoing, please contact Bill Murray.     Sincerely,           /s/ John L. Bishop       John L. Bishop President and CEO     JLB/ld       Agreed: /s/ Steven Seelig   Employee Name:  Steven Seelig   Date:  September 20, 2001    

Actionpoint, Inc. 1998 Employee Stock Purchase Plan Adopted Effective July 1, 1998 Amended and Restated Effective March 7, 2000 TABLE OF CONTENTS Page SECTION 1. PURPOSE OF THE PLAN SECTION 2. ADMINISTRATION OF THE PLAN (a) Committee Composition (b) Committee Responsibilities SECTION 3. ENROLLMENT AND PARTICIPATION (a) Offering Periods (b) Accumulation Periods (c) Enrollment (d) Duration of Participation (e) Applicable Offering Period SECTION 4. EMPLOYEE CONTRIBUTIONS (a) Frequency of Payroll Deductions (b) Amount of Payroll Deductions (c) Changing Withholding Rate (d) Discontinuing Payroll Deductions (e) Limit on Number of Elections SECTION 5. WITHDRAWAL FROM THE PLAN (a) Withdrawal (b) Re-Enrollment After Withdrawal SECTION 6. CHANGE IN EMPLOYMENT STATUS (a) Termination of Employment (b) Leave of Absence (c) Death SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES (a) Plan Accounts (b) Purchase Price (c) Number of Shares Purchased (d) Available Shares Insufficient (e) Issuance of Stock (f) Unused Cash Balances (g) Stockholder Approval SECTION 8. LIMITATIONS ON STOCK OWNERSHIP (a) Five Percent Limit (b) Dollar Limit SECTION 9. RIGHTS NOT TRANSFERABLE SECTION 10. NO RIGHTS AS AN EMPLOYEE SECTION 11. NO RIGHTS AS A STOCKHOLDER SECTION 12. SECURITIES LAW REQUIREMENTS. SECTION 13. STOCK OFFERED UNDER THE PLAN (a) Authorized Shares (b) Anti-Dilution Adjustments (c) Reorganizations SECTION 14. AMENDMENT OR DISCONTINUANCE SECTION 15. DEFINITIONS (a) Accumulation Period (b) Board (c) Code (d) Committee (e) Company (f) Compensation (g) Corporate Reorganization (h) Eligible Employee (i) Exchange Act (j) Fair Market Value (k) Offering Period (l) Participant (m) Participating Company (n) Plan (o) Plan Account (p) Purchase Price (q) Stock (r) Subsidiary SECTION 15. EXECUTION     Actionpoint, Inc. 1998 Employee Stock Purchase Plan PURPOSE OF THE PLAN. The Plan was adopted by the Board on March 25, 1998, effective as of July 1, 1998. The purpose of the Plan is to provide Eligible Employees with an opportunity to increase their proprietary interest in the success of the Company by purchasing Stock from the Company on favorable terms and to pay for such purchases through payroll deductions. The Plan is intended to qualify under section 423 of the Code. ADMINISTRATION OF THE PLAN. Committee Composition . The Plan shall be administered by the Committee. The Committee shall consist exclusively of one or more directors of the Company, who shall be appointed by the Board. Committee Responsibilities . The Committee shall interpret the Plan and make all other policy decisions relating to the operation of the Plan. The Committee may adopt such rules, guidelines and forms as it deems appropriate to implement the Plan. The Committee's determinations under the Plan shall be final and binding on all persons. ENROLLMENT AND PARTICIPATION. Offering Periods . While the Plan is in effect, two overlapping Offering Periods shall commence in each calendar year. The Offering Periods shall consist of the 24-month periods commencing on each January 1 and July 1. Accumulation Periods . While the Plan is in effect, two Accumulation Periods shall commence in each calendar year. The Accumulation Periods shall consist of the six-month periods commencing on each January 1 and July 1. Enrollment . Any individual who, on the day preceding the first day of an Offering Period, qualifies as an Eligible Employee may elect to become a Participant in the Plan for such Offering Period by executing the enrollment form prescribed for this purpose by the Committee. The enrollment form shall be filed with the Company at the prescribed location not later than 10 days prior to the commencement of such Offering Period. Duration of Participation . Once enrolled in the Plan, a Participant shall continue to participate in the Plan until he or she ceases to be an Eligible Employee, withdraws from the Plan under Section 5(a) or reaches the end of the Accumulation Period in which his or her employee contributions were discontinued under Section 4(d) or 8(b). A Participant who discontinued employee contributions under Section 4(d) or withdrew from the Plan under Section 5(a) may again become a Participant, if he or she then is an Eligible Employee, by following the procedure described in Subsection (c) above. A Participant whose employee contributions were discontinued automatically under Section 8(b) shall automatically resume participation at the beginning of the earliest Accumulation Period ending in the next calendar year, if he or she then is an Eligible Employee. Applicable Offering Period . For purposes of calculating the Purchase Price under Section 7(b), the applicable Offering Period shall be determined as follows: Once a Participant is enrolled in the Plan for an Offering Period, such Offering Period shall continue to apply to him or her until the earliest of (A) the end of such Offering Period, (B) the end of his or her participation under Subsection (d) above or (C) re-enrollment for a subsequent Offering Period under Paragraph (ii) or (iii) below. In the event that the Fair Market Value of Stock on the last trading day before the commencement of the Offering Period for which the Participant is enrolled is higher than on the last trading day before the commencement of any subsequent Offering Period, the Participant shall automatically be re-enrolled for such subsequent Offering Period. Any other provision of the Plan notwithstanding, the Company (at its sole discretion) may determine prior to the commencement of any new Offering Period that all Participants shall be re-enrolled for such new Offering Period. When a Participant reaches the end of an Offering Period but his or her participation is to continue, then such Participant shall automatically be re-enrolled for the Offering Period that commences immediately after the end of the prior Offering Period. EMPLOYEE CONTRIBUTIONS. Frequency of Payroll Deductions . A Participant may purchase shares of Stock under the Plan solely by means of payroll deductions. Payroll deductions, as designated by the Participant pursuant to Subsection (b) below, shall occur on each payday during participation in the Plan. Amount of Payroll Deductions . An Eligible Employee shall designate on the enrollment form the portion of his or her Compensation that he or she elects to have withheld for the purchase of Stock. Such portion shall be a whole percentage of the Eligible Employee's Compensation, but not less than 1% nor more than 10%. Changing Withholding Rate . If a Participant wishes to change the rate of payroll withholding, he or she may do so by filing a new enrollment form with the Company at the prescribed location at any time. The new withholding rate shall be effective as soon as reasonably practicable after such form has been received by the Company. The new withholding rate shall be a whole percentage of the Eligible Employee's Compensation, but not less than 1% nor more than 10%. Discontinuing Payroll Deductions . If a Participant wishes to discontinue employee contributions entirely, he or she may do so by filing a new enrollment form with the Company at the prescribed location at any time. Payroll withholding shall cease as soon as reasonably practicable after such form has been received by the Company. (In addition, employee contributions may be discontinued automatically pursuant to Section 8(b).) A Participant who has discontinued employee contributions may resume such contributions by filing a new enrollment form with the Company at the prescribed location. Payroll withholding shall resume as soon as reasonably practicable after such form has been received by the Company. Limit on Number of Elections . No Participant shall make more than two elections under Subsection (c) or (d) above during any Accumulation Period. WITHDRAWAL FROM THE PLAN. Withdrawal . A Participant may elect to withdraw from the Plan by filing the prescribed form with the Company at the prescribed location at any time before the last day of an Accumulation Period. As soon as reasonably practicable thereafter, payroll deductions shall cease and the entire amount credited to the Participant's Plan Account shall be refunded to him or her in cash, without interest. No partial withdrawals shall be permitted. Re-Enrollment After Withdrawal . A former Participant who has withdrawn from the Plan shall not be a Participant until he or she re-enrolls in the Plan under Section 3(c). Re-enrollment may be effective only at the commencement of an Offering Period. CHANGE IN EMPLOYMENT STATUS. Termination of Employment . Termination of employment as an Eligible Employee for any reason, including death, shall be treated as an automatic withdrawal from the Plan under Section 5(a). (A transfer from one Participating Company to another shall not be treated as a termination of employment.) Leave of Absence . For purposes of the Plan, employment shall not be deemed to terminate when the Participant goes on a military leave, a sick leave or another bona fide leave of absence, if the leave was approved by the Company in writing. Employment, however, shall be deemed to terminate 90 days after the Participant goes on a leave, unless a contract or statute guarantees his or her right to return to work. Employment shall be deemed to terminate in any event when the approved leave ends, unless the Participant immediately returns to work. Death . In the event of the Participant's death, the amount credited to his or her Plan Account shall be paid to a beneficiary designated by him or her for this purpose on the prescribed form or, if none, to the Participant's estate. Such form shall be valid only if it was filed with the Company at the prescribed location before the Participant's death. PLAN ACCOUNTS AND PURCHASE OF SHARES. Plan Accounts . The Company shall maintain a Plan Account on its books in the name of each Participant. Whenever an amount is deducted from the Participant's Compensation under the Plan, such amount shall be credited to the Participant's Plan Account. Amounts credited to Plan Accounts shall not be trust funds and may be commingled with the Company's general assets and applied to general corporate purposes. No interest shall be credited to Plan Accounts. Purchase Price . The Purchase Price for each share of Stock purchased at the close of an Accumulation Period shall be the lower of: 85% of the Fair Market Value of such share on the last trading day in such Accumulation Period; or 85% of the Fair Market Value of such share on the last trading day before the commencement of the applicable Offering Period (as determined under Section 3(e)). Number of Shares Purchased . As of the last day of each Accumulation Period, each Participant shall be deemed to have elected to purchase the number of shares of Stock calculated in accordance with this Subsection (c), unless the Participant has previously elected to withdraw from the Plan in accordance with Section 5(a). The amount then in the Participant's Plan Account shall be divided by the Purchase Price, and the number of shares that results shall be purchased from the Company with the funds in the Participant's Plan Account. The foregoing notwithstanding, no Participant shall purchase more than 1,000 shares of Stock with respect to any Accumulation Period nor more than the amounts of Stock set forth in Sections 8(b) and 13(a). The Committee may determine with respect to all Participants that any fractional share, as calculated under this Subsection (c), shall be (i) rounded down to the next lower whole share or (ii) credited as a fractional share. Available Shares Insufficient . In the event that the aggregate number of shares that all Participants elect to purchase during an Accumulation Period exceeds the maximum number of shares available for issuance under Section 13(a), then the number of shares to which each Participant is entitled shall be determined by multiplying the number of shares available for issuance by a fraction, the numerator of which is the number of shares that such Participant has elected to purchase and the denominator of which is the number of shares that all Participants have elected to purchase. Issuance of Stock . Certificates representing the shares of Stock purchased by a Participant under the Plan shall be issued to him or her as soon as reasonably practicable after the close of the applicable Accumulation Period, except that the Committee may determine that such shares shall be held for each Participant's benefit by a broker designated by the Committee (unless the Participant has elected that certificates be issued to him or her). Shares may be registered in the name of the Participant or jointly in the name of the Participant and his or her spouse as joint tenants with right of survivorship or as community property. Unused Cash Balances . An amount remaining in the Participant's Plan Account that represents the Purchase Price for any fractional share shall be carried over in the Participant's Plan Account to the next Accumulation Period. Any amount remaining in the Participant's Plan Account that represents the Purchase Price for whole shares that could not be purchased by reason of Subsection (c) above, Section 8(b) or Section 13(a) shall be refunded to the Participant in cash, without interest. Stockholder Approval . Any other provision of the Plan notwithstanding, no shares of Stock shall be purchased under the Plan unless and until the Company's stockholders have approved the adoption of the Plan. LIMITATIONS ON STOCK OWNERSHIP. Five Percent Limit . Any other provision of the Plan notwithstanding, no Participant shall be granted a right to purchase Stock under the Plan if such Participant, immediately after his or her election to purchase such Stock, would own stock possessing more than 5% of the total combined voting power or value of all classes of stock of the Company or any parent or Subsidiary of the Company. For purposes of this Subsection (a), the following rules shall apply: Ownership of stock shall be determined after applying the attribution rules of section 424(d) of the Code; Each Participant shall be deemed to own any stock that he or she has a right or option to purchase under this or any other plan; and Each Participant shall be deemed to have the right to purchase 1,000 shares of Stock under this Plan with respect to each Accumulation Period. Dollar Limit . Any other provision of the Plan notwithstanding, no Participant shall purchase Stock with a Fair Market Value in excess of the following limit: In the case of Stock purchased during an Offering Period that commenced in the current calendar year, the limit shall be equal to (A) $25,000 minus (B) the Fair Market Value of the Stock that the Participant previously purchased in the current calendar year (under this Plan and all other employee stock purchase plans of the Company or any parent or Subsidiary of the Company). In the case of Stock purchased during an Offering Period that commenced in the immediately preceding calendar year, the limit shall be equal to (A) $50,000 minus (B) the Fair Market Value of the Stock that the Participant previously purchased (under this Plan and all other employee stock purchase plans of the Company or any parent or Subsidiary of the Company) in the current calendar year and in the immediately preceding calendar year. In the case of Stock purchased during an Offering Period that commenced in the second preceding calendar year, the limit shall be equal to (A) $75,000 minus (B) the Fair Market Value of the Stock that the Participant previously purchased (under this Plan and all other employee stock purchase plans of the Company or any parent or Subsidiary of the Company) in the current calendar year and in the two preceding calendar years. For purposes of this Subsection (b), the Fair Market Value of Stock shall be determined in each case as of the beginning of the Offering Period in which such Stock is purchased. Employee stock purchase plans not described in section 423 of the Code shall be disregarded. If a Participant is precluded by this Subsection (b) from purchasing additional Stock under the Plan, then his or her employee contributions shall automatically be discontinued and shall resume at the beginning of the earliest Accumulation Period ending in the next calendar year (if he or she then is an Eligible Employee). RIGHTS NOT TRANSFERABLE. The rights of any Participant under the Plan, or any Participant's interest in any Stock or moneys to which he or she may be entitled under the Plan, shall not be transferable by voluntary or involuntary assignment or by operation of law, or in any other manner other than by beneficiary designation or the laws of descent and distribution. If a Participant in any manner attempts to transfer, assign or otherwise encumber his or her rights or interest under the Plan, other than by beneficiary designation or the laws of descent and distribution, then such act shall be treated as an election by the Participant to withdraw from the Plan under Section 5(a). NO RIGHTS AS AN EMPLOYEE. Nothing in the Plan or in any right granted under the Plan shall confer upon the Participant any right to continue in the employ of a Participating Company for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Participating Companies or of the Participant, which rights are hereby expressly reserved by each, to terminate his or her employment at any time and for any reason, with or without cause. NO RIGHTS AS A STOCKHOLDER. A Participant shall have no rights as a stockholder with respect to any shares of Stock that he or she may have a right to purchase under the Plan until such shares have been purchased on the last day of the applicable Accumulation Period. Securities Law Requirements. Shares of Stock shall not be issued under the Plan unless the issuance and delivery of such shares comply with (or are exempt from) all applicable requirements of law, including (without limitation) the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, state securities laws and regulations, and the regulations of any stock exchange or other securities market on which the Company's securities may then be traded. STOCK OFFERED UNDER THE PLAN. Authorized Shares . The number of shares of Stock available to all Participants for purchase under the Plan with respect to any Accumulation Period shall be 50,000, subject to adjustment pursuant to this Section 13. If fewer than 50,000 shares of Stock are purchased during an Accumulation Period, the unused shares shall not be available during any subsequent Accumulation Period. The aggregate number of shares of Stock available to all Participants for purchase during the life of the Plan shall be 250,000, subject to adjustment pursuant to this Section 13. Anti-Dilution Adjustments . The number of shares of Stock available to all Participants with respect to any Accumulation Period or during the life of the Plan, the 1,000-share limitation described in Section 7(c) and the price of shares that any Participant has elected to purchase shall be adjusted proportionately by the Committee for any increase or decrease in the number of outstanding shares of Stock resulting from a subdivision or consolidation of shares or the payment of a stock dividend, any other increase or decrease in such shares effected without receipt or payment of consideration by the Company, the distribution of the shares of a Subsidiary to the Company's stockholders or a similar event. Reorganizations . Any other provision of the Plan notwithstanding, immediately prior to the effective time of a Corporate Reorganization, the Offering Period and Accumulation Period then in progress shall terminate and shares shall be purchased pursuant to Section 7, unless the Plan is assumed by the surviving corporation or its parent corporation pursuant to the plan of merger or consolidation. The Plan shall in no event be construed to restrict in any way the Company's right to undertake a dissolution, liquidation, merger, consolidation or other reorganization. AMENDMENT OR DISCONTINUANCE. The Board shall have the right to amend, suspend or terminate the Plan at any time and without notice. Except as provided in Section 13, any increase in the aggregate number of shares of Stock to be issued under the Plan shall be subject to approval by a vote of the stockholders of the Company. In addition, any other amendment of the Plan shall be subject to approval by a vote of the stockholders of the Company to the extent required by an applicable law or regulation. The Plan shall terminate automatically 20 years after its adoption by the Board, unless (a) the Plan is extended by the Board and (b) the extension is approved within 12 months by a vote of the stockholders of the Company. DEFINITIONS. "Accumulation Period" means a six-month period during which contributions may be made toward the purchase of Stock under the Plan, as determined pursuant to Section 3(b). "Board" means the Board of Directors of the Company, as constituted from time to time. "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means a committee of the Board, as described in Section 2. "Company" means Actionpoint, Inc., a Delaware corporation. "Compensation" means (i) the base salary or wage paid in cash to a Participant by a Participating Company plus (ii) any pre-tax contributions made by the Participant under section 401(k) or 125 of the Code. " Compensation" shall exclude bonuses, incentive compensation, commissions, overtime pay, shift premiums, all non-cash items, moving or relocation allowances, cost-of-living equalization payments, car allowances, tuition reimbursements, imputed income attributable to cars or life insurance, severance pay, fringe benefits, contributions or benefits received under employee benefit plans, income attributable to the exercise of stock options, and similar items. The Committee shall determine whether a particular item is included in Compensation. "Corporate Reorganization" means: The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization; or The sale, transfer or other disposition of all or substantially all of the Company's assets or the complete liquidation or dissolution of the Company. "Eligible Employee" means any employee of a Participating Company who meets both of the following requirements: His or her customary employment is for more than five months per calendar year and for more than 20 hours per week; and He or she has been an employee of a Participating Company for not less than 30 consecutive days. The foregoing notwithstanding, an individual shall not be considered an Eligible Employee if his or her participation in the Plan is prohibited by the law of any country which has jurisdiction over him or her or if he or she is subject to a collective bargaining agreement that does not provide for participation in the Plan. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" means the market price of Stock, determined by the Committee as follows: If the Stock was traded on The Nasdaq National Market on the date in question, then the Fair Market Value shall be equal to the last-transaction price quoted for such date by The Nasdaq National Market; If the Stock was traded on a stock exchange on the date in question, then the Fair Market Value shall be equal to the closing price reported by the applicable composite transactions report for such date; or If none of the foregoing provisions is applicable, then the Fair Market Value shall be determined by the Committee in good faith on such basis as it deems appropriate. Whenever possible, the determination of Fair Market Value by the Committee shall be based on the prices reported in The Wall Street Journal or as reported directly to the Company by Nasdaq or a stock exchange. Such determination shall be conclusive and binding on all persons. "Offering Period" means a 24-month period with respect to which the right to purchase Stock may be granted under the Plan, as determined pursuant to Section 3(a). "Participant" means an Eligible Employee who elects to participate in the Plan, as provided in Section 3(c). "Participating Company" means (i) the Company and (ii) each present or future Subsidiary designated by the Committee as a Participating Company. "Plan" means this Actionpoint, Inc. 1998 Employee Stock Purchase Plan, as it may be amended from time to time. "Plan Account" means the account established for each Participant pursuant to Section 7(a). "Purchase Price" means the price at which Participants may purchase Stock under the Plan, as determined pursuant to Section 7(b). "Stock" means the Common Stock of the Company. "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. EXECUTION. To record the amendment and restatement of the Plan by the Board on March 7, 2000, the Company has caused its authorized officer to execute the same. Actionpoint, Inc. By: /s/ John Finegan John Finegan Title: Chief Financial Officer

(Multicurrency—Cross Border)   ISDA®   International Swap Dealers Association, Inc.   MASTER AGREEMENT   dated as of December 20, 2000   SUNTRUST BANK   AND   F.Y.I., INCORPORATED Party A       Party B   have entered and/or anticipate entering into one or more transactions (each a “Transaction”) that are or will be governed by this Master Agreement, which includes the schedule (the “Schedule”), and the documents and other confirming evidence (each a “Confirmation”) exchanged between the parties confirming those Transactions.   Accordingly, the parties agree as follows:—   1.                Interpretation   (a)                Definitions.  The terms defined in Section 14 and in the Schedule will have the meanings therein specified for the purpose of this Master Agreement.   (b)                Inconsistency.  In the event of any inconsistency between the provisions of the Schedule and the other provisions of this Master Agreement, the Schedule will prevail.  In the event of any inconsistency between the provisions of any Confirmation and this Master Agreement (including the Schedule), such Confirmation will prevail for the purpose of the relevant Transaction.   (c)           Single Agreement.  All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties (collectively referred to as this “Agreement”), and the parties would not otherwise enter into any Transactions.   2.                Obligations   (a)           General Conditions.   (i)  Each party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions of this Agreement.   (ii)  Payments under this Agreement will be made on the due date for value on that date in the place of the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely transferable funds and in the manner customary for payments in the required currency.  Where settlement is by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or elsewhere in this Agreement.   (iii)  Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred or been effectively designated and (3) each other applicable condition precedent specified in this Agreement.   Copyright ©  1992 by International Swap Dealers Association, Inc.   (b)           Change of Account.  Either party may change its account for receiving a payment or delivery by giving notice to the other party at least five Local Business Days prior to the scheduled date for the payment or delivery to which such change applies unless such other party gives timely notice of a reasonable objection to such change.   (c)           Netting.  If on any date amounts would otherwise be payable:—   (i)  in the same currency; and   (ii)  in respect of the same Transaction,   by each party to the other, then, on such date, each party’s obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount.   The parties may elect in respect of two or more Transactions that a net amount will be determined in respect of all amounts payable on the same date in the same currency in respect of such Transactions, regardless of whether such amounts are payable in respect of the same Transaction.  The election may be made in the Schedule or a Confirmation by specifying that subparagraph (ii) above will not apply to the Transactions identified as being subject to the election, together with the starting date (in which case subparagraph (ii) above will not, or will cease to, apply to such Transactions from such date).  This election may be made separately for different groups of Transactions and will apply separately to each pairing of Offices through which the parties make and receive payments or deliveries.   (d)                Deduction or Withholding for Tax.   (i)                Gross-Up.  All payments under this Agreement will be made without any deduction or withholding for or on account of any Tax unless such deduction or withholding is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, then in effect.  If a party is so required to deduct or withhold, then that party (“X”) will:—   (1)  promptly notify the other party (“Y”) of such requirement;   (2)  pay to the relevant authorities the full amount required to be deducted or withheld (including the full amount required to be deducted or withheld from any additional amount paid by X to Y under this Section 2(d)) promptly upon the earlier of determining that such deduction or withholding is required or receiving notice that such amount has been assessed against Y;   (3)  promptly forward to Y an official receipt (or a certified copy), or other documentation reasonably acceptable to Y, evidencing such payment to such authorities; and   (4)  if such Tax is an Indemnifiable Tax, pay to Y, in addition to the payment to which Y is otherwise entitled under this Agreement, such additional amount as is necessary to ensure that the net amount actually received by Y (free and clear of Indemnifiable Taxes, whether assessed against X or Y) will equal the full amount Y would have received had no such deduction or withholding been required.  However, X will not be required to pay any additional amount to Y to the extent that it would not be required to be paid but for:—   (A)  the failure by Y to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d); or   (B)  the failure of a representation made by Y pursuant to Section 3(f) to be accurate and true unless such failure would not have occurred but for (I) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (II) a Change in Tax Law. (ii)  Liability.  If:—   (1)  X is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, to make any deduction or withholding in respect of which X would not be required to pay an additional amount to Y under Section 2(d)(i)(4);   (2)  X does not so deduct or withhold; and   (3)  a liability resulting from such Tax is assessed directly against X,   then, except to the extent Y has satisfied or then satisfies the liability resulting from such Tax, Y will promptly pay to X the amount of such liability (including any related liability for interest, but including any related liability for penalties only if Y has failed to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).   (e)           Default Interest; Other Amounts.  Prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party that defaults in the performance of any payment obligation will, to the extent permitted by law and subject to Section 6(c), be required to pay interest (before as well as after judgment) on the overdue amount to the other party on demand in the same currency as such overdue amount, for the period from (and including) the original due date for payment to (but excluding) the date of actual payment, at the Default Rate.  Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed.  If, prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party defaults in the performance of any obligation required to be settled by delivery, it will compensate the other party on demand if and to the extent provided for in the relevant Confirmation or elsewhere in this Agreement.   3.                Representations   Each party represents to the other party (which representations will be deemed to be repeated by each party on each date on which a Transaction is entered into and, in the case of the representations in Section 3(f), at all times until the termination of this Agreement) that:—   (a)           Basic Representations.   (i)  Status.  It is duly organized and validly existing under the laws of the jurisdiction of its organization or incorporation and, if relevant under such laws, in good standing;   (ii)  Powers.  It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action to authorize such execution, delivery and performance;   (iii)  No Violation or Conflict.  Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets;   (iv)  Consents.  All governmental and other consents that are required to have been obtained by it with respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and   (v)  Obligations Binding.  Its obligations under this Agreement and any Credit Support Document to which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)). (b)           Absence of Certain Events.  No Event of Default or Potential Event of Default or, to its knowledge, Termination Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a party.   (c)           Absence of Litigation. There is not pending or, to its knowledge, threatened against it or any of its Affiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform its obligations under this Agreement or such Credit Support Document.   (d)                Accuracy of Specified Information.  All applicable information that is furnished in writing by or on behalf of it to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the information, true, accurate and complete in every material respect.   (e)           Payer Tax Representation. Each representation specified in the Schedule as being made by it for the purpose of this Section 3(e) is accurate and true.   (f)            Payee Tax Representations. Each representation specified in the Schedule as being made by it for the purpose of this Section 3(f) is accurate and true.   4.                Agreements   Each party agrees with the other that, so long as either party has or may have any obligation under this Agreement or under any Credit Support Document to which it is a party:—   (a)           Furnish Specified Information.  It will deliver to the other party or, in certain cases under subparagraph (iii) below, to such government or taxing authority as the other party reasonably directs:—   (i)  any forms, documents or certificates relating to taxation specified in the Schedule or any Confirmation;   (ii)  any other documents specified in the Schedule or any Confirmation; and   (iii)  upon reasonable demand by such other party, any form or document that may be required or reasonably requested in writing in order to allow such other party or its Credit Support Provider to make a payment under this Agreement or any applicable Credit Support Document without any deduction or withholding for or on account of any Tax or with such deduction or withholding at a reduced rate (so long as the completion, execution or submission of such form or document would not materially prejudice the legal or commercial position of the party in receipt of such demand), with any such form or document to be accurate and completed in a manner reasonably satisfactory to such other party and to be executed and to be delivered with any reasonably required certification,   in each case by the date specified in the Schedule or such Confirmation or, if none is specified, as soon as reasonably practicable.   (b)                Maintain Authorizations.  It will use all reasonable efforts to maintain in full force and effect all consents of any governmental or other authority that are required to be obtained by it with respect to this Agreement or any Credit Support Document to which it is a party and will use all reasonable efforts to obtain any that may become necessary in the future.   (c)           Comply with Laws. It will comply in all material respects with all applicable laws and orders to which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement or any Credit Support Document to which it is a party.   (d)           Tax Agreement. It will give notice of any failure of a representation made by it under Section 3(f) to be accurate and true promptly upon learning of such failure. (e)           Payment of Stamp Tax.  Subject to Section 11, it will pay any Stamp Tax levied or imposed upon it or in respect of its execution or performance of this Agreement by a jurisdiction in which it is incorporated, organized, managed and controlled, or considered to have its seat, or in which a branch or office through which it is acting for the purpose of this Agreement is located (“Stamp Tax Jurisdiction”) and will indemnify the other party against any Stamp Tax levied or imposed upon the other party or in respect of the other party’s execution or performance of this Agreement by any such Stamp Tax Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the other party.   5.             Events of Default and Termination Events   (a)           Events of Default.  The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any of the following events constitutes an event of default (an “Event of Default”) with respect to such party:—   (i)  Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) required to be made by it if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to the party;   (ii)  Breach of Agreement.  Failure by the party to comply with or perform any agreement or obligation (other than an obligation to make any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) or to give notice of a Termination Event or any agreement or obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the party in accordance with this Agreement if such failure is not remedied on or before the thirtieth day after notice of such failure is given to the party;   (iii)  Credit Support Default.   (1)  Failure by the party or any Credit Support Provider of such party to comply with or perform any agreement or obligation to be complied with or performed by it in accordance with any Credit Support Document if such failure is continuing after any applicable grace period has elapsed;   (2)  the expiration or termination of such Credit Support Document or the failing or ceasing of such Credit Support Document to be in full force and effect for the purpose of this Agreement (in either case other than in accordance with its terms) prior to the satisfaction of all obligations of such party under each Transaction to which such Credit Support Document relates without the written consent of the other party; or   (3)  the party or such Credit Support Provider disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of, such Credit Support Document;   (iv)  Misrepresentation.  A representation (other than a representation under Section 3(e) or (f)) made or repeated or deemed to have been made or repeated by the party or any Credit Support Provider of such party in this Agreement or any Credit Support Document proves to have been incorrect or misleading in any material respect when made or repeated or deemed to have been made or repeated;   (v)  Default under Specified Transaction.  The party, any Credit Support Provider of such party or any applicable Specified Entity of such party (1) defaults under a Specified Transaction and, after giving effect to any applicable notice requirement or grace period, there occurs a liquidation of, an acceleration of obligations under, or an early termination of, that Specified Transaction, (2) defaults, after giving effect to any applicable notice requirement or grace period, in making any payment or delivery due on the last payment, delivery or exchange date of, or any payment on early termination of, a Specified Transaction (or such default continues for at least three Local Business Days if there is no applicable notice requirement or grace period) or (3) disaffirms, disclaims, repudiates or rejects in whole or in part, a Specified Transaction (or such action is taken by any person or entity appointed or empowered to operate it or act on its behalf); (vi)  Cross Default.  If  “Cross Default” is specified in the Schedule as applying to the party, the occurrence or existence of (1) a default, event of default or other similar condition or event (however described) in respect of such party, any Credit Support Provider of such party or any applicable Specified Entity of such party under one or more agreements or instruments relating to Specified Indebtedness of any of them (individually or collectively) in an aggregate amount of not less than the applicable Threshold Amount (as specified in the Schedule) which has resulted in such Specified Indebtedness becoming, or becoming capable at such time of being declared, due and payable under such agreements or instruments, before it would otherwise have been due and payable or (2) a default by such party, such Credit Support Provider or such Specified Entity (individually or collectively) in making one or more payments on the due date thereof in an aggregate amount of not less than the applicable Threshold Amount under such agreements or instruments (after giving effect to any applicable notice requirement or grace period);   (vii)  Bankruptcy. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party:—   (1) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (5) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (7) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter: (8) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (1) to (7) (inclusive); or (9) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; or   (viii)  Merger Without Assumption.  The party or any Credit Support Provider of such party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and, at the time of such consolidation, amalgamation, merger or transfer:—   (1)  the resulting, surviving or transferee entity fails to assume all the obligations of such party or such Credit Support Provider under this Agreement or any Credit Support Document to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Agreement; or   (2)  the benefits of any Credit Support Document fail to extend (without the consent of the other party) to the performance by such resulting, surviving or transferee entity of its obligations under this Agreement.   (b)                Termination Events.  The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any event specified below constitutes an Illegality if the event is specified in (i) below, a Tax Event if the event is specified in (ii) below or a Tax Event Upon Merger if the event is specified in (iii) below, and, if specified to be applicable, a Credit Event Upon Merger if the event is specified pursuant to (iv) below or an Additional Termination Event if the event is specified pursuant to (v) below:— (i)  Illegality. Due to the adoption of, or any change in, any applicable law after the date on which a Transaction is entered into, or due to the promulgation of, or any change in, the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law after such date, it becomes unlawful (other than as a result of a breach by the party of Section 4(b)) for such party (which will be the Affected Party):—   (1)  to perform any absolute or contingent obligation to make a payment or delivery or to receive a payment or delivery in respect of such Transaction or to comply with any other material provision of this Agreement relating to such Transaction; or   (2)  to perform, or for any Credit Support Provider of such party to perform, any contingent or other obligation which the party (or such Credit Support Provider) has under any Credit Support Document relating to such Transaction;   (ii)  Tax Event.  Due to (x) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (y) a Change in Tax Law, the party (which will be the Affected Party) will, or there is a substantial likelihood that it will, on the next succeeding Scheduled Payment Date (1) be required to pay to the other party an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is required to be deducted or withheld for or on account of a Tax (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) and no additional amount is required to be paid in respect of such Tax under Section 2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or (B));   (iii)  Tax Event Upon Merger.  The party (the “Burdened Party”) on the next succeeding Scheduled Payment Date will either (1) be required to pay an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has been deducted or withheld for or on account of any Indemnifiable Tax in respect of which the other party is not required to pay an additional amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of a party consolidating or amalgamating with, or merging with or into, or transferring all or substantially all its assets to, another entity (which will be the Affected Party) where such action does not constitute an event described in Section 5(a)(viii);   (iv)  Credit Event Upon Merger. If “Credit Event Upon Merger” is specified in the Schedule as applying to the party, such party (“X”), any Credit Support Provider of X or any applicable Specified Entity of X consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and such action does not constitute an event described in Section 5(a)(viii) but the creditworthiness of the resulting, surviving or transferee entity is materially weaker than that of X, such Credit Support Provider or such Specified Entity, as the case may be, immediately prior to such action (and, in such event, X or its successor or transferee, as appropriate, will be the Affected Party); or   (v)  Additional Termination Event.  If any “Additional Termination Event” is specified in the Schedule or any Confirmation as applying, the occurrence of such event (and, in such event, the Affected Party or Affected Parties shall be as specified for such Additional Termination Event in the Schedule or such Confirmation).   (c)           Event of Default and Illegality. If an event or circumstance which would otherwise constitute or give rise to an Event of Default also constitutes an Illegality, it will be treated as an Illegality and will not constitute an Event of Default. 6.             Early Termination   (a)           Right to Terminate Following Event of Default.  If at any time an Event of Default with respect to a party (the “Defaulting Party”) has occurred and is then continuing, the other party (the “Non-defaulting Party”) may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions.  If, however, “Automatic Early Termination” is specified in the Schedule as applying to a party, then an Early Termination Date in respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(l), (3), (5), (6) or, to the extent analogous thereto, (8), and as of the time immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).   (b)           Right to Terminate Following Termination Event.   (i)  Notice.  If a Termination Event occurs, an Affected Party will, promptly upon becoming aware of it, notify the other party, specifying the nature of that Termination Event and each Affected Transaction and will also give such other information about that Termination Event as the other party may reasonably require.   (ii)  Transfer to Avoid Termination Event.   If either an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there is only one Affected Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the Affected Party, the Affected Party will, as a condition to its right to designate an Early Termination Date under Section 6(b)(iv), use all reasonable efforts (which will not require such party to incur a loss, excluding immaterial, incidental expenses) to transfer within 20 days after it gives notice under Section 6(b)(i) all its rights and obligations under this Agreement in respect of the Affected Transactions to another of its Offices or Affiliates so that such Termination Event ceases to exist.   If the Affected Party is not able to make such a transfer it will give notice to the other party to that effect within such 20 day period, whereupon the other party may effect such a transfer within 30 days after the notice is given under Section 6(b)(i).   Any such transfer by a party under this Section 6(b)(ii) will be subject to and conditional upon the prior written consent of the other party, which consent will not be withheld if such other party’s policies in effect at such time would permit it to enter into transactions with the transferee on the terms proposed.   (iii)  Two Affected Parties.  If an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there are two Affected Parties, each party will use all reasonable efforts to reach agreement within 30 days after notice thereof is given under Section 6(b)(i) on action to avoid that Termination Event.   (iv)  Right to Terminate. If:—   (1)  a transfer under Section 6(b)(ii) or an agreement under Section 6(b)(iii), as the case may be, has not been effected with respect to all Affected Transactions within 30 days after an Affected Party gives notice under Section 6(b)(i); or   (2)  an Illegality under Section 5(b)(i)(2), a Credit Event Upon Merger or an Additional Termination Event occurs, or a Tax Event Upon Merger occurs and the Burdened Party is not the Affected Party,   either party in the case of an Illegality, the Burdened Party in the case of a Tax Event Upon Merger, any Affected Party in the case of a Tax Event or an Additional Termination Event if there is more than one Affected Party, or the party which is not the Affected Party in the case of a Credit Event Upon Merger or an Additional Termination Event if there is only one Affected Party may, by not more than 20 days notice to the other party and provided that the relevant Termination Event is then continuing, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all Affected Transactions. (c)           Effect of Designation.   (i)  If notice designating an Early Termination Date is given under Section 6(a) or (b), the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination Event is then continuing.   (ii)  Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under Section 2(a)(i) or 2(e) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of this Agreement.  The amount, if any, payable in respect of an Early Termination Date shall be determined pursuant to Section 6(e).   (d)                Calculations.   (i)  Statement.  On or as soon as reasonably practicable following the occurrence of an Early Termination Date, each party will make the calculations on its part, if any, contemplated by Section 6(e) and will provide to the other party a statement (1) showing, in reasonable detail, such calculations (including all relevant quotations and specifying any amount payable under Section 6(e)) and (2) giving details of the relevant account to which any amount payable to it is to be paid.  In the absence of written confirmation from the source of a quotation obtained in determining a Market Quotation, the records of the party obtaining such quotation will be conclusive evidence of the existence and accuracy of such quotation.   (ii)  Payment Date. An amount calculated as being due in respect of any Early Termination Date under Section 6(e) will be payable on the day that notice of the amount payable is effective (in the case of an Early Termination Date which is designated or occurs as a result of an Event of Default) and on the day which is two Local Business Days after the day on which notice of the amount payable is effective (in the case of an Early Termination Date which is designated as a result of a Termination Event).  Such amount will be paid together with (to the extent permitted under applicable law) interest thereon (before as well as after judgment) in the Termination Currency, from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid, at the Applicable Rate.  Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed.   (e)                Payments on Early Termination.  If an Early Termination Date occurs, the following provisions shall apply based on the parties’ election in the Schedule of a payment measure, either “Market Quotation” or “Loss”, and a payment method, either the “First Method” or the “Second Method”.  If the parties fail to designate a payment measure or payment method in the Schedule, it will be deemed that “Market Quotation” or the “Second Method”, as the case may be, shall apply.  The amount, if any, payable in respect of an Early Termination Date and determined pursuant to this Section will be subject to any Set-off.   (i)  Events of Default. If the Early Termination Date results from an Event of Default:—   (1)  First Method and Market Quotation.  If the First Method and Market Quotation apply, the Defaulting Party will pay to the Non-defaulting Party the excess, if a positive number, of (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party over (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party.   (2)  First Method and Loss.  If the First Method and Loss apply, the Defaulting Party will pay to the Non-defaulting Party, if a positive number, the Non-defaulting Party’s Loss in respect of this Agreement. (3)  Second Method and Market Quotation.  If the Second Method and Market Quotation apply, an amount will be payable equal to (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party less (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party.  If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party.   (4)  Second Method and Loss.  If the Second Method and Loss apply, an amount will be payable equal to the Non-defaulting Party’s Loss in respect of this Agreement.  If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party.   (ii)  Termination Events.  If the Early Termination Date results from a Termination Event:—   (1)  One Affected Party.  If there is one Affected Party, the amount payable will be determined in accordance with Section 6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4), if Loss applies, except that, in either case, references to the Defaulting Party and to the Non-defaulting Party will be deemed to be references to the Affected Party and the party which is not the Affected Party, respectively, and, if Loss applies and fewer than all the Transactions are being terminated, Loss shall be calculated in respect of all Terminated Transactions.   (2)  Two Affected Parties.  If there are two Affected Parties:—   (A)  if Market Quotation applies, each party will determine a Settlement Amount in respect of the Terminated Transactions, and an amount will be payable equal to (I) the sum of (a) one-half of the difference between the Settlement Amount of the party with the higher Settlement Amount (“X”) and the Settlement Amount of the party with the lower Settlement Amount (“Y”) and (b) the Termination Currency Equivalent of the Unpaid Amounts owing to X less (II) the Termination Currency Equivalent of the Unpaid Amounts owing to Y; and   (B)  if Loss applies, each party will determine its Loss in respect of this Agreement (or, if fewer than all the Transactions are being terminated, in respect of all Terminated Transactions) and an amount will be payable equal to one-half of the difference between the Loss of the party with the higher Loss (“X”) and the Loss of the party with the lower Loss (“Y”).   If the amount payable is a positive number, Y will pay it to X; if it is a negative number, X will pay the absolute value of that amount to Y.   (iii)  Adjustment for Bankruptcy.  In circumstances where an Early Termination Date occurs because “Automatic Early Termination” applies in respect of a party, the amount determined under this Section 6(e) will be subject to such adjustments as are appropriate and permitted by law to reflect any payments or deliveries made by one party to the other under this Agreement (and retained by such other party) during the period from the relevant Early Termination Date to the date for payment determined under Section 6(d)(ii).   (iv)  Pre-Estimate.  The parties agree that if Market Quotation applies an amount recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not a penalty.  Such amount is payable for the loss of bargain and the loss of protection against future risks and except as otherwise provided in this Agreement neither party will be entitled to recover any additional damages as a consequence of such losses. 7.             Transfer   Subject to Section 6(b)(ii), neither this Agreement nor any interest or obligation in or under this Agreement may be transferred (whether by way of security or otherwise) by either party without the prior written consent of the other party, except that:—   (a)  a party may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or merger with or into, or transfer of all or substantially all its assets to, another entity (but without prejudice to any other right or remedy under this Agreement); and   (b)  a party may make such a transfer of all or any part of its interest in any amount payable to it from a Defaulting Party under Section 6(e).   Any purported transfer that is not in compliance with this Section will be void.   8.                Contractual Currency   (a)           Payment in the Contractual Currency.  Each payment under this Agreement will be made in the relevant currency specified in this Agreement for that payment (the “Contractual Currency”).  To the extent permitted by applicable law, any obligation to make payments under this Agreement in the Contractual Currency will not be discharged or satisfied by any tender in any currency other than the Contractual Currency, except to the extent such tender results in the actual receipt by the party to which payment is owed, acting in a reasonable manner and in good faith in converting the currency so tendered into the Contractual Currency, of the full amount in the Contractual Currency of all amounts payable in respect of this Agreement.  If for any reason the amount in the Contractual Currency so received falls short of the amount in the Contractual Currency payable in respect of this Agreement, the party required to make the payment will, to the extent permitted by applicable law, immediately pay such additional amount in the Contractual Currency as may be necessary to compensate for the shortfall.  If for any reason the amount in the Contractual Currency so received exceeds the amount in the Contractual Currency payable in respect of this Agreement, the party receiving the payment will refund promptly the amount of such excess.   (b)                Judgments.  To the extent permitted by applicable law, if any judgment or order expressed in a currency other than the Contractual Currency is rendered (i) for the payment of any amount owing in respect of this Agreement, (ii) for the payment of any amount relating to any early termination in respect of this Agreement or (iii) in respect of a judgment or order of another court for the payment of any amount described in (i) or (ii) above, the party seeking recovery, after recovery in full of the aggregate amount to which such party is entitled pursuant to the judgment or order, will be entitled to receive immediately from the other party the amount of any shortfall of the Contractual Currency received by such party as a consequence of sums paid in such other currency and will refund promptly to the other party any excess of the Contractual Currency received by such party as a consequence of sums paid in such other currency if such shortfall or such excess arises or results from any variation between the rate of exchange at which the Contractual Currency is converted into the currency of the judgment or order for the purposes of such judgment or order and the rate of exchange at which such party is able, acting in a reasonable manner and in good faith in converting the currency received into the Contractual Currency, to purchase the Contractual Currency with the amount of the currency of the judgment or order actually received by such party. The term “rate of exchange” includes, without limitation, any premiums and costs of exchange payable in connection with the purchase of or conversion into the Contractual Currency.   (c)                Separate Indemnities.  To the extent permitted by applicable law, these indemnities constitute separate and independent obligations from the other obligations in this Agreement, will be enforceable as separate and independent causes of action, will apply notwithstanding any indulgence granted by the party to which any payment is owed and will not be affected by judgment being obtained or claim or proof being made for any other sums payable in respect of this Agreement.   (d)                Evidence of Loss. For the purpose of this Section 8, it will be sufficient for a party to demonstrate that it would have suffered a loss had an actual exchange or purchase been made. 9.                Miscellaneous   (a)           Entire Agreement.  This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings with respect thereto.   (b)                Amendments.  No amendment, modification or waiver in respect of this Agreement will be effective unless in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed by an exchange of telexes or electronic messages on an electronic messaging system.   (c)           Survival of Obligations.  Without prejudice to Sections 2(a)(iii) and 6(c)(ii), the obligations of the parties under this Agreement will survive the termination of any Transaction.   (d)                Remedies Cumulative.  Except as provided in this Agreement, the rights, powers, remedies and privileges provided in this Agreement are cumulative and not exclusive of any rights, powers, remedies and privileges provided by law.   (e)                Counterparts and Confirmations.   (i)  This Agreement (and each amendment, modification and waiver in respect of it) may be executed and delivered in counterparts (including by facsimile transmission), each of which will be deemed an original.   (ii)  The parties intend that they are legally bound by the terms of each Transaction from the moment they agree to those terms (whether orally or otherwise).  A Confirmation shall be entered into as soon as practicable and may be executed and delivered in counterparts (including by facsimile transmission) or be created by an exchange of telexes or by an exchange of electronic messages on an electronic messaging system, which in each case will be sufficient for all purposes to evidence a binding supplement to this Agreement.  The parties will specify therein or through another effective means that any such counterpart, telex or electronic message constitutes a Confirmation.   (f)            No Waiver of Rights.  A failure or delay in exercising any right, power or privilege in respect of this Agreement will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be presumed to preclude any subsequent or further exercise, of that right, power or privilege or the exercise of any other right, power or privilege.   (g)                Headings.  The headings used in this Agreement are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Agreement.   10.           Offices; Multibranch Parties   (a)           If Section 10(a) is specified in the Schedule as applying, each party that enters into a Transaction through an Office other than its head or home office represents to the other party that, notwithstanding the place of booking office or jurisdiction of incorporation or organization of such party, the obligations of such party are the same as if it had entered into the Transaction through its head or home office.  This representation will be deemed to be repeated by such party on each date on which a Transaction is entered into.   (b)           Neither party may change the Office through which it makes and receives payments or deliveries for the purpose of a Transaction without the prior written consent of the other party.   (c)           If a party is specified as a Multibranch Party in the Schedule, such Multibranch Party may make and receive payments or deliveries under any Transaction through any Office listed in the Schedule, and the Office through which it makes and receives payments or deliveries with respect to a Transaction will be specified in the relevant Confirmation. 11.                Expenses   A Defaulting Party will, on demand, indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses, including legal fees and Stamp Tax, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement or any Credit Support Document to which the Defaulting Party is a party or by reason of the early termination of any Transaction, including, but not limited to, costs of collection.   12.          Notices   (a)                Effectiveness.  Any notice or other communication in respect of this Agreement may be given in any manner set forth below (except that a notice or other communication under Section 5 or 6 may not be given by facsimile transmission or electronic messaging system) to the address or number or in accordance with the electronic messaging system details provided (see the Schedule) and will be deemed effective as indicated:— (i)  if in writing and delivered in person or by courier, on the date it is delivered;   (ii)  if sent by telex, on the date the recipient’s answerback is received;   (iii)  if sent by facsimile transmission, on the date that transmission is received by a responsible employee of the recipient in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender’s facsimile machine);   (iv)  if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested), on the date that mail is delivered or its delivery is attempted; or   (v)  if sent by electronic messaging system, on the date that electronic message is received,   unless the date of that delivery (or attempted delivery) or that receipt, as applicable, is not a Local Business Day or that communication is delivered (or attempted) or received, as applicable, after the close of business on a Local Business Day, in which case that communication shall be deemed given and effective on the first following day that is a Local Business Day.   (b)           Change of Addresses.  Either party may by notice to the other change the address, telex or facsimile number or electronic messaging system details at which notices or other communications are to be given to it.   13.                Governing Law and Jurisdiction   (a)                Governing Law.  This Agreement will be governed by and construed in accordance with the law specified in the Schedule.   (b)                Jurisdiction.  With respect to any suit, action or proceedings relating to this Agreement (“Proceedings”), each party irrevocably:—   (i)  submits to the jurisdiction of the English courts, if this Agreement is expressed to be governed by English law, or to the nonexclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City, if this Agreement is expressed to be governed by the laws of the State of New York; and   (ii)  waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party. Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction (outside, if this Agreement is expressed to be governed by English law, the Contracting States, as defined in Section 1(3) of the Civil Jurisdiction and Judgments Act 1982 or any modification, extension or re-enactment thereof for the time being in force) nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction.   (c)           Service of Process.  Each party irrevocably appoints the Process Agent (if any) specified opposite its name in the Schedule to receive, for it and on its behalf, service of process in any Proceedings.  If for any reason any party’s Process Agent is unable to act as such, such party will promptly notify the other party and within 30 days appoint a substitute process agent acceptable to the other party.  The parties irrevocably consent to service of process given in the manner provided for notices in Section 12.  Nothing in this Agreement will affect the right of either party to serve process in any other manner permitted by law.   (d)           Waiver of Immunities.  Each party irrevocably waives, to the fullest extent permitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific performance or for recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings.   14.                Definitions   As used in this Agreement:—   “Additional Termination Event” has the meaning specified in Section 5(b).   “Affected Party” has the meaning specified in Section 5(b).   “Affected Transactions” means (a) with respect to any Termination Event consisting of an Illegality, Tax Event or Tax Event Upon Merger, all Transactions affected by the occurrence of such Termination Event and (b) with respect to any other Termination Event, all Transactions.   “Affiliate” means, subject to the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common control with the person.  For this purpose, “control” of any entity or person means ownership of a majority of the voting power of the entity or person.   “Applicable Rate” means:—   (a)  in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;   (b)  in respect of an obligation to pay an amount under Section 6(e) of either party from and after the date (determined in accordance with Section 6(d)(ii)) on which that amount is payable, the Default Rate;   (c)  in respect of all other obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default Rate; and   (d)  in all other cases, the Termination Rate.   “Burdened Party” has the meaning specified in Section 5(b).   “Change in Tax Law” means the enactment, promulgation, execution or ratification of, or any change in or amendment to, any law (or in the application or official interpretation of any law) that occurs on or after the date on which the relevant Transaction is entered into. “consent” includes a consent, approval, action, authorization, exemption, notice, filing, registration or exchange control consent.   “Credit Event Upon Merger” has the meaning specified in Section 5(b).   “Credit Support Document” means any agreement or instrument that is specified as such in this Agreement.   “Credit Support Provider” has the meaning specified in the Schedule.   “Default Rate” means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum.   “Defaulting Party” has the meaning specified in Section 6(a).   “Early Termination Date” means the date determined in accordance with Section 6(a) or 6(b)(iv).   “Event of Default” has the meaning specified in Section 5(a) and, if applicable, in the Schedule.   “Illegality” has the meaning specified in Section 5(b).   “Indemnifiable Tax” means any Tax other than a Tax that would not be imposed in respect of a payment under this Agreement but for a present or former connection between the jurisdiction of the government or taxation authority imposing such Tax and the recipient of such payment or a person related to such recipient (including, without limitation, a connection arising from such recipient or related person being or having been a citizen or resident of such jurisdiction, or being or having been organized, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from such recipient or related person having executed, delivered, performed its obligations or received a payment under, or enforced, this Agreement or a Credit Support Document).   “law” includes any treaty, law, rule or regulation (as modified, in the case of tax matters, by the practice of any relevant governmental revenue authority) and “lawful” and “unlawful” will be construed accordingly.   “Local Business Day” means, subject to the Schedule, a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) (a) in relation to any obligation under Section 2(a)(i), in the place(s) specified in the relevant Confirmation or, if not so specified, as otherwise agreed by the parties in writing or determined pursuant to provisions contained, or incorporated by reference, in this Agreement, (b) in relation to any other payment, in the place where the relevant account is located and, if different, in the principal financial centre, if any, of the currency of such payment, (c) in relation to any notice or other communication, including notice contemplated under Section 5(a)(i), in the city specified in the address for notice provided by the recipient and, in the case of a notice contemplated by Section 2(b), in the place where the relevant new account is to be located and (d) in relation to Section 5(a)(v)(2), in the relevant locations for performance with respect to such Specified Transaction.   “Loss” means, with respect to this Agreement or one or more Terminated Transactions, as the case may be, and a party, the Termination Currency Equivalent of an amount that party reasonably determines in good faith to be its total losses and costs (or gain, in which case expressed as a negative number) in connection with this Agreement or that Terminated Transaction or group of Terminated Transactions, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or reestablishing any hedge or related trading position (or any gain resulting from any of them).  Loss includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant Early Termination Date and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies.  Loss does not include a party’s legal fees and out-of-pocket expenses referred to under Section 11.  A party will determine its Loss as of the relevant Early Termination Date, or, if that is not reasonably practicable, as of the earliest date thereafter as is reasonably practicable.  A party may (but need not) determine its Loss by reference to quotations of relevant rates or prices from one or more leading dealers in the relevant markets. “Market Quotation” means, with respect to one or more Terminated Transactions and a party making the determination, an amount determined on the basis of quotations from Reference Market-makers.  Each quotation will be for an amount, if any, that would be paid to such party (expressed as a negative number) or by such party (expressed as a positive number) in consideration of an agreement between such party (taking into account any existing Credit Support Document with respect to the obligations of such party) and the quoting Reference Market-maker to enter into a transaction (the “Replacement Transaction”) that would have the effect of preserving for such party the economic equivalent of any payment or delivery (whether the underlying obligation was absolute or contingent and assuming the satisfaction of each applicable condition precedent) by the parties under Section 2(a)(i) in respect of such Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early Termination Date, have been required after that date.  For this purpose, Unpaid Amounts in respect of the Terminated Transaction or group of Terminated Transactions are to be excluded but, without limitation, any payment or delivery that would, but for the relevant Early Termination Date, have been required (assuming satisfaction of each applicable condition precedent) after that Early Termination Date is to be included.  The Replacement Transaction would be subject to such documentation as such party and the Reference Market-maker may, in good faith, agree.  The party making the determination (or its agent) will request each Reference Market-maker to provide its quotation to the extent reasonably practicable as of the same day and time (without regard to different time zones) on or as soon as reasonably practicable after the relevant Early Termination Date.  The day and time as of which those quotations are to be obtained will be selected in good faith by the party obliged to make a determination under Section 6(e), and, if each party is so obliged, after consultation with the other.  If more than three quotations are provided, the Market Quotation will be the arithmetic mean of the quotations, without regard to the quotations having the highest and lowest values.  If exactly three such quotations are provided, the Market Quotation will be the quotation remaining after disregarding the highest and lowest quotations.  For this purpose, if more than one quotation has the same highest value or lowest value, then one of such quotations shall be disregarded.  If fewer than three quotations are provided, it will be deemed that the Market Quotation in respect of such Terminated Transaction or group of Terminated Transactions cannot be determined.   “Non-default Rate” means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the Non-defaulting Party (as certified by it) if it were to fund the relevant amount.   “Non-defaulting Party” has the meaning specified in Section 6(a).   “Office” means a branch or office of a party, which may be such party’s head or home office.   “Potential Event of Default” means any event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default.   “Reference Market-makers” means four leading dealers in the relevant market selected by the party determining a Market Quotation in good faith (a) from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit and (b) to the extent practicable, from among such dealers having an office in the same city.   “Relevant Jurisdiction” means, with respect to a party, the jurisdictions (a) in which the party is incorporated, organized, managed and controlled or considered to have its seat, (b) where an Office through which the party is acting for purposes of this Agreement is located, (c) in which the party executes this Agreement and (d) in relation to any payment, from or through which such payment is made.   “Scheduled Payment Date” means a date on which a payment or delivery is to be made under Section 2(a)(i) with respect to a Transaction.   “Set-off” means set-off, offset, combination of accounts, right of retention or withholding or similar right or requirement to which the payer of an amount under Section 6 is entitled or subject (whether arising under this Agreement, another contract, applicable law or otherwise) that is exercised by, or imposed on, such payer.   “Settlement Amount” means, with respect to a party and any Early Termination Date, the sum of:—   (a)  the Termination Currency Equivalent of the Market Quotations (whether positive or negative) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation is determined; and (b)  such party’s Loss (whether positive or negative and without reference to any Unpaid Amounts) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation cannot be determined or would not (in the reasonable belief of the party making the determination) produce a commercially reasonable result.   “Specified Entity” has the meaning specified in the Schedule.   “Specified Indebtedness” means, subject to the Schedule, any obligation (whether present or future, contingent or otherwise, as principal or surety or otherwise) in respect of borrowed money.   “Specified Transaction” means, subject to the Schedule, (a) any transaction (including an agreement with respect thereto) now existing or hereafter entered into between one party to this Agreement (or any Credit Support  Provider of such party or any applicable Specified Entity of such party) and the other party to this Agreement (or  any Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is a rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions), (b) any combination of these transactions and (c) any other transaction identified as a Specified Transaction in this Agreement or the relevant confirmation.   “Stamp Tax” means any stamp, registration, documentation or similar tax.   “Tax” means any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions thereto) that is imposed by any government or other taxing authority in respect of any payment under this Agreement other than a stamp, registration, documentation or similar tax.   “Tax Event” has the meaning specified in Section 5(b).   “Tax Event Upon Merger” has the meaning specified in Section 5(b).   “Terminated Transactions” means with respect to any Early Termination Date (a) if resulting from a Termination Event, all Affected Transactions and (b) if resulting from an Event of Default, all Transactions (in either case) in effect immediately before the effectiveness of the notice designating that Early Termination Date (or, if “Automatic Early Termination” applies, immediately before that Early Termination Date).   “Termination Currency” has the meaning specified in the Schedule.   “Termination Currency Equivalent” means, in respect of any amount denominated in the Termination Currency, such Termination Currency amount and, in respect of any amount denominated in a currency other than the Termination Currency (the “Other Currency”), the amount in the Termination Currency determined by the party making the relevant determination as being required to purchase such amount of such Other Currency as at the relevant Early Termination Date, or, if the relevant Market Quotation or Loss (as the case may be), is determined as of a later date, that later date, with the Termination Currency at the rate equal to the spot exchange rate of the foreign exchange agent (selected as provided below) for the purchase of such Other Currency with the Terminated Currency at or about 11:00 a.m. (in the city in which such foreign exchange agent is located) on such date as would be customary for the determination of such a rate for the purchase of such Other Currency for value on the relevant Early Termination Date or that later date.  The foreign exchange agent will, if only one party is obliged to make a determination under Section 6(e), be selected in good faith by that party and otherwise will be agreed by the parties.   “Termination Event” means an Illegality, a Tax Event or a Tax Event Upon Merger or, if specified to be applicable, a Credit Event Upon Merger or an Additional Termination Event.   “Termination Rate” means a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of any actual cost) to each party (as certified by such party) if it were to fund or of funding such amounts. “Unpaid Amounts” owing to any party means, with respect to an Early Termination Date, the aggregate of (a) in respect of all Terminated Transactions, the amounts that became payable (or that would have become payable but for Section 2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early Termination Date and which remain unpaid as at such Early Termination Date and (b) in respect of each Terminated Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be settled by delivery to such party on or prior to such Early Termination Date and which has not been so settled as at such Early Termination Date, an amount equal to the fair market value of that which was (or would have been) required to be delivered as of the originally scheduled date for delivery, in each case together with (to the extent permitted under applicable law) interest, in the currency of such amounts, from (and including) the date such amounts or obligations were or would have been required to have been paid or performed to (but excluding) such Early Termination Date, at the Applicable Rate.  Such amounts of interest will be calculated on the basis of daily compounding and the actual number of days elapsed.  The fair market value of any obligation referred to in clause (b) above shall be reasonably determined by the party obliged to make the determination under Section 6(e) or, if each party is so obliged, it shall be the average of the Termination Currency Equivalents of the fair market values reasonably determined by both parties.   IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect from the date specified on the first page of this document.         SUNTRUST BANK     F.Y.I., Incorporated                           By: /s/ Fred D. Woolf   By: /s/ Barry Edwards   Name: Fred D. Woolf   Name: Barry Edwards   Title: Vice President   Title: Executive Vice President and   Date: 3/26/01     Chief Financial Officer         Date: 3/22/01   SCHEDULE TO THE ISDA MASTER AGREEMENT DATED AS OF DECEMBER 20, 2000, BETWEEN SUNTRUST BANK (“PARTY A”) AND F.Y.I., INCORPORATED (“PARTY B”)   Part 1 Definitions   1.  “Affiliate” shall have the meaning assigned to such term in Section 14 of this Agreement.   2.                “Calculation Agent” shall mean Party A.   3.                “Shareholders’ Equity” means with respect to any entity, at any time, the sum (as shown in the most recent annual audited financial statements of such entity) of (i) its capital stock (including preferred stock) outstanding, taken at par value, (ii) its capital surplus and (iii) its retained earnings, minus (iv) treasury stock, each to be determined in accordance with generally accepted accounting principles.   4.                “Specified Entity” shall mean for the purposes of Sections 5(a)(v), (vi), and (vii), and Section 5(b)(iv) of this Agreement, in the case of Party A, not applicable, and in the case of Party B, any Affiliate of Party B, with the exception of any Nonmaterial Subsidiary as such term is defined in the Credit Agreement (“$297,500,000,000 Revolving Credit Loan Facility”), dated as of March 2001, by and among Party B and Bank of America, N.A., as Administrative Agent, Banc of America Securities LLC, as Sole Lead Arranger and Sole Book Manager, Party A as Syndication Agent, Wells Fargo Bank, N.A., as Documentation Agent, and the Lenders named therein.   5.                “Specified Indebtedness” shall have the meaning assigned to such term in Section 14 of this Agreement, but shall not include indebtedness in respect of deposits received.   6.                “Specified Transaction” shall have the meaning assigned to such term in Section 14 of this Agreement.   7.                “Termination Currency” shall mean United States Dollars.   8.                “Threshold Amount” shall mean, for purposes of Section 5(a)(vi) of this Agreement, (a) with respect to Party A, an amount equal to three percent (3%) of its Shareholders’ Equity, determined in accordance with generally accepted accounting principles in such party’s jurisdiction of incorporation or organization, consistently applied, as at the end of such party’s most recently completed fiscal year, and (b) with respect to Party B, an amount equal to $1,000,000 (or the equivalent thereof in any other currencies), except that with respect to indebtedness under the Loan Agreement, the Threshold Amount shall be $0.00.   Part 2 Representations   1.             Tax Representations.  None.   2.             The following paragraph is added as Section 3(g) of this Agreement:   “(g) Eligible Swap Participant.  It is an “eligible swap participant” within the meaning of 17 C.F.R. sec. 35.1(b)(2).”   Part 3 Agreements   1.                Documents to be delivered.  For purposes of Section 4(a) of this Agreement, each party agrees to deliver the following documents as applicable:   (a)                Certified copies of all documents evidencing necessary corporate authorizations, as well as other authorizations and approvals with respect to the execution, delivery and performance by the party of this Agreement and any Credit Support Document.   Party required to deliver:   Party B       Date by which to be delivered:   Upon execution of this Agreement       Covered by Section 3(d) Representation:   Yes   (b)An incumbency certificate of an authorized officer of the party certifying the names, true signatures and authority of the officers of the party signing this Agreement and any Credit Support Document.   Party required to deliver:   Party B       Date by which to be delivered:   Upon execution of this Agreement       Covered by Section 3(d) Representation:   Yes   (c)Such other document as the other party may reasonably request in connection with each Transaction.   Party required to deliver:   Party A and Party B       Date by which to be delivered:   Promptly upon request       Covered by Section 3(d) Representation:   Yes   (d)Such other written information respecting the condition or operations, financial or otherwise, as the other party A may reasonably request from time to time.   Party required to deliver:   Party A and Party B       Date by which to be delivered:   Promptly upon request       Covered by Section 3(d) Representation:   Yes   Part 4 Termination Provisions   1.           Cross Default.  The “Cross Default” provisions of Section 5(a)(vi) of this Agreement shall apply to each of Party A and Party B.   2.           Credit Event Upon Merger.  The “Credit Event Upon Merger” provisions of Section 5(b)(iv) of this Agreement shall apply to each of Party A and Party B.   3.  Automatic Early Termination.  The “Automatic Early Termination” provision of Section 6(a) of this Agreement shall not apply to either Party A or Party B.   4.           Payments on Early Termination.  For purposes of Section 6(e) of this Agreement, Second Method and Loss shall apply.   5.  Additional Termination Event shall not apply.   Part 5 Miscellaneous   1.           Notices.  For purposes of Section 12 of this Agreement:   (a)                The address for notice or communication to Party A is:   SunTrust Equitable Securities Corporation Financial Risk Management, Operations 303 Peachtree Street, N.E. 23rd Floor, Center Code 3913 Atlanta, GA  30308 404-575-2696 (phone) 404-532-0514 (fax)   (b)                The address for notice or communication to Party B is:   Mr. Barry Edwards Chief Financial Officer F.Y.I., Incorporated 3232 McKinney Ave. Suite 900 Dallas, TX  75204 214-953-7690 (phone) 214-953-7556 (fax)   2.  Governing Law.  Section 13(a) of this Agreement is hereby restated as follows:   “(a) Governing Law.  This Agreement will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine.”   3.  Jurisdiction.  Section 13(b)(i) of this Agreement is hereby restated as follows:   “(i) submits to the nonexclusive jurisdiction of the courts of the State of Georgia and the United States District Court located in Atlanta, Georgia; and” 4.           Process Agent.  Process Agent shall not apply to this Agreement.   5.           Offices.  The provisions of Section 10(a) of this Agreement shall not apply to either party.   6.  Multibranch Party.  For purposes of Section 10(c) of this Agreement, neither Party A nor Party B is a Multibranch Party.   7.           Credit Support Provider.   Credit Support Provider means in relation to Party A:  Not applicable. Credit Support Provider means in relation to Party B:  Not applicable.   8.           Credit Support Document.   Credit Support Document means in relation to Party A:  Not applicable. Credit Support Document means in relation to Party B:  Any guaranty, letter of credit, credit agreement, security agreement, mortgage, deed of trust, pledge agreement, assignment agreement, investment agreement, surety bond, or other credit enhancement device, or any combination thereof issued as security for the timely performance of Party B’s obligations under this Agreement, as may be acceptable to Party A, including, without limitation, any amendments, supplements, restatements, or other modifications, or any substitutions or replacements thereto in form and substance satisfactory to Party A.   Part 6 Additional Agreements   1.                Recording of Conversations.  Each party (i) consents to the monitoring or recording, at any time and from time to time, by the other party of any and all communications between officers or employees of the parties, (ii) waives any further notice of such monitoring or recording, and (iii) agrees to notify (and, if required by law, obtain the consent of) its officers and employees with respect to such monitoring or recording.   2.           Jury Trial.  Each party hereby waives, to the fullest extent lawful, its respective right to jury trial with respect to any legal proceeding arising under, or in connection with, this Agreement or any Confirmation.   3.  Mediation and Arbitration.  Notwithstanding anything to the contrary contained herein, the parties agree to submit to mediation and, should settlement through mediation not occur, to arbitration any and all claims, disputes, and controversies between them (and their respective employees, officers, directors, affiliates, attorneys, and other agents) resulting from or arising out of this Agreement.  Such mediation and arbitration shall proceed in the jurisdiction where Party A is located, shall be governed by the law specified in this Agreement, and shall be conducted (a) in accordance with such rules as may be agreed upon by the parties or (b) in the event the parties do not reach an agreement as to such rules within thirty (30) days after a notice of dispute, in accordance with the Commercial Mediation Rules and Commercial Arbitration Rules of the American Arbitration Association.  If, within thirty (30) days after service of a written demand for mediation, the mediation does not result in settlement of the dispute, then any party may demand arbitration, and the decision of the arbitrator(s) shall be binding on the parties.  Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction.  It is agreed that the arbitrators shall have no authority to award treble, exemplary, or punitive damages of any type under any circumstances, whether or not such damages may be available under state or federal law, or under the Federal Arbitration Act, or under the Commercial Arbitration Rules of the American Arbitration Association, the parties hereby waiving their right, if any, to recover any such damages.   4.             Set Off.  Section 6 of the Agreement is amended by adding the following new subsection 6(f): “(f)  Right of Set-Off.  Upon the occurrence of an Event of Default with respect to Party B, or an Illegality or Credit Event Upon Merger where Party B is the Affected Party, Party A will have the right (but not the obligation), without prior notice to Party B or any other person, to set-off any obligation of Party A or any of Party A’s present or future Affiliates, branches, or offices owing to Party B, against any obligation of Party B owing to Party A or any of Party A’s present or future Affiliates, branches, or offices (whether or not such obligations arise under this Agreement, whether or not matured, whether or not contingent, and regardless of the place of payment or booking office of the obligations).  In order to enable Party A to exercise its rights of set-off, if an obligation is unascertained, Party A may in good faith estimate that obligation and set-off in respect of the estimate, subject to Party A accounting to Party B when the obligation is ascertained.   Nothing in this Section 6(f) shall be effective to create a charge or other security interest. This Section 6(f) shall be without prejudice and in addition to any right of set-off, combination of accounts, lien, or other right to which any party is at any time otherwise entitled (whether by operation of law, contract, or otherwise).”   5.           By signing this Schedule, Party B acknowledges that it has received and understands the SunTrust Bank “Terms of Dealing for OTC Risk Management Transactions” and the “Risk Disclosure Statement for OTC Risk Management Transactions” (each attached hereto and incorporated by reference into this Agreement).   Please confirm your agreement to the terms of the foregoing Schedule by signing below.   SUNTRUST BANK                                                                                    F.Y.I., INCORPORATED   By: /s/ Fred D. Woolf   By: /s/ Barry Edwards   Name:    Fred D. Woolf     Name:    Barry Edwards   Title:      Vice President     Title:      Executive Vice President and                        Chief Financial Officer               SunTrust Bank (“SunTrust”) Terms of Dealing for OTC Risk Management Transactions     In connection with the negotiation, entry into, and performance from time to time of over-the-counter (“OTC”) risk management transactions, please be advised that:   SunTrust acts as principal only and does not act as advisor, agent, broker, or fiduciary for or with respect to any counterparty (unless otherwise expressly agreed in a written engagement letter).   SunTrust expects that its counterparties have the authority and capacity to enter into and perform their obligations under their OTC risk management transactions with SunTrust, and SunTrust relies on the express and implied representations of its counterparties with respect thereto.   SunTrust expects that its counterparties possess adequate knowledge and experience to assess independently, or with the assistance of their own advisors, the merits and risks of each OTC risk management transaction that the counterparty may from time to time enter into, amend, or terminate.   SunTrust endeavors to maintain the confidentiality of all confidential counterparty information and expects its counterparties to do the same.  Unless a counterparty gives SunTrust written notice to the contrary, each counterparty authorizes SunTrust and all SunTrust affiliates, including SunTrust Equitable Securities Corporation (STES), to share with each other confidential information concerning a counterparty and/or its accounts for marketing or other purposes from time to time.   Any trade ideas, term sheets, and other similar documents sent to counterparties by SunTrust are not to be shared with others.   SunTrust may pay fees, commissions, and other amounts to agents, brokers, and/or other third parties in connection with OTC risk management transactions entered into with counterparties.  SunTrust considers the amount of such fees, commissions, and other amounts to be confidential and does not disclose the same to its counterparties.   SunTrust may from time to time receive orders for similar or identical transactions, and SunTrust makes no representation with respect to execution priorities.   STES’s Authorized Officers have the authority to bind SunTrust in connection with OTC risk management transactions.  A current list of Authorized Officers may be obtained from STES upon request.   OTC risk management obligations of SunTrust are not FDIC insured.   SunTrust Bank (“SunTrust”) Risk Disclosure Statement for OTC Risk management Transactions   Over-the-counter (“OTC”) risk management transactions, like other financial transactions, involve a variety of significant potential risks.  OTC risk management transactions generally include options, forwards, swaps, swaptions, caps, floors, collars, combination and variations of such instruments, and other executory contractual arrangements, and may involve interest rates, currencies, securities, commodities, equities, credit, indices, and other underlying interests.   Before entering into any OTC risk management transaction, you should carefully consider whether the transaction is appropriate for you in light of your experience, objectives, financial and operational resources, and other relevant circumstances.  You should also ensure that you fully understand the nature of the transaction and contractual relationship into which you are entering and the nature and extent of your exposure to risk of loss, which may significantly exceed the amount of any initial payment or investment by you.   The specific risks presented by a particular OTC risk management transaction necessarily depend upon the character of the specific transaction and your circumstances.  In general, however, all OTC risk management transactions involve the risk of adverse or unanticipated market developments, risk of illiquidity and credit risk, and may involve other material risks.  Equity risk management transactions may increase or decrease in value with a change in, among other things, stock prices and interest rates which could result in unlimited loss.  In addition, you may be subject to internal operational risks in the event that appropriate internal systems and controls are not in place to monitor the various risks and funding requirements to which you are subject by virtue of your activities in the OTC risk management and related markets.  OTC risk management transactions frequently are tailored to permit parties to customize transactions to accomplish complex financial and risk management objectives.  Such customization can also introduce significant risk factors of a complex character.   As in any financial transaction, you must understand the requirements (including investment restrictions), if any, applicable to you that are established by your regulators or by your Board of Directors or other governing body.  You should also consider the tax and accounting implications of entering into any risk management or other transaction.  To the extent appropriate in light of the specific transaction and your circumstances, you should consider consulting such advisers as may be appropriate to assist you in understanding the risks involved.  If you are acting in the capacity of financial adviser or agent, you must evaluate the foregoing matters in light of the circumstances applicable to your principal.   In entering into any OTC risk management transaction, you should also take into consideration that, unless you and SunTrust have established in writing an express financial advisory or other fiduciary relationship or you and SunTrust have expressly agreed in writing that you will be relying on SunTrust’s recommendations as the primary basis for making your trading or investment decisions, SunTrust is acting solely in the capacity of an arm’s-length contractual counterparty and not in the capacity of your financial advisor or fiduciary.  In addition, SunTrust or its affiliates may from time to time have substantial long or short positions in and may make a market in or otherwise buy or sell instruments identical or economically related to the OTC risk management transaction entered into with you or may have an investment banking or other commercial relationship with the issuer of any security or financial instrument underlying an OTC risk management transaction entered into with you.   THIS BRIEF STATEMENT DOES NOT DISCLOSE ALL OF THE RISKS AND OTHER SIGNIFICANT ASPECTS OF ENTERING INTO OTC RISK MANAGEMENT TRANSACTIONS.  YOU SHOULD REFRAIN FROM ENTERING INTO ANY SUCH TRANSACTION UNLESS YOU FULLY UNDERSTAND ALL SUCH RISK AND HAVE INDEPENDENTLY DETERMINED THAT THE TRANSACTION IS APPROPRIATE FOR YOU.

  Exhibit 10.1 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT dated as of the May 1, 2001. BETWEEN:   BLUE ZONE ENTERTAINMENT INC., a corporation incorporated under the laws of British Columbia, having an office at 329 Railway Street, Vancouver, British Columbia, V6A 1A4     (the “Company”) AND:   Bruce Warren, an individual     Vancouver, British Columbia     (the “Employee”) WITNESSES THAT WHEREAS: A.          The Company is a leading multimedia company involved in the development and management of creative interactive broadcast properties for television, radio, advertising and the internet; B.          It is in the Company’s best interest to attract and retain qualified executives and to provide an incentive for such of its senior executives, including the Employee, to remain with the Company during a change of control; and C.          The Company wishes to continue to employ the Employee and the Employee has agreed to continue to be employed by the Company on the terms and conditions set forth herein.           THEREFORE in consideration of the recitals, the following representations and covenants and the payment of one dollar made by each party to the other, the receipt and sufficiency of which is acknowledged by each party, the parties agree on the following terms: 1.0           Employment Duties 1.1           The Company hereby employs the Employee in the position of President and Chief Executive Officer. 1.2           The Employee shall report to the Board of Directors of the Company and shall perform, observe and conform to such duties and instructions as from time to time are lawfully assigned or communicated to him on behalf of the Company and on behalf of such affiliates or   --------------------------------------------------------------------------------   - 2 - subsidiaries of the Company designated by the Company as requiring the services of the Employee and as are consistent with his position of President and Chief Executive Officer. 1.3           Throughout the term of this Agreement, the Employee shall:   (a) devote his full time, attention and ability to the business and affairs of the Company;   (b) well and faithfully serve the Company;   (c) use his best efforts to generally promote the interests of the Company; and   (d) not be employed or engaged in any capacity in promoting, undertaking or carrying on any other business or occupation without the prior written approval of the Company. 1.4           The Employee acknowledges and agrees that he is a fiduciary of the Company. 1.5           Without in any way limiting the scope of the Employee’s fiduciary obligations to the Company, the Employee agrees that, at all times during the term of this Agreement and following the termination of this Agreement or the employment of the Employee with the Company, the Employee shall not engage in unfair competition with the Company, its affiliates or subsidiaries, aid others in any unfair competition with the Company, its affiliates or subsidiaries, in any way breach the confidence that the Company has placed in the Employee, misappropriate any proprietary or confidential information of the Company, or misappropriate any corporate opportunities of the Company. 2.0           Compensation 2.1           Salary 2.1.1        The Employee shall be paid an annual salary of $60,000.00 (US) payable in semimonthly instalments on the first and fifteenth day of each month (“Salary”). Should the first or fifteenth of any month not be a business day, the Employee’s semi- monthly instalment otherwise due on such date shall be paid to the Employee on the immediately preceding business day. 2.1.2        Further increases to the Employee’s Salary shall be in the Company’s sole discretion. 2.2           Statutory Deductions 2.2.1        The Company shall have the right to deduct and withhold from the Employee’s compensation any amounts required to be deducted and remitted under the applicable provincial or federal laws of Canada. --------------------------------------------------------------------------------   - 3 - 2.3           Benefits 2.3.1         The Employee shall be entitled to such benefits as the Company may, at its sole discretion, offer from time to time to its employees in similar positions. The introduction and administration of benefits is entirely within the Company’s sole discretion, and the introduction, deletion or amendment of benefits shall not constitute a breach of this Agreement. 2.4           Bonus 2.4.1         The Company may pay the Employee bonuses as may be determined by the Compensation Committee of the Board of the Company, in its sole discretion, from time to time. 2.5           Shares 2.5.1         The Employee may be entitled to participate in a stock option plan or share purchase plan or any similar plan as may be offered by the Company at its sole discretion from time to time. The introduction and administration of any such plan is entirely at the Company’s sole discretion, and the introduction, deletion or amendment of such plan shall not constitute a breach of this Agreement. 2.5.2         Any stock options granted shall be on the terms set out in the form of the stock option agreement in use by the Company at the time of such grant and in accordance with the terms of the Company’s Stock Option Plan (the “Stock Option Plan”), and subject to necessary regulatory and Board approval. 2.6           Vacation 2.6.1         The Employee shall be entitled to an annual vacation of four (4) weeks per calendar year. The timing of vacations shall be in accordance with the Company’s policies and practices for senior management personnel and with the Company’s needs. 2.6.2         The Employee acknowledges and agrees that unless otherwise expressly agreed in writing between the Employee and the Company, the Employee shall not be entitled, by reason of his employment with the Company or by reason of any termination of such employment, howsoever arising, to any remuneration, compensation or benefits other than those expressly provided for in this Agreement. 3.0           Non-Competition and Confidentiality 3.1           Non-Competition 3.1.1         During the term of this Agreement and for six (6) months following the termination of this Agreement, the Employee shall not, without the written consent of the Company:   (a) own or have any interest directly in;     (b) act as an officer, director, agent, employee or consultant of; nor --------------------------------------------------------------------------------   - 4 -   (c) assist in any way or in any capacity, any person, firm, association, syndicate, partnership, joint venture, collaboration, corporation or other entity that is engaged in a business that is substantially similar to or competes with the business engaged in by the Company or any entity that directly or indirectly controls, is controlled by, is under direct or indirect common control of the Company including without limitation, Blue Zone, Inc., Blue Zone Productions Ltd. and Blue Zone International Limited (“Affiliates”) within Canada. 3.1.2         The Employee shall not, for a period of twelve (12) months from the date of termination of this Agreement:   (a) directly or indirectly, either personally, by agent or by letters, circulars or advertisements, contact for the purpose of solicitation or solicit any person, firm, association, syndicate, joint venture, collaboration, corporation, business entity or crown corporation who is or was a customer of the Company or its Affiliates on or at any time within the two years prior to the date of termination of the Employee’s employment with the Company or who was scheduled to become a customer of the Company or its Affiliates within twelve months prior to the date of such termination of employment.   (b) induce or attempt to induce any person:   (i) who was an employee of the Company or its Affiliates at the time of the date of termination of the employment of the Employee; or   (ii) who has been, during the two years prior to such inducement or attempted inducement, an employee of the Company or its Affiliates;   to leave the employ of the Company or its Affiliates, whether to join the Employee in a similar enterprise or otherwise.   (c) either directly or indirectly, solicit, divert or take away any staff, temporary personnel, trade, business, or goodwill from the Company or its Affiliates, or otherwise compete for accounts or personnel which become known to him through his relationship with the Company or its Affiliates and agrees not to influence or attempt to influence any of the Company’s or its Affiliates’ customers or personnel not to do business with the Company or its Affiliates. 3.2           Delivery of Records 3.2.1         Any and all computer code, data, notes, diagrams, reports, notebook pages, memoranda, and like materials, including Confidential Information and Inventions (as such terms are hereinafter defined) received from or developed for the Company or its Affiliates and --------------------------------------------------------------------------------   - 5 - any copies or excerpts thereof shall remain the property of the Company or its Affiliates. Upon the termination of the Employee’s relationship with the Company as established under this Agreement, or at anytime during the term hereof at the request of the Company, the Employee shall deliver to the Company all such materials and other property belonging to the Company or developed in connection with the business of the Company. 3.3           Confidentiality 3.3.1         In the course of carrying out and performing his duties and responsibilities to the Company, the Employee shall obtain access to and be entrusted with Confidential Information (as hereinafter defined) relating to the business and affairs of the Company or its Affiliates. 3.3.2         The term “Confidential Information” as used in this Agreement means all trade secrets, proprietary information and other data or information (and any tangible evidence, record or representation thereof), whether prepared, conceived or developed by an employee of the Company or its Affiliates or received by the Company or its Affiliates from an outside source which is maintained in confidence by the Company or its Affiliates or any of its customers to obtain a competitive advantage over competitors who do not have access to such trade secrets, proprietary information, or other data or information. Without limiting the generality of the foregoing, Confidential Proprietary Information includes:   (a) any ideas, improvements, know-how, research, inventions, innovations, products, services, sales, scientific or other formulae, patterns, processes, methods, machines, manufactures, compositions, processes, procedures, tests, treatments, developments, technical data, designs, devices, patterns, concepts, computer programs, computer code, creative development, training or service manuals, plans for new or revised services or products or other plans, items or strategy methods on compilation of information, or works in process, or any Invention (as defined in section 4.2 below), or parts thereof, and any and all revisions and improvements relating to any of the foregoing (in each case whether or not reduced to tangible form) that relate to the business or affairs of the Company or Affiliates, or that result from its marketing, research and/or development activities;   (b) any information relating to the relationship of the Company or its Affiliates with any clients, customers, suppliers, principals, contacts or prospects of the Company or its Affiliates and any information relating to the requirements, specifications, proposals, orders, contracts or transactions of or with any such clients, customers, suppliers, principals, contacts or prospects of the Company or its Affiliates, including but not limited to client lists;   (c) any sales plan, marketing material, plan or survey, business plan or opportunity, product or service development plan or specification, business proposal or business agreement; and --------------------------------------------------------------------------------   - 6 -   (d) any information relating to the present or proposed business of the Company or its Affiliates. 3.3.3        The Employee agrees that the Confidential Information is and will remain the exclusive property of the Company or its Affiliates. The Employee also agrees that the Confidential Information:   (a) constitutes a proprietary right which the Company or its Affiliates is entitled to protect; and   (b) constitutes information and knowledge not generally known to the trade. 3.3.4        The Employee understands that the Company has from time to time in its possession information belonging to others or which is claimed by others to be confidential or proprietary and which the Company has agreed to keep confidential. The Employee agrees that all such information shall be Confidential Information for the purposes of this Agreement. 3.3.5        For purposes of the copyright laws of the United States of America, to the extent, if any, that such laws are applicable to any Confidential Information, it shall be considered a work made for hire and the Company shall be considered the author thereof. 3.3.6        The Employee acknowledges and agrees that any Confidential Information disclosed to the Employee is in the strictest confidence and the Employee agrees to maintain and hold in strict confidence all Confidential Information disclosed to him. The disclosure of any such Confidential Information by the Employee in any form whatsoever except as authorized by the Company or permitted under section 3.3.9 of this Agreement is and shall be considered a breach of the Employee’s employment arrangement and shall constitute immediate cause for dismissal. 3.3.7        Except as authorized by the Company, the Employee shall not:   (a) duplicate, transfer, disclose or use nor allow any other person to duplicate, transfer or disclose any of the Confidential Information; or   (b) incorporate, in whole or in part, within any domestic or foreign patent application, any proprietary or Confidential Information disclosed to the Employee by the Company. 3.3.8        The Employee will safeguard all Confidential Information to which the Employee has access at all times so that it is not exposed to or used by unauthorized persons, and will exercise at least the same degree of care that he would use to protect his own confidential information. 3.3.9        The restrictive obligations set forth above shall not apply to the disclosure or use of any information which:   (a) is or later becomes publicly known under circumstances involving no breach of this Agreement by the Employee; --------------------------------------------------------------------------------   - 7 -   (b) is already known to the Employee outside his employment at the time of receipt of the Confidential Information;   (c) is disclosed to a third party under an appropriate confidentiality agreement;   (d) is lawfully made available to the Employee by a third party;   (e) is independently developed by the Employee who has not been privy to the Confidential Information provided by the Company; or   (f) is required by law to be disclosed but only to the extent of such requirement and the Employee shall immediately notify in writing the Chief Executive Officer of the Company upon receipt of any request for such disclosure. 3.3.10        The Employee acknowledges that a breach by the Employee of any of the covenants contained in this section 3 shall result in damages to the Company and that the Company could not be adequately compensated for such damages by a monetary award. Accordingly, in the event of any such breach, in addition to all other remedies available to the Company at law or in equity, the Company shall be entitled as a matter of right to apply to a court of competent jurisdiction for such relief by way of restraining order, temporary or permanent injunction, decree or otherwise, as may be appropriate to ensure compliance with the provisions of this Agreement. 3.3.11       The Employee acknowledges that the restrictions contained in this section 3 are reasonable and valid and all defences to the strict enforcement thereof by the Company are hereby waived by the Employee. 3.3.12       The provisions of this section 3 shall survive the termination of this Agreement. 4.0          Ownership of Future Intellectual Property 4.1          Any new technology, knowledge or information developed by the Employee related to the business of the Company or any of its Affiliates during the term of this Agreement shall be the exclusive property of the Company and its Affiliates. 4.2          The Employee acknowledges that all Confidential Information and all other discoveries, know-how, inventions, ideas, concepts, processes, products, protocols, treatments, methods, tests and improvements, computer programs, or parts thereof, conceived, developed, reduced to practice or otherwise made by him either alone or with others, and that in any way relates to the present programs, services, product or business of the Company or its Affiliates, during the course of his employment with the Company pursuant to this Agreement or any previous employment agreements or arrangements between the Employee and the Company or its Affiliates, whether or not conceived, developed, reduced to practice or made during the Employee’s regular working hours or on the premises of the Company (collectively “Inventions”), and any and all services and products which embody, emulate or employ any such --------------------------------------------------------------------------------   - 8 - Inventions will be the sole property of the Company or its nominee and all copyrights, patents, patent rights, trademarks, service marks and reproduction rights to, and other proprietary rights in, each such Invention, whether or not patentable or copyrightable, will belong exclusively to the Company or its nominee. For purposes of the copyright laws of the United States of America, to the extent, if any, that such laws are applicable to any such Invention or any such service or product, it will be considered a work made for hire and the Company will be considered the author thereof. 4.3           The Employee hereby assigns to the Company or its nominee, their successors or assigns, all his rights, title and interest in and to the Inventions. 4.4           The Employee hereby waives for the benefit of the Company and its successors and assigns all his moral rights in respect of the Inventions. 4.5           The Employee will assist the Company or its nominee in every proper way (but at the Company’s expense) to obtain and, from time to time to enforce, patents or copyrights in respect of the Inventions in any and all countries, and to that end the Employee will execute all documents for use in applying for, obtaining and enforcing patents and copyrights on such Inventions as the Company may desire, together with any assignments of such Inventions to the Company or Persons designated by it. 4.6           The Employee represents and warrants that he is subject to no contractual or other restriction or obligation which will in any way limit his activities on behalf of the Company. The Employee hereby represents and warrants to the Company that he has no continuing obligations to any previous employer with respect to any previous invention, discovery or other item of intellectual property or which requires the Employee not to disclose any information or data to the Company. The Employee further represents and warrants that he does not claim rights in, or otherwise excludes from this Agreement, any Invention except as listed on Schedule “A” hereto. 4.7           The Employee acknowledges that a breach by the Employee of any of the covenants contained in this section 4 herein shall result in damages to the Company and that the Company could not be adequately compensated for such damages by a monetary award. Accordingly, in the event of any such breach, in addition to all other remedies available to the Company at law or in equity, the Company shall be entitled as a matter of right to apply to a court of competent jurisdiction for such relief by way of restraining order, temporary or permanent injunction, decree or otherwise, as may be appropriate to ensure compliance with the provisions of this Agreement. 4.8           The provisions of this section 4 shall survive the termination of this Agreement. 5.0           Term of Employment and Termination 5.1           The term of the Employee’s employment pursuant to this Agreement shall commence on May 1, 2001 and continue until such time as it is terminated pursuant to this section 5. --------------------------------------------------------------------------------   - 9 - 5.2           The Company may terminate the Employee’s employment at any time with no notice, for cause. If this Agreement and the Employee’s employment are terminated for cause, no notice, pay in lieu of notice, Salary, benefits, stock options shall be paid or payable to the Employee after or as a result of such termination. 5.3           The Company may terminate the Employee’s employment at any time, without cause, upon providing to the Employee:   (a) three months of notice or payment of three months’ Salary in lieu of notice or a combination thereof; and   (b) one additional month of notice or Salary in lieu of notice or combination thereof for each of the Employee’s completed years of service after January 2, 2001. 5.4           The amount of notice in writing or pay in lieu of notice or combination thereof provided for in section 5.3 is inclusive of any entitlement to notice or pay in lieu pursuant to the Employment Standards Act, R.S.B.C. 1996, c.113. 5.5           Notwithstanding the terms of the Stock Option Plan, in the event the Employee’s employment is terminated by the Company without cause then any stock options granted to the Employee shall cease to vest on the effective date of termination pursuant to the notice of termination and shall be exercisable in accordance with the terms of the Stock Option Plan and, subject to the Stock Option Plan or stock option agreement, shall remain exercisable until 90 days following the Employee’s last day of work. 5.6           If prior to the termination of this Agreement, there is a Change in Control (as such term is defined herein) and in the next 6 month period following the Change in Control (“Protection Period”), any of the following occur:   (a) the Employee’s employment is terminated for reasons other than cause, permanent disability or death; or   (b) the Employee resigns within 30 days following:   (i) a material change (other than a change that is clearly and exclusively consistent with a promotion) in the Employee’s position, duties, responsibilities, title or office in effect immediately prior to the Change in Control;   (ii) a failure by the Company to increase the Employee’s Salary or other forms of compensation in a manner consistent with increases granted generally to the Company’s other executives;   (iii) a decrease in the Employee’s Salary or a material decrease in the Employee’s other compensation; --------------------------------------------------------------------------------   - 10 -   (iv) a relocation of the Employee’s principal place of employment outside the Greater Vancouver Regional District, without the Employee’s consent; or   (v) any action or event that would constitute a constructive dismissal of the Employee at common law,       provided and only if such change, reduction or relocation is effected by the Company during the Protection Period and without the Employee’s consent, then this Agreement shall be deemed to have been terminated by the Company and the Company shall provide the Employee, in lieu of notice, and in lieu of any payment described in section 5.3 of this Agreement, an amount equal to 6 months of Salary plus one month of Salary for each of the Employee’s completed year of service after January 2, 2001 and the Company shall immediately vest any stock options granted pursuant to section 2.5 herein, which shall be exercisable in accordance with the terms of the Stock Option Plan or any other stock option plan or agreement pursuant to which options were granted. 5.7          For the purposes of this Agreement, “Change in Control” means:   (i) the direct or indirect sale, lease, exchange or other transfer of all or substantially all (75% or more) of the assets of the Company to any person or entity or group of persons or entities acting in concert as a partnership or other group;   (ii) a merger, consolidation, reorganization or arrangement involving the Company other than a merger, consolidation, reorganization or arrangement in which stockholders of the Company immediately prior to such merger, consolidation, reorganization or arrangement own, directly or indirectly, securities possessing at least 65% of the total combined voting power of the outstanding voting securities of the corporation resulting from such merger, consolidation, reorganization or arrangement in substantially the same proportion as their ownership of such voting securities immediately prior to such merger, consolidation, reorganization or arrangement;   (iii) a majority of the Board of Directors elected at any annual or special general meeting of the shareholders of the Company are not individuals nominated by the Company’s then- incumbent Board; or   (iv) the acquisition, directly or indirectly, by any person or related group of persons acting jointly or in concert (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of --------------------------------------------------------------------------------   - 11 -     beneficial ownership of securities possessing more than [50%] of the total combined voting power of the Company’s outstanding securities. 5.8           Subject to sections 5.6 and 5.7, in the event it is determined that the Employee has been constructively dismissed by the Company, the Employee shall be entitled to the same notice or payment in lieu of notice and vesting of stock options as if he had been terminated without cause under sections 5.3, 5.4 and 5.5. 5.9           The Employee may terminate this Agreement and his employment with the Company upon giving the Company thirty (30) days’ notice of resignation of his employment. Upon the effective date of the Employee’s resignation, the Company shall not be obligated to make any further payments under this Agreement. On the giving of such notice by the Employee, or at any time thereafter, the Company shall have the right to elect to terminate the Employee’s employment at any time prior to the effective date of the Employee’s resignation, and upon such election, shall provide to the Employee the following:   (a) a lump sum equal to thirty days Salary or to such proportion of the thirty days that remains outstanding at the time of the election; and   (b) continuation of the Benefits for the thirty-day period or such proportion of the thirty days that remains outstanding at the time of the election.      For greater certainty, upon such election being made by the Company, the Employee shall not be entitled to any further vesting of stock options. 6.0           Waiver 6.1           No consent or waiver, express or implied, by any party to this Agreement or any breach or default by any other party in the performance of its obligations under this Agreement or of any of the terms, covenants or conditions of this Agreement shall be deemed or construed to be a consent or waiver of any subsequent or continuing breach or default in such party’s performance or in the terms, covenants or conditions of this Agreement. The failure of any party to this Agreement to assert any claim in a timely fashion for any of its rights or remedies under this Agreement shall not be construed as a waiver of any such claim and shall not serve to modify, alter or restrict any such party’s right to assert such claim at any time thereafter. 7.0           Notices 7.1           Any notice relating to this Agreement or required or permitted to be given in accordance with this Agreement shall be in writing and shall be personally delivered, telefaxed or mailed by registered mail, postage prepaid if to the Company to the address of the Company set out on the first page of this Agreement and if to the Employe e to the home address of the Employee on the Company’s records. Any notice shall be deemed to have been received if delivered or telefaxed, when delivered or telefaxed, and if mailed, on the fifth day (excluding Saturdays, Sundays and holidays) after the mailing thereof. If normal mail service is interrupted the sender shall deliver such notice in order to ensure prompt receipt thereof. --------------------------------------------------------------------------------   - 12 - 7.2          Each party to this Agreement may change its address for the purpose of this section 7.0 by giving written notice of such change in the manner provided for in section 7.1. 8.0          Applicable Law 8.1          This Agreement shall be governed by and construed in accordance with the laws of the province of British Columbia and the federal laws of Canada applicable therein, which shall be deemed to be the proper law hereof. The parties hereto hereby submit to the jurisdiction of the courts British Columbia. 9.0          Severability 9.1          If any provision of this Agreement for any reason is declared invalid, such declaration shall not affect the validity of any remaining portion of the Agreement, which remaining portion shall remain in full force and effect as if this Agreement had been executed with the invalid portion thereof eliminated and it is hereby declared the intention of the parties that they would have executed the remaining portions of this Agreement without including therein any such part, parts or portion which may, for any reason, be hereafter declared invalid. 10.0          Entire Agreement 10.1         This Agreement constitutes the entire Agreement between the parties hereto regarding the subject matter described herein and there are no representations or warranties, express or implied, statutory or otherwise other than set forth in this Agreement and there are no Agreements collateral hereto other than as are expressly set forth or referred to herein. This Agreement supersedes the Employment Agreement between the parties dated December 1, 2000 any other prior agreements, written or oral in respect of the Employee’s employment with the Company. 11.0         Amendment 11.1         This Agreement shall not be amended except in writing signed by both parties. 12.0         Independent Legal Advice 12.1          The Employee acknowledges that this Agreement has been prepared by the Company’s solicitors and acknowledges that the Employee has had sufficient time to review this Agreement thoroughly, that he or she has read and understood the terms of this Agreement and that the Employee has been given the opportunity to obtain independent legal advice concerning the interpretation and effect of this Agreement prior to its execution. --------------------------------------------------------------------------------   - 13 - 13.0         Counterpart 13.1          This Agreement may be executed in counterpart, including by facsimile, and such counterparts together shall constitute one and the same instrument and notwithstanding the date of execution shall be deemed to bear the date as set out on the first page of this Agreement.           IN WITNESS WHEREOF the parties have duly executed this Agreement as of the date set out on the first page of this Agreement. BLUE ZONE ENTERTAINMENT INC.         Per: /s/ JEREMY BLACK -------------------------------------------------------------------------------- Authorized Signatory               SIGNED, SEALED AND DELIVERED by )   Bruce Warren in the presence of: )     )   /s/ JAMIE OLLIVIER )   -------------------------------------------------------------------------------- )   Witness ) /s/ BRUCE WARREN   ) --------------------------------------------------------------------------------   ) Bruce Warren JAMIE OLLIVIER )   -------------------------------------------------------------------------------- )   Name )     )   765 Keefer Street )   -------------------------------------------------------------------------------- )   Address )     )   Vancouver, BC )   -------------------------------------------------------------------------------- )     )     )   Executive Creative Director )   -------------------------------------------------------------------------------- )   Occupation )   --------------------------------------------------------------------------------   - 14 - Schedule “A” Intellectual Property           Pursuant to section 4.6 of this Agreement, the Employee excludes the following Inventions from the operation of section 4.0: [LIST] OR [NIL] RAD-I/O ROM PIRATES DESKTOPLESS AND ALL INTELLECTUAL PROPERTY ASSOCIATED WITH THE ABOVE, INCLUDING BUT NOT LIMITED TO: DOMAIN NAMES, COLLATERAL MATERIALS, CONCEPTS, INTERACTIVE PROTOTYPES, DEMOS, MULTIMEDIA ENGINEERING AND CREATIVE DEVELOPMENT AND EXECUTION.

-------------------------------------------------------------------------------- -------------------------------------------------------------------------------- PARTICIPATION AGREEMENT dated as of March 16, 2001 among YAHOO! INC. as Lessee, LEASE PLAN NORTH AMERICA, INC., as Lessor and as a Participant, ABN AMRO BANK N.V., as a Participant, THE OTHER BANKS AND FINANCIAL INSTITUTIONS FROM TIME TO TIME PARTY HERETO, as Participants, YAHOO! INC., as Tranche Y Participant, and ABN AMRO BANK N.V., as Agent   Sunnyvale, California Corporate Headquarters -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   TABLE OF CONTENTS   SECTION 1 DEFINITIONS; INTERPRETATION SECTION 2 CLOSING DATE SECTION 3 ACQUISITION OF THE PROPERTY; FUNDING OF ADVANCES   Section 3.1 Lessor Commitment; Lessee Covenants.   Section 3.2 Participants' Commitments   Section 3.3 Procedures for Acquisition of the Property   Section 3.4 Procedures for Advances   Section 3.5 Allocation of Commitments   Section 3.6 Termination, Reduction or Extension of Participants' Commitments.   Section 3.7 Interest Rates, Yield and Payment Dates.   Section 3.8 Computation of Interest and Yield.   Section 3.9 Pro Rata Treatment and Payments.   Section 3.10 The Account   Section 3.11 Basic Rent   Section 3.12 Purchase Payments by Lessee   Section 3.13 Residual Value Guarantee Amount Payments by Lessee   Section 3.14 Sales Proceeds of Property   Section 3.15 Supplemental Rent   Section 3.16 Excepted Payments   Section 3.17 Distribution of Payments After Event of Default   Section 3.18 Other Payments.   Section 3.19 Cash Collateral   Section 3.20 Casualty and Condemnation Amounts   Section 3.21 Order of Application   Section 3.22 Payments to the Tranche Y Participant SECTION 4 FEES   Section 4.1 Commitment Fees   Section 4.2 Arrangement Fee   Section 4.3 Overdue Fees SECTION 5 CERTAIN INTENTIONS OF THE PARTIES   Section 5.1 Nature of Transaction.   Section 5.2 Amounts Due Under Lease SECTION 6 CONDITIONS PRECEDENT TO CLOSING DATE AND ADVANCES   Section 6.1 Conditions Precedent – Closing Date   Section 6.2 Conditions Precedent – Land Interest Acquisition Dates   Section 6.3 Further Conditions Precedent   Section 6.4 Satisfaction of Conditions Precedent to Closing Date   Section 6.5 Effect of Failure to Satisfy Conditions Precedent to Land Interest Acquisition Dates and Subsequent Funding Dates SECTION 7 REPRESENTATIONS OF THE LESSOR AND THE PARTICIPANTS   Section 7.1 Representations of the Lessor   Section 7.2 Representations of the Participants SECTION 8 REPRESENTATIONS OF THE LESSEE   Section 8.1 Representations of the Lessee   Section 8.2 Representations of the Lessee with Respect to the Property   Section 8.3 Representations of the Lessee With Respect to Each Advance SECTION 9 PAYMENT OF CERTAIN EXPENSES   Section 9.1 Transaction Expenses   Section 9.2 Brokers' Fees and Stamp Taxes   Section 9.3 Obligations SECTION 10 OTHER COVENANTS AND AGREEMENTS   Section 10.1 Covenants of the Lessee.   Section 10.2 The Lessee's Financial Covenants   Section 10.3 Cooperation with the Lessee   Section 10.4 Covenants of the Lessor SECTION 11 AMENDMENTS, RELATIONSHIP OF LESSOR AND PARTICIPANTS   Section 11.1 Amendments   Section 11.2 Actions by Participants   Section 11.3 Required Repayments   Section 11.4 Indemnification   Section 11.5 Agent to Exercise Lessor's Rights SECTION 12 TRANSFERS OF PARTICIPANTS' INTERESTS   Section 12.1 Restrictions on and Effect of Transfer by Participants   Section 12.2 Covenants and Agreements of Participants.   Section 12.3 Future Participants SECTION 13 INDEMNIFICATION   Section 13.1 General Indemnification   Section 13.2 End of Term Indemnity.   Section 13.3 Environmental Indemnity   Section 13.4 Proceedings in Respect of Claims   Section 13.5 General Impositions Indemnity.   Section 13.6 Funding Losses   Section 13.7 Regulation D Compensation   Section 13.8 Basis for Determining Interest Rate Inadequate or Unfair   Section 13.9 Illegality   Section 13.10 Increased Cost and Reduced Return.   Section 13.11 Substitution of Participant   Section 13.12 Indemnity Payments in Addition to Residual Value Guarantee Amount SECTION 14 THE AGENT   Section 14.1 Appointment   Section 14.2 Delegation of Duties   Section 14.3 Exculpatory Provisions   Section 14.4 Reliance by Agent   Section 14.5 Notice of Default   Section 14.6 Non-Reliance on Agent and Other Participants   Section 14.7 Indemnification   Section 14.8 Agent in its Individual Capacity   Section 14.9 Successor Agent SECTION 15 MISCELLANEOUS   Section 15.1 Survival of Agreements   Section 15.2 No Broker, etc   Section 15.3 Notices   Section 15.4 Counterparts   Section 15.5 Headings, etc   Section 15.6 Parties in Interest   Section 15.7 GOVERNING LAW   Section 15.8 Severability   Section 15.9 Liability Limited.   Section 15.10 Further Assurances   Section 15.11 Submission to Jurisdiction   Section 15.12 Confidentiality   Section 15.13 WAIVER OF JURY TRIAL     SCHEDULES   SCHEDULE I Participants' Commitments SCHEDULE II Notice Information and Funding Offices SCHEDULE III Subsidiaries SCHEDULE 10.1(b)(i) Existing Indebtedness SCHEDULE 10.1(b)(ii) Existing Liens SCHEDULE 10.1(b)(iv)(D) Existing Investments     APPENDICES   APPENDIX 1 Definitions and Interpretation     EXHIBITS   EXHIBIT A Form of Acquisition Request EXHIBIT B Form of Funding Request EXHIBIT C Form of Environmental Certificate EXHIBIT D Form of Closing Date Opinions of Counsel to Lessee EXHIBIT E Form of Land Interest Acquisition Date Opinions of Counsel to Lessee EXHIBIT F Form of Architect's Certificate EXHIBIT G Form of Lessee Certification EXHIBIT H Form of Assignment of Lease and Consent to Assignment EXHIBIT I Form of Cash Collateral Agreement EXHIBIT J Form of Mortgage EXHIBIT K Form of Assignment and Acceptance EXHIBIT L Form of Participant's Letter EXHIBIT 10.2 Financial Covenant Worksheet PARTICIPATION AGREEMENT              THIS PARTICIPATION AGREEMENT, dated as of March 16, 2001 (this "Participation Agreement"), is entered into by and among YAHOO! INC., a Delaware corporation, as Lessee (together with its permitted successors and assigns, the "Lessee"); LEASE PLAN NORTH AMERICA, INC., an Illinois corporation, as Lessor (together with its permitted successors and assigns in such capacity, the "Lessor") and as a Participant; YAHOO! INC., a Delaware corporation, as Tranche Y Participant (in such capacity, the "Tranche Y Participant"), ABN AMRO BANK N.V. and each of the other banks or financial institutions from time to time party hereto, as Participants (together with the Lessor in its capacity as a Participant and its permitted successors and assigns, and together with the Tranche Y Participant in its capacity as a Participant, each a "Participant" and collectively the "Participants"); and ABN AMRO BANK N.V., as Agent (in such capacity, together with its successors in such capacity, the "Agent") for the Participants. PRELIMINARY STATEMENT              In accordance with the terms of this Participation Agreement, the Lease and the other Operative Documents,                            A.         the Lessor contemplates acquiring a fee simple interest in (i) the Phase I Facility on the initial Land Interest Acquisition Date, and (ii) if requested by the Lessee, the Phase II Facility on the second Land Interest Acquisition Date, in each case by acquiring such Property, as purchaser, from the Existing Owner, which Property will be used by Lessee and its Subsidiaries as a corporate headquarters facility; and                            B.          the Lessor wishes to obtain, and the Participants are willing to provide, financing of the funding of the costs of acquisition of the Property through the purchase of Participation Interests in the Advances, the Lease and the Rent.              In consideration of the mutual agreements contained in this Participation Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1 DEFINITIONS; INTERPRETATION              Unless the context shall otherwise require, capitalized terms used and not defined herein shall have the meanings assigned thereto in Appendix 1 hereto for all purposes hereof; and the rules of interpretation set forth in Appendix 1 hereto shall apply to this Participation Agreement. SECTION 2 CLOSING DATE              The closing date (the "Closing Date") shall occur on the date of the execution and delivery of this Agreement and the other Operative Documents referred to in Section 6.1 hereof, which shall be the earliest date on which all the conditions precedent thereto set forth in Sections 6.1 and 6.3 hereof shall have been satisfied or waived by the applicable parties as set forth therein. SECTION 3 ACQUISITION OF THE PROPERTY; FUNDING OF ADVANCES              Section 3.1      Lessor Commitment; Lessee Covenants.                            (a)         Subject to the conditions and terms hereof, the Lessor shall take the following actions at the written request of the Lessee on or after to the Closing Date or from time to time during the Commitment Period, as the case may be:                            (i)          enter into the Operative Documents to be entered into by it pursuant to the terms hereof;                            (ii)         make Advances (out of funds provided by the Participants) for the purpose of financing the acquisition of the Phase I Facility and, subject to the satisfaction or waiver of the conditions set forth in Sections 6.2 and 6.3 hereof, the Phase II Facility, and the payment of Transaction Expenses; and                            (iii)        acquire the Phase I Facility and, if requested by the Lessee, the Phase II Facility (using funds provided by the Participants).              Upon the applicable Lease Commencement Date, subject to the terms and conditions hereof and of the other Operative Documents, the Lessor shall lease the applicable portion of the Property, as lessor, to the Lessee under the Lease.                            (b)        Lessee Covenants .  The Lessee shall, on or prior to the Closing Date, enter into the  Operative Documents to be entered into by it pursuant to the terms hereof and, upon the applicable Lease Commencement Date, subject to the terms and conditions hereof and of the other Operative Documents, the Lessee shall lease the applicable portion of the Property as Lessee from the Lessor under the Lease.              Section 3.2      Participants' Commitments. Subject to the terms and conditions hereof, each Participant other than the Lessor severally shall purchase a Participation Interest in the Advances being made by the Lessor at the request of the Lessee from time to time during the Commitment Period by making available to the Lessor on each Funding Date an amount in immediately available funds equal to such Participants' Commitment Percentage (as then in effect) of the amount of the Advance being funded on such Funding Date. Notwithstanding any other provision hereof, no Participant shall be obligated to purchase its Participation Interest in any Advance if (i) the amount of such purchase would exceed its Available Commitment, or (ii) if, after giving effect to the proposed Advance, the outstanding aggregate amount of such Participant's Participation Interest in the Advances would exceed such Participant's Commitment.  Lessor shall repay the Participation Interests, together with accrued interest and yield thereon as provided herein to the extent such amounts are received under the Lease.              Section 3.3      Procedures for Acquisition of the Property. The Lessee shall give the Lessor and the Agent prior written notice not later than 12:00 noon, Chicago time, three Business Days prior to the proposed applicable Land Interest Acquisition Date (unless the initial Land Interest Acquisition Date is the Closing Date and the Advance on such date is to be an Alternate Base Rate Advance, in which case such notice may be given not later than 12:00 noon, Chicago time, on such Land Interest Acquisition Date), pursuant to an Acquisition Request substantially in the form of Exhibit A (an "Acquisition Request"), specifying: (i) the proposed Land Interest Acquisition Date, (ii) the portion of the Property to be acquired, (iii) the Existing Owner of such portion of the Property, and (iv) the date on which the Lessee will request the Lessor to fund the Property Acquisition Costs in respect of such portion of the Property.  The Agent shall provide notice of each such Acquisition Request to each Participant.              Section 3.4      Procedures for Advances. With respect to each funding of an Advance, the Lessee shall give the Lessor and the Agent prior written notice not later than 12:00 noon, Chicago time, three Business Days prior to the proposed Funding Date (other than for the Advance, if any, on the Closing Date, if such Advance is to be an Alternate Base Rate Advance, in which case such notice may be given not later than 12:00 noon, Chicago time, on the same Business Day) pursuant, in each case, to a Funding Request substantially in the form of Exhibit B (a "Funding Request"), specifying (i) the proposed Funding Date, (ii) the amount and purpose of the Advance requested, (iii) the Lessee's election to cause all or a specified portion of such Advance to bear interest or yield by reference to the Eurodollar Rate or the Alternate Base Rate and including, in the case of a Eurodollar Rate Advance, the initial Interest Period therefor (all on a Tranche by Tranche basis), (iv) the payees of such Advance, (v) that the Advance will be used to fund Property Acquisition Costs in respect of the portion of the Property specified in such Funding Request, and (vi) that to the knowledge of the Lessee, no Default or Event of Default (other than a Limited Default or a Limited Event of Default, provided that if a Limited Default or a Limited Event of Default exists, the provisions of Section 6.5 shall apply) has occurred and is continuing as of the date of such Funding Request.  The Agent shall promptly provide notice of such Funding Request to each Participant.  Each Advance (other than an Interest Payment Advance or an amount capitalized pursuant to Section 3.7(e)) shall be in a minimum amount of $500,000.  Subject to the satisfaction or waiver of the conditions precedent to such Advance set forth in Section 6, each Participant, other than the Lessor, shall fund its pro rata share of such Advance by making available to the Lessor its proportionate share of such Advance in immediately available federal funds by wire transfer to the Agent for deposit to the Lessor's demand deposit account with the Agent not later than 12:00 noon, Chicago time, on the applicable Funding Date.  Upon (i) the Lessor's receipt of the funds provided by the Participants with respect to an Advance, and (ii) satisfaction or waiver of the conditions precedent to such Advance set forth in Section 6, the Lessor shall (A) in the case of an Advance for the acquisition of a portion of the Property, pay the Property Acquisition Costs therefor to the Existing Owner thereof, and (B) in the case of an Advance for Transaction Expenses, pay the specified amount to the payees specified in the applicable Funding Request as payment of such Transaction Expenses (which may include reimbursement of such Transaction Expenses previously paid by the Lessee), in each case from the funds provided by the Participants for such Advance.              Section 3.5      Allocation of Commitments. Schedule I hereto contains an allocation for each Participant of (i) the amount of its Commitment representing its Tranche A Participation Interest ("Tranche A Participation Interest Commitment"), (ii) the amount of its Commitment representing its Tranche B Participation Interest ("Tranche B Participation Interest Commitment"), and (iii) the amount of its Commitment representing its Tranche C Equity Interest ("Tranche C Equity Interest Commitment").  The Lessee, the Lessor, the Agent and the Participants have approved all such allocations and percentages.  Schedule I shall be amended as required to reflect changes in the allocations set forth thereon due to the addition of additional Participants pursuant to Section 12.1.              Section 3.6      Termination, Reduction or Extension of Participants' Commitments.                            (a)         The Lessor shall have the right, upon not less than five (5) Business Days' written notice to the Agent, to terminate the Participants' Commitments or, from time to time, to reduce the amount of the Participants' Commitments, provided that (i) after giving effect to such reduction, the aggregate outstanding principal amount of the Tranche A Participation Interests shall not exceed the aggregate Tranche A Participation Interest Commitments, (ii) after giving effect to such reduction, the aggregate outstanding principal amount of the Tranche B Participation Interests shall not exceed the aggregate Tranche B Participation Interest Commitments, (iii) after giving affect to such reduction, the aggregate outstanding principal balance of the Tranche C Equity Interests shall not exceed the aggregate Tranche C Equity Interest Commitments, and (iv) any such reduction shall be made pro rata among the Participants' Commitments within each Tranche.  Prior to the occurrence and continuance of an Event of Default, the Lessor shall exercise such right only as directed by the Lessee and after the occurrence and during the continuance of an Event of Default the Lessor shall exercise such right only as directed by the Required Participants; provided that in the case of the occurrence and continuance of a Limited Event of Default, such right may not be exercised on the basis of such Limited Event of Default until from and after the second Land Interest Acquisition Date.                            (b)        The Lessee may, by written request to the Lessor and Agent (which the Agent shall promptly forward to each Participant, together with the related Renewal Request received by the Agent pursuant to Section 21.1 of the Lease) given not later than 180 days prior to the Maturity Date then in effect, request (each, an "Extension Request") that such Maturity Date be extended to a date following the Maturity Date then in effect as specified in such Extension Request.  No later than the date (the "Extension Response Date") which is 90 days after any such request has been delivered to each of the Participants, each Participant will notify the Lessor in writing (with a copy to the Agent and the Lessee) whether or not it consents to such Extension Request (which consent may be granted or denied by each Participant in its sole discretion and may be conditioned on receipt of such financial information or other documentation as may be specified by such Participant including without limitation satisfactory appraisals of the Property), provided that (i) any Participant that fails to so advise the Lessor on or prior to the applicable Extension Response Date shall be deemed to have denied such Extension Request, and (ii) notwithstanding anything contained herein to the contrary, the Tranche Y Participant shall be deemed to have consented to any such Extension Request.  The extension of the then-current Maturity Date contemplated by an Extension Request shall become effective as of the Maturity Date then in effect (the "Extension Effective Date") on or after the Extension Response Date on which all of the Participants (other than the Tranche Y Participant and any Non–Consenting Participants which have been replaced by Replacement Participants in accordance with Section 3.6(c)) shall have consented to such Extension Request; provided that:                              (i)          on both the date of the applicable Extension Request and the applicable Extension Effective Date, (x) each of the representations and warranties made by the Lessee and the Lessor in or pursuant to the Operative Documents shall be true and correct in all material respects as if made on and as of each such date, except for representations and warranties made as of a specific date, which shall be true and correct in all material respects as of such date, (y) no Default or Event of Default shall have occurred and be continuing, and (z) on each of such dates the Agent shall have received a certificate of the Lessee and the Lessor, each as to itself, as to the matters set forth in clause (x) above and from the Lessee as to the matters set forth in clause (y) above; and                            (ii)         the Agent and the Required Participants shall have received satisfactory evidence that the Expiration Date shall, after giving effect to any extension thereof which has become effective on or prior to such Extension Effective Date, occur on the Maturity Date then in effect as so extended. As promptly as practicable following any Extension Effective Date, the Agent shall deliver to the Lessee, the Lessor and each Participant a written notice (each, an "Extension Notice" setting forth the Extended Maturity Date then in effect.                            (c)         The Lessor (after consultation with, and at the direction of, the Lessee) shall be permitted to replace any Non-Consenting Participant with one or more replacement banks or other financial institutions acceptable to the Agent (a "Replacement Participant") at any time on or prior to the date which is 90 days after the Extension Response Date; provided that (i) such replacement does not conflict with any Requirement of Law, (ii) the Replacement Participant shall purchase, at par, all of the Participation Interest of such Non-Consenting Participant on or prior to the date of replacement, (iii) the Lessee shall be liable to such Non-Consenting Participant under Section 13.6 of this Agreement if any Advance (or any Participation Interest therein) shall be prepaid (or purchased) other than on the last day of the Interest Period or Interest Periods relating thereto, (iv) the Replacement Participant, if not already a Participant, shall be reasonably satisfactory to the Agent, (v) such replacement shall be made in accordance with the provisions of Section 12 of this Agreement (provided that the Lessee shall be obligated to pay the Transaction Expenses arising in connection therewith), and (vi) the Replacement Participant shall have agreed to be subject to all of the terms and conditions of this Agreement (including the extension of the Maturity Date contemplated by the Extension Request) and the other Operative Documents.  The Agent hereby agrees to cooperate with the Lessee and the Lessor in their efforts to arrange one or more Replacement Participants as contemplated by this Section 3.6(c).                            (d)        On the earlier of the Land Interest Acquisition Date with respect to the Phase II Facility or the last day of the Commitment Period, the Participants' Commitments shall be reduced automatically without any notice or other action by Lessor or any Participant hereunder, to be equal to the then aggregate outstanding principal amount of the respective Participant's Participation Interests with respect to the Commitments.              Section 3.7       Interest Rates, Yield and Payment Dates.                            (a)         Each outstanding Advance (other than that portion of the Advance, if any, to be made on the Closing Date to finance Tranche C Equity Interests, which shall bear yield at a rate equal to the Alternate Base Rate unless and until such portion of such Advance is converted to a Eurodollar Rate Advance in accordance with this Section 3.7(a)) shall bear interest (in the case of the Tranche A Participation Interests and Tranche B Participation Interests therein) or yield (in the case of the Tranche C Equity Interest therein) for each day during each Interest Period with respect thereto (i) in respect of the Tranche A Participation Interests in any Advance, a rate per annum equal to zero percent; (ii) in respect of the Tranche B Participation Interests, a rate per annum for such Interest Period equal to zero percent plus the Applicable Margin; and (iii) in respect of the Tranche C Equity Interests in any Advance, a rate per annum (x) in the case of any Eurodollar Rate Advance, the Eurodollar Rate two (2) Business Days prior to the first day of such Interest Period, plus the Applicable Margin then in effect and (y) in the case of any Alternate Base Rate Advance, at a rate per annum equal to the Alternate Base Rate, in each case with respect to either clause (x) or (y) as elected by Lessee in its Funding Request in respect of the relevant Advance or in a notice delivered pursuant to this Section 3.7(a).  The Lessee shall give irrevocable notice to the Agent, in accordance with the applicable provisions of the term "Interest Period" set forth in Appendix 1 and this Section 3.7(a), of the length of each Interest Period to be applicable to any Tranche C Equity Interests accruing yield by reference to the Eurodollar Rate, which election shall become effective three Business Days following the date of such notice. Each of the Participants, Agent, Lessor and Lessee hereby agree that Lessee shall have the right, by delivering a notice to Agent on or before 12:00 noon (Chicago, Illinois time) on a Business Day, to elect irrevocably, on not less than three nor more than five Business Days' written notice prior to the last day of any then current Interest Period in the case of a notice requesting a conversion of a Eurodollar Rate Advance into an Alternate Base Rate Advance, or the continuation of a Eurodollar Rate Advance as such, that all or any portion of the Tranche C Equity Interests in the Advances (in an aggregate minimum amount of $5,000,000 and integral multiples of $100,000 in excess thereof, in the case of the conversion of an Alternate Base Rate Advance into a Eurodollar Rate Advance or the continuation of a Eurodollar Rate Advance as an Advance of such type) (a) be converted into an Alternate Base Rate Advance or a Eurodollar Rate Advance, or (b) be continued as a Eurodollar Rate Advance.  Any conversion into, or continuation of, a Eurodollar Rate Advance shall have Interest Periods (subject to the limitations set forth in the definition thereof) of the length set forth in such notice (in the absence of delivery of such notice at least three Business Days before the last day of any then current Interest Period with respect to any Eurodollar Rate Advance, Lessee shall be deemed to have elected to continue the applicable Advance as a Eurodollar Rate Advance and the Interest Period with respect thereto shall be one month).  There shall not be more than four (4) Interest Periods outstanding at any time.                        (b)        If all or a portion of (i) the amount of any Advance, (ii) any interest or yield payable thereon or (iii) any other amount payable hereunder, shall not be paid by Lessee when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest or yield at a rate per annum which is equal to the Overdue Rate.                            (c)         Except as otherwise provided in paragraph (d) of this Section 3.7, interest and yield shall be payable in cash in arrears on each Scheduled Payment Date, provided that (i) interest and yield accruing pursuant to paragraph (b) of this Section 3.7 shall be payable from time to time on demand and (ii) each prepayment of Advances shall be accompanied by accrued interest and yield to the date of such prepayment on the amount of Advances so prepaid.                            (d)        On each date which is three Business Days prior to any Scheduled Payment Date occurring prior to the initial Land Interest Acquisition Date, the Lessee shall be deemed to have requested an Advance comprised of an Interest Payment Advance pursuant to Section 3.4 and the Lessor shall be deemed to have requested a purchase pursuant to Section 3.2 of Participation Interests in such Advance in an amount equal to the aggregate amount of the interest or yield due and payable on such date with respect to accrued interest and yield on the outstanding Advances.  The Funding Date with respect to any such Interest Payment Advance and purchase of Participation Interests therein shall be the relevant Scheduled Payment Date (provided that such Advance and the purchase of such Participation Interests shall be subject to satisfaction of the applicable conditions precedent set forth in Section 6) and the proceeds of such payment shall be applied to pay such accrued interest and yield.                            (e)         Capitalization of Certain Amounts.  On each date prior to the initial Land Interest Acquisition Date that any amount is payable under the Operative Documents on account of (A) accrued interest and accrued yield on outstanding Advances (to the extent provided in Section 3.7(d)), (B) fees pursuant to Section 4, (C) Transaction Expenses of the Lessor, the Agent or any Participant pursuant to Section 9, or (D) any other amounts required by any provision of the Operative Documents to be capitalized prior to the initial Land Interest Acquisition Date, such amounts shall be capitalized by automatically treating such amount as an Advance and a related purchase of Participation Interests therein made on such date.                            (f)         Cash Collateral Agreement.  On each Funding Date the Lessee shall deposit cash collateral pursuant to the Cash Collateral Agreement against the Tranche B Participation Interests and the Tranche C Equity Interests and shall maintain the Cash Collateral from time to time pursuant to and in accordance with the terms of the Cash Collateral Agreement.  The Lessee shall also pledge Cash Collateral when required by the Cash Collateral Agreement in connection with the capitalization of the interest, yield and fees and amounts capitalized under Section 3.7(e).              Section 3.8      Computation of Interest and Yield.                            (a)         Whenever it is calculated on the basis of the Alternate Base Rate, interest and yield shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed; otherwise, interest and yield shall be calculated on the basis of a 360-day year for the actual days elapsed.  The Agent shall as soon as practicable notify the Lessor, the Lessee and the Participants of each determination of a Eurodollar Rate.  Any change in the interest rate or yield rate on an Advance resulting from a change in the Alternate Base Rate or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective.  The Agent shall as soon as practicable notify the Lessor, the Lessee and the Participants of the effective date and the amount of each such change in interest rate or yield rate.                        (b)        Each determination of an interest rate or a yield rate by the Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Lessor, the Lessee and the Participants in the absence of manifest error.  The Agent shall, at the request of such parties, deliver to such parties a statement showing the quotations used by the Agent in determining any interest rate or yield rate pursuant to Section 3.8(a).              Section 3.9      Pro Rata Treatment and Payments.                            (a)         Each participation in the Advances by the Participants and each reduction of the Commitments of the Participants shall be made pro rata among the Tranche A Participants, Tranche B Participants and Tranche C Participants according to the respective Commitment Percentages of each such Participant then in effect.  Except as otherwise provided in Sections 3.11 through 3.21, each payment (including each prepayment) by the Lessor on account of Participation Interests representing the amount of principal and interest or yield on the Advances shall be made pro rata among the applicable Tranche A Participants, Tranche B Participants and Tranche C Participants according to the respective Participation Interests of each such Participant then in effect.  Any payment required to be made to the Participants in any particular Tranche shall be made pro rata among such Participants, without priority of any one such Participant over any others within such Tranche, in the proportion that such Participant's Participant Balance within such Tranche bears to the aggregate Participant Balances of all Participants within such Tranche. All payments (including prepayments) to be made by the Lessor hereunder to the Participants with respect to their Participation Interests, whether on account of principal, interest, yield or otherwise, shall be payable to the extent received by the Lessor from or on behalf of the Lessee, shall be made without setoff or counterclaim and shall be made prior to 2:00 p.m., Chicago time, on the due date thereof to the Agent, for the account of the Participants, at the Agent's office referred to in Section 15.3 of this Agreement, in Dollars and in immediately available funds.  The Agent shall distribute such payments to the Participants promptly upon receipt in like funds as received; it being understood that any such payment received by the Agent on a timely basis and in accordance with the provisions of the Lease shall be distributed on the date on which such funds are so received.  If any payment hereunder (other than payments of Participation Interests in the Advances) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day.  If any payment of Participation Interests in an Advance becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day.  In the case of any extension or shortening of the due date of any payment pursuant to the preceding two sentences, interest or yield thereon shall be payable at the then applicable rate during such extension or until such shortened due date, as the case may be.                        (b)        Unless the Agent shall have been notified in writing by any Participant prior to funding its Participation Interest in an Advance that such Participant will not make its share of such Advance available to the Agent, the Agent may assume that such Participant is making such amount available to the Agent.  If such Participant's share of such Advance is not made available to the Agent by such Participant on or prior to such Funding Date, the Lessor shall not be required to make such portion of such Advance to the Lessee.              Section 3.10    The Account. The Agent may if it so desires establish an account (the "Account") into which the Agent and the Lessor shall deposit all payments, receipts and other consideration of any kind whatsoever paid under the Lease and received by the Agent or the Lessor pursuant to this Agreement, the Lease and any other Operative Document.  Each of the Agent and the Lessor hereby irrevocably instructs the Lessee, and the Lessee hereby agrees, until otherwise notified by the Agent and except as otherwise expressly provided in Section 3.22 hereof, that all payments to be made by the Lessee to or for the benefit of the Lessor or the Agent pursuant to the Lease or any of the other Operative Documents shall be made directly to the Agent.  The Agent shall make distributions of such payments, receipts and other consideration (and, if an Account is used, from the Account) pursuant to the requirements of Sections 3.11 through 3.21 hereof.              Section 3.11    Basic Rent. Each payment (or portion thereof) of Basic Rent comprising interest or yield on the Advances (and any payment of interest on overdue installments of such components of Basic Rent) received by the Agent shall be distributed by the Agent (i) first, to the Tranche A Participants and Tranche B Participants pro rata, and (ii) second to the Tranche C Participants pro rata, in accordance with, and for application to, the portion of their Participation Interests in such portion of Basic Rent, as well as in any overdue interest due to such Participant (to the extent permitted by applicable law).              Section 3.12    Purchase Payments by Lessee. Any payment received by the Agent as a result of:                            (a)         the purchase of the Lessor's interest in the Property in connection with the Lessee's exercise of its Purchase Option under Section 20.1 of the Lease, or                            (b)        the Lessee's compliance with its obligation to purchase the Lessor's interest in the Property in accordance with Section 20.2 or 20.3 of the Lease, or                            (c)         the payment of the Asset Termination Value in accordance with Sections 16.2(b) or 16.3 of the Lease, shall, subject to the provisions of Section 3.22, be distributed by the Agent in the following order of priority:                            first, to the Tranche A Participants and the Tranche B Participants, pro rata, for application to pay in full the Tranche A Participant Balance and Tranche B Participant Balance of each such Participant, and in the case where the amount so distributed shall be insufficient to pay in full as aforesaid, then pro rata among such Participants; and                            second, to the Tranche C Participants for application to pay in full the Tranche C Participant Balance of each Tranche C Participant, and in the case where the amount so distributed shall be insufficient to pay in full as aforesaid, then pro rata among the Tranche C Participants.              Section 3.13    Residual Value Guarantee Amount Payments by Lessee.  The payment by the Lessee of any Residual Value Guarantee Amount in accordance with Section 17.2(h) of the Lease or Article XXII of the Lease shall be distributed by the Agent in the following order of priority (it being acknowledged and agreed that any payment of the Residual Value Guarantee Amount payable to the Tranche Y Participant shall be paid in accordance with Section 3.22 hereof prior to any distribution hereunder):                            first, to the Tranche A Participants for application to pay in full the Tranche A Participant Balance of each Tranche A Participant, and in the case where the amount so distributed shall be insufficient to pay in full as aforesaid, then pro rata among such Participants; and                            second, to the Tranche B Participants for application to pay in full Tranche B Participant Balance of each Tranche B Participant, and in the case where the amount so distributed shall be insufficient to pay in full as aforesaid, then pro rata among such Participants; and                            third, to the Tranche C Existing Participants for application to pay in full the Tranche C Participant Balance of each Tranche C Participant, and in the case where the amount so distributed shall be insufficient to pay in full as aforesaid, then pro rata among such Participants.              Section 3.14    Sales Proceeds of Property. Any payments received by the Agent as proceeds from the sale of the Property sold following the occurrence of an Event of Default under Article XVII of the Lease (in the case of any portion of such proceeds which, pursuant to Section 3.17, is required to be distributed in accordance with this Section 3.14) or pursuant to the Lessee's exercise of the Remarketing Option pursuant to Article XXII of the Lease, together with any payment made by the Lessee as a result of an appraisal pursuant to Section 13.2 of this Agreement, shall be distributed by the Agent in the following order of priority:                            first, to the Tranche B Participants for application to pay in full the Tranche B Participant Balance of each Tranche B Participant, and in the case where the amount so distributed shall be insufficient to pay in full as aforesaid, then pro rata among the Tranche B Participants;                            second, to the Tranche A Participants for application to pay in full the Tranche A Participant Balance (other than any portion thereof paid in accordance with Section 3.22) of each Tranche A Participant, and in the case where the amount so distributed shall be insufficient to pay in full as aforesaid, then pro rata among the Tranche A Participants;                            third, to the Tranche C Participants for application to pay in full the Tranche C Participant Balance  of each Tranche C Participant, and in the case where the amount so distributed shall be insufficient to pay in full as aforesaid, then pro rata among the Tranche C Participants; and                           fourth, the balance, if any, shall be promptly distributed to, or as directed by, the Lessee.              Section 3.15    Supplemental Rent.All payments of Supplemental Rent received by the Agent (excluding any amounts payable pursuant to the preceding provisions of this Section 3) shall be distributed promptly by Agent upon receipt thereof to the Persons entitled thereto pursuant to the Operative Documents.              Section 3.16    Excepted Payments. Notwithstanding any other provision of this Agreement or the Operative Documents, any Excepted Payment received at any time by the Agent shall be distributed promptly to the Person entitled to receive such Excepted Payment pursuant to the Operative Documents.              Section 3.17    Distribution of Payments After Event of Default. All payments received and amounts realized by the Lessor or the Agent after an Event of Default exists (except under the Cash Collateral Agreement), including proceeds from the sale of any of the Property, proceeds of any amounts from any insurer or any Governmental Authority in connection with any Casualty or Condemnation, or from Lessee as payment in accordance with the Lease, including any payment received from Lessee pursuant to Article XVII of the Lease, shall, if received by Lessor, be paid to the Agent as promptly as possible and shall be distributed by the Agent in the following order of priority:                            first, so much of such payment or amount as shall be required to reimburse the Lessor or the Agent for any tax, expense or other loss incurred by the Lessor or the Agent (including, to the extent not previously reimbursed, those incurred in connection with any duties of the Agent as the Agent) and any unpaid ongoing fees of the Lessor and the Agent shall be distributed to each of them for its own account;                            second, so much of such payments or amounts as shall be required to reimburse the then existing or prior Participants for payments made by them to the Lessor pursuant to Section 18.1 of the Lease (to the extent not previously reimbursed or not paid in accordance with Section 3.22) and to pay such then existing or prior Participants the amounts payable to them pursuant to any expense reimbursement or indemnification provisions of the Operative Documents shall be distributed to each such Participant without priority of one over the other in accordance with the amount of such payment or payments payable to each such Person;                            third, (i) in the case of a sale of the Property, in the order set forth in Section 3.14 (other than any payment of the Residual Value Guarantee Amount paid by the Lessee in connection with a sale of the Property, which payment shall be distributed in the order set forth in Section 3.13), and (ii) in all other cases, so much of such amount as shall be required  to pay in full the Participant Balance of each Participant, and in the case where the amount so distributed shall be insufficient to pay in full as aforesaid, then in the order of priority set forth in Section 3.12; and in any case where the amount of any such payment in this clause (ii) shall be insufficient to pay in full as aforesaid, then pro rata within a Tranche without priority of any Participation Interest in such Tranche over any other Participation Interest within such Tranche; and                           fourth, the balance, if any, of such payment or amounts remaining thereafter shall be promptly distributed to, or as directed by, the Lessee.              Section 3.18    Other Payments.                            (a)         Except as otherwise provided in Sections 3.11, 3.12, 3.17, 3.19 and paragraph (b) below,                            (i)          any payment received by the Agent for which no provision as to the application thereof is made in the Operative Documents or elsewhere in this Section 3, and                            (ii)         all payments received and amounts realized by the Lessor or the Agent under the Lease or otherwise with respect to the Property or the Cash Collateral to the extent received or realized at any time after indefeasible payment in full of the Participant Balances of all of the Participants and any other amounts due and owing to the Lessor, the Participants or the Agent, shall be distributed forthwith by the Agent in the order of priority set forth in Section 3.12 (in the case of any payment described in clause (i) above) or in Section 3.17 hereof (in the case of any payment described in clause (ii) above), except that in the case of any payment described in clause (ii) above, such payment shall be distributed omitting clause third of such Section 3.17; and the balance, if any (in the case of any payment described in clause (i) or (ii) above), shall be distributed to, or as directed by, the Lessee.                            (b)        Except as otherwise provided in Sections 3.11 and 3.12 hereof, any payment received by the Agent for which provision as to the application thereof is made in an Operative Document but not elsewhere in this Section 3 shall be distributed forthwith by the Agent to the Person and for the purpose for which such payment was made in accordance with the terms of such Operative Document.              Section 3.19    Cash Collateral.  Notwithstanding anything herein in the contrary, proceeds of the Cash Collateral shall be applied in the following order of priority:                            first, among the Tranche B Participants, pro rata, to pay in full the Tranche B Participant Balances of such Tranche B Participants; and                            second, among the Tranche C Participants, pro rata, to pay in full the Tranche C Participant Balances of such Tranche C Participants.                            (a)         In order to comply with the limitations on recourse to the Lessee contained in SFAS 13 with respect to a particular application of the Cash Collateral, the Agent and the applicable Participants may retain an amount thereof equal to the amount of the Lessee's recourse liability in respect of the Tranche B Participation Interests and Tranche C Participation Interests in the Lease Balance under the applicable provisions of the Operative Documents which, under the circumstances, may be the Asset Termination Value, as the case may be (and any of such collateral or proceeds not permitted to be so retained shall be returned to the Lessee).              Section 3.20    Casualty and Condemnation Amounts. Any amounts payable to the Lessor as a result of a Casualty or Condemnation pursuant to Section 15.1 of the Lease (but excluding any amounts payable pursuant to Section 16.2 of the Lease) shall, if no Event of Default exists, be paid over to Lessee for the rebuilding or restoration of that portion of the Property to which such Casualty or Condemnation applied, and any excess proceeds shall be paid to the Lessee.  If a Event of Default exists, then during the continuance of such Event of Default, all such amounts shall be delivered to the Agent and upon exercise of the Lessor's remedies under the Operative Documents shall be distributed pursuant to Section 3.17.              Section 3.21    Order of Application. To the extent any payment made to any Participant pursuant to Sections 3.12, 3.13, 3.14 or 3.17 is insufficient to pay in full the Participant Balance of such Participant, then each such payment shall first be applied to its Participation Interest in accrued interest or yield and then to its Participation Interest in principal or the equity component of the Advances.              Section 3.22    Payments to the Tranche Y Participant. Notwithstanding anything in this Agreement or the other Operative Documents to the contrary, the parties hereto acknowledge and agree that (a) in the case of any payment required to be made in respect of the Participant Balance of the Tranche Y Participant, such amount shall be paid by offsetting against such amount the related portion of the Lease Balance owed by the Lessee to the Lessor in respect of the Tranche Y Participant's Participant Balance without the necessity of a cash payment being made by the Lessee to the Lessor or the Agent or by the Lessor to the Agent, and (b) in the context of all distributions required to be made by the Agent to the Participants or the Lessee pursuant to Sections 3.11 through 3.20 hereof, all such distributions shall be made by the Agent assuming that such offsetting payment has in fact been so made immediately prior to the making by the Agent of any such distributions. SECTION 4 FEES              Section 4.1      Commitment Fees. The Lessor shall pay to the Agent for the account of each Participant (other than the Tranche Y Participant) a commitment fee (the "Commitment Fees") for the period from and including the Closing Date to the earlier of the last day of the Commitment Period computed in the case of each such Participant at a rate per annum equal to the Commitment Fee Rate multiplied by the Available Commitments of such Participant, in each case during the period for which payment is made, payable in arrears on each Commitment Fee Payment Date.  Commitment Fees shall be calculated on the basis of a 365– (or 366–, as the case may be) day year for the actual days elapsed.  Commitment Fees payable on any Commitment Fee Payment Date occurring prior to the initial Land Interest Acquisition Date shall be funded by Advances funded by the Participants and capitalized as provided in Section 3.7(e).              Section 4.2      Arrangement Fee. The Lessor shall pay to the Arranger an arrangement fee (the "Arrangement Fee") on the Closing Date as set forth in the Fee Letter.  The Arrangement Fee shall be funded by an Advance funded by the Participants.              Section 4.3      Overdue Fees. If all or a portion of any fee due hereunder shall not be paid when due, such overdue amount shall bear interest, payable by the Lessee on demand, at a rate per annum equal to the Overdue Rate from the date of such nonpayment until such amount is paid in full (as well after as before judgment). SECTION 5 CERTAIN INTENTIONS OF THE PARTIES              Section 5.1      Nature of Transaction.                            (a)         It is the intent of the parties hereto that: (i) the Lease constitutes an "operating lease" pursuant to Statement of Financial Accounting Standards No. 13, as amended and interpreted, for purposes of the Lessee's financial reporting, and (ii) for purposes of federal, state and local income or franchise taxes (and for any other tax imposed on or measured by income), and documentary, intangibles and transfer taxes, the transaction contemplated hereby is a financing arrangement and preserves ownership in the Property in the Lessee.  The parties shall take no action inconsistent with such intention.  Nevertheless, the Lessee acknowledges and agrees that neither the Agent, the Lessor nor any Participant (other than the Tranche Y Participant) has made any representations or warranties to the Lessee concerning the tax, accounting or legal characteristics of the Operative Documents and that the Lessee has obtained and relied upon such tax, accounting and legal advice concerning the Operative Documents as it deems appropriate.                            (b)        Specifically, without limiting the generality of subsection (a) of this Section 5.1, the parties hereto intend and agree that with respect to the nature of the transactions evidenced by the Lease in the context of the exercise of remedies under the Operative Documents, including, without limitation, in the case of any insolvency or receivership proceedings or a petition under the United States bankruptcy laws or any other applicable insolvency laws or statute of the United States of America, any State or Commonwealth thereof or any foreign country affecting the Lessee, the Lessor or any Participant or any enforcement or collection actions arising out of or relating to bankruptcy or insolvency laws, (i) the transactions evidenced by the Operative Documents shall be deemed to be loans made by the Lessor and the Participants to the Lessee secured by the Property, (ii) the obligations of the Lessee under the Lease to pay Basic Rent, Supplemental Rent, Asset Termination Value or Residual Value Guarantee Amount in connection with any purchase or sale of the Property pursuant to the Lease shall be treated as payments of interest on and principal of, respectively, loans from the Lessor and the Participants to the Lessee, and (iii) the Lease grants a security interest and mortgage or deed of trust lien, as the case may be, in the Property to the Lessor and assigned by the Lessor to the Agent for the benefit of the Participants to secure the Lessee's performance and payment of all amounts under the Lease and the other Operative Documents.                        (c)         If the transaction evidenced by this Agreement and the other Operative Documents can no longer be treated as an operating lease pursuant to GAAP for accounting purposes (other than by reason of the failure of the Lessor to maintain the minimum equity required by EITF Issues 96-21 and 97-1), all provisions in the Operative Documents limiting the Lessee's obligation to pay the Asset Termination Value (including the Remarketing Option) shall no longer apply.  If any such change in accounting treatment shall occur, the Lessee, the Guarantor, the Lessor, the Agent and the Participants shall negotiate in good faith to enter into such amendments to the Operative Documents as may be reasonably necessary or desirable to reflect the foregoing.                            (d)        In the event that, after the date hereof, the UCC as enacted and in effect in any applicable jurisdiction shall be revised or amended or amendments thereto shall become effective, the Lessee, the Lessor, the Agent and the Participants shall negotiate in good faith to enter into such amendments to the Operative Documents as may be reasonably necessary or desirable to effect the intended purposes of this Agreement and the other Operative Documents in light of such revisions or amendments.              Section 5.2      Amounts Due Under Lease. Anything else herein or elsewhere to the contrary notwithstanding, it is the intention of the Lessee, the Participants and the Agent that: (i) the amount and timing of installments of Basic Rent due and payable from time to time from the Lessee under the Lease shall be equal to the aggregate payments due to the Participants in respect of their Participation Interests on each Payment Date; (ii) if the Lessee elects the Purchase Option or becomes obligated to purchase the Property under the Lease, the Participation Interests, all fees and all of the interest on overdue amounts thereon and all other obligations of the Lessee owing to the Lessor, the Participants and the Agent shall be paid in full by the Lessee; (iii) if the Lessee properly elects the Remarketing Option, the Lessee shall only be required to pay to the Lessor the proceeds of the sale of the Property, the Residual Value Guarantee Amount and any amounts due pursuant to Section 13 of this Participation Agreement and Section 22.2 of the Lease (which aggregate amounts may be less than the Asset Termination Value); and (iv) upon a Event of Default resulting in an acceleration of the Lessee's obligation to purchase the Property under the Lease, except as otherwise expressly limited in Section 17.2(h) of the Lease, the amounts then due and payable by the Lessee under the Lease shall include all amounts necessary to pay in full the Asset Termination Value, plus all other amounts then due from the Lessee to the Participants, the Agent and the Lessor under the Operative Documents. SECTION 6 CONDITIONS PRECEDENT TO CLOSING DATE AND ADVANCES              Section 6.1      Conditions Precedent – Closing Date. The occurrence of the Closing Date and the obligation of the Lessor, the Agent and the Participants to execute and deliver the Operative Documents required to be entered into by any of them on such date are subject to satisfaction or waiver of the following conditions precedent (it being understood that the Tranche Y Participant's obligation to enter into any such Operative Documents on the Closing Date shall not be subject to the conditions precedent set forth in this Section 6.1 to the extent such conditions are actions required of the Lessee) on or prior to the Closing Date:                           (a)         Operative Documents.  Each of the Operative Documents to be entered into on or prior to the Closing Date shall have been duly authorized, executed and delivered by the parties thereto, and shall be in full force and effect, including, without limitation, (i) this Participation Agreement, (ii) the Lease, (iii) the Assignment of Lease, (iv) the Consent to Assignment, (v) the Assignment of Property Purchase Agreement and (vi) the Cash Collateral Agreement.  No Default or Event of Default shall exist thereunder (both before and after giving effect to the transactions contemplated by the Operative Documents), and the Lessor, the Agent and each Participant (other than the Tranche Y Participant) shall each have received a fully executed copy of each of the Operative Documents (other than the Lease, of which the Agent shall receive the original and the Lessor and the Participants shall receive specimens).  On or prior to the Closing Date, the Operative Documents and/or any financing statements in connection therewith required under the Uniform Commercial Code shall have been recorded, registered and filed, if necessary, in such manner as to enable the Lessee's counsel to render its opinion referred to in clause (c) below.                            (b)        Taxes.  On or prior to the Closing Date, all taxes, fees and other charges in connection with the execution, delivery, recording, filing and registration of the Operative Documents on such date, if any, shall have been paid or provisions for such payment shall have been made to the satisfaction of the Agent and the Lessor.                            (c)         Opinion of Counse l. On or prior to the Closing Date the Lessee shall have delivered to the Agent, each Participant (other than the Tranche Y Participant) and the Lessor the opinion of Shartsis, Friese & Ginsburg LLP, counsel to the Lessee, addressing the matters set forth in Exhibit D, which opinions shall be in form and substance reasonably satisfactory to the Agent and the Lessor.                            (d)        Approvals.  All necessary (or, in the reasonable opinion of the Lessor, the Participants (other than the Tranche Y Participant) or the Agent or any of their respective counsel, advisable) Governmental Actions and consents and approvals of or by any Governmental Authority or other Person, in each case required by any Requirement of Law or the transactions contemplated by the Operative Documents shall have been obtained or made and be in full force and effect by the time required by any Requirement of Law.                            (e)         Litigation .  No action or proceeding shall have been instituted before any Governmental Authority, nor shall any order, judgment or decree have been issued or proposed to be issued by any Governmental Authority  (i) to set aside, restrain, enjoin or prevent the full performance of this Participation Agreement, the Lease or any other Operative Document or any transaction contemplated hereby or thereby or (ii) which is reasonably likely to have a Material Adverse Effect.                            (f)         Requirements of Law.  In the reasonable opinion of the Lessor, the Participants (other than the Tranche Y Participant), the Agent and their respective counsel, the transactions contemplated by the Operative Documents do not and will not violate any Requirement of Law and do not and will not subject the Lessor, the Agent or any Participant to any adverse regulatory or tax prohibitions or constraints.                            (g)        Responsible Officer's Certificate of the Lessee.  On or prior to the Closing Date, the Lessor, each Participant (other than the Tranche Y Participant) and the Agent shall each have received a Responsible Officer's Certificate, dated as of the Closing Date, of the Lessee stating that (i) each and every representation and warranty of the Lessee contained in the Operative Documents to which it is a party is true and correct in all material respects on and as of the Closing Date; (ii) no Default or Event of Default has occurred and is continuing; (iii) each Operative Document to which the Lessee is a party is in full force and effect with respect to the Lessee; and (iv) the Lessee has duly performed and complied with all covenants, agreements and conditions contained herein or in any Operative Document required to be performed or complied with by the Lessee on or prior to the Closing Date.                            (h)        The Lessee's Resolutions and Incumbency Certificate, etc.  On or prior to the Closing Date, the Lessor, each Participant (other than the Tranche Y Participant) and the Agent shall each have received (i) a certificate of the Secretary or an Assistant Secretary of the Lessee attaching and certifying as to (A) the resolutions of the Board of Directors of the Lessee, duly authorizing the execution, delivery and performance by the Lessee of documents and agreements of the type represented by each Operative Document to which it is or will be a party, (B) its articles of incorporation and bylaws, and (C) the incumbency and signature of persons authorized to execute and deliver on its behalf the Operative Documents to which it is a party, and (ii) a certificate of good standing from the appropriate officer of the Lessee's state of incorporation and of the state in which the Property is located.                            (i)          No Material Adverse Effect.  As of the Closing Date, no event or condition shall have occurred that would result in a Material Adverse Effect.                            (j)          Intentionally Omitted.                            (k)         Intentionally Omitted.                            (l)          Legal Fees and Expenses.  The Lessor and the Lessee shall have caused to be paid or capitalized as Advances as provided in Section 9 all reasonable fees and expenses of attorneys for the Agent, the Lessor and any Participant (other than the Tranche Y Participant) (which attorneys may be employees of such Person) paid or incurred in connection with the preparation, negotiation, execution and delivery of the Operative Documents.                            (m)        Appraisal.  On or prior to the Closing Date, the Agent, the Lessor and the Participants shall have received an Appraisal of the Property, which Appraisal shall show as of the Closing Date and as of the Expiration Date the Fair Market Sales Value of the Property (including the respective Fair Market Sales Values of the Land Interest and the Improvements thereon), which Fair Market Sales Value shall not be less than $270,000,000, and which Appraisal shall meet the other requirements set forth in the definition of the term "Appraisal" contained in Appendix 1.                            (n)        Funding Request .  If an Advance is to be made on the Closing Date, the Agent and the Lessor shall have received a fully executed counterpart of a Funding Request with respect thereto appropriately completed by the Lessee and in accordance with Section 3.4.                            (o)        Representations and Warranties .  On the Closing Date the representations and warranties of the Lessee, the Lessor and each Participant contained herein and in each of the other Operative Documents shall be true and correct as though made on and as of such date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct on and as of such earlier date.                            (p)        Performance of Covenant s.  The parties hereto shall have performed their respective agreements contained herein and in the other Operative Documents to be performed by them on or prior to the Closing Date.                            (q)        No Default.  There shall not have occurred and be continuing any Default or Event of Default under any of the Operative Documents, and no Default or Event of Default under any of the Operative Documents will have occurred after giving effect to the occurrence of the Closing Date and/or the making of the Advance requested pursuant to the Funding Request, if any, delivered in respect of the Closing Date, as the case may be.                            (r)         Cash Collateral .  If an Advance is to be made on the Closing Date, the Lessee shall have deposited with the Agent, in accordance with the Cash Collateral Agreement, Cash Collateral in immediately available funds in an amount equal to the aggregate amount of the Tranche B Participation Interests and Tranche C Participation Interests in such Advance to be so made on the Closing Date and otherwise as of such date shall have made all deposits of Cash Collateral then required pursuant to the Cash Collateral Agreement.              Section 6.2      Conditions Precedent – Land Interest Acquisition Dates. The occurrence of each Land Interest Acquisition Date, the obligation of the Lessor to make an Advance to finance Property Acquisition Costs or Transaction Expenses on any Funding Date following the Closing Date and to acquire any portion of the Property on any such date and the obligation of each Participant to purchase its Participation Interest in, and to make available to the Lessor its related portion of, each such Advance on any such Funding Date following the Closing Date, are subject to satisfaction or waiver of the following conditions precedent and the conditions precedent set forth in Section 6.3 (it being understood that the Tranche Y Participant's obligation to purchase its Participation Interest in any Advance on any Funding Date shall not be subject to the conditions precedent set forth in this Section 6.2 or Section 6.3 to the extent such conditions are actions required of the Lessee) on or prior to such Land Interest Acquisition Date, or such Funding Date, as the case may be:                            (a)         Acquisition and Funding Request.  On or prior to each Land Interest Acquisition Date, the Agent and the Lessor shall have received a fully executed counterpart of the Acquisition Request with respect to the applicable portion of the Property and the related Funding Request, in each case appropriately completed by the Lessee, in accordance with Sections 3.3 and 3.4, respectively.                            (b)        Operative Documents and Amendments to Operative Documents.  Each of the Operative Documents to be entered into on or prior to such Land Interest Acquisition Date shall have been duly authorized, executed and delivered by the parties thereto, and shall be in full force and effect, and the following documents shall have been duly authorized, executed and delivered by the parties thereto, and shall be in full force and effect: (i) amendments to any of the Operative Documents referred to in Section 6.1(a), as reasonably required by the Agent or the Participants (other than the Tranche Y Participant), (ii) the Lease Supplement with respect to the applicable portion of the Property, (iii) the Mortgage with respect to the applicable portion of the Property, (iv) the Deed with respect to the applicable portion of the Property, and (v) any other document or agreement reasonably required by Agent or the Participants (other than the Tranche Y Participant) with respect to such Land Interest Acquisition Date and/or the portion of the Property to be acquired on such date.  No Default or Event of Default (other than a Limited Default or a Limited Event of Default, provided that if a Limited Default or Limited Event of Default exists, the provisions of Section 6.5 shall apply) shall exist (both before and after giving effect to the transactions contemplated by the relevant Acquisition Request and Funding Request), and the Lessor, the Agent and each Participant (other than the Tranche Y Participant) shall each have received a fully executed copy of each such Operative Document.  On or prior to each such Land Interest Acquisition Date, the Operative Documents (or memoranda thereof), any supplements thereto and any financing statements in connection therewith required under the Uniform Commercial Code shall have been recorded, registered and filed, or updates to prior filings shall have been made, if necessary, in such manner as to enable the Lessee's counsel to render its opinion referred to in clause (m) below.                            (c)         Environmental Certificate.  On or prior to the applicable Land Interest Acquisition Date, the Agent, each Participant (other than the Tranche Y Participant) and the Lessor shall have received an Environmental Certificate substantially in the form of Exhibit C (an "Environmental Certificate") with respect to the relevant portion of the Property, accompanied by the Environmental Audit for such portion of the Property, addressed to the Agent, each Participant and the Lessor, each of which shall have been approved by the Agent, the Required Participants and the Lessor.                            (d)        Land Interest Acquisition Dates.  The Land Interest Acquisition Date in respect of the Phase I Facility shall occur no later than April 13, 2001 and the Land Interest Acquisition Date in respect of the Phase II Facility shall occur no later than July 30, 2001.                            (e)         Property Purchase Agreement Conditions; Acquisition Documents.  On or prior to the initial Land Interest Acquisition Date, the Lessor, the Agent and the Participants shall have received a copy of the Property Purchase Agreement with respect to the relevant portion of the Property.  On or prior to each Land Interest Acquisition Date, the Property Purchase Agreement shall be in full force and effect and shall have been validly assigned to the Lessor pursuant to the Assignment of Property Purchase Agreement; and the conditions to closing under the Property Purchase Agreement with respect to the relevant portion of the Property shall have been satisfied to satisfaction of, or waived by, the Lessor, the Agent and the Participants (other than the Tranche Y Participant).  On each Land Interest Acquisition Date, the Lessor shall have received a grant deed (each, a "Deed") with respect to the relevant portion of the Property in conformity with Applicable Law and appropriate for recording with the applicable Governmental Authorities, conveying fee simple title to such portion of the Property to the Lessor, subject only to Permitted Exceptions.                            (f)         Funding by Tranche Y Participant.  No Participant shall be obligated to fund its Participation Interest in any Advance unless the Tranche Y Participant shall have funded its Participation Interest in such Advance.                            (g)        Lease Supplement .  The Lessee and the Lessor shall have delivered to the Agent on or prior to each Land Interest Acquisition Date an original counterpart of the Lease Supplement with respect to the relevant portion of the Property executed by the Lessee and the Lessor.                            (h)        Survey and Title Insurance. On or prior to the Land Interest Acquisition Date, the Lessee shall have delivered (i) an ALTA/ACSM (1992)(Urban) Survey of the Property, including Table A numbers  2, 3, 4, 6, 8, 9, 10 and 11, certified to the Lessor, the Participants and the title company, (ii) an ALTA (1992) owners title insurance policy with extended coverage over the general exceptions, insuring fee title in the Lessor to the Property, subject only to the Permitted Exceptions with comprehensive (110.1), access (103.7), street address (116), survey (116.1), deletion of creditor's rights, synthetic lease, tax parcel, mechanic’s lien, subdivision, CLTA Form 103.3, tie-in and CLTA Form 123.1 endorsements, and (iii) an ALTA (1992) Loan Policy with extended coverage over the general exceptions, insuring the Agent that the Lien of the Mortgage is a first and primary Lien on the Lessor's interest in the fee title to the Property, subject only to the Permitted Exceptions with comprehensive (110.1), access (103.7), street address (116), survey (116.1), variable rate, usury, doing business, deletion of creditor's rights, subdivision, CLTA 103.3, CLTA Form 123.1, environmental protection, tax parcel, mechanic’s lien, pending disbursements and tie-in endorsements; such policies each in an amount not less than the Land Interest Acquisition Cost and other amounts funded on the Land Interest Acquisition Date.                            (i)          Evidence of Recording and Filing.  On or prior to each Land Interest Acquisition Date, the Agent shall have received evidence reasonably satisfactory to it that (i) each of the Deed with respect to the relevant portion of the Property, the Lease Supplement with respect to the relevant portion of the Property, the Assignment of Lease, and the Consent to Assignment and the Mortgage have been delivered to the title company for recording or are being recorded with the appropriate Governmental Authorities in the order in which such documents are listed in this clause and (ii) that the UCC Financing Statements with respect to the Property being acquired have been delivered to the title company for filing or are being filed with the appropriate Governmental Authorities on such Land Interest Acquisition Date.                            (j)          Evidence of Insurance.  On or prior to the initial Land Interest Acquisition Date, the Agent, the Lessor and each Participant (other than the Tranche Y Participant) shall have received certificates of insurance with respect to the Property required to be maintained pursuant to the Lease setting forth the respective coverages, limits of liability, carrier, policy number and period of coverage.                            (k)         Plans and Specifications.  On or prior to the initial Land Interest Acquisition Date, the Lessor, the Agent and each Participant (other than the Tranche Y Participant) shall have received a copy of  the Plans and Specifications with respect to the Phase I Facility and the Phase II Facility, each in a form reasonably satisfactory to each of them.                           (l)          Taxes.  On or prior to each Land Interest Acquisition Date, all taxes, fees and other charges in connection with the execution, delivery, recording, filing and registration of the Operative Documents on such date shall have been paid or provisions for such payment shall have been made to the satisfaction of the Agent and the Lessor.                            (m)        Opinion of Counsel . On or prior to each Land Interest Acquisition Date, the Lessee shall have delivered to the Agent, the Lessor and the Participants an opinion of Shartsis, Friese & Ginsburg LLP, counsel to the Lessee, addressing the matters set forth in Exhibit E with respect to the portion of the Property to be acquired on such date, which opinion shall be in form and substance reasonably satisfactory to the Agent and the Lessor.                            (n)        Approvals.  All necessary (or, in the reasonable opinion of the Lessor, the Participants or the Agent or any of their respective counsel, advisable) Governmental Actions and consents and approvals of or by any Governmental Authority or other Person, in each case required by any Requirement of Law, covenant or restriction affecting the relevant portion of the Property or the transactions contemplated hereby, shall have been obtained or made and be in full force and effect by the time required by any Requirement of Law.                            (o)        Litigation.  No action or proceeding shall have been instituted before any Governmental Authority, nor shall any order, judgment or decree have been issued or proposed to be issued by any Governmental Authority  (i) to set aside, restrain, enjoin or prevent the full performance of this Participation Agreement, the Lease or any other Operative Document or any transaction contemplated hereby or thereby or (ii) which is reasonably likely to have a Objective Material Adverse Effect.                            (p)        Requirements of Law .  In the reasonable opinion of the Lessor, the Participants (other than the Tranche Y Participant), the Agent and their respective counsel, the transactions contemplated by the Operative Documents in connection with the relevant portion of the Property do not and will not violate any Requirement of Law and do not and will not subject the Lessor, the Agent or any Participant (other than the Tranche Y Participant) to any adverse regulatory or tax prohibitions or constraints.                            (q)        Responsible Officer's Certificate of the Lessee.  On or prior to each Land Interest Acquisition Date, the Lessor, Participants (other than the Tranche Y Participant) and the Agent shall each have received a Responsible Officer's Certificate, dated as of such Land Interest Acquisition Date, of the Lessee stating that (i) each and every representation and warranty of the Lessee contained in the Operative Documents to which it is a party is true and correct on and as of such date; (ii) no Default or Event of Default has occurred and is continuing (other than a Limited Default or a Limited Event of Default, provided that if a Limited Default or a Limited Event of Default exists, the provisions of Section 6.5 shall apply); (iii) each Operative Document to which the Lessee is a party is in full force and effect with respect to it; and (iv) the Lessee has duly performed and complied with all covenants, agreements and conditions contained herein or in any Operative Document required to be performed or complied with by it on or prior to such date.                           (r)         No Objective Material Adverse Effect; No Material Adverse Effect.  As of each Land Interest Acquisition Date, no event or condition shall have occurred that would result in (i) an Objective Material Adverse Effect, or (ii) a Material Adverse Effect.                            (s)         Legal Fees and Expenses.  The Lessee shall have caused to be paid from the proceeds of the relevant Advance all reasonable fees and expenses of attorneys for the Agent, the Lessor and any Participant (other than the Tranche Y Participant) (which attorneys may be employees of such Person) paid or incurred in connection with the preparation, negotiation, execution and delivery of the Operative Documents on the relevant Land Interest Acquisition Date.                            (t)         Construction Completion.  The construction of the Phase I Facility or Phase II Facility, as the case may be, shall have been completed substantially in accordance with the applicable Plans and Specifications and all Requirements of Law and Insurance Requirements, and the Phase I Facility or Phase II Facility, as the case may be, shall be ready for occupancy and use as a facility of the type described in Recital A of this Agreement.  This shall require, without limiting the generality of the preceding sentence, that (i) all utilities required to adequately service the Phase I Facility or Phase II Facility, as the case may be, for their intended use are available and "tapped on" and hooked up pursuant to adequate permits (including any that may be required under applicable Environmental Laws), and (ii) access to the Phase I Facility or Phase II Facility, as the case may be, for motor vehicles and, if required, pedestrians from publicly dedicated streets and public highways is available.  All Fixtures, furniture, furnishings, Equipment and other property contemplated under the applicable Plans and Specifications to be incorporated into or installed such portion of the Property shall have been incorporated or installed free and clear of all Liens except for Permitted Exceptions.                            (u)        Architect's Certificate .  The Lessee shall have furnished to the Lessor and Agent (i) a certificate of the Architect (substantially in the form of Exhibit F) dated at or about the Land Interest Acquisition Date with respect to the relevant portion of the Property and stating that (a) such portion of the Property has been completed substantially in accordance with the applicable Plans and Specifications and such portion of the Property is ready for occupancy and (b) such portion of the Property, as so completed, complies in all material respects with applicable laws and ordinances, and that attached thereto are true and complete copies of an "as built" or "record" set of the applicable Plans and Specifications and a plat of survey of the Property "as built" showing all paving, driveways, fences and exterior improvements and (ii) a certificate of occupancy for the applicable Improvements issued by the City of Sunnyvale, California.                            (v)        Lessee Certification .  The Lessee shall have furnished the Lessor and the Agent with a certification of the Lessee (substantially in the form of Exhibit G) as follows:                            (i)          All amounts owing to third parties for the construction of the applicable Improvements and the acquisition of any Equipment have been, or on the relevant Land Interest Acquisition Date will be, paid in full, other than with respect to post-closing punch list items to be performed and paid for by the Existing Owner pursuant to the Property Purchase Agreement.                        (ii)         No changes or modifications were made to the related Plans and Specifications after the Closing Date that have resulted in, or, in the commercially reasonable judgment of the Lessor, could reasonably be expected to result in, (x) a decrease in the value of the Property by 10% or more from the value thereof as of the Closing Date, or (y) a decrease in the useful life of the Property of ten (10) years or more.                            (iii)        The conditions set forth in Sections 6.2(t), (u)(ii), and (w) hereof have been satisfied.                            (w)        Insurance.  The Lessee shall have obtained and there shall be in full force and effect all insurance policies (including all endorsements thereto) required under Article XIV of the Lease in respect of the relevant portion of the Property as of the applicable Land Interest Acquisition Date and the Lessee shall have delivered to the Lessor and the Agent certificates of insurance in form and substance satisfactory to the Lessor and the Agent.                            (x)         Lockheed Indemnification Agreements.  The Lockheed Indemnification Agreements shall be in form and substance satisfactory to the Lessor and the Agent and shall be in full force and effect, and such agreement shall have been duly assigned to the Lessor and the Lessor shall be fully entitled to all rights and benefits of the Existing Owner, in its capacity as "Buyer", thereunder with respect to the relevant portion of the Property as of the applicable Land Interest Acquisition Date.              Section 6.3      Further Conditions Precedent. The occurrence of each Land Interest Acquisition Date, the obligation of the Lessor to acquire the Phase I Facility or the Phase II Facility on the Land Interest Acquisition Date therefor or to make an Advance on any Funding Date following the Closing Date and the obligation of each applicable Participant to purchase its Participation Interest in, and to make available its related portion of, such Advance on any such Funding Date are subject to satisfaction or waiver of the following conditions precedent and to satisfaction on or before the relevant Land Interest Acquisition Date as the case may be of the following additional conditions precedent (it being understood that without limitation of the foregoing, the Tranche Y Participant's obligation to make available to the Lessor its portion of any Advance on any Funding Date following the Closing Date shall not be subject to the conditions precedent set forth in this Section 6.3 to the extent such conditions are actions required of the Lessee):                            (a)         Representations and Warranties.  On such date the representations and warranties of the Lessee, the Lessor and each Participant contained herein and in each of the other Operative Documents shall be true and correct as though made on and as of such date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct on and as of such earlier date.                           (b)        Performance of Covenants .  The parties hereto shall have performed their respective agreements contained herein and in the other Operative Documents to be performed by them on or prior to such date (but excluding in the case of the Lessee any agreements contained in the Operative Documents where the failure to perform such agreement would result in a Limited Default or a Limited Event of Default, provided that if such a Limited Default or Limited Event of Default exists, the provisions of Section 6.5 shall apply).                           (c)         Title .  Title to the Property shall conform to the representations and warranties set forth in Sections 8.1(p), 8.2(c) and 8.3(b).                            (d)        No Default.  Other than a Limited Default or a Limited Event of Default, there shall not have occurred and be continuing any Default or Event of Default under any of the Operative Documents, and no Default or Event of Default under any of the Operative Documents will have occurred after giving effect to the acquisition of the relevant portion of the Property and/or the making of the Advance requested by such Funding Request, as the case may be, provided that if a Limited Default or a Limited Event of Default exists or would have so occurred, the provisions of Section 6.5 shall apply.                            (e)         Cash Collateral .  In the case of any Advance to be made on any Funding Date following the Closing Date, the Lessee shall have deposited with the Agent, in accordance with the Cash Collateral Agreement, Cash Collateral in immediately available funds in an amount equal to the aggregate amount of the Tranche B Participation Interests and Tranche C Participation Interests in such Advance to be made on such Funding Date and otherwise as of such date shall have made all deposits of Cash Collateral then required pursuant to the Cash Collateral Agreement.              Section 6.4      Satisfaction of Conditions Precedent to Closing Date.  The parties hereto acknowledge and agree that, with respect to the conditions precedent to the Closing Date set forth in Section 6.1 hereof, the Lessor, the Agent and the Participants (other than the Tranche Y Participant), by their execution and delivery of the Operative Documents to be entered into by them on the Closing Date, and absent fraud, gross negligence or willful misconduct on the part of the Lessee, shall be deemed to have agreed that such conditions precedent were satisfied or waived as of the Closing Date.              Section 6.5      Effect of Failure to Satisfy Conditions Precedent to Land Interest Acquisition Dates and Subsequent Funding Dates.  The parties hereto acknowledge and agree that in the event the conditions precedent set forth in Section 3.4, Section 6.2 or Section 6.3 to the occurrence of each Land Interest Acquisition Date, the obligation of the Lessor to make an Advance to finance Property Acquisition Costs on any Land Interest Acquisition Date and to acquire any portion of the Property on any such date, and the obligation of each Participant to purchase its Participation Interest in, and to make available to the Lessor its related portion of, each such Advance on any such Land Interest Acquisition Date (such conditions precedent being collectively referred to as the "Acquisition/Funding Conditions"), are not met solely as a result of the failure of the Lessee to satisfy a Limited Condition Precedent by reason of (a) the occurrence of a Limited Default or a Limited Event of Default, or (b) the existence or occurrence of an event, condition or circumstance that has Material Adverse Effect but which does not also have an Objective Material Adverse Effect, then, notwithstanding the failure of such Limited Conditions Precedent to be satisfied, the Lessor shall be required to acquire the relevant portion of the Property and make the related Advance to finance Property Acquisition Costs or Transaction Expenses on the relevant Land Interest Acquisition Date, and each Participant shall be obligated to purchase its Participation Interest in, and make available to Lessor its related portion of, such Advance on such date; provided that immediately following the consummation of such purchase and the making of, and purchases of Participation Interests in, such Advance, the Lessor, the Agent and the Participants (excluding the Tranche Y Participant) shall be entitled in their sole discretion to declare that a Limited Default or Limited Event of Default has occurred and is continuing and to exercise their rights and remedies in respect of such Limited Default or Limited Event of Default, subject only to the limitations set forth in Section 17.2(h) of the Lease.  The parties hereto further acknowledge and agree that in the event the Acquisition/Funding Conditions are otherwise not satisfied, the Lessor shall have no obligation to acquire the relevant portion of the Property and make the related Advance to finance Property Acquisition Costs or Transaction Expenses on the relevant Land Interest Acquisition Date, nor shall any Participant be obligated to purchase its Participation Interest in, or make available to Lessor its related portion of, such Advance on such date. SECTION 7 REPRESENTATIONS OF THE LESSOR AND THE PARTICIPANTS              Section 7.1      Representations of the Lessor.  The Lessor represents and warrants to each of the other parties hereto as follows:                            (a)         Due Organization, etc.  It is a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois and has the corporate power and authority to enter into and perform its obligations under each of the Operative Documents to which it is or will be a party and each other agreement, instrument and document to be executed and delivered by it in connection with or as contemplated by each such Operative Document to which it is or will be a party.                            (b)        Authorization; No Conflict.  The execution, delivery and performance of each Operative Document to which it is or will be a party has been duly authorized by all necessary action on its part and neither the execution and delivery thereof, nor the consummation of the transactions contemplated thereby, nor compliance by it with any of the terms and provisions thereof (i) does or will require any approval or consent of any trustee or holders of any of its indebtedness or obligations, (ii) does or will contravene any current United States or Illinois law, governmental rule or regulation, (iii) does or will contravene or result in any breach of or constitute any default under, or result in the creation of any Lien upon any of its property under, its certificate of incorporation or by–laws, or any indenture, mortgage, deed of trust, conditional sales contract, credit agreement or other agreement or instrument to which it is a party or by which it or its properties may be bound or affected or (iv) does or will require any Governmental Action by any Governmental Authority, except such as have been obtained on the Lessee's or the Lessor's behalf.                            (c)         Enforceability, etc.  Each Operative Document to which the Lessor is or will be a party has been, or on or before the Closing Date (or the applicable Land Interest Acquisition Date, as the case may be) will be duly executed and delivered by the Lessor and each such Operative Document to which the Lessor is a party constitutes, or upon execution and delivery will constitute, a legal, valid and binding obligation enforceable against the Lessor in accordance with the terms thereof, except as the same may be limited by insolvency, bankruptcy, reorganization or other laws relating to or affecting creditors' rights or by general equitable principles.                           (d)        Litigation .  There is no action or proceeding pending or, to its knowledge, threatened to which it is a party, before any Governmental Authority that, if adversely determined, would materially and adversely affect its ability to perform its obligations under the Operative Documents to which it is a party, would have a material adverse effect on the financial condition of the Lessor or would question the validity or enforceability of any of the Operative Documents to which it is or will become a party.                            (e)         Assignment .  It has not assigned or transferred any of its right, title or interest in or under the Lease except to the Agent and the Participants in accordance with this Agreement and the other Operative Documents.                            (f)         Defaults .  No default or event of default under the Operative Documents attributable to it has occurred and is continuing.                            (g)        Securities Act .  Neither the Lessor nor any Person authorized by the Lessor to act on its behalf has offered or sold any interest in the Lease, or in any similar security relating to the Property, or in any security the offering of which for the purposes of the Securities Act would be deemed to be part of the same offering as the offering of the aforementioned securities to, or solicited any offer to acquire any of the same from, any Person other than the Agent and the Participants, and neither the Lessor nor any Person authorized by the Lessor to act on its behalf will take any action which would subject the issuance or sale of any interest in the Lease or the Property to the provisions of Section 5 of the Securities Act or require the qualification of any Operative Document under the Trust Indenture Act of 1939, as amended.                            (h)        Chief Place of Business .  The Lessor's chief place of business, chief executive office and office where the documents, accounts and records relating to the transactions contemplated by this Participation Agreement and each other Operative Document are kept are located at 135 South LaSalle Street, Chicago, Illinois 60603.                            (i)          Federal Reserve Regulations.  The Lessor is not engaged principally in, and does not have as one of its important activities, the business of extending credit for the purpose of purchasing or carrying any margin stock (within the meaning of Regulation U of the Board), and no part of the proceeds of the purchase of the Participation Interests will be used by it to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock or for any purpose that violates, or is inconsistent with, the provisions of Regulations T, U, or X of the Board.                            (j)          Investment Company Act.  The Lessor is not an "investment company" or a company controlled by an "investment company" within the meaning of the Investment Company Act.                            (k)         No Plan Assets .  The Lessor is not acquiring its interests in the Property with the assets of any "employee benefit plan" (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA, or "plan" (as defined in Section 4975(e)(1) of the Code).              Section 7.2      Representations of the Participants. Each Participant represents and warrants to the Lessor, each of the other Participants and, other than in the case of the Tranche Y Participant, to the Lessee, as follows:                            (a)         No Plan Assets .  Such Participant is not and will not be funding its Participation Interest hereunder, and is not performing its obligations under the Operative Documents, with the assets of an "employee benefit plan" (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA, or "plan" (as defined in Section 4975(e)(1) of the Code).  The advancing of any amount with respect to its Participation Interest on any Funding Date shall constitute an affirmation by the subject Participant of the preceding representation and warranty as of such date.                            (b)        Due Organization, etc .  It is either (i) a duly organized and validly existing corporation in good standing under the laws of the state of its incorporation, or (ii) a national banking association duly organized and validly existing under the laws of the United States or (iii) a banking corporation duly organized and validly existing under the laws of the jurisdiction of its organization, and, in each case, has the corporate power and authority to execute, deliver and carry out the terms and provisions of the Operative Documents to which it is a party.                            (c)         Authorization; No Conflict.  The execution, delivery and performance of each Operative Document to which it is or will be a party has been duly authorized by all necessary action on its part and neither the execution and delivery thereof, nor the consummation of the transactions contemplated thereby, nor compliance by it with any of the terms and provisions thereof (i) does or will require any approval or consent of any trustee or holders of any of its indebtedness or obligations, (ii) does or will contravene any current law, governmental rule or regulation of the United States or the state or country of its organization, (iii) does or will contravene or result in any breach of or constitute any default under, or result in the creation of any Lien upon any of its property under, its certificate of incorporation or bylaws, articles of association or other organizational documents or any indenture, mortgage, deed of trust, conditional sales contract, credit agreement or other agreement or instrument to which it is a party or by which it or its properties may be bound or affected or (iv) does or will require any Governmental Action by any Governmental Authority.                            (d)        Enforceability, etc.  Each Operative Document to which it is a party has been, or on or before the Closing Date will be, duly executed and delivered by it and each such Operative Document to which it is a party constitutes, or upon execution and delivery will constitute, a legal, valid and binding obligation enforceable against it in accordance with the terms thereof, except as the same may be limited by insolvency, bankruptcy, reorganization or other laws relating to or affecting creditors' rights or by general equitable principles.                            (e)         Litigation .  There is no action or proceeding pending or, to its knowledge, threatened to which it is or will be a party before any Governmental Authority that is reasonably likely to be adversely determined and, if adversely determined, would materially and adversely affect its ability to perform its obligations under the Operative Documents to which it is a party.                            (f)         Investment .  The Participation Interest being acquired by such Participant is being acquired by such Participant for investment and not with a view to the resale or distribution of such interest or any part thereof, but without prejudice, however, to the right of such Participant at all times to sell or otherwise dispose of all or any part of such interest under a registration available under the Securities Act or under an exemption from such registration available under the Securities Act, it being understood that the disposition of the Participation Interest to be purchased by such Participant shall, at all times, remain entirely within its control subject to the provisions of Section 12 below.                            (g)        Offer of Securities, etc.   Neither such Participant nor any Person authorized to act on its behalf has, directly or indirectly, offered to sell its Participation Interest or any other similar securities (the sale or offer of which would be integrated with the sale or offer of the Participation Interest), for sale to, or solicited any offer to acquire any of the same from, any Person.                            (h)        No Registration .  Such Participant understands and acknowledges that the Participation Interests have not been and will not be registered under the Securities Act in reliance upon the exemption provided in Section 4(2) of the Securities Act or any other applicable exemption, that Participation Interests have not and will not be registered or qualified under the securities or "blue sky" laws of any jurisdiction, that the Participation Interests may be resold or otherwise transferred only if so registered or qualified or if an exemption from registration or qualification is available, that neither Lessee nor Lessor is required to register the Participation Interests and that any transfer must comply with the provisions of the Operative Documents relating thereto.  Such Participant will comply with all applicable federal and state securities laws in connection with any subsequent resale of the Participation Interests held by it.                            (i)          Accredited Investor.  Such Participant is a sophisticated investor and an "accredited investor" as defined in paragraph (1), (2), (3) or (7) of Rule 501(a) of the Securities Act, and has knowledge and experience in financial and business matters and is capable of evaluating the merits and risks of its investment in the Participation Interests and is able to bear the economic risk of such investment.  Such Participant has been given such information concerning the Participation Interests, the other Operative Documents, the Property, the Guarantor and the Lessee as it has requested. SECTION 8 REPRESENTATIONS OF THE LESSEE              Section 8.1      Representations of the Lessee. The Lessee represents and warrants to each of the other parties hereto (other than the Tranche Y Participant) that:                            (a)         Organization; Powers; Qualification. Each of the Lessee and its Restricted Subsidiaries (a) is a corporation or other entity duly organized, validly existing and in good standing under the laws of its respective jurisdiction of organization, (b) has all requisite power and authority to own, lease and operate its properties, to carry on its business, to enter into the Operative Documents to which it is a party and to carry out the transactions contemplated hereby and thereby, and (c) is qualified or licensed to do business and is in good standing in each jurisdiction in which the failure to be so qualified or licensed or in good standing has not had, and could not be reasonably expected to have, an Objective Material Adverse Effect.  The Lessee's chief place of business is located in Santa Clara County, California.                            (b)        Authorization of Operative Documents; No Conflict.  The execution, delivery and performance by the Lessee of the Operative Documents to which it is or will be a party have been or as of the relevant date of execution and delivery thereof will be duly authorized by all necessary corporate action on the part of the Lessee.  The execution, delivery and performance by the Lessee of the Operative Documents to which it is or will be a party and the consummation by the Lessee of the transactions contemplated by the Operative Documents do not and will not (i) violate any material provision of any law or any governmental rule or regulation applicable to the Lessee, any of the certificate of incorporation or bylaws of the Lessee, or any order, judgment or decree of any court or other agency of government binding on the Lessee or the Property or any portion thereof; (ii) conflict with, result in a breach or an acceleration of or entitle any other Person to accelerate (with due notice or lapse of time or both) any indenture, loan agreement, other agreement for borrowed money or other agreement or contractual arrangement of the Lessee required by Regulation S–K to be made part of the Lessee's filings with the SEC pursuant to the Exchange Act; (iii) result in or require the creation or imposition of any Lien (or the obligation to create or impose any Lien) upon any of the properties or assets of the Lessee (other than any Liens created under any of the Operative Documents and other than Permitted Liens); or (iv) require any approval of stockholders or any approval or consent of any Person under any indenture, loan agreement, other agreement for borrowed money or other agreement or contractual arrangement of the Lessee required by Regulation S–K to be made part of the Lessee's filings with the SEC pursuant to the Exchange Act, except for such approvals or consents which will be obtained on or before the Closing Date.                            (c)         Governmental Consents.  The execution, delivery and performance by the Lessee of the Operative Documents to which it is or will be a party and the consummation by the Lessee of the transactions contemplated by the Operative Documents do not and will not require any Governmental Action by any Governmental Authority except for filings and recordings of the Operative Documents (as listed in Section 8.2(f) hereof with respect to each portion of the Property) the appropriate Governmental Authorities, all of which will have been completed on or prior to the applicable Land Interest Acquisition Date.                            (d)        Binding Obligation .  Each Operative Document to which the Lessee is or will be a party has been or will be duly executed and delivered by the Lessee and (assuming due authorization by the other parties thereto, other than the Lessee) is or will be the legally valid and binding obligation of the Lessee, enforceable against the Lessee in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to the enforcement of, or limiting, creditors' rights generally or by general equitable principles.                            (e)         Historical Financial Statements.  The Historical Financial Statements comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of the Lessee and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (except in the case of interim period financial information for normal year-end adjustments).  Neither Lessee nor any of its Subsidiaries has any contingent liability, any liability for taxes, or any other outstanding obligation that is not reflected in the Historical Financial Statements or the notes thereto and which in any such case is material in relation to the business, operations, properties, assets, condition (financial or otherwise) or prospects of the Lessee and its Subsidiaries taken as a whole.                           (f)         No Material Adverse Effect.  Since December 31, 1999, no event or change has occurred that has caused, either in any case or in the aggregate, a Material Adverse Effect.                            (g)        Litigation; Adverse Proceedings.  There are no Adverse Proceedings pending individually or in the aggregate, (i) that seek to enjoin, either directly or indirectly, the execution, delivery or performance by the Lessee of the Operative Documents or the transactions contemplated hereby or thereby, or question the validity of the Operative Documents or the rights or remedies of the Lessor, the Agent or the Participants with respect to the Lessee or the Property under the Operative Documents or (ii) could reasonably be expected to have an Objective Material Adverse Effect.  Neither the Lessee nor any of its Restricted Subsidiaries is subject to or in default with respect to any final judgments, writs, injunctions, decrees, rules or regulations of any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that, individually or in the aggregate, could reasonably be expected to have an Objective Material Adverse Effect.                            (h)        Payment of Taxes .  All federal and all material state, local and foreign tax returns and reports of the Lessee and its Restricted Subsidiaries required to be filed by any of them have been filed where the failure to file would have an Objective Material Adverse Effect, and all taxes shown on such tax returns to be due and payable and all assessments, fees and other governmental charges upon the Lessee and its Restricted Subsidiaries and upon their respective properties, assets, income, businesses and franchises which are due and payable have been paid when due and payable, other than those contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been made and subject, in the case of the Property, to the terms of the Lease.  The Lessee knows of no material proposed tax adjustment against the Lessee or any of its Subsidiaries which is not being actively contested by the Lessee or such Subsidiary in good faith and by appropriate proceedings; provided, such reserves or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefor, and provided further that, in the case of the Property, any such contest shall be subject to the terms of the Lease.                            (i)          No Defaults .  Neither the Lessee nor any of its Restricted Subsidiaries is in violation of or in default with respect to (i) any provision of any Applicable Law, other than violations or defaults which could not reasonably be expected to have an Objective Material Adverse Effect, or (ii) the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any indenture, mortgage, deed of trust, conditional sale contract, credit agreement or other material agreement or instrument to which it is a party or by which it or its properties may be bound or affected, other than violations or defaults which could not reasonably be expected to have an Objective Material Adverse Effect.                           (j)          Governmental Regulation. The Lessee is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, or, any state public utilities code or under any other federal or state statute or regulation which may limit its ability to incur Indebtedness or to grant Liens on any of its property or assets, or which may otherwise render all or any portion of the obligations of the Lessee to the Lessor, the Agent or the Participants under the Operative Documents unenforceable.  As of the date hereof the Lessee is subject to regulation under the Investment Company Act of 1940, as amended, provided that the SEC has issued an exemption order in favor of the Lessee with respect to such Act, and provided further that neither such status of the Lessee with respect to such Act, nor the terms of such exemption order, limits the Lessee's ability to incur Indebtedness or otherwise renders all or any portion of the obligations of the Lessee to the Lessor, the Agent or the Participants under the Operative Documents unenforceable.                            (k)         Employee Benefit Plans.                            (i)          Neither the Lessee nor any ERISA Affiliate maintains or contributes to, or has ever maintained a Pension Plan. Neither the Lessee nor any ERISA Affiliate has any liability with respect to any post-retirement benefit under any Employee Benefit Plan which is a welfare plan (as defined in Section 3(1) of ERISA), other than liability for health plan continuation coverage described in Part 6 of Title I(B) of ERISA, which liability for health plan coverage is not reasonably likely to have an Objective Material Adverse Effect.                            (ii)         Each Employee Benefit Plan complies, in both form and operation, in all material respects, with its terms, ERISA and the Code, and no condition exists or event has occurred with respect to any such plan which would result in the incurrence by either the Lessee or any ERISA Affiliate of any material liability, fine or penalty.  Each Employee Benefit Plan, related trust agreement, arrangement and commitment of the Lessee or any ERISA Affiliate is legally valid and binding and in full force and effect in all material respects.  No Employee Benefit Plan is being audited or investigated by any governmental authority or is subject to any pending or, to the best knowledge of Lessee, threatened, claim or suit.  Neither the Lessee nor any ERISA Affiliate nor any fiduciary of any Employee Benefit Plan has engaged in a prohibited transaction under Section 406 of ERISA or section 4975 of the Code. No breach of fiduciary responsibility has occurred with respect to any Employee Benefit Plan under Section 404 of ERISA or Section 4975 of the Code.                            (iii)        Neither the Lessee nor any ERISA Affiliate contributes to or has ever contributed to any Multiemployer Plan.                            (iv)       If the Lessee or any ERISA Affiliate on or after the date of this Participation Agreement:  (1) maintains or contributes to a Pension Plan; (2) contributes or has any material contingent obligations to any Multiemployer Plan; or (3) incurs a liability with respect to any post-retirement benefit under any Employee Benefit Plan which is a welfare plan (as defined in Section 3(1) of ERISA), other than liability for health plan continuation coverage described in Part 6 of Title I(B) of ERISA, which liability for health plan coverage is not reasonably likely to have an Objective Material Adverse Effect, then the Lessee shall promptly provide a written notice thereof and a statement affirming that no Objective Material Adverse Effect could reasonably be expected to occur as a result thereof.                           (l)          Licenses, Permits, etc.  The Lessee and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, copyrights, service marks, trademarks and trade names or rights thereto, and to their knowledge possess all patents, that individually or in the aggregate, are material to the conduct of its business and, in the case of patents, excluding those the failure of which to own or possess would not reasonably be expected to result in an Objective Material Adverse Effect.  To the best knowledge of the Lessee, no such license, permit, franchise, authorization, patent, copyright, service mark, trademark or trade name, and no product of the Lessee or any of its Restricted Subsidiaries infringes in any material respect on any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person, except for such infringement as would not reasonably be expected to result in an Objective Material Adverse Effect.  To the best knowledge of the Lessee, there is no material violation by any Person of any right of the Lessee or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by the Lessee or any of its Subsidiaries other than violations which would not reasonably be expected to have an Objective Material Adverse Effect.                            (m)        Subsidiaries.  Schedule III identifies each Subsidiary of the Lessee as of the date hereof, the jurisdiction of its incorporation or formation, the percentage of issued and outstanding shares of each class of its capital stock or other equity interests owned by the Lessee and its Subsidiaries and, if such percentage is not 100% (excluding directors' qualifying shares as required by law), a description of each class of its authorized capital stock and the number of shares of each class issued and outstanding.                            (n)        Offer of Securities, et c.  Neither the Lessee nor any Person authorized to act on its behalf has, directly or indirectly, offered or will offer any interest in the Property or any portion thereof or the Lease or any other interest similar thereto (the sale or offer of which would be integrated with the sale or offer of such interest in the Property or the Lease), for sale to, or solicited or will solicit any offer to acquire any of the same from, any Person other than the Agent or Participants, the Lessor and other "accredited investors" (as defined in Regulation D of the Securities and Exchange Commission).                            (o)        Disclosure.  The representations and warranties of the Lessee contained in any Operative Document and in any other document, certificate or written statement furnished to the Lessor, the Agent and/or the Participants by or on behalf of the Lessee pursuant to the Operative Documents for use in connection with the transactions contemplated hereby, when taken as a whole, do not contain any untrue statement of a material fact or omit to state a material fact (known to the Lessee, in the case of any document not furnished by the Lessee) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made.  There are no facts known to the Lessee that, individually or in the aggregate, could reasonably be expected to result in either an Objective Material Adverse Effect or a Material Adverse Effect and that have not been disclosed herein or in such other documents, certificates and statements furnished to the Lessor, the Agent and/or the Participants for use in connection with the transactions contemplated hereby.                           (p)        Intentionally Omitted.                            (q)        Environmental Matters .  Except as disclosed in the Environmental Audit delivered as of the Closing Date:                            (i)          The Property does not contain, any Materials of Environmental Concern in amounts or concentrations which (A) constitute a violation of, or (B) could reasonably be expected to give rise to liability under, any Environmental Law.                            (ii)         The Property complies in all material respects with all applicable Environmental Laws, and there is no contamination at or under (or, to the knowledge of the Lessee, about) the Property.                            (iii)        The Lessee has not received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to the Property, nor does the Lessee have knowledge or reason to believe that any such notice will be received.                            (iv)       Materials of Environmental Concern are not being transported or disposed of from the Property by Lessee or any of its Affiliates in violation of, or in a manner or to a location which could reasonably be expected to give rise to material liability under, any Environmental Law, nor are any Materials of Environmental Concern being generated, treated, stored or disposed of at, on or under any of the Property in violation of, or in a manner that could reasonably be expected to give rise to material liability under, any applicable Environmental Law.                            (v)        There are no judicial proceedings or governmental or administrative actions pending under any Environmental Law in which the Lessee or any of its Subsidiaries is named as a party with respect to the Property nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or any administrative or judicial requirements outstanding under any Environmental Law with respect to the Property.                            (vi)       There has been no release of Materials of Environmental Concern at or from the Property, or arising from or related to the operations of the Lessee or in connection with the Property in violation of or in amounts or in a manner that could reasonably give rise to material liability under Environmental Laws.                            (r)         Solvency .  The Lessee is solvent and has assets having a value both at fair value and at present fair saleable value at least equal to the amount of its liabilities.              Section 8.2      Representations of the Lessee with Respect to the Property. The Lessee hereby represents and warrants to each of the other parties hereto (other than the Tranche Y Participant), on the Closing Date and on each other date on which representations and warranties of the Lessee are made or deemed made pursuant to the Operative Documents, as follows:                            (a)         Representations .  The representations and warranties of the Lessee set forth in the Operative Documents to which it is a party are true and correct on and as of such date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct on and as of such earlier date.  The Lessee is in compliance with its obligations under the Operative Documents to which it is a party and there exists no Default or Event of Default.                            (b)        Property.  The Property consists of the Phase I Land Interest on which the Phase I Improvements (which are of the type described in Recital A to this Agreement) will have been constructed as of the initial Land Interest Acquisition Date and, from and after the Land Interest Acquisition Date in respect thereof, the Phase II Land Interest on which the Phase II Improvements (which will be of the type described in Recital A to this Agreement) will have been constructed as of such Land Interest Acquisition Date. The Property is located in Sunnyvale, California.  The Property does, and as improved in accordance with the applicable Plans and Specifications will as of the applicable Land Interest Acquisition Date, and the use thereof by the Lessee, its Subsidiaries and their respective agents, assignees, employees, invitees, lessees, licensees, contractors and tenants does and will comply in all material respects with all Requirements of Law (including, without limitation, Title III of the Americans with Disabilities Act, all zoning and land use laws, all Environmental Laws and all building, planning, zoning and fire codes), except for such Requirements of Law as the Lessee shall be contesting in good faith by appropriate proceedings and in accordance with the applicable provisions of the Lease, and complies with all Insurance Requirements.  The applicable Plans and Specifications have been prepared in all material respects in accordance with applicable Requirements of Law (including, without limitation, Title III of the Americans with Disabilities Act, all zoning and land use laws, all Environmental Laws and all building, planning, zoning and fire codes) and neither the Phase I Improvements nor, upon completion thereof in accordance with the applicable Plans and Specifications, the Phase II Improvements, encroach in any manner onto any adjoining land (except as permitted by express written easements or as insured by appropriate title insurance).  Each of the Phase I Improvements, and upon completion thereof in accordance with the related Plans and Specifications, the Phase II Improvements (including in each case, without limitation, structural members, the plumbing, heating, air conditioning and electrical systems of any such Improvements), and all water, sewer, electric, gas, telephone and drainage facilities, have been or will be completed in a workmanlike manner and in accordance with the applicable Plans and Specifications and will be fit for use as first class facilities of the type described in Recital A to this Agreement, and all other utilities required to adequately service any such Improvements for their intended use are or will be available and "tapped on" and hooked up pursuant to adequate permits (including any that may be required under applicable Environmental Laws).  There is no action, suit or proceeding (including any proceeding in condemnation or eminent domain or under any Environmental Law) pending or, to the best of the Lessee's knowledge, threatened with respect to the Lessee, its Affiliates or the Property which materially adversely affects the title to, or the use, operation or value of, the Property or any portion thereof.  Except as may be disclosed to the Lessor and the Agent in writing in accordance with Section 15.1(c) of the Lease, no fire or other casualty with respect to the Property or any portion thereof has occurred.  The Property has available (or will have available by the applicable Land Interest Acquisition Date) all material services of public facilities and other utilities necessary for use and operation of such facilities and the other Improvements for their primary intended purposes, including, without limitation, adequate water, gas and electrical supply, storm and sanitary sewerage facilities, telephone, other required public utilities and means of access to such facilities from publicly dedicated streets and public highways for pedestrians and motor vehicles.  All utilities serving the Property, or proposed to serve the Property in accordance with the applicable Plans and Specifications, are (or will be) located in, and vehicular access to each of the Phase I Improvements and the Phase II Improvements on the Property is (or will be) provided by, either public rights-of-way abutting such portion of the Property or Appurtenant Rights.  All material licenses, approvals, authorizations, consents, permits (including, without limitation, building, and environmental permits, licenses, approvals, authorizations and consents), easements and rights–of–way, including proof and dedication, required for the use and operation of any of the Improvements in accordance with the applicable Plans and Specifications have either been obtained from the appropriate Governmental Authorities having jurisdiction or from private parties, as the case may be, or will be obtained from the appropriate Governmental Authorities having jurisdiction or from private parties, as the case may be, prior to commencing any such use and operation, and will in each case be maintained by the Lessee during the periods for which they are required by Applicable Law or such Governmental Authorities.                            (c)         Title.  Each Deed providing for the acquisition of a portion of the Property is sufficient to convey title to such portion of the Property in fee simple, subject only to Permitted Exceptions.  Upon conveyance of the relevant Deed on the relevant Land Interest Acquisition Date, the Lessor will own fee simple title to the relevant portion of the Property and the applicable Improvements thereon, subject to Permitted Exceptions, and will have the right to grant a Mortgage on such portion of the Property.                            (d)        Insurance.  The Lessee has obtained insurance coverage covering the Property which meets the requirements of Article XIV of the Lease, and such coverage is in full force and effect.                            (e)         Lease.  (i) Upon the execution and delivery of each Lease Supplement, the Lessee will have unconditionally accepted the portion of the Property covered thereby and will be bound by the terms of such Lease Supplement and, upon the applicable Lease Commencement Date will have a valid leasehold interest in the related portion of the Property, subject only to the Permitted Exceptions; (ii) from and after the applicable Lease Commencement Date, the Lessee's obligation to pay Rent will be an independent covenant and no right of deduction or offset will exist with respect to any Rent or other sums payable under the Lease; and (iii) from and after the applicable Lease Commencement Date, no Rent under the Lease will have been prepaid and the Lessee will have no right to prepay the Rent, except as specifically set forth therein.                            (f)         Protection of Interests. (i) On each Land Interest Acquisition Date, the applicable Lease Supplement, the Assignment of Lease, the Consent to Assignment and the applicable Mortgage are each in a form sufficient, and have been or will be recorded with the Office of the Recorder of Santa Clara County, California, which is the only recording office necessary to grant perfected first priority liens on the applicable portion of the Property covered thereby to the Agent or the Lessor, as the case may be, (ii) the Agent Financing Statements are each in a form sufficient, and have been delivered to the title company for filing or will be filed with the Secretary of State of the State of California and the Office of the Recorder of Santa Clara County, California, which are all filing offices necessary to create a valid and perfected first priority security interest in the Lessor's interest in the relevant Improvements; and (iii) the Lessor Financing Statements are each in a form sufficient, and have been delivered to the title company for filing or will be filed with the Secretary of State of the State of California and the Office of the Recorder of Santa Clara County, California, which are all filing offices necessary to perfect the Lessor's interest under the Lease to the extent the Lease is a security agreement.                            (g)        Flood Hazard Areas.  No portion of the Property is located in an area identified as a special flood hazard area by the Federal Emergency Management Agency or other applicable agency, or if any portion of the Property is located in an area identified as a special flood hazard area by the Federal Emergency Management Agency or other applicable agency, then flood insurance has been obtained for the Property or such portion thereof in accordance with Section 14.3 of the Lease and in accordance with the National Flood Insurance Act of 1968, as amended.                            (h)        Conditions Precedent .  All conditions precedent (other than the Limited Conditions Precedent, provided that if a Limited Condition Precedent has not been satisfied, the provisions of Section 6.5 shall apply) contained in this Agreement and in the other Operative Documents relating to the acquisition and, upon the applicable Lease Commencement Date, leasing of the applicable portion of the Property by the Lessor have been satisfied in full.              Section 8.3      Representations of the Lessee With Respect to Each Advance.  The Lessee hereby represents and warrants as of each Funding Date on which an Advance is made as follows:                            (a)         Representations .  The representations and warranties of the Lessee set forth in the Operative Documents to which it is a party (including the representations and warranties set forth in Sections 8.1 and 8.2) are true and correct on and as of such Funding Date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct on and as of such earlier date.  The Lessee is in compliance with its obligations under the Operative Documents and there exists no Default or Event of Default (other than a Limited Default or a Limited Event of Default, provided that if a Limited Default or a Limited Event of Default exists, the provisions of Section 6.5 shall apply).  No Default or Event of Default (other than a Limited Default or a Limited Event of Default, provided that if a Limited Default or a Limited Event of Default exists, the provisions of Section 6.5 shall apply) will occur as a result of, or after giving effect to, the Advance requested by the Acquisition Request or the Funding Request on such date.                            (b)        No Liens.  There are no Liens against the Property other than Permitted Exceptions.  The Participation Interests funding such Advance are secured by the Lien of the Mortgage.                            (c)         Advance.  The amount of the Advance requested represents amounts owing in respect of the acquisition price of the applicable portion of the Property and related Transaction Expenses or amounts paid by the Lessee to third parties in respect of Transaction Expenses for which the Lessee has not previously been reimbursed by an Advance.  The conditions precedent on the part of the Lessee to such Advance and the related remittances by the Participants with respect thereto set forth in Section 6 have been satisfied (other than the Limited Conditions Precedent, provided that if a Limited Condition Precedent has not been satisfied, the provisions of Section 6.5 shall apply).                            (d)        Insurance.  The Lessee has obtained insurance coverage covering the Property which meets the requirements of Article XIV of the Lease, and such coverage is in full force and effect. SECTION 9 PAYMENT OF CERTAIN EXPENSES              The Lessee agrees, for the benefit of the Lessor, the Agent and the Participants, that:              Section 9.1      Transaction Expenses.  At all times from and after the Closing Date, the Lessee shall pay from time to time all Transaction Expenses unless requested to be capitalized and funded by related fundings of Participation Interests (and permitted to be so capitalized by the Participants).              Section 9.2      Brokers' Fees and Stamp Taxes. The Lessee shall pay or cause to be paid any brokers' fees and any and all stamp, transfer and other similar taxes, fees and excises, if any, including any interest and penalties, which are payable in connection with the transactions contemplated by this Participation Agreement and the other Operative Documents.              Section 9.3      Obligations.  At all times from and after the Closing Date, the Lessee shall pay, on or before the due date thereof, all costs, expenses and other amounts required to be paid by any Mortgage and the Assignment of Lease (other than the principal amount or equity component of, or interest or yield on, the Advances). SECTION 10 OTHER COVENANTS AND AGREEMENTS              Section 10.1    Covenants of the Lessee.                            (a)         Affirmative Covenants.  The Lessee hereby agrees that, so long as this Agreement is in effect or any amount is owing to any Participant, the Lessor or the Agent hereunder or under any other Operative Document, the Lessee shall and (except in the case of delivery of financial information, reports, and notices) shall cause each of its Restricted Subsidiaries to perform each of the following covenants:                            (i)          General Business Operations.  Each of the Lessee and its Restricted Subsidiaries shall (i) preserve and maintain its corporate existence and all of its rights, privileges and franchises reasonably necessary to the conduct of its business, and (ii) conduct its business activities in compliance with all applicable laws and governmental rules and regulations, and all indentures, loan agreements or other agreements for borrowed money or other material agreements or contractual arrangements applicable to such entity or its property or assets, the violation of which is reasonably likely to have a Material Adverse Effect; provided, however, that the Lessee and its Subsidiaries may dissolve, liquidate or dispose of any of its Subsidiaries if such dissolution, liquidation or disposition is not reasonably likely to have a Material Adverse Effect.  The Lessee shall maintain its chief executive office and principal place of business in the United States and shall not relocate its chief executive office of principal place of business outside of the State of California except upon not less than thirty (30) days prior written notice to the Agent.                            (ii)         Maintenance of Properties.  Subject, in the case of the Property, to the provisions of the Lease, the Lessee will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in all material respects in good repair, working order and condition, ordinary wear and tear excepted, all property useful and necessary in the business of the Lessee and its Subsidiaries.                            (iii)        Payment of Taxes and Claims.  Subject, in the case of the Property, to the provisions of the Lease, the Lessee will, and will cause each of its Restricted Subsidiaries to, pay all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any penalty accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided, no such charge or claim need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and for which appropriate reserves as required by GAAP are maintained.  The Lessee will not file or consent to the filing of any consolidated income tax return with any Person (other than its Subsidiaries).                            (iv)       Books and Records; Financial Statements and Other Reports. The Lessee and its Restricted Subsidiaries shall at all times keep proper books of record and account in which full, true and correct entries will be made of their transactions in accordance with GAAP.  The Lessee will deliver or cause to be delivered to the Agent (with sufficient copies for each of the Participants, other than the Tranche Y Participant) and to the Lessor:                            (A)       as soon as available and in any event within ninety (90) days after the end of each Fiscal Year of the Lessee, an audited statement of financial position of the Lessee and its consolidated Subsidiaries as of the end of such Fiscal Year and the related consolidated statements of income, shareholder's equity and cash flows for such Fiscal Year, setting forth in each case in comparative form the figures for the previous Fiscal Year, all accompanied by the unqualified opinion of PriceWaterhouseCoopers LLP or other independent public accountants of nationally recognized standing stating that such consolidated financial statements present fairly the financial position of the Lessee and its consolidated Subsidiaries for the periods indicated, in conformity with GAAP, and applied on a basis consistent with prior years; together with a Responsible Officer's Certificate containing a computation of, and showing compliance with, each of the financial ratios and restrictions contained in Section 10.2 and stating that the Responsible Officer executing such certificate is not aware of any Event of Default or Default that has occurred and is continuing, or if such officer is aware of any such Event of Default or Default, describing it and the steps, if any, being taken to cure it;                            (B)        as soon as available and in any event within forty-fifty (45) days after the end of each of the first three Fiscal Quarters of each Fiscal Year of the Lessee, a consolidated statement of financial position of the Lessee as of the end of such Fiscal Quarter and the related consolidated statements of income, shareholder's equity and cash flows for such Fiscal Quarter and for the portion of the Lessee's Fiscal Year ended at the end of such Fiscal Quarter, together with a Responsible Officer's Certificate containing a computation of, and showing compliance with, each of the financial ratios and restrictions contained in Section 10.2 and stating that no Default or Event of Default has occurred or is continuing or, if any Default or Event of Default has occurred and is continuing, describing it and the steps, if any, being taken to cure it;                            (C)        if, as a result of any change in accounting principles and policies from those used in the preparation of the Historical Financial Statements, the consolidated financial statements of the Lessee and its Subsidiaries delivered pursuant to Sections 10.1(a)(iv)(A) or 10.1(a)(iv)(B) will differ in any material respect from the consolidated financial statements that would have been delivered pursuant to such Sections had no such change in accounting principles and policies been made, then together with the first delivery of such financial statements after such change a statement of reconciliation for all such prior financial statements in form and substance satisfactory to the Required Participants;                            (D)        promptly upon their becoming available, copies of (i) all financial statements sent or made available generally by the Lessee to its Security holders acting in such capacity or by any Subsidiary of the Lessee to its Security holders other than the Lessee or another Subsidiary of the Lessee and (ii) all regular and periodic reports and all registration statements and prospectuses, if any, filed by the Lessee or any of its Subsidiaries with any securities exchange or with the SEC;                           (E)        promptly upon any Responsible Officer of the Lessee obtaining knowledge (or in the case of clause (iii) below, promptly following the filing of such 8-K report with the SEC) (i) of any condition or event that constitutes a Default or an Event of Default or that notice has been given to the Lessee by the Lessor, the Agent or any Participant with respect thereto; (ii) that any Person has given any notice to the Lessee or any of its Subsidiaries or taken any other action with respect to any event or condition set forth in Section 17.1(e) of the Lease; (iii) of any condition or event of a type required to be disclosed in a current report on Form 8-K of the SEC (excluding Item 3 as in effect on the date hereof) which condition or event could reasonably be expected to have a Material Adverse Effect; or (iv) of the occurrence of any event or change that has caused or evidences, either in any case or in the aggregate, an Objective Material Adverse Effect or a Material Adverse Effect, a certificate of a Responsible Officer specifying the nature and period of existence of such condition, event or change, or specifying the notice given or action taken by any such Person and the nature of such claimed Event of Default, Default, default, event or condition, and what action the Lessee has taken, is taking and proposes to take with respect thereto;                            (F)        promptly upon any Responsible Officer of the Lessee obtaining knowledge of the institution of any Adverse Proceeding not previously disclosed in writing by the Lessee to the Lessor, the Agent and the Participants which either (i) if adversely determined, could reasonably be expected to result in monetary damages payable by Lessee or its Subsidiaries of $10,000,000 or more (alone or in the aggregate), or (ii) seeks to enjoin or otherwise prevent the consummation or performance of, or to recover any damages or obtain relief as a result of, the transactions contemplated by the Operative Documents, written notice thereof together with such other information as may be reasonably available to the Lessee to enable the Lessor, the Agent and the Participants and their counsel to evaluate such matters including information from time to time of any material development in any such Adverse Proceeding;                            (G)        (i) promptly upon becoming aware of the occurrence of any ERISA Event, a written notice specifying the nature thereof, what action the Lessee, any of its Subsidiaries or any of their respective ERISA Affiliates has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; and (ii) upon request of the Agent and with reasonable promptness, copies of such other documents or governmental reports or filings relating to any Employee Benefit Plan as the Agent shall reasonably request;                            (H)        promptly, written notice of any change in either Moody's or S&P's rating for the Lessee's long term Indebtedness, if applicable; and                           (I)         with reasonable promptness, such other instruments, agreements, certificates, opinions, statements, documents and other information and data with respect to the operations or condition (financial or otherwise) of the Lessee or any of its Subsidiaries and compliance by the Lessee with the terms of this Agreement and the other Operative Documents as from time to time may be reasonably requested by the Lessor, the Agent or any Participant; and                            (J)         Notwithstanding the foregoing, the requirement for delivery of financial statements under this Section 10.1(a)(iv) may be satisfied by delivery of a copy of Forms 10–K or 10–Q as the case may be as filed by the Lessee with the SEC for the most recent Fiscal Year or Fiscal Quarter then ended.  The Lessee may remit its financial statements and its filings and reports required to be delivered pursuant to Section 10.1(a)(iv)(D) via electronic format through delivery by e-mail or otherwise.                            (v)        Inspection Rights .  Subject, in the case of the Property, to the requirements of the Lease, the Lessee will, and will cause each of its Restricted Subsidiaries to, permit any authorized representatives designated by the Lessor, the Agent or any Participant (other than the Tranche Y Participant) to visit and inspect its and their financial and accounting records (to the extent reasonably requested by the Lessor, the Agent or any Participant other than the Tranche Y Participant), and to discuss its and their affairs, finances and accounts with its and their Responsible Officers (provided, the Lessee may, if it so chooses, be present at or participate in any such discussion), all upon reasonable notice to the chief financial officer, treasurer or the vice president of finance of the Lessee, at such reasonable times during normal business hours and as often as may reasonably be requested (but not more than once per Fiscal Year absent the occurrence and continuance of an Event of Default); provided, the Participants (other than the Tranche Y Participant) shall use their reasonable efforts to coordinate with the Lessor and the Agent in order to minimize the number of such inspections and discussions.  The Lessee will, upon the request of the Lessor, the Agent or the Required Participants, participate in a meeting of the Lessor, the Agent and the Participants once during each Fiscal Year to be held at the Lessee's corporate offices (or at such other location as may be agreed to by the Lessee and the Agent) at such time as may be agreed to by the Lessee and the Agent.                            (vi)       Environmental.                            (A)       Environmental Disclosure . The Lessee will deliver to the Lessor and the Agent:                            (1)         as soon as practicable following the Lessee's or any of its Restricted Subsidiaries' receipt thereof, copies of all environmental audits, investigations, analyses and reports with respect to any material environmental matter at any facility or property of the Lessee or any of its Restricted Subsidiaries or with respect to any Environmental Claim arising after the Closing Date at any such facility or property which (other than in the case of the Property) could reasonably be expected to have an Objective Material Adverse Effect;                           (2)         promptly upon the Lessee or any of its Restricted Subsidiaries becoming aware of the occurrence thereof, written notice describing in reasonable detail (1) any Release required to be reported to any federal, state or local governmental or regulatory agency under any applicable Environmental Laws, which Release could reasonably be expected to have an Objective Material Adverse Effect, and (2) any remedial action taken by the Lessee or any other Person in response to (x) any Hazardous Activities the existence of which could be reasonably be expected to result in one or more Environmental Claims that (other than in the case of the Property) could reasonably be expected to have, individually or in the aggregate, an Objective Material Adverse Effect, or (y) any Environmental Claims that (other than in the case of the Property), individually or in the aggregate, have a reasonable possibility of resulting in an Objective Material Adverse Effect;                            (3)         as soon as practicable following the sending or receipt thereof by the Lessee or any of its Restricted Subsidiaries, a copy of any and all material written communications with any third party with respect to (1) any Environmental Claims that (other than in the case of the Property), individually or in the aggregate, have a reasonable possibility of giving rise to an Objective Material Adverse Effect, (2) any Release required to be reported to any federal, state or local governmental or regulatory agency, which Release could reasonably be expected to have an Objective Material Adverse Effect, and (3) any request for information from any Governmental Authority that suggests such Governmental Authority is investigating whether the Lessee or any of its Restricted Subsidiaries may be potentially responsible for any Hazardous Activity, the liability for which could reasonably be expected to have an Objective Material Adverse Effect;                            (4)         prompt written notice describing in reasonable detail (1) any proposed acquisition of stock, assets, or property by the Lessee or any of its Restricted Subsidiaries that could reasonably be expected to (A) expose the Lessee or any of its Restricted Subsidiaries to, or result in, Environmental Claims that could reasonably be expected to have, individually or in the aggregate, an Objective Material Adverse Effect or (B) affect the ability of the Lessee or any of its Restricted Subsidiaries to maintain in full force and effect all material Governmental Actions required under any Environmental Laws for their respective operations, which failure to maintain could reasonably be expected to have an Objective Material Adverse Effect, and (2) any proposed action to be taken by the Lessee or any of its Restricted Subsidiaries to modify current operations in a manner that could reasonably be expected to subject the Lessee or any of its Restricted Subsidiaries to any additional material obligations or requirements under any Environmental Laws, which obligations or requirements could reasonably be expected to have an Objective Material Adverse Effect; and                           (5)         with reasonable promptness, such other documents and information as from time to time may be reasonably requested by the Lessor or the Agent in relation to any matters disclosed pursuant to this Section 10.1(a)(vi).                            (B)        Hazardous Materials Activities, Etc.  The Lessee shall promptly take, and shall cause each of its Restricted Subsidiaries promptly to take, any and all actions necessary to (i) cure any violation of applicable Environmental Laws by the Lessee or such Restricted Subsidiaries that (other than in the case of the Property) could reasonably be expected to have, individually or in the aggregate, an Objective Material Adverse Effect, and (ii) make an appropriate response to any Environmental Claim against the Lessee or such Restricted Subsidiaries and discharge any obligations it may have to any Person thereunder where (other than in the case of the Property) failure to do so could reasonably be expected to have, individually or in the aggregate, an Objective Material Adverse Effect.                            (vii)      Compliance with Laws.  The Lessee will comply, and shall cause each of its Restricted Subsidiaries to comply, with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority (including all Environmental Laws), noncompliance with which could (other than in the case of the Property) reasonably be expected to have, individually or in the aggregate, an Objective Material Adverse Effect.                            (b)        Negative Covenants .  The Lessee hereby agrees that, so long as this Agreement remains in effect or any amount is owing to any Participant, the Lessor or the Agent hereunder or under any other Operative Document, the Lessee shall, and shall cause each of its Subsidiaries to, comply with each of the following covenants:                            (i)          Indebtednes s.  The Lessee shall not nor shall it permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to any Indebtedness, except:                           (A)       Indebtedness of the Lessee and its Subsidiaries arising from the endorsement of instruments for collection in the ordinary course of the Lessee's or a Subsidiary's business;                            (B)        Indebtedness of the Lessee and its Subsidiaries for accounts payable, provided that (i) such accounts arise in the ordinary course of business and (ii) no material account is more than ninety (90) days past due (unless subject to a bona fide dispute and for which adequate reserves as required by GAAP have been established);                            (C)        Indebtedness owed to any Person providing worker's compensation, health, disability or other employee benefits or property, casualty or liability insurance to the Lessee or any Subsidiary thereof, or which may be deemed to exist pursuant to reimbursement or indemnification obligations to such Person;                            (D)        Indebtedness of the Lessee and its Subsidiaries with respect to performance, surety, statutory, appeal or similar obligations incurred in the ordinary course of business;                            (E)        Indebtedness in respect of netting services, overdraft protections and otherwise in connection with Deposit Accounts;                            (F)        Guaranties by the Lessee of Indebtedness of its Subsidiaries or guaranties by a Subsidiary of the Lessee of Indebtedness of the Lessee or another Subsidiary with respect, in each case, to Indebtedness otherwise permitted to be incurred pursuant to this Section 10.1(b)(i);                            (G)        Indebtedness described in Schedule 10.1(b)(i), but not any extensions, renewals or replacements of such Indebtedness except (i) renewals and extensions expressly provided for in the agreements evidencing any such Indebtedness as the same are in effect on the date of this Agreement and (ii) refinancings and extensions of any such Indebtedness if the terms thereof are no less favorable to the obligor thereon or to the Participants (other than the Tranche Y Participant), but giving effect to then-current market conditions, than the Indebtedness being refinanced or extended; provided, such Indebtedness permitted under clause (i) or clause (ii) above shall not be (1) Indebtedness of an obligor that was not an obligor with respect to the Indebtedness being extended, renewed or refinanced, (2) in a principal amount which exceeds the Indebtedness being renewed, extended or refinanced or (3) incurred, created or assumed if any Default or Event of Default has occurred and is continuing or would result therefrom;                            (H)        Indebtedness with respect to Capital Leases in an aggregate amount not to exceed five percent (5.0%) of Consolidated Assets in any Fiscal Year with respect to the Lessee and all of its Subsidiaries in the aggregate;                           (I)         Purchase Money Indebtedness in an aggregate amount not to exceed at any time five percent (5.0%) of Consolidated Assets with respect to the Lessee and all of its Subsidiaries in the aggregate; provided, (i) any such Indebtedness shall be recourse only to the asset acquired in connection with the incurrence of such Indebtedness, (ii) any such Indebtedness is incurred by such Person at the time of, or not later than thirty (30) days after, the acquisition by such Person of the property so financed, (iii) any such Indebtedness does not exceed the purchase price of the relevant property so financed, and (iv) no Default or Event of Default has occurred and is continuing at the time any such Indebtedness is incurred or will occur after giving effect to any such Indebtedness;                            (J)         The obligations of the Lessee to the Lessor, the Agent and the Participants under the Operative Documents, to the extent they are deemed to constitute Indebtedness;                            (K)        Intercompany Indebtedness among the Lessee and its Subsidiaries; and                            (L)        Other Indebtedness of the Lessee and its Subsidiaries, provided that the aggregate principal amount of all such other Indebtedness does not exceed twenty percent (20.0%) of Consolidated Assets at any time.                            (ii)         Liens .  The Lessee shall not, nor shall it permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of the Lessee or any of its Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any Lien with respect to any such property, asset, income or profits under the UCC of any state or under any similar recording or notice statute, except:  (A) Permitted Exceptions, in the case of the Property, and (B) Permitted Liens, in all other cases.                            (iii)        Dividends, Redemptions, Etc.  Neither the Lessee nor any of its Subsidiaries shall pay any dividends or make any distributions on its Equity Securities; purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Securities; return any capital to any holder of its Equity Securities as such; make any distributions of assets, Equity Securities, obligations or securities to any holder of its Equity Securities as such; or set apart any sum for any such purpose; except as follows:                           (A)       either the Lessee or any of its Subsidiaries may pay dividends on its capital stock payable solely in such Person's own capital stock or rights or other instruments providing a right to acquire shares of such Person's Capital Stock;                            (B)        any Subsidiary of the Lessee may pay dividends to the Lessee or to such Subsidiary's direct parent (or, in the case of foreign subsidiaries, to such foreign subsidiary's direct parent or other direct owners) or Lessee or any Subsidiary may enter into any transaction not otherwise prohibited under the Operative Documents, which does not call for a dividend to be payable by any such entity, but the consideration payable pursuant to such transaction is accorded dividend treatment under any Applicable Law;                            (C)        the Lessee may purchase or otherwise acquire for value shares of its capital stock for its employee stock option plans or otherwise, provided that no Default or Event of Default has occurred and is continuing at the time of any such purchase or will occur after giving effect to any such purchase.                            (D)        the Lessee or any Subsidiary may engage in any transaction or issuance pursuant to the Lessee's Stockholder Rights Plan, adopted on March 1, 2001, by Lessee's Board of Directors.                            (E)        the Lessee or any Subsidiary may issue or redeem or repurchase any Equity Security or securities convertible into any Equity Security of Lessee or any Subsidiary provided that any such action would not cause an Event of Default or no Event of Default exists at the time any such action is consummated.                            (iv)       Investments.  Neither the Lessee nor any of its Subsidiaries shall directly or indirectly make any Investment except for Investments in the following:                            (A)       Investments of Lessee and its Subsidiaries in Cash Equivalents;                            (B)        Any transaction permitted by Section 10.1(b)(i);                            (C)        Money market mutual funds registered with the SEC, meeting the requirements of Rule 2a-7 promulgated under the Investment Company Act of 1940;                            (D)        Investments listed on Schedule 10.1(b)(iv)(D) existing on the date of this Agreement; and                            (E)        Other Investments, in, or mergers or consolidations by the Lessee or any Subsidiary with, or acquisitions of capital stock or other securities or assets of, Persons principally involved in activities permitted under Section 10.1(b)(vii), provided, that both before and after giving effect to any such transaction, (1) the Lessee is in compliance with the covenants set forth in Section 10.2 and (2) there exists no Default or Event of Default.                           (v)        Fundamental Changes; Disposition of Assets.  The Lessee shall not, and shall not permit any of its Subsidiaries to, alter the corporate, capital or legal structure of the Lessee or any of its Subsidiaries if any such alteration could reasonably be expected to have an Objective Material Adverse Effect or a Material Adverse Effect, or enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease or sub-lease (as lessor or sublessor), transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, property or assets, whether now owned or hereafter acquired, or acquire by purchase or otherwise all or substantially all the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person or any division or line of business of any Person, except:                            (A)       Any Domestic Subsidiary of the Lessee  may be merged with or into Lessee or any Wholly-Owned Domestic Subsidiary or any other Person that as part of such transaction becomes a Subsidiary of the Lessee, or be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to Lessee or any Wholly-Owned Domestic Subsidiary; provided, in the case of such a merger, the Lessee or, in a transaction not involving the Lessee, such Wholly-Owned Domestic Subsidiary or a newly formed or acquired Domestic Subsidiary of the Lessee, shall be the continuing or surviving Person;                            (B)        Any Foreign Subsidiary of the Lessee may be merged with or into the Lessee or any Foreign Subsidiary or Domestic Subsidiary or any other Person that as part of such transaction becomes a Subsidiary of the Lessee, or be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to the Lessee or any Foreign Subsidiary or Domestic Subsidiary; provided, in the case of such a merger, the Lessee or, in a transaction not involving the Lessee, such Foreign Subsidiary or Domestic Subsidiary (or a newly formed or acquired Foreign Subsidiary or Domestic Subsidiary of the Lessee), shall be the continuing or surviving corporation;                            (C)        Sales or other dispositions of Investments permitted by subparts (A) and (C) of Section 10.1(b)(iv) for not less than fair value;                            (D)        Sales of surplus, damaged, worn or obsolete equipment or inventory for not less than fair market value;                            (E)        Sales or assignments of defaulted receivables to a collection agency in the ordinary course of business;                            (F)        Licenses to other Persons of intellectual property by the Lessee or any Subsidiary thereof in the ordinary course of business provided that, in each case, the terms of the transaction are terms which then would prevail in the market for similar transactions between unaffiliated parties dealing at arm's length;                            (G)        Sales or other dispositions of assets and property by the Lessee to any of the Lessee's Subsidiaries or by any of the Lessee's Subsidiaries to the Lessee or any of its other Subsidiaries, provided that the terms of any such sales or other dispositions by or to the Lessee are terms which are no less favorable to the Lessee than would prevail in the market for similar transactions between unaffiliated parties dealing at arm's length;                            (H)        Transactions permitted under Section 10.1(b)(iv);                            (I)         Sales of accounts receivable of the Lessee and its Subsidiaries, provided that (A) each such sale is (1) for not less than fair market value and (2) for cash, and (B) the aggregate book value of all such accounts receivable so sold in any consecutive four Fiscal Quarter period does not exceed ten percent (10%) of the consolidated total accounts receivable of the Lessee and its Subsidiaries on the last day immediately preceding such four Fiscal Quarter period;                            (J)         Other sales, leases, transfers and disposal of assets and property for not less than fair market value, provided that the aggregate book value of all such assets and property so sold, leased, transferred or otherwise disposed of in any consecutive four Fiscal Quarter period does not exceed ten percent (10%) of the Consolidated Assets of the Lessee and its Subsidiaries on the last day immediately preceding such four Fiscal Quarter period; and                            (K)        subleases by the Lessee or any of its Subsidiaries of excess leased space; provided, however, that the foregoing exceptions shall not be construed to permit any sales, leases, subleases, transfers or disposals of any of the Property, except as expressly permitted by the Operative Documents.                            (vi)       Accounting Changes. Neither the Lessee nor any of its Subsidiaries shall change (i) its Fiscal Year (currently January 1 through December 31) or (ii) its accounting practices except as permitted by GAAP.                            (vii)      Change in Business.  Neither the Lessee nor any of its Subsidiaries shall engage, either directly or indirectly through Affiliates thereof, in any material line of business other than the business conducted by such Persons as of the Closing Date, logical extensions of any such existing lines of business, new lines of business which are of a type now or hereafter required by customers or pursued by competitors of the Lessee or any of its Subsidiaries in the existing lines of business, and other businesses incidental or reasonably related to any of the foregoing.                            (viii)     ERISA.  Neither the Lessee nor any ERISA Affiliate shall (i) adopt or institute any Employee Benefit Plan that is an employee pension benefit plan within the meaning of Section 3(2) of ERISA, (ii) take any action which will result in the partial or complete withdrawal, within the meanings of Section 4203 and 4205 of ERISA, from a Multiemployer Plan, (iii) engage or permit any Person to engage in any transaction prohibited by Section 406 of ERISA or Section 4975 of the Code involving any Employee Benefit Plan or Multiemployer Plan which would subject either the Lessee or any ERISA Affiliate to any tax, penalty or other liability including a liability to indemnify, (iv) incur or allow to exist any accumulated funding deficiency (within the meaning of Section 412 of the Code or Section 302 of ERISA), (v) fail to make full payment when due of all amounts due as contributions to any Employee Benefit Plan or Multiemployer Plan, (vi) fail to comply with the requirements of Section 4980B of the Code or Part 6 of Title I(B) of ERISA, or (vii) adopt any amendment to any Employee Benefit Plan which would require the posting of security pursuant to Section 401(a)(29) of the  Code, which, in the case of clauses (i) through (vii) above, singly or cumulatively, could reasonably be expected to have an Objective Material Adverse Effect.              Section 10.2    The Lessee's Financial Covenants. So long as this Agreement remains in effect or any amount is owing to any Participant, the Lessor or the Agent hereunder or under any other Operative Document, the Lessee will comply and will cause compliance, on a consolidated basis with the following financial covenants (for illustration purposes, a calculation of such financial covenants as of December 31, 2000, is set forth on Exhibit 10.2 ("Financial Covenant Worksheet") and the parties hereto agree that such covenants shall be calculated in accordance with the methodology demonstrated on the Financial Covenant Worksheet):                            (a)         Maximum Leverage Ratio.  The Lessee shall not permit the Leverage Ratio to be greater than 1.25 to 1.00 as of the last day of any Fiscal Quarter for the four Fiscal Quarter period then ended.                            (b)        Quick Ratio.  The Lessee shall not permit its Quick Ratio for any Fiscal Quarter to be less than 2.00 to 1.00.                            (c)         Fixed Charge Coverage Ratio.  The Lessee shall not permit its Fixed Charge Coverage Ratio to be less than 2.50 to 1.00 as of the last day of any Fiscal Quarter for the four Fiscal Quarter period then ended.                            (d)        Consolidated Net Worth .  The Lessee shall not permit the sum of (x) its Consolidated Net Worth on the last day of any Fiscal Quarter (such date to be referred to herein as a "determination date"), plus (y) with respect to each Fiscal Quarter after the base date and through the determination date in which Lessee had a quarterly loss, all charges taken for the purchase of in-process research and development and amortization expense, in each case to the extent deducted in determining the Lessee's consolidated quarterly net income for each such Fiscal Quarter, plus (z) the value of Lessee's treasury stock, calculated at the fair market value of such stock as of the date such stock was repurchased by the Lessee, to be less than the sum on such determination date of the following:                            (i)          eighty-five percent (85%) of the Consolidated Net Worth of the Lessee and its Subsidiaries as of December 31, 1999 (the "base date"); plus                            (ii)         fifty percent (50%) of the sum of the Lessee's consolidated quarterly net income (but with no deduction of any quarterly losses unless such negative quarterly consolidated net income was caused solely by charges taken for the purchase of in-process research and development and amortization expense, in which case such charges shall be excluded in the determination of such quarterly consolidated net income) by the Lessee and its Subsidiaries for each Fiscal Quarter after the base date through and including the Fiscal Quarter ending on the determination date; plus                            (iii)        one hundred percent (100%) of the net proceeds (including the fair market value of property other than cash, as determined in good faith by the Lessee's board of directors) of all Equity Securities issued by the Lessee and its Subsidiaries during the period commencing on the base date and ending on the determination date, including any Equity Securities issued upon the conversion or exchange of any Indebtedness of the Lessee after the latest Fiscal Quarter end (the net proceeds of which for purposes of this clause (iii) shall be deemed to equal the aggregate market value of the Equity Securities so issued upon such conversion or exchange), but excluding any such net proceeds of any Equity Securities (x) issued and sold to Lessee or any of its Subsidiaries, or (y) which are required to be redeemed, or which are redeemable at the option of the holder thereof, if certain events or conditions exist or otherwise.              Section 10.3    Cooperation with the Lessee.  The Lessor, the Participants and the Agent shall, to the extent reasonably requested by the Lessee (but without assuming additional liabilities, duties or other obligations on account thereof), at the Lessee's expense, cooperate with the Lessee in connection with its covenants contained herein including, without limitation, at any time and from time to time, upon the request of the Lessee, to promptly and duly execute and deliver any and all such further instruments, documents and financing statements (and continuation statements related thereto) as the Lessee may reasonably request in order to perform such covenants.              Section 10.4    Covenants of the Lessor.  The Lessor hereby agrees that so long as this Participation Agreement is in effect:                            (a)         Discharge of Lien s.  The Lessor will not create or permit to exist at any time, and will, at its own cost and expense, promptly take such action as may be necessary duly to discharge, or to cause to be discharged, all Lessor Liens on the Property attributable to it;  provided, however, that the Lessor shall not be required to so discharge any such Lessor Lien while the same is being contested in good faith by appropriate proceedings diligently prosecuted so long as such proceedings shall not involve any material danger of impairment of the Liens of the Lease or the Security Documents or of the sale, forfeiture or loss of, and shall not interfere with the use or disposition of, the Property or title thereto or any interest therein or the payment of Rent; provided, further, that in the event the Lessee purchases the Property the Lessor shall discharge all such Lessor Liens on or prior to the date on which the purchase is effective under the Lease.                            (b)        Change of Chief Place of Business.  The Lessor shall give prompt notice to the Lessee and the Agent if the Lessor's chief place of business or chief executive office, or the office where the records concerning the accounts or contract rights relating to the Property are kept, shall cease to be located at 135 South LaSalle Street, Chicago, Illinois 60603, or if it shall change its name, identity or corporate structure.                            (c)         Use of Proceeds .  The proceeds of the purchase of the Participation Interests shall be applied by the Lessor solely in accordance with the provisions of the Operative Documents. SECTION 11 AMENDMENTS, RELATIONSHIP OF LESSOR AND PARTICIPANTS              Section 11.1    Amendments.  Subject to the other provisions of this Section 11, no Operative Document nor any of the terms thereof may be terminated, amended, supplemented, waived or modified with respect to the Lessee, the Lessor, the Agent or any Participant, except (a) in the case of a termination, amendment, supplement, waiver or modification to be binding on the Lessee, the Lessor or the Agent, with the written agreement or consent of such party, (b) prior to the occurrence and continuation of an Event of Default, the Lessee's consent shall be required to amend or modify any Operative Document to which it is not a party, and (c) in the case of a termination, amendment, supplement, waiver or modification to be binding on the Participants, with the written agreement or consent of the Required Participants; provided, however, that                            (a)         no such termination, amendment, supplement, waiver or modification shall without written agreement or consent of each Participant (other than the Tranche Y Participant except with respect to clause (vii) below):                            (i)          modify any of the provisions of this Section 11, change the definition of "Required Participants" or modify or waive any provision of an Operative Document requiring action by the foregoing;                            (ii)         amend, modify, waive or supplement any of the provisions of Sections 3.6, 3.7 or 3.10 through 3.20 of this Participation Agreement or the representations of such Participant in Section 7 or the covenants in Section 10 of this Participation Agreement;                            (iii)        reduce, modify, amend or waive any fees or indemnities in favor of any Participant, including without limitation amounts payable pursuant to Section 13 (except that any Person may consent to any reduction, modification, amendment or waiver of any indemnity payable to it);                            (iv)       modify, postpone, reduce or forgive, in whole or in part, any payment of Rent (other than pursuant to the terms of any Operative Document), any payment in respect of its Participation Interest, or any payment of Asset Termination Value, Commitment Fee, Residual Value Guarantee Amount, amounts due pursuant to Section 22.2 of the Lease, or interest or yield or, subject to clause (iii) above, any other amount payable under the Lease or this Participation Agreement, or modify the definition or method of calculation of Rent (other than pursuant to the terms of any Operative Document), Participation Interest, Asset Termination Value, Lease Balance, Commitment Fee, Shortfall Amount, Residual Value Guarantee Amount, Participant Balance, Tranche A Participant Balance, Tranche B Participant Balance, Tranche C Participant Balance or any other definition which would affect the amounts to be advanced or which are payable under the Operative Documents;                            (v)        consent to any assignment of the Lease (other than pursuant to the terms thereof), releasing the Lessee from its obligations in respect of the payments of Rent and any Asset Termination Value or changing the absolute and unconditional character of such obligation;                            (vi)       except as authorized by the Operative Documents, release the Lessor's interest in all or a substantial part of the Property; or                            (vii)      increase the amount of the Commitment of such Participant; and              (b)        no other termination, amendment, supplement, waiver or modification shall, without the written agreement or consent of the Lessor and the Required Participants, be made to the Lease or Section 6 of this Participation Agreement or the definition of "Event of Default".              Section 11.2    Actions by Participants.  Notwithstanding the foregoing, Defaulting Participants shall have no voting or consent rights under this Section 11.2 until they cease to be Defaulting Participants.  During any period that any Defaulting Participants have no voting rights under this Section 11.2, only the Commitment Percentages of the other Participants that still have voting rights will be considered for purposes of determining the Required Participants.  Furthermore, in no event shall any Participant instigate any suit or other action directly against the Lessee with respect to the Operative Documents or the Property, even if such Participant would, but for this agreement, be entitled to do so as a third party beneficiary or otherwise under the Operative Documents.              Section 11.3    Required Repayments. Each Participant shall repay to the Lessor, upon written request or demand by the Lessor (i) any sums paid by the Lessor to such Participant or to the Agent on behalf of such Participant under this Agreement from, or that were computed by reference to, any Rent or other amounts which the Lessor shall be required to return or pay over to another party, whether pursuant to any bankruptcy or insolvency law or proceeding or otherwise and (ii) any interest or other amount that the Lessor is also required to pay to another party with respect to such sums.  Such repayment by any Participant shall not constitute a release of such Participant's right to receive such Participant's Commitment Percentage (as then in effect) times the amount of any such Rent or any such other amount (or any interest thereon) that the Lessor may later recover in respect of such Participant's Participation Interest.              Section 11.4    Indemnification. Each Participant agrees to indemnify and defend the Lessor (to the extent not reimbursed by the Lessee within ten (10) days after demand) from and against such Participant's Commitment Percentage (as then in effect) of any and all liabilities, obligations, claims, expenses or disbursements (including reasonable fees of attorneys, accountants, experts and advisors) of any kind or nature whatsoever (in this Section 11.4 collectively called "Covered Liabilities") which to any extent (in whole or in part) may be imposed on, incurred by or asserted against the Lessor growing out of, resulting from or in any other way associated with the Property or the Operative Documents (including the enforcement thereof, whether exercised upon the Lessor's own initiative or upon the direction of the Required Participants) and the transactions and events at any time associated therewith or contemplated therein.  The foregoing indemnification shall apply whether or not such Covered Liabilities are in any way or to any extent caused, in whole or in part, by any negligent act or omission of any kind by the Lessor; provided, that no Participant shall be obligated under this Section 11.4 to indemnify the Lessor (i) for Covered Liabilities incurred in connection with any transfer or assignment by the Lessor of its right to receive Rent or its rights and interests in and to the Property, the Operative Documents or this Agreement to its affiliates, or (ii) for that portion or percentage, if any, of any of the Covered Liabilities which is proximately caused by:  (A) the Lessor's own gross negligence or willful misconduct; (B) any representation made by the Lessor in the Operative Documents that is false in any material respect and that the Lessor knew was false at the time of the Lessor's execution of the Operative Documents; or (C) Lessor Liens not claimed by, through or under any of the Participants.  After each Participant has paid its Commitment Percentage (as then in effect) of any Covered Liabilities, each Participant shall be entitled to payment from the Lessor of an amount equal to the Adjusted Percentage (as defined below) of any payments subsequently received by the Lessor as Excess Reimbursement (as defined below) for such Covered Liabilities.  As used in this Section "Adjusted Percentage" as of any date of determination shall equal (i) such Participant's Commitment Percentage then in effect, divided by (ii) the sum of the Commitment Percentages of all Participants who have paid the Lessor their respective shares of the Covered Liabilities at issue.  As used in this Section, the term "Excess Reimbursement" shall mean, for the Covered Liabilities at issue, amounts reimbursed or paid by the Lessee to or on behalf of the Lessor on account of such Covered Liabilities in excess of an amount equal to the product of (i) such Covered Liabilities, multiplied by (ii) the Commitment Percentages of any Participants that have not paid the Lessor their respective Percentages of such Covered Liabilities.              Section 11.5    Agent to Exercise Lessor's Rights. The Lessor has assigned its interest in the Lease to the Agent, for the benefit of the Participants, pursuant to the Assignment of Lease.  To the extent provided therein, the rights, remedies, duties and responsibilities of the Lessor contained in this Section 11 and in the other Operative Documents with respect thereto shall be exercisable by, binding upon and inure to the benefit of the Agent, for the benefit of the Participants. SECTION 12 TRANSFERS OF PARTICIPANTS' INTERESTS              Section 12.1    Restrictions on and Effect of Transfer by Participants. No Participant may (without the prior written consent of the Agent, not to be unreasonably withheld) assign, convey or otherwise transfer (including pursuant to a participation) all or any portion of its right, title or interest in, to or under its Participation Interest or any of the Operative Documents or the Property, provided that (w) any Participant (other than the Tranche Y Participant) may pledge its interest without the consent of the Agent or the Lessee to any Federal Reserve Bank, (x) without the prior written consent of the Agent, any Participant (other than the Tranche Y Participant) may transfer all or any portion of its interest to any affiliate of such Participant or to any other existing Participant, (y) the Tranche Y Participant may not assign, convey or otherwise transfer any portion of its right, title or interest in, to or under its Participation Interest or any of the Operative Documents or the Property without the prior written consent of the Agent , and (z) no Tranche C Participant may assign, convey or otherwise transfer any portion of its right, title or interest in, to or under its Tranche C Equity Interest without the prior written consent of the Agent and unless the proposed transferee delivers to the Agent and the Lessee the certificate required by Section 12.1(d); provided, further, that in the case of any transfer (other than a transfer to an affiliate of the relevant Participant pursuant to clause (x) above) each of the following conditions and any other applicable conditions of the other Operative Documents are satisfied:                            (a)         Required Notice and Effective Date.  Any Participant desiring to effect a transfer of its interest shall give written notice of each such proposed transfer to the Lessee and the Agent at least five (5) Business Days prior to such proposed transfer, setting forth the name of such proposed transferee, the percentage or interest to be retained by such Participant, if any, and the date on which such transfer is proposed to become effective.  All reasonable out–of-pocket costs (including, without limitation, legal expenses) incurred by the Lessor, the Lessee, the Agent or any Participant in connection with any such disposition by a Participant under this Section 12.1 shall be borne by such transferring Participant.  In the event of a transfer under this Section 12.1, any expenses incurred by the transferee in connection with its review of the Operative Documents and its investigation of the transactions contemplated thereby shall be borne by such transferee or the relevant Participant, as they may determine, but shall not be considered costs and expenses which the Lessee is obligated to pay or reimburse under Section 9.  Any such proposed transfer shall become effective upon the later of (i) the date proposed in the transfer notice referred to above and (ii) the date on which all conditions to such transfer set forth in this Section 12.1 shall have been satisfied.                            (b)        Assumption of Obligations.  Any transferee pursuant to this Section 12.1 shall execute and deliver to the Agent and the Lessee an Assignment and Acceptance in substantially the form attached as Exhibit K ("Assignment and Acceptance"), duly executed by such transferee and the transferring Participant, and a letter in substantially the form of the Participant's Letter attached hereto as Exhibit L ("Participant's Letter"), and thereupon the obligations of the transferring Participant under the Operative Documents shall be proportionately released and reduced to the extent of such transfer.  Upon any such transfer as above provided, the transferee shall be deemed to be bound by all obligations (whether or not yet accrued) under, and to have become a party to, all Operative Documents to which its transferor was a party, shall be deemed the pertinent "Participant" for all purposes of the Operative Documents and shall be deemed to have made that portion of the payments pursuant to this Participation Agreement previously made or deemed to have been made by the transferor represented by the interest being conveyed; and each reference herein and in the other Operative Documents to the pertinent "Participant" shall thereafter be deemed a reference to the transferee, to the extent of such transfer, for all purposes.  Upon any such transfer, the Agent shall deliver to each Participant, the Lessor and the Lessee a new Schedule I and a new Schedule II to this Agreement, each revised to reflect the relevant information for such new Participant and the Commitment of such new Participant (and the revised Commitment of the transferor Participant if it shall not have transferred its entire interest).                            (c)         Employee Benefit Plans.  No Participant may make any such assignment, conveyance or transfer to or in connection with any arrangement or understanding in any way involving any employee benefit plan (or its related trust), as defined in Section 3(3) of ERISA, or with the assets of any such plan (or its related trust), as defined in Section 4975(e)(1) of the Code.                            (d)        Representations .  Notwithstanding anything to the contrary set forth above, no Participant may assign, convey or transfer its interest to any Person, unless such Person shall have delivered to the Agent and the Lessee a certificate (which certification may be contained within the Assignment and Acceptance executed and delivered by such Person) (i) confirming the accuracy of the representations and warranties set forth in Section 7 with respect to such Person (other than as such representation or warranty relates to the execution and delivery of Operative Documents), (ii) representing that such Person has, independently and without reliance upon the Agent, any other Participant or, except to the extent of the Lessee's representations made under the Operative Documents when made, the Lessee, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into this transaction, the Property and the Lessee and made its own decision to enter into this transaction , and (iii) in the case of a transferee of a Tranche C Equity Interest only, representing that no portion of the Tranche C Equity Interest to be funded or acquired by such Person has been or will thereafter be borrowed by such Person such that recourse in respect of such indebtedness is limited to such Person's interest in the Lessor (if applicable) or to collateral with an aggregate value less than the amount of such indebtedness, and that such Person has not obtained and will not obtain residual value insurance, or a comparable guarantee, with respect to its Tranche C Equity Interest.                            (e)         Amounts; Agent's Fee.  Any transfer of Participation Interests shall be in a principal amount which is equal to or greater than $5,000,000; provided, that no such minimum transfer limitation shall be imposed on a transfer of a Tranche B Participation Interest or a Tranche C Equity Interest.  Each transferring Participant shall pay to the Agent a transfer fee of $2,500.                            (f)         Applicable Law .  Such transfer shall comply with Applicable Law and shall not require registration under any securities law applicable thereto.                            (g)        Effect.  From and after any transfer of its Participation Interest the transferring Participant shall be released, to the extent assumed by the transferee, from its liability and obligations hereunder and under the other Operative Documents to which such transferor is a party in respect of obligations to be performed on or after the date of such transfer.  Upon any transfer by a Participant as above provided, any such transferee shall be deemed a "Participant" for all purposes of such documents and each reference herein to a Participant shall thereafter be deemed a reference to such transferee for all purposes to the extent of such transfer, except as the context may otherwise require.  Notwithstanding any transfer as provided in this Section 12.1, the transferor shall be entitled to all benefits accrued and all rights vested prior to such transfer, including, without limitation, rights to indemnification under this Participation Agreement or any other Operative Document.              Section 12.2    Covenants and Agreements of Participants.                            (a)         Participations .  Each Participant covenants and agrees that it will not grant participations in its Participation Interest to any Person (a "Sub-Participant") unless such participation complies with Applicable Law and does not require registration under any securities law applicable thereto and such Sub-Participant (i) is a bank or other financial institution and (ii) represents and warrants, in writing, to such Participant for the benefit of the Participants, the Lessor and the Lessee that (A) no part of the funds used by it to acquire an interest in any Participation Interest constitutes assets of any "employee benefit plan" (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA, or "plan" (as defined in Section 4975(e)(1) of the Code) and (B) such Sub-Participant is acquiring its interest for investment purposes without a view to the distribution thereof; provided that notwithstanding the foregoing the Tranche Y Participant shall not grant any participation in its Participation Interest to any Sub-Participant without the prior written consent of the Agent.  Any such Person shall require any transferee of its interest in its Participation Interest to make the representations and warranties set forth in the preceding sentence, in writing, to such Person for its benefit and the benefit of the Participants, the Lessor and Lessee.  In the event of any such sale by a Participant of a participating interest in its Participation Interest to a Sub-Participant, such Participant's obligations under this Participation Agreement and under the other Operative Documents shall remain unchanged, such Participant shall remain solely responsible for the performance thereof, such Participant shall remain the holder of its Participation Interest for all purposes under this Participation Agreement and under the other Operative Documents, and the Lessor, the Agent and, except as set forth in Section 12.2(b), the Lessee shall continue to deal solely and directly with such Participant in connection with such Participant's rights and obligations under this Participation Agreement and under the other Operative Documents.                            (b)        Transferee Indemnities .  Each Sub-Participant shall be entitled to the benefits of Sections 13.5, 13.6, 13.7 and 13.10 with respect to its participation in the Participation Interests outstanding from time to time; provided that no Sub-Participant shall be entitled to receive any greater amount pursuant to such Sections than the transferor Participant would have been entitled to receive in respect of the amount of the participation transferred by such transferor Participant to such Sub-Participant had no such transfer or participation occurred.              Section 12.3    Future Participants.  Each Participant shall be deemed to be bound by and, upon compliance with the requirements of this Section 12, will be entitled to all of the benefits of the provisions of, this Participation Agreement. SECTION 13 INDEMNIFICATION              Section 13.1    General Indemnification.  The Lessee agrees, whether or not any of the transactions contemplated hereby shall be consummated, to assume liability for, and to indemnify, protect, defend, save and keep harmless each Indemnitee, on an After Tax Basis, from and against, any and all Claims that may be imposed on, incurred by or asserted against such Indemnitee (whether because of action or omission by such Indemnitee or otherwise), whether or not such Indemnitee shall also be indemnified as to any such Claim by any other Person and whether or not such Claim arises or accrues prior to the Closing Date or after the Expiration Date, in any way relating to or arising out of:                            (a)         any of the Operative Documents or any of the transactions contemplated thereby or any violation thereof, or any investigation, litigation or proceeding in connection therewith and any amendment, modification or waiver in respect thereof;                            (b)        the Property, the Lease, any permitted sublease or any part thereof or interest therein;                            (c)         the purchase, design, construction, preparation, installation, inspection, delivery, non-delivery, acceptance, rejection, ownership, management, possession, operation, rental, lease, sublease, repossession, maintenance, repair, alteration, modification, addition or substitution, storage, transfer of title, redelivery, use, financing, refinancing, disposition, operation, condition, sale (including, without limitation, any sale pursuant to Sections 16.2, 16.3,  17.2(c), 17.2(e), 17.2(h) or 17.4 of the Lease or any sale pursuant to Articles XX or XXII of the Lease, except for any amounts payable pursuant to Section 13.2 hereof), return or other disposition of all or any part or any interest in the Property or any portion thereof or the imposition of any Lien (or incurring of any liability to refund or pay over any amount as a result of any Lien) thereon, including, without limitation: (1) Claims or penalties arising from any violation of foreign, federal, state or local law, rule, regulation or order or in tort (strict liability or otherwise) arising in connection with the Property, the Operative Documents or the transactions contemplated thereunder, including Claims made by invitees of Lessee or any assignee or any sublessee of Lessee or any assignee, or by any other Person entering on or in the Property, (2) latent or other defects in, to or affecting the Property, whether or not discoverable, (3) any Claim based upon a violation or alleged violation of the terms of any restriction, easement, condition or covenant or other matter affecting title to the Property, (4) the making of any Modifications in violation of the Lease or any standards imposed by any insurance policies required to be maintained by Lessee pursuant to the Lease which are in effect at any time with respect to the Property or any part thereof, (5) any Claim for patent, trademark or copyright infringement, (6) Claims arising from any public improvements with respect to the Property resulting in any charge or special assessments being levied against the Property or any plans to widen, modify or realign any street or highway adjacent to the Property, (7) Claims based on violations or failure of title arising in connection with the zoning ordinances, rules, regulations or laws applicable to the Property, and (8) any Claim resulting from or related to the leasing or subleasing of the Property or the construction of any of the Improvements, and any amendment, modification or waiver in respect thereof;                            (d)        the offer, issuance or sale of the Participation Interests or any interest therein in accordance with the terms of the Operative Documents;                            (e)         the breach by the Lessee of any covenant, representation or warranty made by it or deemed made by it in any Operative Document or any certificate required to be delivered by any Operative Document;                            (f)         the retaining or employment of any broker, finder or financial advisor by the Lessee or any Affiliate to act on its behalf in connection with this Participation Agreement, or the incurring of any fees or commissions to which the Lessor might be subjected by virtue of entering into the transactions contemplated by this Participation Agreement;                            (g)        the existence of any Lien on or with respect to the Property, any of the Improvements, the Equipment, the Lease, the Cash Collateral, any Basic Rent or Supplemental Rent, title thereto, or any interest therein including any Liens which arise out of the possession, use, occupancy, construction, repair or rebuilding of the Property or by reason of labor or materials furnished or claimed to have been furnished to the Lessee, the Existing Owner, the Lessor or any of their contractors or agents or by reason of the financing of the Property or any personalty or equipment purchased or leased by the Lessee or any Improvements or Modifications constructed by the Lessee or any sublessee, except Lessor Liens and Liens in favor of the Agent or the Lessor;                            (h)        the transactions contemplated hereby, by the Lease or by any other Operative Document, in respect of the application of Parts 4 and 5 of Subtitle B of Title I of ERISA and any prohibited transaction described in Section 4975(c) of the Code (other than any Claim resulting from a breach of representation or warranty of the Lessor or any Participant other than the Tranche Y Participant); or                            (i)          the purchase of the Property or any portion thereof by the Lessor, or any matters arising therefrom or related thereto; provided, however, the Lessee shall not be required to indemnify any Indemnitee under this Section 13.1 for any of the following: (1) any Claim to the extent resulting from the willful misconduct or gross negligence of such Indemnitee (it being understood that the Lessee shall be required to indemnify an Indemnitee even if the ordinary (but not gross) negligence of such Indemnitee caused or contributed to such Claim), (2) any Claim resulting from Lessor Liens which the Lessor is responsible for discharging under the Operative Documents, (3) any Imposition or other claims for Taxes of the type(s) described in Section 13.5, (4) any Claims of the type(s) described in Sections 13.2, 13.3, 13.6, 13.7, 13.8 and 13.10 or (5) with respect to any Indemnitee, any Claims arising from the breach by such Indemnitee of its express obligations under any Operative Document, other than any such breach caused by or attributable to the Lessee's actions or failure to act.  It is expressly understood and agreed that the indemnity provided for herein shall survive the expiration or termination of and shall be separate and independent from any remedy under the Lease or any other Operative Document.              Section 13.2    End of Term Indemnity.                           (a)         If the Lessee elects the Remarketing Option and it is determined, in accordance with the provisions of Section 22.1(j) of the Lease, that there would, after giving effect to the proposed remarketing transaction, be a Shortfall Amount, then as a condition to the Lessee's right to complete the remarketing of the Property pursuant to Section 22.1 of the Lease, the Lessee shall cause to be delivered to the Lessor at least 30 days prior to the Expiration Date, at the Lessee's sole cost and expense, a report from an appraiser selected by the Lessor and reasonably satisfactory to the Agent, the Required Participants and the Lessee and in form and substance reasonably satisfactory to the Lessor, the Agent and the Required Participants (the "End of the Term Report") which shall state the appraiser's conclusions as to the reason for any decline in the Fair Market Sales Value of the Property from that anticipated for such date in the Appraisal delivered on the Closing Date.                            (b)        On the Expiration Date, the Lessee shall pay to the Lessor an amount (not to exceed the Shortfall Amount) equal to the portion of the Shortfall Amount that the End of the Term Report demonstrates was the result of a decline in the Fair Market Sales Value of the Property due to:                            (i)          extraordinary wear and tear, excessive usage, failure to maintain, to repair, to restore, to rebuild or to replace, failure to comply with the Lease and all applicable laws, failure to use, workmanship, method of installation or removal or maintenance, repair, rebuilding or replacement (excepting in each case ordinary wear and tear); or                            (ii)         any Modification made to, or any rebuilding of, the Property or any part thereof by the Lessee or any sublessee; or                            (iii)        the existence of any Hazardous Activity, Hazardous Substance or Environmental Violations (but excluding any decline in the Fair Market Sales Value of the Property resulting from or attributable to any failure of Lockheed to pay or perform its express obligations under the Lockheed Indemnification Agreements); or                            (iv)       any restoration or rebuilding carried out by the Lessee or any sublessee; or                            (v)        any condemnation of any portion of the Property pursuant to Article XV of the Lease; or                            (vi)       any use of the Property or any part thereof by the Lessee or any sublessee other than as facilities of the type described in Recital A to this Agreement; or                            (vii)      any grant, release, dedication, transfer, annexation or amendment made pursuant to Section 12.2 of the Lease; or                            (viii)     the failure of the Lessor to have a good and marketable fee estate in the Property or any portion thereof, as required by the Operative Documents, free and clear of all Liens (including Permitted Liens) and exceptions to title, except (A) such Liens or exceptions to title that existed on the relevant Land Interest Acquisition Date and were disclosed in the relevant title report delivered in respect of such portion of the Property and approved by the Agent; (B) Liens that would be released as a result of consummation of the Remarketing Option or other required sale of the Property; (C) Lessor Liens and (D) easements, rights-of-way, agreements and other rights permitted by Section 12.2 of the Lease.              Section 13.3    Environmental Indemnity. Without limitation of the other provisions of this Section 13, the Lessee hereby agrees to indemnify, hold harmless and defend each Indemnitee, on an After Tax Basis, from and against any and all claims (including without limitation third party claims for personal injury or real or personal property damage), losses (including but not limited to any loss of value of the Property), damages, liabilities, fines, penalties, charges, administrative and judicial proceedings (including informal proceedings) and orders, judgments, remedial action, requirements, enforcement actions of any kind, and all reasonable and documented costs and expenses incurred in connection therewith (including but not limited to reasonable and documented attorneys' and/or paralegals' fees and expenses), including, but not limited to, all costs incurred in connection with any investigation or monitoring of site conditions or any clean–up, remedial, removal or restoration work by any foreign, federal, state or local government agency, which such Indemnitee becomes subject to because of its involvement with the Property, the transactions contemplated by the Operative Documents or any other matter referred to in paragraphs (a) through (i) of Section 13.1 arising in whole or in part, out of:                            (a)         the presence on or under the Property of any Hazardous Substances, or any Releases or discharges of any Hazardous Substances on, under, from or onto the Property;                            (b)        any activity, including, without limitation, construction, carried on or undertaken on or off the Property, and whether by the Lessee, the Lessor, the Existing Owner, any predecessor in title or any sublessee or any employees, agents, contractors or subcontractors of the Lessee, the Lessor, the Existing Owner or any predecessor in title, or any other Persons (including such Indemnitee), in connection with the handling, treatment, removal, storage, decontamination, cleanup, transport or disposal of any Hazardous Substances that at any time are located or present on or under or that at any time migrate, flow, percolate, diffuse or in any way move onto or under the Property;                            (c)         loss of or damage to any property or the environment (including, without limitation, cleanup costs, response costs, remediation and removal costs, cost of corrective action, costs of financial assurance, fines and penalties and natural resource damages), or death or injury to any Person, and all expenses associated with the protection of wildlife, aquatic species, vegetation, flora and fauna, and any mitigative action required by or under Environmental Laws;                            (d)        any claim concerning lack of compliance with Environmental Laws, or any act or omission causing an environmental condition that requires remediation or would allow any Governmental Authority to record a Lien on the land records;                            (e)         any residual contamination on or under the Property, or affecting any natural resources, or any contamination of any property or natural resources arising in connection with the generation, use, handling, storage, transport or disposal of any such Hazardous Substances, and irrespective of whether any of such activities were or will be undertaken in accordance with applicable Environmental Laws; or                            (f)         any material inaccuracies, misrepresentations, misstatements, and omissions and any conflicting information contained in or omitted from the Environmental Audit; provided, however, the Lessee shall not be required to indemnify any Indemnitee under this Section 13.3 for (1) any Claim to the extent resulting from the willful misconduct or gross negligence of such Indemnitee (it being understood that the Lessee shall be required to indemnify an Indemnitee even if the ordinary (but not gross) negligence of such Indemnitee caused or contributed to such Claim), (2) any Imposition or other claims for Taxes of the type(s) described in Section 13.5, (3) any Claims of the type(s) described in Sections 13.2, 13.6, 13.7, 13.8 and 13.10 or (4) any Claim in respect of the Pre-Existing Environmental Conditions, provided that clause (4) shall not be deemed or construed so as to limit Lessor's rights and remedies under the Lockheed Indemnification Agreements.  It is expressly understood and agreed that the indemnity provided for herein shall survive the expiration or termination of and shall be separate and independent from any remedy under the Lease or any other Operative Document.              Section 13.4    Proceedings in Respect of Claims. With respect to any amount that the Lessee is requested by an Indemnitee to pay by reason of Section 13.1 or 13.3, such Indemnitee shall, if so requested by the Lessee and prior to any payment, submit such additional information to the Lessee as the Lessee may reasonably request and which is in the possession of such Indemnitee to substantiate properly the requested payment.              In case any action, suit or proceeding shall be brought against any Indemnitee, such Indemnitee shall notify the Lessee of the commencement thereof, and the Lessee shall be entitled, at its expense, to participate in, and, to the extent that the Lessee desires to, assume and control the defense thereof; provided, however, that the Lessee shall have acknowledged in writing its obligation to fully indemnify such Indemnitee in respect of such action, suit or proceeding, and the Lessee shall keep such Indemnitee fully apprised of the status of such action, suit or proceeding and shall provide such Indemnitee with all information with respect to such action, suit or proceeding as such Indemnitee shall reasonably request, and provided further, that the Lessee shall not be entitled to assume and control the defense of any such action, suit or proceeding if and to the extent that, (A) in the reasonable opinion of such Indemnitee, (x) such action, suit or proceeding involves any possibility of imposition of criminal liability or any risk of material civil liability on such Indemnitee or will involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Exception) on, the Property or any part thereof unless, in the case of civil liability or Lien, the Lessee shall have posted a bond or other security satisfactory to the relevant Indemnitee in respect to such risk or (y) the control of such action, suit or proceeding would involve an actual or potential conflict of interest, (B) such proceeding involves Claims not fully indemnified by the Lessee which the Lessee and the Indemnitee have been unable to sever from the indemnified claim(s), or (C) an Event of Default under the Lease has occurred and is continuing.  The Indemnitee may participate in a reasonable manner at its own expense and with its own counsel in any proceeding conducted by the Lessee in accordance with the foregoing.  The Lessee shall not enter into any settlement or other compromise with respect to any Claim which is entitled to be indemnified under Section 13.1 or 13.3 without the prior written consent of the Indemnitee which consent shall not be unreasonably withheld in the case of a money settlement not involving an admission of liability of such Indemnitee.              Each Indemnitee shall at the expense of the Lessee cooperate with and supply the Lessee with such information and documents reasonably requested by the Lessee as are necessary or advisable for the Lessee to participate in any action, suit or proceeding to the extent permitted by Section 13.1 or 13.3.  Unless an Event of Default shall have occurred and be continuing, no Indemnitee shall enter into any settlement or other compromise with respect to any Claim which is entitled to be indemnified under Section 13.1 or 13.3 without the prior written consent of the Lessee, which consent shall not be unreasonably withheld, unless such Indemnitee waives its right to be indemnified under Section 13.1 or 13.3 with respect to such Claim.              Upon payment in full of any Claim by the Lessee pursuant to Section 13.1 or 13.3 to or on behalf of an Indemnitee, the Lessee, without any further action, shall be subrogated to any and all claims that such Indemnitee may have relating thereto (other than claims in respect of insurance policies maintained by such Indemnitee at its own expense), and such Indemnitee shall execute such instruments of assignment and conveyance, evidence of claims and payment and such other documents, instruments and agreements as may be necessary to preserve any such claims and otherwise cooperate with the Lessee and give such further assurances as are necessary or advisable to enable the Lessee vigorously to pursue such claims.              Any amount payable to an Indemnitee pursuant to Section 13.1 or 13.3 shall be paid to such Indemnitee promptly upon receipt of a written demand therefor from such Indemnitee, accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable.              Section 13.5    General Impositions Indemnity.                            (a)         Indemnification .  The Lessee shall pay and assume liability for, and does hereby agree to indemnify, protect and defend the Property and all Indemnitees, and hold them harmless against, all Impositions on an After Tax Basis.                            (b)        Payments.                            (i)          Subject to the terms of Section 13.5(f), the Lessee shall pay or cause to be paid all Impositions directly to the taxing authorities where feasible and otherwise to the Indemnitee, as appropriate, and the Lessee shall at its own expense, upon such Indemnitee's reasonable request, furnish to such Indemnitee copies of official receipts or other satisfactory proof evidencing such payment.                            (ii)         In the case of Impositions for which no contest is conducted pursuant to Section 13.5(f) and which the Lessee pays directly to the taxing authorities, the Lessee shall pay such Impositions prior to the latest time permitted by the relevant taxing authority for timely payment.  In the case of Impositions for which the Lessee reimburses an Indemnitee, the Lessee shall do so within twenty (20) days after receipt by the Lessee of demand by such Indemnitee describing in reasonable detail the nature of the Imposition and the basis for the demand (including the computation of the amount payable), but in no event shall the Lessee be required to pay such reimbursement prior to thirty (30) days before the latest time permitted by the relevant taxing authority for timely payment.  In the case of Impositions for which a contest is conducted pursuant to Section 13.5(f), the Lessee shall pay such Impositions or reimburse such Indemnitee for such Impositions, to the extent not previously paid or reimbursed pursuant to Section 13.5(a), prior to the latest time permitted by the relevant taxing authority for timely payment after conclusion of all contests under Section 13.5(f).                            (iii)        Impositions imposed with respect to the Property for a billing period during which the Lease expires or terminates (unless the Lessee has exercised the Renewal Option or the Purchase Option with respect to the Property) shall be adjusted and prorated on a daily basis between the Lessee and the Lessor, whether or not such Imposition is imposed before or after such expiration or termination and each party shall pay or reimburse the other for each party's pro rata share thereof.                            (c)         Reports and Returns.  (i) The Lessee shall be responsible for preparing and filing any real and personal property or ad valorem tax returns in respect of the Property.  In case any other report or tax return shall be required to be made with respect to any obligations of the Lessee under or arising out of Section 13.5(a) and of which the Lessee has knowledge or should have knowledge, the Lessee, at its sole cost and expense, shall notify the relevant Indemnitee of such requirement and (except if such Indemnitee notifies the Lessee that such Indemnitee intends to file such report or return) (A) to the extent required or permitted by and consistent with Applicable Law, make and file in its own name such return, statement or report; and (B) in the case of any other such return, statement or report required to be made in the name of such Indemnitee, advise such Indemnitee of such fact and prepare such return, statement or report for filing by such Indemnitee or, where such return, statement or report shall be required to reflect items in addition to any obligations of the Lessee under or arising out of Section 13.5(a), provide such Indemnitee at the Lessee's expense with information sufficient to permit such return, statement or report to be properly made with respect to any obligations of the Lessee under or arising out of Section 13.5(a).  Such Indemnitee shall, upon the Lessee's request and at the Lessee's expense, provide any data maintained by such Indemnitee (and not otherwise available to or within the control of the Lessee) with respect to the Property which the Lessee may reasonably require to prepare any required tax returns or reports.  Each Indemnitee agrees to use its best efforts to send to the Lessee a copy of any written request or other notice that the Indemnitee receives with respect to any reports or returns required to be filed with respect to the Property or the transactions contemplated by the Operative Documents, it being understood that no Indemnitee shall have any liability for failure to provide such copies.                            (d)        Income Inclusions .  If as a result of the payment or reimbursement by the Lessee of any expenses of the Lessor or the payment of any Transaction Expenses incurred in connection with the transactions contemplated by the Operative Documents, the Lessor or any Indemnitee or affiliate shall suffer a net increase in any federal, state,  local or foreign income tax liability, the Lessee shall indemnify such Persons (without duplication of any indemnification required by Section 13.5(a)) on an After Tax Basis for the amount of such increase.  The calculation of any such net increase shall take into account any current or future tax savings realized or reasonably expected to be realized by such Person in respect thereof, as well as any interest, penalties and additions to tax payable by the Lessor, or any Indemnitee or such affiliate, in respect thereof.                            (e)         Withholding Taxes .  As between the Lessee on one hand, and the Lessor or the Agent or any Participant on the other hand, the Lessee shall be responsible for, and, subject to the provisions of Sections 13.5(g) and (h), the Lessee shall indemnify and hold harmless the Lessor, the Agent and the Participants (without duplication of any indemnification required by Section 13.5(a)) on an After Tax Basis against, any obligation for United States or foreign withholding taxes imposed in respect of payments with respect to the Participation Interests or with respect to Rent payments under the Lease or payments of the Asset Termination Value, Lease Balance or Purchase Option Price (and, if the Lessor, the Agent or any Participant receives a demand for such payment from any taxing authority, the Lessee shall discharge such demand on behalf of the Lessor, the Agent or such Participant).                            (f)         Contests of Impositions.                            (i)          If a written claim is made against any Indemnitee or if any proceeding shall be commenced against such Indemnitee (including a written notice of such proceeding), for any Impositions, such Indemnitee shall promptly notify the Lessee in writing and shall not take action with respect to such claim or proceeding without the consent of the Lessee for thirty (30) days after the receipt of such notice by the Lessee; provided, however, that, in the case of any such claim or proceeding, if action shall be required by law or regulation to be taken prior to the end of such thirty (30)-day period, such Indemnitee shall, in such notice to the Lessee, inform the Lessee of such shorter period, and no action shall be taken with respect to such claim or proceeding without the consent of the Lessee before two (2) days before the end of such shorter period; provided, further, that the failure of such Indemnitee to give the notices referred to this sentence shall not diminish the Lessee's obligation hereunder except to the extent such failure precludes the Lessee from contesting all or part of such claim.                            (ii)         If, within thirty (30) days of receipt of such notice from the Indemnitee (or such shorter period as the Indemnitee has notified the Lessee is required by law or regulation for the Indemnitee to commence such contest), the Lessee shall request in writing that such Indemnitee contest such Imposition, the Indemnitee shall, at the expense of the Lessee, in good faith conduct and control such contest (including, without limitation, by pursuit of appeals) relating to the validity, applicability or amount of such Impositions (provided, however, that (A) if such contest involves a tax other than a tax on net income and can be pursued independently from any other proceeding involving a tax liability of such Indemnitee, the Indemnitee, at the Lessee's request, shall allow the Lessee to conduct and control such contest and (B) in the case of any contest, the Indemnitee may request the Lessee to conduct and control such contest) by, in the sole discretion of the Person conducting and controlling such contest, (1) resisting payment thereof, (2) not paying the same except under protest, if protest is necessary and proper, (3) if the payment be made, using reasonable efforts to obtain a refund thereof in appropriate administrative and judicial proceedings, or (4) taking such other action as is reasonably requested by the Lessee from time to time.                            (iii)        The party controlling any contest shall consult in good faith with the non–controlling party and shall keep the non–controlling party reasonably informed as to the conduct of such contest; provided, that all decisions ultimately shall be made in the sole discretion of the controlling party.  The parties agree that an Indemnitee may at any time decline to take further action with respect to the contest of any Imposition and may settle such contest if such Indemnitee shall waive its rights to any indemnity from the Lessee that otherwise would be payable in respect of such claim (and any future claim by any taxing authority, the contest of which is precluded by reason of such resolution of such claim) and shall pay to the Lessee any amount previously paid or advanced by the Lessee pursuant to this Section 13.5 by way of indemnification or advance for the payment of an Imposition other than expenses of such contest.                            (iv)       Notwithstanding the foregoing provisions of this Section 13.5, an Indemnitee shall not be required to take any action and the Lessee shall not be permitted to contest any Impositions in its own name or that of the Indemnitee unless (A) the Lessee shall have agreed to pay and shall pay to such Indemnitee on demand and on an After Tax Basis all reasonable costs, losses and expenses that such Indemnitee actually incurs in connection with contesting such Impositions, including, without limitation, all reasonable legal, accounting and investigatory fees and disbursements, (B) in the case of a claim that must be pursued in the name of an Indemnitee (or an affiliate thereof), the amount of the potential indemnity (taking into account all similar or logically related claims that have been or could be raised in any audit involving such Indemnitee for which the Lessee may be liable to pay an indemnity under this Section 13.5) exceeds $100,000, (C) the Indemnitee shall have reasonably determined that the action to be taken will not result in any material danger of sale, forfeiture or loss of the Property, or any part thereof or interest therein, will not interfere with the payment of Rent, and will not result in risk of criminal liability, (D) if such contest shall involve the payment of the Imposition prior to the contest, the Lessee shall provide to the Indemnitee an interest–free advance in an amount equal to the Imposition that the Indemnitee is required to pay (with no additional net after–tax cost to such Indemnitee), (E) in the case of a claim that must be pursued in the name of an Indemnitee (or an affiliate thereof), the Lessee shall have provided to such Indemnitee an opinion of independent tax counsel selected by the Indemnitee and reasonably satisfactory to the Lessee stating that a reasonable basis exists to contest such claim (or, in the case of an appeal of an adverse determination, an opinion of such counsel to the effect that there is substantial authority for the position asserted in such appeal) and (F) no Event of Default hereunder shall have occurred and be continuing.  In no event shall an Indemnitee be required to appeal an adverse judicial determination to the United States Supreme Court.  In addition, an Indemnitee shall not be required to contest any claim in its name (or that of an affiliate) if the subject matter thereof shall be of a continuing nature and shall have previously been decided adversely by a court of competent jurisdiction pursuant to the contest provisions of this Section 13.5, unless there shall have been a change in law (or interpretation thereof) and the Indemnitee shall have received, at the Lessee's expense, an opinion of independent tax counsel selected by the Indemnitee and reasonably acceptable to the Lessee stating that as a result of such change in law (or interpretation thereof), it is more likely than not that the Indemnitee will prevail in such contest.                            (g)        Documentation of Withholding Status.  Each Participant (or any successor thereto or transferee thereof) that is organized under the laws of a jurisdiction outside of the United States of America shall:                            (i)          on or before the date it becomes a party to any Operative Document, deliver to the Lessor and the Lessee any certificates, documents, or other evidence that shall be required by the Code or Treasury Regulations issued pursuant thereto to establish its exemption from United States Federal withholding requirements, including two valid, duly completed, original copies of Internal Revenue Service Form W-8BEN or Form W-8ECI or successor applicable form, properly and duly executed, certifying in each case that such party is entitled to receive payments pursuant to the Operative Documents without deduction or withholding of United States Federal income taxes and is a foreign person thereby entitled to an exemption from the United States backup withholding taxes; and                            (ii)         on or before the date that any such form described above expires or becomes obsolete, or after the occurrence of any event requiring a change in the most recent such form previously delivered to the Lessor and the Lessee, deliver to the Lessor and the Lessee two further valid, duly  completed, original copies of any such form or certification, properly and duly executed.                            (h)        Limitation on Tax Indemnification.  Subject to Section 13.10, the Lessee shall not be required to indemnify any Indemnitee, or to pay any increased amounts to any Indemnitee or tax authority with respect to any Impositions pursuant to this Section 13.5 to the extent that (i) any obligation to withhold, deduct, or pay amounts with respect to Tax existed on the date such Indemnitee became a party to any Operative Document (and, in such case, the Lessee may deduct and withhold such Tax from payments pursuant to the Operative Documents), or (ii) such Indemnitee fails to comply with the provisions of Section 13.5(g) (and, in such case, the Lessee may deduct and withhold all Taxes required by law as a result of such noncompliance from payments made by the Lessee pursuant to the Operative Documents).  With respect to any transferee of any Participant (including a transfer resulting from any change in the designation of the lending office of a Participant), the transferee shall not be entitled to any greater payment or indemnification under this Section 13.5 than the transferor would have been entitled to.              Section 13.6    Funding Losses.  If any payment of any Advance or any portion of any Participation Interest is made on any day other than the last day of an Interest Period applicable thereto, or if the Lessee fails to utilize the proceeds of any purchase of Participation Interests after notice has been given to the Lessor or any Participant in accordance with Section 3 or 4, the Lessee shall reimburse the Lessor and each Participant on an After Tax Basis within fifteen (15) days after demand for any resulting loss or expense incurred by it, including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, provided that the Lessor or such Participant, as the case may be, shall have delivered to the Lessee a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error.  The Lessor or such Participant, as applicable, will, at the request of the Lessee, furnish such additional information concerning the determination of such loss as the Lessee may reasonably request.              Section 13.7    Regulation D Compensation.  For so long as the Lessor or any Participant is required to increase its existing reserve percentage against "Eurocurrency Liabilities" (or any other category of liabilities which include deposits by reference to which the interest rate on its Participation Interest in any Advance is determined or any category of extensions of credit or other assets which includes loans by a non–United States office of the Lessor or such Participant, as applicable, to United States residents), and, as a result, the cost to the Lessor or such Participant (or such Participant's Funding Office) of purchasing or maintaining its Participation Interest in any Advance is increased, then the Lessor or such Participant may require the Lessee to pay, on an After Tax Basis, contemporaneously with each payment of interest on the Advances an additional amount on the Participation Interest of such Participant in the Advances at a rate per annum up to but not exceeding the excess of (i) (A) the applicable Eurodollar Rate divided by (B) one minus the Eurocurrency Reserve Requirements over (ii) the applicable Eurodollar Rate.              Section 13.8    Basis for Determining Interest Rate Inadequate or Unfair.  If on or prior to the first day of any Interest Period:                            (a)         deposits in Dollars (in the applicable amounts) are not being offered to the Agent in the relevant market for such Interest Period or any Participant shall advise the Agent that the Eurodollar Rate as determined by the Agent will not adequately and fairly reflect the cost to such Participant of funding its Participation Interest in any Advance for such Interest Period; or                            (b)        any Participant determines that, by reason of the adoption, on or after the date of this Participation Agreement, of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Participant (or its Funding Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or governmental agency, it is restricted, directly or indirectly, in the amount it may hold of (i) a category of liabilities that includes deposits by reference to which, or on the basis of which, the interest rate applicable to Advances based on the Eurodollar Rate is directly or indirectly determined, or (ii) the category of assets which includes Advances based on the Eurodollar Rate; the Agent shall forthwith give notice thereof to the Lessee and the Participants, whereupon the obligation of the Participants to provide funding at rates based upon the Eurodollar Rate shall be suspended and, until the Agent notifies the Lessee that the circumstances giving rise to such suspension no longer exist, each outstanding Advance shall begin to bear interest at the Alternate Base Rate on the last day of the then current Interest Period applicable thereto.              Section 13.9    Illegality. If, on or after the date of this Participation Agreement, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Participant (or its Funding Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency, shall make it unlawful or impossible for any Participant (or its Funding Office) to purchase, maintain or fund its Participation Interest in any Advance and such Participant shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Participants and the Lessee, whereupon until such Participant notifies the Lessee and the Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Participant to purchase its Participation Interest in any Advance shall be suspended.  Before giving any notice to the Agent pursuant to this Section, such Participant shall, if practicable, with the consent of the Lessee (which consent shall not unreasonably be withheld), designate a different Funding Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Participant, be otherwise disadvantageous to such Participant.  If such notice is given (i) the Lessee shall be entitled upon its request to a reasonable explanation of the factors underlying such notice and (ii) each outstanding Participation Interest in any Advance of such Participant then outstanding shall begin to bear interest at the Alternate Base Rate either (a) on the last day of the then current Interest Period applicable to such Advance if such Participant may lawfully continue to maintain and fund such Participation Interest to such day or (b) immediately if such Participant shall determine that it may not lawfully continue to maintain and fund such Participation Interest to such day.              Section 13.10   Increased Cost and Reduced Return.                            (a)         In the event that the adoption of any applicable law, rule or regulation, or any change therein or in the interpretation or application thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof or compliance by the Lessor or any Participant with any request or directive after the date hereof (whether or not having the force of law) of any such authority, central bank or comparable agency:                            (i)          does or shall subject the Lessor or such Participant to any additional tax of any kind whatsoever with respect to the Operative Documents or any Advance made by such Person or any purchase of a Participation Interest in any Advance, or change the basis or the applicable rate of taxation of payments to the Lessor or such Participant of its Participation Interest or any other amount payable hereunder (except for the imposition of or change in any tax on or measured by the overall net income of the Lessor or such Participant (other than any such tax imposed by means of withholding));                            (ii)         does or shall impose, modify or hold applicable any reserve, special deposit, insurance assessment, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of the Lessor or such Participant which are not otherwise included in determination of the rate of interest on Advances hereunder; or                            (iii)        does or shall impose on the Lessor or such Participant any other condition; and the result of any of the foregoing is to increase the cost to the Lessor or such Participant of making or maintaining its Advances or purchasing or maintaining its Participation Interest in any Advance or to reduce any amount receivable hereunder with respect thereto, then, in any such case the Lessee shall promptly pay the Lessor or such Participant, as the case may be, upon its demand, on an After Tax Basis any additional amounts necessary to compensate the Lessor or such Participant for such increased cost or reduced amount receivable which the Lessor or such Participant deems to be material as determined by the Lessor or such Participant.                            (b)        If the Lessor or any Participant shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency has or would have the effect of reducing the rate of return on capital of the Lessor or such Participant, as the case may be (or any entity directly or indirectly controlling the Lessor or such Participant), as a consequence of the Lessor's or such Participant's obligations under the Operative Documents to a level below that which the Lessor or such Participant (or any entity directly or indirectly controlling the Lessor or such Participant), as applicable, could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by the Lessor or such Participant to be material, then from time to time, within 15 days after demand by the Lessor or such Participant (with a copy to the Agent), the Lessee shall pay to the Lessor or such Participant, as the case may be, on an After Tax Basis, such additional amount or amounts as will compensate such Participant (or its parent) or the Lessor for such reduction.                            (c)         The Lessor and each Participant will promptly notify the Lessee and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle the Lessor or such Participant, as the case may be, to compensation pursuant to this Section and will, if practicable, with the consent of the Lessee (which consent shall not unreasonably be withheld), designate a different Funding Office or take any other reasonable action if such designation or action will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of the Lessor or such Participant, as applicable, be otherwise disadvantageous to the Lessor or  such Participant.  A certificate of the Lessor or any Participant claiming compensation under this Section and setting forth in reasonable detail its computation of the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error.  In determining such amount, the Lessor or such Participant, as the case may be,  may use any reasonable averaging and attribution methods.  This Section shall survive the termination of this Participation Agreement and payment of the outstanding Advances and Participation Interests.              Section 13.11   Substitution of Participant. If (i) the obligation of any Participant to purchase or maintain its Participation Interest has been suspended pursuant to this Section 13, or (ii) any Participant has demanded compensation or given notice of its intention to demand compensation under Section 13.10, the Lessee shall have the right, with the assistance of the Agent, to seek one or more mutually satisfactory substitute banks or financial institutions (which may be one or more of the Participants) to replace such Participant under the Operative Documents.              Section 13.12   Indemnity Payments in Addition to Residual Value Guarantee Amount.  The Lessee acknowledges and agrees that its obligations to make indemnity payments under this Section 13 are separate from, in addition to, and do not reduce, its obligation to pay, the Residual Value Guarantee Amount under the Lease; provided, that in the event the Lessee elects the Remarketing Option, the Lessee shall only be required to pay any Shortfall Amount to the extent set forth in Section 13.2 hereof. SECTION 14 THE AGENT              Section 14.1    Appointmen t. Each Participant hereby irrevocably designates and appoints the Agent as the agent of such Participant under this Agreement and the other Operative Documents, and each Participant irrevocably authorizes the Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Operative Documents and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement and the other Operative Documents, together with such other powers as are reasonably incidental thereto.  Notwithstanding any provision to the contrary elsewhere in this Agreement, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Participant or any other party to the Operative Documents, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Operative Document or otherwise exist against the Agent.              Section 14.2    Delegation of Duties.  The Agent may execute any of its duties under this Agreement and the other Operative Documents by or through agents or attorneys–in–fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties.  The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys–in–fact selected by it with reasonable care.              Section 14.3    Exculpatory Provisions.  Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in–fact or affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Operative Document (except for its or such Person's own gross negligence or willful misconduct or negligence with respect to the handling of funds) or (b) responsible in any manner to any of the Participants or any other party to the Operative Documents for any recitals, statements, representations or warranties made by the Lessor, or the Lessee or any officer thereof contained in this Agreement or any other Operative Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Operative Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Operative Document or for any failure of the Lessor or the Lessee to perform its obligations hereunder or thereunder.  The Agent shall not be under any obligation to any Participant or any other party to the Operative Documents to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Operative Document, or to inspect the properties, books or records of the Lessor or the Lessee.              Section 14.4    Reliance by Agent. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Lessor or the Lessee), independent accountants and other experts selected by the Agent.  The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Operative Document unless it shall first receive such advice or concurrence of the Required Participants as it deems appropriate or it shall first be indemnified to its satisfaction by the Participants against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action.  The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Operative Documents in accordance with a request of the Required Participants, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Participants.              Section 14.5    Notice of Default.  The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless the Agent has received notice from a Participant, the Lessor or the Lessee describing such Default or Event of Default and stating that such notice is a "notice of default".  In the event that the Agent receives such a notice, the Agent shall give notice thereof to the other parties hereto.  The Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Participants; provided that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Participants.              Section 14.6    Non-Reliance on Agent and Other Participants. Each Participant expressly acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys–in–fact or affiliates has made any representations or warranties to it and that no act by the Agent hereinafter taken, including any review of the affairs of the Lessor or the Lessee, shall be deemed to constitute any representation or warranty by the Agent to any Participant.  Each Participant represents to the Agent that it has, independently and without reliance upon the Agent or any other Participant, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Lessor, the Lessee and the Property and made its own decision to purchase its Participation Interest hereunder and enter into this Agreement.  Each Participant also represents that it will, independently and without reliance upon the Agent, the Lessor or any other Participant, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Operative Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Lessor and the Lessee.  Except for notices, reports and other documents expressly required to be furnished to the Participants by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Participant with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Lessor or the Lessee which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys–in–fact or affiliates.              Section 14.7    Indemnification.  The Participants agree to indemnify the Agent in its capacity as such (to the extent not reimbursed by the Lessee and without limiting the obligation of the Lessee to do so), ratably according to their respective Commitment Percentages in effect on the date on which indemnification is sought under this Section 14.7 (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Participation Interests shall have been paid in full, ratably in accordance with their Commitment Percentages in effect immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Participation Interests) be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of, the Commitments, this Agreement, the Property, any of the other Operative Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by any of them under or in connection with any of the foregoing; provided that no Participant shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the gross negligence or willful misconduct of the Agent.  The agreements in this Section 14.7 shall survive the payment of the Participation Interests and all other amounts payable hereunder.              Section 14.8    Agent in its Individual Capacity.  The Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Lessor or the Lessee as though the Agent were not the  Agent hereunder and under the other Operative Documents.  With respect to its Participation Interest purchased by it, the Agent shall have the same rights and powers under this Agreement and the other Operative Documents as any Participant and may exercise the same as though it were not the Agent, and the terms "Participant" and "Participants" shall include the Agent in its individual capacity.              Section 14.9    Successor Agent.  The Agent may resign as Agent upon thirty (30) days' notice to the Participants, the Lessor and the Lessee.  If the Agent shall resign as Agent under this Agreement and the other Operative Documents, then the Required Participants shall appoint a successor Agent for the Participants.  Any such successor Agent shall be a commercial bank organized under the laws of the United States of America or any State thereof or under the laws of another country which is doing business in the United States of America and having a combined capital, surplus and undivided profits of at least $100,000,000 (provided that so long as no Default or Event of Default exists, the successor Agent shall be approved by the Lessee (which approval shall not be unreasonably withheld)).  Upon such appointment (a) such successor Agent shall succeed to the rights, powers and duties of the Agent, and the term "Agent" shall mean such successor Agent effective upon such appointment, and (b) 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.  If no successor Agent has accepted appointment as Agent by the date which is thirty (30) days following a resigning Agent's notice of resignation, the resigning Agent's resignation shall nevertheless thereupon become effective and the Participants shall perform all of the duties of the Agent hereunder until such time, if any, as the Required Participants appoint a successor Agent as provided above.  After any retiring Agent's resignation as Agent, all of the provisions of this Section 14 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Operative Documents. SECTION 15 MISCELLANEOUS              Section 15.1    Survival of Agreements.  The representations, warranties, covenants, indemnities and agreements of the parties provided for in the Operative Documents, and the parties' obligations under any and all thereof, shall survive the execution and delivery of this Participation Agreement, the transfer of the Property to the Lessor, any disposition of any interest of the Lessor in the Property or any portion thereof, payment of the Advances and the Participation Interests and any disposition thereof and shall be and continue in effect notwithstanding any investigation made by any party or the fact that any party may waive compliance with any of the other terms, provisions or conditions of any of the Operative Documents.  Except as otherwise expressly set forth herein or in other Operative Documents, the indemnities of the parties provided for in the Operative Documents shall survive the expiration or termination of any thereof.              Section 15.2    No Broker, etc.  Each of the parties hereto represents to the others that it has not retained or employed any broker, finder or financial adviser to act on its behalf in connection with this Participation Agreement or the transactions contemplated herein, nor has it authorized any broker, finder or financial adviser retained or employed by any other Person so to act.  Any party who is in breach of this representation shall indemnify and hold the other parties harmless on an After Tax Basis from and against any liability arising out of such breach of this representation.              Section 15.3    Notices.  Unless otherwise specifically provided herein, all notices, consents, directions, approvals, instructions, requests and other communications required or permitted by the terms hereof to be given to any Person shall be given in writing and delivered (i) personally, (ii) by a nationally recognized overnight courier service, (iii) by mail (by registered or certified mail, return receipt requested, postage prepaid) or (iv) by facsimile, in each case directed to the address of such Person as indicated on Schedule II.  Any such notice shall be effective upon receipt or refusal.  From time to time any party may designate a new address for purposes of notice hereunder by written notice to each of the other parties hereto in accordance with this Section.              Section 15.4    Counterparts.  This Participation Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.              Section 15.5    Headings, etc. The Table of Contents and headings of the various Sections of this Agreement are for convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions hereof.              Section 15.6    Parties in Interest. Except as expressly provided herein, none of the provisions of this Participation Agreement are intended for the benefit of any Person except the parties hereto.  Subject to the provisions of  Section 25.1 of the Lease, the Lessee shall not assign or transfer any of its rights or obligations under the Operative Documents without the prior written consent of the Lessor, the Agent and the Participants.              Section 15.7    GOVERNING LAW. THIS PARTICIPATION AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING ANY CONFLICT–OF–LAW OR CHOICE-OF-LAW RULES WHICH MIGHT LEAD TO THE APPLICATION OF THE INTERNAL LAWS OF ANY OTHER JURISDICTION) AS TO ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.              Section 15.8    Severability. Any provision of this Participation Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.              Section 15.9    Liability Limited.                            (a)         The Lessee, the Agent, and the Participants each acknowledge and agree that the Lessor shall not be liable or accountable under any circumstances whatsoever in its individual capacity for or on account of any statements, representations, warranties, covenants or obligations stated to be those of the Lessor, except for its own gross negligence or willful misconduct or negligence in the handling of funds and as otherwise expressly provided herein or in the other Operative Documents, and it is understood and agreed that all obligations of the Lessor to the Lessee, the Agent and any Participant under the Operative Documents are solely nonrecourse obligations (except as otherwise expressly provided therein) enforceable only against the Lessor's interest in the Property.                            (b)        No Participant shall have any obligation to any other Participant or to the Lessee, the Lessor or the Agent with respect to transactions contemplated by the Operative Documents, except those obligations of such Participant expressly set forth in the Operative Documents or except as set forth in the instruments delivered in connection therewith, and no Participant shall be liable for performance by any other party hereto of such other party's obligations under the Operative Documents except as otherwise so set forth.              Section 15.10  Further Assurances . The parties hereto shall promptly cause to be taken, executed, acknowledged or delivered, at the sole expense of the Lessee, all such further acts, conveyances, documents and assurances as the other parties may from time to time reasonably request in order to carry out and effectuate the intent and purposes of this Participation Agreement, the other Operative Documents, and the transactions contemplated hereby and thereby (including, without limitation, the preparation, execution and filing of any and all Uniform Commercial Code financing statements and other filings or registrations which the parties hereto may from time to time request to be filed or effected).  The Lessee, at its own expense and without need of any prior request from any other party, shall take such action as may be necessary (including any action specified in the preceding sentence), or (if the Lessor shall so request) as so requested, in order to maintain and protect all security interests provided for hereunder or under any other Operative Document.              Section 15.11  Submission to Jurisdiction.  The Lessee hereby submits to the nonexclusive jurisdiction of the United States District Court for the Northern District of California and of any California court sitting in Santa Clara County for purposes of all legal proceedings arising out of or relating to the Operative Documents or the transactions contemplated hereby.  The Lessee irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.              Section 15.12  Confidentiality.  The Lessor, the Agent and each Participant (other than the Tranche Y Participant) represent that they will maintain the confidentiality of the transactions contemplated by, and of any written or oral information provided under, the Operative Documents by or on behalf of the Lessee, and of any information obtained pursuant to exercise of inspection rights provided under the Operative Documents (hereinafter collectively called "Confidential Information"), subject to the Lessor's, the Agent's and each such Participant's (a) obligation to disclose any such Confidential Information pursuant to a request or order under applicable laws and regulations or pursuant to a subpoena or other legal process, (b) right to disclose any such Confidential Information to its bank examiners, affiliates, auditors, counsel and other professional advisors and to other Participants, (c) right to disclose any such Confidential Information in connection with any litigation or dispute involving the Participants and the Lessee or any of its Subsidiaries and Affiliates and (d) right to provide such information to Sub-Participants, prospective Sub-Participants to which sales of participating interests are permitted pursuant to this Participation Agreement and prospective assignees to which assignments of interests are permitted pursuant to this Participation Agreement, but only if (i) such Sub-Participant, prospective Sub-Participant or prospective assignee agrees in writing to maintain the confidentiality of such information on terms substantially similar to those of this Section as if it were a "Participant" party hereto and (ii) the Lessee receives copies of such written agreement prior to the release of such information.  Notwithstanding the foregoing, any such information supplied to a Participant, Sub-Participant, prospective Sub-Participant or prospective assignee under this Participation Agreement shall cease to be Confidential Information if it is or becomes known to such Person by other than unauthorized disclosure, or if it becomes a matter of public knowledge.              Section 15.13  WAIVER OF JURY TRIAL .  EACH OF THE LESSEE, THE AGENT, THE LESSOR, AND EACH PARTICIPANT HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE OPERATIVE DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY. [signature page follows]              IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written.   YAHOO! INC., as Lessee   By: /s/ Susan L. Decker --------------------------------------------------------------------------------   Name: Susan L. Decker --------------------------------------------------------------------------------   Title: Senior Vice President, Finance and Administration and Chief Financial Officer --------------------------------------------------------------------------------   LEASE PLAN NORTH AMERICA, INC.,   as Lessor and as a Participant   By: /s/ David M. Shipley --------------------------------------------------------------------------------   Name: David M. Shipley --------------------------------------------------------------------------------   Title: Vice President --------------------------------------------------------------------------------   ABN AMRO BANK N.V., as Agent   By: /s/ David M. Shipley --------------------------------------------------------------------------------   Name: David M. Shipley --------------------------------------------------------------------------------   Title: Vice President --------------------------------------------------------------------------------   By: /s/ Elizabeth M. Walker --------------------------------------------------------------------------------   Name: Elizabeth M. Walker --------------------------------------------------------------------------------   Title: Vice President --------------------------------------------------------------------------------   ABN AMRO BANK N.V., as a Participant   By: /s/ David M. Shipley --------------------------------------------------------------------------------   Name: David M. Shipley --------------------------------------------------------------------------------   Title: Vice President --------------------------------------------------------------------------------   By: /s/ Elizabeth M. Walker --------------------------------------------------------------------------------   Name: Elizabeth M. Walker --------------------------------------------------------------------------------   Title: Vice President --------------------------------------------------------------------------------   YAHOO! INC., as Tranche Y Participant   By: /s/ Susan L. Decker --------------------------------------------------------------------------------   Name: Susan L. Decker --------------------------------------------------------------------------------   Title: Senior Vice President, Finance and Administration and Chief Financial Officer --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- APPENDIX 1 to Participation Agreement, Master Lease and Mortgage each dated as of March 16, 2001 (Sunnyvale, California Corporate Headquarters) DEFINITIONS AND INTERPRETATION --------------------------------------------------------------------------------              A.         Interpretation. In each Operative Document, unless a clear contrary intention appears:              (i)          the singular number includes the plural number and vice versa;              (ii)         reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by the Operative Documents, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually;              (iii)        reference to any gender includes each other gender;              (iv)       reference to any agreement (including any Operative Document), document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms of the other Operative Documents and reference to any promissory note includes any promissory note which is an extension or renewal thereof or a substitute or replacement therefor;              (v)        reference to any Applicable Law means such Applicable Law as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder, and reference to any section or other provision of any Applicable Law means that provision of such Applicable Law from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision;              (vi)       reference in any Operative Document to any Article, Section, Appendix, Schedule, or Exhibit means such Article or Section thereof or Appendix, Schedule or Exhibit thereto;              (vii)      "hereunder", "hereof", "hereto" and words of similar import shall be deemed references to an Operative Document as a whole and not to any particular Article, Section or other provision thereof;              (viii)     "including" (and with correlative meaning "include") means including without limiting the generality of any description preceding such term;              (ix)        "or" is not exclusive; and                 (x)         relative to the determination of any period of time, "from" means "from and including" and "to" means "to but excluding".              B.          Accounting Terms. In each Operative Document, unless expressly otherwise provided, accounting terms shall be construed and interpreted, and accounting determinations and computations shall be made, in accordance with GAAP.              C.          Conflict in Operative Documents. If there is any conflict between any Operative Documents, such Operative Document shall be interpreted and construed, if possible, so as to avoid or minimize such conflict but, to the extent (and only to the extent) of such conflict, the Participation Agreement shall prevail and control.              D.         Legal Representation of the Parties. The Operative Documents were negotiated by the parties with the benefit of legal representation and any rule of construction or interpretation otherwise requiring the Operative Documents to be construed or interpreted against any party shall not apply to any construction or interpretation hereof or thereof.              E.          Defined Terms. Unless a clear contrary intention appears, terms defined herein have the respective indicated meanings when used in each Operative Document.              "Account" is defined in Section 3.10 of the Participation Agreement.              "Accountants" means PriceWaterhouseCoopers LLP, or such other firm of independent certified public accountants of recognized national standing selected by the Lessee.              "Acquisition Request" is defined in Section 3.3 of the Participation Agreement.              "Acquisition/Funding Condition" is defined in Section 6.5 of the Participation Agreement.              "Adjusted Percentage" is defined in Section 11.4 of the Participation Agreement.              "Advance" means an advance of funds by the Lessor pursuant to Section 3.2 of the Participation Agreement which will be used to pay Property Costs.              "Adverse Proceeding" means any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration (whether or not purportedly on behalf of the Lessee or any of its Subsidiaries) at law or in equity, or before or by any Governmental Authority (including any Environmental Claims), pending against the Lessee or any of its Subsidiaries or any property of the Lessee or any of its Subsidiaries.              "Affiliate" shall mean, with respect to any Person, each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person; provided, however, that in no case shall the Lessor, the Agent or any Participant (other than the Tranche Y Participant) be deemed to be an Affiliate of the Lessee or any of its Subsidiaries for purposes of the Operative Documents.  For the purpose of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise.              "After Tax Basis" means, with respect to any payment to be received, the amount of such payment increased so that, after deduction of the amount of all taxes (assuming for this purpose that the recipient of such payment is subject to taxes at the then maximum marginal rates generally applicable to Persons of the same type as the recipient) required to be paid by the recipient (less any tax savings realized as a result of the payment of the indemnified amount) with respect to the receipt by the recipient of such amounts, such increased payment (as so reduced) is equal to the payment otherwise required to be made.              "Agent" means ABN AMRO Bank N.V., as Agent for the Participants pursuant to the Participation Agreement, or any successor or additional Agent appointed in accordance with the terms of the Participation Agreement.              "Agent Financing Statements" means UCC financing statements appropriately completed and executed for filing in the applicable jurisdiction in order to perfect a security interest in favor of the Agent for the ratable benefit of the Participants in any Improvements on the Property.              "Aggregate Commitments"  means the aggregate Commitments of all Participants collectively.              "Alternate Base Rate" means, for any period an interest rate per annum equal to the higher of (a) the rate of interest most recently announced by the Agent in the United States from time to time as its prime rate for calculating interest on certain loans, which need not be the lowest interest rate charged by the Agent and (b) the Federal Funds Effective Rate most recently determined by the Agent plus .50%.  If either of the aforesaid rates or equivalent changes from time to time after the date of the Participation Agreement, the Alternate Base Rate shall be automatically increased or decreased, if appropriate and as the case may be, without notice to the Lessee or the Lessor, as of the effective time of each change.              "Alternate Base Rate Advance" means as of any date of determination all Advances or portions thereof (and related purchases of Tranche C Equity Interests therein) which then bear interest or accrue yield by reference to the Alternate Base Rate.              "Applicable Law" means all existing and future domestic and foreign applicable laws, rules, regulations (including Environmental Laws), statutes, treaties, codes, ordinances, permits, certificates, covenants, restrictions, requirements, orders and licenses of and interpretations by, any Governmental Authorities, and applicable judgments, decrees, injunctions, writs, orders or like action of any court, arbitrator or other administrative, judicial or quasi-judicial tribunal or agency of competent jurisdiction (including those pertaining to health, safety or the environment (including, without limitation, wetlands) and those pertaining to the construction, use or occupancy of the Property) and any restrictive covenant or deed restriction or easement affecting all or any portion of the Property.              "Applicable Margin" shall mean the following per annum percentages expressed in basis points as set forth below: Applicable Margin Table --------------------------------------------------------------------------------       Tranche A -------------------------------------------------------------------------------- Tranche B -------------------------------------------------------------------------------- Tranche C --------------------------------------------------------------------------------       0 bps 30.0 bps 180.0 bps              "Appraisal" means, with respect to the Property, an appraisal, prepared by a reputable appraiser approved by the Lessor and the Agent, which in the judgment of counsel to the Lessor and the Agent, complies with all of the provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended, the rules and regulations adopted pursuant thereto, and all other applicable Requirements of Law, which appraisal will (i) appraise the Fair Market Sales Value of the Property as built in accordance with the Plans and Specifications for the Phase I Facility and the Phase II Facility as of the Closing Date and as of the Expiration Date; and (ii) contain an estimate of the useful life of each of the Phase I Improvements and the Phase II Improvements as of each such date, all in a form satisfactory to the Lessor and the Agent.              "Appurtenant Rights" means (i) all agreements, easements, rights of way or use, rights of ingress or egress, privileges, appurtenances, tenements, hereditaments and other rights and benefits at any time belonging or pertaining to any Land Interest or any Improvements, including, without limitation, the use of any streets, ways, alleys, passages, sewer rights, waters, water courses, water rights and powers, vaults or strips of land adjoining, abutting, adjacent or contiguous to any Land Interest or any Improvements (now existing or to be designed and constructed by the Existing Owner pursuant to the Property Purchase Agreement) and (ii) all permits, licenses and rights, whether or not of record, appurtenant to any Land Interest.              "Architect" means a duly licensed architect and/or an architectural firm providing architectural design services in respect of the Improvements, which architect or firm shall be reasonably acceptable to the Lessor and the Lessee.              "Arrangement Fee" is defined in Section 4.2 of the Participation Agreement.              "Arranger" means ABN AMRO Bank N.V.              "Asset Termination Value" means, as of any date of determination, an amount equal to the sum of the aggregate outstanding principal amount of the Advances, all accrued and unpaid interest and yield thereon, and all other amounts owing by the Lessee under the Operative Documents.              "Assignment and Acceptance" is defined in Section 12.1(b) of the Participation Agreement.              "Assignment of Lease" means the Assignment of Lease, dated as of the Closing Date, from the Lessor to the Agent for the benefit of the Participants, and consented to by the Lessee pursuant to that certain Lessee's Consent, dated as of the Closing Date (the "Consent to Assignment") by the Lessee, as obligor, in favor of the Agent for the benefit of the Participants, in each case in the respective forms set forth in Exhibit H to the Participation Agreement.              "Assignment of Property Purchase Agreement" means the Assignment of Purchase Agreement, dated as of the Closing Date, between Yahoo! Inc. and Lessor with respect to the Property Purchase Agreement.              "Available Commitments" means as to any Participant at any time, an amount equal to the excess, if any, of (a) the amount of such Participant's Commitment over (b) the aggregate amount of its Participation Interest in all Advances made by the Lessor then outstanding.              "Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect.              "Basic Rent" means the sum of the interest and yield on Advances due on any Payment Date as set forth in Section 3.7 of the Participation Agreement.              "Board" means the Board of Governors of the Federal Reserve System of the United States (or any successor).              "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banks in Chicago, Illinois, New York, New York, Santa Clara, California, or (if interest is being determined by reference to the Eurodollar Rate) London, England, are generally authorized or obligated, by law or executive order, to close.              "Capital Asset" shall mean with respect to any Person, any tangible fixed or capital asset owned or leased (in the case of a Capital Lease) by such Person, or any expense incurred by such Person that is required by GAAP to be reported as a non-current asset on such Person's balance sheet.              "Capital Expenditures" shall mean with respect to the Lessee and its Subsidiaries and any period, all expenses accrued by the Lessee and its Subsidiaries during such period for the acquisition of Capital Assets (including all indebtedness incurred or assumed in connection with Capital Leases).              "Capital Lease" means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person.              "Cash" means money, currency or a credit balance in any demand or Deposit Account.              "Cash Collateral" is defined in Section 2.1 of the Cash Collateral Agreement.              "Cash Collateral Agreement" means the Cash Collateral Agreement dated as of the Closing Date among the Lessee, the Lessor, the Agent and ABN AMRO Bank N.V. as Depositary Bank in the form of Exhibit I to the Participation Agreement.                "Cash Equivalents" means, as at any date of determination: (a)         Direct obligations of, or obligations the principal and interest on which are unconditionally guaranteed by, the United States of America or obligations of any agency of the United States of America 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)        Certificates of deposit maturing within one year from the date of acquisition thereof issued by a commercial bank or trust company organized under the laws of the United States of America or a state thereof or that is a Participant, provided that (A) such deposits are denominated in Dollars, (B) such bank or trust company has capital, surplus and undivided profits of not less than $1,000,000,000 and (C) such bank or trust company has certificates of deposit or other debt obligations rated at least A-1 (or its equivalent) by S&P or P-1 (or its equivalent) by Moody's; (c)         Open market commercial paper maturing within one year from the date of acquisition thereof issued by a corporation organized under the laws of the United States of America or a state thereof, provided such commercial paper is rated at least A-1 (or its equivalent) by S&P or P-1 (or its equivalent) by Moody's; and (d)        Any repurchase agreement entered into with a commercial bank or trust company organized under the laws of the United States of America or a state thereof or that is a Participant, provided that (A) such bank or trust company has capital, surplus and undivided profits of not less than $1,000,000,000, (B) such bank or trust company has certificates of deposit or other debt obligations rated at least A-1 (or its equivalent) by S&P or P-1 (or its equivalent) by Moody's, (C) the repurchase obligations of such bank or trust company under such repurchase agreement are fully secured by a perfected security interest in a security or instrument of the type described in clause (a), (b) or (c) above and (D) such security or instrument so securing the repurchase obligations has fair market value at the time such repurchase agreement is entered into of not less than 100% of such repurchase obligations.              "Casualty" means any damage to or destruction of all or any portion of the Property as a result of fire, flood, earthquake, or other natural cause; the actions or inactions of any Person or Person(s) (whether willful or unintentional and whether or not constituting negligence); or any other cause.              "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. §§ 9601 et seq., as amended by the Superfund Amendments and Reauthorization Act of 1986.              "Certifying Party" is defined in Section 26.1 of the Lease.              "Change of Control" shall mean, with respect to the Lessee, (a) the acquisition after the date hereof by any person or group of persons (within the meaning of Section 13 or 14 of the Exchange Act) of (i) beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC the Exchange Act) of thirty-three percent (33%) or more of the outstanding Equity Securities of the Lessee entitled to vote for members of the board of directors of the Lessee, or (ii) all or substantially all of the assets of the Lessee and its Subsidiaries taken as a whole or (b) during any period of twelve (12) consecutive calendar months, individuals who are directors of the Lessee on the first day of such period ("Initial Directors") and any directors of the Lessee who are specifically approved by two-thirds of the Initial Directors and previously-approved Directors shall cease to constitute a majority of the Board of Directors of the Lessee before the end of such period.              "Claims" means any and all obligations, liabilities, losses, actions, suits, judgments, penalties, fines, claims, demands, settlements, costs and expenses (including, without limitation, reasonable legal fees and expenses) of any nature whatsoever, including, as they relate to issues involving any Environmental Law or Environmental Violation, those for which indemnification is provided pursuant to Section 13.3 of the Participation Agreement.              "Closing Date" is defined in Section 2 of the Participation Agreement.              "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto.              "Commitment" means (i) as to any Participant, the obligation of such Participant to purchase a Participation Interest in Advances to be made by the Lessor under the Participation Agreement, in an aggregate amount at any one time outstanding not to exceed the amount set forth opposite such Participant's name on Schedule I to the Participation Agreement, as such amount may be adjusted from time to time in accordance with the provisions of the Participation Agreement, and (ii) as to the Lessor, the obligation of the Lessor to make Advances from amounts received from the Participants pursuant to the purchase of Participation Interests under the Participation Agreement.              "Commitment Fee" is defined in Section 4.1 of the Participation Agreement.              "Commitment Fee Payment Date" means March 15th, June 15th, September 15th and December 15th of each year and the last day of the Commitment Period or such earlier date as the Commitments shall terminate as provided in the Operative Documents.              "Commitment Fee Rate" means a per annum rate equal to 25 basis points.              "Commitment Percentage" means, with respect to each Participant, the percentage which such Participant's Commitment then constitutes of the aggregate Commitments of the Participants to purchase a Participation Interest in Advances, as set forth on Schedule I to the Participation Agreement (or at any time after the Commitments of the Participants to purchase Participation Interests in Advances shall have expired or terminated, the percentage which the aggregate amount of such Participant's Advances (or related purchases of Participation Interests therein) then outstanding constitutes of the aggregate amount of the Advances (or related purchases of Participation Interests therein) then outstanding).              "Commitment Period" means the period from and including the Closing Date to but not including the earlier of (a) the Land Interest Acquisition Date with respect to the Phase II Facility, (b) July 31, 2001, or (c) such earlier date on which the Commitments shall terminate as provided in the Operative Documents.              "Condemnation" means any condemnation, requisition, confiscation, seizure or other taking or sale of the use, access, occupancy, easement rights or title to the Property or any portion thereof, wholly or partially (temporarily or permanently), by or on account of any actual or threatened eminent domain proceeding or other taking of action by any Person having the power of eminent domain, but not including an action by a Governmental Authority to change the grade of, or widen the streets adjacent to, the Property or any portion thereof or alter the pedestrian or vehicular traffic flow to the Property or any portion thereof so as to result in change in access to the Property or such portion so long as adequate ingress and egress remains with respect to the Property or such portion, or by or on account of an eviction by paramount title or any transfer made in lieu of any such proceeding or action.  A "Condemnation" shall be deemed to have occurred on the earliest of the dates that use, occupancy or title is taken.              "Confidential Information" is defined in Section 15.12 of the Participation Agreement.              "Consent to Assignment" is defined in the definition of the term "Assignment of Lease".              "Consolidated Assets" means, at any date of determination, the total assets of the Lessee and its Subsidiaries on a consolidated basis in conformity with GAAP.              "Consolidated Liabilities" means, at any date of determination, the total consolidated liabilities of the Lessee and its Subsidiaries on a consolidated basis in accordance with GAAP.              "Consolidated Net Worth" shall mean, with respect to the Lessee at any time, the net worth of the Lessee and its Subsidiaries, determined as Consolidated Assets minus Consolidated Liabilities as determined in accordance with GAAP.              "Contingent Obligation" shall mean, with respect to any Person, (a) any Guaranty Obligation of that Person; and (b) any direct or indirect obligation or liability, contingent or otherwise, of that Person (i) in respect to any Surety Instrument issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings or payments, (ii) as a partner or joint venturer in any partnership or joint venture, (iii) to purchase any materials, supplies or other property from, or to obtain the services of, another Person if the relevant contract or other related document or obligation requires that payment for such materials, supplies or other property, or for such services, shall be made regardless of whether delivery of such materials, supplies or other property is ever made or tendered, or such services are ever performed or tendered, or (iv) in respect to any Rate Contract that is not entered into in connection with a bona fide hedging operation that provides offsetting benefits to such Person.  The amount of any Contingent Obligation shall (subject, in the case of Guaranty Obligations, to the last sentence of the definition of "Guaranty Obligation") be deemed equal to the maximum amount in respect thereof required to be booked as a liability in accordance with GAAP, and shall with respect to item (b)(iv) of this definition be marked to market on a current basis.              "Contractual Obligation" of any Person shall mean any indenture, note, lease, loan agreement, security, deed of trust, mortgage, security agreement, guaranty, instrument, contract, agreement or other form of contractual obligation or undertaking to which such Person is a party or by which such Person or any of its property is bound.              "Covered Liabilities" is defined in Section 11.4 of the Participation Agreement.              "Deed" with respect to the Phase I Facility or the Phase II Facility is defined in Section 6.2(e) of the Participation Agreement.              "Default" means any event or condition which, with the lapse of time or the giving of notice, or both, would constitute an Event of Default.              "Defaulting Participant" means, at any time, any of the Participants which at such time has (i) failed to make a payment when due to the Lessor equal to its Commitment Percentage of an Advance, (ii) has been notified of such failure by the Lessor, and (iii) has not cured such failure by making such payment, together with interest at the Late Payment Rate.              "Deposit Account" means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit.              "Designated Payment Date" means the Expiration Date, the Termination Date or other date of termination of the Lease.              "Dollar" and "$" mean dollars in lawful currency of the United States of America.              "Domestic Subsidiary" means any Subsidiary organized under the laws of the United States of America, any state thereof or the District of Columbia.              "EBITDA" shall mean, with respect to the Lessee for any period, the sum, determined on a consolidated basis in accordance with GAAP, of the following: (a)         The net income or net loss of the Lessee and its Subsidiaries for such period;              plus (b)        The sum (to the extent deducted in calculating net income or loss in clause (a) above) of (i) all Interest Expenses of the Lessee and its Subsidiaries accruing during such period net of all interest income of the Lessee and its Subsidiaries during such period, (ii) all depreciation and amortization expenses of the Lessee and its Subsidiaries accruing during such period, (iii) all rental expenses (including operating and capital lease expenses recognized in accordance with GAAP) of the Lessee and its Subsidiaries accruing during such period, (iv) all income tax expense of the Lessee and its Subsidiaries in respect of such period, and (v) all non-cash expenses recognized in accordance with GAAP in the Lessee's consolidated financial statements that resulted from acquisitions , investment impairments or restructurings (such items will include but not be limited to in-process research and development, goodwill, goodwill impairments, acquired intangible assets, acquired intangible asset impairments and deferred compensation) by the Lessee or its Subsidiaries after the Closing Date.              "Employee Benefit Plan" means any "employee benefit plan" as defined in Section 3(3) of ERISA which is or was maintained or contributed to by the Lessee, any of its Subsidiaries or any of their respective ERISA Affiliates.              "End of the Term Report" is defined in Section 13.2 of the Participation Agreement.              "Environmental Audit" means a Phase One environmental site assessment (the scope and performance of which meets or exceeds ASTM Standard Practice E1527-93 Standard Practice for Environmental Site Assessments: Phase One Environmental Site Assessment Process) of the Property to be acquired by the Lessor on the Land Interest Acquisition Dates or of the Property to be remarketed under the Remarketing Option under the Lease.              "Environmental Certificate" is defined in Section 6.2(c) of the Participation Agreement.              "Environmental Claim" means any investigation, notice, notice of violation, claim, action, suit, proceeding, demand, abatement order or other order or directive (conditional or otherwise), by any Governmental Authority or any other Person, arising (i) pursuant to or in connection with any actual or alleged violation of any Environmental Law; (ii) in connection with any Hazardous Substance or any actual or alleged Hazardous Activity; or (iii) in connection with any actual or alleged damage, injury, threat or harm to health, safety, natural resources or the environment.              "Environmental Law" means, whenever enacted or promulgated, any applicable federal, state, county or local law, statute, ordinance, rule, regulation, license, permit, authorization, approval, covenant, criteria, guideline, administrative or court order, judgment, decree, injunction, code or requirement or any agreement with a Governmental Authority:              (a)         relating to pollution (or the cleanup, removal, remediation or encapsulation thereof, or any other response thereto), or the regulation or protection of human health, safety or the environment, including air, water, vapor, surface water, groundwater, drinking water, land (including surface or subsurface), plant, aquatic and animal life, or              (b)        concerning exposure to, or the use, containment, storage, recycling, treatment, generation, discharge, emission, Release or threatened Release, transportation, processing, handling, labeling, containment, production, disposal or remediation of any Hazardous Substance, Hazardous Condition or Hazardous Activity; in each case as amended and as now or hereafter in effect, and any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries (whether personal or property) or damages due to or threatened as a result of the presence of, exposure to, or ingestion of, any Hazardous Substance, whether such common law or equitable doctrine is now or hereafter recognized or developed.  Applicable laws include, but are not limited to, CERCLA; the Resource Conservation and Recovery Act of 1976, 42 U.S.C. § 6901 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; the Clean Air Act, 42 U.S.C. §§ 7401 et seq.; the National Environmental Policy Act, 42 U.S.C. § 4321; the Refuse Act, 33 U.S.C. §§ 401 et seq.; the Hazardous Materials Transportation Act of 1975, 49 U.S.C. §§ 1801-1812; the Toxic Substances Control Act, 15 U.S.C. §§ 2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. §§ 136 et seq.; the Safe Drinking Water Act, 42 U.S.C. §§ 300f et seq.; and the Occupational Safety and Health Act of 1970, each as amended and as now or hereafter in effect, and their state and local counterparts or equivalents, including any regulations promulgated thereunder.              "Environmental Violation" means any activity, occurrence or condition or omission that violates or results in non-compliance with, or could reasonably be expected to give rise to liability under, any Environmental Law.              "Equipment" means equipment, apparatus, furnishings, fittings and personal property of every kind and nature whatsoever purchased, leased or otherwise acquired by the Lessor using the proceeds of the Participation Interests in the Advances now or subsequently attached to, contained in or used or usable in any way in connection with any operation or letting of the Property, including but without limiting the generality of the foregoing, all screens, awnings, shades, blinds, curtains, draperies, carpets, rugs, storm doors and windows, heating, electrical, and mechanical equipment, lighting, switchboards, plumbing, ventilation, air conditioning and air-cooling apparatus, refrigerating, and incinerating equipment, escalators, elevators, loading and unloading equipment and systems, cleaning systems (including window cleaning apparatus), telephone wiring, sprinkler systems and other fire prevention and extinguishing apparatus and materials, security systems,  pipes, pumps, tanks, conduits, fittings and fixtures of every kind and description.              "Equity Securities" of any Person shall mean (a) all common stock, preferred stock, participations, shares, partnership interests or other equity interests in and of such Person (regardless of how designated and whether or not voting or non-voting) and (b) all warrants, options and other rights to acquire any of the foregoing.              "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time or any successor Federal statute.              "ERISA Affiliate" means, as applied to any Person, (i) any corporation which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member.  Any former ERISA Affiliate of the Lessee or any of its Subsidiaries shall continue to be considered an ERISA Affiliate of the Lessee or such Subsidiary within the meaning of this definition with respect to the period such entity was an ERISA Affiliate of the Lessee or such Subsidiary and with respect to liabilities arising after such period for which the Lessee or such Subsidiary could be liable under the Code or ERISA.              "ERISA Event" means (i) the assertion of a material claim (other than routine claims for benefits) against any Employee Benefit Plan or the assets thereof, or against the Lessee, any of its Subsidiaries or any of their respective ERISA Affiliates in connection with any Employee Benefit Plan; or (ii) receipt from the Internal Revenue Service of notice of the failure of any Pension Plan (or any other Employee Benefit Plan intended to be qualified under Section 401(a) of the Code) to qualify under Section 401(a) of the Code, or the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 501(a) of the Code.              "Eurocurrency Reserve Requirements" means, for any day as applied to an Advance, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for Eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board) maintained by a member bank of the Federal Reserve System.              "Eurodollar Rate" means, with respect to each day during each Interest Period, the rate per annum determined by the Agent to be the offered rate per annum at which deposits in Dollars appear with respect to such Interest Period on the Telerate Page 3750 (or any successor page), or if such offered rate is not available, then the rate per annum at which deposits in Dollars appear with respect to such Interest Period on the Reuters Screen LIBOR Page (or any successor page) in each case as of 11:00 a.m. (London time), two Business Days prior to the beginning of such Interest Period or in the event that the foregoing offered rates are not available, then the average (rounded upward to the nearest whole multiple of one sixteenth of one percent per annum, if such average is not such a multiple) of the respective rates notified to the Agent by each of the Participants (other than the Tranche Y Participant) as the rates at which such Participant's Funding Office is offered Dollar 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 for delivery on the first day of such Interest Period for the number of days comprised therein in an amount comparable to the amount of its Participation Interest to be outstanding during such Interest Period.              "Eurodollar Rate Advance" means as of any date of determination all Advances or portions thereof (and related purchases of Tranche C Equity Interests therein) which then bear interest or accrue yield by reference to a Eurodollar Rate.              "Event of Default" is defined in Section 17.1 of the Lease.              "Excepted Payments" means:              (a)         all indemnity payments (including indemnity payments made pursuant to Section 13 of the Participation Agreement) to which the Lessor, or any of its Affiliates, agents, officers, directors or employees is entitled;              (b)        any amounts (other than Basic Rent or amounts payable by Lessee pursuant to Section 16.2, Section 16.3 or Articles XVII, XX or XXII of the Lease) payable under any Operative Document to reimburse the Lessor or any of its respective Affiliates (including the reasonable expenses of the Lessor incurred in connection with any such payment) for performing or complying with any of the obligations of the Lessee under and as permitted by any Operative Document, except to the extent that one or more Participants have indemnified the Lessor with respect thereto pursuant to the Participation Agreement;              (c)         any amount payable to the Lessor by any Participant or transferee permitted under the Operative Documents of the interest of the Lessor as the purchase price of such purchasing Participant's Participation Interest;              (d)        any insurance proceeds (or payments with respect to risks self-insured or policy deductibles) to which the Lessor is entitled under liability policies other than such proceeds or payments payable to the Agent;              (e)         any insurance proceeds under policies maintained by the Lessor;              (f)         Transaction Expenses or other amounts or expenses paid or payable to or for the benefit of the Lessor; and              (g)        any payments in respect of interest to the extent attributable to payments referred to in clauses (a) through (f) above.              "Excess Proceeds" means the excess, if any, of the aggregate of all awards, compensation or insurance proceeds payable in connection with a Casualty or Condemnation over the sum of (a) the aggregate Asset Termination Value paid by the Lessee pursuant to Articles XIV and XV of the Lease with respect to such Casualty or Condemnation, plus (b) any unindemnifiable losses, costs, liabilities or expenses incurred by any Lessor Party.              "Excess Reimbursement" is defined in Section 11.4 of the Participation Agreement.              "Exchange Act" means the Securities and Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.              "Existing Owner" means Sunnyvale Mathilda Land, L.L.C., a Delaware limited liability company.              "Expiration Date" means, as of any date of determination, the later of the Initial Expiration Date or, if a Renewal Term has been granted, the Extended Expiration Date then in effect.              "Expiration Date Purchase Obligation" means the Lessee's obligation, pursuant to Section 20.2 of the Lease, to purchase all (but not less than all) of the Property on the Expiration Date.              "Extended Expiration Date" means a date following the Initial Expiration Date, in the event a Renewal Term, as applicable, has been granted pursuant to Section 21.1 of the Lease, which date shall be as set forth in the most recent Extension Notice delivered by the Agent pursuant to Section 3.6(b) of the Participation Agreement.              "Extended Maturity Date" means a date following the Initial Maturity Date, in the event the Initial Maturity Date has been extended pursuant to Section 3.6(b) of the Participation Agreement, which date shall be as set forth in the most recent Extension Notice delivered by the Agent pursuant to Section 3.6(b) of the Participation Agreement.              "Extension Effective Date" is defined in Section 3.6(b) of the Participation Agreement and Section 21.1 of the Lease.              "Extension Notice" is defined in Section 3.6(b) of the Participation Agreement.              "Extension Request" is defined in Section 3.6(b) of the Participation Agreement.              "Extension Response Date" is defined in Section 3.6(b) of the Participation Agreement.              "Fair Market Sales Value" means, with respect to the Property, the amount, which in any event shall not be less than zero, that would be paid in cash in an arm's-length transaction between an informed and willing purchaser and an informed and willing seller, neither of whom is under any compulsion to purchase or sell, respectively, for the ownership of the Property.  The Fair Market Sales Value of the Property shall be determined based on the assumption that, except for purposes of Article XVII of the Lease and Section 13.2 of the Participation Agreement, the Property is in the condition and state of repair required under Section 10.1 of the Lease and the Lessee is in compliance with the other requirements of the Operative Documents.              "Federal Funds Effective Rate" means, for any day, an interest rate per annum equal 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 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 transaction received by the Agent from three Federal funds brokers of recognized standing selected by it.              "Fee Letter" means that certain commitment and fee letter dated [November ___, 2000] between the Agent and the Lessee.              "Fiscal Quarter" means a fiscal quarter of any Fiscal Year.              "Fiscal Year" means the fiscal year of the Lessee and its Subsidiaries ending on December 31 of each calendar year.              "Fixed Charges" shall mean, for any period, the sum, without duplication, determined on a consolidated basis of (a) Interest Expense of the Lessee and its Subsidiaries for the four Fiscal Quarters ended as of the last day of such period, plus (b) twenty percent (20%) of the outstanding principal balance of all Funded Indebtedness of the Lessee and its Subsidiaries as of the last day of such period, plus (c) all taxes paid or payable in cash by the Lessee and its Subsidiaries to any Governmental Authority during the four Fiscal Quarters ended as of the last day of such period plus (d) the principal component of all obligations in respect of Capital Leases paid or payable by the Lessee and its Subsidiaries during the four Fiscal Quarters ended as of the last day of such period.              "Fixed Charge Coverage Ratio" shall mean, with respect to the Lessee as of any day, the ratio, determined on a consolidated basis, of (a) EBITDA for the period of four consecutive Fiscal Quarters of the Lessee ending on, or most recently preceding, such day, to (b) Fixed Charges for such period.              "Fixtures" means all fixtures relating to the Improvements, including all components thereof, located in or on the Improvements, together with all replacements, modifications, alterations and additions thereto.              "Foreclosure Sale" is defined in Section 17.4 of the Lease.              "Foreign Subsidiary" means any Subsidiary that is not a Domestic Subsidiary.              "Funded Indebtedness" of any Person shall mean, without duplication the following, provided that in no event shall the obligations of the Tranche Y Participant to purchase its Participation Interest in the Advances or of the Lessee with respect to payment of the Participation Interest of the Tranche Y Participant be construed as "Funded Indebtedness" of the Tranche Y Participant: (a)         All obligations of such Person evidenced by notes, bonds, debentures or other similar instruments and all other obligations of such Person for borrowed money (including obligations to repurchase receivables and other assets sold with recourse); (b)        All obligations of such Person for the deferred purchase price of property or services (including obligations under letters of credit and other credit facilities which secure or finance such purchase price and obligations under "synthetic" leases), other than trade payables incurred by such Person in the ordinary course of its business on ordinary terms and overdue. (c)         All obligations of such Person under conditional sale or other title retention agreements with respect to property acquired by such Person (to the extent of the value of such property if the rights and remedies of the seller or lender under such agreement in the event of default are limited solely to repossession or sale of such property); and (d)        All obligations of such Person as lessee under or with respect to Capital Leases.              "Funding Date" means any Business Day on which Advances are funded or deemed funded pursuant to the Participation Agreement.              "Funding Office" means the office of each Participant identified on Schedule II to the Participation Agreement as its Funding Office.              "Funding Request" is defined in Section 3.4 of the Participation Agreement.              "GAAP" means United States generally accepted accounting principles (including principles of consolidation), in effect from time to time, consistently applied.              "Governmental Action" means all permits, authorizations, registrations, consents, approvals, waivers, exceptions, variances, orders, judgments, written interpretations, decrees, licenses, exemptions, publications, filings, notices to and declarations of or with, or required by, any Governmental Authority, or required by any Applicable Law, and shall include, without limitation, all environmental and operating permits and licenses that are required for the full use, occupancy, zoning and operation of the Property.              "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.              "Guaranty Obligation" shall mean, with respect to any Person, any direct or indirect liability of that Person with respect to any indebtedness, lease, dividend, letter of credit or other obligation (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person, whether or not contingent, (a) to purchase, repurchase or otherwise acquire such primary obligation or any property constituting direct or indirect security therefor, or (b) to advance or provide funds (i) for the payment or discharge of any such primary obligation, or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, or (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof.  The amount of any Guaranty Obligation shall be deemed equal to the stated or determinable amount of the primary obligation in respect of which such Guaranty Obligation is made or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof.              "Hazardous Activity" means any activity, process, procedure or undertaking that directly or indirectly (i) produces, generates or creates any Hazardous Substance; (ii) causes or results in (or threatens to cause or result in) the Release of any Hazardous Substance into the environment (including air, water vapor, surface water, groundwater, drinking water, land (including surface or subsurface), plant, aquatic and animal life); (iii) involves the containment or storage of any Hazardous Substance; or (iv) would be regulated as hazardous waste treatment, storage or disposal within the meaning of any Environmental Law.              "Hazardous Condition" means any condition that violates or threatens to violate, or that results in or threatens noncompliance with, any Environmental Law.              "Hazardous Substance" means any of the following: (i) any petroleum or petroleum product, explosives, radioactive materials, asbestos, formaldehyde, polychlorinated biphenyls, lead and radon gas; (ii) any substance, material, product, derivative, compound or mixture, mineral, chemical, waste, gas, medical waste or pollutant, in each case whether naturally occurring, man-made or the by-product of any process, that is toxic, harmful or hazardous to the environment or human health or safety; or (iii) any substance, material, product, derivative, compound or mixture, mineral, chemical, waste, gas, medical waste or pollutant  that would support the assertion of any claim under any Environmental Law, whether or not defined as hazardous as such under any Environmental Law.              "Historical Financial Statements" means as of the Closing Date, (i) the audited financial statements of the Lessee and its Subsidiaries as filed with the SEC, for the immediately preceding three Fiscal Years, consisting of balance sheets and the related consolidated statements of income, stockholders' equity and cash flows for such Fiscal Years, (ii) the unaudited financial statements of the Lessee and its Subsidiaries as filed with the SEC as at the most recently ended Fiscal Quarter, consisting of a balance sheet and the related consolidated statements of income, stockholders' equity and cash flows for the three-, six- or nine-month period, as applicable, ending on such date.              "Impositions" means, except to the extent described in the following sentence, any and all liabilities, losses, expenses, costs, charges and Liens of any kind whatsoever for fees, taxes, levies, imposts, duties, charges, assessments or withholdings ("Taxes") including (i) real and personal property taxes, including personal property taxes on any property covered by the Lease that is classified by Governmental Authorities as personal property, and real estate or ad valorem taxes in the nature of property taxes; (ii) sales taxes, use taxes and other similar taxes (including rent taxes and intangibles taxes); (iii) any excise taxes; (iv) real estate transfer taxes, mortgage taxes, conveyance taxes, stamp taxes and documentary recording taxes and fees; (v) taxes that are or are in the nature of franchise, income, value added, gross receipts, privilege and doing business taxes, license and registration fees; (vi) assessments on the Property, including all assessments for public improvements or benefits, whether or not such improvements are commenced or completed within the Term; and (vii) any tax, Lien, assessment or charge asserted, imposed or assessed by the PBGC or any Governmental Authority succeeding to or performing functions similar to, the PBGC, and in each case all interest, additions to tax and penalties thereon, which at any time prior to, during or with respect to the Term or in respect of any period for which the Lessee shall be obligated to pay Supplemental Rent, may be levied, assessed or imposed by any Governmental Authority upon or with respect to (a) the Property or any portion thereof or interest therein; (b) the leasing, financing, refinancing, demolition, construction, substitution, subleasing, assignment, control, condition, occupancy, servicing, maintenance, repair, ownership, possession, activity conducted on or in, delivery, insuring, use, operation, improvement, transfer of title, return or other disposition of the Property or any portion thereof or interest therein; (c) the Participation Interests with respect to the Property or any portion thereof or interest therein; (d) the rentals, receipts or earnings arising from the Property or any portion thereof or interest therein; (e) the Operative Documents, the performance thereof, or any payment made or accrued pursuant thereto; (f) the income or other proceeds received with respect to the Property or any portion thereof or interest therein upon the sale or disposition thereof; (g) any contract (including the Property Purchase Agreement) relating to the construction, acquisition or delivery of any of the Improvements or any portion thereof or interest therein; or (h) otherwise in connection with the transactions contemplated by the Operative Documents.              The term "Imposition" shall not mean or include:              (i)          Taxes and impositions (other than Taxes that are, or are in the nature of, sales, use, transfer or property taxes) that are imposed on an Indemnitee by the United States federal government or any foreign government that are based on or measured by the net income (including taxes based on capital gains and minimum taxes) of such Person; provided, that this clause (i) shall not be interpreted to prevent a payment from being made on an After Tax Basis if such payment is otherwise required to be so made, and provided further that this clause (i) shall not limit or expand the Lessee's obligations under Section 13.5(e), (g) or (b) or Section 13.10 of the Participation Agreement.              (ii)         Taxes and impositions (other than Taxes that are, or are in the nature of, sales, use, transfer or property taxes) that are imposed by any state or local jurisdiction or taxing authority within any state or local jurisdiction and that are franchise taxes or are based upon or measured by the net income or net receipts except that this clause (ii) shall not apply to (and thus shall not exclude) any such Taxes and impositions imposed on an Indemnitee with respect to the transactions contemplated by the Operative Documents by a state (or any local taxing authority thereof or therein) by reason of the transactions contemplated by the Operative Documents being characterized by such state or local authority as something other than a loan; provided that this clause (ii) shall not be interpreted to prevent a payment from being made on an After Tax Basis if such payment is otherwise required to be so made;              (iii)        any Tax or imposition to the extent, but only to such extent, it relates to any act, event or omission that occurs after the termination of the Lease and redelivery or sale of the Property in accordance with the terms of the Lease (but not any Tax or imposition that relates to any period prior to such termination and redelivery);              (iv)       any Tax or imposition for so long as, but only for so long as, it is being contested in accordance with the provisions of Section 13.5 of the Participation Agreement; or              (v)        any Taxes which are imposed on an Indemnitee as a result of the gross negligence or willful misconduct of such Indemnitee itself, but not Taxes imposed as a result of ordinary negligence of such Indemnitee. Any Tax excluded from the defined term "Imposition" in any one of the foregoing clauses (i) through (v) shall not be construed as constituting an Imposition by any provision of any other of the aforementioned clauses.              "Improvements" means all buildings, structures, Fixtures, Equipment, and other improvements of every kind existing and/or at any time and from time to time and purchased with amounts advanced by the Participants pursuant to the Participation Agreement (or those becoming the property of the Lessor pursuant to Article XI of the Lease) on or under any Land Interest, Improvements, including the Phase I Improvements and the Phase II Improvements, together with any and all appurtenances to such buildings, structures, or improvements, including sidewalks, utility pipes, conduits and lines, parking areas and roadways, and including all Modifications and other additions to or changes in the Improvements at any time.                "Indebtedness" of any Person shall mean, without duplication the following, provided that in no event shall the obligations of the Tranche Y Participant to purchase its Participation Interest in the Advances or of the Lessee with respect to payment of the Participation Interest of the Tranche Y Participant be construed as "Indebtedness" of the Tranche Y Participant: (a)         all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments and all other obligations of such Person for borrowed money (including obligations to repurchase receivables and other assets sold with recourse); (b)        all obligations of such Person for the deferred purchase price of property or services (including obligations under letters of credit and other credit facilities which secure or finance such purchase price and obligations under "synthetic" leases); (c)         all obligations of such Person under conditional sale or other title retention agreements with respect to property acquired by such Person (to the extent of the value of such property if the rights and remedies of the seller or lender under such agreement in the event of default are limited solely to repossession or sale of such property); (d)        all obligations of such Person as lessee under or with respect to Capital Leases; (e)         all non-contingent payment or reimbursement obligations of such Person under or with respect to Surety Instruments; (f)         all net obligations of such Person, contingent or otherwise, under or with respect to Rate Contracts; (g)        all Guaranty Obligations of such Person with respect to the obligations of other Persons of the types described in clauses (a)-(f) above and all other Contingent Obligations of such Person; and (h)        all obligations of other Persons of the types described in clauses (a)-(f) above to the extent secured by (or for which any holder of such obligations has an existing right, contingent or otherwise, to be secured by) any Lien in any property (including accounts and contract rights) of such Person, even though such Person has not assumed or become liable for the payment of such obligations.              "Indemnitee" means the Lessor, the Agent, the Participants, their respective Affiliates and their respective successors, assigns, directors, shareholders, partners, officers, employees and agents, provided that in no event shall the Lessee or the Tranche Y Participant be or be deemed to be an Indemnitee under the Operative Documents.              "Initial Expiration Date" means the fifth anniversary of the Closing Date.              "Initial Maturity Date" means the fifth anniversary of the Closing Date.              "Insurance Requirements" means all terms and conditions of any insurance policy required by the Lease to be maintained by the Lessee, and all requirements of the issuer of any such policy.              "Interest Expense" means, with respect to any Person for any period, the sum determined on a consolidated basis in accordance with GAAP, of (a) all interest accruing on the Indebtedness of such Person during such period (including, without limitation, interest attributable to Capital Leases) plus (b) all fees in respect of outstanding letters of credit payable by such Person and accruing during such period.              "Interest Payment Advance" means any Advance made to fund the payment of interest or yield accruing on the Advances prior to the initial Land Interest Acquisition Date.              "Interest Period" means (i)              with respect to the Tranche C Equity Interests in any Advance: (a)         initially, (1) in the case of any Alternate Base Rate which the Lessee has elected to convert to a Eurodollar Rate Advance, the period commencing three Business Days after the date on which the Lessee gives irrevocable written notice pursuant to Section 3.7(a) of the Participation Agreement of the Lessee's election to convert such Alternate Base Rate Advance to a Eurodollar Rate Advance, or (2) in the case of any Advance which the Lessee has elected be made as a Eurodollar Rate Advance in the relevant Funding Request delivered at least three (3) Business Days prior to the Funding Date for such Advance, the period commencing on such Funding Date, and ending, in the case of either clause (1) or clause (2), one, two, three or six months thereafter, as selected by the Lessee in such irrevocable written notice or Funding Request, as the case may be, given with respect thereto; and (b)        thereafter, so long as the Lessee has elected to continue such Advance as a Eurodollar Rate Advance, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Rate Advance and ending one, two, three or six months thereafter, as selected by the Lessee by irrevocable notice to the Lessor and the Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; and (ii)             with respect to the Tranche A Participation Interests and Tranche B Participation Interests in any Advance: (a)         initially, the period commencing on the Funding Date of such Advance or portion thereof and ending on the date which is one year thereafter; and (b)        thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Advance or portion thereof and ending one year thereafter; provided that, the foregoing provisions relating to Interest Periods are subject to the following:              (i)          if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day;              (ii)         any Interest Period that would otherwise extend beyond the Expiration Date shall end on the Expiration Date;              (iii)        any Interest Period that begins on the last 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 end on the last Business Day of a calendar month;              (iv)       the Lessee shall select Interest Periods so as not to require a payment or prepayment of any Eurodollar Rate Advance during an Interest Period for such Eurodollar Rate Advance; and              (v)        if the Lessee shall fail to specify the length of any Interest Period for any Eurodollar Rate Advance, such Eurodollar Rate Advance shall have an Interest Period of one month until such time as the Lessee shall specify an Interest Period therefor.              "Investment" of any Person shall mean any loan or advance of funds by such Person to any other Person (other than advances to employees of such Person for moving and travel expenses, drawing accounts and similar expenditures in the ordinary course of business), any purchase or other acquisition of any Equity Securities or Indebtedness of any other Person, any capital contribution by such Person to or any other investment by such Person in any other Person (including any Guaranty Obligations of such Person and any indebtedness of such Person of the type described in clause (h) of the definition of "Indebtedness" on behalf of any other Person); provided, however, that Investments shall not include (a) accounts receivable or other indebtedness owned by customers of such Person which are current assets and arose from sales of inventory in the ordinary course of such Person's business or (b) prepaid expenses of such Person incurred and prepaid in the ordinary course of business.              "Investment Company Act" means the Investment Company Act of 1940, as amended, together with the rules and regulations promulgated thereunder.              "Joint Venture" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; provided, in no event shall any corporate Subsidiary of any Person be considered to be a Joint Venture to which such Person is a party.              "Land Interest" means the Phase I Land Interest or the Phase II Land Interest or both, collectively, as the context may require.              "Land Interest Acquisition Date" means, with respect to the Phase I Facility or the Phase II Facility, each date on which the Lessor acquires such portion of the Property, which date shall be specified in the relevant Acquisition Request.              "Late Payment Rate" means (a) for each day (other than as set forth in clause (b) of this definition) the Federal Funds Effective Rate or (b) for the purpose of computing interest on past due payments for each day following the fifth day after such payments first became due, a rate of two percent (2%) per annum in excess of the Alternate Base Rate then in effect; provided, the Late Payment Rate shall not, notwithstanding anything to the contrary herein contained, exceed the maximum rate of interest permitted by applicable law.              "Lease" means the Master Lease, dated as of the Closing Date, between the Lessor and the Lessee, together with the Lease Supplements thereto.              "Lease Balance" means, as of any date of determination, an amount equal to the aggregate sum of the outstanding amount of the Advances, plus (without duplication) all accrued and unpaid Basic Rent and all Supplemental Rent owing by the Lessee under the Operative Documents.              "Lease Commencement Date" means with respect to the Phase I Facility or the Phase II Facility, the Land Interest Acquisition Date therefor.              "Lease Supplement" means a Lease Supplement in the form attached as Exhibit A to the Lease, dated as of a Land Interest Acquisition Date, between the Lessor and the Lessee, together with all attachments and schedules thereto, as any such Lease Supplement may be supplemented, amended, modified or restated from time to time.              "Lessee" means Yahoo! Inc., a Delaware corporation, as lessee under the Lease, and its successors and assigns expressly permitted under the Operative Documents.              "Lessor" means Lease Plan North America, Inc., as Lessor under the Lease.              "Lessor Financing Statements" means UCC financing statements appropriately completed and executed for filing in the applicable jurisdiction in order to protect the Lessor's interest under the Lease to the extent the Lease is a security agreement.              "Lessor Lien" means any Lien, true lease or sublease or disposition of title arising as a result of (a) any claim against the Lessor not resulting from the transactions contemplated by the Operative Documents, (b) any act or omission of the Lessor which is not required by the Operative Documents or is in violation of any of the terms of the Operative Documents, (c) any claim against the Lessor with respect to Taxes or Transaction Expenses against which Lessee is not required to indemnify the Lessor, pursuant to Sections 9  or 13.5 of the Participation Agreement, (d) any claim against the Lessor arising out of any transfer by the Lessor of all or any portion of the interest of the Lessor in the Property or the Operative Documents other than the transfer of title to or possession of the Property by the Lessor pursuant to and in accordance with the Lease or the Participation Agreement or pursuant to the exercise of the remedies set forth in Article XVII of the Lease, or (e) the gross negligence, willful misconduct or fraud of the Lessor or any of its employees or any agent (other than the Agent) or representative of the Lessor duly authorized by the Lessor to act on its behalf.              "Lessor Party" means the Lessor, the Agent and the Participants (excluding the Tranche Y Participant).              "Lessor's Sale" is defined in Section 17.4 of the Lease.              "Leverage Ratio" shall mean, with respect to the Lessee for any period, the ratio, determined on a consolidated basis in accordance with GAAP, of: (a)   Funded Indebtedness of the Lessee or its Subsidiaries for such period;              to (b)   EBITDA for such period.              "Lien" means any mortgage, deed of trust, pledge, security interest, encumbrance, lien, easement, servitude or charge of any kind, including, without limitation, any irrevocable license, conditional sale or other title retention agreement, any lease in the nature thereof, or any other right of or arrangement with any creditor to have its claim satisfied out of any specified property or asset with the proceeds therefrom prior to the satisfaction of the claims of the general creditors of the owner thereof, whether or not filed or recorded, or the filing of, or agreement to execute as "debtor", any financing or continuation statement under the Uniform Commercial Code of any jurisdiction or any foreign or federal, state or local lien imposed pursuant to any Environmental Law.              "Limited Condition Precedent" means any of the conditions precedent set forth in clause (vi) of Section 3.4 of the Participation Agreement, the second sentence of Section 6.2(b) of the Participation Agreement, Section 6.2(q)(ii) of the Participation Agreement, Section 6.2(r)(ii) of the Participation Agreement, Section 6.3(b) of the Participation Agreement and Section 6.3(d) of the Participation Agreement.              "Limited Default" means any event or condition which, with the lapse of time or the giving of notice, or both, would constitute a Limited Event of Default.              "Limited Event of Default" means (a) an Event of Default arising under Section 17.1(d) of the Lease, if such Event of Default arose solely due to a Material Adverse Effect which does not constitute an Objective Material Adverse Effect (including an Event of Default which arose as a result of the failure of the Lessee under Section 10.1(a)(iv) of the Participation Agreement to disclose that a Material Adverse Effect had occurred or which arose based on a breach of the representations set forth in Section 8.2(a) or 8.3(a) of the Participation Agreement solely due to a Material Adverse Effect which does not constitute an Objective Material Adverse Effect); or (b) an Event of Default arising solely under Section 17.1(e)(ii) if the holder or beneficiary of the relevant Indebtedness has not accelerated such Indebtedness; or (c) an Event of Default arising solely under Section 17.1(o) of the Lease, but excluding, for purposes of any of clause (a), clause (b) and clause (c) of this definition, (x) any Event of Default arising under any other provision of Section 17.1 of the Lease, notwithstanding that the event, condition or circumstance giving rise to such Event of Default under such other provision may also constitute an Event of Default described in clause (a), clause (b) or clause (c) of this definition, and (y) any Event of Default which arose as a result of the fraud, misapplication of funds, illegal acts or willful misconduct of the Lessee.              "Lockheed" means Lockheed Martin Corporation, a Maryland corporation.              "Lockheed Indemnification Agreements" means collectively that certain Seller's Indemnity Agreement dated as of August 5, 1999 between Lockheed, as seller, and the Existing Owner, as buyer, and that certain Seller's Indemnity Agreement dated as of January 14, 2000, between Lockheed, as seller, and Existing Owner, as buyer, which agreements have been assigned by the Existing Owner to the Lessor with respect to the relevant portion of the Property as of the applicable Land Interest Acquisition Date.              "Marketing Period" means the period commencing on the date one hundred eighty (180) days prior to the Expiration Date and ending on the Expiration Date.              "Material Adverse Effect" means (a) an adverse change in, or an adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of the Lessee and its Subsidiaries taken as a whole, which could reasonably be expected to result in a breach of any of the covenants set forth in Section 10.2 of the Participation Agreement; (b) an adverse effect upon the legality, validity, binding effect or enforceability of any Operative Document or any Lessor Party's security interests, Liens or other rights in the Property or the perfection or priority of such security interests, Liens or rights; or (c) an adverse effect which reduces the value of the Property by ten percent (10%) or more in the aggregate (other than as a result of ordinary wear and tear, depreciation or changes in the market for such Property).              "Material Environmental Amount" means an amount payable by the Lessee and/or its Subsidiaries in excess of 30% of the original Property Cost for remedial costs, non-routine compliance costs, compensatory damages, punitive damages, fines, penalties or any combination thereof.              "Materials of Environmental Concern" means any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.              "Maturity Date" means, as of any date of determination, the later of the Initial Maturity Date or, if an extension of the Initial Maturity Date has been granted pursuant to Section 3.6(b) of the Participation Agreement, the Extended Maturity Date then in effect.              "Modifications" is defined in Section 11.1(a) of the Lease.              "Moody's" means Moody's Investor Services, Inc.              "Mortgage" means, with respect to the Phase I Facility or the Phase II Facility, the Deed of Trust, Security Agreement and Financing Statement substantially in the form attached as Exhibit J to the Participation Agreement, made by the Lessor in favor of the Trustee for the benefit of the Agent for the benefit of the Participants and satisfactory in form and substance to the Agent and the Required Participants in order to create a first priority mortgage lien on the Lessor's fee interest in the applicable Land Interest and the Improvements thereon.              "Multiemployer Plan" means any Employee Benefit Plan which is a "multiemployer plan" as defined in Section 3(37) of ERISA.              "Net Proceeds" means all amounts paid in connection with any Casualty or Condemnation, and all interest earned thereon, less the expense of claiming and collecting such amounts, including all costs and expenses in connection therewith for which the Agent or the Lessor is entitled to be reimbursed pursuant to the Lease.              "Net Sales Proceeds" means the gross proceeds actually received by the Lessor upon any sale by the Lessor of any part of the Property pursuant to Articles XVII or XXII of the Lease, including, without limitation, (i) any such payments made to the Lessor by the Lessee or any purchaser, (ii) any Shortfall Amount paid to the Lessor by the Lessee pursuant to Section 13.2 of the Participation Agreement, and (iii) any interest or yield paid by the Lessee to the Lessor on past due amounts under the Lease; but excluding any payments applied by the Lessor to pay, or received by the Lessor as reimbursement for, bona fide costs of the sale (including any funding losses payable pursuant to Section 13.6 of the Participation Agreement) and further excluding any excess net sales proceeds received from a purchaser that the Lessor is required to pay over to the Lessee.  In the event that for any reason whatsoever, including a default by the Lessee, the Lessor does not sell the Property pursuant to the Lease on the Designated Payment Date, "Net Sales Proceeds" shall nonetheless include any Shortfall Amount required to be paid pursuant to Section 13.2 of the Participation Agreement and actually received by the Lessor.  Further, if the Lessor does not sell the Property pursuant to the Lease, then "Net Sales Proceeds" shall also include the excess, if any, of: (a)         all rents and all sales, condemnation and insurance proceeds actually received by the Lessor from any sale or lease after the Designated Payment Date of any interest in, or because of any subsequent taking or damage to, the Property; over (b)        the sum of (i) all costs of collecting the rents and proceeds described in the preceding clause (a) plus (ii) all ad valorem taxes, insurance premiums and other costs of every kind incurred by the Lessor with respect to the ownership, operation or maintenance of the Property.              "Non-Consenting Participant" means any Participant which has denied, or is deemed to have denied, an Extension Request pursuant to Section 3.6 of the Participation Agreement.              "Objective Material Adverse Effect" shall mean (i) one or more actions, suits or proceedings (including the assessment of fines or penalties) at law or in equity brought by any Person or any Governmental Authority against the Lessee or the Property (or any portion thereof or interest therein) which (A) if adversely determined could reasonably be expected to result in monetary claims or damages (including the assessment of fines or penalties) in an amount in excess of twenty percent (20%) of the Lessee's Consolidated Net Worth, individually or in the aggregate (net of insurance coverage with respect to which the relevant insurer has acknowledged coverage), or (B) is seeking injunctive relief which could reasonably be expected to prevent the Lessee from performing a material obligation under the Operative Documents, (ii) any actual or threatened action, suit or proceeding at law or in equity brought by any Governmental Authority or other Person exercising the powers of eminent domain or condemnation in which such Governmental Authority or other Person is seeking to exercise (or is threatening to seek to exercise) such powers with respect to the Property (or any portion thereof or interest therein), (iii) any action, suit or proceeding at law or in equity brought by any Person or any Governmental Authority which, if adversely determined, could reasonably be expected (A) to invalidate any Operative Document or any material provision thereof, or (B) to prevent the Lessee from performing its obligations, or satisfying any conditions, under the Operative Documents (whether with respect to the individual event or action, suit or proceeding, or in the aggregate with respect to all such actions, suits and proceedings), (iv) any action, suit or proceeding at law or in equity brought by any Person or any Governmental Authority in which such Person or Governmental Authority is seeking to invalidate any Operative Document or any material provision thereof or is otherwise seeking any remedy, in each case, which would prevent the Lessee from performing its obligations or would prevent the Agent, the Lessor or the Participants from exercising its or their rights and remedies under the Operative Documents, or which would reduce the amounts payable thereunder by any amount, (v) any action, suit or proceeding at law or in equity brought by any Person or Governmental Authority, which could reasonably be expected to prevent the Lessor or the Agent or the Participants from enforcing the Liens created under the Lease or any Security Document; or (vii) any event which results in a decrease in the Lessee's Consolidated Net Worth as set forth on Lessee's most recent financial statements delivered pursuant to the Participation Agreement by an amount of twenty-five percent (25.0%) or more; provided, however, that for purposes of this entire definition, (x) Persons shall not include any of Agent, Lessor or the Participants, or any Affiliates thereof (other than the Tranche Y Participant) and (y) in determining whether a breach (or any Event of Default resulting therefrom) has occurred in respect of the specific provisions to which this definition is applied, the determination shall be made in a commercially reasonable manner.              "Original Executed Counterpart" is defined in Section 31.8 of the Lease.              "Operative Documents" means the following:              (a)         the Participation Agreement;              (b)        the Lease and each Lease Supplement;              (c)         the Cash Collateral Agreement;              (d)        the Property Purchase Agreement, the Assignment of Property Purchase Agreement and the Deeds;              (e)         the Assignment of Lease;              (f)         the Consent to Assignment; and              (g)        the Mortgages.              "Overdue Rate" means, with respect to the Advances, fees or any other payment due under the Operative Documents, the interest or yield rate then applicable to the Advances plus 2% per annum.              "Participant Balance" means for each Participant the sum of its Tranche A Participant Balance, its Tranche B Participant Balance and its Tranche C Participant Balance.              "Participant's Letter" is defined in Section 12.1(b) of the Participation Agreement.              "Participants" means the Lessor, ABN AMRO Bank N.V., and each Person executing the Participation Agreement or a Participant's Letter as a Participant and purchasing a Participation Interest in the transactions contemplated by the Participation Agreement and the other Operative Documents.              "Participation Agreement" means the Participation Agreement, dated as of the Closing Date, among the Lessee, the Lessor, the Participants and the Agent.              "Participation Interest" means, as to the Tranche Y Participant, each other Tranche A Participant (if any) and each Tranche B Participant, a participation interest or, as to each Tranche C Participant, an equity interest, in the Advances and the Lease and the right to receive that percentage of the following payments actually received by the Lessor from or on behalf of the Lessee as is set forth on Schedule I to the Participation Agreement under the column heading "Commitments", subject to the provisions of Sections 3.10 through 3.23 and Section 11 of the Participation Agreement: (i) Basic Rent, (ii) Supplemental Rent, (iii)  Asset Termination Value, (iv) Purchase Option Price, (v) Net Sales Proceeds, (vi) Residual Value Guarantee Amount, (vii) any Shortfall Amount required to be paid pursuant to Section 13.2 of the Participation Agreement, and (viii) any other payments in respect of indemnities (to the extent such Participant is an Indemnitee) or the exercise of remedies under the Operative Documents, excluding, however, (x) any Excepted Payments and (y) as to a particular Participant, any payments on account of any Advances and interest or yield thereon for which the Lessor has not received payment from such Participant of such Participant's Commitment Percentage thereof.              "Payment Date" means (a) any Scheduled Payment Date and (b) any date on which interest is payable pursuant to Section 3.7(b) of the Participation Agreement in connection with any prepayment of the Advances.              "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.              "Pension Plan" means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to Section 412 of the Code or Section 302 of ERISA.              "Permitted Exceptions" means (i) Liens of the type described in clause (b) of the definition of Permitted Liens set forth below, (ii) the respective rights and interests of the parties to the Operative Documents as provided in the Operative Documents, including any Lien securing obligations under the Operative Documents, (iii) statutory Liens of mechanics, repairmen, workmen and materialmen, and other Liens imposed by law, in each case incurred in the ordinary course of business for amounts not yet overdue, (iv) Liens and exceptions to title described on the title insurance policies in respect of the Property delivered, and accepted by the Agent and the Lessor, on the applicable Land Interest Acquisition Date pursuant to Section 6.2(h) of the Participation Agreement, and (v) all non-monetary encumbrances, exceptions, restrictions, easements, rights of way, servitudes, encroachments and irregularities in title, other than any such encumbrances, exceptions, restrictions, easements, rights of way, servitudes, encroachments and irregularities in title which, in the reasonable assessment of the Lessor, materially impair the value of the Property or the use of the Property for its intended purpose.              "Permitted Liens" means the following Liens, subject however, in the case of the Property, to the terms of the Lease: (a)         Liens in favor of the Lessor, the Agent or any Participant under the Operative Documents; (b)        Liens for taxes, assessments or governmental charges or claims not yet due or (i) other than in the case of the Property, with respect to which the Lessee or its Subsidiaries are taking each of the actions required pursuant to Section 10.1(a)(iii) of the Participation Agreement, and (ii) in the case of the Property, which are being properly contested in accordance with Section 13.1 of the Lease, but only for so long as the requirements of Section 13.1 of the Lease continue to be satisfied; (c)         statutory Liens of landlords, banks (and rights of set-off), of carriers, warehousemen, mechanics, repairmen, workmen and materialmen, and other Liens imposed by law, in each case incurred in the ordinary course of business (i) for amounts not yet overdue or (ii) for amounts that are overdue and that are being contested in good faith by appropriate proceedings, so long as such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made for any such contested amounts; (d)        Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money), so long as no foreclosure, sale or similar proceedings have been commenced with respect thereto or on account thereof; (e)         easements, rights-of-way, zoning restrictions, encroachments, imperfections and other minor defects or irregularities in title, which, individually or 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 Lessee or any of its Subsidiaries; (f)         Liens on property or assets of any corporation which becomes a Subsidiary of the Lessee or on any property or assets acquired by the Lessee or any of its Subsidiaries after the Closing Date, provided that (A) such Liens exist at the time the stock of said corporation or assets or property is or are acquired by the Lessee and (B) such Liens were not created in contemplation of such acquisition by the Lessee or Subsidiary; (g)        any zoning or similar law or right reserved to or vested in any Governmental Authority to control or regulate the use of any real property; (h)        licenses of patents, trademarks and other intellectual property rights granted by the Lessee or any of its Subsidiaries in the ordinary course of business and not interfering in any material respect with the ordinary conduct of the business of the Lessee or such Subsidiary; (i)          judgment liens not constituting an Event of Default pursuant to Section 17.1(h) of the Lease; (j)          Liens described in Schedule 10.1(b)(ii) to the Participation Agreement and existing on the Closing Date; (k)         Liens securing Indebtedness permitted pursuant to Section 10.1(b)(i)(H), 10.1(b)(i)(I) and 10.1(b)(i)(K) of the Participation Agreement; provided, in the case of Indebtedness permitted by Section 10.1(b)(i)(H) or Section 10.1(b)(i)(I) of the Participation Agreement, any Lien permitted hereby shall encumber only the asset acquired with the proceeds of  such Indebtedness and such Liens do not secure any other Indebtedness; and (l)          any extension or replacement of any of the foregoing in accordance with the terms thereof; provided, (i) any Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Code or by ERISA, and (ii) any Lien relating to or imposed in connection with any Environmental Claim, in each case is expressly prohibited hereunder.              "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Authority or any other entity.              "Phase I Facility" means the Phase I Land Interest and the Phase I Improvements.              "Phase I Improvements" means the corporate headquarters facility described in the applicable Plans and Specifications and located on the Phase I Land Interest, together with all other Improvements existing on or with respect to the Phase I Land Interest on the Land Interest Acquisition Date therefor.              Phase I Land Interest" means fee title to the parcel of real property described on Schedule 1 of Lease Supplement delivered on the Land Interest Acquisition Date in respect of the Phase I Facility, and all Appurtenant Rights attached thereto.              "Phase II Facility" means the Phase II Land Interest and the Phase II Improvements.              "Phase II Improvements" means the corporate headquarters facility described in the applicable Plans and Specifications and located on the Phase II Land Interest, together with all other Improvements existing on or with respect to the Phase II Land Interest on the Land Interest Acquisition Date therefor.              "Phase II Land Interest" means fee title to the parcel of real property described on Schedule 1 of Lease Supplement delivered on the Land Interest Acquisition Date in respect of the Phase II Facility, and all Appurtenant Rights attached thereto.              "Plans and Specifications" means, with respect to the Phase I Improvements or the Phase II Improvements, as the case may be, the plans and specifications for such Improvements on the applicable Land Interest delivered by the Lessee to the Lessor pursuant to Section 6.2(k) of the Participation Agreement. "Project Costs" means "project costs" within the meaning of such term under GAAP in effect on the date of the Participation Agreement.              "Pre-Existing Environmental Conditions" means those Hazardous Conditions  that are the subject of California Regional Water Quality Control Board, San Francisco Bay Region Order No. 00-124, adopted November 29, 2000.              "Property" means (i) the Land Interests and (ii) all of the Improvements, Equipment and Fixtures at any time located on or under any such Land Interest other than Equipment and Fixtures not financed by an Advance and not becoming property of the Lessor under Article XI of the Lease.              "Property Acquisition Cost" means, with respect to any portion of the Property, the amount funded by the Lessor under the Participation Agreement to pay the Existing Owner for the purchase price of such portion of the Property as set forth in the Acquisition Request therefor.              "Property Cost" means with respect to the Property, the aggregate amount of the Property Acquisition Costs plus any Transaction Expenses to the extent paid or reimbursed with the proceeds of an Advance, as set forth in the Acquisition Request and Funding Requests therefor.              "Property Purchase Agreement" means the Development and Purchase and Sale Agreement dated as of December 22, 1999, as amended as of January 5, 2001 between the Existing Owner, as seller, and Yahoo! Inc., as buyer, together in each case with all exhibits and schedules thereto, which agreement has been further assigned by Yahoo! Inc. to the Lessor pursuant to the Assignments of Property Purchase Agreement.              "Purchase Money Indebtedness" means Indebtedness that is secured by (i) a purchase money security interest pursuant to the UCC or (ii) another lien under Applicable Law, which Indebtedness secured by such other lien has the characteristics of the Indebtedness secured by the security interest described in clause (i) of this definition.              "Purchase Notice" is defined in Section 20.1 of the Lease.              "Purchase Option" is defined in Section 20.1 of the Lease.              "Purchase Option Price" is defined in Section 20.1 of the Lease.              "Quick Ratio" shall mean, with respect to the Lessee at any time, the ratio, determined on a consolidated basis in accordance with GAAP, of: (a)         The sum (without duplication) of all unencumbered cash, Cash Equivalents, long-term debt securities and net accounts receivable of the Lessee and its Subsidiaries at such time;              to (b)        the current liabilities of the Lessee and its Subsidiaries at such time (including current liabilities of the Lessee and its Subsidiaries in connection with synthetic leases and other off-balance sheet Funded Indebtedness).              (In calculating the Quick Ratio, Cash Equivalents shall be marked to market quarterly).              "Rate Contracts" shall mean swap agreements (as that that term is defined in Section 101 of the Federal Bankruptcy Reform Act of 1978, as amended) and any other agreements or arrangements designed to provide protection against fluctuations in interest or currency exchange rates.              "Release" means any release, pumping, pouring, emptying, injecting, escaping, leaching, dumping, seepage, spill, leak, flow, discharge, disposal or emission of a Hazardous Substance.              "Remarketing Option" is defined in Section 22.1 of the Lease.              "Renewal Effective Date" is defined in Section 21.1(a) of the Lease.              "Renewal Option" is defined in Section 21.1(a) of the Lease.              "Renewal Request" is defined in Section 21.1(a) of the Lease.              "Renewal Response Date" is defined in Section 21.1(a) of the Lease.              "Renewal Term" means a renewal term immediately following the Initial Expiration Date or the Extended Expiration Date, as the case may be, in the event the Lessee has exercised a Renewal Option pursuant to Section 21.1 of the Lease and such Renewal Request has been granted in accordance with the terms of the Lease.              "Rent" means, collectively, the Basic Rent and the Supplemental Rent, in each case payable under the Lease.              "Replacement Participant" is defined in Section 3.6(c) of the Participation Agreement.              "Requesting Party" is defined in Section 26.1 of the Lease.              "Required Modification" is defined in Section 11.1(a) of the Lease.              "Required Participants" means, at any time, Participants (excluding the Tranche Y Participant) the Commitment Percentages of which aggregate at least 66-2/3% of the Total Commitments (excluding the Commitments held by the Tranche Y Participant).              "Requirement of Law" means all Federal, foreign, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting the Property, any of the Improvements or the demolition, construction, use or alteration thereof, whether now or hereafter enacted and in force, including any that require repairs, modifications or alterations in or to the Property or any portion thereof or in any way limit the use and enjoyment thereof (including all building, zoning and fire codes and the Americans with Disabilities Act of 1990, 42 U.S.C. § 1201 et. seq. and any other similar Federal, foreign, state or local laws or ordinances and the regulations promulgated thereunder) and any that may relate to environmental requirements (including all Environmental Laws), and all permits, certificates of occupancy, licenses, authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments which are either of record or known to the Lessee affecting the Property or any portion thereof, the Appurtenant Rights and any easements, licenses or other agreements entered into pursuant to Section 12.2 of the Lease.              "Residual Value Guarantee Amount" means an amount equal to the Tranche A Proportionate Share of the Lease Balance.              "Response Actions" means remove, removal, remedy, and remedial action as those terms are defined in CERCLA, 42 U.S.C. § 9601.              "Responsible Officer" means, with respect to the Lessee, the chief executive officer, the president, any executive vice president, the chief financial officer, the treasurer, the vice president of finance and, with respect to legal matters, the general counsel..              "Responsible Officer's Certificate" means a certificate of the Lessee signed by any Responsible Officer of the Lessee, which certificate shall certify as true and correct the subject matter being certified to in such certificate.              "Restricted Subsidiary" means as of any date of determination each Subsidiary of Lessee, the assets of which as of such date (as determined in accordance with GAAP) comprise ten percent (10.0%) or more of the Lessee's Consolidated Assets as of such date.              "S&P" means Standard & Poor's Ratings Group, a division of The McGraw Hill Corporation.              "Scheduled Payment Date" means (a) as to any Eurodollar Rate Advance having an Interest Period of one, two or three months, the last day of such Interest Period, (b) as to any Eurodollar Rate Advance having an Interest Period longer than three months, the last day of the first three month period in such Interest Period and the last day of such Interest Period, and (c) as to any Alternate Base Rate Advance, the last Business Day of each quarter.              "SEC" means the Securities and Exchange Commission and any successor thereto.              "Securities Act" means the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder.              "Security Documents" means the collective reference to the Mortgages, the Assignment of Lease, the Cash Collateral Agreement and all other security documents hereafter delivered to the Agent granting a Lien on any asset or assets of any Person to secure the obligations and liabilities of the Lessor to the Agent and the Participants under the Participation Agreement or of the Lessee to the Lessor under the Lease.              "Shortfall Amount" means, as of the Expiration Date, the amount that the aggregate Asset Termination Value will exceed the aggregate of the Net Sales Proceeds and the Residual Value Guarantee Amount upon the completion of a sale of the Property pursuant to Article XXII of the Lease.              "Significant Casualty" means (i) a Casualty that results in an insurance settlement on the basis of a total loss, or a constructive or compromised total loss, or (ii) a Casualty that in the reasonable, good faith judgment of the Lessee (as evidenced by a Responsible Officer's Certificate delivered by the Lessee to the Lessor pursuant to Section 16.1 of the Lease) either (a) renders the Property unsuitable for continued use as a commercial property of the type of such property immediately prior to such Casualty or (b) is so substantial in nature that restoration of the Property to substantially its condition as existed immediately prior to such Casualty would be impracticable or impossible.              "Significant Condemnation" means (i) a Condemnation that involves a taking of the Lessor's entire title to a Land Interest, (ii) a Condemnation that results in loss of possession of the Property by the Lessee for a period in excess of one hundred eighty (180) consecutive days, or (iii) a Condemnation that in the reasonable, good faith judgment of the Lessee (as evidenced by a Responsible Officer's Certificate delivered by the Lessee to the Lessor pursuant to Section 16.1 of the Lease) either (a) renders the Property unsuitable for continued use as commercial property of the type of such property immediately prior to such Condemnation or (b) is such that restoration of the Property to substantially its condition as existed immediately prior to such Condemnation would be impracticable or impossible.              "Significant Event" means, as the case may be, (i) a Significant Casualty, (ii) a Significant Condemnation, (iii) an event where the restoration of the Property subject to a Casualty or Condemnation shall not be completed prior to the earlier of (A) the 180th day prior to the Expiration Date or (B) twelve (12) months following the occurrence of such Casualty or Condemnation or (iv) the occurrence of an Environmental Violation where the costs to clean up or remediate the same are reasonably estimated by the Lessee to exceed 30% of Asset Termination Value.              "Sub-Participant" is defined in Section 12.2(a) of the Participation Agreement.              "Subsidiary" of any Person shall mean (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 other Subsidiaries or by one or more of such Person's other Subsidiaries, (b) any partnership, joint venture, or other Person of which more than 50% of the equity interest having the power to vote, direct or control the management of such partnership, joint venture, business trust or other person is at the time owned and controlled by such Person, by such Person and one or more of the other 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.  The term "Subsidiary" as used in the Operative Documents shall refer to a Subsidiary of the Lessee unless otherwise expressly required, but shall in all events exclude Yahoo! Japan in the event such entity would ever otherwise constitute a Subsidiary under the Operative Documents.              "Supplemental Rent" means all amounts, liabilities and obligations (other than Basic Rent) which the Lessee assumes or agrees to pay to the Lessor or any other Person under the Lease or any of the other Operative Documents, including, without limitation, and without duplication, payments of the Residual Value Guarantee Amount, any Shortfall Amount payable pursuant to Section 13.2 of the Participation Agreement and payments pursuant to Sections 16.2, 16.3, or 17.6 of the Lease and Articles XX and XXII of the Lease.              "Surety Instruments" shall mean all letters of credit (including standby and commercial), banker's acceptances, bank guaranties, shipside bonds, surety bonds and similar instruments.              "Taxes" is defined in the definition of Impositions.              "Term" is defined in Section 2.3 of the Lease.              "Termination Date" is defined in Section 15.1(d), 16.2(a) and 17.2(e) of the Lease.              "Termination Notice" is defined in Section 16.1 of the Lease.              "Total Commitment" means the amount set forth as such in Schedule I to the Participation Agreement or, if such amount is reduced pursuant to Section 3.6(a) of the Participation Agreement, the amount to which so reduced.              "Tranche A Participants" means the Tranche Y Participant and any assignee thereof consented to in writing by the Agent.              "Tranche A Participation Interest" means, as to each Tranche A Participant as of any date of determination, such Participant's Tranche A Participation Interest Commitment Percentage then in effect, multiplied by the outstanding amount of all Advances as to which such Participant has funded its Tranche A Participation Interest Commitment Percentage under Section 3.4 of the Participation Agreement.              "Tranche A Participation Interest Commitment" is defined in Section 3.5 of the Participation Agreement.              "Tranche A Participation Interest Commitment Percentage" means (i) with respect to the Tranche Y Participant, 86.0% of the Aggregate Commitments.              "Tranche A Proportionate Share" means with respect to the Residual Value Guarantee Amount 86.0% of the Aggregate Commitments.              "Tranche B Participant Balance" means for each Tranche B Participant as of any date of determination an amount equal to the sum of such Participant's Tranche B Participation Interest as of such date in all outstanding Advances together with all accrued and unpaid interest thereon and all other amounts owed to such Tranche B Participant under the Operative Documents.              "Tranche B Participants" means those Participants maintaining a Tranche B Participation Interest Commitment and purchasing a Tranche B Participation Interest in the Advances.              "Tranche B Participation Interest" means, as to each Tranche B Participant as of any date of determination, such Tranche B Participant's Tranche B Participation Interest Commitment Percentage then in effect multiplied by the outstanding amount of all Advances as to which such Participant has funded its Tranche B Participation Interest Commitment Percentage under Section 3.4 of the Participation Agreement.              "Tranche B Participation Interest Commitment" is defined in Section 3.5 of the Participation Agreement.              "Tranche B Participation Interest Commitment Percentage" means (i) with respect to all Tranche B Participants in the aggregate, 10.45% of the Aggregate Commitments, and (ii) with respect to each Tranche B Participant, the percentage of the Aggregate Commitments set forth after such Participant's Tranche B Participation Interest Commitment in Schedule I to the Participation Agreement (as amended from time to time).              "Tranche C Equity Interest" means, as to each Tranche C Participant as of any date of determination, such Tranche C Participant's Tranche C Equity Interest Commitment Percentage then in effect multiplied by the outstanding amount of all Advances as to which such Participant has funded its Tranche C Equity Interest Commitment Percentage under Section 3.4 of the Participation Agreement.              "Tranche C Equity Interest Commitment" is defined in Section 3.5 of the Participation Agreement.              "Tranche C Equity Interest Commitment Percentage" means (i) with respect to all Tranche C Participants in the aggregate at any time, 3.55% (and in no event less than 3%) of the Aggregate Commitments, and (ii) with respect to each Tranche C Participant, the percentage of the Aggregate Commitments set forth after such Participant's Tranche C Equity Interest Commitment in Schedule I to the Participation Agreement (as amended from time to time).              "Tranche C Participant Balance" means for each Tranche C Participant as of any date of determination an amount equal to the sum of such Participant's Tranche C Equity Interest as of such date in all outstanding Advance, together with all accrued and unpaid yield thereon and all other amounts owed to such Tranche C Participant under the Operative Documents.              "Tranche C Participants" means those Participants maintaining a Tranche C Equity Interest Commitment and purchasing a Tranche C Equity Interest in the Advances.              "Tranche Y Participant" means Yahoo! Inc., in its capacity as a Participant maintaining a Tranche A Participation Interest Commitment and purchasing a Tranche A Participation Interest in the Advances.              "Transaction Expenses" means all costs and expenses incurred in connection with the preparation, execution and delivery of the Operative Documents and the transactions contemplated by the Operative Documents including without limitation:              (a)         the reasonable fees, out-of-pocket expenses and disbursements of counsel for the Lessor and the Agent, in negotiating the terms of the Operative Documents and the other transaction documents, preparing for the closing under, and rendering opinions in connection with, such transactions (including each Property acquisition closing on a Land Interest Acquisition Date) and in rendering other services customary for counsel representing parties to transactions of the types involved in the transactions contemplated by the Operative Documents;              (b)        the reasonable fees, out-of-pocket expenses and disbursements of counsel, and (without duplication) the reasonable allocated cost of internal legal services and all disbursements of internal counsel of each of the Lessor, the Participants (other than the Tranche Y Participant) and the Agent in connection with (1) any amendment, supplement, waiver or consent with respect to any Operative Documents, and (2) any enforcement of any rights or remedies against the Lessee in respect of the Operative Documents;              (c)         any other reasonable fees, out-of-pocket expenses, disbursements or cost of the Lessor or the Agent incurred in connection with the transactions contemplated by the Operative Documents including any amounts paid to insurance consultants;              (d)        any and all Taxes and fees incurred in recording, registering or filing any Operative Document or any other transaction document, any deed, declaration, mortgage, security agreement, notice or financing statement with any public office, registry or governmental agency in connection with the transactions contemplated by the Operative Documents;              (e)         any title fees, premiums and escrow costs and other expenses relating to title insurance and the closings contemplated by the Operative Documents;              (f)         all expenses relating to all Environmental Audits;              (g)        the Arrangement Fee;              (h)        any and all Appraisal fees.              "Trustee" is defined in Section 7.1(f) of the Lease.              "UCC Financing Statements" means collectively the Agent Financing Statements and the Lessor Financing Statements.              "Uniform Commercial Code" and "UCC" means the Uniform Commercial Code as in effect in any applicable jurisdiction.              "Wholly-Owned Domestic Subsidiary" means a Domestic Subsidiary of the Lessee that is a Wholly-Owned Subsidiary.              "Wholly-Owned Foreign Subsidiary" means a Foreign Subsidiary of the Lessee that is a Wholly-Owned Subsidiary.              "Wholly-Owned Subsidiary" means a Subsidiary of the Lessee, at least 99% of the capital stock of which (other than directors' qualifying shares) is owned by the Lessee or another Wholly-Owned Subsidiary.      

-------------------------------------------------------------------------------- Warrant Agreement Dated as of March 27, 2001 --------------------------------------------------------------------------------       WARRANT AGREEMENT, dated as of March 27, 2001, between BioTime, Inc., a California corporation (the “Company”), and Alfred D. Kingsley (the “Lender”).      The Company proposes to issue a Common Share Purchase Warrant, as hereinafter described (the “Warrants”), to purchase up to an aggregate of 50,000 of its Common Shares, no par value (the “Common Stock”) (the shares of Common Stock issuable upon exercise of the Warrants being referred to herein as the “Warrant Shares”), in connection with the Revolving Line of Credit Agreement of even date (the “Credit Agreement”), between the Company and the Lender..      In consideration of the foregoing and for the purpose of defining the terms and provisions of the Warrant and the respective rights and obligations thereunder of the Company and each registered owner of the Warrant (the “Holder”), the Company and the Lender hereby agree as follows:      SECTION 1.   Issuance of Warrants; Term of Warrants. Concurrently with the execution and delivery of this Agreement and the Credit Agreement, the Company is issuing and delivering to the Lender a Warrant to purchase 50,000 Warrant Shares, which Warrant shall be represented by a certificate in substantially the form of Exhibit A hereto. Subject to the terms of this Agreement, a Holder of any of such Warrant (including any Warrants into which the Warrant may be divided) shall have the right, which may be exercised at any time prior to 5:00 p.m., New York Time on March 26, 2006 (the “Expiration Date”), to purchase from the Company the number of fully paid and nonassessable Warrant Shares which the Holder may at the time be entitled to purchase upon exercise of any of such Warrant.       SECTION 2.    Transferability and Form of Warrant.                2.1    Registration. The Warrant shall be numbered and shall be registered on the books of the Company (the “Warrant Register”) as issued. The Company and the Warrant Agent (if appointed) shall be entitled to treat the Holder of any Warrant as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim or interest in such Warrant on the part of any other person, and shall not be liable for any registration of transfer of any Warrant which is registered or to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with the actual knowledge that a fiduciary or nominee is committing a breach of trust in requesting such registration or transfer, or with such knowledge of such facts that its participation therein amounts to bad faith. The Warrant shall initially be registered in the name of the Lender.                2.2   Restrictions on Exercise and Transfer. The Warrant may not be exercised, sold, pledged, hypothecated, transferred or assigned, in whole or in part, unless a registration statement under the Securities Act of 1933, as amended (the 1 “Act”), and under any applicable state securities laws is effective therefor or, an exemption from such registration is then available. Any exercise, sale, pledge, hypothecation, transfer, or assignment in violation of the foregoing restriction shall be deemed null and void and of no binding effect. The Company shall be entitled to obtain, as a condition precedent to its issuance of any certificates representing Warrant Shares or any other securities issuable upon any exercise of the Warrant, a letter or other instrument from the Holder containing such covenants, representations or warranties by such Holder as reasonably deemed necessary by Company to effect compliance by the Company with the requirements of applicable federal and/or state securities laws.                2.3    Transfer. Subject to Section 2.2, the Warrant shall be transferable only on the Warrant Register upon delivery thereof duly endorsed by the Holder or by his duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment or authority to transfer, which endorsement shall be guaranteed by a bank or trust company or a broker or dealer which is a member of the National Association of Securities Dealers, Inc. In all cases of transfer by an attorney, the original power of attorney, duly approved, or a copy thereof, duly certified, shall be deposited and remain with the Company (or the Warrant Agent, if appointed). In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced, and may be required to be deposited and remain with the Company (or the Warrant Agent, if appointed) in its discretion. Upon any registration of transfer, the Company shall execute and deliver (or if appointed, the Warrant Agent shall countersign and deliver) a new Warrant or Warrants to the persons entitled thereto.                 2.4    Form of Warrant. The text of the Warrant and of the Purchase Form shall be substantially as set forth in Exhibit A attached hereto. The price per Warrant Share and the number of Warrant Shares issuable upon exercise of each Warrant are subject to adjustment upon the occurrence of certain events, all as hereinafter provided. The Warrants shall be executed on behalf of the Company by its Chairman of the Board, President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or Assistant Secretary. The signature of any such officers on the Warrants may be manual or facsimile, provided, however, that the signature of any such officers must be manual until such time as a Warrant Agent is appointed.                 Warrants bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any one of them shall have ceased to hold such offices prior to the delivery of such Warrants or did not hold such offices on the date of this Agreement. 2                In the event that the Company shall appoint a Warrant Agent to act on its behalf in connection with the division, transfer, exchange or exercise of Warrants, the Warrants issued after the date of such appointment shall be dated as of the date of countersignature thereof by the Warrant Agent upon division, exchange, substitution or transfer. Until such time as the Company shall appoint a Warrant Agent, Warrants shall be dated as of the date of execution thereof by the Company either upon initial issuance or upon division, exchange, substitution or transfer.      SECTION 3.   Countersignature of Warrants. In the event that the Company shall appoint a Warrant Agent to act on its behalf in connection with the division, transfer, exchange or exercise of Warrants, the Warrants issued after the date of such appointment shall be counter signed by the Warrant Agent (or any successor to the Warrant Agent then acting as warrant agent) and shall not be valid for any purpose unless so countersigned. Warrants may be countersigned, however, by the Warrant Agent (or by its successor as warrant agent hereunder) and may be delivered by the Warrant Agent, notwithstanding that the persons whose manual or facsimile signatures appear thereon as proper officers of the Company shall have ceased to be such officers at the time of such countersignature, issuance or delivery. The Warrant Agent (if so appointed) shall, upon written instructions of the Chairman of the Board, the President, an Executive or Senior Vice President, the Treasurer or the Controller of the Company, countersign, issue and deliver Warrants entitling the Holders thereof to purchase not more than 50,000 Warrant Shares (subject to adjustment pursuant to Section 10 hereof) and shall countersign and deliver Warrants as otherwise provided in this Agreement.      SECTION 4.   Exchange of Warrant Certificates. Each Warrant certificate may be exchanged, at the option of the Holder thereof, for another Warrant certificate or Warrant certificates in different denominations entitling the Holder or Holders thereof to purchase a like aggregate number of Warrant Shares as the certificate or certificates surrendered then entitle each Holder to purchase. Any Holder desiring to exchange a Warrant certificate or certificates shall make such request in writing delivered to the Company at its principal office (or, if a Warrant Agent is appointed, the Warrant Agent at its principal office) and shall surrender, properly endorsed, the certificate or certificates to be so exchanged. Thereupon, the Company (or, if appointed, the Warrant Agent) shall execute and deliver to the person entitled thereto a new Warrant certificate or certificates, as the case may be, as so requested, in such name or names as such Holder shall designate.      SECTION 5.    Exercise of Warrants; Listing.                5.1   Exercise of Warrants. A Warrant may be exercised upon surrender of the certificate or certificates evidencing the Warrants to be exercised, together with the form of election to purchase on the reverse thereof duly filled in and signed, which signature shall be guaranteed by a bank or trust company or a broker or dealer which is a member of the National Association of Securities Dealers, Inc., to the Company at its principal office (or if appointed, the principal office of the Warrant Agent) and upon payment of the Warrant Price (as defined in and determined in accordance with the provisions of Sections 9 and 10 hereof) to the Company (or if appointed, to the Warrant Agent for the account of the Company), for the number of Warrant Shares in respect of which such Warrants are then exercised. Payment of the aggregate Warrant Price (defined in Section 9 herein) shall be made in cash or by certified or bank cashier’s check. 3                Subject to Section 6 hereof, upon the surrender of the Warrant and payment of the Warrant Price as aforesaid, the Company (or if appointed, the Warrant Agent) shall cause to be issued and delivered with all reasonable dispatch to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate or certificates for the number of full Warrant Shares so purchased upon the exercise of such Warrant, together with cash, as provided in Section 11 hereof, in respect of any fractional Warrant Shares otherwise issuable upon such surrender. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Shares as of the date of the surrender of such Warrants and payment of the Warrant Price, as aforesaid. The rights of purchase represented by the Warrant shall be exercisable, at the election of the Holder thereof, either in full or from time to time in part and, in the event that a certificate evidencing the Warrant is exercised in respect of less than all of the Warrant Shares purchasable on such exercise at any time prior to the date of expiration of the Warrant, a new certificate evidencing the unexercised portion of the Warrant will be issued, and the Warrant Agent (if so appointed) is hereby irrevocably authorized to countersign and to deliver the required new Warrant certificate or certificates pursuant to the provisions of this Section and Section 3 hereof, and the Company, whenever required by the Warrant Agent (if appointed), will supply the Warrant Agent with Warrant certificates duly executed on behalf of the Company for such purpose.                5.2    Listing of Shares on Securities Exchange; Exchange Act Registration. The Company will promptly use its best efforts to cause the Warrant Shares to be listed, subject to official notice of issuance, on all national securities exchanges on which the Common Stock is listed and whose rules and regulations require such listing, as soon as possible following the date hereof.                The Company will promptly notify the Holders in the event that the Company plans to register the Warrants with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).      SECTION 6.   Payment of Taxes. The Company will pay all documentary stamp taxes, if any, attributable to the initial issuance of Warrant Shares upon the exercise of Warrants; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issue or delivery of any Warrant or certificates for Warrant Shares in a name other than that of the registered Holder of such Warrants.      SECTION 7.   Mutilated or Missing Warrants. In case any of the certificates evidencing the Warrants shall be mutilated, lost, stolen or destroyed, the Company may in its discretion issue and deliver (and, if appointed, the Warrant Agent shall countersign and deliver) in exchange and substitution for and upon cancellation of 4 the mutilated Warrant certificate, or in lieu of and substitution for the Warrant certificate lost, stolen or destroyed, a new Warrant certificate of like tenor, but only upon receipt of evidence reasonably satisfactory to the Company and the Warrant Agent (if so appointed) of such loss, theft or destruction of such Warrant and an indemnity or bond, if requested, also reasonably satisfactory to them. An applicant for such a substitute Warrant certificate shall also comply with such other reasonable regulations and pay such other reasonable charges as the Company (or the Warrant Agent, if so appointed) may prescribe.      SECTION 8.    Reservation of Warrant Shares; Purchase and Cancellation of Warrants.                8.1   Reservation of Warrant Shares. There have been reserved, and the Company shall at all times keep reserved, out of its authorized Common Stock, a number of shares of Common Stock sufficient to provide for the exercise of the rights of purchase represented by the outstanding Warrants and any additional Warrants issuable hereunder. The Transfer Agent for the Common Stock and every subsequent transfer agent for any shares of the Company’s capital stock issuable upon the exercise of any of the rights of purchase aforesaid will be irrevocably authorized and directed at all times to reserve such number of authorized shares as shall be required for such purpose. The Company will keep a copy of this Agreement on file with the Transfer Agent for the Common Stock and with every subsequent transfer agent for any shares of the Company’s capital stock issuable upon the exercise of the rights of purchase represented by the Warrants. The Warrant Agent, if appointed, will be irrevocably authorized to requisition from time to time from such Transfer Agent the stock certificates required to honor outstanding Warrants upon exercise thereof in accordance with the terms of this Agreement. The Company will supply such Transfer Agent with duly executed stock certificates for such purposes and will provide or otherwise make available any cash which may be payable as provided in Section 11 hereof. The Company will furnish such Transfer Agent a copy of all notices of adjustments and certificates related thereto, transmitted to each Holder pursuant to subsection 10.3 hereof.                8.2    Purchase of Warrants by the Company. The Company shall have the right, except as limited by law, other agreements or herein, with the consent of the Holder, to purchase or otherwise acquire Warrants at such times, in such manner and for such consideration as it may deem appropriate.                8.3   Cancellation of Warrants. In the event the Company shall purchase or otherwise acquire Warrants, the same shall thereupon be cancelled and retired. The Warrant Agent (if so appointed) shall cancel any Warrant surrendered for exchange, substitution, transfer or exercise in whole or in part. 5      SECTION 9. Warrant Price. Subject to any adjustments required by Section 10 hereof, the price per share at which Warrant Shares shall be purchasable upon exercise of a Warrant (as to any particular Warrant, the “Warrant Price”) shall be Eight Dollars and Thirty-One Cents ($8.31) per share.      SECTION 10.   Adjustment of Warrant Price and Number of Warrant Shares. The number and kind of securities purchasable upon the exercise of each Warrant and the Warrant Price shall be subject to adjustment from time to time upon the happening of certain events, as hereinafter defined.                10.1    Adjustments. The number of Warrant Shares purchasable upon the exercise of each Warrant and the Warrant Price shall be subject to adjustment as follows:                   (a)   In the event that the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) reclassify or change (including a change to the right to receive, or a change into, as the case may be (other than with respect to a merger or consolidation pursuant to the exercise of appraisal rights), shares of stock, other securities, property, cash or any combination thereof) its Common Stock (including any such reclassification or change in connection with a consolidation or merger in which the Company is the surviving corporation), the number of Warrant Shares purchasable upon exercise of each Warrant immediately prior thereto shall be adjusted so that the Holder of each Warrant shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company or other property which he would have owned or have been entitled to receive after the happening of any of the events described above, had such Warrant been exercised immediately prior to the happening of such event or any record date with respect thereto. An adjustment made pursuant to this paragraph (a) shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event.                    (b)    In case the Company shall issue rights, options or warrants to all holders of its outstanding Common Stock, without any charge to such holders, entitling them to subscribe for or purchase shares of Common Stock at a price per share which is lower at the record date mentioned below than the then current market price per share of Common Stock (as defined in paragraph (d) below), the number of Warrant Shares thereafter purchasable upon the exercise of each Warrant shall be determined by multiplying the number of Warrant Shares theretofore purchasable upon exercise of each Warrant by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of additional shares of Common Stock offered for subscription or purchase in connection with such rights, options or warrants, and of which the denominator shall be the number of 6 shares of Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of shares which the aggregate offering price of the total number of shares of Common Stock so offered would purchase at the current market price per share of Common Stock at such record date. Such adjustment shall be made whenever such rights, options or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.                (c)    In case the Company shall distribute to all holders of its shares of Common Stock, (including any distribution made in connection with a merger in which the Company is the surviving corporation), evidences of its indebtedness or assets (excluding cash, dividends or distributions payable out of consolidated earnings or earned surplus and dividends or distributions referred to in paragraph (a) above) or rights, options or warrants, or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock (excluding those referred to in paragraph (b) above), then in each case the number of Warrant Shares thereafter purchasable upon the exercise of each Warrant shall be determined by multiplying the number of Warrant Shares theretofore purchasable upon the exercise of each Warrant by a fraction, of which the numerator shall be the then current market price per share of Common Stock (as defined in paragraph (d) below) on the date of such distribution, and of which the denominator shall be the then current market price per share of Common Stock, less the then fair value (as determined by the Board of Directors of the Company or, in the case of Warrants held by the Lender, an independent investment banker which shall be mutually agreeable to the parties, whose determination, in each case, shall be conclusive) of the portion of the assets or evidences of indebtedness so distributed or of such subscription rights, options or warrants, or of such convertible or exchangeable securities applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made, and shall become effective on the date of distribution retroactive to the record date for the determination of shareholders entitled to receive such distribution.                (d)    For the purpose of any computation under paragraphs (b) and (c) of this Section, the current market price per share of Common Stock at any date shall be the average of the daily last sale prices for the 20 consecutive trading days ending one trading day prior to the date of such computation. The closing price for each day shall be the last reported sales price regular way or, in case no such reported sale takes place on such day, the average of the closing bid and asked prices regular way for such day, in each case on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading or, if not so listed or admitted to trading, the last sale price of the Common Stock on the Nasdaq Stock Market or any comparable system. If the current market price of the Common Stock cannot be so determined, the Board of Directors of the Company shall reasonably determine the current market price on the basis of such quotations as are available. 7                (e)    No adjustment in the number of Warrant Shares purchasable hereunder shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the number of Warrant Shares purchasable upon the exercise of each Warrant; provided, however, that any adjustments which by reason of this paragraph (e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations shall be made with respect to the number of Warrant Shares purchasable hereunder, to the nearest tenth of a share and with respect to the Warrant Price payable hereunder, to the nearest whole cent.                (f)    Whenever the number of Warrant Shares purchasable upon the exercise of each Warrant is adjusted, as herein provided, the Warrant Price payable upon exercise of each Warrant shall be adjusted by multiplying such Warrant Price immediately prior to such adjustment by a fraction, of which the numerator shall be the number of Warrant Shares purchasable upon the exercise of each Warrant immediately prior to such adjustment, and of which the denominator shall be the number of Warrant Shares purchasable immediately thereafter.                (g)    No adjustment in the number of Warrant Shares purchasable upon the exercise of each Warrant need be made under paragraphs (b) and (c) if the Company issues or distributes to each Holder of Warrants the rights options, warrants, or convertible or exchangeable securities, or evidences of indebtedness or assets referred to in those paragraphs which each Holder of Warrants would have been entitled to receive had the Warrants been exercised prior to the happening of such event or the record date with respect thereto. No adjustment need be made for a change in the par value of the Warrant Shares.                (h)    For the purpose of this subsection 10.1, the term “shares of Common Stock” shall mean (i) the class of stock designated as the Common Stock of the Company at the date of this Agreement, or (ii) any other class of stock resulting from successive changes or reclassifications of such shares consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. In the event that at any time, as a result of an adjustment made pursuant to paragraph (a) above, the Holders shall become entitled to purchase any securities of the Company other than shares of Common Stock, thereafter the number of such other shares so purchasable upon exercise of each Warrant and the Warrant Price of such shares shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in paragraphs (a) through (i), inclusive, and the provisions of Section 5 and subsections 10.2 through 10.5, inclusive, with respect to the Warrant Shares, shall apply on like terms to any such other securities. 8                (i)    Upon the expiration of any rights, options, warrants or conversion or exchange privileges, if any thereof shall not have been exercised, the Warrant Price and the number of Warrant Shares purchasable upon the exercise of each Warrant shall, upon such expiration, be readjusted and shall thereafter be such as it would have been had it been originally adjusted (or had the original adjustment not been required, as the case may be) as if (A) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion or exchange rights and (B) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise plus the aggregate consideration, if any, actually received by the Company for the issuance, sale or grant of all such rights, options, warrants or conversion or exchange rights whether or not exercised.                10.2    Voluntary Adjustment by the Company. The Company may at its option, at any time during the term of the Warrants, reduce the then current Warrant Price to any amount deemed appropriate by the Board of Directors of the Company.                10.3    Notice of Adjustment. Whenever the number of Warrant Shares purchasable upon the exercise of each Warrant or the Warrant Price of such Warrant Shares is adjusted, as herein provided, the Company shall, or in the event that a Warrant Agent is appointed, the Company shall cause the Warrant Agent promptly to, mail by first class, postage prepaid, to each Holder notice of such adjustment or adjustments. Such notice shall set forth the number of Warrant Shares purchasable upon the exercise of each Warrant and the Warrant Price of such Warrant Shares after such adjustment, setting forth a brief statement of the facts re quiring such adjustment and setting forth the computation by which such adjustment was made.                10.4    No Adjustment for Dividends. Except as provided in subsection 10.1, no adjustment in respect of any dividends shall be made during the term of a Warrant or upon the exercise of a Warrant.                10.5   Preservation of Purchase Rights Upon Merger, Consolidation, etc. In case of any consolidation of the Company with or merger of the Company into another corporation or in case of any sale, transfer or lease to another corporation of all or substantially all the property of the Company, the Company or such successor or purchasing corporation, as the case may be, shall execute an agreement that each Holder shall have the right thereafter, upon such Holder’s election, either (i) upon payment of the Warrant Price in effect immediately prior to such action, to purchase upon exercise of each Warrant the kind and amount of shares and other securities and property (including cash) which he would have owned or have been entitled to receive after the happening of such consolidation, merger, sale, transfer or lease had such Warrant been exercised immediately prior to such action (such shares and other securities and property (including cash) being referred to as the “Sale Consideration”) or (ii) to receive, in cancellation of such Warrant (and in lieu of paying the Warrant price and exercising such Warrant), the Sale Consideration less a portion thereof having a fair market value (as reasonably determined by the Company) equal to the Warrant Price (it being understood that, if the Sale 9 Consideration consists of more than one type of shares, other securities or property, the amount of each type of shares, other securities or property to be received shall be reduced proportionately); provided, however, that no adjustment in respect of dividends, interest or other income on or from such shares or other securities and property shall be made during the term of a Warrant or upon the exercise of a Warrant. The Company shall mail by first class mail, postage prepaid, to each Holder, notice of the execution of any such agreement. Such agreement shall provide for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 10. The provisions of this subsection 10.5 shall similarly apply to successive consolidations, mergers, sales, transfers or leases. The Warrant Agent (if appointed) shall be under no duty or responsibility to determine the correctness of any provisions contained in any such agreement relating to the kind or amount of shares of stock or other securities or property receivable upon exercise of Warrants or with respect to the method employed and provided therein for any adjustments and shall be entitled to rely upon the provisions contained in any such agreement.                10.6    Statement on Warrants. Irrespective of any adjustments in the Warrant Price or the number or kind of shares purchasable upon the exercise of the Warrants, Warrants issued before or after such adjustment may continue to express the same price and number and kind of shares as are stated in the Warrants initially issuable pursuant to this Agreement.      SECTION 11.   Fractional Interests. The Company shall not be required to issue fractional Warrant Shares on the exercise of Warrants. If more than one Warrant shall be presented for exercise in full at the same time by the same Holder, the number of full Warrant Shares which shall be issuable upon the exercise thereof shall be computed on the basis of the aggregate number of Warrant Shares purchasable on exercise of the Warrants so presented. If any fraction of a Warrant Share would, except for the provisions of this Section 11, be issuable on the exercise of any Warrant (or specified portion thereof), the Company shall pay an amount in cash equal to the average of the daily closing sale prices (determined in accordance with paragraph (d) of subsection 10.1) per share of Common Stock for the 20 consecutive trading days ending one trading day prior to the date the Warrant is presented for exercise, multiplied by such fraction.      SECTION 12. No Rights as Shareholders; Notices to Holders. Nothing contained in this Agreement or in any of the Warrants shall be construed as conferring upon the Holders or their transferees the right to vote or to receive dividends or to consent or to receive notice as shareholders in respect of any meeting of shareholders for the election of directors of the Company or any other matter, or any rights whatsoever as shareholders of the Company. If, however, at any time prior to the expiration of the Warrants and prior to their exercise, any of the following events shall occur: 10                   (a)    the Company shall declare any dividend payable in any securities upon its shares of Common Stock or make any distribution (other than a regular cash dividend, as such dividend may be increased from time to time, or a dividend payable in shares of Common Stock) to the holders of its shares of Common Stock; or                   (b)    the Company shall offer to the holders of its shares of Common Stock on a pro rata basis any cash, additional shares of Common Stock or other securities of the Company or any right to subscribe for or purchase any thereof; or                   (c)    a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation, merger, sale, transfer or lease of all or substantially all of its property, assets, and business as an entirety) shall be proposed, then in any one or more of said events the Company shall (a) give notice in writing of such event as provided in Section 14 hereof and (b) if the Warrants have been registered pursuant to the Act, cause notice of such event to be published once in The Wall Street Journal (national edition), such giving of notice and publication to be completed at least 10 days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, or subscription rights or for the determination of stockholders entitled to vote on such proposed dissolution, liquidation or winding up or the date of expiration of such offer. Such notice shall specify such record date or the date of closing the transfer books or the date of expiration, as the case may be. Failure to publish, mail or receive such notice or any defect therein or in the publication or mailing thereof shall not affect the validity of any action in connection with such dividend, distribution or subscription rights, or such proposed dissolution, liquidation or winding up, or such offer.      SECTION 13.   Appointment of Warrant Agent. At such time as the Company shall register Warrants under the Act, the Company shall appoint a Warrant Agent to act on behalf of the Company in connection with the issuance, division, transfer and exercise of Warrants. At such time as the Company appoints a Warrant Agent, the Company shall enter into a new Warrant Agreement with the Warrant Agent pursuant to which all new Warrants will be issued upon registration of transfer or division, which will reflect the appointment of the Warrant Agent, as well as additional customary provisions as shall be reasonably requested by the Warrant Agent in connection with the performance of its duties. In the event that a Warrant Agent is appointed, the Company shall (i) promptly notify the Holders of such appointment and the place designated for transfer, exchange and exercise of the Warrants, and (ii) take such steps as are necessary to insure that Warrants issued prior to such appointment may be exchanged for Warrants countersigned by the Warrant Agent. 11      SECTION 14.   Notices; Principal Office. Any notice pursuant to this Agreement by the Company or by any Holder to the Warrant Agent (if so appointed), or by the Warrant Agent (if so appointed) or by any Holder to the Company, shall be in writing and shall be delivered in person, or mailed first class, postage prepaid (a) to the Company, at its office, Attention: President or (b) to the Warrant Agent, at its offices as designated at the time the Warrant Agent is appointed. The address of the principal office of the Company is 935 Pardee Street, Berkeley, California 94710. Each party hereto may from time to time change the address to which notices to it are to be delivered or mailed hereunder by notice to the other party.                Any notice mailed pursuant to this Agreement by the Company or the Warrant Agent to the Holders shall be in writing and shall be mailed first class, postage prepaid, or otherwise delivered, to such Holders at their respective addresses on the books of the Company or the Warrant Agent, as the case may be.      SECTION 15.   Successors. Except as expressly provided herein to the contrary, all the covenants and provisions of this Agreement by or for the benefit of the Company and the Lender shall bind and inure to the benefit of their respective successors and permitted assigns hereunder.      SECTION 16.   Merger or Consolidation of the Company. The Company will not merge or consolidate with or into, or sell, transfer or lease all or substantially all of its property to, any other corporation unless the successor or purchasing corporation, as the case may be (if not the Company), shall expressly assume, by supplemental agreement, the due and punctual performance and observance of each and every covenant and condition of this Agreement to be performed and observed by the Company. 12       SECTION 17.    Investment Representations. Lender represents and warrants to BioTime that:                   (a)    Lender has received and read the Company’s financial statements for the year ended on December 31, 2000, as will be included in its Form 10-K for such fiscal year, its annual report on Form 10-K for the fiscal year ended December 31, 1999, and quarterly report on Form 10-Q for the fiscal quarter and nine months ended September 30, 2000, and Form 8-K (the “Disclosure Documents”). Lender is relying on the information provided in the Disclosure Documents or otherwise communicated to Lender in writing by the Company. Lender has not relied on any statement or representations inconsistent with those contained in the Disclosure Documents. Lender has had a reasonable opportunity to ask questions of and receive answers from the executive officers and directors of the Company, or one or more of its officers, concerning the Company and to obtain additional information, to the extent possessed or obtainable without unreasonable effort or expense, necessary to verify the information in the Disclosure Documents. All such questions have been answered to Lender’s satisfaction;                   (b)    Lender understands that the Warrant and the Warrant Shares are being offered and sold without registration under the Act or qualification under the California Corporate Securities Law of 1968, or under the laws of other states, in reliance upon the exemptions from such registration and qualification requirements for non-public offerings. Lender acknowledges and understands that the availability of the aforesaid exemptions depends in part upon the accuracy of certain of the representations, declarations and warranties contained herein, which Lender hereby makes with the intent that they may be relied upon by the Company and its officers and directors in determining Lender’s suitability to acquire the Warrant. Lender understands and acknowledges that no federal, state or other agency has reviewed or endorsed the offering of the Warrant or the Warrant Shares or made any finding or determination as to the fairness of the offering or completeness of the information in the Disclosure Documents;                   (c)    Lender understands that the Warrant and the Warrant Shares may not be offered, sold, or transferred in any manner, and the Warrant may not be exercised, unless subsequently registered under the Act, or unless there is an exemption from such registration available for such offer, sale or transfer;                   (d)    Lender has such knowledge and experience in financial and business matters to enable Lender to utilize the information contained in the Disclosure Documents, or otherwise made available to Lender to evaluate the merits and risks of an investment in the Warrant and the Warrant Shares and to make an informed investment decision with respect thereto. 13                   (e)    Lender is acquiring the Warrant solely for Lender’s own account and for long-term investment purposes, and not with a view to, or for sale in connection with, any distribution of the Warrant or Warrant Shares; and                   (f)    Lender is an “accredited investor,” as such term is defined in Regulation D promulgated under the Act.       SECTION 18.   Registration Rights.                   (a)    The Company agrees, at its expense, upon written request from the Lender, to register under the Act, the Warrant and the Warrant Shares and to take such other actions as may be necessary to allow the Warrant and the Warrant Shares to be freely tradable, without restrictions, in compliance with all regulatory requirements. A written request for registration shall specify the quantity of the Warrant Shares intended to be sold, the plan of distribution and the identity of the sellers, which may include the Lender and assignees of its rights hereunder (collectively, “Selling Securities Holders”), and whether the registration shall be pursuant to an underwritten public offering or a “shelf” registration pursuant to Rule 415 (or similar rule that may be adopted by the Securities and Exchange Commission). The Company shall not be obligated to file more than two such registration statements, other than registration statements on Form S-3. The Company shall keep such registration statements effective for a period of at least nine months, except that registration statements on Form S-3 shall be kept effective for at least three years ( or such lesser period as the parties may agree, but in no event beyond the completion of the distribution or distributions being made pursuant thereto). The Company shall utilize Form S-3 if it qualifies for such use. The Company shall make all filings required with respect to the registration statements and will use its best efforts to cause such filings to become effective, so that the Warrant and Warrant Shares being registered shall be registered or qualified for sale under the securities or blue sky laws of such jurisdictions as shall be reasonably appropriate for distribution of the Warrant and Warrant Shares covered by the registration statement. The Company will furnish to the Selling Securities Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act and such other related documents as the Selling Securities Holders may reasonably request in order to effect the sale of the Warrant and Warrant Shares. To effect any offering pursuant to a registration statement under this Section, the Company shall enter into an agreement containing customary representations and warranties, and indemnification and contribution provisions, all for the benefit of Selling Securities Holders, and, in the case of an Underwritten public offering. an underwriting agreement with an investment banking firm selected by the Lender and reasonably acceptable to the Company, containing such customary representations and warranties, and indemnification and contribution provisions 14                   (b)    If, at any time, the Company proposes to register any of its securities under the Act (otherwise than pursuant to paragraph 18(a) above or on a Form S-8 if such form cannot be used for registration of the Warrant or Warrant Shares pursuant to its terms), the Company shall, as promptly as practicable, give written notice to the Lender. The Company shall include in such registration statement the Warrant and any Warrant Shares proposed to be sold by the Selling Securities Holders. Notwithstanding the foregoing, if the offering of the Company’s securities is to be made through underwriters, the Company shall not be required to include the Warrant and Warrant Shares if and to the extent that the managing underwriter reasonably believes in good faith that such inclusion would materially adversely affect such offering unless the Selling Securities Holders agree to postpone their sales until 10 days after the distribution is completed.                   (c)    The Company shall pay the cost of the registration statements filed pursuant to this Agreement, including without limitation all registration and filing fees, fees and expenses of compliance with securities or blue sky laws (including counsel’s fees and expenses in connection therewith), printing expenses, messenger and delivery expenses, internal expenses of the Company, listing fees and expenses, and fees and expenses of the Company’s counsel, independent accountants and other persons retained or employed by the Company. Selling Securities Holders shall pay any underwriters discounts applicable to the Warrant and Warrant Shares.      SECTION 19.   Legends. The Warrants and Warrant Shares issued pursuant to this Agreement shall bear an appropriate legend, conspicuously disclosing the restrictions on exercise and transfer under Section 2.2 of this Agreement until the same are registered for sale under the Act. The Company agrees that upon the sale of the Warrant and Warrant Shares pursuant to a registration statement or an exemption, upon the presentation of the certificates containing such a legend to it’s transfer agent, it will remove such legend. The Company further agrees to remove the legend at such time as registration under the Act shall no longer be required.      SECTION 20.    Applicable Law. This Agreement and each Warrant issued hereunder shall be governed by and construed in accordance with the laws of the State of California, without giving effect to principles of conflict of laws.      SECTION 21.    Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company, the Warrant Agent (if appointed) and the Holders any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Warrant Agent and the Holders of the Warrants.      SECTION 22.   Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.       SECTION 23.    Captions. The captions of the Sections and subsections of this Agreement have been inserted for convenience only and shall have no substantive effect. 15      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, all as of the day and year first above written.  BIOTIME, INC.             By:/s/ Paul Segall                                            Name: Paul Segall, Ph.D                                                                    Title: Chairman and Chief Executive Officer Attest: By:/s/ Judith Segall              Name: Judith Segall    Title: Secretary              /s/ Alfred D. Kingsley                    Alfred D. Kingsley 16 EXHIBIT A            THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER APPLICABLE STATE SECURITIES LAWS. THIS WARRANT MAY NOT BE EXERCISED, SOLD, PLEDGED, HYPOTHECATED, TRANSFERRED OR ASSIGNED EXCEPT UNDER AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. VOID AFTER 5:00 P.M. NEW YORK TIME, March 26, 2006 Certificate No.______ Warrant to Purchase [Insert number of Shares] ------------------------- Shares of Common Stock BIOTIME, INC. COMMON SHARE PURCHASE WARRANTS      This certifies that, for value received, [Insert name of Holder] or registered assigns (the “Holder”), is entitled to purchase from BioTime, Inc. a California corporation (the “Company”), at a purchase price per share [Insert Warrant Price determined pursuant to Sections 9 and 10 of the Warrant Agreement] (the “Warrant Price”), the number of its Common Shares, no par value per share (the “Common Stock”), shown above. The number of shares purchasable upon exercise of the Common Share Purchase Warrants (the “Warrants”) and the Warrant Price are subject to adjustment from time to time as set forth in the Warrant Agreement referred to below. Outstanding Warrants not exercised prior to 5:00 p.m., New York time, on March 26, 2006 shall thereafter be void.      Subject to restriction specified in the Warrant Agreement, Warrants may be exercised in whole or in part by presentation of this Warrant Certificate with the Purchase Form on the reverse side hereof duly executed, which signature shall be guaranteed by a bank or trust company or a broker or dealer which is a member of the National Association of Securities Dealers, Inc., and simultaneous payment of the Warrant Price (or as otherwise set forth in Section 10.5) of the Warrant Agreement at the principal office of the Company (or if a Warrant Agent is appointed, at the principal office of the Warrant Agent). Payment of such price shall be made in cash or by certified or bank cashier’s check. As provided in the Warrant Agreement, the Warrant Price and the number or kind of shares which may be purchased upon the exercise of the Warrant evidenced by this Warrant Certificate are, upon the happening of certain events, subject to modification and adjustment. 17      This Warrant Certificate is issued under and in accordance with a Warrant Agreement dated as of March 27, 2001 between the Company and Alfred D. Kingsley and is subject to the terms and provisions contained in the Warrant Agreement, to all of which the Holder of this Warrant Certificate by acceptance of this Warrant Certificate consents. A copy of the Warrant Agreement may be obtained by the Holder hereof upon written request to the Company. In the event that pursuant to Section 13 of the Warrant Agreement a Warrant Agent is appointed and a new warrant agreement entered into between the Company and such Warrant Agent, then such new warrant agreement shall constitute the Warrant Agreement for purposes hereof and this Warrant Certificate shall be deemed to have been issued pursuant to such new warrant agreement.      Upon any partial exercise of the Warrant evidenced by this Warrant Certificate, there shall be issued to the Holder hereof a new Warrant Certificate in respect of the shares of Common Stock as to which the Warrant evidenced by this Warrant Certificate shall not have been exercised. This Warrant Certificate may be exchanged at the office of the Company (or the Warrant Agent, if appointed) by surrender of this Warrant Certificate properly endorsed either separately or in combination with one or more other Warrant Certificates for one or more new Warrant Certificates evidencing the right of the Holder thereof to purchase the aggregate number of shares as were purchasable on exercise of the Warrants evidenced by the Warrant Certificate or Certificates exchanged. No fractional shares will be issued upon the exercise of any Warrant, but the Company will pay the cash value thereof determined as provided in the Warrant Agreement. This Warrant Certificate is transferable at the office of the Company (or the Warrant Agent, if appointed) in the manner and subject to the limitations set forth in the Warrant Agreement.      The Holder hereof may be treated by the Company, the Warrant Agent (if appointed) and all other persons dealing with this Warrant Certificate as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented hereby, or to the transfer hereof on the books of the Company, any notice to the contrary notwithstanding, and until such transfer on such books, the Company (and the Warrant Agent, if appointed) may treat the Holder hereof as the owner for all purposes.       Neither the Warrant nor this Warrant Certificate entitles any Holder to any of the rights of a stockholder of the Company.      This Warrant Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Warrant Agent.]* 18 DATED: BIOTIME, INC. (Seal) By:___________________________ Title:________________________ Attest:____________________ [COUNTERSIGNED: , WARRANT AGENT By:_________________________]* Authorized Signature -------------------- * To be part of the Warrant only after the appointment of a Warrant Agent pursuant to Section 13 of the Warrant Agreement. 19 PURCHASE FORM (To be executed upon exercise of Warrant) To BioTime, Inc.:      The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant Certificate for, and to purchase thereunder,       shares of Common Stock, as provided for therein, and tenders herewith payment of the purchase price in full in the form of cash or a certified or bank cashier’s check in the amount of $      .      Please issue a certificate or certificates for such shares of Common Stock in the name of, and pay any cash for any fractional share to: PLEASE INSERT SOCIAL SECURITY NAME OR OTHER IDENTIFYING NUMBER (Please Print Name & Address) OF ASSIGNEE Address ___________________________ Signature ___________________________ NOTE: The above signature should correspond exactly with the name on the face of this Warrant Certificate or with the name of the assignee appearing in the assignment form below. And, if said number of shares shall not be all the shares purchasable under the within Warrant Certificate, a new Warrant Certificate is to be issued in the name of said undersigned for the balance remaining of the share purchasable thereunder less any fraction of a share paid in cash. 20 ASSIGNMENT (To be executed only upon assignment of Warrant Certificate)         For value received,        hereby sells, assigns and transfers unto        the within Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint        attorney, to transfer said Warrant Certificate on the books of the within-named Company, with full power of substitution in the premises. Dated:___________________ ________________________________ NOTE: The above signature should correspond exactly with the name on the face of this Warrant Certificate. 21

EXHIBIT 10.4 REVOLVING CREDIT AND TERM LOAN AGREEMENT     REVOLVING CREDIT AND TERM LOAN AGREEMENT dated as of February 1, 2001, between BURLINGTON COAT FACTORY WAREHOUSE CORPORATION, a Delaware corporation, and BURLINGTON COAT FACTORY WAREHOUSE OF NEW JERSEY, INC., a New Jersey corporation, (collectively referred to herein as the "Borrower") and NATIONAL CITY BANK (the "Bank"). Borrower jointly and severally agrees with Bank as follows: Article I--DEFINITIONS AND ACCOUNTING TERMS Section 1.01. Defined Terms. As used in this Agreement, the following terms have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa): "Agreement" means this Revolving Credit and Term Loan Agreement, as amended, supplemented, or modified from time to time. "Business Day" means any day (other than any Saturday, Sunday or legal holiday) on which Bank's banking office is open to the public for carrying on substantially all of its banking functions;. and, if the applicable day relates to a LIBOR Loan, LIBOR Interest Period, or notice with respect to a LIBOR 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. "Capitalization" means the amount equal to Net Worth plus Long-Term Liabilities. "Capital Lease" means all leases which have been or should be capitalized on the books of the lessee in accordance with GAAP. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations and published interpretations thereof. "Commitment" means the Bank's obligation to make Loans to the Borrower pursuant to Section 2.01 in the amount referred to therein and subject to reduction as set forth in Section 2.02. "Commitment Termination Date" means February 1, 2004, or such other later date on which the Commitment is to terminate as a result of this date being extended pursuant to Section 2.01 hereof. "Commonly Controlled Entity" means an entity, whether or not incorporated, which is under common control with the Borrower within the meaning of Section 414(b) or 414(c) of the Code. "Confidential Information" means all information received by Bank from Borrower and its Subsidiaries in connection with this Agreement, but shall not include: (1) information publicly available by means other than wrongful disclosure or lawfully obtained from third parties without any confidentiality obligations; (2) information which is required by law or by a government agency to be disclosed by a Person, provided that such Person immediately notifies the other Person of the requirements for such disclosure and reasonably cooperates in the other Person's attempts to obtain a protective order with regard to such information; or (3) information provided to the Person with the intention that it be published, disseminated, released or distributed by such Person to the public. "Consolidated" refers to the consolidation of the accounts of Borrower and Subsidiaries in accordance with GAAP, including principles of consolidation, applied in a manner consistent with the application of such principles in the preparation of the audited financial statements required under Section 5.08(2) hereof. "Cost of Funds" means, with respect to a Fixed Rate Loan, the rate per annum (rounded upwards, if necessary, to the next higher 1/16 of 1%) determined by Bank by dividing (a) the rate per annum as determined by Bank, in its sole discretion, three (3) Business Days prior to the first day of the Interest Period for that Fixed Rate Loan, and then quoted by Bank to Borrower as Bank's so-called "cost of funds" for loans in an amount similar to that Fixed Rate Loan which rate shall be the same "cost of funds" quoted to other customers of Bank for obligations of similar amount, maturity, loan structure to the Loans evidenced by this Agreement; by (b) the difference of one (1) less the Cost of Funds Reserve Percentage; "Cost of Funds Reserve Percentage" means the percentage (expressed as a decimal) which Bank determines to be the maximum (but in any case less than 1.00) reserve requirement (including, without limitation, any emergency, marginal, special, or supplemental reserve requirement) prescribed for domestic nonpersonal time deposits (or any other category of liabilities by reference to which the interest rate applicable to Long Term Cost of Funds Units is determined) under Regulation D (as amended from time to time) of the Board of Governors of the Federal Reserve System or under any successor regulation which Bank determines to be applicable, with each change in such maximum reserve requirement automatically, immediately, and without notice changing the interest rate thereafter applicable hereunder, it being agreed that Long Term Cost of Funds Units shall be deemed to be subject to such reserve requirements without the benefit of any credit for proration, exceptions, or offsets; "Current Assets" means all assets of Borrower on a Consolidated basis that, in accordance with GAAP, would be classified as current assets of Borrower on a Consolidated basis. "Current Liabilities" means all liabilities of Borrower on a Consolidated basis that, in accordance with GAAP, would be classified as current liabilities of Borrower on a Consolidated basis, whether or not the same would be characterized as a short term obligation for accounting purposes. "Current Portion of Long Term Liabilities" means that portion of Long Term Liabilities which is payable within the next twelve (12) months of the date in question. "Debt" means all liabilities of Borrower on a Consolidated basis. "Default" means any of the events specified in Section 8.01, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Dollars" and the sign "$" mean lawful money of the United States of America. "EBITDA" means, with respect to any period, the Consolidated net income for that period, plus Consolidated interest expense for that period, plus Consolidated federal, state, and local income taxes, if any, for that period, plus Consolidated depreciation and amortization charges for that period. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations and published interpretations thereof. "Event of Default" means any of the events specified in Section 8.01, provided that any requirement for the giving notice, the lapse of time, or both, or any other condition, has been satisfied. "Expiration Date" the date on which the final installment under the Term Loan is due. "Fixed Rate Loan" means any Loan when and to the extent that the interest rate thereof is determined by reference to Cost of Funds. "Funded Debt" means any Debt for the payment of borrowed money (including Loans made hereunder), the installment purchase price of property, or sums due pursuant to Capital Leases. "GAAP" means generally accepted accounting principles in the United States. "Interest Period" means (1) with respect to any LIBOR Loan, the period commencing on the date such loan is made and ending, as the Borrower may select, pursuant to Section 2.04, on the numerically corresponding day in the first, second, third, or sixth calendar month thereafter, except that each such Interest Period that commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month; and (2) with respect to any Fixed Rate Loan, the period commencing on the date such Loan is made and ending, on the date selected by Borrower, being at least one (1) day thereafter, provided, that (i) each such Interest Period shall be subject to Bank's assent thereto and (ii) if any such Interest Period would otherwise end on a day that is not a Business Day, it shall end instead on the next succeeding Business Day, provided that all of the foregoing provisions relating to Interest Periods are subject to the following: (a) No Interest Period for a Revolving Loan may extend beyond the Commitment Termination Date. (b) No Interest Period for the Term Loan may extend beyond a principal repayment date for the Term Loan unless, after giving effect thereto, the aggregate principal amount of the LIBOR and Fixed Rate Loans having Interest Periods that end after such principal repayment date shall be equal to or less than the principal amount to be outstanding under the Term Loan after such principal repayment date. (c) If an Interest Period would end on a day that is not a Business Day, such Interest Period shall be extended to the next Business Day unless, in the case of a LIBOR Loan, such Business Day would fall in the next calendar month, in which event such Interest Period shall end on the immediately preceding Business Day. "Lending Office" means the Bank's office at 155 East Broad Street, Columbus, Ohio 43215 or such other office of the Bank (or of an affiliate of the Bank) as the Bank may from time to time specify to the Borrower as the office at which its Loans are to be made and maintained. "Letters of Credit" shall have the meaning assigned to such term in Section 2.01. "LIBOR" means the rate per annum (rounded upwards, if necessary, to the next higher 1/16 of 1%) determined by Bank by dividing (a) the rate per annum determined by Bank to equal the average rate per annum at which deposits (denominated in United States dollars) in an amount similar to that LIBOR Loan and with a maturity similar to the Interest Period for that LIBOR Loan are offered to Bank at 11:00 A.M. London time (or as soon thereafter as practicable) two (2) Eurodollar Business Days prior to the first day of that Interest Period by banking institutions in any Eurodollar market selected by Bank by (b) the difference of one (1) less the LIBOR Reserve Percentage. "LIBOR Loan" means any Loan when and to the extent that the interest rate therefor is determined by reference to LIBOR. "LIBOR Reserve Percentage" means the percentage (expressed as a decimal) which Bank determines to be the maximum (but in any case less than 1.00) reserve requirement (including, without limitation, any emergency, marginal, special, or supplemental reserve requirement) prescribed for so-called "Eurocurrency liabilities" (or any other category of liabilities by reference to which the interest rate applicable to LIBOR Loans is determined) under Regulation D (as amended from time to time) of the Board of Governors of the Federal Reserve System or under any successor regulation which Bank determines to be applicable, with each change in such maximum reserve requirement automatically, immediately, and without notice changing the interest rate thereafter applicable to each LIBOR Loan, it being agreed that LIBOR Loans shall be deemed Eurocurrency liabilities subject to such reserve requirements without the benefit of any credit for proration, exceptions, or offsets. "Lien" means any mortgage, deed of trust, pledge, security interest, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority, or other security agreement or preferential arrangement, charge, or encumbrance of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction to evidence any of the foregoing.) "Loans" means the Revolving Credit Loans or the Term Loan or both as the context may require. "Loan Document(s)" means this Agreement, the Note, and all other documents executed in connection therewith. "Long Term Liabilities" means the liabilities of Borrower on a Consolidated basis other than Current Liabilities and deferred taxes. "Multiemployer Plan" means a Plan described in Section 4001(a)(3) of ERISA. "Net Worth" means the amount by which the Consolidated assets of Borrower exceed its Debt. "Note" means the promissory note described in Section 2.08 hereof. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Person" means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority, or other entity of whatever nature. "Plan" means any pension plan which is covered by Title IV of ERISA and in respect of which the Borrower or a Commonly Controlled Entity is an "employer" as defined in Section 3(5) of ERISA. "Prime Loan" means any Loan when and to the extent that the interest rate therefor is determined by reference to the Prime Rate. "Prime Rate" means the rate of interest announced by the Bank from time to time at its Lending office as its prime commercial lending rate, which rate is not intended to be the lowest rate of interest charged by the Bank to its borrowers. "Prohibited Transaction" means any transaction set forth in Section 406 of ERISA or Section 4975 of the Code. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as amended or supplemented from time to time. "Reinvestment Rate" means, when used with respect to any period, a per annum rate of interest equal to the "bond equivalent yield" for the most actively traded issues of U. S. Treasury Bills, U. S. Treasury Notes, or U. S. Treasury Bonds for a term similar to the period in question; "Reportable Event" means any of the events set forth in Section 4043 of ERISA. "Revolving Credit Loans" shall have the meaning assigned to such term in Section 2.01. "Subsidiary" means those corporations set forth on Schedule 2 hereof which are operating corporations fifty percent (50%) or more of the voting capital stock or other ownership interests of which is owned, directly or indirectly, by Borrower. "Tangible Net Worth" means the amount by which the Consolidated tangible net assets of Borrower exceed its Debt. "Term Loan" shall have the meaning assigned to such term in Section 2.03. Section 1.02. Accounting Terms; Material. (a) All accounting terms not specifically defined herein shall be construed in accordance with GAAP consistent with those applied in the preparation of the financial statements referred to in Section 4.04, and all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles. (b) The word "material" or any form thereof, when used herein shall, unless the context otherwise requires, mean a significant adverse effect upon the financial condition (or any other item specifically enumerated in any provision hereof) of the Borrower or any of its Subsidiaries on a Consolidated basis. Article II--AMOUNT AND TERMS OF THE LOANS Section 2.01. The Commitment; Extension of Commitment Termination Date. (a) The Bank agrees, on the terms and conditions hereinafter set forth, to make loans (the "Revolving Credit Loans") to and issue Letters of Credit ("Letters of Credit") for the Borrower pursuant to the Letter of Credit subfacility from time to time during the period from the date of this Agreement up to but not including the Commitment Termination Date in an aggregate amount of Loans outstanding and face amount of Letters of Credit not to exceed at any time ONE HUNDRED MILLION AND 00/100 DOLLARS ($100,000,000.00), as such amount may be reduced pursuant to Section 2.02 (the "Commitment"). Each Revolving Credit Loan which shall not utilize the Commitment in full shall be in an amount not less One Million and 00/100 Dollars ($1,000,000.00). Within the limits of the Commitment, the Borrower may borrow, repay pursuant to Section 2.09, and reborrow under this Section 2.01. On such terms and conditions, the Loans may be outstanding as Prime Loans, LIBOR Loans, or Fixed Rate Loans. (b) The term of the Commitment shall be for a period commencing February 1, 2001 and expiring three (3) years later on February 1,2004. On February 1, 2002, and on each February 1 of each year thereafter, the then current term of the Commitment shall automatically be extended for a period of one (1) additional year, unless Bank notifies Borrower, not later than thirty days prior to such annual anniversary date of February 1, that Bank desires the Commitment to terminate at the end of the then current term. The Commitment shall also terminate on the effective date of a notice given pursuant to Section 2.02 reducing the Commitment by the full amount thereof. This Agreement shall terminate on the later of the Commitment Termination Date and the date of repayment in full of all of the Loans. Section 2.02. Reduction of Commitment. The Borrower shall have the right, upon at least five (5) Business Days' notice to the Bank, to terminate in whole or reduce in part the unused portion of the Commitment, provided that each partial reduction shall be in the amount of not less than One Million and 00/100 Dollars ($1,000,000.00). The Commitment, once reduced or terminated, may not be reinstated. Section 2.03. Term Loan. The Bank agrees on the terms and conditions set forth in this Agreement, to make a loan (the "Term Loan") to the Borrower on the Commitment Termination Date in a principal amount up to but not exceeding the amount of the Commitment, as such amount may have been reduced pursuant to Section 2.02. The Term Loan may be outstanding as only three (3) types of Loans. Each type of Loan shall be made and maintained at the Bank's Lending Office for such type of Loan. The principal amount of the Term Loan shall be repaid as set forth in Section 2.08 below. Section 2.04. Notice and Manner of Borrowing. The Borrower shall give the Bank written or oral notice (effective upon receipt) of any Revolving Credit Loans under this Agreement on the Business Day for each such Loan, specifying: (1) the date of such Loan; (2) the amount of such Loan; (3) the type of Loan; and (4) in the case of a LIBOR or Fixed Rate Loan, the duration of the Interest Period applicable thereto. Provided that an appropriate notice is received prior to 12:00 noon on the requisite Business Day and upon fulfillment of the applicable conditions set forth in Article III, the Bank will make such Revolving Credit Loan available to the Borrower in immediately available funds by crediting the amount thereof to the Borrower's account with the Bank not later than 4:00 p.m. (Columbus, Ohio time) on the date of such Revolving Credit Loan. The Borrower shall give the Bank written or oral notice (effective upon receipt) as to the Term Loan under this Agreement, on the Commitment Termination Date specifying: (1) the amount of such Loan; (2) the portion of such Term Loan that will be a Prime, LIBOR, or Fixed Rate Loan; and (3) in the case that all or a portion of such Term Loan is a LIBOR or Fixed Rate Loan, the duration of the Interest Period applicable thereto. Not later than 12:00 noon (Columbus, Ohio time) on the date of the Term Loan and upon fulfillment of the applicable conditions set forth in Article III, the Bank will make such Term loan available to the Borrower and the proceeds of the Term Loan shall be applied to the extent required to the payment in full of the then outstanding Revolving Credit Loans and the excess, if any, will be made available to the Borrower in immediately available funds by crediting the amount thereof to the Borrower's account with the Bank. All notices given under this Section 2.04 shall be irrevocable once given. Section 2.05. Conversion and Renewals. The Borrower may elect from time to time to convert all or a part of one type of Loan into another type of Loan or to renew all or part of a Loan by giving the Bank written or oral notice (effective upon receipt) on the day of the conversion or renewal of a Loan, specifying: (1) the renewal or conversion date; (2) the amount of the Loan to be converted or renewed; (3) in the case of conversions, the type of Loan to be converted into; and (4) in the case of renewals of or a conversion into LIBOR or Fixed Rate Loans, the duration of the Interest Period applicable thereto. provided that LIBOR and Fixed Rate Loans can be converted only on the last day of the Interest Period for such Loan. All notices given under this Section 2.05 shall be irrevocable and shall be given not later than 1:00 p.m. (Columbus, Ohio time) on the day which is not less than the number of Business Days specified above for such notice. If the Borrower shall fail to give the Bank the notice as specified above for the renewal or conversion of a LIBOR or Fixed Rate Loan prior to the end of the Interest Period with respect thereto, such LIBOR or Fixed Rate Loan shall automatically be converted into a Prime Loan on the last day of the Interest Period for such Loan. Section 2.06. Interest. The Borrower shall pay interest to the Bank on the outstanding and unpaid principal amount of the Revolving Credit Loans made under this Agreement at a rate per annum as follows: (1) For a Prime Loan at a rate equal to the Prime Rate; (2) For a LIBOR Loan at a rate equal to the LIBOR Interest Rate plus one half of one percent (.50%); and (3) For a Fixed Rate Loan at a rate equal to the Cost of Funds Rate plus one half of one percent (.50%). The Borrower shall pay interest to the Bank on the outstanding and unpaid principal amount of a Term Loan made under this Agreement at a rate per annum as follows: (1) For a Prime Loan at a rate equal to the Prime Rate plus one quarter of one percent (.25%); (2) For a LIBOR Loan at a rate equal to the LIBOR Interest Rate plus three quarters of one percent (.75%); and (3) For a Fixed Rate Loan at a rate equal to the Cost of Funds Rate plus three quarters of one percent (.75%). Any change in the interest rate based on Prime Rate resulting from a change in the Prime Rate shall be effective as of the opening of business on the day on which such change in the Prime Rate becomes effective. Interest on each Loan shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. Interest on the Loans shall be paid in immediately available funds at the Lending Office as follows:   (1) For each Prime Loan, on the first day of each month commencing the first such day after such Loan and at maturity for such Loan; (2) For each LIBOR Loan, on the last day of the Interest Period with respect thereto and, in the case of an Interest Period greater than three months, at three month intervals after the first day of such Interest Period; and (3) For each Fixed Rate Loan, on the last day of the Interest Period with respect thereto and, in case of an Interest Period greater than 90 days, at 90-day intervals after the first day of such Interest Period. Section 2.07. Commitment Fee. The Borrower agrees to pay to the Bank a commitment fee on the average daily unused portion of the Commitment from the date of this Agreement until the Commitment Termination Date at the rate of two tenths of one percent (.20%) per annum, payable on the last day of each quarter during the term of the Commitment, commencing March 31, 2001, and on the Commitment Termination Date. Section 2.08. The Note; Repayment. All Loans made by the Bank under this Agreement shall be evidenced by, and repaid with interest in accordance with, a single promissory Note of the Borrower in substantially the form of Exhibit A, duly completed, dated the date of this Agreement, and payable to the Bank for the account of the applicable Lending Office, such Note to represent the obligation of the Borrower to repay the Revolving Credit Loans or Term Loan, as the case may be. The Bank is hereby authorized by the Borrower to endorse on its loan records the amount and type of each Loan and each renewal, conversion, and payment of principal amount received by the Bank on account of each Loan, which endorsement shall, in the absence of manifest error, be conclusive as to the outstanding balance of the Loans made by the Bank; provided, however, that the failure to make such notation with respect to any Loan or renewal, conversion, or payment shall not limit or otherwise affect the obligations of the Borrower under this Agreement or the Note. All Revolving Credit Loans shall be repaid on the Commitment Termination Date, subject to being converted to the Term Loan pursuant to Section 2.03 hereof. The proceeds of the Term Loan shall be applied to the extent required to the payment in full of the then outstanding Revolving Credit Loans, provided that all accrued interest shall be paid, and if the then outstanding aggregate principal amount of the Revolving Credit Loans exceeds the principal amount of the Term Loan, the amount of the excess shall also be paid. On and after the Commitment Termination Date, the unpaid principal amount of the Term Loan shall be repaid in sixteen (16) quarterly installments, each such installment, except the final installment to be in an amount equal to one sixteenth (1/16th) of the original principal amount of the Term Loan. The first such installment shall be due on the first day of the first calendar month to commence more than ninety (90) days after the Commitment Termination Date, with subsequent installments being due on the first day of each third full month thereafter; provided, however, that the last such installment shall be in the amount necessary to repay in full the unpaid principal amount of the Term Loan.   Section 2.09. Prepayments. Prior to and including the Commitment Termination Date, Borrower shall have the right to prepay the principal of this Note in whole or in part, provided, that (a) each such prepayment shall be in the principal sum of at least one million and 00/100 dollars ($1,000,000.00), and (b) concurrently with the prepayment of the entire unpaid principal balance of this Note, Borrower shall prepay the accrued interest on the principal being prepaid. After the Commitment Termination Date, Borrower shall have the right to prepay the principal of this Note in whole or in part, provided, that (a) each such prepayment shall be in the principal sum of at least one million and 00/100 dollars ($1,000,000.00) or any integral multiple thereof or an amount equal to the then aggregate unpaid principal balance of this Note, (b) each such prepayment shall be applied to the installments of this Note in the inverse order of their respective due dates, and (c) concurrently with the prepayment of the entire unpaid principal balance of this Note, Borrower shall prepay the accrued interest on the principal being prepaid. Each prepayment of the principal of the Loans may be made without premium or penalty, provided, that if any LIBOR Loan or Fixed Rate Loan is paid (whether by way of a prepayment or a payment following any acceleration of the due date thereof) in whole or in part before the last day of the Interest Period for that Loan, then, and in each such case, Borrower shall, concurrently with the payment, pay to Bank (i) the accrued interest on the principal being prepaid and (ii) all expenses incurred by Bank (including Bank's reasonable determination of its expenses in redeploying funds, which expenses include rate differences) which arise by reason of a prepayment of any such loan.   Section 2.10. Method of Payment. The Borrower shall make each payment under this Agreement and under the Note not later than 2:00 p.m. (Columbus, Ohio time) on the date when due in lawful money of the United States to the Bank at its Lending Office for the account of the applicable Lending Office in immediately available funds. The Borrower hereby authorizes the Bank, if and to the extent payment is not made when due under this Agreement or under the Note, to charge from time to time against any account of the Borrower with the Bank any amount so due. Whenever any payment to be made under this Agreement or under the note shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of the payment of interest and the commitment fee, as the case may be, except, in the case of a LIBOR Loan, if the result of such extension would be to extend such payment into another calendar month, such payment shall be made on the immediately preceding Business Day. Section 2.11. Use of Proceeds. The proceeds of the Loans hereunder shall be used by the Borrower for (a) working capital purposes, , (b) for temporary financing of capital projects in anticipation of term financing for such projects, (c) for general corporate purposes, and (d) for any other lawful business purpose except as otherwise restricted herein. The Borrower will not, directly or indirectly, use any part of such proceeds 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 or to extend credit to any Person for the purpose of purchasing or carrying any such margin stock, or for any purpose which violates, or in inconsistent with, Regulation X of such Board of Governors. Section 2.12. Illegality. Notwithstanding any other provision in this Agreement, if the Bank reasonably and in good faith determines that 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 the Bank (or its Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank, or comparable agency shall make it unlawful or impossible for the Bank (or its Lending Office) to (1) maintain its Commitment, then upon notice to the Borrower by the Bank the Commitment of the Bank shall terminate, provided, however, if the Commitment may be rendered legally permissible by an amendment to this Agreement, the Bank shall first offer to Borrower, at Borrower's option, the opportunity to continue the Commitment by adoption of such amendment, or if conditions change so as to render the maintenance of the Commitment lawful, the Commitment shall, in such event, be reinstated; or (2) maintain or fund its LIBOR Loans, then upon notice to the Borrower by the Bank the outstanding principal amount of the LIBOR Loans, together with interest accrued thereon, and any other amounts payable to the Bank under this Agreement shall be repaid (a) immediately upon demand of the Bank if such change or compliance with such request, in the judgment of the Bank, requires immediate repayment; or (b) at the expiration of the last Interest Period to expire before the effective date of any such change or request, provided, however, if the LIBOR Loan may be rendered legally permissible by an amendment to this Agreement, the Bank shall first offer to Borrower, at Borrower's option, (i) the opportunity to continue the LIBOR Loan by adoption of such amendment, or if conditions change so as to render the maintenance of the LIBOR Loan lawful, the LIBOR Loan shall, in such event, be reinstated or (ii) convert to a Fixed Rate Loan or to a Prime Rate Loan. Section 2.13. Disaster. Notwithstanding anything to the contrary herein, if the Bank determines (which determination shall be conclusive) that: (1) Quotations of interest rates for the relevant deposits referred to in the definition of LIBOR Interest Rate, are not being provided in the relevant amounts or for the relative maturities for purposes of determining the rate of interest on a LIBOR or Cost of Funds Loan as provided in this Agreement; or (2) The relevant rates of interest referred to in the definition of LIBOR Interest Rate, upon the basis of which the rate of interest for any such type of loan is to be determined do not accurately cover the cost to the Bank of making or maintaining such type of Loans; then the Bank shall forthwith give notice thereof to the Borrower, whereupon (a) the obligation of the Bank to make LIBOR Loans, shall be suspended until the Bank notifies the Borrower that the circumstances giving rise to such suspension no longer exist; and (b) the Borrower shall repay in full the then outstanding principal amount of each LIBOR Loan together with accrued interest thereon, on the last day of the then current Interest Period applicable to such Loan, or at the option of Borrower such Loan shall be converted into a Prime Rate Loan or a Fixed Rate Loan.. Section 2.14. Increased Cost. The Borrower shall pay to the Bank from time to time such amounts as the Bank may determine to be necessary to compensate the Bank for any costs incurred by the Bank which the Bank determines are attributable to its making or maintaining any LIBOR or Fixed Rate Loans hereunder or its obligation to make any such Loans hereunder, or any reduction in any amount receivable by the Bank under this Agreement or the Note in respect of any such Loans or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any change after the date of this Agreement in U.S. federal, state, municipal, or foreign laws or regulations (including Regulation D), or the adoption or making after such date of any interpretations, directives, or requirements applying to a class of banks including the Bank of or under any U.S. federal, state, municipal, or any foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof ("Regulatory Change"), which: (1) changes the basis of taxation of any amounts payable to the Bank under this Agreement or the Note in respect of any of such Loans (other than taxes imposed on the overall net income of the Bank or of its Lending Office for any of such Loans by the jurisdiction where such Lending Office is located); or (2) imposes or modifies any reserve, special deposit, compulsory loan, or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, the Bank (including any of such Loans or any deposits referred to in the definition of LIBOR Interest Rate or Cost of Funds Rate); or (3) imposes any other condition affecting this Agreement or the Note (or any of such extensions of credit or liabilities). The Bank will notify the Borrower of any event occurring after the date of this Agreement which will entitle the Bank to compensation pursuant to this Section 2.14 as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. Determinations by the Bank for purposes of this Section 2.14 of the effect of any Regulatory Change on its costs of making or maintaining Loans or on amounts receivable by it in respect of Loans, and of the additional amounts required to compensate the Bank in respect of any Additional Costs, shall be conclusive, absent manifest error, provided that such determinations are made on a reasonable basis and unless otherwise required by law, shall be based on the ratio of Borrower's Loans to all loans of Bank requiring the payment of Additional Costs. Section 2.15. Risk-Based Capital. In the event the Bank determines that (1) compliance with any judicial, administrative, or other governmental interpretation of any law or regulation or (2) compliance by the Bank or any corporation controlling the Bank with any guideline or request from any central bank or other governmental authority (whether or not having the force of law) has the effect of requiring an increase on the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank, and the Bank determines that such increase is based upon its obligations hereunder, and other similar obligations, the Borrower shall pay to the Bank such additional amount as shall be certified by the Bank to be the amount allocable to the Bank's obligations to the Borrower hereunder, which amount, unless another method is required by law, shall be based on the ratio of Borrower's Loans to all other similar obligations. The Bank will notify the Borrower of any event occurring after the date of this Agreement that will entitle the Bank to compensation pursuant to this Section 2.15 as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. Determinations by the Bank for purposes of this Section 2.15 of the effect of any increase in the amount of capital required to be maintained by the Bank and of the amount allocable to the Bank's obligations to the Borrower hereunder shall be conclusive, absent manifest error, provided that such determinations are made on a reasonable basis and, unless another method is required by law, shall be based on the ratio of Borrower's Loans to all loans. Section 2.16. Funding Loss Indemnification. The Borrower shall pay to the Bank, upon the request of the Bank, the actual amount or amounts as shall be necessary to compensate it for any loss, cost, or expense incurred as a result of: (1) Any payment of a LIBOR or Fixed Rate Loan on a date other than the last day of the Interest Period for such Loan excluding, acceleration of the Loans by the Bank pursuant to Section 8.01; or (2) Any failure by the Borrower to borrow or convert, as the case may be, a LIBOR or Fixed Rate Loan on the date for borrowing or conversion, as the case may be, specified in the relevant notice under Section 2.04 or 2.05, as the case may be.   Section 2.17 Letters of Credit. (1) In addition to the Revolving Credit Loans and Term Loan described herein, Bank shall upon Borrower's request and subject to the conditions set forth in this Subsection 2.17, issue commercial and standby letters of credit (each a "Letter of Credit" and collectively, the "Letters of Credit") on Borrower's behalf, which Letters of Credit shall be supported by Bank's standard documentation or which is otherwise in form and substance satisfactory to Bank, which documentation shall be designated at the time of issuance as "Issued under the Revolving Credit and Term Loan Agreement dated February 1, 2001", provided that in no event shall the sum of the face amount of all undrawn standby Letters of Credit issued hereunder exceed the sum of $25,000,000.00. The expiry date of each Letter of Credit shall be subject to Bank's approval. Borrower shall pay to Bank issuance and initial set up fees for each Letter of Credit issued pursuant hereto, such fees to be mutually agreed upon prior to the issuance of each Letter of Credit, but in no event shall such fees be more than Bank's standard letter of credit fees. (2) At least 2 Business Days prior to the effective date of any Letter of Credit, the Borrower shall give the Bank written notice containing the original signature of an authorized officer or employee of such Borrower. Such notice shall be irrevocable and shall specify the original face amount of the Letter of Credit requested, the effective date (which day shall be a Business Day) of issuance of such requested Letter of Credit, the date on which such requested Letter of Credit is to expire, the amount of then outstanding Letter of Credit Obligations of Borrower, the purpose for which such Letter of Credit is to be issued, whether such Letter of Credit may be drawn in single or partial draws and the person for whose benefit the requested Letter of Credit is to be issued. (3) If the original face amount of the requested Letter of Credit is less than or equal to the aggregate unused Commitment at such time and the applicable conditions set forth in this Agreement are satisfied, the Bank shall issue the requested Letter of Credit. (4) No Letter of Credit shall be extended or amended if the issuance of a new Letter of Credit having the same terms as such Letter of Credit as so amended or extended would otherwise be prohibited by this Agreement. (5) In the absence of Bank's gross negligence or willful misconduct, Borrower agrees to pay to the Bank the amount of all reimbursement obligations, interest and other amounts payable to the Bank under or in connection with any Letter of Credit issued for any of Borrower's accounts immediately when due in accordance with the Letter of Credit Documents, irrespective of: (i) any lack of validity or enforceability of this Agreement or any other Letter of Credit Documents; (ii) the existence of any claim, set-off, defense or other right which either Borrower may have at any time against a beneficiary named in a Letter of Credit or any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Bank, any Bank or any other Person, whether in connection with this Agreement, any Letter of Credit, the transaction contemplated herein or any unrelated transactions; (iii) any draft, certificate or any other document presented under the Letter of Credit proves to be forged, fraudulent, invalid or insufficient in any respect or any statement herein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Letter of Credit Documents; (v) payment by the Bank under any Letter of Credit proving to be fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (vi) any other circumstances or happenings whatsoever, whether or not similar to any of the foregoing. (6) Borrower's obligation to pay its obligations under the Letter of Credit Documents shall survive the termination of this Agreement. (7) In the event that Bank advances any funds under any Letter of Credit, each such advance shall be deemed as a request for a Revolving Credit Loan bearing interest at the lower of the rates available for a Prime Rate Loan, a LIBOR Loan with an Interest period of one (1) month, or a Fixed Rate Loan with an Interest Period of one (1) day, and an amount equal to the amount advanced by the Bank with respect to such Letter of Credit shall thereupon be a Revolving Credit Loan hereunder. (8) The face amount of each Letter of Credit issued hereunder shall, pursuant to Section 2.01, reduce the amount available under the Commitment, but shall not be considered as usage of the Commitment for purposes of determining the Commitment Fee pursuant to Section 2.07.   Article III--CONDITIONS PRECEDENT Section 3.01. Conditions Precedent to Initial Revolving Credit Loan. The obligation of the Bank to make the initial Revolving Credit Loan to the Borrower is subject to the conditions precedent that the Bank shall have received on or before the day of such Revolving Credit Loan each of the following, in form and substance satisfactory to the Bank and its counsel: (1) Note. The Note duly executed by the Borrower; (2) Evidence of all corporate action by Borrower. Certified (as of the date of this Agreement) copies of all corporate action taken by the Borrower, including resolutions of its Board of Directors, authorizing the execution, delivery, and performance of the Loan Documents to which it is a party and each other document to be delivered pursuant to this Agreement; (3) Incumbency and signature certificate of Borrower. A certificate (dated as of the date of this Agreement) of the Secretary of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign the Loan Documents to which it is a party and the other documents to be delivered by the Borrower under this Agreement; 4) Opinion of counsel for Borrower. A favorable opinion of counsel for the Borrower, as to the matters mentioned in subsections 4.01, 4.02, 4.03, 4.07, and as to such other matters as the Bank may reasonably request; Section 3.02. Conditions Applicable to All Loans and Letters of Credit. The obligation of the Bank to make each Revolving Credit Loan (including the initial Revolving Credit Loan) and the Term Loan and to issue Letters of Credit pursuant to this Agreement shall be subject to the further conditions that on the date of such Loan or Letter of Credit: (1) No Default or Event of Default has occurred and is continuing, or would result from such Loan or Letter of Credit; and (2) The amount of such Loan or Letter of Credit when combined with the aggregate amount all other Loans and Letters of Credit then outstanding or having been requested pursuant to this Agreement does not exceed the amount of the Commitment on such date.   Article IV--REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Bank that: Section 4.01. Incorporation, Good Standing, and Due Qualification. Each Borrower and each of its Subsidiaries, is a corporation duly incorporated, validly existing, and in good standing under the laws of the jurisdiction of its incorporation; has the corporate power and authority to own its assets and to transact the business in which it is now engaged or proposed to be engaged in; and is duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required, except where failure to so qualify would not have a material adverse effect on the financial condition of the Borrower and its Subsidiaries on a Consolidated basis. Section 4.02. Corporate Power and Authority. The execution, delivery, and performance by the Borrower of the Loan Documents to which each is a party have been duly authorized by all necessary corporate action and do not and will not (1) require any consent or approval of the stockholders of such corporation; (2) contravene such corporation's charter or bylaws; (3) violate any provision of law, rule, regulation (including, without limitation, Regulations U and X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination, or award presently in effect having applicability to such corporation; (4) 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 such corporation is a party or by which it or its properties may be bound or affected; (5) result in, or require, the creation or imposition of any Lien, upon or with respect to any of the properties now owned or hereafter acquired by such corporation; and (6) cause such corporation to be in default under any such law, rule, regulation, order, writ, judgment, injunction, decree, determination, or award or any such indenture, agreement, lease, or instrument. Section 4.03. Legally Enforceable Agreement. This agreement is, and each of the other Loan documents when delivered under this Agreement will be, legal, valid, and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency, and other similar laws affecting creditors' rights generally. Section 4.04. Financial Statements. The Consolidated balance sheet of the Borrower and its Subsidiaries as of June 3, 2000, and the related Consolidated statements of income and retained earnings of the Borrower and its Subsidiaries for the fiscal year then ended, and the accompanying footnotes, together with the opinion thereon, dated July 26, 2000, of Deloitte & Touche, LLP, independent certified public accountants, copies of which have been furnished to the Bank, are complete and correct and fairly present the financial condition of the Borrower and its Subsidiaries as at such dates and the results of the operations of the Borrower and its Subsidiaries for the periods covered by such statements, all in accordance with GAAP consistently applied (subject to year-end adjustments in the case of the interim financial statements), and since June 3, 2000, there has been no material adverse change in the condition (financial or otherwise), business, or operations of the Borrower or any Subsidiary. There are no liabilities of the Borrower or any Subsidiary, fixed or contingent, which are material but are not reflected in the financial statements or in the notes thereto, other than liabilities arising in the ordinary course of business since June 3, 2000. Section 4.05. Other Agreements. To its knowledge, neither the Borrower nor any Subsidiary is in default in any respect in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument material to its business to which it is a party. Section 4.06. Litigation. There is no pending or threatened action or proceeding against or affecting the Borrower or any of its Subsidiaries before any court, governmental agency, or arbitrator, which may, in any one case or in the aggregate, materially adversely affect the financial condition, operations, properties, or business of the Borrower or any Subsidiary or the ability of the Borrower to perform its obligation under the Loan Documents to which it is a party. Section 4.07. No Defaults on Outstanding Judgments or Orders. Except for those judgments listed on Schedule 1 attached hereto and made a part hereof, to its knowledge, the Borrower and its Subsidiaries have satisfied all material judgments, and neither the Borrower nor any Subsidiary is in default with respect to any material judgment, writ, injunction, decree, rule, or regulation of any court, arbitrator, or federal, state, municipal, or other governmental authority, commission, board, bureau, agency, or instrumentally, domestic or foreign. Section 4.08. Ownership and Liens. The Borrower and each Subsidiary have title to, or valid leasehold interests in, all of their properties and assets, real and personal, including the properties and assets and leasehold interest reflected in the financial statements referred to in Section 4.04. (other than any properties or assets disposed of in the ordinary course of business), and none of the properties and assets owned by the Borrower or any Subsidiary and none of their leasehold interests is subject to any Lien, except such as may be permitted pursuant to Section 6.01 of this Agreement. Section 4.09. Subsidiaries and Ownership of Stock. Set forth in Schedule 2 is a complete and accurate list of the Subsidiaries of the Borrower, showing the jurisdiction of incorporation of each and showing the percentage of the Borrower's ownership of the outstanding stock of each Subsidiary. All of the outstanding capital stock of each such Subsidiary has been validly issued, is fully paid and nonassessable, and is owned by the Borrower free and clear of all Liens. Section 4.10. ERISA. The Borrower and each Subsidiary are in compliance in all material respects with all applicable provisions of ERISA. To Borrower's knowledge, no Reportable Event or Prohibited Transaction or failure of compliance with ERISA as required herein, has occurred and is continuing with respect to any Plan which could have a material adverse effect on the financial condition of Borrower and its Subsidiaries on a Consolidated basis. Section 4.11. Taxes. The Borrower and each of its Subsidiaries have filed all tax returns (federal, state, and local) required to be filed and have paid all taxes, assessments, and governmental charges and levies thereon to be due, including interest and penalties. Section 4.12. Environment. The Borrower and each Subsidiary have duly complied with, and their businesses, operations, assets, equipment, property, leaseholds or other facilities are in substantial compliance with, the provisions of all federal, state and local environmental, health and safety laws, codes and ordinances, and all rules and regulations promulgated thereunder. The Borrower and each Subsidiary have been issued and will maintain all required federal, state, and local permits, licenses, certificates and approvals relating to (1) air emissions; (2) discharges to surface water or groundwater; (3) noise emissions; (4) solid or liquid waste disposal; (5) the use, generation, storage, transportation, or disposal of toxic or hazardous substances or wastes (intended hereby and hereafter to include any and all such materials listed in any federal, state, or local law, code or ordinance and all rules and regulations promulgated thereunder as hazardous or potentially hazardous); or (6) other environmental, health, or safety matters. Neither the Borrower nor any Subsidiary has received notice of, or knows of, or suspects facts which might constitute any material violations of any federal, state, or local environmental, health, or safety laws, codes or ordinances and any rules or regulations promulgated thereunder with respect to its businesses, operations, assets, equipment, property, leaseholds, or other facilities. Except in accordance with a valid governmental permit, license, certificate or approval, there has been no emission, spill, release, or discharge into or upon (1) the air; (2) soils, or any improvements located thereon; (3) surface water or groundwater; or (4) the sewer, septic system or waste treatment, storage or disposal system servicing the premises of any toxic or hazardous substances or wastes at or from the premises. There has been no complaint, order, directive, claim, citation, or notice by any governmental authority or any person or entity with respect to (1) air emissions; (2) spills, releases, or discharges to soils or improvements located thereon, surface water, groundwater or the sewer, septic system or waste treatment, storage or disposal systems servicing the premises; (3) noise emissions; (4) solid or liquid waste disposal; (5) the use, generation, storage, transportation, or disposal of toxic or hazardous substances or waste; or (6) other environmental, health, or safety matters materially affecting the Borrower or its business, operations, assets, equipment, property, leaseholds, or other facilities. To its knowledge, neither the Borrower nor its Subsidiaries have any indebtedness, obligation or liability, absolute or contingent, matured or not matured, with respect to the storage, treatment, cleanup, or disposal of any solid wastes, hazardous wastes, or other toxic or hazardous substances (including without limitation any such indebtedness, obligation, or liability with respect to any current regulation, law, or statute regarding such storage, treatment, cleanup, or disposal). Article V--AFFIRMATIVE COVENANTS So long as the Note shall remain unpaid or the Bank shall have any Commitment under this Agreement, the Borrower will: Section 5.01. Maintenance of Existence. Preserve and maintain, and cause each Subsidiary to preserve and maintain, its corporate existence and good standing in the jurisdiction of its incorporation, and qualify and remain qualified, and cause each Subsidiary to qualify and remain qualified, as a foreign corporation in each jurisdiction in which such qualification is required, except where the failure to do so would not have a material adverse effect on the financial condition of Borrower and Subsidiaries on a Consolidated basis. Section 5.02. Maintenance of Records. Keep, and cause each Subsidiary to keep, adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied, reflecting all financial transactions of the Borrower and its Subsidiaries. Section 5.03. Maintenance and Properties. Maintain, keep, and preserve, and cause each Subsidiary to maintain, keep, and preserve, all of its material properties (tangible and intangible) necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted. Section 5.04. Maintenance of Insurance. Maintain, and cause each Subsidiary to 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, provided that Borrower may self insure such risks through a financially sound self insurance program. Section 5.05. Compliance With Laws. Comply, and cause each Subsidiary to comply, in all material respects with all applicable laws, rules, regulations, and orders, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments, and governmental charges imposed upon it or upon its property. Section 5.06. Right of Inspection. At any reasonable time and from time to time, permit the Bank or any agent or representative thereof to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Borrower and any Subsidiary, and to discuss the affairs, finances, and accounts of the Borrower and any Subsidiary with any of their respective officers and directors and the Borrower's independent accountants. All information of Borrower and its Subsidiaries obtained by Bank or its agents or representatives shall be held pursuant to the confidentiality provision set forth at Section 9.09 of this Agreement. In the event that any third party agent or representative obtains information for or on behalf of Bank pursuant to this section, Bank shall require that all such agents or representatives agree to comply with the confidentiality provisions of this Agreement. Section 5.07. Reporting Requirements. Furnish to the Bank: (1) Quarterly financial statements. As soon as available and in any event within sixty (60) days after the end of each of the first three quarters of each fiscal year of the Borrower, Consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such quarter, Consolidated statements of income and retained earnings of the Borrower and its Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, and Consolidated statements of changes in financial position of the Borrower and its Subsidiaries for the portion of the fiscal year ended with the last day of such quarter, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the previous fiscal year and all prepared in accordance with GAAP consistently applied and certified by the chief financial officer of the Borrower (subject to year-end adjustments); (2) Annual financial statements. As soon as available and in any event within one hundred (100) days after the end of each fiscal year of the Borrower, Consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such fiscal year, and Consolidated statements of income and retained earnings of the Borrower and its Subsidiaries for such fiscal year, and Consolidated statements of changes in financial position of the Borrower and its Subsidiaries for such fiscal year, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the prior fiscal year and all prepared in accordance with GAAP consistently applied and as to the Consolidated statements accompanied by an opinion thereon acceptable to the Bank by Deloitte & Touche or other independent certified public accountants selected by the Borrower and acceptable to the Bank; (3) Management letters. Along with the annual financial statements, a copy of the cover letter that accompanies the independent certified public accountants' letter of recommendations issued with respect to each annual financial audit, which cover letter contains a summary of the exceptions, reportable conditions, and accounting system weaknesses noted by such independent certified public accountants during the most recent financial audit of Borrower and its consolidated Subsidiaries. Promptly upon Bank's request therefor, a copy of any letter of recommendation containing any reportable condition or accounting system weakness as submitted to the Borrower or any Subsidiary by independent certified public accountants in connection with the audit of the financial statements of the Borrower or any Subsidiary made by such accountants; (4) Certificate of no Default. A certificate of the chief financial officer of the Borrower shall accompany the quarterly statement of Borrower, which certificate shall contain (a) a statement certifying to Bank that to the best of his knowledge no Default or Event of Default has occurred and is continuing, or if a Default or Event or Default has occurred and is continuing, a statement as to the nature thereof and the action which is proposed to be taken with respect thereto; and (b) computations demonstrating compliance with the covenants contained in Sections 6.01, 6.02, 6.04, 7.01, 7.02, 7.03, and 7.04; (5) Accountant's report. Simultaneously with the delivery of the annual financial statements referred to in Section 5.08(2), a certificate of the independent public accountants who audited such statements to the effect that, in making the examination necessary for the audit of such statements, they have obtained no knowledge of any condition or event which constitutes a Default or Event of Default, or if such accountants shall have obtained knowledge of any such condition or event, specifying in such certificate each such condition or event of which they have knowledge and the nature of status thereof; (6) Notice of litigation. Promptly after the commencement thereof, notice of all actions, suits, and proceedings before any court or governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign, affecting the Borrower or any Subsidiary which, if determined adversely to the Borrower or such Subsidiary, could have a material adverse effect on the financial condition of the Borrower and such Subsidiaries on a Consolidated basis; (7) Notice of Defaults and Events of Default. As soon as possible and in any event within five (5) business days after Borrower becomes aware of the occurrence of each Default or Event of Default, a written notice setting forth the details of such Default or Event of Default and the action which is proposed to be taken by the Borrower with respect thereto; (8) ERISA reports. As soon as possible, and in any event within thirty (30) days after the Borrower knows or with the exercise of due diligence should know that any circumstances exist that constitute grounds entitling the PBGC to institute proceedings to terminate a Plan subject to ERISA with respect to the Borrower or any Commonly Controlled Entity, and promptly but in any event within two (2) Business Days of receipt by the Borrower or any Commonly Controlled Entity of notice that the PBGC intends to terminate a Plan or appoint a trustee to administer the same, and promptly but in any event within five (5) Business Days of the receipt of notice concerning the imposition of withdrawal liability with respect to the Borrower or any Commonly Controlled Entity, the Borrower will deliver to the Bank a certificate of the chief financial officer of the Borrower setting forth all relevant details and the action which the Borrower proposes to take with respect thereto; (9) Proxy statements, etc. Promptly after the sending or filing thereof, copies of all proxy statements, financial statements, and reports which the Borrower or any Subsidiary send to its stockholders, and copies of all regular, periodic, and special reports, and all registration statements which the Borrower or any Subsidiary files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or with any national securities exchange; (10) New Subsidiaries. Borrower shall advise Bank, on an annual basis, and from time to time upon request of Bank, of the acquisition or the formation and commencement of operation of any new Subsidiary and its name, address, and state of incorporation, and of the termination of business or the merger of any Subsidiary; and (11) General Information. Such other information respecting the condition or operations, financial or otherwise, of the Borrower or any Subsidiary as the Bank may from time to time reasonably request. Section 5.08. Environment. Except where the failure to do so would not have a material adverse effect on the financial condition of Borrower and its Subsidiaries on a Consolidated basis, be and remain, and cause each Subsidiary to be and remain, in compliance with the provisions of all federal, state and local environmental, health and safety laws, codes and ordinances, and all rules and regulations issued thereunder; notify the Bank immediately of any notice of a hazardous discharge or environmental complaint received from any governmental agency or any other party; notify the Bank immediately of any hazardous discharge from or affecting its premises; immediately contain and remove the same, in compliance with all applicable laws; promptly pay any fine or penalty assessed in connection therewith except where such fine or penalty is being contested in good faith pursuant to appropriate process; permit the Bank to inspect the premises, to conduct tests thereon, and to inspect all books, correspondence and records pertaining thereto; and at the Bank's request, and at the Borrower's expense, provide a report of a qualified environmental engineer, satisfactory in scope, form, and content to the Bank, and such other and further assurances reasonably satisfactory to the Bank that the condition has been corrected. Section 5.09. Mergers, Etc. Borrower may merge into or be consolidated with any entity, provided that the entity acquiring or succeeding to Borrower shall expressly assume the obligations of Borrower to Bank in writing, in form and substance reasonably satisfactory to Bank, executed by such entity and delivered to Bank not later than the effective date of such acquisition, merger, or consolidation. In addition, nothing herein contained shall prevent Borrower from being a party to any merger and taking such actions, including, without limitation, borrowing money and issuing stock, as are deemed necessary or appropriate by the Board of Directors of Borrower in connection therewith, (A) where Borrower is the surviving corporation and (B) provided that after any such merger, no event shall have occurred and be continuing that constitutes a Default or an Event of Default as defined under this Agreement. Nothing herein contained shall be construed in any way as limiting the right or ability of any Subsidiary to be involved in a merger or consolidation. Notwithstanding the foregoing, Borrower shall give Bank reasonable advance notice of any proposed merger (other than a merger of Subsidiaries or between Borrower and any Subsidiary where Borrower is the survivor). Borrower shall not complete any proposed without the prior approval of Bank, which shall not be withheld or delayed unreasonably, it being acknowledged by Bank that time may be of the utmost importance with respect to certain proposed transactions. Except as provided in the proviso at the end of this sentence, any disapproval by Bank shall be based solely upon the financial condition of Borrower or the company into which it is merged immediately after the merger: neither the nature of the business of the other company nor any other non-financial factors may be utilized as a basis for disapproval, provided that the business of the other company is of a type not inconsistent with Bank's customary lending standards. Article VI--NEGATIVE COVENANTS So long as the Note shall remain unpaid or the Bank shall have any Commitment under this Agreement, the Borrower will not: Section 6.01. Liens. Create, incur, assume, or suffer to exist, or permit any Subsidiary to create, incur, assume, or suffer to exist, any Lien, upon or with respect to any of its properties, now owned or hereafter acquired, except: (1) Liens in favor of the Bank; (2) Liens for taxes or assessments or other government charges or levies if not yet due and payable or, if due and payable, if they are being contested in good faith by appropriate proceedings and for which appropriate reserves are maintained; (3) Liens imposed by law, such as mechanics', materialmen's, landlords'; warehousemen's, and carriers' Liens, and other similar Liens, securing obligations incurred in the ordinary course of business which are not past due for more than ten (10) days or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established; (4) Liens under workers' compensation, unemployment insurance, Social Security, or similar legislation; (5) Liens, deposits, or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), leases (permitted under the terms of this Agreement), public or statutory obligations, surety, stay, appeal, indemnity, performance or other similar bonds, or other similar obligations arising in the ordinary course of business; (6) Judgment and other similar Liens arising in connection with court proceedings, provided the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings; (7) Easements, rights-of-way, restrictions, and other similar encumbrances which, in the aggregate, do not materially interfere with the occupation, use, and enjoyment by the Borrower or any Subsidiary of the property or assets encumbered thereby in the normal course of its business or materially impair the value of the property subject thereto; (8) Liens securing obligations of a Subsidiary to the Borrower or another Subsidiary; and (9) Purchase-money Liens on any property hereafter acquired or the assumption of any Lien on property existing at the time of such acquisition, or a Lien incurred in connection with any conditional sale or other title retention agreement or a Capital Lease or a lien assumed in connection with the acquisition of a business entity; provided that (a) The obligation secured by any Lien so created, assumed, or existing shall not exceed the greater of the cost or the fair market value as of the time of acquisition of the property covered thereby to the Borrower or Subsidiary acquiring the same; (b) Each such Lien shall attach only to the property so acquired and fixed improvements thereon; and (c) The Debt secured by such Lien is permitted by the provisions of Section 6.02.   Liens on real property owned by Borrower or any Subsidiary relating to Funded Debt of such Borrower or Subsidiary which is otherwise permitted under Section 6.02 hereof. (11) Liens on assets owned by Borrower or any Subsidiary made in connection with Funded Debt otherwise permitted under section 6.02 hereof, provided that in no event , shall the amount of such Funded Debt secured by such Liens exceed Twenty-Five Million and 00/100 Dollars ($25,000,000.00); Section 6.02. Debt. Create, incur, assume, or suffer to exist, or permit any Subsidiary to create, incur, assume, or suffer to exist, any Debt, except: (1) Debt of the Borrower under this Agreement or the Note; (2) Funded Debt in an aggregate amount up to 50% of Borrower's Consolidated Capitalization; (3) Debt of the Borrower subordinated on terms satisfactory to the Bank to the Borrower's obligations under this Agreement and the Note; (4) Debt of the Borrower to any Subsidiary or of any Subsidiary to the Borrower or another Subsidiary; and (5) Accounts payable to trade creditors for goods or services and current operating liabilities (other than for borrowed money), in each case incurred in the ordinary course of business, as presently conducted, and paid within the specified time, unless contested in good faith and by appropriate proceedings; (6) Subject to the limitation on Funded Debt set forth in section 6.02(2) above, Debt of the Borrower or any Subsidiary secured by Liens permitted by Section 6.01 (9) through (11). Section 6.03. Sale and Leaseback. Sell, transfer, or otherwise dispose of, or permit any Subsidiary to sell, transfer, or otherwise dispose of in one or more transactions on a cumulative basis, any of Borrower's or its Subsidiaries' real or personal property having a fair market value in excess of Sixty-Five Million and 00/100 ($65,000,000.00) to any Person and thereafter directly or indirectly lease back the same or similar property. Section 6.04. Dividends. Pay any dividend (other than dividends payable in shares of its own stock) or make any other payment on or to acquire its stock in any fiscal year unless Borrower's net worth exceeds One Hundred Ten Million and 00/100 Dollars ($110,000,000.00), in which event Borrower may pay dividends up to forty percent (40%) of its after tax earnings for such fiscal year. Section 6.05. Sale of Assets. Sell, lease, assign, transfer, or otherwise dispose of, all or substantially all of the assets of Borrower on a Consolidated Basis. Section 6.06. Investments. Make, or permit any Subsidiary to make, any loan or advance to any Person, or purchase or otherwise acquire, or permit any Subsidiary to purchase or otherwise acquire, any capital stock, assets, obligations, or other securities of, make any capital contribution to, or otherwise invest in or acquire any interest in any Person, or participate as a partner or joint venture with any other Person, except: (1) investments in and loans to Subsidiaries and future Subsidiaries (2) investments in (a) direct obligations of the United States of America; (b) U. S. Agency Bonds having a final maturity no later than five (5) years from the date incurred; (c) certificates of deposit; (d) commercial paper acceptable to Bank; (e) repurchase agreements; (f) master notes; (g) bank loan participations; or (h) taxable low floaters. (or any agency thereof with maturities of one year or less from the date of acquisition; Investments in (c), (d), (e), (f), and (g) above must have short term credit ratings of no less than P-2 by Moody's or A-2 by Standard and Poor's. Investments in (a), (b), and (hi) above must have long term credit ratings of no less than Aa2 by Moody's or AA by Standard and Poor's; (3) investments in preferred stock of corporations rated single A or better by Standard and Poor's, provided that such investments do not exceed ten percent (10%) of Tangible Net Worth; and (4) any other investments provided that (a) each such investment made under this subsection 6.08(4) shall mature no later than one (1) year after the date made; and (b) the aggregate of such investments made under this Subsection 6.08(4) outstanding at any one time shall not exceed four (4%) of Tangible Net Worth. Section 6.07. Guaranties, Etc. Become, and will not permit any Subsidiary to become, liable on the obligation of anyone other than Borrower or a Subsidiary, except by endorsement of negotiable instruments for deposit or collection in the usual course of business. Notwithstanding the foregoing, in addition to any guaranties by Borrower of any obligation of any Subsidiary, including, without limitation, guaranties of trade indebtedness, and any guaranties by any Subsidiary of any obligation of Borrower or any other Subsidiary, including, without limitation, guaranties of trade indebtedness (all of which may be made without approval of Bank as provided above), Borrower and its Subsidiaries may guarantee the obligations of the issuing authority with Borrower's outstanding Industrial Revenue Bonds, and may guarantee any other third party obligations in amounts aggregating up to Thirty Million and 00/100 Dollars ($30,000,000.00). Section 6.08. Transactions With Affiliates. Enter into, and will not permit any Subsidiary to enter into, material transactions with any Person controlling Borrower or such Subsidiary unless each such material transaction is on an arms length, fair market value basis Section 6.09. Conduct of Business. Substantially change or permit any material Subsidiary to substantially change the nature of the business of Borrower or any material Subsidiary from the nature of such business as conducted at the date of this Agreement.   Article VII--FINANCIAL COVENANTS So long as the Note shall remain unpaid or the Bank shall have any Commitment under this Agreement: Section 7.01. Minimum Tangible Net Worth. The Borrower will maintain on a quarterly basis to be tested as of the end of each of Borrower's fiscal quarters, a Consolidated Tangible Net Worth of not less than $400,000,000.00 Dollars, provided that such amount shall be increased (but in no event decreased) annually commencing as of June 3, 2000, and as of each fiscal year end thereafter by an amount equal to fifty percent (50%) of Borrower's Consolidated net income during the previous fiscal year. Section 7.02. Current Ratio. Borrower will maintain on a quarterly basis to be tested as of the end of each of Borrower's fiscal quarters, Consolidated Current Assets in an amount which is not less than one hundred twenty percent (120%) of Borrower's Consolidated Current Liabilities. Section 7.03. Fixed Charge Coverage Ratio. The Borrower will maintain on a quarterly basis to be tested as of the end of each of Borrower's fiscal quarters and calculated for the previous four quarters on a rolling basis, a ratio of EBITDA plus rental expense to the aggregate of the Consolidated Current Portion of Long Term Liabilities, plus Consolidated interest expense, plus rental expense, plus Consolidated federal, state and local income taxes for such period of not less than 1.25 to 1.00. Section 7.04. Leverage Ratio. The Borrower will maintain on a quarterly basis to be tested as of the end of each of Borrower's fiscal quarters, a ratio of Consolidated Debt to Consolidated Tangible Net Worth of not greater than 1.50 to 1.00.   Article VIII--EVENTS OF DEFAULT Section 8.01. Events of Default. If any of the following events shall occur: (1) The Borrower shall fail to pay (a) any principal of the Loans within five (5) business days after the same is due, payable and unpaid, or (b) any interest on the Loans or any amount of a commitment or other fee, within ten (10) days after the same is due, payable and unpaid; (2) Any representation or warranty made or deemed made by the Borrower in this Agreement or which is contained in any certificate, document, opinion, or financial or other statement furnished at any time under or in connection with any Loan Document shall prove to have been incorrect, incomplete, or misleading in any material respect on or as of the date made or deemed made; (3) The Borrower shall fail to perform or observe any term, covenant, or agreement contained in Sections 6.01, 6.02, 6.04, 7.01, 7.02, 7.03, 7.04 hereof, and such failure remains unremedied for thirty (30) days after Bank has given Borrower written notice thereof; (4) The Borrower shall fail to perform or observe any term, covenant, or agreement contained in this Agreement (other than those specifically enumerated in subsection 8.01 (3) above), and such failure remains unremedied for thirty (30) days after Bank has given Borrower written notice thereof, or if such failure is not remediable within said thirty (30) day period, Borrower is not diligently taking all steps to remedy such failure as promptly as practicable; (5) The Borrower or any of its Subsidiaries shall (a) fail to pay any indebtedness for borrowed money (other than the Note) of Borrower or such Subsidiary, as the case may be, or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise); or (b) fail to perform or observe any term, covenant, or condition on its part to be performed or observed under any agreement or instrument relating to any such indebtedness, when required to be performed or observed, if the effect of such failure to perform or observe is to accelerate, or to permit the acceleration of after the giving of notice or passage of time, or both, the maturity of such indebtedness, and such failure to perform or observe could have a material adverse effect on the financial condition of Borrower and Subsidiaries on a Consolidated basis, whether or not such failure to perform or observe shall be waived by the holder of such indebtedness (unless such waiver has the effect of terminating the right of such holder to accelerate maturity of such indebtedness resulting from such failure), or any such indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; (6) The Borrower or any of its Subsidiaries (a) shall generally not pay, or shall be unable to pay, or shall admit in writing its inability to pay its debts become due; or (b) shall make an assignment for the benefit of creditors, or petition or apply to any tribunal for the appointment of a custodian, receiver, or trustee for it or a substantial part of its assets; or (c) shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or (d) shall have had any such petition or application filed or any such proceeding commenced against it in which an order for relief is entered or an adjudication or appointment is made, and which remains undismissed for a period of sixty (60) days or more; or (e) shall take any corporate action indicating its consent to, approval of, or acquiescence in any such petition, application, proceeding, or order for relief or the appointment of a custodian, receiver, or trustee for all or any substantial part of its properties; or (f) shall suffer any such custodianship, receivership, or trusteeship to continue undischarged for a period of sixty (60) days or more; (7) One or more judgments, decrees, or orders for the payment of money in excess of Five Million and 00/100 Dollars ($5,000,000.00) in the aggregate shall be rendered against the Borrower or any of its Subsidiaries, and such judgments, decrees, or orders shall continue unsatisfied and in effect for a period of sixty (60) consecutive days without being vacated, discharged, satisfied, or stayed or bonded pending appeal; (8) With respect to any Plan, any Reportable Event shall occur which could have a material adverse effect on the financial condition of Borrower and its Subsidiaries on a Consolidated basis. then, and in any such event, the Bank may, by notice to the Borrower, (1) declare its obligation to make Loans to be terminated, whereupon the same shall forthwith terminate; and (2) declare the Note, all interest thereon, and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Note, all such interest, and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest, or further notice of any kind, all of which are hereby expressly waived by the Borrower. Upon the occurrence and during the continuance of any Event of Default the Bank is hereby authorized at any time and from time to time, without notice to the Borrower (any such notice being expressly waived by the Borrower), 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 the Bank to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement or the Note or any other Loan Document, irrespective of whether or not the Bank shall have made any demand under this Agreement or the Note or such other Loan Document and although such obligations may be unmatured. The Bank agrees promptly to notify the Borrower after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of the Bank under this Section 8.01 are in addition to other rights and remedies (including, without limitation, other rights of setoff) which the Bank may have. Article IX--MISCELLANEOUS Section 9.01. Amendments, Etc. No amendment, modification, termination, or waiver of any provision of any Loan Document to which the Borrower is a party, nor consent to any departure by the Borrower from any Loan Document to which it is a party, shall in any event be effective unless the same shall be in writing and signed by the Bank, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Section 9.02. Notices, Etc. All notices and other communications provided for under this Agreement and under the other Loan Documents to which the Borrower is a party shall be in writing (including telegraphic, telex and facsimile transmissions) and mailed or transmitted or delivered, if to the Borrower, at its address at 1830 Route 130 N. Burlington, New Jersey 08016-3020, Attention: Chief Accounting Officer; and if to the Bank, at its address at 155 East Broad Street, Columbus, Ohio 43215, Attention: Metropolitan Banking Division.; or, as to each party, at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section 9.02. Except as is otherwise provided in this Agreement, all such notices and communications shall be effective when deposited in the mails or delivered to the telegraph company, or sent, answer back received, respectively, addressed as aforesaid, except that notices to the Bank pursuant to the provisions of Article II shall not be effective until received by the Bank. Section 9.03. No Waiver. No failure or delay on the part of the Bank or Borrower in exercising any right, power, or remedy hereunder 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 hereunder. The rights and remedies provided herein are cumulative and are not exclusive of any other rights, powers, privileges, or remedies, now or hereafter existing, at law or in equity or otherwise. Section 9.04. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Borrower and the Bank and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights under any Loan Document to which the Borrower is a party without the prior written consent of the Bank. Section 9.05. Costs, Expenses, and Taxes. The Borrower agrees to pay on demand all reasonable costs and expenses incurred by the Bank in connection with the preparation, execution, delivery, filing, and administration of the Loan Documents, and of any amendment, modification, or supplement to the Loan Documents, including, without limitation, the fees and out-of-pocket expenses of counsel for the Bank, incurred in connection with advising the Bank as to its rights and responsibilities hereunder. The Borrower also agrees to pay all such costs and expenses, including court costs, incurred in connection with enforcement of the Loan Documents, or any amendment, modification, or supplement thereto, whether by negotiation, legal proceedings, or otherwise. In addition, the Borrower shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing, and recording of any of the Loan Documents and the other documents to be delivered under any such Loan Documents, and agrees to hold the Bank harmless from and against any and all liabilities with respect from any delay in paying or omission to pay such taxes and fees. This provision shall survive termination of this Agreement. Section 9.06. Integration. This Agreement and the Loan Documents contain the entire agreement between the parties relating to the subject matter hereof and supersede all oral statements and prior writings with respect thereto. Section 9.07. Indemnity. The Borrower hereby agrees to defend, indemnify, and hold the Bank harmless from and against any and all claims, damages, judgments, penalties, costs and expenses (including attorney fees and court costs now or hereafter arising from the aforesaid enforcement of this clause) arising directly or indirectly from the activities of the Borrower and its Subsidiaries, its predecessors in interest, or third parties with whom it has a contractual relationship, or arising directly or indirectly from the violation of any environmental protection, health, or safety law, whether such claims are asserted by any governmental agency or any other Person. This indemnity shall survive termination of this Agreement. Section 9.08 Participations. Borrower hereby acknowledges that Bank may sell or transfer to another Person (each a "Participant") participation interests of any type in the Loans and or Letters of Credit outstanding hereunder (including Bank's obligation to make Loans to and issue Letters of Credit for Borrower pursuant to the Commitment) together with Bank's rights and benefits under this Agreement from time to time. In no event shall the Borrower have any obligation to communicate or otherwise deal with any Participant, it being expressly agreed and understood that no such transfer shall relieve the Bank of any of its agreements and obligations hereunder. For purposes of this Section, Borrower hereby authorizes the Bank to disclose (subject to the confidentiality requirements set forth below) to a potential or actual Participant any and all information supplied to Bank by or on behalf of the Borrower. The Borrower agrees to execute and deliver to the Bank such documents, instruments, and agreements, including, without limitation, amendments to the Agreement and related documents, deemed necessary by the Bank to effect such transfers. Section 9.09. Confidentiality. Except for any disclosure to accountants, lawyers, other professionals and/or consultants working for or on behalf of Bank, or to a potential or actual Participant, which disclosure Bank shall condition upon each such professional, consultant, and/or potential or actual Participant agreeing to maintain the confidentiality of all Confidential Information disclosed as Bank is required to do so hereunder, Bank shall not, unless otherwise required by law to do so, disclose any Confidential Information without the prior written consent of Borrower. Section 9.10. Governing Law. This Agreement and the Note shall be governed by, and construed in accordance with, the laws of the State of Ohio. Section 9.11. Severability of Provisions. Any provision of any Loan Document 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 of such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. Section 9.12. Headings. Article and Section headings in the Loan Documents are included in such Loan Documents for the convenience of reference only and shall not constitute a part of the applicable Loan Documents for any other purpose. Section 9.13. Jury Trial Waiver. THE BANK AND THE BORROWER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE LOAN DOCUMENTS. NO OFFICER OF THE BANK HAS AUTHORITY TO WAIVE, CONDITION OR MODIFY THIS PROVISION. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.     BURLINGTON COAT FACTORY WAREHOUSE CORPORATION By: /s/ Robert Lapenta Title: Chief Accounting Officer     BURLINGTON COAT FACTORY WAREHOUSE OF NEW JERSEY, INC. By: /s/ Robert Lapenta Title: Chief Accounting Officer     NATIONAL CITY BANK By: /s/ George M. Gevas Title: Senior Vice President     Exhibit A NOTE $100,000,000.00 February 1, 2001 Columbus, Ohio FOR VALUE RECEIVED, the undersigned, jointly and severally, promise to pay to the order of NATIONAL CITY BANK, a national banking association ("Bank") the principal sum of ONE HUNDRED MILLION AND NO/100 DOLLARS ($100,000,000.00) or so much thereof as may be disbursed to, or for the benefit of, the undersigned and remain unpaid together with the interest thereon from the date hereof in the manner and at the rate or rates hereinafter described. The indebtedness evidenced by this Note consists of a revolving credit line extended to the undersigned by Bank pursuant to a Revolving Credit and Term Loan Agreement dated February 1, 2001, ("Credit Agreement"), which Credit Agreement is incorporated herein by reference as if fully rewritten herein. The Credit Agreement contemplates a series of Loans (as defined therein) from Bank to the undersigned with varying amounts, payment terms and interest rates. It is the intent of the undersigned and Bank that this Note shall evidence the indebtedness created by all of the Loans. The interest rates payable on the indebtedness evidenced hereby, the repayment terms, the maturity dates, the prepayment privilege and the computation of interest shall be determined in accordance with the terms of the Credit Agreement. The amount, date, interest rate and maturity date of all advances evidenced by this Note and whether the same have been repaid shall be noted hereon, but failure to do so shall not affect Bank's right to collect repayment of said advances. If default be made in the payment of any sum due under this Note or should an Event of Default (as defined therein) occur in the Credit Agreement and continue beyond the applicable notice and/or grace period, if any, relating thereto, the entire principal sum and accrued interest evidenced by this Note shall at once become due and payable at the option of the holder of this Note. Failure to exercise this option shall not constitute a waiver of the right to exercise the same in the event of any subsequent default. Any and all moneys now or at any time hereafter owing to the undersigned from the holder hereof are hereby pledged for the security of this and all other indebtedness from the undersigned to the legal holder hereof and may be paid and applied thereon at any time such indebtedness become due or is declared due and payable. No delay or omission on the part of the holder in exercising any right hereunder shall operate as a waiver of any such right or of any other right under this Note. A waiver on any one occasion shall not be construed as a bar to or waiver of any such right and/or remedy on any future occasion. All persons now or hereafter liable, primarily or secondarily, for the payment of the indebtedness evidenced hereby or any part thereof, do hereby expressly waive presentment for payment, notice of dishonor, protest and notice of protest, and agree that the time for payment or payments of any part of the indebtedness evidenced hereby may be extended without releasing or otherwise affecting their liability hereon, or the lien of any deed of trust, mortgage, assignment, or security agreement, if any, then or hereafter securing this Note. As a specifically bargained inducement for Bank to extend credit giving rise to the indebtedness evidenced hereby, the undersigned and Bank agree that: ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING FROM OR OUT OF THIS NOTE OR ITS MAKING, VALIDITY OR PERFORMANCE MAY BE PROSECUTED AS TO ALL PARTIES AND THEIR SUCCESSORS AND ASSIGNS AT COLUMBUS, OHIO, AND THE UNDERSIGNED CONSENTS TO AND SUBMITS TO THE EXERCISE OF NON-EXCLUSIVE JURISDICTION OVER ITS PERSON BY ANY COURT SITUATED IN COLUMBUS, OHIO, AND HAVING JURISDICTION OVER THE SUBJECT MATTER. The undersigned hereby irrevocably appoints and designates George M. Gevas, Senior Vice President, whose address is 155 East Broad Street, Columbus, Ohio 43215, or any other person whom Bank, after giving the undersigned five (5) days written notice thereof may appoint, as its true and lawful attorney-in-fact and duly authorized agent for service of legal process and agrees that service of such process upon such party shall constitute personal service of such process upon it, provided that such attorney-in-fact, within two (2) days after receipt of such process, shall forward the same, together with all papers affixed thereto, by certified or registered mail, and by nationally recognized overnight courier, to the undersigned at its address as set forth in the Credit Agreement. If any rate of interest presently or hereafter provided for herein may not be collected from the undersigned under applicable law, the rate of interest provided for herein shall be reduced to, and payee may collect from the undersigned, the maximum rate permissible under applicable law. This Note is deemed to be executed at Columbus, Franklin County, Ohio.   BURLINGTON COAT FACTORY WAREHOUSE CORPORATION By: Its:   BURLINGTON COAT FACTORY WAREHOUSE OF NEW JERSEY, INC. By: Its:       SCHEDULE 1 (Judgments)     None                              

Exhibit 10.10 MASTER AGREEMENT This Master Agreement [*] (this "Agreement") dated as of June 18, 2001, (the "Agreement Date") is made by and between the Federal Home Loan Mortgage Corporation ("Freddie Mac") and E-Loan, Inc., Seller/Servicer [*] ("Seller"). Unless otherwise specified, the terms and conditions described in this Agreement shall apply to Mortgages sold by Seller under a Master Commitment that incorporates this Agreement by reference. This Agreement does not entitle Seller to sell or obligate Freddie Mac to purchase Mortgages unless they have entered into a Master Commitment incorporating the terms of this Agreement. Master Agreement Amount : [*] Effective Date for Delivery : June 1, 2001 Required Delivery Date : May 31, 2002 Overpurchase Tolerance : 10 percent IN WITNESS WHEREOF, the parties hereto have caused this Master Agreement to be duly executed by their respective authorized representatives as of the date set forth above. FEDERAL HOME LOAN MORTGAGE CORPORATION E-LOAN INC By: /s/ Lori Vella By: /s/ Steven M. Majerus Name: Lori Vella Name: Steven M. Majerus Title: Vice President, Sales Title: V.P. Secondary Mkt --------------------------------------------------------------------------------

EMPLOYMENT AGREEMENT                  This Agreement (this "Agreement"), dated as of April 7, 2000, is made by and between TNP Enterprises, Inc., a Texas public utility holding company, having its principal offices at 4100 International Plaza, P.O. Box 2943, Fort Worth, Texas 76113 (the "Corporation"), and Mr. William J. Catacosinos (the "Executive"), residing at 222 Cleft Road, Mill Neck, NY 11765. Recitals                1.     The Corporation desires to retain the Executive as Chairman of the Board, President and Chief Executive Officer of the Corporation, and to enter into an agreement embodying the terms of those relationships.                2.     The Executive is willing to accept such employment by the Corporation on the terms set forth herein. Agreement                NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and other good and valuable consideration, the Corporation and the Executive hereby agree as follows.           1.     Definitions.                  1.1   "Affiliate" means any person or entity controlling, controlled by or under common control with the Corporation, including, but not limited to, TNMP.                  1.2   "Board" means the Board of Directors of the Corporation.                  1.3   "Cause" means (a) the Executive's conviction of a felony involving moral turpitude, (including a plea of guilty or nolo contendere), or (b) the Executive's gross negligence or willful gross misconduct resulting in material financial or other injury to the Corporation or any of its Affiliates.                  1.4.   "Change of Control" means an event which shall be deemed to have occurred if: (i) any "person" as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (other than the Corporation, any trustee or other fiduciary holding securities under any employee benefit plan of the Corporation, or any company owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 50% or more of the combined voting power of the Corporation's then outstanding securities; (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clause (iii) or (iv) herein) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) the stockholders of the Corporation approve a merger or consolidation of the Corporation with any other corporation, other than a merger or consolidation that would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Corporation (or similar transaction) in which no "person" (as hereinabove defined) acquires more than 25% of the combined voting power of the Corporation's then outstanding securities shall not constitute a Change of Control; or (iv) the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of, or the Corporation sells or disposes of, all or substantially all of the Corporation's assets.                  1.5   "Date of Termination" means (a) in the case of a termination for which a Notice of Termination is required, the date of actual receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, and (b) in all other cases, the actual date on which the Executive's employment terminates during the Term of Employment.                  1.6   "Disability" means the Executive's inability to render, for a period of six consecutive months, services hereunder by reason of permanent disability due to physical or mental impairment, as determined by the written medical opinion of an independent medical physician mutually acceptable to the Executive and the Corporation. If the Executive and the Corporation cannot agree as to such an independent medical physician, each shall appoint one medical physician and those two physicians shall appoint a third physician who shall make such determination. In no event shall the Executive be considered disabled for the purposes of this Agreement unless the Executive is deemed disabled pursuant to the Corporation's long-term disability plan.                  1.7   "Good Reason" means and shall be deemed to exist if (a) without the prior express written consent of the Executive (i) there is a change in the Executive's title or position; (ii) the duties or responsibilities of the Executive are reduced or the Executive is assigned any duties or responsibilities inconsistent in any material respect with the scope of the duties or responsibilities associated with the Executive's titles or positions, as set forth and described in Section 3 of this Agreement; (iii) the Executive's compensation is decreased by the Corporation, the Executive's benefits under the employee benefit or health or welfare plans or programs of the Corporation are in the aggregate materially decreased, or the Corporation fails to pay or provide to the Executive the compensation or other benefits described in Section 4; or (iv) the Executive's reporting rights and/or obligations are changed; or (b) a Change in Control has occurred.                  1.8   "Term of Employment" has the meaning ascribed to it in Section 2.                  1.9    TNMP" means Texas-New Mexico Power Company, a Texas corporation wholly-owned by the Corporation.             2.     Term of Employment. The term of employment under this Agreement shall commence on the date hereof (the "Commencement Date") and, unless earlier terminated under Section 5 below or extended pursuant to the next sentence, shall terminate on the third anniversary of the Commencement Date (the "Term of Employment"). On the first anniversary of the Commencement Date, and each succeeding anniversary of the Commencement Date during the Term of Employment, the Term of Employment shall automatically be extended for an additional one year period unless, not later than 90 days prior to any such anniversary of the Commencement Date, either party to this Agreement shall have given notice to the other that the Term of Employment shall not be extended or further extended beyond its then automatically extended term, if any.           3.     Positions, Responsibilities and Duties.                  3.1   Positions With the Corporation. During the Term of Employment, the Executive shall be employed and serve as the Chairman of the Board, President and Chief Executive Officer of the Corporation. In such positions, the Executive shall have the duties, responsibilities and authority normally associated with the office and position of chairman of the board, president and chief executive officer of a corporation, including, without limitation, complete management authority with respect to, and total responsibility for the development and execution of the business development strategy of the Corporation, including acquisitions and asset dispositions, and the overall operations and day-to-day business and affairs of the Corporation. No other employee of the Corporation shall have authority and responsibilities that are equal to or greater than those of the Executive. The Executive shall report solely and directly to the Board and all officers and other senior employees of the Corporation shall report solely and directly to the Executive or the Executive's designees. Notwithstanding the above, the Executive shall not be required to perform any duties and responsibilities which would be likely to result in a non-compliance with or violation of any applicable law or regulation.                  3.2   Executive Committee Membership. During the Term of Employment, the Executive shall serve on the executive committee or other policy making committee of the Board.                  3.3   Position with TNMP. During the Term of Employment, the Corporation shall cause the Executive to be a director of TNMP. The Executive shall report solely and directly to the Board. All officers and senior employees of TNMP shall report solely and directly to the Executive or his designees.                  3.4   Duties. During the Term of Employment, the Executive shall devote a portion of his time to the business and affairs of the Corporation and its Affiliates sufficient to enable him to fulfill his obligations hereunder and shall use his best efforts to perform faithfully and efficiently the duties and responsibilities contemplated by this Agreement, including, without limitation, the development and execution of the Corporation's business development strategy, including acquisitions and asset dispositions.                  3.5   Offices and Secretarial Support. The Corporation and/or TNMP shall provide the Executive with a personal office in both Suffolk or Nassau County, New York and Fort Worth, Texas and the Corporation and/or TNMP shall provide the Executive with appropriate secretarial assistance in both locations.           4.     Compensation and Other Benefits.                  4.1   Base Salary. During the Term of Employment and through the first anniversary of the Commencement Date, the Executive shall receive a base salary of no less than $1,350,000 per annum; during the period commencing on the first anniversary of the Commencement Date through the second anniversary of the Commencement date, the Executive shall receive a base salary of no less than $1,450,000 per annum; and commencing on the second anniversary of the Commencement Date and thereafter the Executive shall receive a base salary of no less than $1,550,000 per annum ("Base Salary"). Base Salary shall be payable in accordance with the Corporation's normal payroll practice.                  4.2   Retirement, Savings and Incentive Plans. During the Term of Employment, the Executive shall be entitled to participate in all incentive, pension, retirement, savings, 401(k) and other employee pension benefit plans and programs maintained by the Corporation and/or TNMP from time to time for the benefit of senior executives at the same levels and on the same terms enjoyed by the senior management executives of TNMP to the extent permissible under the terms and provisions of such plans and programs and applicable law.                  4.3   Welfare Benefit Plans. During the Term of Employment, the Executive, the Executive's spouse, if any, and their eligible dependents, if any, shall be entitled to participate as of the Commencement Date in and be covered under all the welfare benefit plans or programs maintained by the Corporation from time to time including, without limitation, all medical, hospitalization, dental, disability, life, accidental death and dismemberment and travel accident insurance plans and programs.                  4.4   Expense Reimbursement. During the Term of Employment, the Executive shall be entitled to receive prompt reimbursement in accordance with the Corporation's policies for all reasonable expenses incurred by the Executive in performing his duties and responsibilities hereunder, including business related first class travel for the Executive and his spouse.                  4.5   Vacation and Fringe Benefits. During the Term of Employment, the Executive shall be entitled to five weeks paid vacation each calendar year. In addition, during the Term of Employment, the Executive shall be entitled to such fringe benefits and perquisites as in effect and as provided from time to time to the senior executives of the Corporation in accordance with the Corporation's policies, including, but not limited to: (a) use of a car and driver while in New York and the availability of car service while in Fort Worth; (b) reimbursement for membership dues and all related expenses in respect of relevant and appropriate utility organizations and trade or industry associations; (c) membership in one or more Fort Worth lunch and/or dinner clubs to be selected by the Executive; (d) Reimbursement for an annual executive physical examination with a doctor selected by the Executive; and (e) one or more tables at utility industry functions.           5.     Termination.                  5.1   Termination Due to Death or Disability. Upon 30 days prior written notice to the Executive, the Corporation may terminate the Executive's employment hereunder due to Disability. In the event of the Executive's death or a termination of the Executive's employment by the Corporation due to Disability, the Executive, his estate or his legal representative, as the case may be, shall be entitled to: (a) (i) in the case of death, Base Salary continuation at the rate in effect (as provided for by Section 4.1 of this Agreement) on the Date of Termination for a period of three months after the date of death, and (ii) in the case of Disability, Base Salary (continuation at the rate in effect (as provided for by Section 4.1 of this Agreement) on the Date of Termination for a period of six months from the Date of Termination; (b) any Base Salary accrued but not yet paid as of the Date of Termination; (c) immediate payment of any unpaid deferred compensation due to the Executive as of the Date of Termination; (d) reimbursement for all reasonable business expenses incurred, but not yet paid prior to the Date of Termination; (e) immediate payment for all unused accrued vacation days as of the Date of Termination; and (f) any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable plans and programs of the Corporation and/or TNMP, if applicable, to disabled employees, decedent employees or their families.                  5.2   Termination by the Corporation for Cause or by the Executive Without Good Reason. The Corporation may terminate the Executive's employment hereunder for Cause and the Executive upon 30 days prior written notice to the Corporation may voluntarily terminate his employment hereunder without Good Reason as provided in this Section 5.2. If the Corporation terminates the Executive's employment hereunder for Cause or if the Executive voluntarily terminates employment without Good Reason, the Executive shall be entitled to: (a) Base Salary at the rate in effect (as provided for by Section 4.1 of this Agreement) at the time of such termination through the Date of Termination; (b) immediate payment of any unpaid deferred compensation due to the Executive as of the Date of Termination; (c) reimbursement for all reasonable business expenses incurred, but not yet paid prior to the Date of Termination; (d) immediate payment for all unused accrued vacation days as of the Date of Termination; and (e) any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable plans and programs of the Corporation and/or TNMP, if applicable, for employees whose employment is terminated for Cause or without Good Reason.                In the case of a Termination by the Corporation for Cause described in this Section 5.2, the Executive shall be given written notice authorized by a vote of at least a majority of the members of the Board that the Corporation intends to terminate the Executive's employment for Cause. Such written notice, given in accordance with Section 5.5 of this Agreement, shall specify the particular act or acts, or failure to act, which is or are the basis for the decision to so terminate the Executive's employment for Cause. The Executive shall be given the opportunity within 30 calendar days of the receipt of such notice to meet with the Board to defend such act or acts, or failure to act, and the Executive shall be given 30 business days after such meeting to correct such act or failure to act. Upon failure of the Executive, within such latter 30 day period, to correct such act or failure to act, the Executive's employment by the Corporation shall automatically be terminated under this Section 5.2 for Cause as of the date determined under Section 1.5 of this Agreement unless the Board determines otherwise.                  5.3   Termination Without Cause or Termination For Good Reason. Upon 30 days prior written notice to the affected party, the Corporation may terminate the Executive's employment hereunder without Cause and the Executive may terminate his employment hereunder for Good Reason. If the Corporation terminates the Executive's employment hereunder without Cause, other than due to death or Disability, or if the Executive terminates his employment for Good Reason, the Executive shall be entitled to: (a) Base Salary continuation at the rate in effect (as provided for by Section 4.1 of this Agreement) on the Date of Termination for a period of 18 months after the Date of Termination; (b) any Base Salary accrued but not yet paid as of the Date of Termination; (c) immediate payment of any unpaid deferred compensation due to the Executive as of the Date of Termination; (d) reimbursement for all reasonable business expenses incurred, but not yet paid prior to the Date of Termination; (e) immediate payment for all unused accrued vacation days as of the Date of Termination; and (f) any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable plans or programs of the Corporation and/or TNMP, if applicable for employees whose employment is terminated by the Corporation without Cause or by the employee for Good Reason.                In the case of a Termination by the Executive for Good Reason described in this Section 5.3, the Corporation shall be given written notice that the Executive intends to terminate the Executive's employment for Good Reason. Such written notice, given in accordance with Section 5.5 of this Agreement, shall specify the particular act or acts, or failure to act, which is or are the basis for the decision to so terminate the Executive's employment for Good Reason. The Corporation shall be given the opportunity within 30 calendar days of the receipt of such notice to meet with the Executive to defend such act or acts, or failure to act, and the Corporation shall be given 30 business days after such meeting to correct such act or failure to act. Upon failure of the Corporation, within such latter 30 day period, to correct such act or failure to act, the Executive's employment by the Corporation shall automatically be terminated under this Section 5.3 for Good Reason as of the date determined under Section 1.5 of this Agreement unless the Executive determines otherwise.                  5.4   No Mitigation; No Offset. In the event of any termination of employment under this Section 5, the Executive shall be under no obligation to seek other employment and there shall be no offset against any amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment that the Executive may obtain. Any amounts due under this Section 5 are in the nature of severance payments, or liquidated damages, or both, and are not in the nature of a penalty.                  5.5   Notice of Termination. Any termination by the Corporation for Cause or by the Executive for Good Reason shall be communicated by a notice of termination to the other party hereto given in accordance with Section 12.3 of this Agreement (the "Notice of Termination"). Such notice shall (a) indicate the specific termination provision in this Agreement relied upon, (b) set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (c) if the termination date is other than the date of receipt of such notice, specify the date on which the Executive's employment is to be terminated (which date shall not be earlier than the date on which such notice is actually given). The Notice of Termination shall be given, in the case of a termination for Cause, within 180 business days after a director of the Corporation (excluding the Executive) has actual knowledge of the events giving rise to such purported termination, and in the case of a termination by the Executive for Good Reason, within 180 business days of the Executive's having actual knowledge of the events giving rise to such termination unless, in each such case, the Corporation has given the Executive, or the Executive has given the Corporation, as the case may be, within such 180 business day period, notice of the Corporation's or the Executive's, as the case may be, determination that a problem exists, such notice to specify, in reasonable detail, the facts and circumstances giving rise to such problem.           6.     Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided or maintained by the Corporation, TNMP and/or any Affiliate and for which the Executive may qualify, nor shall anything herein limit or otherwise prejudice such rights as the Executive may have under any other existing or future agreements with the Corporation, TNMP and/or any Affiliate, including, without limitation, any stock option agreements or plans. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plans or programs of the Corporation, TNMP and/or any Affiliate at or subsequent to the Date of Termination shall be payable in accordance with such plans or programs.           7.     Full Settlement. The Corporation's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Corporation may have against the Executive or others.           8.     Legal Fees and Other Expenses. In the event that a claim for payment or benefits under this Agreement is disputed, or if the Corporation or any Affiliate commences any proceedings in connection with the Executive's employment, the Executive shall be reimbursed for all attorney fees and expenses incurred by the Executive in pursuing such claim, provided that the Executive is successful as to at least part of the disputed claim by reason of litigation, arbitration or settlement. While such claim or proceeding is pending, the Corporation will reimburse the Executive for such attorney fees and expenses on a regular, periodic basis, within thirty days following receipt by the Corporation of statements of such counsel. However, if the Executive is not successful as to at least part of the disputed claim by reason of litigation, arbitration or settlement, the Executive agrees to repay the Corporation within 30 days of such determination, an amount equal to the total amount that the Corporation has previously reimbursed the Executive for legal fees and expenses in connection with such claim or proceeding.           9.     Confidential Information, Non-Competition and Nonsolicitation.                  9.1   Confidential Information. The Executive shall not, during the Term of Employment and thereafter, without the prior express written consent of the Corporation, disclose any confidential information, knowledge or data relating to the Corporation, TNMP or any Affiliate and their respective businesses, which (a) was obtained by the Executive in the course of the Executive's employment with the Corporation or in connection with the acquisition of the Corporation by ST Acquisition Corp., and (b) which is not information, knowledge or data otherwise in the public domain (other than by reason of a breach of this provision by the Executive), unless required to do so by a court of law or equity or by any governmental agency or other authority. In no event shall an asserted violation of this Section 9.1 constitute a basis for delaying or withholding the payment of any amounts otherwise payable to the Executive under this Agreement.                  9.2   No Solicitation. The Executive hereby agrees that, if his employment is terminated by the Corporation for Cause or voluntarily by the Executive without Good Reason under Section 5.2 of this Agreement, he shall not, for two years after the Date of Termination, directly or indirectly, induce or solicit any employees of the Corporation or any Affiliate to leave their employment.           10.     Successors.                  10.1   The Executive. This Agreement is personal to the Executive and, without the prior express written consent of the Corporation, shall not be assignable by the Executive, except that the Executive's rights to receive any compensation or benefits under this Agreement may be transferred or disposed of pursuant to testamentary disposition, intestate succession or pursuant to a domestic relations order. This Agreement shall inure to the benefit of and be enforceable by the Executive's heirs, beneficiaries and/or legal representatives.                  10.2   The Corporation. This Agreement shall inure to the benefit of and be binding upon the Corporation and its respective successors and assigns. The Corporation shall require any successor to all or substantially all of its business and/or assets, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Corporation would be required to perform if no such succession had taken place.           11.     Indemnification. The Corporation agrees that if the Executive is made a party or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that he is or was a director or officer of the Corporation, TNMP and/or any Affiliate, or is or was serving at the request of the Corporation, TNMP and/or any Affiliate as a director, officer, member, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including, without limitation, service with respect to employee benefit plans, whether or not the basis of such Proceeding is alleged action in an official capacity as a director, officer, member, employee or agent while serving as a director, officer, member, employee or agent, he shall be indemnified and held harmless by the Corporation to the fullest extent authorized by Texas law, as the same exists or may hereafter be amended, against all Expenses incurred or suffered by the Executive in connection therewith, and such indemnification shall continue as to the Executive even if the Executive has ceased to be an officer, director or agent, or is no longer employed by the Corporation and shall inure to the benefit of his heirs, executors and administrators; provided that the Executive shall not be entitled to indemnification hereunder to the extent it is finally determined by a court of competent jurisdiction that such Proceeding is based upon the Executive's willful misconduct or gross negligence.           12.     Directors and Officers Insurance. During the Term of Employment and for a period of six years thereafter, the Corporation shall cause the Executive to be covered by and named as an insured under any policy or contract of insurance obtained by it to insure its directors and officers against personal liability for acts or omissions in connection with service as an officer or director of the Corporation and any of its Affiliates, or service in other capacities at the request of the Corporation or any of its Affiliates.           13.     Miscellaneous.                  13.1   Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, applied without reference to principles of conflict of laws.                  13.2   Amendments. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.                  13.3   Notices. All notices and other communications hereunder shall be in writing and shall be given by hand-delivery to the other parties or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Mr. William J. Catacosinos   222 Cleft Road   Mill Neck, NY 11765     with a copy to:               If to the Corporation: TNP Enterprises, Inc.   4100 International Plaza   P.O. Box 2943   Fort Worth, TX 76113   (with a copy to the attention of       the General Counsel) or to such other address as any party shall have furnished to the others in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee.                  13.4   Withholding. The Corporation may withhold from any amounts payable under this Agreement such federal, state or local income taxes as shall be required to be withheld pursuant to any applicable law or regulation.                  13.5   Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.                  13.6   Captions. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.                  13.7   Beneficiaries/References. The Executive shall be entitled to select (and change) a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive's death, and may change such election, in either case by giving the Corporation written notice thereof. In the event of the Executive's death or a judicial determination of his incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to his beneficiary(ies), estate or other legal representative(s).                  13.8   Entire Agreement. This Agreement contains the entire agreement between the parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the parties with respect thereto.                  13.9   Representations. The Corporation represents and warrants that it is fully authorized and empowered to enter into this Agreement. The Executive represents and warrants that the performance of the Executive's duties under this Agreement will not violate any agreement between the Executive and any other person, firm, partnership, corporation, or organization.                  13.10   Survivorship. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement or the Executive's Term of employment hereunder for any reason to the extent necessary to the intended provision of such rights and the intended performance of such obligations.                  13.11   Remedies Cumulative. All remedies provided in this Agreement are cumulative. This Agreement's providing for a remedy under any circumstance shall not be deemed to imply that such remedy is exclusive in such circumstance or is not available in any other.                  IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and the Corporation has caused this Agreement to be executed in its name on its behalf, and its corporate seal to be hereunto affixed and attested by its Secretary, all as of the day and year first above written.        TNP Enterprises, Inc.             By:       \s\  Theodore A. Babcock              Title:                         \s\  W. J. Catacosinos                  William J. Catacosinos

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.33 INDEMNITY AGREEMENT     This Agreement is made as of September 28, 2000, by and between Merix Corporation, an Oregon corporation (the "Corporation"), and Dr. William Lattin ("Indemnitee"), a director and/or officer of the Corporation.     WHEREAS, it is essential to the Corporation to retain and attract as directors and officers of the Corporation and its subsidiaries the most capable persons available; and     WHEREAS, corporate litigation subjects directors and officers to expensive litigation risks at the same time that adequate coverage of directors' and officers' liability insurance may be unavailable; and     WHEREAS, the Articles of Incorporation of the Corporation require indemnification of the officers and directors of the Corporation to the fullest extent permitted by law. The Articles and the Oregon Business Corporation Act (the "Act") expressly provide that the indemnification provisions set forth in the Act are not exclusive, and thereby contemplate that contracts may be entered into between the Corporation and members of the Board of Directors and officers with respect to indemnification of directors and officers; and     WHEREAS, Indemnitee does not regard the protection available under the Corporation's Articles of Incorporation, Bylaws and insurance adequate in the present circumstances, and may not be willing to serve as a director or officer without adequate protection, and the Corporation desires Indemnitee to serve in such capacity.     NOW THEREFORE, the Corporation and Indemnitee agree as follows:     1.  Agreement to Serve.  Indemnitee agrees to serve or continue to serve as a director and/or officer of the Corporation and/or one or more of its subsidiaries for so long as Indemnitee is duly elected or appointed or until such time as Indemnitee tenders a resignation in writing.     2.  Definitions.  As used in this Agreement:     (a) The term "Proceeding" shall include any threatened, pending or completed action, suit or proceeding, whether brought in the right of the Corporation or otherwise, whether of a civil, criminal, administrative or investigative nature, and whether formal or informal, in which Indemnitee may be or may have been involved as a party or otherwise, by reason of the fact that Indemnitee is or was a director and/or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement can be provided under this Agreement.     (b) The term "Expenses" includes, without limitation thereto, expense of investigations, judicial or administrative proceedings or appeals, amounts paid in settlement by Indemnitee, attorneys' fees and disbursements and any expenses of establishing a right to indemnification under Section 7 of this Agreement, but shall not include the amount of judgments or fines against Indemnitee.     (c) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise tax assessed with respect to any employee benefit plan; references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the 1 -------------------------------------------------------------------------------- Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner reasonably believed to be in the interest of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Agreement.     3.  Indemnity in Third Party Proceedings.  The Corporation shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is a party to or threatened to be made a party to any Proceeding (other than a Proceeding by or in the right of the Corporation to procure a judgment in its favor) against all Expenses, judgments and fines actually and reasonably incurred by Indemnitee in connection with such Proceeding, but only if Indemnitee acted in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation and, in the case of a criminal proceeding, in addition, had no reasonable cause to believe that Indemnitee's conduct was unlawful. The termination of any such Proceeding by judgment, order of court, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interest of the Corporation, and with respect to any criminal proceeding, that such person had reasonable cause to believe that Indemnitee's conduct was unlawful.     Pursuant to this Agreement, the Corporation specifically will, and hereby does, indemnify, to the fullest extent permitted by law, Indemnitee against any and all losses, claims, damages, liabilities and expenses, joint or several, (or actions or proceedings, whether commenced or threatened, in respect thereof) to which Indemnitee may become subject, as a result of serving as a director and/or officer of Merix, under the Securities Act or any other statute or common law, including any amount paid in settlement of any litigation, commenced or threatened, and to reimburse them for any legal or other expenses incurred by them in connection with investigating any claims and defending any actions, insofar as any such losses, claims, damages, liabilities, expenses or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact regarding Merix, or the omission or alleged omission 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.     4.  Indemnity in Proceedings By or In the Right of the Corporation.  The Corporation shall indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is a party to or threatened to be made a party to any Proceeding by or in the right of the Corporation to procure a judgment in its favor against all Expenses actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding, but only if Indemnitee acted in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which such person shall have been finally adjudged by a court to be liable for negligence or misconduct in the performance of Indemnitee's duty to the Corporation, unless and only to the extent that any court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity.     5.  Indemnification of Expenses of Successful Party.  Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise, in defense of any Proceeding or in defense of any claim, issue or matter therein, including the dismissal of an action without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith.     6.  Advances of Expenses.  The Expenses incurred by Indemnitee pursuant to Sections 3, 4 and 8 in any Proceeding shall be paid by the Corporation in advance at the written request of Indemnitee, if Indemnitee shall undertake to repay such amount to the extent that it is ultimately determined by a court that 2 -------------------------------------------------------------------------------- Indemnitee is not entitled to be indemnified by the Corporation and shall furnish the Corporation a written affirmation of the Indemnitee's good faith belief that Indemnitee is entitled to be indemnified by the Corporation under this Agreement. Such advances shall be made without regard to Indemnitee's ability to repay such expenses.     7.  Right of Indemnitee to Indemnification Upon Application; Procedure Upon Application.  Any indemnification or advances under Sections 3, 4, 6 or 8 shall be made no later than 45 days after receipt of the written request of Indemnitee, unless a determination is made within such 45 day period by (a) the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such proceeding, or (b) independent legal counsel in a written opinion (which counsel shall be appointed if such quorum is not obtainable), that the Indemnitee has not met the relevant standards for indemnification set forth in Section 3, 4 or 8 or an exclusion set forth in Section 9 is applicable.     The right to indemnification or advances as provided by this Agreement shall be enforceable by Indemnitee in any court of competent jurisdiction. The burden of proving that indemnification or advances are not appropriate shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification or advances are proper in the circumstances because Indemnitee has met the applicable standard of conduct nor an actual determination by the Corporation (including its Board of Directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. Indemnitee's expenses incurred in connection with successfully establishing Indemnitee's right to indemnification or advances, in whole or in part, in any such Proceeding shall also be indemnified by the Corporation.     8.  Additional Indemnification.       (a) Notwithstanding any limitation in Sections 3 or 4, the Corporation shall indemnify Indemnitee in accordance with the provisions of this Section 8(a) to the fullest extent permitted by law if Indemnitee is party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Corporation to procure a judgment in its favor) involving a claim against Indemnitee for breach of fiduciary duty by Indemnitee against all Expenses, judgments and fines actually and reasonably incurred by Indemnitee in connection with such Proceeding, provided that no indemnity shall be made under this Section 8(a) on account of Indemnitee's conduct which constitutes a breach of Indemnitee's duty of loyalty to the Corporation or its stockholders or is an act or omission not in good faith or which involves intentional misconduct or a knowing violation of the law or with respect to an unlawful distribution under ORS 60.367. 3 --------------------------------------------------------------------------------     (b) Notwithstanding any limitation in Sections 3, 4 or 8(a), the Corporation shall indemnify Indemnitee if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Corporation to procure a judgment in its favor) against all Expenses, judgments and fines actually and reasonably incurred by Indemnitee in connection with such Proceeding to the fullest extent permitted by the Act, including the nonexclusivity provision of ORS 60.414(1) and any successor provision and including any amendments to the Act adopted after the date hereof that may increase the extent to which a corporation may indemnify its officers and directors.     (c) The indemnification provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under the Restated Articles of Incorporation, the Bylaws, any other agreement, any vote of shareholders or directors, the Act, or otherwise, both as to action in Indemnitee's official capacity or as to action in another capacity while holding such office. The indemnification under this Agreement shall continue as to Indemnitee even though Indemnitee may have ceased to be a director or officer and shall inure to the benefit of the heirs and personal representatives of Indemnitee.     9.  Exclusions.  Notwithstanding any provision in this Agreement, the Corporation shall not be obligated under this Agreement to make any indemnification or advances in connection with any claim made against Indemnitee:     (a) for which payment is required to be made to or on behalf of Indemnitee under any insurance policy, except with respect to any excess beyond the amount of required payment under such insurance, unless payment under such insurance policy is not made after reasonable effort by Indemnitee to obtain payment. The Corporation shall be subrogated with respect to any other rights of Indemnitee with respect to any payment made by the Corporation to or on behalf of the Corporation under this Agreement;     (b) for any transaction from which Indemnitee derived an improper personal benefit; or     (c) for an accounting of profits made from the purchase and sale by Indemnitee of securities of the Corporation within the meaning of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any state statutory law or common law.     10.  Partial Indemnification.  If Indemnitee is entitled under any provisions of this Agreement to indemnification by the Corporation for some or a portion of the Expenses, judgments and fines actually and reasonably incurred by Indemnitee in the investigation, defense, appeal or settlement of any Proceeding but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify Indemnitee for the portion of such Expenses, judgments or fines to which Indemnitee is entitled.     11.  Business Transactions.  The Corporation agrees that it will not effect any Business Transaction (as defined in Article XI of the Restated Articles of Incorporation of the Corporation) which has not been approved by the Continuing Directors (as defined in Article XI of the Restated Articles of Incorporation of the Corporation) of the Corporation unless the other party to the transaction agrees in writing to (a) use its best efforts to maintain for the subsequent two year period any and all directors' and officers' liability insurance in effect prior to any discussions or announcement relating to such Business Transaction and (b) assume all obligations of the Corporation under this Agreement and indemnify Indemnitee and advance litigation expenses in accordance with this Agreement.     12.  Severability.  If this Agreement or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify Indemnitee as to Expenses, judgments and fines with respect to any Proceeding to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated or by any other applicable law. 4 --------------------------------------------------------------------------------     13.  Notice.  Indemnitee shall, as a condition precedent to Indemnitee's right to be indemnified under this Agreement, give to the Corporation notice in writing as soon as practicable of any claim made against Indemnitee for which indemnity will or could be sought under this Agreement. Notice to the Corporation shall be directed to Merix Corporation, 1521 Poplar Lane, Forest Grove, Oregon 97116, Attention: Secretary (or such other address as the Corporation shall designate in writing to Indemnitee). Notice shall be deemed received three days after the date postmarked if sent by prepaid mail, properly addressed. In addition, Indemnitee shall give the Corporation such information and cooperation as it may reasonably require and as shall be within Indemnitee's power.     14.  Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall constitute the original.     15.  Applicable Law.  This Agreement shall be governed by and construed in accordance with Oregon law.     16.  Successors and Assigns.  This Agreement shall be binding upon the Corporation and its successors and assigns.     IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be duly executed and signed as of the day and year first above written.     MERIX CORPORATION     By:   /s/ MARK R. HOLLINGER    -------------------------------------------------------------------------------- Mark R. Hollinger Chief Executive Officer and President     INDEMNITEE         /s/ WILLIAM W. LATTIN    -------------------------------------------------------------------------------- Dr. William Lattin 5 -------------------------------------------------------------------------------- QuickLinks INDEMNITY AGREEMENT

  Exhibit 10.5 Conformed Copy EMPLOYMENT AGREEMENT          This Employment Agreement is made as of the 18th day of October 2001, by and between Stephen E. Silva, an individual residing in the State of Missouri (the “Executive”), and Charter Communications, Inc., a Delaware corporation (“Charter”), with reference to the following facts:          Charter wishes to retain Executive to serve as Executive Vice President-Corporate Development and Chief Technology Officer of Charter from the date hereof and on the terms and conditions set forth herein;          Executive desires to serve as Executive Vice President-Corporate Development and Chief Technology Officer 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). 1 --------------------------------------------------------------------------------   2.     Employment, Duties and Authority.          Charter hereby agrees to employ the Executive, and the Executive agrees to be employed, as Executive Vice President-Corporate Development and Chief Technology Officer of Charter. As Executive Vice President-Corporate Development and Chief Technology Officer of Charter, the Executive shall report directly to the President and Chief Executive Officer of Charter, and, subject to the control and supervision of such President and Chief Executive Officer of Charter, shall have such duties and responsibilities as are typically performed by a chief technology officer 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 Three Hundred Thousand Dollars ($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 fifty 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 One Hundred Fifty Thousand Dollars ($150,000) 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. 2 --------------------------------------------------------------------------------            4.3     Vacation. Charter acknowledges that the Executive currently has six 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. 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 Thirty-Six Thousand (36,000) 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 President and Chief Executive 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 3 --------------------------------------------------------------------------------   Executive for Cause (as defined below); (D) the principal place of business of Charter, or the Executive’s base, shall be outside the Greater St. Louis, Missouri area; 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 the President and Chief Executive Officer of Charter, or the Board, within ten (10) days after written notice of such directive from the President and Chief Executive Officer of Charter, or the Board; (iii) conduct on the part of the Executive in the course of his employment which constitutes gross negligence or 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. 4 --------------------------------------------------------------------------------                     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;                   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 5 --------------------------------------------------------------------------------   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 opposite his name on the signature page hereto.                 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. 6 --------------------------------------------------------------------------------   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. 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. 7 --------------------------------------------------------------------------------   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.          IN WITNESS WHEREOF the parties have executed this Agreement.               CHARTER COMMUNICATIONS, INC.                         By:   /s/ William D. Savoy -------------------------------------------------------------------------------- Authorized Signatory                             /s/ Stephen E. Silva -------------------------------------------------------------------------------- Stephen E. Silva         16339 Champion Drive         Chesterfield, Missouri 63005 8

MASTER PLEDGE AGREEMENT   THIS MASTER PLEDGE AGREEMENT (the "Agreement") dated as of April 3, 2001, is by and among each of the undersigned parties and any party hereafter added as a "Debtor" pursuant to a Joinder Agreement (each a "Debtor" and collectively the "Debtors") and BANK OF AMERICA, N.A., as Administrative Agent for the "Lenders" as that term is defined below (the "Secured Party").   R E C I T A L S:   A.                F.Y.I. Incorporated ("Borrower") entered into that certain Credit Agreement dated as of April 3, 2001, with the financial institutions that are parties thereto (each individually a "Lender" and collectively, the "Lenders") and the Secured Party, as Administrative Agent for the Lenders (such Agreement as it may be amended or otherwise modified from time to time herein referred to as the "Credit Agreement").   B.                Each of the Debtors is a Subsidiary of Borrower and the execution and delivery of this Agreement is required by the Credit Agreement as a condition to making extensions of credit thereunder on and after the Closing Date.   NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the adequacy, receipt and sufficiency of which are hereby acknowledged, and in order to induce the Administrative Agent and Lenders to enter into the Credit Agreement, the parties hereto hereby agree as follows:   ARTICLE I   Definitions   Section 1.1.  Definitions.  As used in this Agreement, the following terms have the following meanings:   "Collateral" has the meaning specified in Section 2.1 of this Agreement.   "Obligations" means as such term is defined in the Credit Agreement, and includes, without limitation, all present and future indebtedness, liabilities and obligations of Borrower to the Secured Party and the Lenders under the Credit Agreement and the other Loan Documents.   "Pledged Shares" means the shares of capital stock or other equity, partnership or membership interests described on Schedule 1.1 attached hereto or on Schedule 1 to an amendment to this Agreement in the form of Exhibit A hereto.   "Proceeds" means any "proceeds," as such term is defined in Article or Chapter 9 of the UCC and, in any event, shall include, but not be limited to, (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Debtor from time to time with respect to any of the Collateral, (b) any and all pay­ments (in any form whatsoever) made or due and payable to 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, or purporting to act, for or on behalf of any Governmental Authority), and (c) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral.   "UCC" means the Uniform Commercial Code as in effect in the State of Texas; provided, that if, by applicable law, the perfection or effect of perfection or non-perfection of the security interest created hereunder in any Collateral is governed by the Uniform Commercial Code as in effect on or after the date hereof in any other jurisdiction, "UCC" means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or the effect of perfection or non-perfection.   Section 1.2.  Other Definitional Provisions.  Terms used herein that are defined in the Credit Agreement and are not otherwise defined herein shall have the meanings therefor specified in the Credit Agreement.  References to "Sections," "subsections," "Exhibits" and "Schedules" shall be to Sections, subsections, Exhibits and Schedules, respectively, of this Agreement unless otherwise specifically provided.  All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined.  All references to statutes and regulations shall include any amendments of the same and any successor statutes and regulations.  References to particular sections of the UCC should be read to refer also to parallel sections of the UCC as enacted in each state or other jurisdiction where any portion of the Collateral is or may be located.  Terms used herein, which are defined in the UCC, unless otherwise defined herein or in the Credit Agreement, shall have the meanings determined in accordance with the UCC.   ARTICLE II   Security Interest   Section 2.1.  Security Interest.  As collateral security for the prompt payment and performance in full when due of the Obligations (whether at stated maturity, by acceleration or oth­erwise) and all obligations, indebtedness and liability of each Debtor to Secured Party and the Lenders arising under the Loan Documents, each Debtor hereby pledges and collaterally assigns to the Secured Party, and grants to the Secured Party a continuing lien on and security interest in, all of such Debtor's right, title and interest in and to the following, whether now owned or hereafter arising or acquired and wherever located (collectively, the "Collateral"):   (a)           the Pledged Shares and the certificates representing the Pledged Shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of the Pledged Shares;   (b)           all additional shares of stock of the Subsidiaries of such Debtor from time to time owned or acquired by such Debtor in any manner, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of such shares; and   (c)           all products and Proceeds, in cash or otherwise, of any of the property described in the foregoing clauses (a) and (b).   Section 2.2.  Limitation of Obligations Secured.  Notwithstanding anything to the contrary contained in this Agreement, the secured Obligations of each Debtor hereunder shall not exceed an aggregate amount equal to the greatest amount that would not render such Debtor's indebtedness, liabilities or obligations under this Agreement subject to avoidance under Sections 544, 548 or 550 of the Federal Bankruptcy Code or subject to being set aside or annulled under any applicable state law relating to fraud on creditors; provided, however, that, for purposes of the immediately preceding clause, it shall be presumed that the secured Obligations of each Debtor under this Agreement do not equal or exceed any aggregate amount which would render such Debtor's indebtedness, liabilities or obligations under this Agreement subject to being so avoided, set aside or annulled, and the burden of proof to the contrary shall be on the party asserting to the contrary.  Subject to, but without limiting the generality of, the foregoing sentence, the provisions of this Agreement are severable and, in any legally binding action or proceeding involving any state corporate law or any bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors' rights and general principles of equity, if the indebtedness, liabilities or obligations of any Debtor under this Agreement would otherwise be held or determined to be void, invalid or unenforceable on account of the amount of its indebtedness, liabilities or obligations under this Agreement, then, notwithstanding any other provisions of this Agreement to the contrary, the amount of such indebtedness, liabilities or obligations shall, without any further action by such Debtor, Secured Party, Lenders or any other Person, be automatically limited and reduced to the greatest amount which is valid and enforceable as determined in such action or proceeding.   Section 2.3.  Debtors Remain Liable.  Notwithstanding any­thing to the contrary contained herein, (a) each Debtor shall remain liable under the documentation included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Secured Party of any of its rights or remedies hereunder shall not release any Debtor from any of its duties or obligations under such documentation, (c) the Secured Party shall not have any obligation under any of such documentation ­included in the Collateral by reason of this Agreement, and (d) the Secured Party shall not be obligated to per­form any of the obligations of any Debtor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.   ARTICLE III   Representations and Warranties   To induce the Secured Party and the Lenders to enter into this Agreement and the Credit Agreement, each Debtor represents and warrants to the Secured Party and the Lenders that:   Section 3.1.  Office Locations; Fictitious Names.  The chief place of business and the chief executive office of each Debtor is located at the place identified on Schedule 3.1.  Schedule 3.1 also sets forth all other places where any Debtor keeps its books and records and all other locations where any Debtor has a place of business.  No Debtor does business and no Debtor has done business during the past five years under any trade-name or fictitious business name except as disclosed on Schedule 3.1.   Section 3.2.  Delivery of Collateral.  Except as provided by Section 4.1, as of the date hereof each Debtor has delivered to Secured Party all collateral the possession of which is necessary to perfect the security interest of Secured Party therein.  Immediately upon each Debtor's receipt of any Pledged Shares, such Debtor shall deliver such Pledged Shares, endorsed in blank, to Secured Party.   ARTICLE IV   Covenants   Each Debtor covenants and agrees with the Secured Party that until the Obligations are paid and performed in full, all Com­mitments of the Secured Party and the Lenders to the Borrower have expired or have been terminated and no Letter of Credit remains outstanding:   Section 4.1.  Further Assurances.  At any time and from time to time, upon the request of the Secured Party, and at the sole expense of the Debtors, each Debtor shall promptly execute and deliver all such further agreements, documents and instruments and take such further action as the Secured Party may reasonably deem neces­sary or appropriate to preserve and perfect its security interest in the Collateral and carry out the provisions and purposes of this Agreement or to enable the Secured Party to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral.  Without limiting the generality of the forego­ing, each Debtor shall, upon request by the Secured Party, (a) execute and deliver to the Secured Party such financing statements as the Secured Party may from time to time require; (b) take such action as the Secured Party may request to permit the Secured Party to have control over any Collateral; (c) deliver to the Secured Party all Collateral the possession of which is necessary to perfect the security interest therein, duly endorsed and/or accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Secured Party; except that, prior to the occurrence of an Event of Default and when the same shall no longer be continuing, each Debtor may:   (i)                retain any letters of credit received in the ordinary course of business, and   (ii)                retain and utilize in the ordinary course of business all dividends and interest paid in respect to any of the Pledged Shares or any other Collateral;   and (d) execute and deliver to the Secured Party such other agreements, documents and instruments as the Secured Party may reasonably require to perfect and maintain the validity, effectiveness and priority of the Liens intended to be created by the Loan Documents.   Section 4.2.  Corporate Changes.  No Debtor shall change its name, identity or corporate structure in any manner that might make any financing statement filed in connection with this Agreement seriously misleading unless such Debtor shall have given the Secured Party thirty (30) days prior written notice thereof and shall have taken all action reasonably deemed necessary or desirable by the Secured Party to protect its Liens and the perfection and priority thereof required by the Loan Documents.  No Debtor shall change its prin­cipal place of business, chief executive office or the place where it keeps its books and records unless it shall have given the Secured Party thirty (30) days prior written notice thereof and shall have taken all action reasonably deemed necessary or desirable by the Secured Party to cause its security interest in the Collat­eral to be perfected with the priority required by the Loan Documents.   Section 4.3.   Voting Rights; Distributions, Etc.  So long as no Event of Default shall have occurred and be continuing, the Debtors shall be entitled to exercise any and all voting and other consensual rights (including, without limitation, the right to give consents, waivers and notifications) pertaining to any of the Pledged Shares; provided, however, that no vote shall be cast or consent, waiver or ratification given or action taken without the prior written consent of the Secured Party which would be inconsistent with or violate any provision of this Agreement or any other Loan Document.   Section 4.4.  Transfers and Other Liens; Additional Investments.  Except as may be expressly permitted by the terms of the Credit Agreement or this Agreement, each Debtor agrees that it will (i) cause each issuer of any of the Collateral not to issue any shares of stock, notes or other securities or instruments in addition to or in substitution for any of the Collateral, (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all such shares of stock, membership interests, notes or instruments, and (iii) promptly (and in any event within three Business Days) deliver to the Secured Party an Amendment, duly executed by Debtor, in substantially the form of Exhibit A hereto (an "Amendment"), in respect of such shares of stock, membership interests, notes or instruments, together with all certificates, notes or other instruments representing or evidencing the same.  Each Debtor hereby (i) authorizes the Secured Party to attach each Amendment to this Agreement, and (ii) agrees that all such shares of stock, membership interests, notes or instruments listed on any Amendment delivered to the Secured Party shall for all purposes hereunder constitute Pledged Shares.   ARTICLE V   Rights of the Secured Party   Section 5.1.  POWER OF ATTORNEY.  EACH DEBTOR HEREBY IRREVO­CABLY CONSTITUTES AND APPOINTS THE SECURED PARTY AND ANY OFFICER OR AGENT THEREOF, WITH FULL POWER OF SUBSTITUTION, AS ITS TRUE AND LAWFUL ATTORNEY–IN–FACT WITH FULL IRREVOCABLE POWER AND AUTHORITY IN THE NAME OF DEBTOR OR IN ITS OWN NAME, TO TAKE, AFTER THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, ANY AND ALL ACTIONS AND TO EXECUTE ANY AND ALL DOCUMENTS AND INSTRUMENTS WHICH THE SECURED PARTY AT ANY TIME AND FROM TIME TO TIME DEEMS NECESSARY OR DESIRABLE TO ACCOMPLISH THE PURPOSES OF THIS AGREEMENT.  WITHOUT LIMITING THE GENERALITY OF THE FORE­GOING, EACH DEBTOR HEREBY GIVES THE SECURED PARTY THE POWER AND RIGHT ON BEHALF OF SUCH DEBTOR AND IN ITS OWN NAME TO DO ANY OF THE FOLLOWING AFTER THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, WITH NOTICE TO SUCH DEBTOR BUT WITHOUT THE CONSENT OF SUCH DEBTOR:   (i)                to demand, sue for, collect or receive, in the name of such Debtor or in its own name, any money or property at any time payable or receivable on account of or in exchange for any of the Collateral and, in connection there­with, endorse checks, notes, drafts, acceptances, money orders, documents of title or any other instruments for the payment of money under the Collateral or any policy of insurance;   (ii)                to pay or discharge taxes, Liens or other encum­brances levied or placed on or threatened against the Collateral;   (iii)                (A) to direct account debtors and any other par­ties liable for any payment under any of the Collateral to make payment of any and all monies due and to become due thereunder directly to the Secured Party or as the Secured Party shall direct (each Debtor agrees that if any Proceeds of any Collateral shall be received by any Debtor while an Event of Default exists, such Debtor shall promptly deliver such Proceeds to the Secured Party with any necessary endorsements, and until such Proceeds are delivered to the Secured Party, such Proceeds shall be held in trust by such Debtor for the benefit of the Secured Party and shall not be commingled with any other funds or property of such Debtor); (B) to receive payment of and receipt for any and all monies, claims and other amounts due and to become due at any time in respect of or arising out of any Collateral; (C) to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, proxies, stock powers, verifications and notices in connection with accounts and other documents relating to the Collateral; (D) to commence and prosecute any suit, action or proceeding at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, action or proceeding brought against such Debtor with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described above and, in connection therewith, to give such discharges or releases as the Secured Party may deem appropriate; (G) to exchange any of the Collateral for other property upon any merger, consolidation, reorganization, recapitalization or other readjustment of the issuer thereof and, in connection therewith, deposit any of the Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms as the Secured Party may determine; (H) to add or release any guarantor, indorser, surety or other party to any of the Collateral; (I) to renew, extend or otherwise change the terms and conditions of any of the Collateral; (J) to make, settle, compromise or adjust any claims under or pertaining to any of the Collateral (including claims under any policy of insurance); and (K) to sell, transfer, pledge, convey, make any Agreement with respect to or otherwise deal with any of the Col­lateral as fully and completely as though the Secured Party were the absolute owner thereof for all purposes, and to do, at the Secured Party's option and the Debtors' expense, at any time, or from time to time, all acts and things which the Secured Party deems necessary to protect, preserve, maintain, or realize upon the Collateral and the Secured Party's security interest therein.   THIS POWER OF ATTORNEY IS A POWER COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE.  The Secured Party shall be under no duty to exercise or withhold the exercise of any of the rights, powers, privileges and options expressly or implicitly granted to the Secured Party in this Agreement, and shall not be liable for any failure to do so or any delay in doing so.  Neither the Secured Party nor any Person designated by the Secured Party shall be liable for any act or omission or for any error of judgment or any mistake of fact or law, except any of the same resulting from its or their gross negligence or willful misconduct.  This power of attorney is conferred on the Secured Party solely to protect, preserve, maintain and realize upon its security interest in the Collat­eral.  The Secured Party shall not be responsible for any decline in the value of the Collateral and shall not be required to take any steps to preserve rights against prior parties or to protect, preserve or maintain any Lien given to secure the Collateral.   Section 5.2.  Assignment by the Secured Party.  The Secured Party and each Lender may at any time assign or otherwise transfer all or any portion of their rights and obligations under this Agreement and the other Loan Documents (including, without limitation, the Obligations) to any other Person, to the extent permitted by, and upon the conditions contained in, the Credit Agreement, and such Person shall thereupon become vested with all the benefits thereof granted to the Secured Party and the Lenders, respectively, herein or otherwise.   Section 5.3.  Possession; Reasonable Care.  The Secured Party may, from time to time, in its sole discretion, appoint one or more agents to hold physical custody, for the account of the Secured Party, of any or all of the Collateral that the Secured Party has a right to possess.  The Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which the Secured Party accords its own property, it being understood that the Secured Party shall not have any responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not the Secured Party has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any parties with respect to any Collateral.   ARTICLE VI   Default   Section 6.1.  Rights and Remedies.  If an Event of Default shall have occurred and be continuing, the Secured Party shall have the following rights and remedies:   (a)                In addition to all other rights and remedies granted to the Secured Party in this Agreement or in any other Loan Document or by applicable law, the Secured Party shall have all of the rights and remedies of a secured party under the UCC (whether or not the UCC applies to the affected Collateral).  Without limiting the generality of the foregoing, the Secured Party may (A) without demand or notice to the Debtors, collect, receive or take possession of the Collateral or any part thereof and for that purpose the Secured Party may enter upon any premises on which the Collateral is located and remove the Collateral therefrom or render it inoperable, and/or (B) sell or otherwise dispose of the Collateral, or any part thereof, in one or more parcels at public or private sale or sales, at the Secured Party's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Secured Party may reasonably deem commercially reasonable or otherwise as may be permitted by law.  The Secured Party shall have the right at any public sale or sales, and, to the extent permitted by applicable law, at any private sale or sales, to bid (which bid may be, in whole or in part, in the form of cancellation of indebtedness) and become a purchaser of the Collateral or any part thereof free of any right or equity of redemption on the part of the Debtors, which right or equity of redemption is hereby expressly waived and released by the Debtors.  Upon the request of the Secured Party, the Debtors shall assemble the Collateral and make it available to the Secured Party at any place designated by the Secured Party that is reasonably convenient to the Debtors and the Secured Party.  Each Debtor agrees that the Secured Party shall not be obligated to give more than ten (10) days prior written notice of the time and place of any public sale or of the time after which any private sale may take place and that such notice shall constitute reasonable notice of such matters.  The Secured Party shall not be obligated to make any sale of Collateral if it shall determine not to do so, regardless of the fact that notice of sale of Collateral may have been given.  The Secured Party may, without notice or publica­tion, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned.  Each Debtor shall be liable for all reasonable expenses of retaking, holding, preparing for sale or the like, and all reasonable attorneys' fees, legal expenses and other costs and expenses incurred by the Secured Party in connec­tion with the collection of the Obligations and the enforce­ment of the Secured Party's rights under this Agreement.  Each Debtor shall remain liable for any deficiency if the Proceeds of any sale or other disposition of the Collateral applied to the Obligations are insufficient to pay the Obligations in full.  The Secured Party may apply the Collateral against the Obliga­tions as provided in the Credit Agreement.  Each Debtor waives all rights of marshaling, valuation and appraisal in respect of the Collateral.  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 may, in the discretion of the Secured Party, be held by the Secured Party as collateral for, and then or at any time thereafter applied in whole or in part by the Secured Party against, the Obligations in the order permitted by the Credit Agreement.  Any surplus of such cash or cash proceeds and interest accrued thereon, if any, held by the Secured Party and remaining after payment in full of all the Obligations shall be promptly paid over to the Debtors or to whomsoever may be lawfully entitled to receive such surplus.   (b)                The Secured Party may cause any or all of the Collateral held by it to be transferred into the name of the Secured Party or the name or names of the Secured Party's nominee or nominees.   (c)                The Secured Party may exercise any and all rights and remedies of the Debtors under or in respect of the Collateral, including, without limitation, any and all rights of the Debtors to demand or otherwise require payment of any amount under, or performance of any provision of, any of the Collateral and any and all voting rights and corporate powers in respect of the Collateral.  Each Debtor shall execute and deliver (or cause to be executed and delivered) to the Secured Party all such proxies and other instruments as the Secured Party may reasonably request for the purpose of enabling the Secured Party to exercise the voting and other rights which it is entitled to exercise pursuant to this clause (c) and to receive the dividends, interest and other distributions which it is entitled to receive hereunder.   (d)                The Secured Party may collect or receive all money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so.   (e)                On any sale of the Collateral, the Secured Party is hereby authorized to comply with any limitation or restriction with which compliance is necessary, in the view of the Secured Party's counsel, in order to avoid any violation of applicable law or in order to obtain any required approval of the purchaser or purchasers by any applicable Governmental Authority.   Section 6.2.  Private Sales.  Each Debtor recognizes that the Secured Party may be unable to effect a public sale of any or all of the Collateral by reason of certain prohibitions contained in the laws of any jurisdiction outside the United States or in the Securities Act of 1933, as amended from time to time (the "Securities Act"), and applicable state securities laws, but may be compelled to resort to one or more private sales thereof to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Collateral for their own account for investment and not with a view to the distribution or resale thereof.  Each Debtor acknowledges and agrees that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall, to the extent permitted by law, be deemed to have been made in a commercially reasonable manner.  Neither the Secured Party nor the Lenders shall be under any obligation to delay a sale of any of the Collateral for the period of time necessary to permit the issuer of such securities to register such securities under the laws of any jurisdiction outside the United States, under the Securities Act or under any applicable state securities laws, even if such issuer would agree to do so.  Each Debtor further agrees to do or cause to be done, to the extent that such Debtor may do so under applicable law, all such other reasonable acts and things as may be necessary to make such sales or resales of any portion or all of the Collateral valid and binding and in compliance with any and all applicable laws, regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction over any such sale or sales, all at such Debtor's expense; provided, however, no Debtor shall be required to file or cause any issuer of the Pledged Shares to file a registration statement under applicable laws in connection with an initial public offering of securities.   ARTICLE VII   Miscellaneous   Section 7.1.  No Waiver; Cumulative Remedies.  No failure on the part of the Secured Party to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power, or privilege.  The rights and remedies provided for in this Agreement are cumulative and not exclusive of any rights and remedies provided by law.   Section 7.2.  Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the Debtors and the Secured Party and their respective successors and assigns, except that no Debtor may assign any of its rights or obligations under this Agreement without the prior written consent of the Lenders and Secured Party may not appoint a successor Secured Party except in accordance with the Credit Agreement.   Section 7.3.  AMENDMENT; ENTIRE AGREEMENT.  THIS AGREEMENT EMBODIES THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREE­MENTS OR DISCUSSIONS OF THE PARTIES HERETO.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO.  Except as set forth in Section 4.4 hereof, the provisions of this Agreement may be amended or waived only by an instrument in writ­ing signed by the parties hereto and the Required Lenders.   Section 7.4.  Notices.  All notices and other communica­tions provided for in this Agreement shall be given or made in accordance with the Credit Agreement.   Section 7.5.  Governing Law.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas and applicable laws of the United States of America.   Section 7.6.  Headings.  The headings, captions, and arrangements used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.   Section 7.7.  Survival of Representations and Warranties.  All representations and warranties made in this Agreement or in any certificate delivered pursuant hereto shall survive the exe­cution and delivery of this Agreement, and no investigation by the Secured Party shall affect the representations and warranties or the right of the Secured Party to rely upon them.   Section 7.8.  Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement.   Section 7.9.  Waiver of Bond.  In the event the Secured Party seeks to take possession of any or all of the Collateral by judicial process, each Debtor hereby irrevocably waives any bonds and any surety or security relating thereto that may be required by applicable law as an incident to such possession, and waives any demand for possession prior to the commencement of any such suit or action.   Section 7.10.  Severability.  Any provision of this Agree­ment which is determined by a court of competent jurisdiction to be 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 of this Agreement, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.   Section 7.11.  Termination.  If all of the Obligations shall have been paid and performed in full, all Commitments of the Secured Party or any Lender to the Borrower shall have expired or terminated and no Letters of Credit shall remain outstanding, the Secured Party shall, upon the written request of any Debtor, execute and deliver to such Debtor a proper instru­ment or instruments acknowledging the release and termination of the security interests created by this Agreement, and shall duly assign and deliver to such Debtor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of the Secured Party and has not previously been sold or otherwise applied pursuant to this Agreement.  Notwithstanding anything to the contrary contained in this Agreement, if the payment of any amount of the Obligations is rescinded, voided or must otherwise be refunded by the Secured Party or any Lender upon the insolvency, bankruptcy or reorganization of the Borrower or any other Loan Party or otherwise for any reason whatsoever, then the security interests created by this Agreement will be automatically reinstated and become automatically effective and in full force and effect, all to the extent that and as though such payment so rescinded, voided or otherwise refunded had never been made and such release and termination of such security interests had never been given.   Section 7.12.  Obligations Absolute.  All rights and remedies of the Secured Party hereunder, and all obligations of the Debtors hereunder, shall be absolute and unconditional irrespective of:   (a)                any lack of validity or enforceability of any of the Loan Documents;   (b)                any change in the time, manner, or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from any of the Loan Documents;   (c)                any exchange, release, or nonperfection of any Collateral, or any release or amendment or waiver of or consent to any departure from any guarantee, for all or any of the Obligations; or   (d)                any other circumstance that might otherwise constitute a defense available to, or a discharge of, a third party pledgor.   Section 7.13.  WAIVER OF JURY TRIAL.  TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH DEBTOR HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF THE SECURED PARTY OR ANY LENDER IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF.   IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first written above.     DEBTORS:       COPY RIGHT ACQUISITION CORP.   F.Y.I. INVESTMENTS HOLDING, INC.   GLOBAL DIRECT ACQUISITION CORP.   IMC MANAGEMENT, INC.   INFORMATION MANAGEMENT SERVICES     ACQUISITION CORP.   INPUT MANAGEMENT, INC.   LEXICODE ACQUISITION CORP.   LIFO MANAGEMENT, INC.   MAILING & MARKETING ACQUISITION CORP.   MANAGED CARE PROFESSIONALS ACQUISITION     CORP.   PERMANENT RECORDS MANAGEMENT, INC.   PMI IMAGING SYSTEMS ACQUISITION CORP.   QUALITY COPY ACQUISITION CORP.   RUST CONSULTING ACQUISITION CORP.               By: /s/ Barry L. Edwards   Name: Barry L. Edwards   Title:  Vice President for each of the corporations above               F.Y.I. INVESTMENTS, INC.           By: /s/ Ron Zazworsky   Name: Ron Zazworsky   Title: President           SECURED PARTY:       BANK OF AMERICA, N.A., as Administrative Agent           By: /s/ David A. Johanson   Name: David A. Johanson   Title: Vice President   EXHIBIT A TO MASTER PLEDGE AGREEMENT   FORM OF AMENDMENT   This Amendment, dated __________, is delivered pursuant to Section 4.4 of the Pledge Agreement (as herein defined) referred to below.  The undersigned hereby agrees that this Amendment may be attached to the Master Pledge Agreement dated as of April ____, 2001, between the undersigned and Bank of America, N.A., as Secured Party for the ratable benefit of the Lenders referred to therein (the "Pledge Agreement"), and that the shares of stock, membership, partnership or other equity interests, notes or other instruments listed on Schedule 1 annexed hereto shall be and become part of the Collateral referred to in the Pledge Agreement and shall secure payment and performance of all Obligations as provided in the Pledge Agreement.   Capitalized terms used herein but not defined herein shall have the meanings therefor provided in the Pledge Agreement.     [NAME OF DEBTOR]         By:     Name:     Title:    

EXHIBIT 10.36 PROTEIN DESIGN LABS, INC. OUTSIDE DIRECTORS STOCK OPTION PLAN (As amended June 29, 2000) 1. Purpose. The Protein Design Labs, Inc. Outside Directors Stock Option Plan (the "Plan") is established to create additional incentive for the non-employee directors of Protein Design Labs, Inc. and any successor corporation thereto (collectively referred to as the "Company"), to promote the financial success and progress of the Company and any present or future parent and/or subsidiary corporations of the Company (all of whom along with the Company being individually referred to as a "Participating Company" and collectively referred to as the "Participating Company Group"). The Plan shall be effective as of the date it is approved by the stockholders of the Company (the "Effective Date"). For purposes of the Plan, a parent corporation and a subsidiary corporation shall be as defined in sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended (the "Code"). 2. Administration. The Plan shall be administered by the Board of Directors of the Company (the "Board") and/or by a duly appointed committee of the Board having such powers as shall be specified by the Board. Any subsequent references herein to the Board shall also mean the committee if such committee has been appointed and, unless the powers of the committee have been specifically limited, the committee shall have all of the powers of the Board granted herein, including, without limitation, the power to terminate or amend the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. The Board shall have no authority, discretion, or power to select which non-employee directors of the Company will receive options under the Plan, to set the exercise price of the options granted under the Plan, to determine the number of shares of common stock to be granted under an option or the time at which any options are to be granted, to establish the duration of option grants, or alter any other terms or conditions specified in the Plan, except in the sense of administering or amending the Plan subject to the provisions of the Plan. All questions of interpretation of the Plan or of any options granted under the Plan (an "Option") shall be determined by the Board, and such determinations shall be final and binding upon all persons having an interest in the Plan and/or any Option. The Chief Executive Officer, President or General Counsel of the Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein. 3. Eligibility and Type of Option. Options may be granted only to directors of the Company who are not employees of the Company or any present parent and/or subsidiary corporations of the Company ("Outside Directors"). Options granted to Outside Directors shall be nonqualified stock options; that is, options which are not treated as having been granted under section 422(b) of the Code. 4. Shares Subject to Option. Options shall be for the purchase of shares of the authorized but unissued common stock or treasury shares of common stock of the Company (the "Stock"), subject to adjustment as provided in paragraph 8 below. The maximum number of shares of Stock which may be issued under the Plan shall be two hundred thousand (200,000) shares. In the event that any outstanding Option for any reason expires or is terminated and/or shares of Stock subject to repurchase are repurchased by the Company, the shares allocable to the unexercised portion of such Option, or such repurchased shares, may again be subject to an Option grant. 5. Time for Granting Options. All Options shall be granted, if at all, within ten (10) years from the Effective Date. 6. Terms, Conditions and Form of Options. Options granted pursuant to the Plan shall be evidenced by written agreements specifying the number of shares of Stock covered thereby, in substantially the form attached hereto as Exhibit A (the "Option Agreement"), which written agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions: (a) Automatic Grant of Options. Subject to execution by each Outside Director of an Option Agreement, options shall be granted automatically and without further action of the Board, as follows: (i) Each person who is newly appointed or elected as an Outside Director after February 6, 1997 or who becomes an Outside Director as a result of ceasing to be an employee of the Company or any parent or subsidiary corporation of the Company after June 29, 2000 (a "Future Outside Director") shall be granted an Option for thirty thousand (30,000) shares of Stock upon the date such person becomes an Outside Director. (ii) Each Outside Director shall be granted an Option for thirty thousand (30,000) shares of Stock upon the fifth Anniversary Date (as defined below) and each subsequent five year Anniversary Date thereafter (e.g., 10th, 15th, etc.) of such Outside Director. (iii) The Anniversary Date of each Outside Director shall be the date the Outside Director became an Outside Director except that if he or she elected not to receive an option at that time under paragraph 6(a)(iv) then his or her Anniversary Date shall be the date upon which he or she was first granted an Option under the Plan. If an Outside Director subsequently elects not to receive an Option and later revokes that election, his or her Anniversary Date may be adjusted as provided in paragraph 6(a)(iv). (iv) Notwithstanding the foregoing, any Outside Director may elect not to receive an Option granted pursuant to this paragraph 6(a) by delivering written notice of such election to the Board no later than the day prior to the date such Option would otherwise be granted. A person so declining an Option shall receive no payment or other consideration in lieu of such declined Option. An Outside Director who has declined an Option may revoke such election by delivering written notice of such revocation to the Board, in which event such Outside Director shall be automatically granted an Option on the later of the date the Option would otherwise have been granted to such Outside Director or the date of such notice (and in such latter event the Outside Director's Anniversary Date shall then become the date of such notice). (v) Notwithstanding any other provision of the Plan, no Option shall be granted to any individual on his or her Anniversary Date when he or she is no longer serving as an Outside Director of the Company on such Anniversary Date. (b) Option Exercise Price. The Option exercise price per share of Stock for an Option shall be the fair market value of a share of the common stock of the Company on the date of the granting of the Option. Where there is a public market for the common stock of the Company, the fair market value per share of Stock shall be the mean of the bid and asked prices of the common stock of the Company on the date of the granting of the Option, as reported in the Wall Street Journal (or, if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation ("NASDAQ") System) or, in the event the common stock of the Company is listed on the NASDAQ National Market System or a national or regional securities exchange, the fair market value per share of Stock shall be the closing price on such National Market System or exchange on the date of the granting of the Option, as reported in the Wall Street Journal. If the date of the granting of an Option does not fall on a day on which the common stock of the Company is trading on the NASDAQ National Market System or other national or regional securities exchange, the date on which the Option exercise price per share shall be established shall be the last day on which the common stock of the Company was so traded prior to the date of the granting of the Option. (c) Exercise Period and Exercisability of Options. An Option granted pursuant to the Plan shall be exercisable for a term of ten (10) years. Options granted pursuant to the Plan shall become exercisable over a sixty (60) month period commencing one (1) month after the date of grant as provided in the form of Option Agreement. (d) Payment of Option Exercise Price. Payment of the Option exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check, or in cash equivalent, (ii) by the assignment of the proceeds of a sale of some or all of the shares being acquired upon the exercise of an Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System), or (iii) by any combination thereof. The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, decline to approve and/or terminate any program and/or procedure for the exercise of Options by means of an assignment of the proceeds of a sale of some or all of the shares of Stock to be acquired upon such exercise. (e) Transfer of Control. A "Transfer of Control" shall be deemed to have occurred in the event any of the following occurs with respect to the Company: (i) any acquisition of the Company's stock or any reorganization as defined in section 368(a)(1) of the Code to which the Company is a party as defined in section 368(b) of the Code and in which the Company is not the surviving corporation or is not immediately after the reorganization engaged in the active conduct of a trade or business or in which the stockholders of the Company will own less than fifty percent (50%) of the voting securities of the surviving corporation; or (ii) any sale or conveyance of substantially all of the net assets of the Company, unless immediately after such sale the Company is engaged in the active conduct of a trade or business. In the event of a Transfer of Control, the surviving, continuing, successor, or purchasing corporation, as the case may be (the "Acquiring Corporation"), shall either assume the Company's rights and obligations under outstanding stock option agreements or substitute options for the Acquiring Corporation's stock for such outstanding Options unless the Company's Board otherwise agrees. In the event that, with the Board's consent, the Acquiring Corporation elects not to assume or substitute for such outstanding Options in connection with a merger in which the Company is not the surviving corporation or a reverse triangular merger in which the Company is the surviving corporation where the stockholders of the Company before such merger do not retain, directly or indirectly, at least a majority of the beneficial interest in the voting stock of the Company after such merger, the Board may, but shall not be obligated to, provide that any unexercisable and/or unvested portion of the outstanding Options shall be immediately exercisable and vested as of a date prior to the Transfer of Control, as the Board so determines. The exercise and/or vesting of any Option that was permissible solely by reason of this paragraph 6(e) shall be conditioned upon the consummation of the Transfer of Control. Any Options which are neither assumed or substituted for by the Acquiring Corporation nor exercised as of the date of the Transfer of Control shall terminate effective as of the date of the Transfer of Control. 7. Authority to Vary Terms. The Board shall have the authority from time to time to vary the terms of the Option Agreement either in connection with the grant of an individual Option or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of such revised or amended standard form or forms of Option Agreement shall be in accordance with the terms of the Plan. Such authority shall include, but not by way of limitation, the authority to grant Options which are immediately exercisable subject to the Company's right to repurchase any unvested shares of Stock acquired by the Optionee on exercise of an Option in the event such Optionee's service as a director of the Company is terminated for any reason. 8. Effect of Change in Stock Subject to Plan. Appropriate adjustments shall be made in the number and class of shares of Stock subject to the Plan and to any outstanding Options and in the Option exercise price of any outstanding Options in the event of a stock dividend, stock split, reverse stock split, combination, reclassification, or like change in the capital structure of the Company. 9. Options Non-Transferable. Except as may be permitted by the Board and expressly provided in an Option agreement granted by the Board, Options may not be assigned or transferred by an Optionee except by will or by the laws of descent and distribution. 10. Termination or Amendment of Plan. The Board, including any duly appointed committee of the Board, may terminate or amend the Plan at any time; provided, however, that without the approval of the stockholders of the Company, there shall be (a) no increase in the total number of shares of Stock covered by the Plan (except by operation of the provisions of paragraph 8 above), and (b) no expansion in the class of persons eligible to receive Options. In any event, no amendment may adversely affect any then outstanding Option, or any unexercised portion thereof, without the consent of the Optionee. IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing Protein Design Labs, Inc. Outside Directors Stock Option Plan was approved by the stockholders of the Company at the Annual Meeting of Stockholders on the twentieth day of October, 1992, and subsequently amended by the Board on October 17, 1996, February 6, 1997 and June 29, 2000, in accordance with applicable laws and the terms of the Plan. Date: By: Douglas O. Ebersole Secretary EXHIBIT A PROTEIN DESIGN LABS, INC. NONQUALIFIED STOCK OPTION AGREEMENT FOR OUTSIDE DIRECTORS Protein Design Labs, Inc., a Delaware corporation (the "Company"), hereby grants to (the "Optionee") an option to purchase a total of thirty thousand (30,000) shares of the common stock of the Company (the "Number of Option Shares") under the Protein Design Labs, Inc. Outside Directors Stock Option Plan (the "Plan"), at an exercise price of $ per share and in the manner and subject to the provisions of this Option Agreement (the "Option"). The grant, in all respects, is subject to the terms and conditions of this Option Agreement and the Plan, the provisions of which are incorporated by reference herein. Unless otherwise provided in this Option Agreement, defined terms shall have the meaning given to such terms in the Plan. 1. Grant of the Option. The Option is granted effective as of (the "Date of Option Grant"). The Number of Option Shares and the exercise price per share of the Option are subject to adjustment from time to time as provided in the Plan. 2. Status of the Option. The Option is intended to be a nonqualified stock option and shall not be treated as an incentive stock option as described in section 422 of the Internal Revenue Code of 1986, as amended. 3. Term of the Option. The Option shall terminate and may no longer be exercised on the first to occur of (i) the date ten (10) years after the Date of Option Grant (the "Option Term Date"), (ii) the last date for exercising the Option following termination of the Optionee's service as a director of the Company as described in paragraph 6 below, or (iii) upon a Transfer of Control of the Company as described in the Plan. 4. Exercise of the Option. (a) Right to Exercise. The Option shall first become exercisable on the date occurring one (1) month after the Date of Option Grant (the "Initial Exercise Date"). The Option shall be exercisable on and after the Initial Exercise Date and prior to the termination of the Option in the amount equal to the Number of Option Shares multiplied by the Vested Ratio as set forth below less the number of shares previously acquired upon exercise of the Option: Vested Ratio Prior to Initial Exercise Date 0 On Initial Exercise Date, 1/60 provided the Optionee has continuously served as a director of Company from the Date of Option Grant until the Initial Exercise Date Plus For each full month of the 1/60 Optionee's continuous service as a director of the Company from the Initial Exercise Date In no event shall the Vested Ratio exceed 1/1. In no event shall the Option be exercisable for more shares than the Number of Option Shares. Notwithstanding the foregoing, the Option may not be exercised more frequently than twice in any continuous twelve (12) month period; provided, however, that the foregoing restriction shall not apply so as to prevent an exercise (i) following termination of the Optionee's service as a director of the Company as described in paragraph 6 below or (ii) during the thirty (30) day period immediately preceding a Transfer of Control of the Company as described in the Plan. (b) Method of Exercise. The Option may be exercised by written notice to the Company which must state the election to exercise the Option, the number of shares of stock for which the Option is being exercised and such other representations and agreements as to the Optionee's investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement and the Plan. The written notice must be signed by the Optionee and must be delivered in person, by facsimile or by certified or registered mail, return receipt requested, to the President of the Company, or other authorized representative of the Participating Company Group, prior to the termination of the Option as set forth in paragraph 3 above, accompanied by full payment of the exercise price for the number of shares of stock being purchased in a form permitted under the terms of the Plan. (c) Withholding. At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Optionee shall make adequate provision for the foreign, federal and state tax withholding obligations of the Company, if any, which arise in connection with the Option including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in part, of any shares of stock acquired on exercise of the Option, or (iii) the lapsing of any restriction with respect to any shares acquired on exercise of the Option. (d) Certificate Registration. The certificate or certificates for the shares of stock as to which the Option shall be exercised shall be registered in the name of the Optionee, or, if applicable, the heirs of the Optionee. (e) Restriction on Grant of the Option and Issuance of Shares. The grant of the Option and the issuance of shares of stock on exercise of the Option shall be subject to compliance with all of the applicable requirements of federal or state law with respect to such securities. The Option may not be exercised if the issuance of shares of stock upon such exercise would constitute a violation of any applicable federal or state securities laws or other law or regulation. In addition, no Option may be exercised unless (i) a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), shall at the time of exercise of the Option be in effect with respect to the shares of stock issuable upon exercise of the Option, or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. As a condition to the exercise of the Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company. (f) Fractional Shares. The Company shall not be required to issue fractional shares of stock upon the exercise of the Option. 5. Non-Transferability of the Option. The Option may be exercised during the lifetime of the Optionee only by the Optionee and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. 6. Termination of Service as a Director. (a) Termination of Director Status. If the Optionee ceases to be a director of the Company for any reason except death or disability within the meaning of section 22(e)(3) of the Code, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee ceased to be a director, may be exercised by the Optionee at any time prior to the expiration of three (3) months from the date on which the Optionee's service as a director of the Company terminated, but in any event no later than the Option Term Date. If the Optionee ceases to be a director of the Company because of the death or disability of the Optionee within the meaning of section 22(e)(3) of the Code, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee ceased to be a director, may be exercised by the Optionee (or the Optionee's legal representative) at any time prior to the expiration of twelve (12) months from the date on which the Optionee's service as a director of the Company terminated, but in any event no later than the Option Term Date. The Optionee's service as a director of the Company shall be deemed to have terminated on account of death if the Optionee dies within three (3) months after the Optionee's termination of service as a director of the Company. Except as provided in this paragraph 6, an Option shall terminate and may not be exercised after the Optionee ceases to be a director of the Company. (b) Extension of Exercise Prevented by Law. Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth above is prevented because the issuance of shares of stock upon such exercise would constitute a violation of any applicable federal or state securities law or other law or regulation, the Option shall remain exercisable until three (3) months after the date the Optionee is notified by the Company that the Option is exercisable, but in any event no later than the Option Term Date. (c) Extension if Optionee Subject to Section 16(b). Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth above would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's termination of service as a director of the Company and (iii) the Option Term Date. 7. Rights as a Stockholder. The Optionee shall have no rights as a stockholder with respect to any shares of stock covered by the Option until the date of the issuance of a certificate or certificates for the shares for which the Option has been exercised. No adjustment shall be made for dividends or distributions or other rights for which the record date is prior to the date such stock certificate or certificates are issued, except as provided in the Plan. 8. Legends. The Company may at any time place legends referencing any applicable federal or state securities law restrictions on all certificates representing shares of stock subject to the provisions of this Option Agreement. The Optionee shall, at the request of the Company, promptly present to the Company any and all certificates representing shares of stock acquired pursuant to the Option in the possession of the Optionee in order to effectuate the provisions of this paragraph. 9. Binding Effect. This Option Agreement shall inure to the benefit of the successors and assigns of the Company and be binding upon the Company and the Optionee and the Optionee's heirs, executors, administrators, successors and assigns. 10. Termination or Amendment. The Board, including any duly appointed committee of the Board, may terminate or amend the Plan and/or the Option at any time subject to any limitations described in the Plan; provided, however, that no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Optionee. 11. Integrated Agreement. This Option Agreement and the Plan constitute the entire understanding and agreement of the Optionee and the Company with respect to the subject matter contained herein and therein, and there are no agreements, understandings, restrictions, representations, or warranties among the Optionee and the Company other than those as set forth or provided for herein or therein. To the extent contemplated herein and therein, the provisions of this Option Agreement and the Plan shall survive any exercise of the Option and shall remain in full force and effect. 12. Applicable Law. This Option Agreement shall be governed by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within the State of California. 13. Arbitration. In the event a dispute between the parties to this Option Agreement arises out of, in connection with, or with respect to this Option Agreement, or any breach of this Option Agreement, such dispute will, on the written request of one (1) party delivered to the other party, be submitted and settled by arbitration in Palo Alto, California in accordance with the rules of the American Arbitration Association then in effect and will comply with the California Arbitration Act, except as otherwise specifically stated in this paragraph 13. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction. The parties submit to the in personam jurisdiction of the Supreme Court of the State of California for the purpose of confirming any such award and entering judgment upon the award. Notwithstanding anything to the contrary that may now or in the future be contained in the rules of the American Arbitration Association, the parties agree as follows: (a) Each party will appoint one person approved by the American Arbitration Association to hear and determine the dispute within twenty (20) days after receipt of notice of arbitration from the noticing party. The two (2) persons so chosen will select a third impartial arbitrator. The majority decision of the arbitrators will be final and conclusive upon the parties to the arbitration. If either party fails to designate its arbitrator within twenty (20) days after delivery of the notice provided for in this paragraph 13(a), then the arbitrator designated by the one (1) party will act as the sole arbitrator and will be considered the single, mutually approved arbitrator to resolve the controversy. In the event the parties are unable to agree upon a rate of compensation for the arbitrators, they will be compensated for their services at a rate to be determined by the American Arbitration Association. (b) The parties will enjoy, but are not limited to, the same rights to discovery as they would have in the United States District Court for the Northern District of California. (c) The arbitrators will, upon the request of either party, issue a written opinion of their findings of fact and conclusions of law. (d) Upon receipt by the requesting party of said written opinion, said party will have the right within ten (10) days to file with the arbitrators a motion to reconsider, and upon receipt of a timely request the arbitrators will reconsider the issues raised by said motion and either confirm or change their majority decision which will then be final and conclusive upon the parties to the arbitration. (e) The arbitrators will award to the prevailing party in any such arbitration reasonable expenses, including attorneys' fees and costs, incurred in connection with the dispute. PROTEIN DESIGN LABS, INC. By: Title: The Optionee represents that the Optionee is familiar with the terms and provisions of this Option Agreement and the Plan and hereby accepts the Option subject to all of the terms and provisions thereof. The undersigned acknowledges receipt of a copy of the Plan. Date: Signature:

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.7 Vicinity Corporation 370 San Aleso Avenue Sunnyvale, California 94085 April 24, 2001 PERSONAL & CONFIDENTIAL Mr. Tim McMullen 709 Davis Way Laguna Beach, CA 92651 Dear Tim:     Vicinity Corporation, a Delaware corporation ("Vicinity" or the "Company"), is pleased to offer you employment effective April 24, 2001. Please review this Executive Employment Agreement (the "Agreement"), co-sign and date the Agreement below the Company's signature, and return it to us to confirm that this Agreement reflects our agreement regarding the terms, mutual promises and covenants applicable to your employment by Vicinity. 1. EMPLOYMENT BY THE COMPANY     (a)  Position and Duties.  Subject to terms set forth herein, the Company agrees to employ you in the position of Chief Operating Officer and you hereby accept such employment. You shall serve in an executive capacity and shall perform such duties as are customarily associated with the position of Chief Operating Officer and such other duties as are assigned to you by the Executive Chairman of the Board, the Chief Executive Officer and the Board of Directors (the "Board"). You will report to the Executive Chairman (pending appointment of a Chief Executive Officer) and the Board. During the term of your employment with the Company, you will devote your best efforts and substantially all of your business time and attention (except for vacation periods as set forth herein and reasonable periods of illness or other incapacities permitted by the Company's general employment policies) to the business of the Company, provided that you shall be entitled to up to two days every second week during your employment with the Company to attend to business not related to the Company.     (b)  Employment at Will.  Both the Company and you shall have the right to terminate your employment with the Company at any time, with or without Cause (defined below), and without prior notice. Without limiting the generality of the immediately preceding sentence, you expressly acknowledge that your employment is being commenced at a time that the Company has an immediate short-term need and that your tenure may be relatively short in tenure. If your employment with the Company is terminated by the Company without Cause, you will be eligible to receive the severance benefits to the extent provided in Section 3 of this Agreement. For the purposes of this Agreement, "Cause" means:     (i) your intentional action or failure to act that was performed in bad faith and to the material detriment of the business of the Company;     (ii) your intentional refusal or failure to act in accordance with any lawful and proper direction or order of the Executive Chairman of the Board, Chief Executive Officer or the Board;     (iii) your willful and habitual neglect of your duties of employment;     (iv) your violation of any noncompetition or noninterference agreement that you enter into with the Company; or --------------------------------------------------------------------------------     (v) your conviction of a felony crime involving moral turpitude; provided, however, that if any of the foregoing events under clauses (i), (ii), (iii) or (iv) above is capable of being cured, the Company shall provide written notice to you describing the nature of such event and you shall thereafter have five business days to cure such event.     (c)  Employment Policies.  The employment relationship between the parties shall also be governed by the general employment policies and practices of the Company, including those relating to protection of confidential information and assignment of inventions, except that when the terms of this Agreement differ from, or are in conflict with, the Company's general employment policies or practices, this Agreement shall control. 2. COMPENSATION     (a)  Base Salary.  You shall receive for services to be rendered hereunder a monthly base salary of $18,750, subject to applicable tax withholding and payable on the regular payroll dates of the Company.     (b)  Bonus.  During the period of your employment with the Company and subject to the Company's achievement of performance objectives, you shall receive a quarterly bonus in an amount equal to 50% of the base salary paid to you during such quarter. These performance objectives shall be agreed upon by you and the Executive Chairman of the Board and reduced to writing at a later date. The determination of whether such performance objectives have been achieved shall be made by the Board in good faith. Any such bonus paid to you by the Company shall be subject to applicable tax withholding.     (c)  Standard Company Benefits.  You shall be entitled to all rights and benefits for which you are eligible under the terms and conditions of the standard Company benefits and compensation practices that may be in effect from time to time and are provided by the Company to its executive employees generally. The Company shall reimburse you for your reasonable travel expenses incurred in connection with your employment by the Company, including appropriate lodging while you are in Northern California.     (d)  Stock Options.  The Company, subject to approval of the Board or its compensation committee, will grant to you non-qualified stock options to purchase an aggregate of 100,000 shares of the Company's common stock, par value $.001 per share (the "Common Stock"), in accordance with the Company's 2000 Equity Participation Plan. The exercise price of the options shall be the fair market value of the Common Stock on the date approved by the Board or the compensation committee, as the case may be, and the options shall vest over twelve months beginning on your first day of employment with the company with the first twenty-five percent (25%) of the shares vesting on the three-month anniversary of your hire date and 8.333% of the shares vesting on each of the next nine monthly anniversary dates. Once vested, these options shall be exercisable for a period of five years from the date of grant, regardless of whether your employment with the Company is earlier terminated. In the event that your employment with the Company is terminated for any reason, all unvested options shall be cancelled. Once vested, these options shall be exercisable for a period of five years from the date of grant, regardless of whether your employment with the Company is earlier terminated. In the event that your employment with the Company is terminated for any reason, all unvested options shall be cancelled. 3. SEVERANCE BENEFITS; RELEASE     (a)  Severance Benefits.  If your employment with the Company is terminated by the Company other than for Cause, (i) you shall receive (a) any monthly base salary that has 2 -------------------------------------------------------------------------------- accrued but is unpaid as of the date of such termination, (b) any bonus to which you are entitled to receive pursuant to Section 2(b) in connection with the Company's prior achievement of performance objectives, and (c) any business expenses incurred in accordance with Company policy and accrued but unreimbursed at the time of termination, and (ii) the Company shall continue to pay your monthly base salary of $18,750 for a period of one month after the date of termination of your employment. In the event that (x) you terminate your employment with the Company or (y) your employment with the Company is terminated by the Company for Cause, or in the event of your death or permanent incapacity, you or your estate shall receive (a) any monthly base salary that has accrued but is unpaid as of the date of such termination and (b) any bonus to which you are entitled to receive pursuant to Section 2(b) in connection with the Company's prior achievement of performance objectives.     (b)  Release.  Upon the termination of your employment by the Company other than for Cause, and prior to the receipt of any benefits under Section 3(a) (except pursuant to clause (i) of the first sentence thereof), you shall execute a Release (the "Release") in the form attached hereto as Exhibit A. Such Release shall specifically relate to all of your rights and claims in existence at the time of such execution. It is understood that you have a certain period to consider whether to execute such Release, and you may revoke such Release within seven (7) business days after execution. In the event you do not execute such Release within the applicable period, or if you revoke such Release within the subsequent seven (7) business day period, none of the aforesaid benefits shall be payable under this Agreement.     (c)  Mitigation.  You shall not be required to mitigate damages or the amount of any payment provided under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by you as a result of employment by another employer or by any retirement benefits received by you after the date of termination of your employment with the Company.     (d)  Exclusive Severence Benefits.  This Section 3 shall constitute the sole benefits payable to you upon termination of employment, notwithstanding any contrary Company policy, oral statement, written statement or other communication. 4. GENERAL PROVISIONS     (a)  Waiver.  If either party should waive any breach of any provisions of this Agreement, it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.     (b)  Complete Agreement.  This Agreement and Exhibit A constitute the entire agreement between you and the Company and are the complete, final, and exclusive embodiment of their agreement with regard to this subject matter. They are entered into without reliance on any promise or representation other than those expressly contained herein or therein, and they cannot be modified or amended except in a writing signed by both parties.     (c)  Counterparts.  This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement.     (d)  Successors and Assigns.  This Agreement is intended to bind and inure to the benefit of and be enforceable by you and the Company, and their respective successors, assigns, heirs, executors and administrators, except that you may not assign any of your duties hereunder and you may not assign any of your rights hereunder, without the written consent of the Company, which shall not be withheld unreasonably. 3 --------------------------------------------------------------------------------     (e)  Arbitration.  Unless otherwise prohibited by law or specified below, all disputes, claims and causes of action, in law or equity, arising from or relating to this Agreement or its enforcement, performance, breach, or interpretation shall be resolved solely and exclusively by final and binding arbitration held in San Francisco County, California through Judicial Arbitration & Mediation Services/Endispute ("JAMS") under the then existing JAMS arbitration rules. However, nothing in this section is intended to prevent either patty from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Each party in any such arbitration shall be responsible for its own attorneys' fees, costs and necessary disbursement; provided, however, that if one party refuses to arbitrate and the other party seeks to comply arbitration by court order, if such other party prevails, it shall be entitled to recover reasonable attorneys' fees, costs and necessary disbursements. Pursuant to California Civil Code Section 1717, each party warrants that it was represented by counsel in the negotiation and execution of this Agreement, including the attorneys' fees provision herein.     (f)  Attorneys' Fees.  If either party hereto brings any action to enforce rights hereunder, each party in any such action shall be responsible for its own attorneys' fees and costs incurred in connection with such action.     (g)  Choice of Law.  All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of California.     Please indicate your acceptance of the terms of this Agreement by execution below.     Very truly yours,     VICINITY CORPORATION a Delaware corporation     By:   /s/ NORMAN NIE    -------------------------------------------------------------------------------- Norman Nie Chairman of the Board of Directors Accepted and agreed to effective as of April 24, 2001:         EXECUTIVE         /s/ TIM MCMULLEN    -------------------------------------------------------------------------------- Tim McMullen         4 -------------------------------------------------------------------------------- Exhibit A RELEASE (INDIVIDUAL TERMINATION)     Certain capitalized terms used in this Release are defined in the Executive Employment Agreement (the "Agreement") which I have executed and of which this Release is a part.     I hereby confirm my obligations under any proprietary information and inventions or similar agreement of the Company.     I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: "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."     I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company.     Except as otherwise set forth in this Release, in consideration of benefits I will receive under the Agreement, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys' fees, damages, indemnities and obligations of every kind and nature in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the date I execute this Release, including but not limited to all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation, claims pursuant to any federal, state or local law or cause, of action, including but not limited to the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal Employee Retirement Income Security Act of 1974, as amended, the federal Americans with Disabilities Act of 1990, the California Fair Employment and Housing Act, as amended, tort law, contract law, statutory law, common law, wrongful discharge, discrimination fraud, defamation, emotional distress, and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company's indemnification obligation pursuant to agreement or applicable law.     I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under ADEA. I also acknowledge that the consideration given under the Agreement for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (A) my waiver and release do not apply to any rights or claims that may arise on or after the date I execute this Release; (B) I have the right to consult with an attorney prior to executing this Release; (C) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily execute this Release earlier); (D) I have seven (7) days following the execution of this Release by the patties to A–1 -------------------------------------------------------------------------------- revoke the Release; and (E) this Release shall not be effective until the date upon which the revocation period has expired, which shall be the eighth (8th) day after this Release is executed by me. -------------------------------------------------------------------------------- Tim McMullen -------------------------------------------------------------------------------- Date: A–2 -------------------------------------------------------------------------------- QuickLinks Exhibit 10.7 1. EMPLOYMENT BY THE COMPANY 2. COMPENSATION 3. SEVERANCE BENEFITS; RELEASE 4. GENERAL PROVISIONS Exhibit A RELEASE (INDIVIDUAL TERMINATION)

RESTRICTED UNIT AWARD AGREEMENT UNDER THE AMENDED AND RESTATED ALLIANCE PARTNERS COMPENSATION PLAN           You have been granted restricted Units under the Amended and Restated Alliance Partners Compensation Plan (the “Plan”), as specified below, in connection with your 2000 award under the Plan:           Participant (“you”): Robert Joseph           Amount of Award (to be           converted to Restricted Units):   $500,000.00           Date of Grant:    December 31, 2000           Vesting Commencement Date:    January 31, 2001           In connection with your grant of restricted Units, you, Alliance Capital Management Holding L.P. and Alliance Capital Management L.P. (“Alliance”) agree as set forth in this agreement (the “Agreement”).  The Plan provides a description of the terms and conditions governing restricted Units.  If there is any inconsistency between the terms of this Agreement and the terms of the Plan, the Plan’s terms completely supersede and replace the conflicting terms of this Agreement.  All capitalized terms have the meanings given them in the Plan, unless specifically stated otherwise in the Agreement.  The restricted Units granted under this Agreement are referred to in the Agreement as the “Restricted Units.”           1.       Restrictions.  Until restrictions lapse as described in Paragraph 2, you may not sell, transfer, pledge or otherwise assign or dispose of any Restricted Units.           2.       Vesting of Restricted Units. (a) Except as provided in Paragraph 2(b) below, restrictions will lapse with respect to the Restricted Units in equal annual installments during the applicable Vesting Period (as defined below), with restrictions as to the first such installment lapsing on the first anniversary of the Vesting Commencement Date set forth above, and restrictions as to the remaining installments lapsing on the subsequent anniversaries of the Vesting Commencement Date, provided in each case that you are employed by a Company on such anniversary.  The Vesting Period is as set forth in the following table, based on your age as of December 31, 2000:     Your Age As of December 31, 2000 -------------------------------------------------------------------------------- Vesting Period --------------------------------------------------------------------------------     Up to and including 47 8 years 48 7 years 49 6 years 50-57 5 years 58 4 years 59 3 years 60 2 years 61 1 year 62 or older Fully vested at grant             (b)  If your employment with the Companies terminates due to death or Disability, restrictions on any remaining Restricted Units that you hold as of the date of your termination shall immediately lapse.           3.       Forfeitures.   If your employment with the Companies terminates for reasons other than death or Disability, you will immediately forfeit all of your rights and interests in any Restricted Units as to which restrictions have not previously lapsed, unless the Committee determines, in its sole discretion, to accelerate the vesting of those Restricted Units.           4.       Unit Certificates.  Your Restricted Units will be held for you by Alliance.  After your Restricted Units have vested, a certificate for those Units will be released to you.           5.       Distributions.  Any distributions paid by Alliance Capital Management Holding L. P. in connection with Restricted Units (whether or not vested) will be paid directly to you.           6.       Section 83(b) Election.  You agree not to make an election under section 83(b) of the Code with respect to your Restricted Units unless, before you file the election with the Internal Revenue Service, you (i) notify the Committee of your intention to file the election, (ii) furnish the Committee with a copy of the election to be filed and (iii) pay (or make satisfactory arrangements for paying) the necessary tax withholding amount to Alliance in accordance with Section 8.           7.       Tax Withholding.  If the Committee determines that any federal, state or local tax or any other charge is required by law to be withheld with respect to the Restricted Units, the vesting of Restricted Units, or an election under Section 83(b) of the Code (a “Withholding Amount”) then, in the discretion of the Committee, either (a) prior to or contemporaneously with the delivery to you of Restricted Units, you agree to pay the Withholding Amount to Alliance in cash or in vested Units that you already own (which are not subject to a pledge or other security interest), or a combination of cash and such Units, having a total fair market value equal to the Withholding Amount; (b) Alliance Capital Management Holding L.P. will retain from any vested Restricted Units to be delivered to you that number of Units having a fair market value, as determined by the Committee, equal to the necessary Withholding Amount; or (c) if Restricted Units are delivered without the payment of the Withholding Amount under either clause (a) or (b) above, you agree promptly to pay the Withholding Amount to Alliance on at least seven business days notice from the Committee either in cash or in vested Units  that you already own (which are not subject to a pledge or other security interest), or a combination of cash and such Units, having a total fair market value equal to the Withholding Amount.  You agree that if you do not pay the Withholding Amount to Alliance or make satisfactory payment arrangements as described above, Alliance may withhold any unpaid portion of the Withholding Amount from any amount otherwise due to you.           8.       Adjustments in Authorized Units.  In the event of a partnership restructuring, extraordinary distribution or similar event, the Committee has the sole discretion to adjust the number of Restricted Units in accordance with the Plan.           9.       Administration.  It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon you.  The Committee is under no obligation to treat you or your award consistently with the treatment provided for other participants in the Plan.           10.     Miscellaneous.                     (a)      This Agreement does not confer upon you any right to continuation of employment by a Company, nor does this Agreement interfere in any way with a Company’s right to terminate your employment at any time.                     (b)      This Agreement will be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.                     (c)      This Agreement will be governed by, and construed in accordance with, the laws of the state of New York (without regard to conflict of law provisions).                     (d)      This Agreement and the Plan constitute the entire understanding between you and the Companies regarding this award.  Any prior agreements, commitments or negotiations concerning this award are superseded.  This Agreement may be amended only by another written agreement, signed by both parties.           BY SIGNING BELOW, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.           IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed effective as of December 31, 2000.   Alliance Capital Management L.P.   By: Alliance Capital Management Corporation, General Partner       Participant       /s/ Robert Joseph --------------------------------------------------------------------------------   Robert Joseph      

Exhibit 10.49   RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO:   Mid-Peninsula Bank c/o Greater Bay Bancorp Attention:  Loan Servicing 2860 West Bayshore Road Palo Alto, California 94303     SPACE ABOVE THIS LINE FOR RECORDER’S USE     FRESH CHOICE, INC., a Delaware corporation, as Trustor,   to   GREATER BAY BANCORP, a California corporation, as Trustee,   for the benefit of   MID-PENINSULA BANK, a California banking corporation, as Beneficiary     COMMERCIAL DEED OF TRUST, FINANCING STATEMENT, SECURITY AGREEMENT AND FIXTURE FILING (WITH ASSIGNMENT OF RENTS AND LEASES)   Dated:  August 13, 2001     This instrument is a Commercial Deed of Trust, Financing Statement, Security Agreement and Fixture Filing (with Assignment of Rents and Leases) of both real and personal property, including fixtures.  This instrument contains provisions accelerating the obligations hereby secured upon certain sales or further encumbrances of the property hereby covered. THIS COMMERCIAL DEED OF TRUST, FINANCING STATEMENT, SECURITY AGREEMENT AND FIXTURE FILING (WITH ASSIGNMENT OF RENTS AND LEASES) (“Deed of Trust”) is made the 13th day of August, 2001, by FRESH CHOICE, INC., a Delaware corporation, whose address is 485 Cochran Circle, Morgan Hill, CA 95037 (“Trustor”), to GREATER BAY BANCORP, a California corporation, whose address is 2860 West Bayshore Road, Palo Alto, California 94303 (“Trustee”), for the benefit of MID-PENINSULA BANK, a California banking corporation, whose address is c/o Greater Bay Bancorp, Attention:  Loan Servicing, 2860 West Bayshore Road, Palo Alto, California 94303 (“Beneficiary”). WITNESSETH: WHEREAS, Trustor has executed and delivered that certain Promissory Note Secured by Deed of Trust of even date herewith payable to the order of Beneficiary in the original maximum principal amount of Two Million Two Hundred Thousand and No/100ths Dollars ($2,200,000.00) having a maturity date of September 2, 2008 (which promissory note, together with any and all extensions, substitutions, modifications, replacements, rearrangements and/or renewals thereof, is hereinafter referred to as the “Note”), with interest thereon at the rate set forth in the Note and said principal amount and interest thereon maturing and being payable in accordance with the terms and conditions provided in the Note; WHEREAS, the total indebtedness and liabilities that are to be secured by this Deed of Trust shall be as follows: (i)            the aggregate principal amount of $2,200,000.00 with interest thereon according to the terms of the Note; (ii)           all other amounts payable by Trustor under the Note or this Deed of Trust (the Note and this Deed of Trust, hereinafter collectively referred to as the “Loan Documents”), in each case as the same may be amended, modified or supplemented from time to time, including all sums, amounts and expenses which Trustee or Beneficiary may, pay or incur under or in connection with any of the Loan Documents; (iii)          the performance of all other obligations and liabilities of Trustor under or in connection with the Loan Documents; and (iv)          any other indebtedness, obligation or agreement of Trustor when evidenced or set forth in a document or instrument reciting that it is secured by this Deed of Trust (all such amounts, obligations and liabilities described in (i) through (iv) being hereinafter collectively referred to as the “Obligations”); and WHEREAS, it has been agreed that the payment and performance of the Obligations shall be secured by a security interest in  certain property as hereinafter described. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to secure the due and punctual payment in full by Trustor, whether at stated maturity, by acceleration or otherwise, and performance of the Obligations, Trustor does hereby irrevocably assign, give, grant, bargain, sell, warrant, convey, mortgage, transfer, grant a security interest in, set over, deliver, confirm and convey unto Trustee, in trust, with power of sale and right of entry as hereinbelow provided, upon the terms and conditions of this Deed of Trust, the following property described in Granting Clauses First through Sixth below (hereinafter sometimes collectively referred to as the "Mortgaged Property"): Granting Clauses All the present and future estate, right, title and interest of Trustor in, to and under, or derived from: Granting Clause First Land All that certain lot, piece or parcel of land owned or hereafter acquired by Trustor located in the  Counties of Collin and Dallas, the State of Texas, as more particularly described in Exhibit A attached hereto, as the description of the same may be amended, modified or supplemented from time to time, and all and singular the reversions or remainders in and to said land and the tenements, hereditaments, transferable entitlements and development rights, easements (in gross and/or appurtenant) existing as of the date hereof or arising thereafter, agreements, rights-of-way or use rights (including alley, drainage, horticultural, mineral, mining, water, oil and gas rights and any other rights to produce or share in the production of anything therefrom or attributable thereto), privileges, royalties and appurtenances to said land, now or hereafter belonging or in anywise appertaining thereto, including any such right, title, interest in, to or under any agreement or right granting, conveying or creating, for the benefit of said land, any easement, right or license in any way affecting said land and/or other land and in, to or under any streets, ways, alleys, vaults, gores or strips of land adjoining said land or any parcel thereof, or in or to the air space over said land, all rights of ingress and egress with respect to said land, and all claims or demands of Trustor, either at law or in equity, in possession or expectancy, of, in or to the same (all of the foregoing hereinafter collectively referred to as the “Land”). Granting Clause Second Improvements All buildings, structures, facilities and other improvements now or hereafter located on the Land, and all building material, and fixtures of every kind and nature now or hereafter located on the Land or attached to, contained in or used in connection with any such buildings, structures, facilities or other improvements, and all appurtenances and additions thereto and betterments, renewals, substitutions and replacements thereof, owned by Trustor or in which Trustor has or shall acquire an interest (all of the foregoing hereinafter collectively referred to as the “Improvements”). Granting Clause Third Certain Equipment To the extent that the same are not Improvements, all machinery, apparatus, goods, inventory, equipment, materials, building materials, fittings, chattels and tangible personal property, and all appurtenances and additions thereto and betterments, renewals, substitutions and replacements thereof owned by Trustor or in which Trustor has or shall acquire an interest, and now or hereafter located on, attached to, contained in or used in connection with the properties referred to in Granting Clause First, Second, Fifth or Sixth, or placed on any part thereof, though not attached thereto (all of the foregoing hereinafter collectively referred to as the “Equipment”), including without limitation all screens, awnings, shades, blinds, curtains, draperies, carpets, rugs, furniture and furnishings, heating, lighting, air conditioning, refrigerating, incinerating and/or compacting plants, systems and equipment, hoists, stoves, ranges, vacuum and other cleaning systems, call systems, sprinkler systems and other fire prevention and extinguishing apparatus and materials, motors, machinery, pipes, ducts, conduits, dynamos, engines, compressors, generators, boilers, stokers, furnaces, pumps, tanks, appliances, equipment and fittings (the Land, the Improvements and the Equipment hereinafter collectively referred to as the “Premises”); all contract rights of Trustor in construction contracts, plans and specifications and architects agreements arising out of the improvement of the Premises, all permits, licenses, franchises, certificates and other rights and privileges obtained in connection with the Premises; and all proceeds, substitutions and replacements of all of the foregoing.  Trustor hereby grants to Trustee and Beneficiary, a security interest in and to all of Trustor’s present and future “equipment” (as defined in the Uniform Commercial Code of the State of Texas), to the extent that such equipment that may be now owned or hereafter acquired by Trustor and located on the Premises, and Trustee and Beneficiary shall have, in addition to all rights and remedies provided herein and in the Loan Documents, all of the rights and remedies of a “secured party” under said Uniform Commercial Code.  This Deed of Trust constitutes and shall be deemed to be a “security agreement” for all purposes of said Uniform Commercial Code.  It is agreed that all Equipment is part and parcel of the Land and the Improvements and appropriated to the use thereof and, whether affixed to the Land and/or the Improvements or not, shall, for purposes of this Deed of Trust be deemed conclusively to be real estate and mortgaged or otherwise conveyed or encumbered hereby. Notwithstanding any other provision of this Deed of Trust, the security interests of Trustee and/or Beneficiary shall not extend to, and the terms "Equipment," "Premises," "Improvements,"and "Mortgaged Property" shall not include any of the following: (a) Trustor's interests in any property that is the subject of a lease or lending agreement related to the financing of such property; or (b) Trustor's  interests in any dishwashing equipment, point-of-sale equipment or similar equipment and machinery. Granting Clause Fourth Leasehold and Other Contractual Interests All the leases, subleases, lettings and licenses of and all other contracts, bonds and agreements affecting the Premises and/or any other property or rights conveyed or encumbered hereby, or any part thereof, now or hereafter entered into, and all amendments, modifications, supplements, additions, extensions and renewals thereof (all of the foregoing hereinafter collectively called the “Leases” regardless of how the same may otherwise be denominated), and all right, title and interest of Trustor thereunder, including cash and securities deposited thereunder and any rights of first refusal with respect thereto (as down payments, security deposits, or otherwise), the right to receive and collect the rents, security deposits, income, proceeds, earnings, royalties, revenues, issues and profits payable thereunder, including cash and securities deposited thereunder and any rights of first refusal with respect thereto (as down payments, security deposits, or otherwise), the right to receive and collect the rents, security deposits, income, proceeds, earnings, royalties, revenues, issues and profits payable thereunder including all revenues, moneys, funds, accounts receivables, operating revenues, accounts and any other item or thing relating to the payment of or right to receive such revenues, moneys, funds, accounts receivables, operating revenues, accounts or other items or things arising out of or generated in connection with the operation, use, occupancy, concession, license, renting, leasing, letting or providing of the Premises, or any part thereof (including, without limitation, termination payments, damages or other payments in lieu thereof), and the right to enforce, whether at law or in equity or by any other means, all provisions and options thereof or thereunder (all of the foregoing hereinafter collectively called the “Rents” regardless of how the same may be otherwise denominated), and the right to apply the same to the payment and performance of the Obligations. Granting Clause Fifth Other and After Acquired Property Any and all undisbursed loan funds, any loan funds or other moneys held in escrow or other accounts at the request or as a requirement of Beneficiary, any and all other property, which may from time to time be subjected to the lien hereof by Trustor through a supplement or amendment to this Deed of Trust, or by anyone on its behalf or with its consent, or which may come into the possession of or be subject to the control of Trustee or Beneficiary pursuant to this Deed of Trust, it being the intention and agreement of Trustor that all such property shall thereupon be subject to the lien and security interest of this Deed of Trust as if such property were now owned by Trustor and conveyed or encumbered hereby or pursuant hereto, and as if such property were specifically described in this Deed of Trust and conveyed or encumbered hereby or pursuant hereto, and Trustee and Beneficiary are hereby authorized to receive any and all such property as security hereunder, subject to the provisions of this Deed of Trust. Granting Clause Sixth Proceeds and Awards All unearned premiums, accrued, accruing or to accrue under insurance policies now or hereafter obtained by Trustor with respect to the property described in these Granting Clauses, all proceeds (including funds, accounts, deposits, instruments, general intangibles, notes or chattel paper) of the conversion, voluntary or involuntary, of any of the property described in these Granting Clauses into cash or other liquidated claims, including proceeds of hazard, title and other insurance and proceeds received pursuant to any sales or rental agreements of Trustor in respect of the property described in these Granting Clauses, and all judgments, damages, awards, settlements and compensation (including interest thereon) heretofore or hereafter made to the present and all subsequent owners of the Premises and/or any other property or rights conveyed or encumbered hereby for any injury to or decrease in the value thereof for any reason, or by any governmental or other lawful authority for the taking by eminent domain, condemnation or otherwise of all or any part thereof, including awards for any change of grade of . TO HAVE AND TO HOLD, all and singular the Mortgaged Property, whether now owned or leased or hereafter acquired and whether now or hereafter existing, together with all rights, privileges and appurtenances thereunto belonging, unto Trustee and Beneficiary, forever, for the uses and purposes herein set forth, subject however to the provisions of Article 7 hereof. AND Trustor covenants with and represents and warrants to and agrees with Trustee and Beneficiary as follows: ARTICLE 1 REPRESENTATIONS AND WARRANTIES OF TRUSTOR Trustor hereby represents and warrants, in respect of itself and the Mortgaged Property set forth in the Granting Clauses, as follows: 1.1           Warranty of Title.  (i) Trustor has and will continue to have good, marketable and insurable fee simple title to the Land and Improvements free and clear of all liens, charges and encumbrances of every kind and character, subject only to such exceptions as may be approved in writing by Beneficiary (“Permitted Exceptions”) and any of the following liens, charges and encumbrances arising after the date of recordation of this Deed of Trust and, with the sole exception of taxes, assessments and governmental charges in the nature of taxes, junior and subordinate hereto:  (a) any lien for taxes, assessments or other governmental charges which are not delinquent or which are being contested in good faith by appropriate proceedings pursuant to Section 2.7.6 hereof, (b) any mechanic’s or other involuntary lien which is being contested in good faith by appropriate proceedings pursuant to the provisions of Section 2.6.1 hereof (collectively “Future Permitted Exceptions”), and (c) any Leases, licenses or other occupancy agreements relating to a portion of the Land and/or the Improvements either approved by Beneficiary or not requiring the approval of Beneficiary in accordance with the express terms hereof; (ii) Trustor has and will continue to havefull power and lawful authority to encumber and convey the Premises as provided herein; (iii) Trustor owns and will own all Land and Improvements free and clear of all liens, charges and encumbrances of every kind and character, subject only to the Permitted Exceptions, Future Permitted Exceptions and the exceptions described in Section 1.1(i)(c) above; (iv) this Deed of Trust is and will continue to remain a valid and enforceable first mortgage lien on and security interest in, the Land and Improvements subject to Permitted Exceptions, Future Permitted Exceptions and the exceptions described in Section 1.1(i)(c) above; and (v) Trustor hereby warrants and will forever warrant and defend such title and the validity, enforceability and priority of the lien and security interest hereof against the claims of all persons and parties whomsoever other than thosoever other than those relating to Permitted Exceptions, Future Permitted Exceptions and the exceptions described in Section 1.1(i)(c ) above.  Trustor’s obligations under this Section 1.1 shall terminate only upon full payment in lawful currency of the United States of America of all of the Obligations. 1.2           Operation of the Premises.  (i) Trustor has or will have at the appropriate times, and will maintain all necessary certificates, licenses, authorizations, registrations, permits and/or approvals reasonably necessary for the operation of all or any part of the Premises, whether now or hereafter constructed upon the Land, and the conduct of Trustor’s business at the Premises, including, where appropriate, one or more Permanent Certificates of Occupancy and Board of Fire Underwriters Certificates for those portions of the Improvements which have been completed as of the date hereof, if any, and all required zoning ordinance, building code, subdivision, land use, environmental and other similar permits or approvals, all of which, to Trustor’s knowledge, are as of the date hereof in full force and effect and not subject to any revocation, amendment, release, suspension or forfeiture, (ii) promptly upon request by Trustee and/or Beneficiary, Trustor shall deliver to Trustee and Beneficiary copies of all of the same, (iii) the Premises and the present use and/or occupancy of the Premises comply with, and, at all times in the future, shall comply with any of the applicable zoning ordinances, building codes, subdivision laws, certificates of occupancy, environmental laws and other similar applicable laws and regulations, and (iv) Trustor has direct access adequate for all present and intended uses of the Premises from public roads to the Land and the Improvements.  Trustor’s obligations under this Section 1.2 to maintain all necessary certificates, licenses, authorizations, registrations, permits and/or approvals necessary for the operation of all or any part of the Premises, and all required zoning ordinance, building code, subdivision, land use, environmental and other similar permits or approvals shall not be deemed to require Trustor to comply with future or purely prospective zoning ordinance or building codes except to the extent that such ordinances or codes, by their terms, require compliance by Trustor in order to maintain normal and customary operation of the Premises. 1.3           Status of the Premises.  (i) In the event that the Premises are ever deemed to be located in an area identified by the Secretary of Housing and Urban Development or a successor thereto, or other appropriate authority (governmental or private), as an area having special flood hazards pursuant to the terms of the National Flood Insurance Act of 1968, or the Flood Disaster Protection Act of 1973, as amended, or any successor law, Trustor will obtain and maintain the insurance for the Premises as specified in Section 2.3.1(c) hereof; (ii) the Premises are or at the appropriate times will be served by all utilities reasonably required for the use thereof as a restaurant; (iii) all streets necessary to serve the Land and the Improvements for the use thereof as herein contemplated have been or will be timely completed and are or will be timely serviceable and have been or will be timely dedicated and accepted for maintenance by the appropriate governmental entities; and (iv) the Premises are free from damage caused by fire or other casualty. ARTICLE 2 COVENANTS OF TRUSTOR Trustor covenants and agrees, in respect of itself and the Premises set forth in the Granting Clauses relating to it, as follows: 2.1           General Covenants. 2.1.1        Payment of Obligations.  Trustor shall punctually pay when due and perform the Obligations. 2.1.2        Further Assurances.  Trustor will, at Trustor’s sole cost and expense and at the reasonable request of Trustee or Beneficiary, (i) promptly correct any defect or error which may be discovered in the contents of the Loan Documents which Trustor is a party to or in the execution, acknowledgment or recordation thereof, (ii) promptly do, execute, acknowledge and deliver, any and all such further acts, deeds, conveyances, mortgages, deeds of trust, trust deeds, assignments, estoppel certificates, financing statements and continuations thereof, notices of assignment and of security interest, transfers, certificates, assurances and other instruments as Trustee and/or Beneficiary may reasonably require from time to time in order to carry out more effectively the purposes of this Deed of Trust, to subject to the lien and security interest hereby created any of Trustor’s properties, rights or interests covered or now or hereafter intended to be covered hereby, to perfect and maintain said lien and security interest, and to better assure, convey, grant, assign, transfer and confirm unto Trustee and/or Beneficiary the rights granted or now or hereafter intended to be granted to Trustee and/or Beneficiary hereunder or under any other instrument executed in connection with this Deed of Trust or which Trustor may be or become bound to convey, mortgage or assign to Trustee and/or Beneficiary in order to carry out the intention or facilitate the performance of the provisions of this Deed of Trust; provided however, that nothing contained in this Section 2.1.2 shall be construed to permit Beneficiary to unilaterally require a substantive change in the substantive terms and conditions of the Loan Documents. 2.1.3        Recordation and Re-Recordation of Deed of Trust.  Trustor will, at the reasonable request of Trustee or Beneficiary, promptly record and re-record, file and refile and register and re-register this Deed of Trust, any financing or continuation statements and every other instrument in addition or supplemental to any thereof that shall be required by any present or future law in order to perfect and maintain the validity, effectiveness and priority of this Deed of Trust and the lien and security interest intended to be created hereby, or to subject after acquired property of Trustor to such lien and security interest, in such manner and places and within such times as may be reasonably necessary to accomplish such purposes and to preserve and protect the rights and remedies of Trustee and Beneficiary.  Trustor will furnish to Trustee and Beneficiary evidence reasonably satisfactory to Trustee and Beneficiary of every such recording, filing or registration.  Trustee or Beneficiary may file copies or reproductions of this instrument as financing statements at any time and from time to time at Trustee’s or Beneficiary’s option without further authorization from Trustor. 2.1.4        Defense of Title and Litigation.  If the lien, security interest, validity, enforceability or priority of this Deed of Trust, or if title or any of the rights of Trustee and/or Beneficiary in or to the Mortgaged Property, shall be endangered, or shall be attacked directly or indirectly, or if any action or proceeding is instituted against Trustor or Trustee and/or Beneficiary with respect thereto, Trustor will promptly notify Trustee and Beneficiary thereof and will diligently endeavor to cure any defect which may be developed or claimed, and will take all necessary and proper steps for the defense of such action or proceeding, including the employment of counsel, the prosecution or defense of litigation and, subject to Beneficiary’s approval, the compromise, release or discharge of any and all adverse claims.  Trustee and/or Beneficiary (whether or not named as a party to such actions or proceedings) are hereby authorized and empowered (but shall not be obligated) to take such additional steps as they may deem necessary or proper for the defense of any such action or proceeding or the protection of the lien, security interest, validity, enforceability or priority of this Deed of Trust or of such title or rights, including the employment of counsel, the prosecution or defense of litigation, the compromise, release or discharge of such adverse claims, the purchase of any tax title and the removal of such prior liens and security interests.  Trustor shall, on demand, reimburse Trustee and Beneficiary for all reasonable expenses (including reasonable attorneys’ fees and disbursements) incurred by either of them in connection with the foregoing matters, and the party incurring such expenses shall be subrogated to all rights of the person receiving such payment.  All such costs and expenses of Trustee and/or Beneficiary, until reimbursed by Trustor, shall be part of the Obligations and shall bear interest from the date of advance at the Default Rate (as defined in the Note) and shall be deemed to be secured by this Deed of Trust. 2.2           Operation and Maintenance. 2.2.1        Repair and Maintenance.  Trustor will operate and maintain the Premises in good order, repair and operating condition, will promptly make all necessary repairs, renewals, replacements, additions and improvements thereto, interior and exterior, structural and nonstructural, foreseen and unforeseen, or otherwise necessary to insure that the same as part of the security under this Deed of Trust shall not in any way be materially impaired or materially diminished, and will not cause or allow any of the Land, the Improvements and/or the Equipment to be misused or wasted or to deteriorate, reasonable wear and tear excepted.  No material part of the Improvements shall be removed, demolished or structurally altered, nor shall any new building, structure, facility or other material improvement be constructed on the Land without Beneficiary’s consent which shall not be unreasonably withheld, conditioned or delayed. 2.2.2        Replacement of Equipment.  Trustor will keep the Land and the Improvements reasonably equipped in accordance with reasonable custom and practice for businesses such as Trustor's and will replace all worn out or obsolete Equipment with fixtures or personal property comparable theretoto the extent such replacement is consistent with reasonable custom and practice for businesses such as Trustor's, and will not, without Beneficiary’s consent, remove from the Land or the Improvements any fixtures or personalty covered by this Deed of Trust except: (a) in the ordinary course of Trustor’s business; and (b) where such removal could not reasonably be expected to have a material adverse effect on the value of Beneficiary's security interest in the Premises; or (c) such removal is consistent with reasonable custom and practice for businesses such as Trustor's,unless the same is replaced by Trustor with an article of equal suitability and value when replaced, owned by Trustor free and clear of any lien or security interest (other than Permitted Exceptions, Future Permitted Exceptions and the lien created by this Deed of Trust). 2.2.3        Compliance With Laws.  Trustor will perform and comply promptly with, and cause the Premises to be maintained, used and operated in accordance with, any and all (i) present and future laws, ordinances, rules, regulations, reports and requirements of every duly constituted governmental or quasi-governmental authority or agency applicable to Trustor or the Premises, including, without limitation, any subdivision agreement, improvements agreement or development agreement relating to the Premises, all laws and regulations under the Subdivision Map Act and the Subdivided Lands Act, all applicable federal, state and local laws pertaining to air and water quality, hazardous waste, waste disposal, air emissions and other environmental matters, all zoning and other land use matters, and utility availability and the rules, regulations and ordinances of all state and municipal governments whose rules, regulations and ordinances are applicable to the Premises, the United States Environmental Protection Agency and all applicable federal, state and local agencies and bureaus, (ii) similarly applicable orders, rules and regulations of any regulatory, licensing, accrediting, insurance underwriting or rating organization or other body exercising similar functions, (iii) similarly applicable duties or obligations of any kind imposed under any Permitted Exception or Future Permitted Exception or otherwise by law, covenant, condition, agreement or easement, public or private, and (iv) policies of insurance at any time in force with respect to the Premises; provided, however, Trustor shall have the right in good faith, and upon advance written notice thereof to Beneficiary, to contest or object to any such law, requirement or obligation by appropriate administrative or judicial proceedings.  In the event that failure to comply will result in a lien or charge on the Premises that is not a Permitted Exception or a Permitted Future Exception, Trustor shall provide Beneficiary with assurances satisfactory to Beneficiary that such lien or charge will be satisfied prior to the foreclosure thereof.  If there is an adverse conclusion with respect to any such contest represented by a final judgment, decree or determination which may not be or is otherwise not appealed by Trustor, Trustor shall thereafter comply with any such law, requirement or obligation.  If Trustor receives any notice that Trustor or the Premises is in default under or is not in compliance with any of the foregoing, or notice of any proceeding initiated under or with respect to any of the foregoing, Trustor will promptly furnish a copy of such notice to Beneficiary. 2.2.4        Zoning, Title Matters.  Trustor will not, without the consent of Beneficiary, (i) initiate or support any zoning reclassification of the Land or the Improvements, seek any variance under existing zoning ordinances applicable to the Land or the Improvements or use or permit the use of the Premises in a manner which would result in such use becoming a non–conforming use under applicable zoning ordinances, (ii) modify, amend or supplement any of the Permitted Exceptions, (iii) impose any restrictive covenants or encumbrances upon the Premises, execute or file any subdivision or parcel map affecting the Land or the Improvements or consent to the annexation of the Land or the Improvements to any municipality or (iv) permit or suffer the Premises to be used by the public or any person in such manner as might make possible a claim of adverse usage or possession or of any implied dedication or easement. 2.2.5        Leasing.  Trustor shall not execute or enter into any Lease of the Mortgaged Property or any portion thereof or any interest therein without the advance written consent of Beneficiary as to the form and substance thereof and the acceptability of the tenant, which consent may be withheld in Beneficiary's sole discretion.  Trustor shall on demand execute such further assignments to Beneficiary of all such Leases and rents, issues, profits or moneys to be generated thereby as Beneficiary may require and deliver to Beneficiary a fully executed original of any or all such Leases.  All Leases shall contain a non-disturbance and attornment provision acceptable to Beneficiary in its sole discretion. 2.2.6        Management Agreements.  Upon the occurrence and during the continuance of an Event of Default hereunder, Beneficiary shall have the right and option to terminate any management agreement, contract or agents/managers responsible for the property management of the Mortgaged Property if said property management is, in Beneficiary’s reasonable judgment, unsatisfactory in any respect. 2.3           Insurance. 2.3.1        Casualty Insurance.  As a material inducement to Beneficiary to make the loan evidenced bythe Note, Trustor will keep the Premises insured for the benefit of Trustee and Beneficiary as follows notwithstanding any local, state or federal laws which may detrimentally affect Trustor’s ability to obtain or may materially increase the cost of such insurance coverage: (a)           against damage or loss by fire and such other hazards (including lightning, windstorm, hail, explosion, riot, riot attending a strike, civil commotion, vandalism, malicious mischief, aircraft, vehicle and smoke) as are covered by the broadest form of extended coverage endorsement as is available from time to time, in an amount not less than the full insurable value (as defined in Section 2.3.8) of the property insured, with a deductible amount not to exceed an amount satisfactory to Beneficiary; (b)           rent or business interruption or use and occupancy insurance on such basis and in such amounts and with such deductibles as shall be satisfactory to Beneficiary; (c)           against damage or loss by flood if the Premises are located in an area identified by the Secretary of Housing and Urban Development or any successor thereto or other appropriate authority (governmental or private) as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968 or the Flood Disaster Protection Act of 1973, as amended, modified, supplemented or replaced from time to time, on such basis and in such amounts as shall be required by Beneficiary; (d)           against damage or loss from  sprinkler system leakage; (e)           during the period of any alteration, construction, or replacement of the Improvements, or any substantial portion thereof, a standard builder’s risk policy with extended coverage for an amount at least equal to the full insurable value of the Improvements and the Equipment and worker’s compensation, in statutory amounts; and (f)            against damage or loss by earthquake, in an amount and with a deductible, satisfactory to Beneficiary, if such insurance is required by Beneficiary in the exercise of its business judgment in light of the commercial real estate practices existing at the time the insurance is issued and in the County where the Premises are located. 2.3.2        Liability Insurance.  Trustor shall procure and maintain worker’s compensation for Trustor’s employees and comprehensive general liability insurance covering Trustor, Trustee and the Beneficiary against claims for bodily injury or death or property damage occurring in, upon or about or resulting from the Premises, or any street, drive, sidewalk, curb or passageway adjacent thereto, in standard form and with such insurance company or companies and in such amounts as may be acceptable to the Beneficiary, which insurance shall include blanket contractual liability coverage which insures contractual liability under the indemnification set forth in Section 4.3 of this Deed of Trust (but such coverage or the amount thereof shall in no way limit such indemnification). 2.3.3        Other Insurance.  Trustor, at Beneficiary’s request, will procure and maintain such other insurance or such additional amounts of insurance, covering Trustor or the Premises, as is customary for businesses such as Trustor's. 2.3.4        Form of Policy.  All insurance required under this Section shall be paid timely in accordance with the terms thereof and the policies therefor shall contain such provisions, endorsements and expiration dates, as Beneficiary shall from time to time reasonably request, and shall be in such form and amounts, and be issued by such insurance companies doing business in the State of Texas as shall be reasonably approved by Beneficiary.  Without limiting the foregoing, all such policies shall contain a waiver of subrogation endorsement.  All such policies shall provide that the same shall not be canceled, amended or materially altered (including by reduction in the scope or limits of coverage) without at least thirty (30) days’ prior written notice to Beneficiary.  If a policy required under this Section contains a coinsurance or average clause, such policy shall include a Stipulated Value or Agreed Amount endorsement. 2.3.5        Duplicate Originals or Certificates.  Duplicate original policies evidencing the insurance required under this Section and any additional insurance which shall be taken out on the Premises by or on behalf of Trustor shall be deposited with and held by Beneficiary and, in addition, Trustor will deliver to Beneficiary (i) receipts evidencing payment of all premiums thereon and (ii) duplicate original renewal policies or a binder thereof with evidence satisfactory to Beneficiary of payment of all premiums thereon, at least thirty (30) days prior to the expiration of each such policy.  In lieu of the duplicate original policies provided herein to be delivered to Beneficiary, Trustor may deliver an underlayer of any blanket policy, and Trustor may also deliver original certificates from the issuing insurance company or broker, evidencing that such policies are in full force and effect and containing information which, in Beneficiary’s reasonable judgment, is sufficient to allow Beneficiary to determine whether such policies comply with the requirements of this Section.  Beneficiary shall be expressly entitled to rely on any insurance certificate and such certificate shall name Beneficiary as an additional insured or loss payee. 2.3.6        No Separate Insurance.  Trustor shall not carry separate or additional insurance concurrent in form or contributing in the event of loss with that required under this Section unless endorsed in favor of Trustee and the Beneficiary in accordance with the requirements of this Section and otherwise approved by Beneficiary in all respects. 2.3.7        Transfer of Title.  In the event of foreclosure of this Deed of Trust or other transfer of title or assignment of the Premises in extinguishment, in whole or in part, of the Obligations, all right, title and interest of Trustor in and to all policies of insurance required under this Section or otherwise then in force with respect to the Premises and all proceeds payable thereunder and unearned premiums thereon shall immediately vest in the purchaser or other transferee of the Premises, but only to the extent of any deficiency following such sale. 2.3.8        Replacement Cost.  For purposes of this Section, the term “full insurable value” shall mean the actual cost of replacing the property in question, without allowance for depreciation, as determined from time to time (but not more often than once every calendar year) by the insurance company or companies holding such insurance or, upon request by Beneficiary, by appraisal made by an appraiser, engineer, architect or contractor proposed by Trustor and approved by said insurance company or companies and Beneficiary.  The cost of such appraisal shall be paid by Trustor. 2.3.9        Approval Not Warranty.  No approval by Beneficiary of any insurer shall be construed to be a representation, certification or warranty of its solvency and no approval by Beneficiary as to the amount, type and/or form of any insurance shall be construed to be a representation, certification or warranty of its sufficiency. 2.4           Damage and Destruction. 2.4.1        Trustor's Obligations.  In the event of any damage to or loss or destruction of the Premises, Trustor shall (i) promptly notify Beneficiary of such event; (ii) take such steps as shall be necessary to preserve any undamaged portion of the Premises; and (iii) unless otherwise instructed by Beneficiary shall, regardless of whether the insurance proceeds, if any, shall be sufficient for the purpose, promptly (and in any event, prior to the date on which any tenant under any Lease, as defined herein, shall be entitled to cancel or terminate said Lease because of any such damage, loss or destruction) commence and diligently pursue to completion the restoration, replacement and rebuilding of the Premises as nearly as possible to their value, condition and character immediately prior to such damage, loss or destruction and in accordance with plans and specifications approved, and with other provisions for the preservation of the security hereunder established, by Beneficiary, which approval shall not be unreasonably withheld or delayed. 2.4.2        Beneficiary's Rights; Application of Proceeds.  In the event that any portion of the Premises is so damaged, destroyed or lost, and any such damage, destruction or loss is covered, in whole or in part, by insurance described in Section 2.3, then the following provisions shall apply: (a)           If an Event of Default has occurred hereunder and is continuing, (A) Beneficiary may, but shall not be obligated to, make proof of loss if not made promptly by Trustor, and Beneficiary is hereby authorized and empowered by Trustor to settle, adjust or compromise any claims for damage, destruction or loss thereunder unless the proposed amount of proceeds from such claims exceeds the then outstanding amount of the Obligations, and (B) each insurance company concerned is hereby authorized and directed to make payment therefor directly to Beneficiary, to be applied, at Beneficiary’s option, to the Obligations then secured hereby, in such order as Beneficiary may determine in its sole discretion.  Unless otherwise required by law, such application to the Obligations by Beneficiary of such payments shall not, by itself, cure or waive any Event of Default hereunder or notice of default under this Deed of Trust or any other Loan Document or invalidate any act done pursuant to such notice. (b)           If no Event of Default hereunder has occurred and is continuing, and if such proceeds are reasonably expected to be $50,000 or less, Trustor shall be entitled to receive all such proceeds and shall apply such proceeds to the restoration, replacement, and rebuilding of that portion of the Premises so damaged, destroyed or lost to as nearly the same condition, character and value as may have existed prior to such damage, destruction or loss, with such changes or alterations as may be required to conform to applicable law. (c)           (i)            If such proceeds are reasonably expected to exceed $50,000 and if an Event of Default has not occurred hereunder and is not continuing, Beneficiary shall apply all such insurance proceeds to the restoration, replacement and rebuilding of the damaged portion of the Premises, and such restoration, replacement and rebuilding shall be accomplished, upon satisfaction of each and all of the following conditions:  (i) except as provided in (ii) below, Beneficiary shall be satisfied that by the expenditure of such insurance proceeds the Premises will be fully restored within a reasonable period of time to its value immediately preceding the loss or damage, free and clear of all liens and encumbrances, except the lien of this Deed of Trust, the Permitted Exceptions and the Future Permitted Exceptions and such other liens as are specifically approved by Beneficiary in writing under this Deed of Trust; (ii) in the event such proceeds shall be insufficient to restore or rebuild the Premises, Trustor shall deposit promptly with Beneficiary funds which, together with the insurance proceeds, shall be sufficient in Beneficiary’s judgment to restore and rebuild the Premises; (iii) Trustor shall make reasonable efforts to obtain a waiver of the right of subrogation from any insurer under such policies of insurance who, at that time, claims that liability exists as to Trustor or the then owner or the assured under such policies; (iv) the excess of such insurance proceeds above the amount necessary to complete such restoration and compensate Trustor for all other insured losses shall be applied on account of the Obligations (first to interest and other charges due under the Note, then to expenses reimbursable to Beneficiary and then to the principal amount due under the Note in inverse order of maturity); (v) Beneficiary reviews and approves in writing the plans and specifications for the restoration work and Beneficiary receives written evidence satisfactory to Beneficiary that the same have been approved by all governmental authorities having jurisdiction; (vi) Trustor shall have furnished to Beneficiary, for Beneficiary’s approval, a detailed budget and cost breakdown for said restoration work signed by Trustor and describing the nature and type of expenses and amounts thereof estimated by Trustor for said restoration work including, but not limited to, the cost of material and supplies, architect and designer fees, general contractors’ fees, and the anticipated monthly disbursement schedule, and Beneficiary shall have given to Trustor written approval of such budget and cost breakdown (if Trustor determines at any time that its actual expenses differ or will differ from its estimated budget, it will so advise Beneficiary promptly); (vii) Trustor has delivered to Beneficiary evidence satisfactory to Beneficiary that all Leases existing at the time of the loss or damage will remain in full force and effect subject only to abatement of rent in accordance with the terms of the Leases until completion of such repair and restoration, and (viii) in Beneficiary’s reasonable judgment, such restoration work can be completed at least six (6) months prior to the maturity of the Note. (ii)           In the event any of the conditions in Section 2.4.2(c)(i) are not or cannot be satisfied, then such insurance proceeds shall be disposed of as provided in Section 2.4.2(a) above. (iii)          Under no circumstances shall Beneficiary become obligated to take any action to restore the Premises; all proceeds released or applied by the Beneficiary to the restoration of the Premises pursuant to the provisions of this Section shall be released and/or applied on the cost of restoration (including within the term “restoration” any repair, reconstruction or alteration) as such restoration progresses and upon the delivery to Beneficiary of such title insurance endorsements as Beneficiary may reasonably require, in amounts which shall equal ninety percent (90%) of the amounts from time to time certified by an architect approved by Beneficiary to have been incurred in such restoration of any and all of the Premises (i.e., 90% of the total amount expended by the contractor for the project under a contract approved by Beneficiary and billed by the contractor to Trustor) and performed by a contractor reasonably satisfactory to Beneficiary and who shall furnish such corporate surety bond, if any, as may be reasonably required by Beneficiary, in accordance with the plans and specifications therefor approved by Beneficiary and the remaining ten percent (10%) upon completion of such restoration and delivery to Beneficiary of evidence reasonably satisfactory to Beneficiary that no mechanics’ lien exists with respect to the work of such restoration; that the restoration work has been completed and fully paid for in accordance with plans and specifications for said work approved by Beneficiary; and that all Leases existing at the time the loss or damage occurred are in full force and effect with all tenants in possession and paying full rental under the Leases; and that all governmental approvals required for the Premises have been obtained and the same are in form and substance satisfactory to Beneficiary. (iv)          If within a reasonable period of time after the occurrence of any loss or damage to the Premises, Trustor shall not have submitted to Beneficiary and received Beneficiary’s approval of plans and specifications for the repair, restoration or rebuilding of such loss or damage or shall not have obtained approval of such plans and specifications from all governmental authorities whose approval is required, or if, after such plans and specifications are approved by Beneficiary and by all such governmental authorities, Trustor shall fail to commence promptly such repair, restoration or rebuilding, or if thereafter Trustor fails to carry out diligently such repair, restoration or rebuilding or is delinquent in the payment to mechanics, materialmen or others of the costs incurred in connection with such work, or if any other condition of this Section is not satisfied within a reasonable period of time after the occurrence of any such loss or damage, then Beneficiary may, in addition to all other rights herein set forth, at Beneficiary’s option, (A) declare that an Event of Default has occurred and/or dispose of such proceeds as provided in Section 2.4.2(a) above, and/or (B) Beneficiary, or any lawfully appointed receiver of the Premises may at their respective options, perform or cause to be performed such repair, restoration or rebuilding, and may take such other steps as they deem advisable to carry out such repair, restoration or rebuilding, and may enter upon the Premises for any of the foregoing purposes, and Trustor hereby waives, for itself and all others holding under it, any claim against Beneficiary and such receiver (other than a claim based upon the alleged gross negligence or intentional misconduct of Beneficiary or any such receiver) arising out of anything done by them or any of them pursuant to this Section and Beneficiary may in its discretion apply any insurance or condemnation proceeds held by it to reimburse itself and/or such receiver for all amounts expended or incurred by it in connection with the performance of such work, including attorneys’ fees, and any excess costs shall be paid by Trustor to Beneficiary and Trustor’s obligation to pay such excess costs shall be secured by the lien of this Deed of Trust and shall bear interest at the Default Rate set forth in the Note, until paid. (d)           Nothing herein, and no authority given to Trustor to repair, rebuild or restore the Premises or any portion thereof, shall be deemed to constitute Trustor the agent of Beneficiary for any purpose, or to create, either expressly or by implication, any liens or claims or rights on behalf of laborers, mechanics, materialmen or other lien holders which could in any way be superior to the lien or claim of Beneficiary, or which could be construed as creating any third party rights of any kind or nature to the insurance funds.  At reasonable times during the work of restoration, and upon reasonable notice, Beneficiary, either personally or by duly authorized agents, shall have the right to enter upon the Premises for inspection of the work.  Trustor expressly assumes all risk of loss, including a decrease in the use, enjoyment or value, of the Premises from any casualty whatsoever, whether or not insurable or insured against. 2.4.3        Effect of the Indebtedness.  Any reduction in the Obligations resulting from the application to the Obligations of insurance proceeds pursuant to this Section 2.4 shall be deemed to take effect only on the date of receipt by Beneficiary of such proceeds and the application of such proceeds to the Obligations; provided that if prior to the receipt by Beneficiary of such proceeds, the Mortgaged Property shall have been sold on foreclosure of this Deed of Trust, or shall have been transferred by deed in lieu of foreclosure of this Deed of Trust, notwithstanding any limitation on Trustor’s liability contained herein or in the Note or the other Loan Documents, Beneficiary shall have the right to receive the same to the extent of any deficiency following such sale or conveyance, together with attorneys’ fees and disbursements incurred by Trustee and Beneficiary in connection with the collection thereof. 2.5           Condemnation. 2.5.1        Trustor's Obligations:  Proceedings.  Trustor, promptly upon obtaining knowledge of any pending or threatened institution of any proceedings for the condemnation of the Premises, or any part thereof or interest therein, or of any right of eminent domain, or of any other proceedings arising out of injury or damage to or decrease in the value of the Premises (including a change in grade of any street), or any part thereof or interest therein (collectively referred to herein as “Condemnation”), will notify Beneficiary of the threat or pendency thereof and the following provisions shall apply: 2.5.2        Beneficiary's Rights to Proceeds.  If the amount of all compensation, awards, proceeds and other payments or relief in connection with such Condemnation, including, without limitation, proceeds of sale in lieu of Condemnation, made or granted to Trustor (collectively the “Proceeds”) is reasonably expected to be in excess of $50,000, all Proceeds and all judgments, decrees and awards for injury or damage to the Premises are hereby assigned to Beneficiary and shall be paid to Beneficiary to be held and disbursed as hereinafter set forth.  Trustor agrees to execute and deliver such further assignments thereof as Beneficiary may request and authorizes Beneficiary to collect and receive the same, to give receipts and acquittances therefor, and to appeal from any such judgment, decree or award unless the proposed or actual amount of such Proceeds exceeds the then outstanding amount of the Obligations. 2.5.3        Application of Proceeds; Total Taking.  In the event of a Condemnation of all or substantially all of the Premises or, without regard to the portion of the Premises subject to Condemnation, if an Event of Default shall have occurred hereunder and be continuing: (a)           Beneficiary shall be entitled to all Proceeds of such Condemnation made or granted to Trustor and shall be entitled, at Beneficiary’s option, to commence, appear in and prosecute in its own name any action or proceedings.  All such Proceeds shall be deemed assigned to Beneficiary to the extent of any sums then secured by this Deed of Trust, and Trustor agrees to execute such further assignments of the Proceeds as Beneficiary or Trustee may require. (b)           Beneficiary shall apply all such Proceeds, after deducting therefrom all costs and expenses (regardless of the particular nature thereof and whether incurred with or without suit), including reasonable attorneys’ fees, incurred by it in connection with the collection of such Proceeds, to the Obligations secured by this Deed of Trust, in such order as Beneficiary may determine in its sole discretion.  Unless otherwise required by applicable law, such application or release shall not, by itself, cure or waive any Event of Default hereunder or notice of default under this Deed of Trust or any other Loan Document or invalidate any act done pursuant to such notice. 2.5.4        Application of Proceeds; Partial Taking.  If an Event of Default shall not have occurred hereunder and be continuing and in the event of a Condemnation of less than all or substantially all of the Land and/or Improvements, the following provisions shall apply: (a)           In the event that such Proceeds are in an amount less than $50,000, Trustor shall be entitled to receive all such Proceeds and to apply such Proceeds to the payment of the costs and expenses of repairing and restoring the Premises. (b)           In the event that such Proceeds are in the amount of $50,000 or more, the Proceeds shall be paid to and shall be disbursed by Beneficiary in the same manner, for the same purposes and subject to the same requirements as are applicable to insurance proceeds pursuant to the provisions of Section 2.4.2(a)-(d) above. 2.5.5        Right to Participate.  If:  (l) an Event of Default shall have occurred and be continuing hereunder; or (2) all or substantially all of the Premises have been taken by Condemnation and the Proceeds thereof are reasonably estimated to be equal to or less than the amount then due to Beneficiary by Trustor, Beneficiary shall have the right to settle, adjust or compromise any claim in connection with a Condemnation of the Land and/or Improvements.  In the event of a Condemnation of less than all or substantially all of the Land and/or Improvements and if an Event of Default shall not have occurred hereunder and be continuing then:  (A) Trustor may settle, adjust or compromise any claim which is reasonably expected to be in an amount less than $50,000; and (B) with respect to any claim which is reasonably expected to be in the amount of $50,000 or more, Beneficiary and Trustor shall each consult and cooperate with the other and each shall be entitled to participate in all meetings and negotiations with respect to the settlement of such claim.  Trustor at its expense shall deliver to Beneficiary copies of all papers served in connection with such Condemnation.  Any adjustment or settlement by Trustor of any claim which is in an amount in excess of $50,000 shall be subject to the approval of Beneficiary. 2.5.6        Effect on the Indebtedness.  Notwithstanding any Condemnation, taking or other proceeding referred to in this Section causing injury to or decrease in value of the Premises (including a change in grade of any street), or any interest therein, Trustor shall continue to pay and perform the Obligations as provided herein.  Any reduction in the Obligations resulting from the application to the Obligations of any proceeds, judgments, decrees or awards pursuant to Section 2.5.3 or 2.5.4 shall be deemed to take effect only on the date of receipt by Beneficiary of such proceeds, judgments, decrees or awards and their application against the Obligations, and the amount of all installment payments of the Obligations which thereafter become due shall be reduced and recalculated pro rata; provided that if prior to the receipt by Beneficiary of such proceeds, judgments, decrees or awards the Mortgaged Property shall have been sold on foreclosure of this Deed of Trust, or shall have been transferred by deed in lieu of foreclosure of this Deed of Trust, Beneficiary shall have the right to receive the same to the extent of any deficiency following such sale, with legal interest thereon together with attorneys’ fees and disbursements incurred by Trustee and Beneficiary in connection with the collection thereof. 2.6           Liens and Liabilities. 2.6.1        Discharge of Liens.  Trustor will pay, bond or otherwise discharge, from time to time when the same shall become due, all claims and demands of mechanics, materialmen, laborers and others which, if unpaid, might result in, or permit the creation of, a lien on the Land and/or the Improvements, or on the revenues, rents, issues, income or profits arising therefrom and, in general, Trustor shall do, or cause to be done, at Trustor’s sole cost and expense, everything necessary to fully preserve the lien and priority of this Deed of Trust; provided, however, that Trustor shall not be obligated to pay, bond or discharge such claim or demand if payment is not yet due under the contract which is the foundation of such claim or demand; and provided further that so long as an Event of Default shall not have occurred and be continuing hereunder, Trustor shall have the right to contest or object to the amount or validity of any such claim and demand by appropriate administrative or judicial proceedings, in which event, the following provisions shall apply: (a)           Trustor shall give Beneficiary written notice of Trustor’s intent to so contest or object to such claim or demand. (b)           Trustor shall thereafter diligently proceed to cause such claim or demand to be removed and discharged. (c)           Trustor, if requested by Beneficiary, shall deposit with Beneficiary a bond or other assurance reasonably satisfactory to Beneficiary in such amounts as Beneficiary shall reasonably require, but not more than 150% of the amount of the claim(s) or demand(s) plus costs, expenses, including reasonable attorneys’ fees, and interest. 2.6.2        Creation of Liens.  Except as otherwise set forth herein, Trustor will not, without Beneficiary’s consent, create, place or permit to be created or placed, or through any act or failure to act, acquiesce in the placing of, or allow to remain, any deed of trust, mortgage, voluntary or involuntary lien, whether statutory, constitutional or contractual (except for Impositions (as hereinafter defined) which are not yet due and payable), security interest, encumbrance or charge, or conditional sale or other title retention document, against or covering the Land and/or the Improvements, prior to, on a parity with or subordinate to the lien of this Deed of Trust.  If any of the foregoing becomes attached to the Land and/or the Improvements without such consent, Trustor will promptly cause the same to be discharged and released. 2.6.3        No Consent.  Nothing in the Loan Documents shall be deemed or construed in any way as constituting the consent or request by Trustee or Beneficiary, express or implied, to any contractor, subcontractor, laborer, mechanic or materialman for the performance of any labor or the furnishing of any material for any improvement, construction, alteration or repair of the Land and/or the Improvements.  Trustor further agrees that neither Trustee nor Beneficiary stands in any fiduciary relationship to Trustor. 2.7           Taxes and Other Charges. 2.7.1        Taxes on the Premises.  Trustor will pay prior to delinquency, all taxes, assessments, water and sewer rents, rates, charges and assessments, levies, permits, inspection and license fees and other governmental and quasi-governmental charges, general and special, ordinary and extraordinary, foreseen and unforeseen, heretofore or hereafter assessed, levied or otherwise imposed against or upon, or which may become a lien upon, the Premises, the revenues, rents, issues, income and profits of the Premises or arising in respect of the occupancy, use or possession thereof (collectively, “Impositions”).  Trustor will also pay any penalty, interest or cost for non-payment of Impositions which may become due and payable, and such penalties, interest or cost shall be included within the term Impositions. 2.7.2        Receipts.  Unless Trustor is making monthly deposits pursuant to Section 2.8 or unless Beneficiary otherwise directs, Trustor will furnish to Trustee and Beneficiary upon Trustee’s or Beneficiary’s request, proof of payment at the time same is made, and thereafter, upon receipt, validated receipts showing payment in full of all Impositions. 2.7.3        Income and Other Taxes Imposed on Trustor.  Trustor will promptly pay all income, franchise and other taxes owing by Trustor the nonpayment of which would result in a lien against the Premises or otherwise diminish or impair the security of this Deed of Trust, and any stamp taxes which may be required to be paid in connection with this Deed of Trust, together with any interest or penalties thereon. 2.7.4        Recording Fees and Other Taxes Imposed on Trustee or Beneficiary.  Trustor will pay any and all taxes, charges, filing, registration and recording fees (other than income, franchise, license, withholding and doing business taxes), imposed upon Trustee or Beneficiary by reason of or in connection with the execution, delivery and/or recording of the Loan Documents or the ownership of this Deed of Trust or any instrument supplemental hereto, any security instrument with respect to any Equipment or any instrument of further assurance, and shall pay all corporate stamp taxes required to be paid in connection with the Obligations. 2.7.5        Reimbursement for Certain Taxes and Costs.  In the event of the enactment of or change in (including a change in interpretation of) any applicable law (1) deducting or allowing Trustor to deduct from the value of the Premises for the purpose of taxation any lien or security interest thereon, or (2) subjecting Trustee and/or Beneficiary to any tax measured by or based on in whole or in part the indebtedness secured hereby, and the result is to increase the taxes imposed upon Trustee and/or Beneficiary or to reduce the amount of any payments receivable hereunder, then, and in anysuch event, Trustor shall, on demand, pay to Trustee and Beneficiary additional amounts to compensate for such increased costs or reduced amounts, provided that Trustor shall have the right to prepay the Obligations, or any portion thereof, in accordance with the provisions of the Note, and, provided, further, that if any such payment or reimbursement shall be unlawful or would constitute usury or render the Obligations wholly or partially usurious under applicable law, then Beneficiary may, at its option, declare the Obligations immediately due and payable or require Trustor to pay or reimburse Trustee and Beneficiary for payment of the lawful and non-usurious portion thereof. 2.7.6        Right to Contest Taxes.  Notwithstanding anything set forth herein, so long as an Event of Default shall not have occurred hereunder and be continuing, Trustor shall have the right to contest or object to the amount or validity of any Imposition by appropriate legal proceedings so long as (i) Trustor notifies Beneficiary of Trustor’s intent to contest such Imposition; (ii) Trustor shall provide Beneficiary with evidence reasonably satisfactory to Beneficiary that such proceedings shall operate to prevent the sale of the Mortgaged Property or any portion thereof; (iii) Trustor shall have furnished Beneficiary with a bond or other assurances reasonably satisfactory to Beneficiary sufficient to satisfy such Imposition; and (iv) upon any final determination of such contest which is not appealable or is not being appealed by Trustor, Trustor shall pay the amount of such Imposition then due. 2.8           Tax and Insurance Deposits. 2.8.1        Amount of Deposits.  Upon the occurrence of an Event of Default hereunder, and during the continuance thereof, in order to more fully protect the security herein described, Beneficiary may at any time require that Trustor thereafter deposit and Trustor shall thereafter deposit each month with Beneficiary or any loan servicer or financial institution pursuant to Section 2.8.5 (the “Depository”), an amount equal to one-twelfth (1/12) of the estimated annual (i) Impositions; (ii) premiums for insurance required under Section 2.3; and (iii) other charges imposed upon the Land and/or the Improvements.  In addition, if required by Beneficiary, Trustor shall also deposit with the Beneficiary or Depository, as Beneficiary may direct, a sum of money which, together with the aforesaid monthly installments, will be sufficient to make each of said payments of insurance premiums at least thirty (30) days before such payments are due.  If the amount of any such payments is not ascertainable at the time any such deposit is required to be made, the deposit shall be made on the basis of Beneficiary’s reasonable estimate thereof, and, when such amount becomes fixed for the then current year, Trustor shall promptly deposit any deficiency with Beneficiary or the Depository, as Beneficiary shall direct. 2.8.2        Use of Deposits.  Funds so deposited shall, until so applied, constitute additional security for the Obligations (provided that such funds shall only be used to pay Impositions and premiums for insurance required under Section 2.3), shall be held by Beneficiary or the Depository free of trust and without interest (except to the extent required by applicable law), may be commingled with other funds of Beneficiary or the Depository, and shall be applied in payment of the aforesaid amounts prior to their becoming delinquent, but only to the extent that Beneficiary or the Depository shall have such funds on hand, provided that Beneficiary or the Depository shall have no obligation to use said funds to pay (i) any installment or Impositions prior to the last day on which payment thereof may be made without penalty or interest or to pay any insurance premium prior to the due date thereof, or (ii) any of the aforesaid amounts unless Trustor shall have furnished Beneficiary (and the Depository, if applicable), the bills or invoices therefor in sufficient time to pay the same before any penalty or interest attaches and before said policies of insurance lapse, as the case may be. 2.8.3        Transfer of Deed of Trust.  Upon an assignment or other transfer of this Deed of Trust, Beneficiary or Depository shall notify Trustor and shall pay over the balance of such deposits in its possession to the assignee or other successor, and Beneficiary or the Depository shall thereupon be completely released from all liability with respect to such deposits and Trustor or the owner of the Premises shall look solely to the assignee or transferee with respect thereto.  This provision shall apply to every transfer of such deposits to a new assignee or transferee. 2.8.4        Transfer of the Premises.  Subject to Article 5 hereof, transfer of record title to the Premises or any portion thereof shall automatically transfer to the new owner the beneficial interest in any deposits under this Section.  Upon full payment and satisfaction of this Deed of Trust or, at Beneficiary’s option, at any prior time, the balance of amounts deposited in the Beneficiary’s or the Depository’s possession shall be paid over to the record owner of the Premises, and no other party shall have any right or claim thereto in any event. 2.8.5        Depository.  At Beneficiary’s request, Trustor agrees that in lieu of Beneficiary’s holding such deposits, Trustor shall, at Trustor’s expense, make the aforesaid deposits with such mortgage banker, bank or financial institution doing business in Texas as Beneficiary may from time to time designate. 2.9           Inspection.  Subject to compliance by Beneficiary and/or Trustee with any provisions of the Leases or of applicable law establishing the security of certain work areas on the Premises, Trustor will allow Trustee and Beneficiary and their authorized representatives to enter upon and inspect the Premises at all reasonable times and upon reasonable notice to provide assurance that Trustor is in compliance with Section 2.2 hereof, and will assist Trustee, Beneficiary and such representatives in effecting said inspection. 2.10         Estoppel Certificates.  Trustor, within ten (10) days after Beneficiary’s request, shall furnish to Beneficiary a written statement, duly acknowledged, certifying to Beneficiary and/or any proposed assignee of Beneficiary’s interest in this Deed of Trust, and/or any other party designated by Beneficiary, as to (a) the amount of the Obligations then owing under this Deed of Trust, (b) the terms of payment and maturity date of the Obligations, (c) the date to which interest has been paid under the Note, (d) whether any offsets or defenses exist against the Obligations and, if any are alleged to exist, a detailed description thereof, (e) a certified current rent roll of the Property, (f) the date to which the Rent, additional rent and other charges under the Leases have been paid, (g) whether or not any of the tenants under the Leases are in default under the Leases, and, if any of the tenants are in default, setting forth the specific nature of all such default, and (h) as to any other matters reasonably requested by Beneficiary and reasonably related to the Leases, the Obligations, the Mortgaged Property or this Deed of Trust. ARTICLE 3 ASSIGNMENT OF RENTS AND OTHER SUMS UNDER THE LEASES 3.1           Deleted Intentionally. ARTICLE 4 ADDITIONAL ADVANCES; EXPENSES; INDEMNITY 4.1           Additional Advances and Disbursements.  Trustor agrees that if an Event of Default occurs hereunder and is continuing with respect to any obligations hereunder to pay any amount or to perform any action, including, without limitation, its obligation under Section 2.7 to pay Impositions and under Section 2.3 to procure, maintain and pay premiums on the insurance policies referred to therein, then Trustee and/or Beneficiary shall have the right, but not the obligation, in Trustor’s name or in its or their own name, and without notice to Trustor, to advance all or any part of such amounts or to perform any or all such actions, and, for such purpose, Trustor expressly grants to Trustee and Beneficiary, in addition and without prejudice to any other rights and remedies hereunder, the right to enter upon and take possession of the Premises in accordance with applicable law to such extent and as often as either of them may deem necessary or desirable to prevent or remedy any such default.  Except as otherwise provided by law, no such advance or performance shall be deemed to have cured such default by Trustor or any Event of Default with respect thereto.  All sums advanced and all expenses incurred by Trustee and/or Beneficiary in connection with such advances or actions, and all other sums advanced or expenses incurred by Beneficiary hereunder or under applicable law (whether required or optional and whether indemnified hereunder or not) shall be part of the Obligations, shall bear interest at the Default Rate from the date of disbursement until paid (as defined in the Note) and shall be secured by this Deed of Trust.  Trustee and/or Beneficiary, upon making any such advance, shall be subrogated to all of the rights of the person receiving such advance. 4.2           Other Expenses. 4.2.1        Trustor will pay or, on demand, reimburse Trustee and Beneficiary for the payment of, all recording and filing fees, abstract fees, title insurance premiums and fees, Uniform Commercial Code search fees, escrow fees, reasonable attorneys’ fees and disbursements and all other reasonable costs and expenses incurred by Trustor, Trustee and/or Beneficiary in connection with the granting, administration, enforcement and closing (including the preparation of the Loan Documents) of the transactions contemplated hereunder or under the other Loan Documents, or otherwise attributable or chargeable to Trustor as owner of the Mortgaged Property.  Notwithstanding anything to the contrary contained herein in this Section 4.2.1, the provisions of this Section 4.2 shall not be deemed or construed to authorize Beneficiary to undertake, exercise or perform any action in the administration of the transactions contemplated hereunder not otherwise (i) authorized by the terms of this Deed of Trust or the Loan Documents or (ii) permitted under applicable law to be undertaken, exercised or performed by a trust deed beneficiary to protect the security afforded by a deed of trust upon real property. 4.2.2        Trustor will pay or, on demand, reimburse Trustee and Beneficiary for the payment of any costs or expenses (including attorneys’ fees and disbursements) incurred or expended in connection with or incidental to (i) any default or Event of Default by Trustor hereunder or under the Loan Documents or (ii) the exercise or enforcement by or on behalf of Trustee and/or Beneficiary of any of their rights or remedies or Trustor’s obligations under this Deed of Trust or under the other Loan Documents, including the enforcement, compromise or settlement of this Deed of Trust or the Obligations or the defense or assertion of the rights and claims of Trustee and Beneficiary hereunder in respect thereof, by litigation or otherwise.  All of the foregoing costs and expenses must be paid to Beneficiary as part of any reinstatement tendered under this Deed of Trust. 4.3           Indemnity. 4.3.1        Trustor agrees to indemnify and hold harmless Trustee and Beneficiary from and against any and all losses, liabilities, suits, obligations, fines, damages, judgments, penalties, claims, charges, costs and expenses (including attorneys’ fees and disbursements) which may be imposed on, incurred or paid by or asserted against Trustee and/or Beneficiary by reason or on account of, or in connection with, (i) any willful misconduct of Trustor or any default or Event of Default by Trustor hereunder or under the other Loan Documents, (ii) Trustee’s and/or Beneficiary’s good faith and commercially reasonable exercise of any of their rights and remedies, or the performance of any of their duties, hereunder or under the other Loan Documents to which Trustor is a party, (iii) the construction, reconstruction or alteration of the Premises, (iv) any negligence of Trustor, or any negligence or willful misconduct of any lessee of the Premises, or any of their respective agents, contractors, subcontractors, servants, employees, licensees or invitees, or (v) any accident, injury, death or damage to any person or property occurring in, on or about the Premises or any street, drive, sidewalk, curb or passageway adjacent thereto, except for the willful misconduct or gross negligence of the indemnified person.  Any amount payable to Trustee or Beneficiary under this Section 4.3 shall be due and payable within ten (10) days after demand therefor and receipt by Trustor of a statement from Trustee, Beneficiary and/or counsel for Beneficiary setting forth in reasonable detail the amount claimed and the basis therefor, and such amounts shall bear interest at the Default Rate (as defined in the Note) from and after the date such amounts are paid by Beneficiary or Trustee until paid in full by Trustor. 4.3.2        Trustor’s obligations under this Section shall not be affected by the absence or unavailability of insurance covering the same or by the failure or refusal by any insurance carrier to perform any obligation on its part under any such policy of covering insurance.  If any claim, action or proceeding is made or brought against Trustee and/or Beneficiary which is subject to the indemnity set forth in this Section, Trustor shall resist or defend against the same, if necessary in the name of Trustee and/or Beneficiary, by attorneys for Trustor’s insurance carrier (if the same is covered by insurance) or otherwise by attorneys approved by Beneficiary.  Notwithstanding the foregoing, Trustee and Beneficiary, in their discretion, may engage their own attorneys to resist or defend, or assist therein, and Trustor shall pay, or, on demand, shall reimburse Trustee and Beneficiary for the payment of, the reasonable fees and disbursements of said attorneys. 4.3.3        Trustor shall indemnify and save and hold harmless Beneficiary and its successors and assigns for, from and against all claims, liabilities, proceedings, suits, losses, damages (including punitive damages), judgments and environmental response and clean-up costs, fines, penalties and expenses (including reasonable counsel fees, costs and expenses incurred in investigating and defending against the assertion of any such liabilities, regardless of their merit), which may be asserted against, sustained, suffered or incurred by Beneficiary or its successors and assigns because of the existence of any toxic or hazardous material, substance, waste, pollutant or contaminant or arising from any other violation of any governmental law, regulation or requirement now or hereafter in effect relating to human health or the safety or protection of the environment.  This indemnity shall include claims asserted by any federal, state or local governmental agency or any private party and shall continue in effect following any release and reconveyance of this Deed of Trust or foreclosure or other realization upon the security by Beneficiary or its successors and assigns, or any conveyance in lieu of such foreclosure or other realization. ARTICLE 5 SALE OR TRANSFER OF THE PREMISES 5.1           Continuous Ownership:  Due on Sale Clause. 5.1.1        Trustor acknowledges that the continuous ownership of the Premises by Trustor is a material inducement to Beneficiary’s agreement to enter into the transactions hereinabove described and Beneficiary’s agreement in connection with the Obligations.  Trustor agrees that, except as otherwise provided herein or in the other Loan Documents, Trustor will not, whether voluntarily or involuntarily, (w) sell, grant, convey, assign, further encumber, otherwise transfer by operation of law or otherwise (collectively, “Transfer”), (x) permit to be the subject of a Transfer, (y) enter into an agreement to Transfer, or (z) grant an option which or take any action which pursuant to the terms of any agreement to which Trustor is a party may result in a Transfer of, the Land or the Improvements, or any legal, beneficial or equitable interest therein. Any person or legal representative of Trustor to whom Trustor’s interest in the Premises passes by operation of law, or otherwise, shall be bound by the provisions of this Deed of Trust. 5.1.2        The provisions of this Section shall apply to each and every such Transfer of all or any portion of the Premises or any legal or equitable interest therein, regardless of whether or not Beneficiary has consented to, or waived by its action or inaction its rights hereunder with respect to any previous Transfer of all or any portion of the Premises or any legal or equitable interest therein. 5.1.3        In the event that Trustor shall Transfer the Premises or any legal, beneficial or equitable interest therein, or cause or permit to occur any of the other transactions described in Section 5.1.1, without Beneficiary’s prior written consent, Beneficiary may elect to declare the Obligations, together with any other sums secured hereby, immediately due and payable.  Beneficiary may withhold its consent to any proposed Transfer for any reason, including the failure of the prospective transferee of the Premises to reach an agreement in writing with Beneficiary increasing the interest payable on the Obligations to such rate as Beneficiary shall request. ARTICLE 6 DEFAULTS AND REMEDIES 6.1           Events of Default.  The term “Event of Default”, as used in this Deed of Trust, shall mean the occurrence of any of the following events (after any applicable notice to Trustor and the expiration of any applicable period of grace specifically set forth herein or in any written agreement between Trustor and Beneficiary): 6.1.1        Trustor shall fail to make any payment (whether of principal, interest, expenses, fees or otherwise) required to be made to Beneficiary under the Note, this Deed of Trust, or any of the other Loan Documents when due, whether by acceleration or otherwise; or 6.1.2        Any representation, warranty or statement made by Trustor (or any of its representatives) in this Deed of Trust or in any other Loan Document or in any certificate or other document delivered under any of the Loan Documents or in any application or commitment for the loan evidenced by the Note shall have been incorrect in any material respect when made; or 6.1.3        Any one or more of the following occurs with respect to Trustor, any guarantor of the Obligations or any other person liable for any of the Obligations: (a)           A general assignment by any such person for the benefit of creditors; or (b)           The filing of a voluntary petition in bankruptcy, insolvency, reorganization, or liquidation, or any other petition under any section or chapter of the Bankruptcy Code or any similar law, whether state, federal, or otherwise, for the relief of debtors; or (c)           The filing of any involuntary petition or any other petition against any such person under any section or chapter of the Bankruptcy Code, or any similar law, whether state, federal, or otherwise, relating to insolvency, reorganization, or liquidation, or for the relief of debtors, by the creditors of such person, said petition remaining undischarged for a period of ninety (90) days; or (d)           The appointment by any court of a receiver or similar official to take possession of the Premises (or any portion thereof) or any property or any asset or assets of any such person, said receivership remaining undischarged for a period of ninety (90) days; or (e)           The application by any such person or the consent or acquiescence by any such person to an application for the appointment of a custodian, receiver, conservator, trustee, or similar official for such person or for a substantial part of the property or business of any of them; or (f)            Attachment, execution or judicial seizure (whether by enforcement of money judgment, by writ or warrant of attachment, or by any other process) of the Premises or of all or any part of the assets of any such person, such attachment, execution or other seizure remaining undismissed or undischarged for a period of ninety (90) days after the levy thereof, or, in any event, later than five (5) days prior to the date of any proposed sale thereunder; or (g)           The admission in writing by any such person of its inability to pay its debts or perform its obligations as they become due; or (h)           The calling of a meeting of the creditors representing a significant portion of the liabilities of any such person, for the purpose of effecting a moratorium, extension or composition of debt or any of the foregoing; or 6.1.4        Trustor shall fail to pay any indebtedness in excess of $50,000.00 (other than the Obligations) or interest thereon when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise)and such failure shall continue after the applicable grace period, if any specified in the agreement or instrument relating to such indebtedness that results in acceleration of such indebtedness; or any other event of default shall occur under any agreement, instrument or other document relating to any such indebtedness if the effect of such default is to be accelerated, or permit the acceleration of, the maturity of such indebtedness provided however that the waiver or cure of such event of default under such other agreement shall and be deemed to cure any Event of Default resulting therefrom; or 6.1.5        Any judgment or order for the payment of money in excess of $50,000.00 shall be rendered against Trustor and either (i) enforcement, collection, execution or levy proceedings shall have been commenced on such judgment, or (ii) there shall be any period of thirty (30) consecutive days during which a stay of enforcement of such judgment or order, by reason of supersedes, bond or otherwise, shall not be in effect; or 6.1.6        Any of the Loan Documents shall, as a result of any action taken by Trustor, cease to create a valid and perfected first priority lien upon any of the security purported to be covered thereby; or 6.1.7        The occurrence of a default in the performance or observation of any other provisions of this Deed of Trust or of any of the other Loan Documents; or 6.1.8        Trustor abandons the Premises or ceases to do business or terminates its business for any reason whatsoever; or 6.1.9        Trustor shall fail at any time to obtain, provide, maintain, keep in force or deliver to Trustee or Beneficiary the insurance policies required by Section 2.3 hereof and such failure shall continue for five (5) days after written notice; or 6.1.10      Any claim of priority as to this Deed of Trust or any other document or instrument securing the Obligations by title, lien or otherwise shall be upheld by any court of competent jurisdiction or shall be consented to by Trustor, unless Beneficiary shall have received full payment for the entire loss resulting from such claim; or 6.1.11      The filing of formal charges against Trustor under any federal or state law for the violation of which law the forfeiture of any property of Trustor is a potential penalty. 6.2           Remedies.  Upon the occurrence and during the continuance of any one or more Events of Default, Trustee and/or Beneficiary may (but shall not be obligated), in addition to any rights or remedies available to them hereunder or under the other Loan Documents, take such action personally or by their agents or attorneys, with or without entry, and without notice, demand, presentment or protest (each and all of which are hereby waived to the extent permitted by law) as they deem necessary or advisable to protect and enforce Beneficiary’s rights and remedies against Trustor and in and to the Mortgaged Property, including the following actions, each of which may be pursued concurrently or otherwise, at such time and in such order as Trustee and/or Beneficiary may determine, in their sole discretion, without impairing or otherwise affecting its or their other rights or remedies: (a)           Beneficiary may declare the Obligations, including the then unpaid principal balance on the Note, the accrued but unpaid interest thereon, court costs and attorney's fees hereunder immediately due and payable, without notice, presentment, protest, demand or action of any nature whatsoever (each of which hereby is expressly waived by Trustor), whereupon the same shall become immediately due and payable.  Additionally, Beneficiary shall not be required to make any further advances on the Note or other Loan Documents upon the occurrence of an Event of Default or an event which, with the giving of notice or passing of time, would constitute an Event of Default.   (b)           Beneficiary may enter upon the Mortgaged Property and take exclusive possession thereof and of all books, records and accounts relating thereto without notice and without being guilty of trespass, and hold, lease, manage, operate or otherwise use or permit the use of the Mortgaged Property, either itself or by other persons, firms or entities, in such manner, for such time and upon such other terms as Beneficiary may deem to be prudent and reasonable under the circumstances (making such repairs, alterations, additions and improvements thereto and taking any and all other action with reference thereto, from time to time, as Beneficiary shall deem necessary or desirable), and apply all rents and other amounts collected by Beneficiary in connection therewith in accordance with the provisions of subsection (h) of this Section 6.2.  Trustor hereby irrevocably appoints Beneficiary as the agent and attorney–in–fact of Trustor, with full power of substitution, and in the name of Trustor, if Beneficiary elects to do so, to (i) endorse the name of Trustor on any checks or drafts representing proceeds of the insurance policies, or other checks or instruments payable to Trustor with respect to the Mortgaged Property, (ii) prosecute or defend any action or proceeding incident to the Mortgaged Property, and (iii) take any action with respect to the Mortgaged Property that Beneficiary may at any time and from time to time deem necessary or appropriate.  Beneficiary shall have no  obligation to undertake any of the foregoing actions, and if Beneficiary should do so, it shall have no liability to Trustor for the sufficiency or adequacy of any such actions taken by Beneficiary.   (c)           (i)            Beneficiary may, by and through Trustee, or otherwise, sell or offer for sale the Mortgaged Property in such portions, order and parcels as Beneficiary may determine, with or without having first taken possession of same, to the highest bidder for cash at public auction in accordance with the requirements of Section 51.002 of the Texas Property Code.  In instances where the Mortgaged Property is located in the State of Texas, such sale shall be made at the courthouse of the county in which the Mortgaged Property (or any of that portion thereof to be sold) is located, whether the parts or parcels thereof, if any, in different counties are contiguous or not (and without the necessity of having any personal property present at such sale) in the area designated by the county commissioners for foreclosure sales (or, if no area has been designated, at the location at the courthouse designated by Beneficiary by or through Trustee in the written notice hereinafter described) on the first Tuesday of a month between the hours of 10:00 a.m. and 4:00 p.m. after advertising the time, place and terms of sale and that portion of the Mortgaged Property to be sold by posting or causing to be posted written or printed notice thereof at least twenty-one (21) days before the date of the sale both at the courthouse door of each county in which the Mortgaged Property is located and with the county clerk of each county in which the Mortgaged Property is located, which notice shall be posted at the courthouse door and filed with the county clerk by the Trustee, or by any person acting for him.  The written notice shall include the earliest time at which the sale will be held.  Beneficiary shall serve, or shall cause to be served at least twenty-one (21) days before the date of sale, written or printed notice of the proposed sale by certified mail on each debtor obligated to pay the Indebtedness according to the records of Beneficiary by the deposit of such notice in the United States mail, postage prepaid and addressed to each debtor at such debtor's last known address as shown by the records of Beneficiary.  The affidavit of a person knowledgeable of the facts to the effect that service was completed is prima facie evidence of service.   (ii)           Beneficiary, may, at its option, accomplish all or any of the aforesaid in such manner as permitted or required by Section 51.002 of the Texas Property Code relating to the sale of real property or by Chapter 9 of the Texas Business and Commerce Code relating to the sale of personalty after default by a debtor  (as said section and chapter now exist or may be hereinafter amended or succeeded), or by any other present or subsequent articles or enactments relating to same.  At any such sale:   A.            whether made under the power herein contained, the aforesaid Section 51.002, the Texas Business and Commerce Code, any other legal requirement or by virtue of any judicial proceedings or any other legal right, remedy or recourse, it shall not be necessary for Trustee  to have been physically present, or to have constructive possession of, the Mortgaged Property (Trustor shall deliver to Trustee any portion of the Mortgaged Property not actually or constructively possessed by Trustee immediately upon demand by Trustee), and the title to and right of possession of any such property shall pass to the purchaser thereof as completely as if the same had been actually present and delivered to purchaser at such sale;   B.            each instrument of conveyance executed by Trustee shall contain a general warranty of title, binding upon Trustor; C.            each and every recital contained in any instrument of conveyance made by Trustee shall conclusively establish the truth and accuracy of the matters recited therein, including, without limitation, nonpayment of the Obligations, advertisement and conduct of such sale in the manner provided herein and otherwise by law and appointment of any successor Trustee hereunder;   D.            any and all prerequisites to the validity thereof shall be conclusively presumed to have been performed;   E.             the receipt by Trustee or of such other party or officer making the sale of the full amount of the purchase money shall be sufficient to discharge the purchaser or purchasers from any further obligation for the payment thereof, and no such purchaser or purchasers, or his or their assigns or personal representatives, shall thereafter be obligated to see to the application of such purchase money or be in any way answerable for any loss, misapplication or nonapplication thereof;   F.             to the fullest extent permitted by law, Trustor shall be completely and irrevocably divested of all of its right, title, interest, claim and demand whatsoever, either  at law or in equity, in and to the property sold, and such sale shall be a perpetual bar, both at law and in equity, against Trustor and against all other persons claiming or to claim the property sold or any part thereof by, through or under Trustor; and   G.            to the extent and under such circumstances as are permitted by law, Beneficiary may be a purchaser at any such sale. After sale of the Mortgaged Property, or any portion thereof, Trustor will be divested of any and all interest and claim thereto, including any interest or claim to all insurance policies, bonds, loan commitments and other intangible property covered hereby.  Additionally, Trustor will be considered a tenant at sufferance of the purchaser of the Mortgaged Property, and said purchaser shall be entitled to immediate possession thereof, and if Trustor shall fail to vacate the Mortgaged Property immediately, the purchaser may and shall have the right, without further notice to Trustor, to go into any justice court in any precinct or county in which the Mortgaged Property is located and file an action in forcible entry and detainer, which action shall lie against Trustor or its assigns or legal representatives, as a tenant at sufferance. This remedy is cumulative of any and all remedies the purchaser may have hereunder or otherwise.   (d)           Upon, or at any time after, commencement of foreclosure of the lien and security interest provided for herein or any legal proceedings hereunder, Beneficiary may make application to a court of competent jurisdiction, as a matter of strict right and without notice to Trustor or regard to the adequacy of the Mortgaged Property for the repayment of the Obligations, for appointment of a receiver of the Mortgaged Property, and Trustor does hereby irrevocably consent to such appointment.  Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply such Rents in accordance with the provisions of subsection (h) of this Section 6.2.   (ii)           Beneficiary may exercise any and all other rights, remedies and recourses granted under the Loan Documents or now or hereafter existing in equity, at law, by virtue of statute or otherwise.                                   (e)           Trustee and Beneficiary shall have all rights, remedies and recourses granted in the Loan Documents and available at law or equity (including specifically those granted by the Texas Business and Commerce Code in effect and applicable to the Property or any portion thereof) and the same (i) shall be cumulative and concurrent; (ii) may be pursued separately, successively or concurrently against Trustor, any guarantor of the Obligations or others obligated under the Note, or against the Mortgaged Property, or against any one or more of them at the sole discretion of Beneficiary; (iii) may be exercised as often as occasion therefor shall arise, it being agreed by Trustor that the exercise or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse; and (iv) are intended to be, and shall be, nonexclusive.                                   (f)            To the fullest extent permitted by law, Trustor hereby irrevocably and unconditionally waives and releases (i) all benefits that might accrue to Trustor by any present or future laws exempting the Property from attachment, levy or sale on execution or providing for any appraisement, valuation, stay of execution, exemption from civil process, redemption or extension of time for payment; (ii) all notices of any Event of Default (except as may be specifically provided for under the terms hereof), presentment, demand, notice of intent to accelerate, notice of acceleration and any other notice of Beneficiary's or Trustee's election to exercise or the actual exercise of any right, remedy or recourse provided for under the Loan Documents; (iii) any right to appraisal or marshalling of assets or a sale in inverse order of alienation; (iv) the exemption of homestead; and (v) the administration of estates of decedents, or other matter to defeat, reduce or affect the right of Beneficiary under the terms of this Instrument to sell the Mortgaged Property for the collection of the Obligations secured hereby (without any prior or different resort for collection) or the right of Beneficiary, under the terms of this Instrument, to receive the payment of the Indebtedness out of the proceeds of sale of the Property in preference to every other person and claimant whatever (only reasonable expenses of such sale being first deducted).  Trustor expressly waives and relinquishes any right or remedy which it may have or be able to assert by reason of the provisions of Chapter 34 of the Texas Business and Commerce Code pertaining to the rights and remedies of sureties.                                   (g)           Trustor, any guarantor of the Obligations, and any other party liable on the Obligations shall be liable for any deficiency remaining in the Obligations subsequent to any sale referenced in this Section 6.2.                                   (h)           Beneficiary shall have the right to become the purchaser at any sale of the Property hereunder and shall have the right to be credited on the amount of its bid therefor all of the Obligations due and owing as of the date of such sale.   6.3           Expenses.  If any action is commenced to foreclose this Deed of Trust, or to enforce any other remedy of Trustee and/or Beneficiary under any of the Loan Documents, or to otherwise protect Beneficiary’s interests in the Premises, whether such action is judicial or pursuant to the power of sale contained herein or otherwise, there shall be added to the Obligations secured by this Deed of Trust all costs and expenses, including attorneys’ fees, appraisal fees and environmental audit or assessment fees, plus interest thereon at the Default Rate (as defined in the Note) from expenditure until paid, in the commencement and prosecution of such action, whether or not such action results in a foreclosure sale, foreclosure or other judicial decree or judgment. 6.4           Rights Pertaining to Sales.  Subject to the provisions or other requirements of law, the following provisions shall apply to any sale or sales of the Mortgaged Property under or by virtue of this Article 6, whether made under the power of sale herein granted or by virtue of judicial proceedings or of a judgment or decree of foreclosure and sale: 6.4.1        Trustee, at the request of Beneficiary, may conduct any number of sales from time to time.  The power of sale set forth in Section 6.2.4 hereof shall not be exhausted by any one or more such sales as to any part of the Mortgaged Property which shall not have been sold, nor by any sale which is not completed or is defective in Trustee’s or Beneficiary’s opinion, until the Obligations shall have been paid in full. 6.4.2        Any sale may be postponed or adjourned by public announcement at the time and place appointed for such sale or for such postponed or adjourned sale without further notice. 6.4.3        After each sale, Trustee, or an officer of any court empowered to do so, shall execute and deliver to the purchaser or purchasers at such sale a good and sufficient instrument or instruments granting, conveying, assigning and transferring all right, title and interest of Trustor in and to the property and rights sold and shall receive the proceeds of said sale or sales and apply the same as herein provided.  Trustee is hereby appointed the true and lawful attorney-in-fact of Trustor, which appointment is irrevocable and shall be deemed to be coupled with an interest, in Trustor’s name and stead, to make all necessary conveyances, assignments, transfers and deliveries of the property and rights so sold, and for that purpose Trustee may execute all necessary instruments of conveyance, assignment, transfer and delivery, and may substitute one or more persons with like power, Trustor hereby ratifying and confirming all that said attorney or such substitute or substitutes shall lawfully do by virtue thereof.  Nevertheless, Trustor, if requested by Trustee or Beneficiary, shall ratify and confirm any such sale or sales by executing and delivering to Trustee or such purchaser or purchasers all such instruments as may be advisable, in Trustee’s or Beneficiary’s judgment, for the purposes as may be designated in such request. 6.4.4        Any and all statements of fact or other recitals made in any of the instruments referred to in Section 6.4.3 given by Trustee and/or Beneficiary as to nonpayment of the Obligations, or as to the occurrence of any Event of Default, or as to Beneficiary having declared all or any of the Obligations to be due and payable, or as to the request to sell, or as to notice of time, place and terms of sale and of the property or rights to be sold having been duly given, or as to the refusal, failure or inability to act of Trustee, or as to the appointment of any substitute or successor Trustee, or as to any other act or thing having been duly done by Trustor, Beneficiary, or by such Trustee, shall be taken as conclusive and binding against all persons as to evidence of the truth of the facts so stated and recited.  Trustee and/or Beneficiary may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale so held, including the posting of notices and the conduct of sale, but in the name and behalf of Trustee or Beneficiary, as applicable. 6.4.5        The receipt of Trustee for the purchase money paid at any such sale, or the receipt of any other person authorized to receive the same, shall be sufficient discharge therefor to any purchaser of any property or rights sold as aforesaid, and no such purchaser, or its representatives, grantees or assigns, after paying such purchase price and receiving such receipt, shall be bound to see to the application of such purchase price of any part thereof upon or for any trust or purpose of this Deed of Trust or, in any manner whatsoever, be answerable for any loss, misapplication or non-application of any such purchase money, or part thereof, or be bound to inquire as to the authorization, necessity, expediency or regularity of any such sale. 6.4.6        Any such sale or sales shall operate to divest all of the estate, right, title, interest, claim and demand whatsoever, whether at law or in equity, of Trustor in and to the properties and rights so sold, and shall be a perpetual bar both at law and in equity against Trustor and any and all persons claiming or who may claim the same, or any part thereof or any interest therein, by, through or under Trustor to the fullest extent permitted by applicable law. 6.4.7        Upon any such sale or sales, Beneficiary may bid for and acquire the Mortgaged Property and, in lieu of paying cash therefor, may make settlement for the purchase price by crediting against the Obligations the amount of the bid made therefor, after deducting therefrom the expenses of the sale, the cost of any enforcement proceeding hereunder and any other sums which Trustee or Beneficiary is authorized to deduct under the terms hereof, to the extent necessary to satisfy such bid. 6.4.8        In the event that Trustor, or any person claiming by, through or under Trustor, shall transfer or refuse or fail to surrender possession of the Mortgaged Property after any sale thereof, then Trustor, or such person shall be deemed a tenant at sufferance of the purchaser at such sale, subject to eviction by means of forcible entry and detainer proceedings, or subject to any other right or remedy available hereunder or under applicable law. 6.4.9        Upon any such sale, it shall not be necessary for Trustee, Beneficiary or any public officer acting under execution or order of court to have present or constructively in its possession any of the Mortgaged Property. 6.4.10      In the event of any sale referred to in this Section, the entire Obligations, if not previously due and payable, immediately thereupon shall, notwithstanding anything to the contrary herein or in the other Loan Documents, become due and payable. 6.4.11      In the event a foreclosure hereunder shall be commenced by Trustee at the request of Beneficiary, Trustee or Beneficiary may at any time before the sale of the Mortgaged Property abandon the sale, and may institute suit for the collection of the Obligations and for the foreclosure of this Deed of Trust, or in the event that Trustee or Beneficiary should institute a suit for collection of the Obligations, and for the foreclosure of this Deed of Trust, Beneficiary may at any time before the entry of final judgment in said suit dismiss the same and sell or require Trustee to sell the Mortgaged Property in accordance with the provisions of this Deed of Trust. 6.5           Application of Proceeds.  The purchase money, proceeds or avails of any sale referred to in Section 6.4, together with any other sums which may be held by Trustee or Beneficiary hereunder, whether under the provisions of this Article 6 or otherwise, shall, except as herein expressly provided to the contrary, be applied as follows: First:  To the payment of the costs and expenses of any such sale, including compensation to Trustee and/or Beneficiary, their agents and counsel, and of any judicial proceeding wherein the same may be made, and of all expenses, liabilities and advances made or incurred by Trustee and/or Beneficiary hereunder, together with interest thereon as provided herein, and all taxes, assessments and other charges, except any taxes, assessments or other charges subject to which the Mortgaged Property shall have been sold. Second:  To the payment in full of the Obligations (including principal, interest, premium and fees) in such order as Beneficiary may elect. Third:  To the payment of any other sums secured hereunder or required to be paid by Trustor pursuant to any provision of the Loan Documents. Fourth:  To the payment of the surplus, if any, to whomsoever may be lawfully entitled to receive the same. 6.6           Additional Provisions as to Remedies. 6.6.1        No right or remedy herein conferred upon or reserved to Trustee or Beneficiary is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and continuing, shall be in addition to every other right or remedy given hereunder, or under the other Loan Documents or now or hereafter existing at law or in equity, and may be exercised from time to time and as often as may be deemed expedient by Trustee or Beneficiary. 6.6.2        No delay or omission by Trustee or Beneficiary to exercise any right or remedy hereunder upon any default or Event of Default shall impair such exercise, or be construed to be a waiver of any such default or Event of Default or an acquiescence therein. 6.6.3        The failure, refusal or waiver by Trustee or Beneficiary of its right to assert any right or remedy hereunder upon any default or Event of Default or other occurrence shall not be construed as waiving such right or remedy upon any other or subsequent default or Event of Default or other occurrence. 6.6.4        Neither Trustee nor Beneficiary shall have any obligation to pursue any rights or remedies they may have under any other agreement prior to pursuing their rights or remedies hereunder or under the other Loan Documents. 6.6.5        No recovery of any judgment by Trustee or Beneficiary and no levy of an execution upon the Mortgaged Property or any other property of Trustor shall affect, in any manner or to any extent, the lien of this Deed of Trust upon the Mortgaged Property, or any liens, rights, powers or remedies of Trustee or Beneficiary hereunder, and such liens, rights, powers and remedies shall continue unimpaired as before. 6.6.6        Beneficiary may resort or cause Trustee to resort to any security given by this Deed of Trust or any other security now given or hereafter existing to secure the Obligations, in whole or in part, in such portions and in such order as Beneficiary may deem advisable, and no such action shall be construed as a waiver of any of the liens, rights or benefits granted hereunder. 6.6.7        Acceptance of any payment after the occurrence of any default or Event of Default shall not be deemed a waiver or a cure of such default or Event of Default, and acceptance of any payment less than any amount then due shall be deemed an acceptance on account only. 6.6.8        In the event that Trustee or Beneficiary shall have proceeded to enforce any right or remedy hereunder by foreclosure, sale, entry or otherwise, and such proceeding shall be discontinued, abandoned or determined adversely for any reason, then Trustor, Trustee and Beneficiary shall be restored to their former positions and rights hereunder with respect to the Mortgaged Property, subject to the lien hereof. 6.6.9        In every instance when a receiver is appointed with respect to all or any portion of the Mortgaged Property pursuant to Section 6.2.10 above or otherwise, at Beneficiary’s discretion, the receiver shall be authorized, among other such duties and powers as may be ordered or granted by the court, to take possession of the Mortgaged Property; to manage, control and protect the Mortgaged Property; to collect the rents, issues, profits, revenues, earnings and income arising therefrom, and to apply the same toward the payment of expenses, including management and operating expenses, taxes, assessments, utilities, mortgage payments and insurance premiums of or in connection with the Mortgaged Property; to maintain the Mortgaged Property in a reasonable state of repair so that there will be no excessive depreciation or devaluation thereof arising from lack of prudent management; to enter into such lease agreements or rental agreements with new tenants for the Mortgaged Property as such receiver deems reasonable and prudent; to amend, extend or renew existing Leases upon such terms as such receiver deems reasonable and prudent; to, if necessary, retain a property management firm to assist in such duties upon such terms as such receiver deems reasonable and appropriate; to perform appraisals and/or environmental audits of the Mortgaged Property; and to take such other action as is necessary in order to provide services to the tenants under any existing or future Leases or as is necessary to accomplish any of the foregoing. 6.7           Deleted Intentionally. 6.8           Waiver of Rights and Defenses.  To the full extent Trustor may do so, Trustor agrees with Beneficiary as follows: 6.8.1        Trustor will not at any time, insist on, plead, claim or take the benefit or advantage of any statute or rule of law now or hereafter in force providing for any appraisement, valuation, stay, extension, moratorium or redemption, or of any statute of limitations, and Trustor, for itself and its heirs, devisees, representatives, successors and assigns, and for any and all persons ever claiming an interest in the Mortgaged Property (other than Beneficiary) hereby, to the extent permitted by applicable law, waives and releases all rights of redemption, valuation, appraisement, notice of intention to mature or declare due the whole of the Obligations, and all rights to a marshaling of the assets of Trustor, including the Mortgaged Property, or to a sale in inverse order of alienation, in the event of foreclosure of the liens and security interests created hereunder. 6.8.2        Trustor shall not have or assert any right under any statute or rule of law pertaining to any of the matters set forth in Section 6.8.1, to the administration of estates of decedents or to any other matters whatsoever to defeat, reduce or affect any of the rights or remedies of Trustee and Beneficiary hereunder, including the rights of Trustee and/or Beneficiary hereunder to a sale of the Mortgaged Property for the collection of the Obligations without any prior or different resort for collection, or to the payment of the Obligations out of the proceeds of sale of the Mortgaged Property in preference to any other person. 6.8.3        If any statute or rule of law referred to in this Section and now in force, of which Trustor or any of its representatives, successors or assigns and such other persons claiming any interest in the Mortgaged Property might take advantage despite this Section, shall hereafter be repealed of cease to be in force, such statute or rule of law shall not thereafter be deemed to preclude the application of this Section. 6.8.4        Trustor shall not be relieved of its obligation to pay the Obligations at the time and in the manner provided herein and in the other Loan Documents, nor shall the lien or priority of this Deed of Trust or any other Loan Documents be impaired by any of the following actions, non-actions or indulgences by Trustee or Beneficiary: (a)           any failure or refusal by Trustee or Beneficiary to comply with any request by Trustor (X) to consent to any action by Trustor or (Y) to take any action to foreclose this Deed of Trust or otherwise enforce any of the provisions hereof or of the other Loan Documents; (b)           any release, regardless of consideration, of the whole or any part of the Mortgaged Property or any other security for the Obligations, or any person liable for payment of the Obligations; (c)           any waiver by Beneficiary of compliance by Trustor with any provision of this Deed of Trust or the other Loan Documents, or consent by Beneficiary to the performance by Trustor of any action which would otherwise be prohibited thereunder, or to the failure by Trustor to take any action which would otherwise be required hereunder or thereunder; and (d)           any agreement or stipulation between Trustee or Beneficiary and Trustor, or, with or without Trustor’s consent, between Trustee or Beneficiary and any subsequent owner or owners of the Mortgaged Property or any other security for these Obligations, renewing, extending or modifying the time of payment or the terms of this Deed of Trust or any of the other Loan Documents (including a modification of any interest rate), and in any such event Trustor shall continue to be obligated to pay the Obligations at the time and in the manner provided herein and in the other Loan Documents, as so renewed, extended or modified, unless expressly released and discharged by Beneficiary. 6.8.5        Regardless of consideration, and without the necessity for any notice to or consent by the holder of any subordinate lien, encumbrance, right, title or interest in or to the Mortgaged Property, Beneficiary may release any person at any time liable for the payment of the Obligations or any portion thereof or any part of the security held for the Obligations and with the prior written consent and agreement of Trustor may extend the time of payment or otherwise modify the terms of this Deed of Trust or of any of the Loan Documents, including a modification of the interest rate payable on the principal balance of the Note, without in any manner impairing or affecting this Deed of Trust, as so extended and modified, as security for the Obligations over any such subordinate lien, encumbrance, right, title or interest.  Beneficiary may resort for the payment of the Obligations to any other security held by Beneficiary (or any trustee for the benefit of Beneficiary) in such order and manner as Beneficiary in its discretion, may elect.  Beneficiary may take or cause to be taken action to recover the Obligations, or any portion thereof, or to enforce any provision hereof or of the other Loan Documents without prejudice to the right of Beneficiary thereafter to foreclose or cause to be foreclosed this Deed of Trust.  Beneficiary shall not be limited exclusively to the right and remedies herein stated but shall be entitled to every additional right and remedy now or hereafter afforded by law or equity.  The rights of Trustee and Beneficiary under this Deed of Trust shall be separate, distinct and cumulative and none shall be given effect to the exclusion of the others.  No act of Trustee and/or Beneficiary shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision. 6.9           Exercise by Trustee.  Notwithstanding anything herein to the contrary, Trustee (a) shall not exercise, or waive the exercise of, any of its rights or remedies under this Article (other than its right to reimbursement) except upon the request of Beneficiary, and (b) shall exercise, or waive the exercise of, any or all of such rights or remedies upon the request of Beneficiary and at the direction of Beneficiary as to the manner of such exercise or waiver, provided that Trustee shall have the right to decline to follow any of such request or direction if Trustee shall be advised by counsel that the action or proceeding, or manner thereof, so directed may not lawfully be taken or waived. ARTICLE 7 DEFEASANCE 7.1           Defeasance.  If all of the Obligations shall be paid as the same become due and payable, then and in that event only all rights hereunder (except for the rights and obligations set forth in Section 4.3 hereof) shall terminate and the Mortgaged Property shall become wholly released and cleared of the liens, security interests, conveyances and assignments evidenced hereby, upon receipt by Beneficiary of payment of all Obligations secured hereby.  In such event Trustee shall at the request of the Trustor, promptly deliver to Trustor, in recordable form, all such documents as shall be necessary to release the Mortgaged Property from the liens, security interests, conveyances and assignments created or evidenced hereby.  Notwithstanding anything in the preceding sentence to the contrary, Trustee shall so release the Mortgaged Property only upon the direction of Beneficiary. ARTICLE 8 ADDITIONAL PROVISIONS 8.1           Provisions as to Payments, Advances. 8.1.1        To the extent that any part of the Obligations is used to pay indebtedness secured by any outstanding lien, security interest, charge or encumbrance against the Mortgaged Property that is superior to this Deed of Trust, or to pay in whole or in part the purchase price therefor, Trustee and Beneficiary shall be subrogated to any and all rights, security interests and liens held by any owner or holder of the same, whether or not the same are released.  Trustor agrees that, in consideration of such payment by Trustee or Beneficiary, effective upon such payment Trustor shall and hereby does waive and release all demands, defenses and causes of action for offsets and payments with respect to the same. 8.1.2        Any payment made under this Deed of Trust by any person at any time liable for the payment of the Obligations, or by any subsequent owner of the Mortgaged Property or by any person or entity that might be prejudiced in the event of a failure to make such payment, or by any partner, stockholder, officer or director thereof, shall be deemed, as between Trustee or Beneficiary and all such persons, to have been made on behalf of all such persons. 8.2           Usury Savings Clause.  All agreements in this Deed of Trust and in the other Loan Documents are expressly limited so that in no contingency or event whatsoever, whether by reason of advancement or acceleration of maturity of the Obligations, or otherwise, shall the amount paid or agreed to be paid hereunder for the use, forbearance or detention of money exceed the highest lawful rate permitted under applicable usury laws, if any.  If, from any circumstance whatsoever, fulfillment of any provision of the Loan Documents, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law which a court of competent jurisdiction may deem applicable hereto, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity and if, from any circumstance whatsoever, Beneficiary shall ever receive as interest an amount which would exceed the highest lawful rate, the receipt of such excess shall be deemed a mistake and shall be canceled automatically or, if theretofore paid, such excess shall be credited against the principal amount of the Obligations to which the same may lawfully be credited, and any portion of such excess not capable of being so credited shall be rebated to Trustor. 8.3           Separability.  If all or any portion of any provision of this Deed of Trust or the other Loan Documents shall be held to be invalid, illegal or unenforceable in any respect, then such invalidity, illegality or unenforceability shall not affect any other provision hereof or thereof, and such provision shall be limited and construed in such jurisdiction as if such invalid, illegal or unenforceable provision or portion thereof were not contained herein or therein. 8.4           Notices.  Any notice, demand, consent, approval, direction, agreement or other communication (any “Notice”) required or permitted hereunder or under the other Loan Documents shall be in writing and shall be validly given and effectively served if mailed by United States mail, first class or certified mail, return receipt requested, postage prepaid, addressed as set forth above to the person entitled to receive the same. Any Notice shall be deemed to have been validly given and effectively served hereunder two (2) days after so mailed.  Any person shall have the right to specify, from time to time, as its address or addresses for purposes of this Deed of Trust, any other address or addresses upon giving three (3) days’ notice thereof to each other person then entitled to receive notices or other instruments hereunder. 8.5           Right to Deal.  In the event that ownership of the Mortgaged Property becomes vested in a person other than Trustor, Trustee and Beneficiary may, without notice to Trustor, deal with such successor or successors in interest with reference to this Deed of Trust or the Obligations in the same manner as with Trustor, without in any way vitiating or discharging Trustor’s liability hereunder or for the payment of the Obligations or being deemed a consent to such vesting. 8.6           No Merger. 8.6.1        If both the lessor’s and the lessee’s interest under any Lease shall at any time become vested in any one person, this Deed of Trust and the lien and security interest created hereby shall not be destroyed or terminated by the application of the doctrine of merger and, in such event, Trustee and Beneficiary shall continue to have and enjoy all of the rights and privileges of Trustee and Beneficiary hereunder as to each separate estate. 8.6.2        Upon the foreclosure of the lien created hereby on the Mortgaged Property, as herein provided, any Leases then existing shall not be destroyed or terminated by application of the doctrine of merger or as a matter of law or as a result of such foreclosure unless Beneficiary or any purchaser at a foreclosure sale shall so elect by notice to the lessee in question. 8.7           Applicable Law.  THIS DEED OF TRUST SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO ITS LAWS RELATING TO CONFLICTS OF LAWS, EXCEPT TO THE EXTENT THAT THE LAWS OF THE STATE OF TEXAS MANDATORILY GOVERN THE MANNER OR PROCEDURE FOR THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIEN CREATED BY THIS DEED OF TRUST PROVIDED THAT ANY REMEDIES HEREIN PROVIDED WHICH DEED OF TRUST SHALL BE VALID UNDER THE LAWS OF THE STATE OF TEXAS WHERE PROCEEDINGS FOR THE ENFORCEMENT HEREOF SHALL BE TAKEN SHALL NOT BE AFFECTED BY ANY INVALIDITY UNDER THE LAWS OF THE STATE OF CALIFORNIA.   8.8           Appointment of Trustee and Beneficiary.  In the event Trustor is obligated to execute any document or instrument referred to in Section 2.1.2 or 2.1.3 hereof and fails or refuses to do so within 10 days after written demand by Beneficiary, Trustor hereby appoints each of Trustee and Beneficiary, severally its attorney-in-fact, which appointment is irrevocable and shall be deemed to be coupled with an interest, with respect to the execution, acknowledgment, delivery and filing or recording for and in the name of Trustor of any of the documents or instruments referred to in Section 2.1.2 or 2.1.3. 8.9           Discretion of Trustee and Beneficiary.  Whenever Trustee’s or Beneficiary’s judgment, consent or approval is required hereunder for any matter, such judgment, or the decision as to whether or not to consent to or approve the same shall be in the reasonable discretion of Trustee or Beneficiary, as the case may be.  Whenever Trustee or Beneficiary shall have an option or election under this Deed of Trust, the decision whether or not to exercise such option or election shall be in the sole and absolute discretion of Trustee or Beneficiary, as the case may be. 8.10         Provisions as to Covenants and Agreements.  All of Trustor’s covenants and agreements hereunder shall run with the land and time is of the essence with respect thereto. 8.11         Matters to be in Writing.  This Deed of Trust cannot be altered, amended, modified, terminated or discharged except in a writing signed by the party against whom enforcement of such alteration, amendment, modification, termination or discharge is sought.  No waiver, release or other forbearance by Trustee or Beneficiary will be effective against Trustee or Beneficiary unless it is in a writing signed by Beneficiary, and then only to the extent expressly stated. 8.12         Construction of Provisions.  The following rules of construction shall be applicable for all purposes of this Deed of Trust and all documents or instruments supplemental hereto, unless the context otherwise requires: 8.12.1      All references herein to numbered Articles or Sections or to lettered Exhibits are references to the Articles and Sections hereof and the Exhibits annexed to this Deed of Trust, unless expressly otherwise designated in context. 8.12.2      The terms “include,” “including” and similar terms shall be construed as if followed by the phrase “without being limited to.” 8.12.3      The term “knowledge” or “to best of knowledge” when and if used in connection with a representation or warranty made by Trustor means that Trustor and/or the representatives of Trustor have interviewed such persons, representatives, and responsible employees of Trustor, and such prior owners and users of the Mortgaged Property as such representatives have determined are likely to have knowledge of the matters set forth herein. 8.12.4      The terms “Mortgaged Property” and “Premises” shall be construed as if followed by the phrase “or any part thereof.” 8.12.5      The term “Obligations” shall be construed as if followed by the phrase “or any other sums secured hereby, or any part thereof.” 8.12.6      Words of masculine, feminine or neuter gender shall mean and include the correlative words of the other genders, and words importing the singular number shall mean and include the plural number, and vice versa. 8.12.7      The term “person” shall include natural persons, firms, partnerships, limited liability companies, corporations and any other public and private legal entities. 8.12.8      The term “provisions,” when used with respect hereto or to any other document or instrument, shall be construed as if preceded by the phrase “terms, covenants, agreements, requirements, conditions and/or.” 8.12.9      All Article, Section and Exhibits captions herein are used for convenience and reference only and in no way define, limit or describe the scope or intent of, or in any way affect, this Deed of Trust. 8.12.10  The cover page of and all recitals set forth in, and all Exhibits to, this Deed of Trust are hereby incorporated in this Deed of Trust. 8.12.11  All obligations of Trustor hereunder shall be performed and satisfied by or on behalf of Trustor at Trustor’s sole cost and expense. 8.12.12  The term “Lease” shall mean “tenancy, subtenancy, lease or sublease,” the term “lessor” shall mean “landlord, sublandlord, owner, lessor and sublessor” and the terms “lessee” or “tenant” shall mean “tenant, subtenant, lessee and sublessee.” 8.13         Successors and Assigns.  The provisions hereof shall be binding upon Trustor and the heirs, devisees, representatives, successors and assigns of Trustor, including successors in interest of Trustor in and to all or any part of the Mortgaged Property, and shall inure to the benefit of Trustee, Beneficiary and their respective heirs, successors, substitutes and assigns.  All references in this Deed of Trust to Trustor, Trustee or Beneficiary shall be construed as including all of such other persons with respect to the person referred to.  Where two or more persons have executed this Deed of Trust, the obligations of such persons shall be joint and several except to the extent the context clearly indicates otherwise. 8.14         Request for Notice.  All notices, requests, consents, demands and other communications required or which any party desires to give hereunder shall be in writing and shall be deemed sufficiently given or furnished if delivered by personal delivery, by courier, or by registered or certified United States mail, postage prepaid, addressed to the party to whom directed at the addresses specified in this Deed of Trust (unless changed by similar notice in writing given by the particular party whose address is to be changed) or by telegram, telex, or facsimile.  Any such notice or communication shall be deemed to have been given either at the time of personal delivery or, in the case of courier or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or, in the case of telegram, telex or facsimile, upon receipt; provided that, service of a notice required by Texas Property Code Section 51.002, as amended, shall be considered complete when the requirements of that statute are met.  Notwithstanding the foregoing, no notice of change of address shall be effective except upon receipt.   8.15         Fixture Filing.  Portions of the Mortgaged Property are goods which are or are to become fixtures relating to the Land and/or the Premises, and Trustor covenants and agrees that the filing of this Deed of Trust in the real estate records of the county where the Premises are located shall also operate from the time of filing as a fixture filing in accordance with Texas Uniform Commercial Code. 8.16         Variable Rate.  The Note contains a provision permitting Beneficiary to adjust the rate of interest on the indebtedness evidenced thereby. ARTICLE 9 PROVISIONS AS TO TRUSTEE 9.1           Trustee's Appointment.  Trustee accepts this trust when this Deed of Trust, duly executed and acknowledged, is made a public record as provided by law.  Trustee may resign by an instrument in writing addressed to Beneficiary, or Trustee may be removed at any time with or without cause by an instrument in writing executed by Beneficiary and duly recorded.  In case of the death, resignation, removal or disqualification of Trustee or if for any reason Beneficiary shall deem it desirable to appoint a substitute or successor trustee to act instead of Trustee herein named or any substitute or successor Trustee, then Beneficiary shall have the right and is hereby authorized and empowered to appoint a successor Trustee, or a substitute Trustee, without other formality than appointment and designation in writing executed and acknowledged by Beneficiary and the recordation of such writing in the office where this Deed of Trust is recorded, and the authority hereby conferred shall extend to the appointment of other successor and substitute Trustees successively until the Obligations are paid in full or until the Mortgaged Property is sold hereunder.  Such appointment and designation by Beneficiary shall be full evidence of the right and authority to make the same and of all facts therein recited.  If such appointment is executed on behalf of Beneficiary by an officer of Beneficiary, such appointments shall be conclusively presumed to be executed with authority and shall be valid and sufficient without proof of any action by the Trustee or any superior officer of Beneficiary.  Upon the making of such appointment and designation, all of the estate and title of Trustee in the Mortgaged Property shall vest in the named successor or substitute Trustee and it shall thereupon succeed to and shall hold, possess and execute all the rights, powers, privileges, immunities and duties herein conferred upon Trustee; but, nevertheless, upon the written request of Beneficiary or of the successor or substitute Trustee, Trustee ceasing to act shall execute and deliver an instrument transferring to such successor or substitute Trustee all of the estate and title in the Mortgaged Property of Trustee so ceasing to act, together with all the rights, powers, privileges, immunities and duties herein conferred upon Trustee, and shall duly assign, transfer and deliver any of the properties and moneys held by said Trustee hereunder to said successor or substitute Trustee.  All references herein to Trustee shall be deemed to refer to Trustee (including any successor or substitute, appointed and designated, as herein provided) from time to time acting hereunder.  Trustor hereby ratifies and confirms any and all acts which Trustee herein named or its successor or successors, substitute or substitutes, in this Deed of Trust, shall do lawfully by virtue hereof. ARTICLE 10 SPECIAL PROVISIONS 10.1         Non-Monetary Defaults.  Notwithstanding anything to the contrary contained herein, an Event of Default (as defined in Section 6.1 above) shall not be deemed to have occurred if any curable default in performance or breach of any covenant or obligation which cannot be cured by the payment of money occurs under the Note, this Deed of Trust, or any other Loan Document executed by Trustor evidencing or securing the indebtedness evidenced by the Note (“non-monetary default”) and said non-monetary default is cured by Trustor within thirty (30) days after written notice from Beneficiary to Trustor that such non-monetary default exists (or, in the event that such non-monetary default is not reasonably capable of cure within such thirty (30) day period, Trustor commences to cure same within such thirty (30) day period and/or thereafter diligently prosecutes such cure to completion in all events within ninety (90) days). 10.2         Records, Reports and Audits. 10.2.1      Maintenance of Records.  Trustor shall maintain its books and records in accordance with generally accepted accounting principles, applied on a consistent basis, and permit Beneficiary to examine and audit Trustor's books and records at all reasonable times upon advance written notice; provided however, such examinations and audits shall not unreasonably interfere with Trustor’s operations, shall be at Beneficiary’s sole expense, and shall occur no more frequently than twice per year, unless an Event of Default has occurred and is continuing.                                 10.2.2      Reports; Audits.  Trustor shall furnish Beneficiary with, as soon as available, but in no event later than one hundred (100) days after the end of each fiscal year, Trustor's balance sheet and income statement for the year ended, audited by a certified public accountant, and containing an unqualified opinion of the accountant. All financial reports required to be provided under this Deed of Trust shall be prepared in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Trustor as being true and correct.  In addition, Trustor agrees to provide Beneficiary with copies of all filings submitted to the Securities and Exchange Commission within ten (10) days of filing.                   10.3         Minimum Ratio.  Trustor shall maintain a ratio, as of the end of each fiscal year of Trustor, of (x) the sum of Trustor's annual earning before interest, taxes, depreciation and amortization expenses (but excluding any non-cash income) less dividends and distributions paid to shareholders of Trustor, to (y) the amount of current portion of long-term obligations  plus the amount of the interest expense for the preceding fiscal year, of 2.00 to 1.00.  Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be based on Trustor's most recent annual financial statements, and shall be made in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct.               10.4         Use Of Property.  The Mortgaged Property is not currently used for agricultural, farming, timber or grazing purposes.  Trustor warrants that this Deed of Trust is and will at all times constitute a commercial trust deed, as defined under appropriate state law.                     10.5         Cross Default.  Concurrently herewith, Beneficiary and Trustor are negotiating certain documents pertaining to a revolving line of credit loan which Beneficiary intends to make to Borrower in the maximum amount of $2,000,000.00 within the next thirty (30) days (“Revolving Loan”).  Any event of default by Trustor under any of the documents evidencing or securing the Revolving Loan, if and when entered into, shall constitute an Event of Default hereunder.                   10.6         Tangible Net Worth.  Trustor shall maintain at all times a “Tangible Net Worth” in excess of $20,000,000.00. The words "Tangible Net Worth" mean Trustor's Total Shareholders’ Equity, less all intangible assets (i.e. goodwill, trademarks, patents, copyrights, organizational expenses, and similar intangible items, but including leaseholds and leasehold improvements) plus Subordinated Debt. The words “Total Shareholders’ Equity” mean the total shareholders’ equity as set forth in Trustor’s financial statements as approved by Beneficiary. The words “Subordinated Debt” mean indebtedness and other liabilities of Trustor, which have been subordinated by written agreement to indebtedness owed by Trustor pursuant to a subordination agreement in form and substance acceptable to Beneficiary. 10.7         Location of Trustor.  For the purposes of enabling Beneficiary to properly file a UCC-1 financing statement in order to perfect its security interest in the personal property constituting a portion of the Mortgaged Property, Trustor hereby represents to Beneficiary that its state of location (“Location”) is, as of the date hereof, Delaware. Trustor agrees to notify Beneficiary in writing of its intent to change its Location, including a change in Location resulting from a reincorporation or reregistration in another State, or a merger with an entity whose Location is in another State, at least thirty (30) days prior to any such change in its Location.  Trustor further agrees to execute any and all documents required by Beneficiary to continue the perfection of Beneficiary’s security interest in the personal property constituting a portion of the Mortgaged Property or to perfect a new security interest therein and hereby specifically authorizes Beneficiary to file or cause to filed an appropriate financing statement in the state of the new Location.   10.8         Counterparts.        This Deed of Trust is being executed in two counterparts in order to facilitate recordation in the Official Records of Collin and Dallas Counties.  Said counterparts, when taken together, shall constitute one instrument. IN WITNESS WHEREOF, the undersigned has executed this Deed of Trust the day first set forth above.   TRUSTOR: FRESH CHOICE, INC., a Delaware corporation   By: /S/ David E. Pertl   Its: Senior Vice President and CFO       EXHIBIT A DESCRIPTION OF REAL PROPERTY   PARCEL ONE   BEING A TRACT OF LAND LOCATED IN THE THOMAS L. CHENWORTH SURVEY, ABSTRACT NO. 273, TOWN OF ADDISON, DALLAS COUNTY, TEXAS, AND FURTHER BEING ALL OF LOT 1, BLOCK 1, OF THE AMENDED FINAL PLAT OF BELT LINE CENTRE, AN ADDITION TO THE TOWN OF ADDISON, TEXAS, RECORDED IN VOLUME 92193, PAGE 1795, MAP RECORDS OF DALLAS COUNTY, TEXAS, AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:   BEGINNING AT A POINT ON THE SOUTHERLY LINE OF BELT LINE ROAD (A 100 FOOT RIGHT-OF-WAY) SAID POINT BEING AT THE NORTHEAST CORNER OF SAID LOT 1 OF THE AMENDED FINAL PLAT OF BELT LINE CENTRE, AND THE NORTHEAST CORNER OF SAMS CLUB ADDITION, AN ADDITION TO THE TOWN OF ADDISON, TEXAS, RECORDED IN VOLUME 92109, PAGE 3987, MAP RECORDS, DALLAS COUNTY, TEXAS, A 3/8 INCH IRON PIN FOUND 9.3 FEET SOUTH OF THE STREET BACK OF CURB AT CORNER;   THENCE SOUTH 00 DEGREES 01 MINUTE 18 SECONDS WEST, ALONG THE EASTERLY LINE OF SAID LOT 1 AND THE WESTERLY LINE OF SAMS CLUB ADDITION, A DISTANCE OF 389.44 FEET TO A PK NAIL SET AT CORNER;   THENCE NORTH 89 DEGREES 58 MINUTES 42 SECONDS WEST, ALONG THE SOUTHERLY LINE OF SAID LOT 1 AND THE NORTHERLY LINE OF LOT 2 OF SAID AMENDED FINAL PLAT OF BELT LINE CENTRE, A DISTANCE OF 89.72 FEET TO A PK NAIL SET AT CORNER;   THENCE ALONG A COMMON LINE BETWEEN SAID LOTS 1 AND 2 AND AROUND A TANGENT CURVE TO THE RIGHT HAVING A CENTRAL ANGLE OF 90 DEGREES 33 MINUTES 42 SECONDS, A RADIUS OF 85.00 FEET AND A CHORD BEARING OF NORTH 44 DEGREES 41 MINUTES 51 SECONDS WEST, AN ARC DISTANCE OF 134.35 FEET TO A PK NAIL SET AT CORNER;   THENCE NORTH 00 DEGREES 35 MINUTES 00 SECONDS EAST, ALONG THE WESTERLY LINE OF SAID LOT 1 AND THE EASTERLY LINE OF LOT 2, A DISTANCE OF 305.30 FEET TO A  POINT ON THE SAID BELT LINE ROAD SOUTHERLY LINE, AN "X" IN CONCRETE CUT AT CORNER;   THENCE SOUTH 89 DEGREES 25 MINUTES 00 SECONDS EAST, ALONG THE SAID BELT LINE ROAD SOUTHERLY LINE, A DISTANCE OF 171.73 FEET TO THE PLACE OF BEGINNING AND CONTAINING 66,184 SQUARE FEET OR 1.5194 ACRES OF LAND.   PARCEL TWO   TRACT I:   BEING LOT 5, BLOCK A OF CREEKWALK VILLAGE, AN ADDITION TO THE CITY OF PLANO, COLLIN COUNTY, TEXAS, ACCORDING TO THE REVISED MAP THEREOF RECORDED IN VOLUME I, PAGE 345, MAP RECORDS OF COLLIN COUNTY, TEXAS.   TRACT II:   TOGETHER WITH THE NON-EXCLUSIVE EASEMENTS FOR ROADWAYS, WALKWAYS, INGRESS, EGRESS AND PARKING PURPOSES OVER AND ACROSS THE COMMON AREA, AS CREATED BY THAT CERTAIN DECLARATION OF EASEMENTS AND COVENANTS, CONDITIONS AND RESTRICTIONS BY AND BETWEEN SPRINGCREEK DEVELOPMENT, INC., AND FRESH CHOICE, INC., FILED 05/04/94, RECORDED UNDER CC#94-0043373, LAND RECORDS OF COLLIN COUNTY, TEXAS.   [Two Notary Acknowledgments Here]  

Exhibit 10.2 INTRABIOTICS PHARMACEUTICALS, INC. Amended and Restated 1995 Stock Option Plan Adopted February 15, 1995 Amended on June 13, 1996 Amended on July 29, 1997 Amended on October 21, 1997 Amended on June 18, 1998 Amended on October 22, 1998 Amended on June 10, 1999 Amended on January 26, 2000 Amended on April 27, 2001              1.          Purpose of the Plan. The purposes of this Amended and Restated 1995 Stock Option Plan are to attract and retain the best available personnel for positions’ of substantial responsibility, to provide additional incentive to the Employees and Consultants of the Company and to promote the success of the Company’s business.              Options granted hereunder may be either Incentive Stock Options or Nonstatutory Stock Options, at the discretion of the Board and as reflected in the terms of the written option agreement.              2.          Definitions. As used herein, the following definitions shall apply:                            (a)         “Board” shall mean the Board of Directors of the Company.                            (b)         “Code” shall mean the Internal Revenue Code of 1986, as amended.                            (c)         “Committee” shall mean the Committee appointed by the Board in accordance with paragraph (a) of Section 4 of the Plan, or, if no Committee is appointed, then the Board.                            (d)         “Common Stock” shall mean the Common Stock, $0.001 par value per share, of the Company.                            (e)         “Company” shall mean IntraBiotics Pharmaceuticals, Inc., a Delaware corporation.                            (f)         “Consultant” shall mean any person who is engaged by the Company or any Parent or Subsidiary to render consulting services, including serving on the Company’s Scientific Advisory Board, and is compensated for such consulting services, and any director of the Company whether compensated for such services or not; provided that if and in the event the Company registers any class of any equity security pursuant to Section 12 of the Exchange Act, the term Consultant shall thereafter not include directors who are not compensated for their services or are paid only a director’s fee by the Company.                            (g)        “Continuous Status as an Employee or Consultant” shall mean the absence of any interruption or termination of service as an Employee or Consultant. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of sick leave, military leave or any other leave of absence approved by the Board; provided that such leave is for a period of not more than 90 days or reemployment upon the expiration of such leave is guaranteed by contract or statute.                            (h)        “Disinterested Person” shall mean a director (i) who is not, during the one year prior to service as an administrator of the Plan pursuant to Section 4(a), or during such service, granted or awarded equity securities pursuant to the Plan or any other plan of the Company or any of its affiliates except as permitted by Rule 16b-3(c)(2)(i)(A)-(D) under the Exchange Act or (ii) who is otherwise considered to be a “disinterested person” in accordance with Rule 16b-3(c)(2)(i), or any other applicable rules, regulations or interpretation of the Securities Exchange Commission. Any such person shall otherwise comply with the requirements of Rule 16b-3 under the Exchange Act.                            (i)         “Employee” shall mean any person, including officers and directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a director’s fee by the Company shall not be sufficient to constitute “employment” by the Company.                            (j)         “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.                            (k)        “Incentive Stock Option” shall mean an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.                            (l)         “Nonstatutory Stock Option” shall mean an Option not intended to qualify as an Incentive Stock Option.                            (m)       “Option” shall mean a stock option granted pursuant to the Plan.                            (n)        “Optioned Stock” shall mean the Common Stock subject to an Option.                            (o)         “Optionee” shall mean an Employee or Consultant who receives an Option.                            (p)         “Parent” shall mean a “parent corporation” whether now or hereafter existing, as defined in Section 425(e) of the Code.                            (q)         “Plan” shall mean this Amended and Restated 1995 Stock Option Plan.                            (r)         “Share” shall mean a share of the Common Stock, as adjusted in accordance with Section 11 of the Plan.                            (s)         “Stock Option Agreements” shall mean Stock Option Agreements and Amended and Restated Stock Option Agreements as defined in Section 16 of the Plan.                            (t)         “Subsidiary” shall mean a “subsidiary corporation” whether now or hereafter existing, as defined in Section 425(f) of the Code.              3.          Stock Subject to the Plan. Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is nine million forty-seven thousand one hundred eight (9,047,108) Shares. The Shares may be authorized, but unissued, or reacquired Common Stock.              If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. Notwithstanding any other provision of the Plan, Shares issued under the Plan and later repurchased by the Company shall not become available for future grant or sale under the Plan.              4.          Administration of the Plan.                            (a)         Procedure. The Plan shall be administered by the Board.                                         (i)         The Board may appoint a Committee consisting of not less than two members of the Board to administer the Plan on behalf of the Board, subject to such terms and conditions as the Board may prescribe. Once appointed, the Committee shall continue to serve until otherwise directed by the Board. Members of the Board who are either eligible for Options or have been granted Options may vote on any matters affecting the administration of the Plan or the grant of any Options pursuant to the Plan, except that no such member shall act upon the granting of an Option to himself, but any such member may be counted in determining the existence of a quorum at any meeting of the Board during which action is taken with respect to the granting of Options to him.                                         (ii)        Notwithstanding the foregoing subparagraph (i), if and in any event the Company registers any class of any equity security pursuant to Section 12 of the Exchange Act, any grants of Options to officers or directors shall only be made by the Board, if each member of the Board is a Disinterested Person; provided, however, if each member of the Board is not a Disinterested Person, then grants of Options to officers or directors shall only be made by a Committee of two or more directors, each of whom is a Disinterested Person.                                         (iii)       Subject to the foregoing subparagraphs (i) and (ii), from time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the Committee and thereafter directly administer the Plan.                            (b)         Powers of the Committee. Subject to the provisions of the Plan, the Committee shall have the authority, in its discretion: (i) to grant Incentive Stock Options or Nonstatutory Stock Options; (ii) to determine, upon review of relevant information and in accordance with Section 8(b) of the Plan, the fair market value of the Common Stock; (iii) to determine the exercise price per share of Options to be granted, which exercise price shall be determined in accordance with Section 8(a) of the Plan; (iv) to determine the Employees or Consultants to whom, and the time or times at which, Options shall be granted and the number of shares to be represented by each Option; (v) to interpret the Plan; (vi) to prescribe, amend and rescind rules and regulations relating to the Plan; (vii) to determine the terms and provisions of each Option granted (which need not be identical) and, with the consent of the holder thereof, modify or amend each Option; (viii) to defer (with the consent of the Optionee) the exercise date of any Option, consistent with the provisions of Section 5 of the Plan; (ix) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted by the Board; and (x) to make all other determinations deemed necessary or advisable for the administration of the Plan.                            (c)         Effect of Committee’s Decision. All decisions, determinations and interpretations of the Committee shall be final and binding on all Optionees and any other holders of any Options granted under the Plan.              5.          Eligibility.                            (a)         Nonstatutory Stock Options may be granted only to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option may, if he is otherwise eligible, be granted an additional Option or Options.                            (b)         When any Options designated as Incentive Stock Options become first available for purchase, and when the aggregate of all Incentive Stock Options granted to an Employee by the Company or any Parent or Subsidiary would result in Shares having an aggregate fair market value (determined for each Share as of the date of grant of the Option covering such Share) in excess of $100,000, then upon exercise of one or more Incentive Stock Options during any calendar year, any Options in excess of such dollar amount shall be treated for all purposes as Nonstatutory Stock Options.                            (c)         Section 5(b) of the Plan shall apply only to an Incentive Stock Option evidenced by an “Incentive Stock Option Agreement” which sets forth the intention of the Company and the Optionee that such Option shall qualify as an Incentive Stock Option.  Section 5(b) of the Plan shall not apply to any Option evidenced by a “Nonstatutory Stock Option Agreement” which sets forth the intention of the Company and the Optionee that such Option shall be a Nonstatutory Stock Option.                            (d)         The Plan shall not confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with his right or the Company’s right to terminate his employment or consulting relationship at any time, with or without cause.              6.          Term of Plan.  The Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the stockholders of the Company as described in Section 17 of the Plan.  It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan.  Termination of the Plan shall not affect the obligations of the Company or the rights of Optionees pursuant to Options outstanding on the date of termination.              7.          Term of Option.  The term of each Incentive Stock Option shall be ten (10) years from the date of grant thereof or such shorter term as may be provided in the Incentive Stock Option Agreement.  The term of each Nonstatutory Stock Option shall be ten (10) years from the date of grant thereof or such shorter term as may be provided in the Nonstatutory Stock Option Agreement.  However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Incentive Stock Option Agreement.              8.          Exercise Price and Consideration.                            (a)         The per Share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Committee, but’ shall be subject to the following:                                         (i)         In the case of an Incentive Stock Option                                                      (A)        granted to an Employee or Consultant who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the fair market value per Share on the date of grant.                                                      (B)        granted to an Employee or Consultant, the per Share exercise price shall be no less than 100% of the fair market value per Share on the date of grant.                                         (ii)        In the case of a Nonstatutory Stock Option                                                      (A)        granted to an Employee or Consultant who, at the time of the grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the fair market value per Share on the date of the grant.                                                      (B)        granted to an Employee or Consultant, the per Share exercise price shall be no less than 85% of the fair market value per Share on the date of grant.                            (b)         The fair market value shall be determined by the Committee in its discretion; provided, however, that where there is a public market for the Common Stock, the fair market value per Share shall be the mean of the bid and asked prices (or the closing price per share if the Common Stock is listed on the National Association of Securities Dealers Automated Quotation (“NASDAQ”) National Market System) of the Common Stock for the date of grant, as reported in the Wall Street Journal (or, if not so reported, as otherwise reported by the NASDAQ System) or, in the event the Common Stock is listed on a stock exchange, the fair market value per Share shall be the closing price on such exchange on the date of grant of the Option, as reported in the Wall Street Journal.                            (c)         The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Committee and may consist entirely of cash, check or other Shares of Common Stock which (i) either have been owned by the Optionee for more than six (6) months on the date of surrender or were not acquired, directly or indirectly, from the Company, and (ii) have a fair market value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, or any combination of such methods of payment.              9.          Exercise of Option.                            (a)         Procedure for Exercise.  Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Board, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan.                                         (i)         Stock Option Agreement.  Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement.                                         (ii)        Exercisability.  The Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable.  An Option shall become exercisable at the rate of at least twenty percent (20%) per year over five (5) years from the date the Option is granted; provided however, that an Option granted to an officer, director or consultant (within the meaning of Section 260.140.41 of Title 10 of the California Code of Regulations) may become fully exercisable, subject to reasonable conditions such as continued employment, at any time or during any period established by the Company.  Subject to the preceding sentence, the vesting of any Option shall be determined by the Committees at its sole discretion.                                         (iii)       No Fractional Shares.  An Option may not be exercised for a fraction of a Share.                                         (iv)        Exercise.  An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Stock Option Agreement by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company.  Full payment may, as authorized by the Committee, consist of consideration and method of payment allowable under Section 8(c) of the Plan.                                         (v)         No Rights as a Stockholder.  Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option.  The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option.  No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan.                            (b)         Termination of Status as an Employee or Consultant.  In the event of termination of an Optionee’s Continuous Status as an Employee or Consultant (as the case may be), such Optionee may, at any time within thirty (30) days or such longer period of time, not exceeding three (3) months in the case of an Incentive Stock Option or six (6) months in the case of a Nonstatutory Stock Option as determined by the Board (with such determination in the case of a Incentive Stock Option being made at the time of grant of the Option), after the date of such termination (but in no event later than the date of expiration of the term of such Option as set forth in the Stock Option Agreement), exercise his Option to the extent that he was entitled to exercise it at the date of such termination.  To the extent that he was not entitled to exercise the Option at the date of such termination, or if he does not exercise such Option (which he was entitled to exercise) within the time specified herein, the Option shall terminate.                            (c)         Disability of Optionee.  Notwithstanding the provisions of Section 9(b) above, in the event of termination of an Optionee’s Continuous Status as an Employee or Consultant as a result of his disability, he may, at any time within six (6) months or such longer period of time, not exceeding twelve (12) months as determined by the Board (with such determination in the case of an Incentive Stock Option being made at the time of grant of the Option), from the date of such termination (but in no event later than the date of expiration of the term of such Option as set forth in the Stock Option Agreement), exercise his Option to the extent he was entitled to exercise it at the date of such termination.  To the extent that he was not entitled to exercise the Option at the date of termination, or if he does not exercise such Option’ (which he was entitled to exercise) within the time specified herein, the Option shall terminate.                            (d)         Death of Optionee.  In the event of the death of an Optionee:                                         (i)         during the term of an Option held by an Optionee who was, at the time of his death, an Employee or Consultant of the Company and who shall have been in Continuous Status as an Employee or Consultant since the date of grant of the Option, the Option may be exercised, at any time within six (6) months following the date of death (but in no event later than the date of expiration of the term of such Option as set forth in the Stock Option Agreement), by the Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that would have accrued had the Optionee continued living and remained in Continuous Status as an Employee or Consultant six (6) months after the date of death, subject to the limitation set forth in Section 5(b); or                                         (ii)        within thirty (30) days or such other period of time, not exceeding three (3) months as determined by the Board (with such determination in the case of an Incentive Stock Option being made at the time of grant of the Option), after the termination of Continuous Status as an Employee or Consultant, the Option may be exercised, at any time within six (6) months following the date of death (but in no event later than the date of expiration of the term of such Option as set forth in the Stock Option Agreement), by the Optionee’s estate or by a person who acquired the right to exercise that had accrued at the date of termination.              10.        Non-Transferability of Options.  The Option may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee.              11.        Adjustments Upon Changes in Capitalization or Merger.  Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock or similar transaction.  Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive.  Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option.              In the event of the proposed dissolution or liquidation of the Company, the Board shall notify the Optionee at least fifteen (15) days prior to such proposed action.  To the extent it has not been previously exercised, the Option will terminate immediately prior to the consummation of such proposed action.  In the event of a merger of the Company with or into another corporation in which the Company is not the surviving corporation or upon the sale of substantially all of the property of the Company to another corporation or person, the surviving corporation may assume any Options outstanding under the Plan or an equivalent option may be substituted’ by such successor employer corporation or a parent or subsidiary of such successor corporation, if such successor corporation agrees to assume the Options or to substitute an equivalent option.              Notwithstanding the vesting schedules set forth in Options outstanding under the Plan, in the event of a merger or sale of the Company described above, (i) Options held by persons who are then Employees but not officers of the Company shall become vested as to one-half (1/2) of the then unvested shares subject to such Options as of the effective date of the change in control; (ii) Options held by any person who is an Employee and who holds the title of vice president or higher shall become fully vested in the event that such person’s service with the Company is involuntarily terminated without Cause (as defined below) or voluntarily terminated for Good Reason (as defined below), in either case within thirteen (13) months following the change in control; and (iii) Options held by persons who are then members of the Board of Directors of the Company but who are not Employees shall become fully vested and immediately exercisable as of the effective date of the change in control.              For purposes of this option, “Cause” means that, in the reasonable determination of the Company, the officer:                            (i)         has been indicted or convicted of any felony or any crime involving dishonesty that is likely to inflict or has inflicted demonstrable and material injury on the business of the Company;                            (ii)        has participated in any fraud against the Company; or                            (iii)       has intentionally damaged any property of the Company thereby causing demonstrable and material injury to the business of the Company; provided that Cause shall not exist based on conduct described in clause (ii) or clause (iii) unless the conduct described in such clause has not been cured within fifteen (15) days following the officer’s receipt of written notice from the Company specifying the particulars of the conduct constituting Cause.              For purposes of this option, “Good Reason” means that any of the following is undertaken without the officer’s express written consent:                            (i)         the assignment to the officer of any duties or responsibilities that results in a significant diminution in the officer’s function as in effect immediately prior to the effective date of the change in control; provided, however, that a mere change in the officer’s title or reporting relationships shall not constitute Good Reason;                            (ii)        a material reduction by the Company in the officer’s annual base salary, as in effect on the effective date of the change in control or as increased thereafter;                            (iii)       any failure by the Company to continue in effect any benefit plan or program, including fringe benefits, incentive plans and plans with respect to the receipt of securities of the Company, in which the officer is participating immediately prior to the effective date of the change in control (hereinafter referred to as “Benefit Plans”); or the taking of any action by the Company that would adversely affect the officer’s participation in or reduce the officer’s benefits under the Benefit Plans; provided, however, that “Good Reason” shall not exist under this paragraph following a change in control if the Company offers a range of benefit plans and programs that, taken as a whole, are comparable to the Benefit Plans; or                            (iv)        a relocation of the officer’s business office to a location more than fifty (50) miles from the location at which the officer performs duties as of the effective date of the change in control, except for required travel by the officer on the Company’s business to an extent substantially consistent with the officer’s business travel obligations prior to the change in control.              12.        Time of Granting Options.  The date of grant of an Option shall, for all purposes, be the date on which the Committee makes the determination granting such Option.  Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant.              13.        Amendment, Suspension and Termination of the Plan.                            (a)         Amendment and Termination.  The Board may amend, suspend or terminate the Plan at any time in such respects as the Board may deem advisable; provided that the following revisions or amendments shall require approval of the stockholders of the Company in the manner described in Section 17 of the Plan:                                         (i)         any increase in the number of Shares subject to the Plan, other than in connection with an adjustment under Section 11 of the Plan;                                         (ii)        any change in the designation of the class of persons eligible to be granted options; or                                         (iii)       if the Company has a class of equity securities registered under Section 12 of the Exchange Act at the time of such revision or amendment, any material increase in the benefits accruing to participants under the Plan.                            (b)         Stockholder Approval.  If any amendment requiring stockholder approval under Section 13(a) of the Plan is made subsequent to the first registration of any class of equity securities by the Company under Section 12 of the Exchange Act, such stockholder approval shall be solicited as described in Section 17 of the Plan.                            (c)         Effect of Amendment, Suspension or Termination.  Any such amendment, suspension or termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended, suspended or terminated, unless mutually agreed otherwise between the Optionee and the Committee, which agreement must be in writing and signed by the Optionee and the Company.              14.        Conditions Upon Issuance of Shares.  Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.              Any Shares issued upon exercise of an Option shall be subject to such rights of repurchase, rights of first refusal and other transfer restrictions as the Committee may determine.  Such restrictions shall be set forth in the applicable Stock Option Agreement and shall apply in addition to any restrictions that may apply to holders of Shares generally.              As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law.              15.        Reservation of Shares.  The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.              The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.              16.        Stock Option Agreements.  All Options shall be evidenced by written Stock Option Agreements or Amended and Restated Stock Option Agreements in such form as the Committee shall approve.  The provisions of the various Stock Option Agreements need not be identified.              17.        Stockholder Approval.                            (a)         Continuance of the Plan shall be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted.  Any Option exercised before stockholder approval is obtained shall be rescinded if stockholder approval is not obtained within twelve (12) months after the plan is adopted.  Such Shares shall not be counted in determining whether such approval is obtained.                            (b)         If and in the event that the Company registers any class of equity securities pursuant to Section 12 of the Exchange Act, any required approval of the stockholders of the Company obtained after such registration shall be solicited substantially in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder.                            (c)         If any required approval by the stockholders of the Plan itself or of any amendment thereto is solicited at any time otherwise than as described in Section 17(b) hereof, then the Company shall, at or prior to the first annual meeting of stockholders held subsequent to the later of (1) the first registration of any class of equity securities of the Company under Section 12 of the Exchange Act or (2) the granting of an Option hereunder to an officer or director after such registration, do the following:                                         (i)         furnish in writing to the stockholders entitled to vote for the Plan substantially the same information which would be required (if proxies to be voted with respect to approval or disapproval of the Plan or amendment were then being solicited) by the rules and regulations in effect under Section 14(a) of the Exchange Act at the time such information is furnished; and                                         (ii)        file with, or marl for filing to, the Securities and Exchange Commission four (4) copies of the written information referred to in subsection (i) hereof not later than the date on which such information is first sent or given to stockholders.              18.        Information to Optionees.  The Company shall provide to each Optionee, during the period for which such Optionee has one or more Options outstanding, financial statements at least annually and copies of all annual reports and other information which are provided to all stockholders of the Company.  The Company shall not be required to provide such information if the issuance of Options under the Plan is limited to key employees whose duties in connection with the Company assure their access to equivalent information.  

EXHIBIT 10.18 Amended and Restated GENERAL DYNAMICS CORPORATION 1997 INCENTIVE COMPENSATION PLAN 1.   Purpose. This plan is an amendment and restatement of the 1988 Incentive Compensation Plan; it is renamed the “1997 Incentive Compensation Plan” and is referred to hereinafter as the “Plan.” The purpose of the Plan is to provide General Dynamics Corporation and its subsidiaries (the “Company”) with an effective means of attracting, retaining, and motivating officers and other key employees and to provide them with incentives to enhance the growth and profitability of the Company.   2.   Eligibility. Any officer or key employee of the Company in an executive, administrative, professional, scientific, engineering, technical, or advisory capacity is eligible for an award under the Plan.   3.   Committee. The Plan shall be administered by the Compensation Committee (the “Committee”) of the Board of Directors of the Company comprised of two or more members of the Board of Directors, none of whom shall be employees of the Company. Except as otherwise expressly provided in the Plan, the Committee shall have full power and authority to interpret and administer the Plan, to determine the officers and key employees to receive awards and the amounts and types of the awards, to adopt, amend, and rescind rules and regulations, and to establish terms and conditions, not inconsistent with the provisions of the Plan, for the administration and implementation of the Plan, provided, however, that the Committee may not, after the date of any award, make any changes that would adversely affect the rights of a recipient under any award without the consent of the recipient. The determination of the Committee on these matters shall be final and conclusive and binding on the Company and all participants.       Code Section 162(m) Subcommittee. Notwithstanding the foregoing paragraph, the Plan shall be administered by a subcommittee of the Committee (the “Subcommittee”) with respect to persons covered by the deduction limitation of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). The Subcommittee shall comprise two or more members of the Committee, all of whom shall be “outside directors” as that term is used in Code Section 162(m). With respect to such persons subject to Code Section 162(m), the Subcommittee shall have all of the powers, rights, and duties granted to the Committee under this Plan and each reference to the “Committee” herein shall be deemed to be a reference to the “Subcommittee.”   4.   Awards. Awards may be made by the Committee in such amounts as it shall determine in cash, in common stock of the Company (“Common Stock”), in options to purchase Common Stock of the Corporation (“Stock Options”), or in shares of Common Stock subject to certain restrictions (“Restricted Stock”), or any combination thereof. Awards of Stock Options shall be limited to awards for such number of shares as shall be allocated for that purpose by the Board of Directors and approved by the shareholders. Page: 1 of 7 -------------------------------------------------------------------------------- 5.   Code Section 162(m) Awards. Awards to persons covered by the deduction limitation of Code Section 162(m), as described by Code Section 162(m)(3), shall be subject to the following additional limitations:   a.   Adjustments. The Subcommittee shall have no discretion to increase an award of Stock Options and/or Restricted Stock once granted, except that adjustments are permitted under Sections 11 and 12 of this Plan to the extent permissible under regulations interpreting Code Section 162(m).     b.   Maximum Awards. Awards of Stock Options and/or Restricted Stock under the Plan shall be limited as follows:     (1)   Awards of Stock Options shall be limited to 500,000 shares awarded to any one individual for any calendar year and shall be issued at fair market value.     (2)   Awards of Restricted Stock shall be limited to 100,000 shares awarded to any one individual for any calendar year. Notwithstanding the foregoing, Restricted Stock granted under the Restricted Stock Performance Formula, described below, shall be limited to an initial grant of 100,000 shares, but shall be adjusted upwards or downwards in accordance with that formula.     c.   Performance Goals. The Subcommittee, in its sole discretion, shall establish performance goals applicable to awards of Restricted Stock in such a manner as shall permit payments with respect thereto to qualify as “performance-based compensation” as described in Code Section 162(m)(4)(C). Such awards shall be based on attainment of, over a specified period of individual performance, specified targets or other parameters relating to one or more of the following business criteria: market price of Common Stock, earnings per share, net profits, total shareholder return, return of shareholders’ equity, cash flow, and cumulative return on net assets employed. In addition, awards of Restricted Stock may be based on the Restricted Stock Performance Formula, described below. 6.   Restricted Stock Performance Formula. Awards of Restricted Stock may be granted pursuant to the formula described in this section, referred to herein as the “Restricted Stock Performance Formula.” The Committee shall make an initial grant of shares of Restricted Stock (the “Initial Grant”). At the end of a specified performance period (determined by the Committee), the number of shares in the Initial Grant shall be increased or decreased based on the increase or decrease in the value of the Common Stock over the performance period.       The increase or decrease described in the preceding paragraph shall be determined in the following manner:   At the end of each performance period, the fair market value (as defined in Section 7 below) of the Common Stock is compared to the fair market value per share on the grant date. That difference is multiplied by the number of shares of Restricted Stock to be earned at the end of each performance period and the resulting product is divided by the fair market value at the end of the performance period. The number of shares of Common Stock so determined is added to (in the case of a higher fair market value) or subtracted from (in the case of a lower fair market value) the number of shares of Restricted Stock to be earned at that time. Once the number of Page: 2 of 7 --------------------------------------------------------------------------------   shares of Restricted Stock has been adjusted, restrictions will continue to be imposed for a period of time. 7.   Common Stock. In the case of awards in Common Stock, the number of shares shall be determined by dividing the amount of the award by the average between the highest and lowest quoted selling prices of the Company’s Common Stock on the New York Stock Exchange on the date of the award. The average is referred to throughout this Plan as the “fair market value.”   8.   Dividend Equivalents and Interest.   a.   Dividends. If any award in Common Stock or Restricted Stock is to be paid on a deferred basis, the recipient may be entitled, on terms and conditions to be established, to receive a payment of, or credit equivalent to, any dividend payable with respect to the number of shares of Common Stock or Restricted Stock which, as of the record date for the dividend, has been awarded or made payable to the recipient but not delivered.     b.   Interest. If any award in cash is to be paid on a deferred basis, the recipient may be entitled, on terms and conditions to be established, to be paid interest on the unpaid amount. 9.   Restricted Stock Awards. Restricted Stock represents awards made in Common Stock in which the shares granted may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated except upon passage of time, or upon satisfaction of other conditions, or both, in every case as provided by the Committee in its sole discretion. The recipient of an award of Restricted Stock shall be entitled to vote the shares awarded and to the payment of dividend equivalents on the shares from the date the award of shares is made; and, in addition, all Special Distributions (as defined in Section 11 hereof) thereon shall be credited to an account similar to the Account described in Section 11. The recipient of an award of Restricted Stock shall have a nonforfeitable interest in amounts credited to such account in proportion to the lapse of restrictions on the Restricted Stock to which such amounts relate. For example, when restrictions lapse on fifty percent (50%) of the Restricted Stock granted in an award, the holder of such Restricted Stock shall have a nonforfeitable interest in fifty percent (50%) of the amount credited to his account which is attributable to such Restricted Stock. The holder of Restricted Stock shall receive a payment in cash of any amount in his account as soon as practicable after the lapse of restrictions relating thereto. With respect to Restricted Stock awards granted after May 3, 2001, shares underlying Restricted Stock awards shall become nonforfeitable no sooner than three (3) years from the original grant date (other than shares granted pursuant to a performance adjustment), except that the Committee or Subcommittee, as the case may be, shall have the discretion to reduce such three (3) year period or impose a shorter period (i) for the occurrence of any event described in Section 12, (ii) for any corporate divestiture or acquisition, or (iii) in the case of any special agreement, award or situation with respect to any individual executive.   10.   Stock Option Awards.   a.   Available Shares. Shares available for awards of Stock Options under the Plan at the effective date of the restatement of the Plan shall be available for awards of Stock Options under the Plan. Shares available for awards of Stock Options may be authorized but unissued shares or may be treasury shares. If any option awarded under the Plan or any predecessor plan shall expire, terminate, or be canceled for any reason without having been exercised in full, the corresponding Page: 3 of 7 --------------------------------------------------------------------------------       number of unpurchased shares which were reserved for issuance upon exercise thereof shall again be available for the purposes of the Plan.     b.   Type of Options. Options shall be in the form of incentive stock options, non-statutory stock options, or both, as the Committee may determine. The term “incentive stock option” means any option, or portion thereof, awarded under the Plan which meets the applicable requirements of Section 422 of the Internal Revenue Code, as it may be amended from time to time. The term “non-statutory stock option” means any option, or portion thereof, awarded under the Plan which does not qualify as an incentive stock option.     c.   Incentive Stock Option Limitation. For incentive stock options granted under the Plan, the aggregate fair market value (determined as of the date the option is awarded) of the number of whole shares with respect to which incentive stock options are exercisable for the first time by any employee during any calendar year under all plans of the Company shall not exceed $100,000.     d.   Purchase Price. The purchase price of the Common Stock under each option shall be determined by the Committee, but shall not be less than 100 percent of the fair market value of the Common Stock on the date of the award of the option.     e.   Terms and Conditions. The Committee shall, in its discretion, establish (i) the term of each option, which in the case of incentive stock options shall not be more than ten years, (ii) the terms and conditions upon which and the times when each option shall be exercised, and (iii) the terms and conditions under which options may be exercised after termination of employment for any reason for periods not to exceed three years after termination of employment but not beyond the term established above.     f.   Purchase by Cash or Stock. The purchase price of shares purchased upon the exercise of any stock option shall be paid (i) in full in cash, or (ii) in whole or in part (in combination with cash) in full shares of Common Stock owned by the optionee and valued at its fair market value on the date of exercise, all pursuant to procedures approved by the Committee.     g.   Transferability. Options shall not be transferable. During the lifetime of the person to whom an option has been awarded, it may be exercisable only by such person or one acting in his stead or in a representative capacity. Upon or after the death of the person to whom an option is awarded, an option may be exercised by the optionee’s legatee or legatees under his last will, or by the option holder’s personal representative or distributee’s executive, administrator, or personal representative or designee in accordance with the terms of the option. 11.   Adjustments for Special Distributions. The Committee shall have the authority to change all Stock Options granted under this Plan to adjust equitably the purchase price thereof to reflect a special distribution to shareholders or other extraordinary corporate action involving distributions or payments to shareholders (collectively referred to as “Special Distributions”). In the event of any Special Distribution, the Committee may, to the extent that it determines in its judgment that the adjustment of the purchase price of Stock Options does not fully reflect such Special Distribution, increase the number of shares of Common Stock covered by such Stock Options or cause to be created a Special Distribution account (the “Account”) in the name of each individual to whom Stock Options have been granted hereunder (sometimes herein referred to as a “Grantee”) to which shall be Page: 4 of 7 --------------------------------------------------------------------------------     credited an amount determined by the Committee, or, in the case of non-cash Special Distributions, make appropriate comparable adjustments for or payments to or for the benefit of the Grantee.       Amounts credited to the Account in accordance with the preceding rules shall be credited with interest, accrued monthly, at an annual rate equal to the higher of Moody’s Corporate Bond Yield Average or the prime rate in effect from time to time, and such interest shall be credited in accordance with rules to be established by the Committee. Notwithstanding the foregoing, at no time shall the Committee permit the amount credited to the Grantee’s Account to exceed ninety percent (90%) of the purchase price of the Grantee’s outstanding Stock Options to which such amount relates. To the extent that any credit would cause the Account to exceed that limitation, such excess shall be distributed to the Grantee in cash.       Amounts credited to the Grantee’s Account shall be paid to the Grantee or, if the Grantee is deceased, his or her beneficiary at the time that the options to which it relates are exercised or expire, whichever occurs first.       The Account shall for all purposes be deemed to be an unfunded promise to pay money in the future in certain specified circumstances. As to amounts credited to the Account, a Grantee shall have no rights greater than the rights of a general unsecured creditor of the Company, and amounts credited to the Grantee’s Account shall not be assignable or transferable other than by will or the laws of descent and distribution, and such amounts shall not be subject to the claims of the Grantee’s creditors.   12.   Adjustments and Reorganizations. The Committee may make such adjustments to awards granted under the Plan (including the terms, exercise price, and otherwise) as it deems appropriate in the event of changes that impact the Company, the Company’s share price, or share status.       In the event of any merger, reorganization, consolidation, change of control, recapitalization, separation, liquidation, stock dividend, stock split, extraordinary dividend, spin-off, split-up, rights offering, share combination, or other change in the corporate structure of the Company affecting the Common Stock, the number and kind of shares that may be delivered under the Plan shall be subject to such equitable adjustment as the Committee, in its sole discretion, may deem appropriate. The determination of the Committee on these matters shall be final and conclusive and binding on the Company and all participants. Except as otherwise provided by the Committee, all authorized shares, share limitations, and awards under the Plan shall be proportionately adjusted to account for any increase or decrease in the number of issued shares of Common Stock resulting from any stock split, stock dividend, reverse stock split, or any similar reorganization or event.       In the preceding paragraph, “change of control” means any of the following events:   a.   An acquisition (other than directly from the Company) of any voting securities of the Company by any person who previously was the beneficial owner of less than ten percent of the combined voting power of the Company’s outstanding voting securities and who immediately after such acquisition is the beneficial owner of 30 percent or more of the combined voting power of the Company’s then outstanding voting securities; provided that, in determining whether a change of control has occurred, voting securities which are acquired by (i) an employee benefit plan (or a trust forming a part thereof) maintained by the Company or any subsidiary of the Company, (ii) the Company or any subsidiary of the Company, or (iii) any person in connection with a Non- Page: 5 of 7 --------------------------------------------------------------------------------       Control Transaction (as hereinafter defined), will not constitute an acquisition which results in a change of control;     b.   Approval by stockholders of the Company of:     (1)   a merger, consolidation, or reorganization involving the Company, unless:     (A)   the stockholders of the Company immediately before such merger, consolidation, or reorganization will own, directly or indirectly, immediately following such merger, consolidation, or reorganization, at least 51 percent of the combined voting power of the outstanding voting securities of the corporation resulting from such merger, consolidation, or reorganization (the “Surviving Company”) in substantially the same proportion as their ownership of the voting securities of the Company immediately before such merger, consolidation, or reorganization; and     (B)   the individuals who were members of the Board immediately prior to the execution of the agreement providing for such merger, consolidation, or reorganization constitute a majority of the members of the Board of Directors of the Surviving Company; and     (C)   no person (other than the Company, any subsidiary of the Company, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Company, any subsidiary of the Surviving Company, or any person who, immediately prior to such merger, consolidation, or reorganization, was the beneficial owner of 20 percent or more of the then outstanding voting securities of the Company) is the beneficial owner of 20 percent or more of the combined voting power of the Surviving Company’s then outstanding voting securities;     (D)   a transaction described in clauses (A) through (C) above is referred to herein as a “Non-Control Transaction;”     (2)   the complete liquidation or dissolution of the Company; or     (3)   an agreement for sale or other disposition of all or substantially all of the assets of the Company to any person (other than a transfer to a subsidiary of the Company).     c.   Notwithstanding the foregoing, a change of control will not be deemed to occur solely because any person (a “Subject Person”) acquires beneficial ownership of more than the permitted amount of the outstanding voting securities of the Company as a result of the acquisition of voting securities by the Company which, by reducing the number of voting securities outstanding, increases the proportional number of shares beneficially owned by the Subject Person, provided that if a change of control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the beneficial owner of any additional voting securities which increases the percentage of the then outstanding voting securities Page: 6 of 7 --------------------------------------------------------------------------------       beneficially owned by the Subject Person, then a change of control will be deemed to have occurred. 13.   Tax Withholding. The Company shall have the right to (i) make deductions from any settlement of an award under the Plan, including the delivery or vesting of shares, or require shares or cash or both be withheld from any award, in each case in an amount sufficient to satisfy withholding of any federal, state, or local taxes required by law, or (ii) take such other action as may be necessary or appropriate to satisfy any such withholding obligations. The Committee may determine the manner in which such tax withholding may be satisfied, and may permit shares of Common Stock (rounded up to the next whole number) to be used to satisfy required tax withholding based on the fair market value of any such shares of Common Stock, as of the appropriate time of each award.   14.   Expenses. The expenses of administering the Plan shall be borne by the Company.   15.   Amendments. The Board of Directors of the Company shall have complete power and authority to amend the Plan, provided that the Board of Directors shall not, without shareholder approval, adopt any amendment which would (a) increase the number of shares for which options may be awarded under the Plan, (b) modify the class of employees eligible to receive awards, (c) extend the period during which incentive stock options may be awarded, or (d) materially increase the benefits of employees receiving awards under the Plan. No amendment to the Plan may, without the consent of the individual to whom the award shall theretofore have been awarded, adversely affect the rights of an individual under the award.   16.   Effective Date of the Plan. The Plan shall become effective on its adoption by the Board of Directors of the Company on February 5, 1997, subject to approval at the 1997 Annual Meeting of Shareholders.   17.   Termination. The Board of Directors of the Company may terminate the Plan or any part thereof at any time, provided that no termination may, without the consent of the individual to whom any award shall theretofore have been made, adversely affect the rights of an individual under the award.   18.   Other Actions. Nothing contained in the Plan shall be deemed to preclude other compensation plans which may be in effect from time to time or be construed to limit the authority of the Company to exercise its corporate rights and powers, including, but not by way of limitation, the right of the Company (a) to award options for proper corporate purposes otherwise than under the Plan to an employee or other person, firm, corporation, or association, or (b) to award options to, or assume the option of, any person in connection with the acquisition, by purchase, lease, merger, consolidation, or otherwise, of the business and assets (in whole or in part) of any person, firm, corporation, or association. Page: 7 of 7

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 10.9 EIGHTH AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT THIS EIGHTH AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this "Amendment") is entered into as of August 31, 2000, by and among MMI PRODUCTS, INC., a Delaware corporation ("Borrower"), FLEET CAPITAL CORPORATION, a Rhode Island corporation, successor by merger to Fleet Capital Corporation, a Connecticut corporation, formerly known as Shawmut Capital Corporation, a Connecticut corporation, successor in interest by assignment to Barclays Business Credit, Inc., a Connecticut corporation ("Fleet"), and TRANSAMERICA BUSINESS CREDIT CORPORATION, a Delaware corporation ("Transamerica" and, collectively with Fleet, "Lenders") and Fleet, as collateral agent for Lenders ("Collateral Agent"). A. Borrower, Lenders and Collateral Agent have entered into that certain Amended and Restated Loan and Security Agreement, dated as of December 13, 1996, as amended by (i) that certain First Amendment to Amended and Restated Loan and Security Agreement, dated as of April 15, 1997, (ii) that certain Second Amendment to Amended and Restated Loan and Security Agreement, dated as of June 11, 1997, (iii) that certain Third Amendment to Amended and Restated Loan and Security Agreement, dated as of February 18, 1998, (iv) that certain Fourth Amendment to Amended and Restated Loan and Security Agreement, dated as of April 14, 1998, (v) that certain Fifth Amendment to Amended and Restated Loan and Security Agreement, dated as of October 6, 1998, (vi) that certain Sixth Amendment to Amended and Restated Loan and Security Agreement, dated as of November 12, 1999, and (vii) that certain Seventh Amendment to Amended and Restated Loan and Security Agreement, dated as of February 3, 2000 (as amended, the "Loan Agreement"). B. Borrower has formed MMI Management Inc., a Delaware corporation and a wholly owned Subsidiary of Borrower ("Management"), pursuant to a Certificate of Incorporation dated as of July 27, 2000. Borrower and Management have formed MMI Management Services LP, a Delaware limited partnership (the "Partnership"), pursuant to that certain Limited Partnership Agreement dated as of July 28, 2000. C. Borrower has requested that the amount of the Revolving Credit Commitment be temporarily increased from $75,000,000 to $90,000,000 during the period from August 31, 2000 through and including November 30, 2000. D. Borrower has requested that it be permitted to pay a dividend to Parent in the amount of $26,200,000 (the "Dividend") for purposes of paying a portion of the amounts outstanding under the Parent Subordinated Credit Facility. E. Borrower, Lenders and Collateral Agent desire to amend the Loan Agreement (i) to provide for and consent to the formation of Management and the Partnership, (ii) to temporarily increase the amount of the Revolving Credit Commitment from $75,000,000 to $90,000,000 during the period from August 31, 2000 through and including November 30, 2000, (iii) to allow and provide for the Dividend and (iv) to allow and provide for certain related matters further described in Article II 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 1.1 Capitalized terms used in this Amendment are defined in the Loan Agreement, as amended hereby, unless otherwise stated.   ARTICLE II Amendments Effective as of the date hereof, the Loan Agreement is hereby amended as follows: 2.1 Amendment to Section 1.1. (a) Effective as of the date hereof, Section 1.1 is amended by deleting the definitions of "Revolving Credit Commitment" and "Subsidiary" in their entirety and substituting the following in lieu thereof: "Revolving Credit Commitment - shall mean (i) during the period beginning the Closing Date and continuing through and including August 30, 2000, $75,000,000; (ii) during the period beginning August 31, 2000 and continuing through and including November 30, 2000, $90,000,000; and (iii) at all times from and after December 1, 2000, $75,000,000. Notwithstanding the foregoing, if the Revolving Credit Commitment is reduced by Borrower in accordance with Section 2.1(C) hereof, the Revolving Credit Commitment shall thereafter be an amount equal to the amount of the Revolving Credit Commitment, as reduced in accordance with Section 2.1(C) hereof."   "Subsidiary - any corporation or duly organized entity of which a Person owns, directly or indirectly through one or more intermediaries, more than 50% of the Voting Stock or partnership interest at the time of determination." (b) Effective as of the date hereof, Section 1.1 is amended by deleting subsection (B)(ii) of the definition "Borrowing Base" and substituting the following in lieu thereof: "(ii) the lesser of (x) 65% (or such lesser percentage as Collateral Agent may, consistent with its usual and customary practices applied to borrowing base credits generally and, with the consent of Majority Lenders, determine from time to time) of the value of Eligible Inventory at such date consisting of raw materials, calculated on the basis of the lower of cost or market (as determined by Collateral Agent in its reasonable discretion) with the cost of raw materials calculated on a first-in-first-out or average cost basis, plus 50% (or such lesser percentage as Collateral Agent may consistent with its usual and customary practices applied to borrowing base credits generally and, with the consent of Majority Lenders, determine from time to time) of the value of Eligible Inventory at such date consisting of finished goods, calculated on the basis of the lower of cost or market (as determined by Collateral Agent in its reasonable discretion) with the cost of finished goods calculated on a first-in-first-out or average cost basis, or (y) $36,250,000;" 2.2 Addition to Section 1.1; Addition of Definitions. Effective as of the date hereof, Section 1.1 is hereby amended by adding the following definitions in alphabetical order with the other definitions in that section: "Management -- MMI Management Inc., a corporation organized under the laws of Delaware and a wholly owned Subsidiary of Borrower." "Partnership - MMI Management Services LP, a limited partnership organized under the laws of Delaware by Borrower as its sole general partner and Management as its sole limited partner." 2.3 Amendment to Section 3.5(B). Effective as of the date hereof, Section 3.5 is hereby amended by adding a new proviso to the end of subsection (B), which proviso shall read as follows: "provided further, however, that if the principal balance of Revolving Credit Loans outstanding at any time shall exceed the Revolving Credit Commitment, Borrower shall immediately repay the Revolving Credit Loans in an amount sufficient to reduce the aggregate unpaid principal amount of such Revolving Credit Loans by an amount equal to such excess;" 2.4 Amendment to Section 8.1(H). Effective as of the date hereof, Section 8.1 is hereby amended by deleting the first sentence of subsection (H) and replacing it with the following: "(H) Capital Structure. Exhibit G attached hereto and made a part hereof states (i) the correct name of Borrower's Subsidiaries, the jurisdiction of incorporation or organization and the percentage of Voting Stock or partnership interests owned by Borrower, (ii) the name of Borrower's corporate or joint venture Affiliates and the nature of the affiliation, (iii) the number, nature and holder of all outstanding Securities of Borrower and each Subsidiary of Borrower, and (iv) the number of authorized, issued and treasury shares of Borrower and each Subsidiary of Borrower." 2.5 Amendment to Section 9.2(J). Effective as of the date hereof, Section 9.2 is amended by entirely deleting subsection (J) and substituting the following in lieu thereof: "(J) Subsidiaries. Hereafter (i) create or acquire any Subsidiary, except (a) Management and (b) the Partnership, or (ii) divest itself of any material assets by transferring them to any Subsidiary (including, without limitation, Management and/or the Partnership)." 2.6 Amendment to Exhibit G. Effective upon satisfaction of the conditions set forth in Article III of this Amendment, Exhibit G to the Loan Agreement (Capital Structure) is hereby deleted in its entirety and replaced with Exhibit G attached hereto.   ARTICLE III Conditions Precedent 3.1 Conditions to Effectiveness. The effectiveness of this Amendment (other than Article IV, which is not subject to the conditions set forth in this section) is subject to the satisfaction of the following conditions precedent, unless specifically waived in writing by Lenders: (a) Collateral Agent shall have received on behalf of the Lenders: (i) this Amendment, duly executed by Borrower; (ii) a Fifth Amended and Restated Secured Promissory Note, one for each Lender, evidencing each Lender's Total Commitment Percentage of the Revolving Credit Commitment, in each case duly executed by Borrower in the form of the attached Annex A; (iii) a Consent, Ratification and Release, duly executed by Merchants Metals Holding Company; (iv) a General Certificate for Borrower acknowledging (A) that Borrower's Board of Directors has met and has adopted, approved, consented to and ratified resolutions which authorize the execution, delivery and performance by Borrower of this Amendment and all Other Agreements to which Borrower is or is to be a party, and (B) the names of the officers of Borrower authorized to sign this Amendment and each of the Other Agreements to which Borrower is or is to be a party hereunder (including the certificates contemplated herein) together with specimen signatures of such officers; and (v) such additional documents, instruments and information as Collateral Agent, Lenders or their legal counsel may reasonably request. (b) The representations and warranties contained herein and in the Loan Agreement and the Other Agreements, as each is amended hereby, shall be true and correct as of the date hereof, as if made on the date hereof. (c) No Default or Event of Default shall have occurred and be continuing, unless such Default or Event of Default has been otherwise specifically waived in writing by Lenders. (d) Collateral Agent shall have received payment, in immediately available funds, of a $50,000 amendment fee for further distribution to Lenders in accordance with their respective Revolving Credit Percentages. (e) All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all documents, instruments and other legal matters incident thereto shall be satisfactory to Collateral Agent, Lenders and their legal counsel.   ARTICLE IV Limited Waiver 4.1 Upon Borrower's execution of this Amendment, Collateral Agent and Lenders hereby consent to the Dividend and to the formation of Management and the Partnership. Further, Collateral Agent and Lenders hereby waive (i) any Default or Event of Default that would otherwise arise under Section 9.2 of the Loan Agreement solely by reason of payment of the Dividend and (ii) any Default or Event of Default existing or arising under Section 9.2 of the Loan Agreement solely by reason of Borrower's formation of Management and the Partnership; provided, however, that Borrower shall not transfer any property or any interest in any property to Management, the Partnership or any other subsidiary without the express consent of Lenders. Except as otherwise specifically provided for in this Amendment, nothing contained herein shall be construed as a waiver by Collateral Agent or Lenders of any covenant or provision of the Loan Agreement, the Other Agreements, this Amendment, or of any other contract or instrument between Borrower, Collateral Agent and/or Lenders, and the failure of Collateral Agent or Lenders 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 Collateral Agent or Lenders to thereafter demand strict compliance therewith. Collateral Agent and Lenders hereby reserve all rights granted under the Loan Agreement, the Other Agreements, this Amendment and any other contract or instrument between Borrower, Collateral Agent and Lenders.   ARTICLE V Ratifications, Representations and Warranties 5.1 Ratifications. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Loan Agreement and the Other Agreements, and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Loan Agreement and the Other Agreements are ratified and confirmed and shall continue in full force and effect. Borrower, Collateral Agent and Lenders agree that the Loan Agreement and the Other Agreements, as amended hereby, shall continue to be legal, valid, binding and enforceable in accordance with their respective terms. 5.2 Representations and Warranties. Borrower hereby represents and warrants to Collateral Agent and Lenders that (a) the execution, delivery and performance of this Amendment and any and all Other Agreements 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 Agreement 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 Default or Event of Default under the Loan Agreement, as amended hereby, has occurred and is continuing, unless such Default or Event of Default has been specifically waived in writing by Collateral Agent and Lenders; and (d) such Borrower is in full compliance with all covenants and agreements contained in the Loan Agreement and the Other Agreements, as amended hereby.   ARTICLE VI Miscellaneous Provisions 6.1 Survival of Representations and Warranties. All representations and warranties made in the Loan Agreement or any Other Agreement, including, without limitation, any document furnished in connection with this Amendment, shall survive the execution and delivery of this Amendment and the Other Agreements, and no investigation by Collateral Agent or Lenders or any closing shall affect the representations and warranties or the right of Collateral Agent or Lenders to rely upon them. 6.2 Reference to Loan Agreement. Each of the Loan Agreement and the Other Agreements, 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 the Loan Agreement and such Other Agreements to the Loan Agreement shall mean a reference to the Loan Agreement as amended hereby. 6.3 Expenses of Collateral Agent and Lenders. As provided in the Loan Agreement, Borrower agrees to pay on demand all costs and expenses incurred by Collateral Agent and Lenders in connection with the preparation, negotiation, and execution of this Amendment and the Other Agreements executed pursuant hereto and any and all amendments, modifications, and supplements thereto, including, without limitation, the costs and fees of Collateral Agent's and Lenders' legal counsel, and all costs and expenses incurred by Collateral Agent and Lenders in connection with the enforcement or preservation of any rights under the Loan Agreement, as amended hereby, or any Other Agreements, including, without limitation, the costs and fees of Collateral Agent's and Lenders' legal counsel. 6.4 Severability. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. 6.5 Successors and Assigns. This Amendment is binding upon and shall inure to the benefit of Collateral Agent, Lenders and Borrower and their respective successors and assigns, except that Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of Collateral Agent. 6.6 Counterparts. This Amendment may be executed by one or more of the parties hereto in any number of separate 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. 6.7 Effect of Waiver. No consent or waiver, express or implied, by Collateral Agent or Lenders 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. 6.8 Headings. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. 6.9 Applicable Law. THIS AMENDMENT AND ALL OTHER AGREEMENTS 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 TEXAS. 6.10 Release. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL, OR ANY PART OF ITS LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM COLLATERAL AGENT OR LENDERS. BORROWER HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES COLLATERAL AGENT AND LENDERS, THEIR PREDECESSORS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH THE BORROWER MAY NOW OR HEREAFTER HAVE AGAINST COLLATERAL AGENT AND/OR LENDERS, THEIR PREDECESSORS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR OTHER AGREEMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT. 6.11 Final Agreement. THE LOAN AGREEMENT AND THE OTHER AGREEMENTS, EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE LOAN AGREEMENT AND THE OTHER AGREEMENTS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER AND MAJORITY LENDERS.   IN WITNESS WHEREOF, this Amendment has been executed on the date first above-written, to be effective upon satisfaction of the conditions set forth herein.   BORROWER:   MMI PRODUCTS, INC.   By: /s/   Robert N. Tenczar   Robert N. Tenczar,   Chief Financial Officer       LENDERS:   FLEET CAPITAL CORPORATION   By: /s/ J. L. Bartholomew   Joy L. Bartholomew,   Senior Vice President       TRANSAMERICA BUSINESS CREDIT CORPORATION   By: /s/ Robert L. Heinz   Name: Robert L. Heinz   Title: Senior Vice President       COLLATERAL AGENT:   FLEET CAPITAL CORPORATION   By: /s/ J.L. Bartholomew   Joy L. Bartholomew, Senior Vice President       CONSENT, RATIFICATION AND RELEASE   The undersigned, hereby consents to the terms of the within and foregoing Amendment, confirms and ratifies the terms of its guaranty agreement, and acknowledges that its guaranty agreement is in full force and effect, that it has no defense, counterclaim, set-off or any other claim to diminish its liability under such document, that its consent is not required to the effectiveness of the within and foregoing document, and that no consent by it is required for the effectiveness of any future amendment, modification, forbearance or other action with respect to the Loans, the Collateral, or any of the Other Agreements. THE UNDERSIGNED HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES COLLATERAL AGENT AND LENDERS, THEIR PREDECESSORS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH THE UNDERSIGNED MAY NOW OR HEREAFTER HAVE AGAINST COLLATERAL AGENT OR LENDERS, THEIR PREDECESSORS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR OTHER AGREEMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT.     GUARANTOR:   MERCHANTS METALS HOLDING COMPANY       By: /s/ Robert N. Tenczar   Name: Robert N. Tenczar   Title: Vice President - Finance            

     Exhibit 10.3 OCEAN ENERGY, INC. 2001 CHANGE OF CONTROL SEVERANCE PLAN      The OCEAN ENERGY, INC. 2001 CHANGE OF CONTROL SEVERANCE PLAN (the “Plan”) is hereby adopted pursuant to the authorization of the Board of Directors of OCEAN ENERGY, INC., a Delaware corporation (the “Company”). The Plan supercedes and replaces in full any severance plan, practice or policy (written or oral) of the Company or of any of its subsidiaries existing with respect to Covered Employees prior to the Effective Date. I . DEFINITIONS AND CONSTRUCTION   1.1  Definitions. Where the following words and phrases appear in the Plan, they shall have the respective meanings set forth below, unless their context clearly indicates to the contrary.      “Annual Pay” shall mean the following: (i) with respect to a salaried employee, his annual rate of base salary, (ii) with respect to an hourly employee who is not an “offshore” employee, his hourly base wage rate x his regularly scheduled hours of work per week x 52, and (iii) with respect to an hourly employee who works offshore, his regularly scheduled bi-weekly wages x 26.      “Board” shall mean the Board of Directors of the Company.      “Change in Duties” shall mean the occurrence, within one year after the date upon which a Change of Control occurs, of any one or more of the following:      (1) with respect to a Covered Employee of Severance Level A, a significant reduction in the duties of such Covered Employee from those applicable to him immediately prior to the date on which a Change of Control occurs;      (2) a reduction in a Covered Employee's Annual Pay from that in effect immediately prior to the date on which a Change of Control occurs; and      (3) a change in the location of a Covered Employee’s principal place of employment by the Employer by more than 50 miles from the location where he was principally employed immediately prior to the date on which a Change of Control occurs, unless such relocation is agreed to in writing by the Covered Employee; provided, however, that a relocation scheduled prior to the date of the Change in Control and a repatriation to the United States in the normal course that is consistent with the Employer’s past practice shall not constitute a Change in Duties.      “Change of Control” shall mean the occurrence of either of the following events: 1 --------------------------------------------------------------------------------      (1) the Company (A) shall not be the surviving entity in any merger, consolidation or other reorganization (or survives only as a subsidiary of an entity other than a previously wholly-owned subsidiary of the Company) or (B) is to be dissolved and liquidated, and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction cease to constitute a majority of the Board; or      (2) any person or entity, including a “group” as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, acquires or gains ownership or control (including, without limitation, power to vote) of 20% or more of the outstanding shares of the Company’s voting stock (based upon voting power), and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction cease to constitute a majority of the Board.      “Code” shall mean the Internal Revenue Code of 1986, as amended.      “Committee” shall mean the committee appointed by the Board to administer this Plan.      “Company” shall mean Ocean Energy, Inc., a Delaware corporation, and any successor thereto.      “Compensation” shall mean the greater of (1) a Covered Employee’s Annual Pay plus his Severance Factor, if any, immediately prior to the date on which a Change of Control occurs or (2) a Covered Employee’s Annual Pay plus his Severance Factor, if any, at the time of his Involuntary Termination. “Three Months’ Compensation” shall mean Compensation divided by 4. “Semi-Monthly Compensation” shall mean Compensation divided by 24.      “Covered Employee” shall mean any individual who, on the date upon which a Change of Control occurs, is a regular, full-time salaried employee of the Employer or an hourly employee of the Employer who is normally scheduled to work 550 or more hours per year, other than (1) any individual whose terms of employment in the United States are governed by a collective bargaining agreement between a collective bargaining unit and the Employer unless such agreement provides for coverage of such individual under the Plan, (2) any individual who is a party to a written agreement with the Employer providing for severance payments or benefits upon such individual’s termination of employment with the Employer, (3) an employee who is classified as a temporary, casual, leased employee, or an independent contractor under the Employer’s employment policies, and (4) an employee of a non-U.S. subsidiary unless said employee is a U.S. expatriate or third country national.      “Effective Date” shall mean September 27, 2001.      “Employer” shall mean the Company and each eligible organization designated as an Employer in accordance with the provisions of Section 4.4 of the Plan.      “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.      “Involuntary Termination” shall mean any termination of a Covered Employee’s employment with the Employer which: 2 --------------------------------------------------------------------------------      (1) does not result from a voluntary resignation by the Covered Employee (other than a resignation pursuant to clause (2) of this definition); or      (2) results from a resignation by a Covered Employee on or before the date which is sixty days after the date the Covered Employee receives notice of a Change in Duties; provided, however, that the term ‘Involuntary Termination’ shall not include (i) a Termination for Cause, (ii) a termination of a Covered Employee’s employment occurring as a result of or in connection with the sale or other divestiture to an unrelated third party by the Employer of a division, subsidiary, or other business segment or assets (including, without limitation, a divestiture by sale of shares of stock or of assets) if such Covered Employee is offered continued employment by the acquiror of such business segment or assets immediately upon such sale or divestiture, or (iii) any termination as a result of a Covered Employee’s death, disability under circumstances entitling him to benefits under the Employer’s long-term disability plan or Retirement.      “Retirement” shall mean the Covered Employee’s voluntary resignation on or after the date he reaches age sixty-five (other than a resignation within sixty days after the date the Covered Employee receives notice of a Change in Duties or a resignation at the request of the Employer).      “Severance Factor” shall mean the percentage of Annual Pay for a Covered Employee’s Severance Level determined in accordance with the following schedule and expressed as a dollar amount which, when added to the Annual Pay, results in the Compensation to be used in the severance benefit calculation. Severance Level Severance Factor --------------- ---------------- A 38% B 30% C 25% D 18% E 0%      “Severance Level” shall mean the following category into which a Covered Employee is designated based on his Annual Pay immediately prior to the date on which a Change of Control occurs or, if greater, at the time of his Involuntary Termination for the purpose of determining his severance benefit amount. 3 -------------------------------------------------------------------------------- Severance Level Annual Pay --------------- ---------- A $140,000 and above B $115,000 - $139,999 C $ 99,000 - $114,999 D $ 68,000 - $ 98,999 E Less than $ 68,000      “Termination for Cause” shall mean any termination of a Covered Employee’s employment with the Employer by reason of the Covered Employee’s (1) gross negligence in the performance of the Covered Employee’s duties and responsibilities, which negligence results in material harm to the business, interests, or reputation of the Employer, (2) violation of any material Employer policy, including, without limitation, the theft, embezzlement or misappropriation or material misuse of any Employer funds or property, (3) criminal or civil conviction for (or plea of nolo contendere to) a crime involving moral turpitude, (4) willful and continued failure to perform the Covered Employee’s duties and responsibilities, or (5) misconduct that, in the Employer’s good faith determination, is materially harmful to the business, interests, or reputation of the Employer.      “Welfare Benefit Coverages” shall mean the medical, dental, life insurance, accidental death and dismemberment, and vision coverages provided by the Employer to its active employees.      1.2  Number and Gender. Wherever appropriate herein, word used in the singular shall be considered to include the plural and the plural to include the singular. The masculine gender, where appearing in this Plan, shall be deemed to include the feminine gender.      1.3  Headings. The headings of Articles and Sections herein are included solely for convenience and if there is any conflict between such headings and the text of the Plan, the text shall control. II . SEVERANCE BENEFITS      2.1  Severance Benefits. Subject to the provisions of Section 2.2 and 2.4 hereof, if a Covered Employee’s employment by the Employer or successor thereto shall be subject to an Involuntary Termination which occurs on or within one year after the date upon which a Change of Control occurs, then the Covered Employee shall be entitled to the following severance benefits:      (a) A lump sum cash payment in accordance with the following schedule: 4 -------------------------------------------------------------------------------- Severance Level Benefit Amount --------------- -------------- A 2 x Compensation B 1.5 x Compensation C 1.25 x Compensation D 1 x Compensation E Lesser of: (1) the sum of (A) Semi-Monthly Compensation as of his Involuntary Termination for each full year and fraction thereof of continuous employment with the Employer as a Covered Employee from his most recent date of hire, and (B) Semi-Monthly Compensation for each full $10,000 increment of such Covered Employee's Annual Pay at the time of his Involuntary Termination; provided, however, that in no event shall any Covered Employee receive less than Three Months' Compensation; or (2) 1 x Compensation; provided, however, notwithstanding the foregoing, in the event that salary continuation or severance payments are payable by the Employer to a Covered Employee pursuant to the applicable laws or rules of any foreign jurisdiction concerning Involuntary Terminations or as a result of the application of the Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2101 et. seq. (the “WARN Act”), or an election by the Employer to make payments in lieu of notice as if the WARN Act applied, whether or not it does so apply, to any Involuntary Termination of a Covered Employee (each an “Other Severance Payment”), no severance payment shall be payable as provided in Section 2.1(a) to such Covered Employee except to the extent such severance payment exceeds the aggregate amount of Other Severance Payments payable to such Covered Employee.      (b) A Covered Employee shall be entitled to continue the Welfare Benefit Coverages for himself and, where applicable, his eligible dependents following his Involuntary Termination for a number of months determined in accordance with the following schedule: 5 -------------------------------------------------------------------------------- Severance Level Number of Months --------------- ---------------- A 24 B 18 C 15 D 12 E equal to the quotient of (i) the amount of cash payable pursuant to (a) above, divided by (ii) the Covered Employee's monthly pay (1/12th of his Annual Pay) (rounded to the nearest whole month if necessary); provided however, the Covered Employee must continue to pay the premiums paid by active employees of the Employer for such coverages. The Covered Employee may choose to continue some or all of such Welfare Benefit Coverages. Such benefit rights shall apply only to those Welfare Benefit Coverages which the Employer has in effect from time to time for active employees, and the applicable payments shall adjust as premiums for active employees of the Employer change. Welfare Benefit Coverage(s) shall immediately end upon the Covered Employee’s obtainment of new employment and eligibility for similar Welfare Benefit Coverage(s) (with the Covered Employee being obligated hereunder to promptly report such eligibility to the Employer). Nothing herein shall be deemed to adversely affect in any way the additional rights, after consideration of this extension period, of Covered Employees and their eligible dependents to health care continuation coverage as required pursuant to Part 6 of Title I of ERISA. The provision of extended group health plan coverage pursuant to this Plan is intended to be part of the Covered Employee’s COBRA period of coverage.      (c) A Covered Employee of Severance Level A shall be entitled to receive out-placement services in connection with obtaining new employment up to a maximum cost of $6,000.      (d) The severance benefits payable under this Plan shall be paid to a Covered Employee at the time he receives his final termination pay, or as soon as administratively practicable thereafter, subject to the conditions set forth in Section 2.2 of the Plan. Any severance benefits paid pursuant to this Section will be deemed to be a severance payment and not “Compensation”for purposes of determining benefits under the Employer’s qualified plans and shall be subject to any required tax withholding.      2.2  Release and Full Settlement. Anything to the contrary herein notwithstanding, as a condition to the receipt of any severance payment or benefits hereunder, a Covered Employee whose employment by the Employer has been subject to an Involuntary Termination shall first execute a release, in the form established by the Committee, releasing the Committee, the Employer, and the Employer’s parent corporation, subsidiaries, affiliates, shareholders, partners, officers, directors, employees and agents from any and all claims and from any and all causes of action of any kind or character, including but not limited to all claims or causes of action arising out of such Covered Employee’s employment with the Employer or the termination of such employment. The performance of the Employer’s obligations hereunder and the receipt of any benefits provided hereunder by such Covered Employee shall constitute full settlement of all such claims and causes of action. 6 --------------------------------------------------------------------------------      2.3  No Mitigation. A Covered Employee shall not be required to mitigate the amount of any payment or benefit provided for in this Article II by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Article II be reduced by any compensation or benefit earned by the Covered Employee as the result of employment by another employer or by retirement benefits except as provided in Section 2.1(b) with respect to Welfare Benefit Coverage. The benefits under the Plan are in addition to any other benefits to which a Covered Employee is otherwise entitled.      2.4  Severance Pay Plan Limitation. This Plan is intended to be an employee welfare benefit plan within the meaning of section 3(1) of ERISA and the Labor Department regulations promulgated thereunder. Therefore, anything to the contrary herein notwithstanding, in no event shall any Covered Employee receive total payments under the Plan (excluding payments pursuant to Section 2.5) that exceed the equivalent of twice such Covered Employee’s “annual compensation”(as such term is defined in 29 CFR §2510.3-2(b)(2)) during the year immediately preceding his Involuntary Termination. If total payments under the Plan (excluding payments pursuant to Section 2.5) to a Covered Employee would otherwise exceed the limitation in the preceding sentence, the amount payable to such Covered Employee pursuant to Section 2.1(a) shall be reduced in order to satisfy such limitation.      2.5  Certain Additional Payments by the Employer. Notwithstanding anything to the contrary in the Plan, in the event that any payment or distribution by the Employer or any other person to or for the benefit of a Covered Employee, whether paid or payable or distributed or distributable pursuant to the terms of the Plan or otherwise (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest or penalties, are hereinafter collectively referred to as the “Excise Tax”), the Employer shall pay to the Covered Employee an additional payment (a “Gross-up Payment”) in an amount such that after payment by the Covered Employee of all of taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed on any Gross-up Payment, the Covered Employee retains an amount of the Gross-up Payment equal to the Excise Tax imposed upon the Payment. The Employer and the Covered Employee shall make an initial determination as to whether a Gross-up Payment is required and the amount of any such Gross-up Payment. The Covered Employee shall notify the Employer in writing of any claim by the Internal Revenue Service which, if successful, would require the Employer to make a Gross-up Payment (or a Gross-up Payment in excess of that, if any, initially determined by the Employer and the Covered Employee) within ten days of the receipt of such claim. The Employer shall notify the Covered Employee in writing at least ten days prior to the due date of any response required with respect to such claim if it plans to contest the claim. If the Employer decides to contest such claim, the Covered Employee shall cooperate fully with the Employer in such action; provided, however, the Employer shall bear and pay directly or indirectly all costs and expenses (including additional interest and penalties) incurred in connection with such action and shall indemnify and hold the Covered Employee harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of the Employer’s action. If, as a result of the Employer’s action with respect to a claim, the Covered Employee receives a refund of any amount paid by the Employer with respect to such claim, the Covered Employee shall promptly pay such refund to the Employer. If the Employer fails to timely notify the Covered Employee whether it will contest such claim or the Employer determines not to contest such claim, then the Employer shall immediately pay to the Covered Employee the portion of such claim, if any, which it has not previously paid to the Covered Employee. 7 -------------------------------------------------------------------------------- III. ADMINISTRATION OF PLAN      3.1  Committee’s Powers and Duties. The Company shall be the named fiduciary and shall have full power to administer the Plan in all of its details, subject to applicable requirements of law. The duties of the Company shall be performed by the Committee. It shall be a principal duty of the Committee to see that the Plan is carried out, in accordance with its terms, for the exclusive benefit of persons entitled to participate in the Plan. For this purpose, the Committee’s powers shall include, but not be limited to, the following authority, in addition to all other powers provided by this Plan:      (a) to make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan;      (b) to interpret the Plan and all facts with respect to a claim for payment or benefits, its interpretation thereof to be final and conclusive on all persons claiming payment or benefits under the Plan;      (c) to decide all questions concerning the Plan and the eligibility of any person to participate in the Plan;      (d) to make a determination as to the right of any person to a payment or benefit under the Plan (including, without limitation, to determine whether and when there has been a termination of a Covered Employee’s employment and the cause of such termination and the amount of such payment or benefit);      (e) to appoint such agents, counsel, accountants, consultants, claims administrator and other persons as may be required to assist in administering the Plan;      (f) to allocate and delegate its responsibilities under the Plan and to designate other persons to carry out any of its responsibilities under the Plan, any such allocation, delegation or designation to be in writing;      (g) to sue or cause suit to be brought in the name of the Plan; and      (h) to obtain from the Employer and from Covered Employees such information as is necessary for the proper administration of the Plan. 8 --------------------------------------------------------------------------------      3.2   Member's Own Participation.No Covered Employee or agent of the Committee may act, vote, or otherwise influence a decision of the Committee specifically relating to himself as a participant in the Plan.      3.3  Indemnification. The Employer shall indemnify and hold harmless each member of the Committee against any and all expenses and liabilities arising out of his administrative functions or fiduciary responsibilities, including any expenses and liabilities that are caused by or result from an act or omission constituting the negligence of such member in the performance of such functions or responsibilities, but excluding expenses and liabilities that are caused by or result from such member’s own gross negligence or willful misconduct. Expenses against which such member shall be indemnified hereunder shall include, without limitation, the amounts of any settlement or judgment, costs, counsel fees, and related charges reasonably incurred in connection with a claim asserted or a proceeding brought or settlement thereof.      3.4  Compensation, Bond and Expenses. The members of the Committee shall not receive compensation with respect to their services for the Committee. To the extent required by applicable law, but not otherwise, Committee members shall furnish bond or security for the performance of their duties hereunder. Any expenses properly incurred by the Committee incident to the administration, termination or protection of the Plan, including the cost of furnishing bond, shall be paid by the Company.      3.5  Claims Procedure. Any employee that the Committee determines is entitled to a benefit under the Plan is not required to file a claim for benefits. Any employee who is not paid a benefit and who believes that he is entitled to a benefit or who has been paid a benefit and who believes that he is entitled to a greater benefit may file a claim for benefits under the Plan in writing with the Committee. In any case in which a claim for Plan benefits by a Covered Employee is denied or modified, the Committee shall furnish written notice to the claimant within ninety days (or within 180 days if additional information requested by the Committee necessitates an extension of the ninety-day period), which notice shall:      (a) state the specific reason or reasons for the denial or modification;      (b) provide specific reference to pertinent Plan provisions on which the denial or modification is based;      (c) provide a description of any additional material or information necessary for the Covered Employee or his representative to perfect the claim, and an explanation of why such material or information is necessary; and      (d) explain the Plan's claim review procedure as contained herein. 9 --------------------------------------------------------------------------------      In the event a claim for Plan benefits is denied or modified, if the Covered Employee or his representative desires to have such denial or modification reviewed, he must, within sixty days following receipt of the notice of such denial or modification, submit a written request for review by the Committee of its initial decision. In connection with such request, the Covered Employee or his representative may review any pertinent documents upon which such denial or modification was based and may submit issues and comments in writing. Within sixty days following such request for review the Committee shall, after providing a full and fair review, render its final decision in writing to the Covered Employee and his representative, if any, stating specific reasons for such decision and making specific references to pertinent Plan provisions upon which the decision is based. If special circumstances require an extension of such sixty-day period, the Committee’s decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review. If an extension of time for review is required, written notice of the extension shall be furnished to the Covered Employee and his representative, if any, prior to the commencement of the extension period.      3.6  Mandatory Arbitration. If a Covered Employee or his representative is not satisfied with the decision of the Committee pursuant to the Plan’s claims review procedure, such Covered Employee or his representative may, within sixty days of receipt of the written decision of the Committee, request by written notice to the Committee, that his claim be submitted to arbitration pursuant to the employee benefit plan claims arbitration rules of the American Arbitration Association. Such arbitration shall be the sole and exclusive procedure available to a Covered Employee or his representative for review of a decision of the Committee. In reviewing the decision of the Committee, the arbitrator shall use the standard of review which would be used by a Federal court in reviewing such decision under the provisions of ERISA; provided, however, that even if ERISA were ever found to be inapplicable to the Plan, the arbitrator shall not reverse or otherwise invalidate the Committee’s decision unless it is found to be arbitrary and capricious, an abuse of the discretion afforded the Committee, or legally improper. The Covered Employee or his representative and the Employer shall share equally the cost of such arbitration, unless the arbitrator directs that all or part of the Covered Employee’s share of such cost be paid by the Employer. In addition, the arbitrator may direct, in its discretion, that all or part of the Covered Employee’s expenses in pursuing his claim to payment or benefits under the Plan shall be paid by the Employer. The arbitrator’s decision shall be final and legally binding on both parties. This Section shall be governed by the provisions of the Federal Arbitration Act. IV . GENERAL PROVISIONS      4.1   Funding.  The benefits provided herein shall be unfunded and shall be provided from the Employer's general assets.      4.2  Cost of Plan.   Except as provided in Section 2.1(b), the entire cost of the Plan shall be borne by the Employer and no contributions shall be required of the Covered Employees.      4.3   Plan Year.  The Plan shall operate on a calendar year basis with a short plan year commencing on the Effective Date. 10 --------------------------------------------------------------------------------      4.4  Other Participating Employers. The Committee may designate any entity or organization eligible by law to participate in this Plan as an Employer by written instrument delivered to the Secretary of the Company and the designated Employer. Such written instrument shall specify the effective date of such designated participation, may incorporate specific provisions relating to the operation of the Plan which apply to the designated Employer only and shall become, as to such designated Employer and its employees, a part of the Plan. Each designated Employer shall be conclusively presumed to have consented to its designation and to have agreed to be bound by the terms of the Plan and any and all amendments thereto upon its submission of information to the Committee required by the terms of or with respect to the Plan; provided, however, that the terms of the Plan may be modified so as to increase the obligations of an Employer only with the consent of such Employer, which consent shall be conclusively presumed to have been given by such Employer upon its submission of any information to the Committee required by the terms of or with respect to the Plan.      4.5  Amendment and Termination. The Plan may be amended from time to time at the discretion of the Board. Notwithstanding the foregoing, this Plan may not be amended, on or within one year following a Change of Control, to reduce benefits or rights to benefits. For purposes of this Section, a change in the designation of participating Employers by the Committee pursuant to Section 4.4 shall be deemed to be an amendment to the Plan. The Plan shall terminate (i) one year after the date of the Change of Control except with respect to severance benefits payable and Welfare Benefit Coverages provided as a result of Involuntary Terminations occurring prior to such date, (ii) on the second anniversary of the Effective Date if a Change of Control has not occurred by that date, or (iii) on any date prior to a Change of Control by action of the Board, whichever occurs first.      4.6  Not Contract of Employment. The adoption and maintenance of the Plan shall not be deemed to be a contract of employment between the Employer and any person or to be consideration for the employment of any person. Nothing herein contained shall be deemed to give any person the right to be retained in the employ of the Employer or to restrict the right of the Employer to discharge any person at any time nor shall the Plan be deemed to give the Employer the right to require any person to remain in the employ of the Employer or to restrict any person’s right to terminate his employment at any time.      4.7  Severability. Any provision in the Plan that is prohibited or unenforceable in any jurisdiction by reason of applicable law shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.      4.8  Nonalienation. Covered Employees shall not have any right to pledge, hypothecate, anticipate or assign benefits or rights under the Plan, except by will or the laws of descent and distribution.      4.9  Effect of Plan. This Plan is intended to supersede all prior oral or written policies of the Employer and all prior oral or written communications to Covered Employees with respect to the subject matter hereof, and all such prior policies or communications are hereby null and void and of no further force and effect. Further, this Plan shall be binding upon the Employer and any successor of the Employer, by merger or otherwise, and shall inure to the benefit of and be enforceable by the Employer’s Covered Employees. 11 --------------------------------------------------------------------------------      4.10   Governing Law.  The Plan shall be interpreted and construed in accordance with the laws of the State of Texas without regard to conflict of laws principles, except to the extent preempted by federal law.      EXECUTED as of the Effective Date.   OCEAN ENERGY, INC.   By:   /s/ Robert K. Reeves        Robert K. Reeves        Executive Vice President, General Counsel        and Secretary 12 --------------------------------------------------------------------------------

QuickLinks -- Click here to rapidly navigate through this document [***] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Exhibit 10.60 [Translation] Assets Transfer Agreement     This assets transfer agreement ("this Agreement") is made between and by the following parties in Beijing on August 18, 2000. Party A:   Hainan Xinhuangpu Investment Co., Ltd. Address:   Floor 16, Huaneng Mansions, No. 36 Datong Road, Haikou, Hainan Party B:   UTStarcom (China) Co., Ltd. Address:   11th Floor, CNT Manhattan Building, No. 6 Beidajie, Chaoyangmen, Dongcheng District, Beijing     WHEREAS Party A agrees to assign to Party B the assets concerned to Party B and Party B agrees to accept the said assets; therefore, the parties reach the following agreement through friendly consultations: ARTICLE 1     Party A agrees to assign the assets listed in Attachment I of this Agreement, and Party B agrees to accept the foregoing assets. ARTICLE 2     The parties agree that Party A will complete all the procedures necessary for the transfer of the assets listed in Attachment I hereto from Party A to Party B within [***] upon execution of this Agreement (excluding the day of execution for this Agreement), which include but are not limited to the hand-over of certification of ownership for such assets and the handling of registration procedures (if applicable). ARTICLE 3     Party B will pay Party A an assignment fee of [***] for the assets assigned by Party A. ARTICLE 4     The parties agree that the title of the assets listed in Attachment I hereto will be transferred to Party B on the [***] upon execution of this Agreement. Party A shall be responsible for all the liabilities and risks involving the title transfer of the assets listed in Attachment I hereto prior to such transfer (no matter such liabilities and risks are claimed before or after the transfer of such title), for which Party B shall bear no liabilities and obligations. In case Party B does not receive the foregoing assets within [***] upon execution of this Agreement, Party A shall compensate in [***]. ARTICLE 5 Representation and Guarantee 5.1Party represents and guarantees as follows:     (a) Party A is a company incorporated and validly existing pursuant to the Chinese laws; --------------------------------------------------------------------------------     (b) By executing and performing this Agreement, Party A does not violate the relevant laws and contracts that have a binding force on it, and has obtained the proper authorization and all the necessary approval of executing and performing this Agreement; and     (c) Party A is entitled to the ownership of the assets listed in Attachment I hereto and has not placed mortgage or any third party's interests against such ownership, nor does it impose any obstacle to Party B for the obtainment of the title of such assets. 5.2Party B represents and guarantees as follows:     (a) Party A is a company incorporated and validly existing pursuant to the Chinese laws; and     (b) By executing and performing this Agreement, Party B does not violate the relevant laws and contracts that have a binding force on it, and has obtained the proper authorization and all the necessary approval of executing and performing this Agreement. ARTICLE 6 Liability for Breach of Agreement 6.1If one party to this Agreement ("the Breaching Party") fails to implement its obligations under this Agreement (including violation of the provisions involving representation and guarantee), and fails to adopt effective measures to correct such violation within [***] upon receipt of a written notice by the other party ("the Non-Breaching Party") for such correction within the stipulated time, the non-breaching party has the right to terminate this Agreement and claim compensation from the breaching party for the losses sustained therefrom. 6.2If Party A violates the provisions of Articles 2 and 5 of this Agreement, Party B has the right to seek return of all the payment and a penalty equal to [***] of the total price from Party A. ARTICLE 7 Settlement of Dispute     Any dispute arising out of or in connection with this Agreement shall be settled by the parties through consultations. If it cannot be settled through consultations, any party may submit the said dispute to China International Economic and Trade Arbitration Commission for arbitration in Beijing according to its valid rules of arbitration. The arbitration award is final and shall be binding over the parties. ARTICLE 8 Force Majeure     A force majeure event refers to any event that cannot be foreseen and its occurrence and consequences cannot be avoided or overcome at the time when this Agreement is executed. Any party to this Agreement shall not bear the liabilities for breach of this Agreement if it is prevented from implementing all or any part of the responsibilities associated with the provisions of this Agreement. The party that is affected with such a force majeure event shall notify the other party of the effects of such event within [***] after its occurrence, and present certification by the local notarization organ. 2 -------------------------------------------------------------------------------- ARTICLE 9 Transfer of Agreement     No party shall transfer its rights and obligations under this Agreement to any third party unless consented by the other party in writing. ARTICLE 10 Separability of Agreement     If any article or section of this Agreement becomes invalid or unenforceable, it will not affect the validity and enforceability of other articles or sections. ARTICLE 11 Amendment and Supplement of Agreement     The parties may amend or supplement this Agreement in writing. The amendment and supplement to this Agreement shall constitute an inseparable part of this Agreement and be equally authentic to this Agreement. ARTICLE 12 Miscellaneous     12.1 This Agreement shall come to force upon execution by the authorized representatives of the parties and fixation of their official seals as of the date first seen in this Agreement.     12.2 This Agreement has two original copies, of which each party holds one, and they are equally authentic. 3 --------------------------------------------------------------------------------     Party A: Hainan Xinhuangpu Investment Co., Ltd.     (Official Seal)     Authorized Representative: Xue Weibin     -------------------------------------------------------------------------------- (Signature)     Party B: UTStarcom (China) Co., Ltd. (Official Seal)     Authorized Representative:     -------------------------------------------------------------------------------- (Signature) -------------------------------------------------------------------------------- Translation Verification     The foregoing represents a fair and accurate English translation of the original Chinese document. Dated: May 11, 2001     By:   /s/ SHAO-NING J. CHOU    --------------------------------------------------------------------------------     Name:   Shao-Ning J. Chou     Title:   Executive Vice President and Chief Operating Officer, China Operations -------------------------------------------------------------------------------- Attachment I List of Assets for Assignment -------------------------------------------------------------------------------- [***] 2 -------------------------------------------------------------------------------- QuickLinks Exhibit 10.60 [Translation] Assets Transfer Agreement ARTICLE 1 ARTICLE 2 ARTICLE 3 ARTICLE 4 ARTICLE 5 Representation and Guarantee ARTICLE 6 Liability for Breach of Agreement ARTICLE 7 Settlement of Dispute ARTICLE 8 Force Majeure ARTICLE 9 Transfer of Agreement ARTICLE 10 Separability of Agreement ARTICLE 11 Amendment and Supplement of Agreement ARTICLE 12 Miscellaneous Translation Verification Attachment I List of Assets for Assignment

PURCHASE AGREEMENT AMONG JEFFREY A. LUSENHOP AND NORSTAN COMMUNICATIONS, INC. AND NORSTAN, INC.   As of January 1, 2001     TABLE OF CONTENTS TABLE OF CONTENTS   Recitals:   Statement of Agreement:     1.     Construction and Definitions     2.     Purchase and Sale of Purchased Interest and Loan Rights.     3.     Representations and Warranties Concerning the Transaction.     4.     Representations and Warranties Concerning Connaissance     5.     Post-Closing Covenants.     6.     Conditions to Obligation to Close.     7.     Condition to Effectiveness of Agreement.     8.     Survival and Construction of Representations and Warranties.     9.     Miscellaneous.   Signatures   Exhibits A Buyer Notes   Exhibits B Security Agreements   Exhibit C Allocation of Purchase Price   Exhibit D Financial Statements   Exhibit E Buyer Legal Opinion   Exhibit F Seller Legal Opinion   Exhibit G Escrow Agreement (if applicable pursuant to §2(d))     PURCHASE AGREEMENT           This Purchase Agreement (this “Agreement”) is entered into as of January 1, 2001, by and among Jeffrey A. Lusenhop (“Buyer”), an individual residing in Columbus, Ohio, and Norstan Communications, Inc., a Minnesota corporation (“Seller”), and Norstan, Inc., a Minnesota corporation (“Norstan”). Recitals:           Seller owns the Purchased Interest (as defined herein) with respect to Connaissance Consulting, LLC, a Minnesota limited liability company (“Connaissance”), pursuant to the Member Control Agreement of Connaissance Consulting, LLC dated March 12, 1998, as amended (the “MCA”).           Seller and Norstan have made certain loans, defined herein as the “Loan Rights,” to Connaissance, Buyer, Lusenhop & Associates, Inc., an Ohio corporation (“L&A”), and certain shareholders of L&A.           This Agreement contemplates a transaction in which Buyer will purchase from Seller, and Seller will sell to Buyer, all of the Purchased Interest and all of the Loan Rights in return for cash and the Buyer Notes (as defined herein). Statement of Agreement:           Now, therefore, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the parties agree as follows.           1.       Construction and Definitions           (a)      Construction.  The parties have participated jointly in the negotiation and drafting of this Agreement.  In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.  Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Agreement.  Terms defined in the singular shall include the plural, and vice versa, and pronouns in any gender shall include the masculine, feminine and neuter, as the context requires.  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.  The word “including” shall mean including without limitation, and use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.  All references to a “§” or “section” refer to this Agreement,and all references to an “Exhibit” refer to the documents attached to this agreement, unless the context otherwise requires.           (b)      Definitions.  In addition to the terms defined elsewhere in this Agreement and except to the extent that the context otherwise requires, the following terms used in this Agreement shall mean as follows: “Accredited Investor” has the meaning set forth in Regulation D promulgated under the Securities Act. “Adverse Consequences” means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and fees, including court costs and reasonable attorneys' fees and expenses. “Affiliate” has the meaning set forth in Rule 12-2 of the regulations promulgated under the Securities Exchange Act. “Affiliated Group” means any affiliated group within the meaning of Code Sec. 1504 or any similar group defined under a similar provision of state, local or foreign law. “Bankruptcy Code” means the Bankruptcy Code of 1978, as amended. “Buyer” has the meaning as defined in the first paragraph of this Agreement. “Buyer Disclosure Schedule” means a written schedule delivered to Seller prior to the execution and delivery of this Agreement by Buyer describing, in numbered and lettered paragraphs corresponding to the numbered and lettered sections of §3(b), any exceptions or qualifications to any of the representations or warranties made by Buyer in such sections. “Buyer Notes” has the meaning as defined in §2(b). “Buyer $1,000,000.00 Note” has the meaning as defined in §2(b). “Buyer $12,000,000.00 Note” has the meaning as defined in §2(b). “Closing” has the meaning as defined in §2(c). “Closing Date” has the meaning as defined in §2(c). “Code” means the Internal Revenue Code of 1986, as amended. “Confidential Information” means any information concerning the businesses and affairs of Connaissance that is not already generally available to the public. Confidential Information shall not include any information that (i) is voluntarily disclosed to the public by Buyer or Connaissance after the Closing or has become generally known to the public (except for such public disclosure that has been made by or through Norstan or by a third person with the knowledge of Norstan without authorization by Buyer); (c) has been independently developed and disclosed by parties other than Norstan to the public generally without a breach of any obligation of confidentiality by any such person running directly or indirectly to the Connaissance or Buyer; or (d) otherwise enters the public domain through lawful means. “Connaissance” has the meaning as defined as part of the “Recitals” of this Agreement. A “covenant” means any agreement on the part of any party contained in this Agreement. “Disclosure Schedule” has the meaning set forth in §4 . “Escrow Agreement” has the meaning set forth in §2(d). “GAAP” means generally accepted accounting principles in the United States as in effect from time to time. The term “knowledge”  means actual knowledge after reasonable investigation. “L&A” has the meaning as defined as part of the “Recitals” of this Agreement. “Liability” means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. “Loan Rights” means all outstanding loans, advances, together with accrued interest made by Seller or any Affiliate of Seller to Connaissance, Buyer, L&A, or any shareholder of L&A. “MCA” has the meaning as defined as part of the “Recitals” of this Agreement. “Norstan” has the meaning as defined in the first paragraph of this Agreement. “Ordinary Course of Business” means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). The term “party” refers to any of Seller, Buyer, or, where the context requires, Norstan. The term “person” means any individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof). “Purchase Price” has the meaning as defined in §2(b). “Purchased Interest” means all of Seller's right, title and interest in and to Connaissance, including, but not by limitation, all rights, privileges, powers and interests in capital and property relating to Connaissance, whether tangible or intangible, all interests in profits, losses, gains, deductions, credits, distributions and fees relating to Connaissance, all claims through or against Connaissance, and all items of value in or of Connaissance, of any kind or nature whatsoever, except for the Loan Rights. “Seller” has the meaning as defined in the first paragraph of this Agreement. “Seller Disclosure Schedule” means a written schedule delivered to Buyer prior to the execution and delivery of this Agreement by Buyer describing, in numbered and lettered paragraphs corresponding to the numbered and lettered sections of §3(a) and §4, any exceptions or qualifications to any of the representations or warranties made by Seller in such sections. “Security Agreements” has the meaning as defined in §2(b). “Securities Act” means the Securities Act of 1933, as amended. “Securities Exchange Act” means the Securities Exchange Act of 1934, as amended. “Tax” means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code section 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. “Tax Return” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.           2.       Purchase and Sale of Purchased Interest and Loan Rights.           (a)      Basic Transaction. On and subject to the terms and conditions of this Agreement, Buyer agrees to purchase: (1) the Purchased Interest from Seller, and Seller agrees to sell to Buyer, all of its right, title and interest in and to the Purchased Interest for the Purchase Price defined in §2(b); and (2) the Loan Rights from Seller and Norstan, and each of Seller and Norstan agrees to sell to Buyer, all of its right, title and interest in and to the Loan Rights for the Purchase Price.  It is the intent hereof, and it is hereby agreed, that the Purchased Interest is to be sold, conveyed, assigned and transferred to Buyer with the effect that after the Closing, Buyer and L&A will be the only members of Connaissance and that the sale and assignment of the Purchased Interest and the Loan Rights to Buyer will extinguish all of Seller’s and its Affiliates' rights, benefits and privileges attributable to the Loan Rights, the Purchased Interest, Connaissance and the business of Connaissance, and such parties shall have no further right, title, claim or interest of any nature whatsoever in the Loan Rights, the Purchased Interest, Connaissance or the business of Connaissance except as specifically provided in this Agreement and certain related agreements and instruments, including without limitation the Buyer Notes and the Security Agreements.           (b)      Purchase Price.  Buyer agrees to deliver the purchase price for the Purchased Interest and the Loan Rights to Seller at the Closing as follows: (1) $3,000,000.00 in cash payable by wire transfer or delivery of other immediately available funds; and (2) two promissory notes drawn by Buyer in favor of Seller (the “Buyer Notes”), the first in the principal amount of $1,000,000.00 (the “Buyer $1,000,000.00 Note”) substantially in the form of Exhbit A1 attached hereto, and the second in the principal amount of $12,000,000.00 (the “Buyer $12,000,000.00 Note”) substantially in the form of Exhibit A2 attached hereto (the payment of such cash and the delivery of the Buyer Notes are collectively referred to herein as the “Purchase Price”).  The Buyer Notes shall be secured by respective assignment intercreditor and security agreements (the “Security Agreements”) in the forms of Exhibits B1, 2 and 3 attached hereto.  The Purchase Price shall be allocated to the Purchased Interest and the Loan Rights and between Seller and Norstan as set forth in Exhibit C.           (c)      The Closing.  The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place on January 30, 2001 or another date (the “Closing Date”) mutually agreed by Buyer and Seller with the intent being that such date will not be later than February 2, 2001.           (d)      Deliveries at the Closing. At the Closing, (1) Norstan will deliver to Buyer all documents required to be delivered as a condition to Closing pursuant to §6(a), (2) Buyer will deliver to Seller all documents required to be delivered as a condition to Closing pursuant to §6(b), (3) Seller will deliver to Buyer an assignment of the Purchased Interest and an assignment of the Loan Rights in form and content satisfactory to Buyer (and any such other documentation as Buyer may reasonably require in order to effect the transfer of the Purchased Interest and the Loan Rights), and (4) Buyer will deliver to order of Seller the Purchase Price; provided, however, that if on or before the Closing Seller has not received the consent of its principal lender to the transactions contemplated by this Agreement pursuant to §7, all deliveries shall be to Resource Trust Company or such other person who may be designated by the parties as escrow agent under a certain Escrow Agreement, to be attached in such event hereto as Exhibit G, by and among Buyer, Seller, Norstan and such escrow agent for disposition by such escrow agent as provided therein (the “Escrow Agreement”).           3.       Representations and Warranties Concerning the Transaction.           (a)      Representations and Warranties of Seller and Norstan.  Each of Seller and Norstan represents and warrants to Buyer that each of the following statements is correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this §3(a)) with respect to itself, except as set forth in Seller Disclosure Schedule. (1)      Organization of Seller and Norstan.  Each of Seller and Norstan is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. (2)      Authorization of Transaction.  Each of Seller and Norstan has the requisite corporate power and authority (including, if Seller is a corporation, full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of each of Seller and Norstan, enforceable in accordance with its terms and conditions. Neither Seller nor Norstan need give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. (3)      Noncontravention.  Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which either Seller or Norstan is subject or, if Seller is a corporation, any provision of its charter, bylaws or other governing documents or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which either Seller or Norstan is a party or by which it is bound or to which any of its assets is subject. (4)      Brokers' Fees. Neither Seller nor Norstan has any Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which Buyer could become liable or obligated. (5)      Investment. Each of Seller and Norstan (A) understands that the Buyer Notes have not been, and will not be, registered under the Securities Act, or under any state securities laws, (B) is acquiring the Buyer Notes solely for its own account for investment purposes, and not with a view to the distribution thereof, (C) is a sophisticated investor with sufficient knowledge and experience in business and financial matters, (D) is able to bear the economic risk and lack of liquidity inherent in holding the Buyer Notes, and (E) is an Accredited Investor. (6)      Purchased Interest and Loan Rights. Each of Seller and Norstan holds of record and owns beneficially the Purchased Interest and Loan Rights as set forth next to its name in the Disclosure Schedule, free and clear of any restrictions on transfer (other than any restrictions under the MCA, the Securities Act and state securities laws), Taxes, security interests, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands. Neither Seller nor Norstan is a party to any option, warrant, purchase right, or other contract or commitment that could require Seller to sell, transfer, or otherwise dispose of any interest in the Purchased Interest, Loan Rights or Connaissance (other than the MCA and this Agreement). Neither Seller nor Norstan is a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of any membership interest of Connaissance. (7)      Insolvency. No Insolvency Proceeding has been commenced or, to Seller’s knowledge, threatened against either Seller or Norstan, and no grounds for commencing an Insolvency Proceeding by or against Seller or Norstan exists.  “Insolvency Proceeding” means any proceeding commenced by or against any person under any provision of the Bankruptcy Code or under any other federal or state bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief.           (b)      Representations and Warranties of Buyer. Buyer represents and warrants to Seller that each of the following statements is correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this §3(b)), except as set forth in the Buyer Disclosure Schedule. (1)      Competence of Buyer.  Buyer is a natural person of legal age and competency to execute and deliver this Agreement and perform its obligations hereunder. (2)      Authorization of Transaction. Buyer has the requisite power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of Buyer, enforceable in accordance with its terms and conditions. Buyer need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. (3)      Noncontravention. Neither the execution and the delivery of this Agreement, the Buyer Notes or the Security Agreements nor the consummation of the transactions contemplated by any of the forgoing, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Buyer is subject or any provision of its articles of incorporation, regulations or other governing documents or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Buyer is a party or by which it is bound or to which any of its assets is subject. (4)      Ordinary Course of Business.  To the knowledge of Buyer, since April 30, 2000, Connaissance has been operated in the ordinary course of its business, including without limitation with respect to the solicitation of business, the timely performance of consulting and other engagements, the invoicing of customers for work performed, the collection of receivables from customers and other debtors of Connaissance, the depositing of cash collected by Connaissance, and the timely, complete and accurate recording of transactions in the books and records of Connaissance. (5)      Brokers' Fees. Buyer has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which any Seller could become liable or obligated. (6)      No Knowledge regarding Seller’s Connaissance Representations.  Except as disclosed in Buyer Disclosure Schedule, Buyer has no knowledge that any representation or warranty made by Seller regarding Connaissance in §4 is untrue.           4.       Representations and Warranties Concerning Connaissance.  Seller represents and warrants to Buyer that each of the following statements is correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this §4), except as set forth in Seller Disclosure Schedule.  Except as otherwise specifically provided herein, the knowledge of Buyer as a member of Connaissance shall not be attributed to the knowledge of Seller.  To the extent that any representation or warranty made by Seller herein is, within the knowledge of Buyer or Connaissance, untrue at the time such representation or warranty is made or at the Closing Date, such representation or warranty shall not, for purposes of this Agreement, be deemed to have been made by Seller. (a)      Organization, Qualification, and Corporate Power. Connaissance is a limited liability company duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization. Connaissance is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required. Connaissance has full organizational power and authority and all licenses, permits, and authorizations necessary to carry on the businesses in which it is engaged and in which it presently proposes to engage and to own and use the properties owned and used by it.  Seller has delivered to Buyer correct and complete copies of the articles, operating agreement, and MCA of Connaissance (as amended to date) (“Governing Documents”). The minute books (containing the records of meetings of the members, the governors, managers, officers and any committees of the board of governors), and the membership interest record books of Connaissance, all as furnished to Buyer, are correct and complete. Connaissance is not in default under or in violation of any provision of its Governing Documents. (b)      Capitalization. The Purchased Interest has been duly authorized, is validly issued, fully paid, and nonassessable, and is held of record by Seller as set forth in the Disclosure Schedule.   Seller and L&A are the only members of Connaissance and to the knowledge of Seller no other Person owns or possesses or has ever owned or possessed a right to any interest whatsoever in Connaissance, including, without limitation: (1) any right with respect to options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require Connaissance or any member thereof to issue, sell, or otherwise cause to become outstanding any membership interests of Connaissance or to admit any additional member to Connaissance; or (1) any right to any income , gain, loss, deduction, credit, distribution, fee, payment, or other benefit relating to Connaissance. To the knowledge of Seller, there are no voting trusts, proxies, or other agreements or understandings with respect to the voting of any membership interest in Connaissance. (c)      Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (1) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Connaissance is subject or any provision of the Governing Documents of Connaissance or (2) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Connaissance is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets).  To the knowledge of Seller, Connaissance does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the parties to consummate the transactions contemplated by this Agreement. (d)      Brokers' Fees. Connaissance has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. (e)      Financial Statements. Attached hereto as Exhibit D are the following financial statements (collectively the “Financial Statements”): (1) unaudited balance sheets and statements of operations, changes in members' equity, and cash flows as of and for the fiscal years ended April 30, 1999 and 2000 (the “Most Recent Fiscal Year End”) for Connaissance; and (2) unaudited balance sheets and statements of operations, changes in members' equity, and cash flows (the “Most Recent Financial Statements”) as of and for the seven months ended November 30, 2000 (the “Most Recent Month End”) for Connaissance.  The Financial Statements (including the notes thereto) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, present fairly the financial condition of Connaissance as of such dates and the results of its operations for such periods; provided, however, that the Most Recent Financial Statements are subject to normal year-end adjustments (which will not be material individually or in the aggregate) and lack footnotes and other required disclosures. (f)       Events Subsequent to Most Recent Fiscal Year End.  To the knowledge of Seller, since the Most Recent Fiscal Year End there has been no material adverse changes in the business, financial condition, operations, results of operations, or future prospects of Connaissance. (g)      Undisclosed Liabilities.  To the knowledge of Seller, Connaissance has no Liabilities, except for (1) Liabilities set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) and (2) Liabilities which have arisen after the Most Recent Fiscal Month End in the Ordinary Course of Business (none of which results from, arises out of, relates to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort, infringement, or violation of law). (h)      Legal Compliance. To the knowledge of Seller, Connaissance is in compliance with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof), or that any action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against any of them alleging any failure so to comply. (i)       Tax Matters. (1)      Connaissance has filed all Tax Returns that it was required to file.  All such Tax Returns were correct and complete in all respects.  All Taxes shown on any such Tax Return as owed by Connaissance have been paid. Connaissance currently is not the beneficiary of any extension of time within which to file any Tax Return.  No claim has ever been made by an authority in a jurisdiction where Connaissance does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. (2)      Connaissance has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, member, or other third party. (3)      Seller as the member of Connaissance responsible for Connaissance Tax matters does not expect any authority to assess any additional Taxes for any period for which Tax Returns have been filed.  To the best of Seller’s knowledge as Tax matters member of Connaissance, there is no dispute or claim concerning any Tax Liability of Connaissance claimed or raised by any authority. Seller Disclosure Schedule lists all federal, state, local, and foreign income Tax Returns filed with respect to Connaissance for taxable periods ended on or after April 30, 2000, indicates those Tax Returns that have been audited, and indicates those Tax Returns that currently are the subject of audit. Seller has delivered to Buyer correct and complete copies of all federal income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by Connaissance since April 30, 2000. (4)      To the best of Seller’s knowledge as Tax matters member of Connaissance, Connaissance has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (5)      To the best of Seller’s knowledge as Tax matters member of Connaissance, Connaissance is not a party to any Tax allocation or sharing agreement. Connaissance (A) has not been a member of an Affiliated Group filing a consolidated federal income Tax Return or (B) has no Liability for the Taxes of any Person (other than Connaissance) under Treas. Reg. §1.1502–6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. (j)       Employee Benefit Plans.  Seller has no knowledge of any liability that Connaissance has incurred or will incur after Closing as a successor employer to Seller with respect to any employee benefit plan within the meaning of ERISA in which Connaissance has been treated together with Seller or Norstan as a single employer within the meaning of section 414(b), (c), (m) or (o) of the Code. (k)      Employment Matters.  To the knowledge of Seller, Connaissance has withheld all amounts required by law or by agreement to be withheld from the wages, salaries, and other payments to employees of Connaissance; and neither Seller nor Norstan nor Connaissance is liable for any arrears of wages or any taxes or any penalty for failure to comply with any of the foregoing.  Connaissance is not liable for any payment to any trust or other fund or to any governmental or administrative authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for employees (other than routine payments to be made in the normal course of business and consistent with past practice).  Connaissance is not a party to any collective bargaining agreement or other labor union contract nor does Seller have any knowledge of any activities or proceedings of any labor union to organize any such employees.  To the best of Seller’s knowledge, Connaissance is in compliance in all material respects with all currently applicable laws and regulations respecting employment, discrimination in employment, terms and conditions of employment, wages, hours and occupational safety and health and employment practices, and is not engaged in any unfair labor practice.           5.       Post-Closing Covenants.  The parties agree as follows with respect to the period following the Closing: (a)      Income Tax Returns.  Buyer and L&A, the only members of Connaissance immediately after the Closing, shall be responsible for the preparation and filing of all Tax Returns of Connaissance due to be filed after the Closing, including without limitation, the federal income Tax Return of Connaissance for the period from May 1, 2000 through the effective date of the Closing (the “Short Period Return”), subject to Norstan's right to review the Short Period Return prior to its filing and provide its consent thereto which shall not be withheld unreasonably.  Seller hereby consents to Connaissance making an election under section 754 of the Code with respect to the purchase and sale of the Purchased Interest pursuant to this Agreement on the Short Period Return if such election is deemed advisable by Connaissance at the time of filing the Short Period Return. (b)      Corrective Income Allocation.  Seller hereby agrees (without any further act or agreement required by Seller) and Buyer agrees to cause L&A to authorize: (1) the allocation of Loss for the Fiscal Year (as defined in the MCA) ending April 30, 2000 entirely to Seller, and (2) with respect to the Short Period Return, a special allocation of Profits (as defined in the MCA), income, gain and items thereof to Seller to the extent necessary to offset that portion of the allocation of Loss to Seller for the Fiscal Year ending April 30, 2000 that was in excess of the allocation of such Loss to Seller if it had been made in proportion to Seller's Percentage Interest (as defined in the MCA).  This §5(b) shall be treated as an amendment of the MCA. (c)      General.  In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, each of the parties will take such further action (including the execution and delivery of such further instruments and documents) as any other party reasonably may request, all at the sole cost and expense of the requesting party. Seller acknowledges and agrees that from and after the Closing Buyer will be entitled to possession of all documents, books, records (including Tax records), agreements, and financial data of any sort relating to Connaissance . (d)      Litigation Support.  In the event and for so long as any party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (1) any transaction contemplated under this Agreement or (2) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving Connaissance, each of the other parties will cooperate with him or it and its counsel in the contest or defense, make available their personnel, and provide such testimony and access to their books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending party. (e)      Transition.  Seller will not take any action that is designed or intended to have the effect of discouraging any lessor, licensor, customer, supplier, or other business associate of Connaissance from maintaining the same business relationships with Connaissance after the Closing as it maintained with Connaissance prior to the Closing. Seller will refer all customer inquiries relating to the businesses of Connaissance to Buyer from and after the Closing. (f)       Confidentiality.  Seller will treat and hold as such all of the Confidential Information, refrain from using any of the Confidential Information except in connection with this Agreement, and deliver promptly to Buyer or destroy, at the request and option of Buyer, all tangible embodiments (and all copies) of the Confidential Information which are in its possession.  In the event that Seller is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, Seller will notify Buyer promptly of the request or requirement so that Buyer may seek an appropriate protective order or waive compliance with the provisions of this §5(f).  If, in the absence of a protective order or the receipt of a waiver hereunder, Seller is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, Seller may disclose the Confidential Information to the tribunal; provided, however, that the disclosing Seller shall use its reasonable best efforts to obtain, at the reasonable request of Buyer, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as Buyer shall designate. The foregoing provisions shall not apply to any Confidential Information which is generally available to the public immediately prior to the time of disclosure. (g)      Tenant Obligations.  On or before the 30th day following the execution and delivery of this Agreement by the parties, Buyer shall cause Connaissance to enter into an agreement providing for reimbursement to Seller or Norstan, whichever is applicable, for any office or other space leased by Seller or Norstan and currently occupied by Connaissance on the same basis that Connaissance is being charged for such space prior to the Closing, such reimbursement to continue for the remainder of each applicable lease term.           6.       Conditions to Obligation to Close.           (a)      Conditions to Obligation of Buyer.  The obligation of Buyer to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (1)      The representations and warranties set forth in §3(a) and §4 shall be true and correct in all material respects at and as of the Closing Date; (2)      Each of Seller and Norstan shall have performed and complied with all of their covenants hereunder in all material respects through the Closing; (3)      No action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, (C) affect adversely the right of Buyer to own the Purchased Interest and to control Connaissance, or (D) affect adversely the right of Connaissance to own its assets and to operate its businesses (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect); (4)      Each of Seller and Norstan shall have delivered to Buyer a certificate of a duly authorized officer to the effect that each of the foregoing conditions is satisfied in all respects; (5)      Buyer shall have received from counsel to Seller an opinion in form and substance as set forth in Exhibit E attached hereto, addressed to Buyer, and dated as of the Closing Date; (6)      On or before noon on February 2, 2001 Seller shall have received or waived receiving the consent of its principal lender as a condition to Seller’s and Norstan’s obligations pursuant to §6(b)(5); and (7)      All actions to be taken by Each of Seller and Norstan in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to Buyer. Buyer may waive any condition in this §6(a) if it executes a writing so stating at or prior to the Closing.           (b)      Conditions to Obligation of Seller and Norstan. The obligation of each of Seller and Norstan to consummate the transactions to be performed by them in connection with the Closing is subject to satisfaction of the following conditions: (1)      The representations and warranties set forth in §3(b) shall be true and correct in all material respects at and as of the Closing Date; (2)      Buyer shall have performed and complied with all of its covenants hereunder in all material respects through the Closing; (3)      No action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect); (4)      Buyer shall have delivered to Seller a certificate of Buyer to the effect that each of the foregoing conditions is satisfied in all respects; (5)      Seller shall have received from counsel to Buyer an opinion in form and substance as set forth in Exhibit F attached hereto, addressed to Seller, and dated as of the Closing Date; and (6)      All actions to be taken by Buyer in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to Seller. Each of Seller and Norstan may waive any condition specified in this §6(b) if it executes a writing so stating at or prior to the Closing.           7.       Condition to Effectiveness of Agreement.  The consent of Norstan's principal lender to the transactions contemplated by this Agreement is a condition precedent to its effectiveness and enforceability.  In the event that such consent is not obtained on or before February 2, 2001, this Agreement shall not become effective or enforceable, and within five days thereafter, the escrow agent referred to in §2(d) shall release to the parties the documents and funds held in the escrow account in compliance with the terms of the Escrow Agreement.  Upon receipt of the $3 million cash refunded from the escrow account, Buyer shall immediately repay Buyer's $2.5 million loan from Connaissance.           8.       Survival and Construction of Representations and Warranties.           (a)      Survival.  All of the representations and warranties of parties contained in this Agreement shall survive the Closing hereunder and continue in full force and effect for a period of one year thereafter.           (b)      Construction.  The parties intend that each representation and warranty contained herein shall have independent significance.  If any representation or warranty contained herein is not true in any respect, the fact that there exists another representation or warranty relating to the same subject matter (regardless of the relative levels of specificity) which remains true shall not detract from or mitigate the fact that the first representation or warranty is not true.           9.       Miscellaneous.           (a)      Nature of Certain Obligations.  Seller shall be jointly and severally liable for any Adverse Consequences to Buyer resulting from any breach of any covenant any false respresentation or warranty made by Seller or Norstan pursuant to this Agreement           (b)      Press Releases and Public Announcements.  Except as required by law or pursuant to the rules of the Nasdaq stock market, no party shall issue any press release or make any public announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of both of Buyer and Seller.           (c)      No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the parties and their respective successors and permitted assigns.           (d)      Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement among the parties and supersedes any prior understandings, agreements, or representations by or among the parties, written or oral, to the extent they related in any way to the subject matter hereof.           (e)      Succession 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 without the prior written approval of Buyer and Seller; provided, however, that Buyer may (1) assign any or all of its rights and interests hereunder to one or more of its Affiliates and (2) designate one or more of its Affiliates to perform its obligations hereunder (in any or all of which cases Buyer nonetheless shall remain responsible for the performance of all of its obligations hereunder).           (f)       Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.           (g)      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.           (h)      Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth:     If to Seller or Norstan: Copies to:         Richard Cohen Jerry P. Lehrman   Norstan, Inc. Norstan, Inc.   Chief Financial Officer 5101 Shady Oak Road   5101 Shady Oak Road Minnetonka, MN 55343   Minnetonka, MN 55343 Tel. 952-352-4075   Tel. 952-352-4340 Fax 952-352-4907   Fax 952-352-____       Philip J. Tilton     Maslon Edelman Borman & Brand     3300 Wells Fargo Center     90 South Seventh Street     Minneapolis, MN 55402     Tel. 612-672-8200     Fax 612-672-8397     Email: [email protected]         If to Buyer: Copy to:         Jeffrey A. Lusenhop Gordon F. Litt   C/o Lusenhop & Associates, Inc. Bricker & Eckler LLP   8101 North High Street, Suite 180 100 South Third Street   Columbus, Ohio 43235 Columbus, Ohio 43215   Tel. 614-825-7701 Tel. 614-227-2305   Fax 614-825-7801 Fax 614-227-2390   Email: jlusenhop@connaissance Email: [email protected]   consulting.com   Any party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth  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 intended recipient. Any party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other parties notice in the manner herein set forth.           (i)       Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.           (j)       Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by Buyer and Seller. 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.           (k)      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.           (l)       Expenses.  Each of the parties, will bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby. The parties agree that Connaissance has borne or will bear none of the parties' costs and expenses (including any of their legal fees and expenses) in connection with this Agreement or any of the  transactions contemplated hereby.           (m)     Incorporation of Exhibits, Annexes, and Schedules. The Exhibits and schedules identified in this Agreement are incorporated herein by reference and made a part hereof.           (n)      Specific Performance. Each of the parties acknowledges and agrees that the other parties would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the parties agrees that the other parties shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the parties and the matter, in addition to any other remedy to which they may be entitled, at law or in equity. Signatures           IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first  written.     /s/Jeffrey A. Lusenhop -------------------------------------------------------------------------------- Executed January 30, 2001 Jeffrey A. Lusenhop       NORSTAN, INC.,   a Minnesota corporation   Solely with respect to the Loan Rights being conveyed       By: /s/ Scott Christian -------------------------------------------------------------------------------- Executed January 30, 2001 Title: CFO --------------------------------------------------------------------------------       NORSTAN COMMUNICATIONS, INC.,   a Minnesota corporation   By: /s/ Scott Christian -------------------------------------------------------------------------------- Executed January 30,2001 Title: CFO --------------------------------------------------------------------------------     Exhibits A Buyer Notes Exhibit A1 –Buyer $1,000,000 Note Exhibit A2 –Buyer $12,000,000 Note Exhibits B Security Agreements Exhibit B1 – Assignment the Put and Security Agreement (regarding the Buyer $1,000,000 Note) Exhibit B2 – Intercreditor Agreement (regarding the Buyer $1,000,000 Note) Exhibit B3 – (regarding the Buyer $12,000,000 Note) Exhibit C Allocation of Purchase Price Exhibit D Financial Statements Exhibit E Buyer Legal Opinion 1.       Buyer is of legal age and competency to execute and deliver the Agreement and perform its obligations thereunder. 2.       Each of the Agreement, the Buyer Notes and the Security Agreements has been duly authorized, executed and delivered by Buyer 3.       Each of the Agreement, the Buyer Notes and the Security Agreements constitutes a legal, valid and binding obligation of Buyer enforceable against it in accordance with its terms except as provided below, except as the enforcement thereof may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights in general and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 4.       The execution and delivery of, and the performance of its obligations at the Closing under, each of the Agreement, the Buyer Notes and the Security Agreements by Buyer do not:  (a) violate any order, judgment or decree of any court or governmental agency in effect and known by us to which Buyer is party; (b) violate any law of the United States or of the States of Ohio or Delaware, or any regulation thereunder, which is presently in effect and to which Buyer is subject; or (c) result in material breach of or constitute a default under any loan agreement, indenture, note, evidence of indebtedness, mortgage, bond, debenture, or other agreement or instrument known to us, which breach or default would adversely affect the validity or enforceability of Buyer's obligations under the Agreement. 5.       No authorization or approval of, or filing with, any governmental agency of the United States or of the States of Ohio or Delaware which has not been obtained or made is necessary for the execution and delivery of, and performance of its obligations at the Closing under, each of the Agreement, the Buyer Notes and the Security Agreements by Buyer. Exhibit F Seller Legal Opinion 1.              Each of Seller and Norstan is duly incorporated and validly existing and in good standing under the laws of the State of Minnesota.  Connaissance is a limited liability company duly formed, validly existing  and in good standing under the laws of the State of Minnesota. 2.              The Agreement has been duly authorized, executed and delivered by each of Seller and Norstan. 3.              The Agreement constitutes the legal, valid and binding obligation of each of Seller and Norstan enforceable against it in accordance with its terms except as the enforcement thereof may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights in general and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 4.              The execution and delivery of, and the performance of its obligations at the Closing under, the Agreement by each of Seller and Norstan do not:  (a) violate any provision of its articles of incorporation, as amended, or the bylaws, as amended,; (b) violate any order, judgment or decree of any court or governmental agency in effect and known by us to which it is party; (c) violate any law of the United States or of the State of Minnesota, or any regulation thereunder, which is presently in effect and to which it is subject; or (d) result in material breach of or constitute a default under any loan agreement, indenture, note, evidence of indebtedness, mortgage, bond, debenture, or other agreement or instrument known to us, which breach or default would adversely affect the validity or enforceability of its obligations under the Agreement. 5.              No authorization or approval of, or filing with, any governmental agency of the United States or of the State of Minnesota which has not been obtained or made is necessary for the execution and delivery of, and performance of its obligations at the Closing under, the Agreement by either Seller or Norstan. EXHIBIT G Escrow Agreement (if applicable pursuant to §2(d))  

EXHIBIT 10(i)    April 24, 2001  Robert T. Christensen  c/o Airborne Express, Inc.   Post Office Box 662   Seattle, WA 98111-0662  Dear Mr. Christensen:      Airborne, Inc., a Delaware corporation ("Airborne" and, collectively with its direct and indirect wholly-owned subsidiaries the " Company") and the Board of Directors of Airborne ("Board) are not necessarily opposed to any merger proposal or acquisition attempt by third parties. We recognize, and insist that our executives recognize, that in such matters our responsibility is to serve the best interests of our shareholders in maximizing the worth and potential of their investment. However, Airborne, as a publicly held corporation, must be aware that insofar as it may be the subject of acquisition attempts, such attempts do raise the possibility of a change in control of the Airborne. It further recognizes that such a possibility can breed uncertainties as to the continued tenure and fair treatment of key executives regardless of their value to the Company and their individual merit. The Company is concerned that the possibility of acquisition attempts and a change in control can have an adverse effect on its retention of key management personnel, and that such acquisition attempts can make it difficult for such personnel to function most effectively in the best interests of the Company and its shareholders. In light of these concerns, the Board has determined that it is appropriate to offer additional security to certain key management personnel to better enable them to function effectively without distraction in the event that uncertainties as to the future control of the Company should arise.     Therefore, to induce you to remain in the employ of the Company and to encourage a high level of effective management in the best interests of the Company and Airborne's shareholders, this letter agreement sets forth certain benefits which the Company agrees will be provided to you if your employment with the Company should be terminated other than for cause, or by death, disability or normal retirement, subsequent to a "change in control" of Airborne as defined and set forth in this Agreement. As the purpose of this Agreement is to provide you with stability of job tenure without being discriminated against because of activities on behalf of the Company and Airborne's shareholders in the face of a possible "change in control" or in the alternative to provide you with certain defined severance benefits in the face of termination without cause or upon discriminatory treatment after a "change in control," the provisions of this Agreement with regard to benefits shall not apply unless and until a "change in control" occurs. Further, the benefits set forth in Section 7 of this Agreement will not be provided if you cease to be in the Company's employ, even after a "change in control" and during the term of this Agreement, because of death, normal retirement, disability, "for cause," or because of voluntary termination by you without "good reason" as they are defined herein.     1. Term. This Agreement will at all times have a two-year term. At such time as either you or the Company give written notice to the other party that this Agreement is to be terminated (such notice on your part to have no force or effect unless given by you no later than two years after a "change in control"), then this Agreement will expire two years from receipt of the notice. In any event, this Agreement will terminate at your normal retirement date as defined herein.     2. Change in Control. For the purposes of invoking your benefits under this Agreement, a "change in control" shall mean the occurrence of any one of the following actions or events: (a) The acquisition by any person of the power, directly or indirectly, to exercise a controlling influence over the management or policies of Airborne (either alone or pursuant to an arrangement or understanding with one or more other persons), whether through ownership of voting securities, through one or more intermediaries, by contract, by way of a reorganization, merger or consolidation, or otherwise; or (b) The acquisition by a person who is not a U.S. citizen (either alone or pursuant to an arrangement or understanding with one or more other persons) of the ownership of or power to vote 25% or more of the outstanding voting securities of Airborne; or (c) The acquisition by a person who is a U.S. citizen (either alone or pursuant to an arrangement or understanding with one or more other persons) of the ownership of or power to vote 35% or more of the outstanding voting securities of the Company; or (d) If during a period of six years after the acquisition by any person, directly or indirectly, of the ownership of or power to vote 10% or more of the outstanding voting securities of Airborne, the individuals who prior to such acquisition were Directors of the Company ("Prior Directors") shall cease to constitute a majority of the Board, unless the nomination of each new Director was approved by a vote of a majority of the Prior Directors;     The term "person" for purposes of this paragraph shall include a natural person, corporation, partnership, association, joint-stock company, trust fund, or organized group of persons.     3. Death, Retirement and Disability. In the event of your death, normal retirement, disability or voluntary termination without good reason during the term hereof and following a "change in control," you or your estate will be entitled to receive only those applicable benefits under any plans, programs and policies in effect with regard to the executives or salaried employees of the Company. For purposes of this Agreement, normal retirement and disability are defined as follows:     (a) Normal Retirement: For purposes of this Agreement, termination by the Company or you of your employment based on normal retirement shall mean termination at age 65 or such earlier or later age set in accordance with the retirement policy then generally in effect with regard to the Company's salaried employees which is not discriminatory as to you. Normal retirement shall also include retirement in accordance with any early or deferred retirement age or date established with your consent.     (b) Disability: Disability as grounds for termination shall mean physical or mental illness resulting in your absence from your duties with the Company on a full time basis for 365 consecutive days following the exhaustion of all current and accrued sick leave and vacation (as provided by Company policy to all salaried employees on a nondiscriminatory basis). If within thirty (30) days after written notice of proposed termination for disability is given by the Company, you have not returned to the full time performance of your duties, the Company may terminate your employment by giving written Notice of Termination for "Disability."     4. Other Termination Following a Change in Control. If a "change in control" occurs and you are subsequently terminated as an employee by the Company during the term of this Agreement (except for normal retirement, disability or for cause as hereinafter defined) or if you terminate your employment for good reason, as hereinafter defined, you will be entitled to receive the benefits set forth in Section 7 hereof.     5. Cause. After a "change in control," the Company may terminate your employment for "cause" without liability under the benefit provisions hereof only upon:     (a) The willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness), after a demand for substantial performance is delivered to you by the Board which specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or     (b) The willful engaging by you in gross misconduct demonstrably injurious to the Company.     For the purpose of this Section 5, no act, or failure to act, on your part shall be considered "willful" if done, or omitted to be done, by you in good faith and in the reasonable belief that your act or omission was in the best interests of the Company. You shall not be deemed to have been terminated for cause unless and until you receive a copy of a resolution duly adopted by the 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 that purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth in clauses (a) or (b) of the first sentence of this Section 5 and specifying the particulars thereof.     If your employment is terminated for cause, the Company shall pay you your then current full base salary plus vacation and any other compensation actually accrued through the date of termination, and the Company shall have no further obligation to you.     6. Good Reason. You may regard your employment as constructively terminated by the Company, and yourself terminate your employment for "good reason" following a "change in control" and during the term hereof, receiving the benefits set forth in Section 7, upon the happening of one or more of the following events which will constitute good reason for your own termination of your employment:     (a) Without your express written consent, the assignment to you of any duties not customarily performed by senior executives of the Company and inconsistent with your position as senior executive prior to a "change in control," or the failure of the Company to maintain you in senior executive position; or to provide you with the normal perquisites of a senior executive of the Company, including but not limited to an office and appropriate support services.     (b) A reduction by the Company in your base salary as in effect prior to a "change in control" unless such reduction is applied to all officers of the Company and does not exceed the average percentage reduction in base salary for all officers of the Company, with a maximum permissible reduction of 25%, or the failure by the Company to increase such base salary each year following a "change in control" by an amount which equals at least one-half (1/2), on a percentage basis, the average percentage increase in base salary for all officers of the Company or any parent or successor of the Company during the prior two full calendar years;     (c) A failure by the Company to maintain any of the employee benefits to which you are entitled prior to a "change in control" at a level equal to or greater than that in effect prior to a "change in control," through the continuation of the same or substantially similar plans, programs and policies, or the taking of any action by the Company which would adversely affect your participation in or materially reduce your benefits under any such plans, programs or policies or deprive you of any fringe benefits enjoyed by you prior to a "change in control," unless such a reduction in benefits is nondiscriminatory as to you and is applied generally.     (d) The failure by the Company to provide you with the number of paid vacation days to which you would be entitled as a salaried employee of the Company, its subsidiaries or affiliates, or any parent or successor of the Company on a nondiscriminatory basis.     (e) The Company's requiring you to be based anywhere other than your current location except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; or the relocation of your offices outside of their current location without your consent.     (f) Any purported termination of your employment by the Company which is not effected pursuant to the notice of termination and procedures required by the specific provision relied upon (i.e., Disability, or Cause), or normal retirement as defined in Section 3 hereof, or any purported termination for which the grounds relied upon are not valid.     Upon the happening of one or more of these events, should you choose to regard your employment as constructively terminated, delivery of a written notice of termination setting forth the "good reason" therefor will entitle you to the benefits as set forth in Section 7 hereof.     7. Compensation Upon Termination Without Cause or Termination for Good Reason. If after a "change in control" and during the term hereof, (i) you are terminated by the Company other than by reason of normal retirement, disability or for cause under the definitions and procedures as set forth herein, or (ii) you choose to terminate your employment for "good reason" as set forth herein, then the Company shall pay to you the following amounts:     (a) Your full base salary through the date of any Notice of Termination plus payment for all accrued vacation, and any deferred compensation to which you are entitled for the year most recently ended and the pro rata share of any such compensation which would be due in the year of termination, up to the date of termination, to the extent not already paid; plus     (b) An amount equal to:     (i) The sum of your annual base salary at the rate in effect as of your termination plus the amount of any additional compensation awarded you for the year most recently ended (whether or not fully paid) including any sums awarded under the Executive Incentive Compensation Plan, the Executive Group Incentive Compensation Plan and the Management Incentive Compensation Plan, multiplied by:     (ii) The number two. If your normal retirement date is less than two (2) years from your termination date, then the multiplier shall be that fraction remaining until your normal retirement date rounded to the nearest tenth (i.e., 18 months equals 1.5, 8 months equals .7).     (iii) With regard to the Company's Profit Sharing Plan and Retirement Income Plan, the Company shall pay a lump sum equal to the amount forfeited by you, if any, under such plan which would have vested if your employment had continued for the remaining term of this Agreement.     (iv) For the remaining term of this Agreement prior to your normal retirement date, the Company shall pay your health insurance premiums, provided you have elected COBRA continuation coverage, and at the end of such continuation coverage period it shall at its option either arrange for you to receive health benefits substantially similar to those which you were receiving immediately prior to termination of the coverage period, or pay to you an amount equal to the premiums the Company would pay on your behalf for participation in such health plan or plans for the remaining term of this Agreement prior to your normal retirement date.     (v) The Company shall maintain in full force and effect at its expense, for the remaining term of this Agreement prior to your normal retirement date, all other employee benefit plans, programs and policies (including any life or health insurance plans) in which you were entitled to participate immediately prior to your termination, provided that your continued participation is possible under the general terms and provisions of such plans, programs and policies. In the event that your participation in any such plan, program or policy is not possible under its terms and conditions, the Company shall arrange to provide you with benefits substantially similar to those which you would have been entitled to receive under each plan, program or policy. At the end of the period of coverage, you will have the option to have assigned to you at no cost and with no apportionment of prepaid premiums, any assignable insurance policy owned by the Company and relating to you and to take advantage of any conversion privileges pertinent to the benefits available under Company policies.     (vi) In addition to the payment of benefits to which you are entitled under the qualified retirement plans maintained by the Company in which you are a participant on the date of your termination, the Company shall pay you in cash at age 65 or such earlier retirement date permitted under the plan or plans as you may elect, an amount equal to the sum of the following: (a) the difference between the actuarial equivalent of the amount which you are entitled to receive, if any, under the Supplemental Executive Retirement Plan and the amount which you would have received from such plan if you had continued in the employ of the Company for an additional two years. If your normal retirement date would occur during that two-year period, then the amount of such additional compensation shall be calculated on the basis that your employment continued to that date. For the purposes of the calculation of benefits under the Supplemental Executive Retirement Plan, the "actuarial equivalent" shall be determined by assuming your survival to age 80, and (b) the difference between the actuarial equivalent of the amount which you are entitled to receive, if any, under the Retirement Income Plan and the amount which you would have received from such plan if you had continued in the employ of the Company for an additional two years. If your normal retirement date would occur during that two-year period, then the amount of such additional compensation shall be calculated on the basis that your employment continued to that date. For the purposes of the calculation of benefits under the Retirement Income Plan, the "actuarial equivalent" shall be determined by assuming your survival to age 80.     (vii) At your option, in lieu of shares of common stock of Airborne, without par value ("Airborne Shares") issuable upon exercise of options ("Options"), if any, granted to you under the Airborne Key Employee's Stock Option and Stock Appreciation Rights Plans (to which options employee waives all rights upon the making of the payment referred to below), you shall receive an amount in cash equal to the difference between the exercise prices of all Options held by you whether or not then fully exercisable, and the higher of (a) the mean between the closing bid and asked prices on the New York Stock Exchange on the date of termination or (b) the highest price per Airborne Share actually paid in connection with any change in control of Airborne.     (viii) Notwithstanding any other provisions of this Agreement, if any severance benefits under this Section 7 of this Agreement, together with any other Parachute Payments (as defined under Internal Revenue Code Section 280(G)(b)(2)) made by the Company to you, if any, are characterized as Excess Parachute Payments (as defined in Internal Revenue Code, Section 280(G)(b)(1)), then the Company shall pay to you, in addition to the payments to be received under this Section, an amount equal to the excise taxes imposed by Section 4999 of the Code on your Excess Parachute Payments, plus an amount equal to the federal and, if applicable, state income taxes which will be payable by you as a result of this additional payment.     8. Payments and Disputes. For purposes of this Agreement, your date of termination will be the date written Notice of Termination is given by the Company to you. If termination is under circumstances invoking the benefits or Section 7, then the sums specified therein will be paid no more than ten (10) working days after the date of termination, except that the portion of the payment based upon the amounts payable under the Management Incentive Compensation Plan, the Profit Sharing Plan, the Retirement Income Plan and the Supplemental Executive Retirement Plan shall be paid no later than ten (10) working days after the amounts payable under such plans have been determined following availability of results necessary for computation of such amounts.     In the event that the Company wishes to contest or dispute a termination for "good reason" by you, it must give written notice of such dispute within the five day period after the date of termination. If you wish to contest or dispute a termination by the Company, or any failure to make payments claimed to be due hereunder, you must give written notice of such dispute within thirty days of receiving a Notice of Termination. In the event of a dispute, the Company shall continue to pay your full base salary and continue all your employee benefits in force until final resolution of any such dispute by mutual agreement or the final judgment, decree or order of a court of competent jurisdiction (including any appeals, if such are perfected). You may, at your or the Company's option, be suspended from all duties during the pendency of such a contest or dispute. If you prevail in any such contest or dispute, the Company shall thereupon be liable for the full amounts due under Section 7 as of the date of termination after adjustments for amounts already paid.     The Company will pay all fees and expenses, including full attorneys' fees, incurred by you in good faith in contesting or disputing any termination after a "change in control" or in seeking to obtain or enforce any right or benefit provided by this Agreement.     In the event that any payments due hereunder shall be delayed for any reason for more than ten working days from the date of termination (or availability of results under the Management Incentive Compensation Plan, the Profit Sharing Plan, the Retirement Income Plan or the Supplemental Executive Retirement Plan, as above provided), the amounts due shall bear the maximum legal rate of interest until paid.     Notwithstanding the provisions as to time of payment as above set forth, you may at your sole option elect to have some or all of such amounts due you deferred to a date or dates of your choosing over a period not to exceed three years, in which event the unpaid balances shall not bear interest during the deferred period elected by you.     9. Mitigation. You shall not be required to mitigate the amount of any payment due under Section 7 by seeking other employment. If you should accept a position with another employer after your date of termination and during the period of provision of benefits under Section 7, then the Company shall have no further liability for the provision of benefits or further payments under Section 7(b)(iv) and (v), and the remaining term of this Agreement for purposes of Section 7(b)(vi) will terminate as of the date of your new employment.     10. Covenant for Confidentiality and Not to Compete.     You agree that as an executive of the Company, with important responsibilities for and knowledge of its operations, your services are a valuable asset to the Company and that you have access to business information of material importance to the Company. Therefore, to protect the Company's interest in you and in the integrity and success of its operations, you agree that during the term of this Agreement while employed by the Company you will keep all Company information confidential and will not enter into the employment of, or invest in or contribute to, participate in the activities of, or act as consultant to or advise any enterprise in whatever form organized and carried on which is directly competitive with any business activity then conducted or planned by the Company, provided, however, that you may make investments in publicly traded securities of any issuer if the securities owned represent less than 1% of the class of such securities of such issuer then issued and outstanding. You further agree that for a period of one year following the termination of your employment with the Company you will continue to keep all Company information confidential and that you will not enter into the employment in an executive or consultant capacity or serve on the Board of Directors of any enterprise in whatever form organized and carried on which is directly competitive with any business activity then conducted by the Company within the continental United States.     11. Successors; Binding Agreement.     (a) This Agreement shall be binding upon 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. As used herein, "Company" shall mean the Company as hereinbefore defined and any successor to its business or assets as aforesaid.     (b) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amounts are still payable to you hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there be not such designee, to your estate.     12. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered by United States certified mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Chief Executive Officer of Airborne or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.     13. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by you and the Chief Executive Officer of Airborne or such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach of, or lack of compliance with, any conditions or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.     No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement.     This Agreement supercedes any prior agreement between the Company and you with respect to the matters set forth herein.     The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Washington.     14. Validity. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.     15. Counterparts.      If this letter correctly sets forth our agreements, sign and return to the Company the enclosed copy of this letter, retaining your copy for your files.    AIRBORNE, INC.  By /s/ Robert S. Cline  Its  AIRBORNE EXPRESS, INC.  By /s/ David C. Anderson Its  Employee

Exhibit 10.12 AGREEMENT This agreement is made and entered into by and between Chart Industries, Inc., hereinafter referred to as the “Employer”, and the United Steelworkers of America, hereinafter referred to as the “Union”. This Agreement covers those employees of the Employer as defined in Article I –RECOGNITION of the Agreement for the purpose of wages, benefits, hours of work and conditions of employment. PREAMBLE The purpose of this Agreement is to set forth certain standards governing matters of wages, hours, terms and conditions of employment; and furthermore to promote and insure harmonious relations between the Union, the Employer and its employees, to provide for the operation of the plant in a manner that will foster to the fullest extent possible the safety, welfare and health of employees, economy of operation, quality and quantity of output, cleanliness of the plant, protection of the property and maintain and improve the competitive position of the Employer. It is recognized by this Agreement to be the duty of the Employer, Union and the employees to cooperate individually and collectively for the advancement of these objectives. The parties recognize the attainment of these objectives is furthered by the introduction of new equipment and product designs, new organization and production methods, the enforcement of discipline for just cause, safety and health measures, and the diligent efforts of all employees. The parties recognize and agree that nothing in this Agreement shall be construed to interfere with or prevent the accomplishment of the principles set forth above. ARTICLE I Responsibilities of the Parties 1.01 Each of the parties acknowledges the rights and responsibilities of the other party and agrees to discharge its responsibilities under this Agreement. 1.02 The Employer, Union and its Local agree not to discriminate against any employee or applicant because of race, creed, color, sex, age, national origin, disability, Veterans’ status, union membership or activity or any other characteristic protected under any other federal, state or local statute, administrative regulation or ordinance.   It is the intent of the parties that any claim of discrimination under this article will be processed through the Grievance/Arbitration provisions of this Agreement before any charge is filed with any governmental agency. 1.03 All provisions of this Agreement shall apply alike to male and female employees (masculine pronouns or references in the Agreement shall be deemed to include feminine pronouns or references). ARTICLE II Recognition 2.01 The Employer agrees to recognize the Union as the sole and exclusive collective bargaining agent for all full-time and regular part-time production and maintenance employees of the Employer at its New Prague and Lonsdale, Minnesota facilities except those classified as managers, supervisors, guards, clerical and all other employees, as defined in the National Labor Relations Act, as amended, as per certification by the National Labor Relations Board Case No. 18-RC-16092. 2.02 The Employer shall not enter into any agreement with any employees covered by this Agreement, individually or collectively, which in any way conflicts with the terms and provisions of this Agreement. ARTICLE III Retention of Management Rights 3.01 Except as expressly modified or restricted by a specific provision of the Agreement, all statutory and inherent managerial rights prerogatives and functions are retained and vested exclusively with the Employer, including, but not limited to, the rights in accordance with the Employer’s sole and exclusive judgment and discretion:   1.    to reprimand, suspend, discharge, or otherwise discipline employees for just cause;   2.    to determine the number of employees to be employed and the location of jobs;   3.    to hire employees, determine their qualifications and assign and direct their work;   4.    to promote, demote for just cause, lay off, transfer or recall to work employees;   5.    to maintain the efficiency of operations;   6.    to set the standards of productivity and/or services as to quality and quantity to be rendered;       7. to determine the personnel, methods, means and facilities by which operations are conducted;         8. to set the starting and quitting time and number of hours and shifts to be worked in accordance with Article XI;         9. to expand, reduce, alter, transfer, assign jobs, departments or operations in compliance with this Agreement;         10. to close down or relocate the Employer’s operations or any part thereof;         11. to control and regulate the use of machinery, facilities, equipment, supplies and other property of the Employer;         12. to introduce new equipment or improved methods, production, distribution, procedures, processes and maintenance methods, materials, machinery and equipment;         13. to determine the number, location and operation of departments, divisions and other units of the Employer;         14. to require the observance of safety rules, operating procedures and policy;         15. to determine the methods of compliance with various federal and state regulations; and to take whatever action is either necessary or advisable to determine, manage and fulfill the mission of the Employer and to direct the Employer’s employees;         16. upon notification to the Union to issue, amend, revise, abolish and enforce reasonable policies, rules, regulations and practices for the operation of the plant and conduct of the employees. Any differences of opinion over the reasonableness of such policies, rules, regulations or practices shall be subject to the grievance procedure commencing at Step 4 within seven (7) days after the Employer’s notification.         In exercising these rights the Employer agrees to observe the other provisions of the Agreement. 3.02 The Employer’s or the Union’s failure to exercise any right, prerogative or function hereby reserved to it or the Employer’s or Union’s exercise of any such right, prerogative or function in a particular way, shall not be considered a waiver of the Employer’s or Union’s right to exercise such right, prerogative or function or preclude it from exercising the same in some other way not in conflict with express provisions of this Agreement. 3.03 The Employer and the Union agree the Employer shall not contract out work or services that would affect bargaining unit employees without first, notifying the Union of such and second, meeting with representatives of the local Union (upon their request) to confer and look at possible alternatives. The Employer agrees that it will give due consideration to the Union’s suggested alternatives. ARTICLE IV Union Membership   4.01 The Employer agrees that it will not interfere with the right of its employees to become members of the Union and will not exercise discrimination, interference, restraint or coercion against any employee because of membership or non-membership in the Union. 4.02 The Employer agrees to allow two (2) union representatives, either from the International Union or the Local Union, to meet quarterly on the Employer’s premises with bargaining unit employees during non-work time in a designated non-work area to solicit membership in the Union. Attendance at such a meeting shall be voluntary. 4.03 The Union, its officers, members, agents or representatives shall not intimidate or coerce employees into membership in the Union, nor shall they discriminate against any employee because of non-membership in the Union. ARTICLE V Dues Check Off 5.01 The Employer agrees to deduct union dues and initiation or service fees (for employees electing not to become union members) from wages of employees, who voluntarily execute and provide the Employer with a written authorization to make such deductions. The written authorization shall not be irrevocable for a period of more than one (1) year, or beyond the termination date of this Agreement, whichever occurs sooner. Deductions shall be made from the employee’s wages the first (1st ) pay period of the month in which the payment is due. Withheld amounts will be forwarded to the Union together with a record of the amount and those for whom deductions have been made. 5.02 The Union shall indemnify and hold the Employer harmless against any and all claims, demands, suits or other forms of liability that shall arise out of, or by reason of action taken or not taken by the Employer for the purpose of complying with any of the provisions of Article V., Dues Check Off, or in reliance on any list, notice or assignment furnished under any such provisions. 5.03 Any refunds due an employee because of duplicate or incorrect payment to the Union will be refunded to the employee by the Union. 5.04 Where an employee has insufficient earnings for the complete deduction in the pay period agreed upon, no deduction of any amount shall be made. In other cases, where the Union informs the Employer in writing of the omission of a properly authorized deduction, the deduction shall be made in the next month’s pay period. 5.05 The provisions of this Article shall be effective in accordance and consistent with applicable provisions of federal and state law. 5.06 All the Employer’s obligation under this Article of the Agreement to deduct dues or fees and to forward dues/fees to the Union shall end upon the expiration of this Agreement. ARTICLE VI NO STRIKE – NO LOCKOUT 6.01 During the term of this Agreement, the Union, it’s officers, representatives, stewards, grievance persons, committee members and other employees shall not, in any way, directly or indirectly, instigate, authorize, cause, assist, encourage, condone, engage in or participate in any strike, sympathy strike, slowdown, picketing or any interruption of work at any of the Employer’s operations for any reason whatsoever. The Employer agrees there shall be no lockout of employees. 6.02 In the event of an unauthorized strike, sympathy strike, slowdown, picketing or any interruption of work in any form by the employees, a representative of the International and local Union shall immediately, upon request of the Employer, by public notice disavow the unauthorized cessation of work or disruptive activity and the Union shall take immediate action to induce such employees to return to work and cease such activities. 6.03 The failure or refusal on the part of any employee to comply with section 6.01 of this Article shall result in immediate discipline up to and including discharge and such discipline shall be subject to the grievance procedure in Article XVII only as to the question of fact as to whether or not such employee(s) did engage in such activities. The failure or refusal by a Union officer, representative, steward, grievance person or committee person to comply with the provisions of Section 6.01 of this Article constitutes leading or instigating a violation of Section 6.01, it being specifically agreed that the Union officers, agents, representatives, stewards, grievance persons or committee persons, by accepting such positions have assumed responsibility of affirmatively preventing violations of Section 6.01 of this Article by reporting to work and performing work as scheduled and/or required by the Employer. ARTICLE VII SUCCESSORSHIP 7.01 In the event of a transfer, sale, assignment or closure of the Employer’s New Prague and/or Lonsdale operations, the Union shall be notified as soon as practical in advance of such action. Upon written request of the Union, the Employer agrees to meet and confer about the effects of such transfer, sale, assignment or closure upon the bargaining unit employees. ARTICLE VIII Bargaining Unit Work 8.01 Persons whose regular jobs are not in the bargaining unit shall not perform work so as to replace regular workers or operators on the job, except for the purposes of instruction or management training, in which case such trainees shall not displace or replace any employees in any classification. Non-bargaining unit employees may perform experimental, development and research work as deemed necessary by the Employer. 8.02 It is understood that up to twenty five (25) Coordinator positions and future Coordinator positions may continue to perform bargaining unit work as they previously performed prior to the existence of the collective bargaining agreement. It is further understood that the parties agree that the Employer may increase the number of Coordinators by one (1) for every twenty (20) newly created bargaining unit positions. 8.03 It is further understood that non-bargaining unit employees may perform bargaining unit work in response to emergency situations. 8.04 In consideration of the above, the Employer in case of reduction of the work force, in accordance with Article XV – Seniority and Lay Off, shall reduce the number of Coordinators by one (1) for every twenty (20) bargaining unit employees layed off. ARTICLE IX Pay 9.01 The Employer agrees to pay all bargaining unit employees weekly. The specific payday, check distribution and method shall be established by the Employer. 9.02 Unless notified not to report at least two (2) hours prior to the start of their shift, employees who are scheduled and report to work and are prevented from working by conditions outside the control of the Employer to include but not limited to acts of God or power outages shall be granted two (2) hours Report Pay at the employee’s regular straight time hourly rate. However, this shall not apply to an employee(s) who are absent without approval on such previous scheduled work day. Report Pay shall be considered as time worked for purposes of overtime calculation. 9.03 At the Employer’s discretion, an employee called back to work after completion of his regularly scheduled shift, shall be granted two (2) hour Recall Pay at the employee’s regular straight time hourly rate or may be assigned two (2) more hours work. Recall Pay shall be considered as time worked for purposes of overtime. 9.04 Effective January 16, 2000 all pay rates will be increased by forty eight (48)cents per hour. Effective January 1, 2001 all pay rates will be increased by fifty (50) cents per hour. ARTICLE X Job Classifications 10.01 Each employee covered by this Agreement shall be classified by the Employer and receive the hourly rate in accordance with Appendix A of this Agreement. 10.02 During the term of this Agreement, the Employer shall retain the sole discretion to establish, modify and determine the job content of any new or existing job/classification. In the event the Employer establishes a new job or changes an existing job, the Employer will provide written notice to the Union in advance of such Employer action. 10.03 Upon written request from the Union, the Employer shall meet and discuss with the Union the wage rate (pay group) established for the new or changed job classification and the rate (pay group) agreed upon shall become part of the Agreement. Such meeting shall be on non-work time unless determined otherwise by the Employer. 10.04 Employer retains the right to assign employees to perform any work within any pay group. If an employee is temporarily assigned to a lower pay group, the employee shall retain their current rate of pay. If an employee is temporarily assigned to a higher pay group, the employee shall receive the rate of pay of that pay group effective with the start of the second (2nd ) pay period. 10.05 Employer retains the discretion to hire anywhere within the pay group range. 10.06 There shall be automatic three (3) month incremental increases unless documented deficiencies in performance or skill issues exist which may call for increase deferrals not to exceed thirty (30) days. Employer shall notify the Union of any such deferrals. ARTICLE XI Hours of Work 11.01 The employee’s current work day is the following:   A.    The day shift commences at 5:45 a.m. and is concluded in eight (8) hours at 2:15 p.m., Monday through Friday.   B.    The night shift commences at 2:45 p.m. and is concluded in ten (10) hours at 12:45 a.m., Monday through Thursday.   C.    The weekend shift commences at 3:00 p.m. and is concluded in twelve (12) hours at 3:00 p.m., Sunday, Friday and Saturday, with Sunday being that start of the weekend shift. 11.02 All day shift employees will receive a thirty (30) minute unpaid lunch break. Employees leaving the premises for lunch must clock out and clock in upon return. Employees are not permitted to work through their lunch period. 11.03 The Employer shall provide two (2) paid fifteen (15) minute day shift breaks. Night shift employees shall receive three (3) fifteen (15) minute paid breaks with no lunch period. The week end shift shall receive four (4) fifteen (15) minute paid breaks. Employees who leave the facility during their break must clock out and in upon return. Employees scheduled to work overtime of two (2) hours or more prior to the start of their regular scheduled shift, shall receive an additional fifteen (15) minute break immediately preceding the start of their regular shift. Employees scheduled to work overtime two (2) or more hours after the completion of their regular shift, shall receive an additional fifteen (15) minute break prior to the start of the overtime work. 11.04 The hours worked each day or per week will be established to meet work requirements and will be at the sole discretion of the Employer and my be changed from time to time with seventy-two (72) hours advance notice when reasonable and practical to provide such notice. 11.05 This Article shall not be construed to be a guarantee of hours of work per day or per week. 11.06 The term full time employee shall be defined for purposes of this Agreement as an employee who is in a schedule consisting of 40 hours per week 11.07 Employees scheduled to work the second shift shall receive a .50 cent per hour shift premium added to their regular hourly base rate. Employees scheduled to work the thirty-six (36) hour weekend shift shall receive an 11.1% increase in hourly base rate as shift premium. ARTICLE XII Holiday 12.01 The Employer shall provide the following paid holidays: New Year’s Day, Memorial Day, Good Friday, Fourth of July, Labor Day, Thanksgiving Day, Friday   after Thanksgiving, Christmas Eve Day, Christmas Day and Two (2) Floating Holidays. 12.02 If the holidays fall on a Saturday or Sunday, the Employer will designate either the preceding Friday or the following Monday as the day of observance. 12.03 A full-time employee, who is not on a leave of absence or lay off, shall receive as holiday pay his regularly scheduled hours of work at his straight time rate provided:    A. The employee is on the active payroll of the Employer and has worked 30 calendar days for the Employer.    B. The employee works the scheduled work day immediately preceding and immediately following the holiday unless the employee has an approved absence or approved time off. Requests for absence or time off must be made and approved no later than twenty-four (24) hours prior to the requested time off. 12.04 Should a holiday occur within an employee’s vacation period, it shall not be counted as part of such vacation. A day may be added to the vacation period, at the discretion of the employee, provided the employee works his scheduled shift prior to and after the vacation period. 12.05 Unless otherwise agreed upon, employees shall not receive holiday pay for holidays which occur after the expiration of this Agreement and before the execution of any succeeding Agreement. ARTICLE XIII Leave of Absence 13.01 Leaves of absence without pay may be granted at the sole discretion of the Employer. The Union shall be provided a copy of the approved leave request. 13.02 Any employee on leave of absence who shall take such leave for the purpose of employment elsewhere shall be considered as voluntarily quit. 13.03 A leave of absence will be granted to an employee to work with the International Union for a period not to exceed two (2) years and may be renewed for a period of time not to exceed one (1) year. Only one (1) employee may be on International Union leave at one time. An employee on International Union leave shall not earn or accrue seniority for the period of the leave. Upon termination of the leave, the employee will be returned to a similar position and pay group to the one they left. 13.04 The Employer and the Union agree to comply with the provisions of the Americans with Disabilities Act, Family Medical Leave act and Veterans Reemployment Act. 13.05 An employee who has been elected or appointed by the Union to attend an International, District or State Convention or Steelworker Educational Program(s) will be granted by the Employer a leave of absence without pay for this purpose. Not more that four (4) employees will be granted such leave twice (three (3) times with the commencement of the second year of the Agreement)* a year and they must give the Employer a minimum of two (2) weeks written notice. This notice must be confirmed by the local union. Each leave will not exceed one (1) week duration. 13.06 A full time seniority employee requiring time off due to the death in the immediate family (spouse, mother, father, child, brother, sister, stepmother, stepfather, stepchild, and current mother-in-law, father-in-law, daughter-in-law and son-in-law) may be granted a leave of absence with pay for the hours the employee may have worked up to a maximum of three (3) consecutive working days. A maximum of one (1) day leave of absence with pay may be granted in the event of the death of the employee’s grandmother, grandfather and current grandmother-in-law, grandfather-in-law, brother-in-law, sister-in-law or grandchild. 13.07 Such leave of absence shall be counted as time worked for purposes of computing overtime pay. 13.08 Upon Employer request, the employee may be required to provide validation of death in order to be paid for such time off. 13.09 An employee who is required to report for jury duty on a day the employee is scheduled to work shall be excused from work on that day. The employee must notify his supervisor immediately upon receiving notice. The Employer shall pay the difference between the employee’s jury duty pay and the employee’s regular straight time pay. In order to received such pay, the employees must submit to the Human Resources Department valid written proof indicating the dates, time served and the amount of compensation for such services. This section will not apply where an employee voluntarily seeks such service. 13.10 An employee must report to work on all days scheduled when the jury is not in session. Employees who serve less than four (4) hours of jury duty are expected to work one-half (1/2) their shift. Those employees who serve four (4) hours or more of jury duty will be paid for their full shift. Night and weekend shift employees shall be excused early from their work shift when they are required to report for jury duty the following day. Jury duty shall be counted as time worked for purposes of overtime calculation. 13.11 Employees will be granted a military training leave of absence if they are required to take time off for attendance at a summer training camp. Employees are required to provide to the Employer a copy of any notification requiring such time off immediately upon receipt by the employee. The Employer will not pay wages for this time period but the employees may elect to use earned PTO. ARTICLE XIV Overtime 14.01 All hours worked in excess of forty (40) in a scheduled work week (thirty-six (36) for the weekend schedule) shall be paid at one and one-half (1-1/2) times the employee’s straight time rate of pay. An unscheduled day will be paid at the straight time rate up to the forty (40) hour requirement if not previously satisfied. Unless specified otherwise within this Agreement, approved paid leaves of absence or paid personal time off shall be considered as time worked for purposes of overtime calculations. 14.02 An employee assigned to the first shift shall be paid two (2) times his regular straight time hourly rate for all hours worked on Sunday provided he has worked the equivalent amount of hours on Saturday. If the employee has not worked an equivalent amount of hours on Saturday, he will be paid one and one-half (1-1/2) times his regular straight time hourly rate for all work performed on Sunday. 14.03 An employee assigned to the weekend shift shall be paid two (2) times his regular straight time hourly rate for all hours worked on the fifth (5th) day provided he has worked the equivalent amount of hours the fourth (4th) day. If the employee has not worked an equivalent amount of hours on the fourth (4th)day, he will be paid one and one-half (1-1/2) times his regular straight time hourly rate for all worked performed the fifth (5th) day. 14.04 An employee assigned to the second (2nd) shift shall be paid two (2) times his regular straight time hourly rate for all hours worked on the seventh (7th) day provided he has worked an equivalent amount of hours on either the fifth (5th) or sixth (6th) day. If the employee has not worked an equivalent amount of hours on the fifth (5th) or sixth (6th) day, he shall be paid on and one-half (1-1/2) times his regular straight time hourly rate for all work performed on the seventh (7th) day. 14.05 Employees are expected, as a condition of employment, to work overtime.   11 14.06 When overtime is required, the Employer will make every effort to notify employees at least two (2) hours prior to the end of the shift or the day before the employees scheduled day off. 14.07 The Employer will attempt to distribute overtime hours evenly among qualified employees within specific departments, regardless of shift, when overtime is required. ARTICLE XV Seniority and Lay Off 15.01 All new employees or an employee rehired after loss of seniority shall be considered to be on probation for the first ninety (90) calendar days of continued employment with the Employer, measured from the most recent date of hire. The Employer, upon written request to the Union, may extend the probationary period for an additional thirty (30) calendar days. During the probationary period, such employee(s) may be discharged for any cause at the discretion of the Employer without recourse to the grievance and arbitration procedure of the Agreement and without notification to the Union. After an employee completes his probationary period, the employee shall have seniority determined in accordance with Section 15.02 of this Article. 15.02 Following completion of the probationary period, an employee shall be credited with seniority within the plant measured by length of continuous employment with the Employer at the plant measured from the employee’s must recent date of hire. If two or more employees have the same seniority, the employee whose name appears earlier on the alphabetical listing of employees shall be deemed as having more seniority. Seniority shall be applicable only as expressly provided in this Agreement. 15.03 Seniority and status as an employee shall terminate for any of the following reasons:    A.    Voluntary quit.   B.    Discharge for just cause.   C.    Working for another employer during a leave of absence, in which case the employee shall be considered to have voluntarily quit.   D.    In absent for three (3) consecutive work days without notifying the Employer.   E.    Exceeds a leave of absence without written approval of the Employer.   F.    Is layed off in excess of twelve (12) months.   12    G.    Fails to respond to the Employers notice of recall within two (2) days after certified mail of notice to the last address of the employee as it appears on the records of the Employer, in which case the employee shall be considered to have voluntarily quit.   H.    Fails to report on the agreed upon scheduled date of return to work, in which case the employee shall be considered to have voluntarily quit.   I.    Retired. 15.04 When in the sole judgment of the Employer, it becomes necessary to effect a reduction in the work force at a plant, the Employer will attempt to make such reductions at the plant in inverse order of seniority, provided the employees remaining have the skill, experience, qualifications and abilities to perform the work available. Recalls from lay off shall be in order of seniority, provided the employees returning have the skill and abilities to perform the work available. 15.05 If an employee is transferred to a classification (including a supervisor/coordinator position) outside the bargaining unit, such employee shall be excluded for the coverage of this Agreement during the period the employee is in said classification. If within twelve (12) months such employee is re-transferred without interruption in employment with the Employer to a classification within the bargaining unit, the employee will as of the date of re-transfer be credited with the seniority which he had at the time of their transfer in addition to all seniority accumulated during the time the employee worked outside the bargaining unit. If following twelve (12) months of such transfer the employee is re-transferred without interruption in employment with the Employer to a classification within the bargaining unit, the employee will as of the date of re-transfer, be considered a new employee for all purposes of this Agreement. It is understood the Employer may make temporary assignments to other classifications without regard to seniority. 15.06 On or before sixty (60) days, and annually thereafter, following the signing of this Agreement, the Employer shall furnish the Union and post a seniority list. Any employee who disputes the accuracy of such seniority list shall discuss his concern with the Human Resource representative within seven (7) calendar days of the posting before proceeding through Article XVII, Grievance and Arbitration of the labor Agreement. ARTICLE XVI Job Posting   13 16.01 Bargaining unit employees will be provided with opportunities for shift transfer or promotion to classifications covered by this Agreement on the basis of seniority, providing the employee has the skill, qualifications and ability to perform the job. An employee signing a posting for a shift transfer within the classification posted shall be granted the position prior to an employee signing for promotion. 16.02 Employees shall be made aware of promotional or shift transfer opportunities through written job notices posted on Employer designated bulletin boards for seven (7) calendar days. Any employee with six (6) months or more service in their current job classification or one (1) year or more service on their current shift wishing to be considered for such vacancies shall indicate their interest in writing within the posting period. If the Employer simultaneously posts multiple job notices, the employee may indicate multiple interests and if selected for more than one position may determine which job he wishes to accept. Employees not selected for the posted job(s), will be advised as to the reason the employee was not selected. 16.03 Employees taking a scheduled paid or unpaid leave of absence of three (3) weeks or more may submit in writing to their supervisor an indication of job interests they wish to bid on during said leave of absence. Their supervisor shall enter the employee’s name on each such job notice that is posted during the period of absence. Employees who are absent due to illness or injury may notify their supervisor in writing of any possible job posting for which they wish to bid. 16.04 The employee selected to fill the posted job must satisfactorily complete a thirty (30) work day training period. If during this training period the Employer determines the employee cannot satisfactory perform the duties of the job, the employee will be returned to his former position if available or may be reassigned without loss of seniority. ARTICLE XVII Grievance and Arbitraion 17.01 A grievance is defined as a dispute or disagreement as to the interpretation or application of the specific terms and conditions of this Agreement. In the event of a grievance, there shall be no work stoppage or slow down, and the matter will be settled in accordance with the procedure set forth. 17.02 Such disputes over the interpretation or application of any terms of this Agreement shall be a “grievance” and will be processed in the following manner:   14 > Step 1: The aggrieved employee, with or without his grievance person, within > three (3) working days after the event giving rise to the grievance or after > the employee knows or reasonably should know of the occurrence to be grieved, > will discuss and attempt to settle it with the employee’s immediate > Coordinator. The employee’s immediate Coordinator shall have a period of three > (3) working day within which to respond. > > Any individual employee or group of employees who elect to present their > grievance(s) to the Employer without the intervention of a bargaining > representative may do so as long as adjustment is not inconsistent with the > terms of the Collective Bargaining Agreement and provided further that the > bargaining representative has been given the opportunity to be present at such > adjustment. > > Step 2: If the Coordinator’s answer is not satisfactory, the Union, no later > than five (5) working days after the decision of the Coordinator may reduce > the grievance to writing. Any written grievance must be signed and dated by > the aggrieved employee and grievance person and set forth the facts giving > rise to the grievance; a specified reference to the provisions of the > Agreement alleged to have been violated; the names(s) of the aggrieved > employee(s); reasons why the verbal answer in Step 1 was not satisfactory; and > the remedy sought. The grievance shall be presented at a meeting with the > Coordinator, Area Manager and/or Plant Manager, the grievant and two (2) > grievance persons within five (5) working days after receipt of the employee’s > written grievance. The Employer shall give a written answer to the grievant > and the Union signed and dated within ten (10) working days of the Step 2 > meeting. > > Step 3: If the grievance has not been satisfactorily settled in Step 2, the > grievance may be appealed to the Human Resource Director, or his designee, > within three (3) working days after receipt of the Employer’s written answer > in Step 2. The Human Resource Director or his designee, the Plant Manager or > his designee will meet with the grievant and the grievance committee > (consisting of not more than two (2) persons) of the Union within ten (10) > working days after receipt of the grievance in an attempt to reach a > satisfactory settlement or adjustment of the grievance. Within five (5) > working days after this meeting, the Employer will give its written answer to > the staff representative and the President of the Local Union. Any of the > elected grievers may be substituted, at the discretion of the Union, in any > second or third step grievance meeting. It is understood that suspension and > discharges shall be filed directly into the third step of the grievance > procedure. > > Step 4: If any Employer’s written answer to Step 3 is not satisfactory to the > Union, the grievance may be appealed to the Vice President of   15 > Operations or his designee within seven (7) working days of the receipt of the > Employer’s written answer to Step 3. The Vice President of Operations, Plant > Manager and Human Resources Director will meet with the grievant, two (2) > grievance persons and the staff representative of the Union within ten (10) > work days after notification in an attempt to resolve the grievance. Within > five (5) work days after this meeting, the Employer will give a written answer > to the Union, which answer shall be final on the employee, the Union and the > Employer, unless it is appealed to arbitration by the Union in accordance with > the procedures set forth in the Agreement. 17.03 No grievance shall be accepted by the Employer unless it is submitted or appealed within the time limits set forth in Step 1 of Section 17.02 of this Agreement. If a grievance is not referred or appealed to the next step within the specified time limits, it shall be considered settled on the basis of the Employer’s last answer. If the Employer does not provide a written reply to the Union within the specified time limits in any step of the grievance procedure, the grievance shall result in the grievance being settled in accordance with the request in the grievance. The Union and the Employer shall observe the specified time limits in answering or appealing a grievance. Time limits in each step may be extended by mutual agreement in writing. Arbitration 17.04 If the Union wishes to carry the grievance beyond the fourth step, the following procedure shall apply:    A. The Union, through its staff representative, may appeal the grievance to arbitration by giving a written notice to the Human Resource Director or his designee within twenty-one (21) calendar days after the receipt of the Employers answer to Step 4. The failure to appeal a grievance to arbitration within the twenty-one (21) calendar day period shall constitute a waiver of the Union’s right to appeal to arbitration.         B. Within ten (10) work days after the notification of take the matter to arbitration, the parties shall request the Federal Mediation and Conciliation Service (FMCS) to submit a panel of seven (7) qualified arbitrators. Each party to the dispute shall be entitled to alternately strike a name from the list until only one name remains and this panel member shall be the neutral arbitrator. The order of striking shall be determined by the flip of a coin. The arbitrator shall only have jurisdiction and authority to interpret, apply or determine compliance and/or application of the express provisions of this Agreement at issue between the Union and the Employer. It is understood that the arbitrator shall not have jurisdiction or authority to add to, detract from or alter in any way the terms of this Agreement. The decision of the   16       arbitrator on the merits of any grievance adjudicated within his jurisdiction and authority shall be in writing and shall be final and binding on the Employer, the Union and the employee(s).         C. The Employer and the Union shall bear their own costs of the arbitration and shall equally share all expenses and fees of the neutral arbitrator. The grievance procedure may be utilized by the Union in processing grievances on behalf of the employees, either individually or collectively. In processing grievances, the Union shall observe the specified time limits in filing and appealing and the Employer shall observe the specified time limits in answering. ARTICLE XVIII Union Representation 18.01 The Employer recognizes the right of the Union to designate not more than eighteen (18) Stewards and three (3) grievance people from the Employer’s seniority list. 18.02 A Union steward or grievance person, when requested by the grievant, shall be compensated and allowed limited time off for investigating grievances and participating in Step 1 discussions during working hours at their regular hourly rate of pay. In such cases, the steward or grievance person shall seek permission from their immediate Coordinator to leave their assigned duties. Permission shall not be unreasonably withheld unless the Coordinator believes there would be a disruption in production or an effect on efficiency of operations. It is understood that each grievance investigation shall be conducted by one steward or grievance person. Upon receiving permission from the Coordinator, the steward or grievance person shall clock out of their job and into the designated indirect account. If the grievance investigation or Step 1 discussion requires the steward or grievance person to leave his assigned area, he shall notify the Coordinator of that area prior to beginning any investigation or discussion. When the steward or grievance person leaves the area, he must notify the Coordinator of that area that he is leaving and immediately return to his own work area. When entering his own work area, he shall report immediately to his Coordinator and clock out of the designated indirect account and clock back into his job. Paid time and work time off for such investigation and Step 1 discussion shall not exceed thirty (30) minutes per grievance. 18.03 The grievance person(s) and aggrieved employee(s) participating in Step 2 grievance meetings shall be paid in accordance with the following: Before   17 meeting with the Employer, the employees involved shall clock out of their job and clock into the designated indirect account; at the conclusion of the meeting, they shall clock back into their job and clock out of the indirect account. The time consumed by the meetings, not to exceed two (2) hours each week per Area Manager, shall be paid for by the Employer. Any additional time spent in such grievance meeting shall be unpaid. 18.04 The grievance person(s) and aggrieved employee(s) participating in Step 3 or Step 4 grievance meetings shall be paid in accordance with the following: Before meeting with the Employer, the employees involved shall clock out of their job and clock into the designated indirect account; at the conclusion of the meeting, they shall clock back into their job and clock out of the indirect account. The time consumed by the meeting shall be paid by the Employer. It is agreed by the parties that the meetings held at these steps shall be limited to discussion of the facts pertaining to the resolution of the grievance(s) involved. 18.05 Union stewards, grievance persons or aggrieved employees shall not be paid for any time spent after Step 4 or at any arbitration proceedings. 18.06 A representative of the International Union, upon request to the Human Resource Director, shall be granted permission to visit the plant at a mutually satisfactory time for the purpose of investigating any grievance arising out of this Agreement. During such visit, the Union representative shall be accompanied to a designated non-work meeting area, shall comply with all applicable rules of the Employer and shall not interfere with the operations of the plant nor with the duties of employees. A grievance person, steward or local union officer who wishes to meet with the Union representative in the Employer designated area may so do upon receiving permission from his immediate Coordinator. The paid time and work time off shall not exceed thirty (30) minutes. Upon receiving permission, the grievance person, steward or local union office shall clock out of his job and clock into the designated indirect account and upon return to his area clock into his job and out of the indirect account. 18.07 The Employer acknowledges the right of the Union to appoint or otherwise select a Negotiation Committee composed of not more than five (5) members who are regular employees of the Employer. The Union agrees to notify the Employer in writing as to the members of the negotiating committee. All employee time participating in negotiations shall be unpaid. The Empolyer will credit the Union negotiating committee with pension credit for time spent in negotiation sessions only. ARTICLE XIX Bulletin Boards   18 19.01 The Employer shall provide eight (8) bulletin boards situated at agreed upon locations to be used for the posting of Union notices. The President of the Local Union or his designated representative shall be the Union officials to sign and post Union notices. Only the posting of meeting notices, elections, names of representatives and officers of the Union, and general noncontroversial matters concerning the business of the Union may be posted. All matters to be posted shall be presented by the Union representative to the Human Resources Director for review and approval. ARTICLE XX Personal Time Off and Vacation 20.01 Full-time employees, after satisfactory completing their probationary period, shall accrue Personal Time Off (PTO) from the first day of the month following their date of employment. An employee absent from work or layed off in excess of four (4) weeks will not accrue PTO until the first of the month following the employee’s return to work. 20.02   Eligible employees shall accrue PTO hours as follows:         Less than one (1) year    5.4 hrs./month       One (1) through four (4) years   8.7 hrs./Month       Five (5) through seven (7) years   10.1 hrs./Month       Eight (8) through fourteen (14) years   13.4 hrs./Month       Fifteen (15) or more years   16.8 hrs./Month                 Employees may accrue a maximum of 240 PTO hours. Employees with balances exceeding 240 hours at the beginning of the month shall have until the end of that month to bring their balance including the current month accrual below the 240 maximum or such hours shall be lost. 20.03 A minimum of two (2) or more consecutive hours of PTO may be requested. Requests exceeding two (2) hours must be made in whole hour increments. The Employer will not grant PTO requests that result in a deficit balance. Likewise, employees having a PTO balance who request time off without pay shall be required to utilize such PTO first before consideration will be given for time off without pay. 20.04 Personal Time Off plus time worked cannot total more than the employee’s scheduled hours in a regular straight time work shift. 20.05 Employees requesting PTO of one (1) week or more shall make such request at least two (2) weeks in advance. For requests of less than one (1) week, such request shall be at least equal in advance notice to the amount of PTO requested.   19 20.06 Employees, at their discretion, may use all accrued and unused PTO during any plant shut down or lay off periods. If such periods exceed four (4) weeks, employees shall have the balance of their accrued and unused PTO paid out. 20.07 Employees who voluntarily terminate or retire shall be paid for all unused accrued PTO hours through the month preceding their last day worked to a maximum of 240 hours. ARTICLE XXI Safety and Health 21.01 The Employer, Union and employees agree to cooperate and to work toward the continuing objective of reducing accidents and employee health hazards. To this end, the Employer shall continue its efforts to make provisions and policies for the safety and health of the employees. The parties recognize their obligations and/or rights under existing Federal and state laws with respect to safety and health matters. In this regard, it is the intent of the parties that any concern of safety or health be processed through the provisions of this Agreement before any charge be filed with any governmental agency. 21.02 In an effort to provide a safe work environment for all employees, the Employer shall form a Safety committee. The committee shall be comprised of employees representing each work area and shall be chaired by the Safety Manager. Employee members shall serve two (2) year terms. Bargaining unit members on the committee shall be selected through nomination and election by bargaining unit employees in the designated work area. Fifty (50) percent of the committee shall be selected new each year. The committed shall meet monthly and strive for pro-active/preventive rather than reactive approaches to safety and health concerns. 21.03 Standard industrial safety glasses shall be worn in production areas by all employees and shall be provided by the Employer. The Employer shall provide lenses and frames for employees who have accrued seniority and require prescription glasses. Prescription glasses will be replaced if broken in the course of work activities or every two (2) years provided there is a dramatic change in the prescription. Employees may be required to verify damage or prescription change before replacement is provided. 21.04 All employees shall wear hard hats and hearing protection as directed by the Employer and refrain from wearing rings, loose fitting jewelry, necklaces and dangling earrings during working time. 21.05 The Employer at its sole discretion may establish or modify safety recognition programs. Any changes will be discussed with the Safety Committee before making a final decision.   20   21.06 Upon successful completion of the ninety (90) probationary period, all full-time employees shall be eligible to received annually a total of four (4) uniform items or in lieu of two (2) uniform items a fifty (50) dollar safety shoe allowance may be chosen. All employees are strongly encouraged to wear the Employer provided uniform. ARTICLE XXII Tool Accountability 22.01 The Employer shall issue tools and equipment to employees. Employer issued tools and equipment are the responsibility or the employee and shall be properly used, maintained and returned to the Employer upon termination, voluntary separation or lay off. Any employee who fails to return Employer issued tools or equipment shall have the cost of those tools/equipment withheld from their final pay check. Any remaining balance due shall be billed directly to the employee. Tools and equipment supplied by the Employer shall never be removed from the Employer’s premises and shall not be used for personal reasons or projects, unless specifically authorized in advance by the employee’s supervisor. Employer issued tools/equipment shall be replaced by the Employer upon return of the originally assigned broken or damaged tool/equipment. Failure to return the broken or damaged tool/equipment shall result in the employee replacing the tool or equipment at the employee’s cost. 22.02 The Employer shall provide a locked area or locker for employees to secure Employer issued tools and equipment. Employees shall provide their own locks. ARTICLE XXIII Activities 23.01 The Employer shall provide time off with pay for employees who participate in New Prague volunteer activities as firemen, military honor guards, medical technicians or ambulance attendants. 23.02 Employees who participate in similar volunteer activities outside of New Prague may receive time off without pay. 23.03 Employees must request approval for such time off from their supervisors as far in advance as possible and must return to their scheduled work shift after the activity if there is two or more remaining hours in their scheduled work shift. The Employer may request validation of participation in such activity. 23.04 It is agreed between the parties that the Employer shall retain the sole discretion to unilaterally modify, revise or eliminate any provisions or practices under this Article. Additionally, the Employer shall retain the sole discretion to 21 unilaterally modify, revise or eliminate practices and policies that pertain to the current Employee Recreation Club, Service awards and Improvement Programs. 23.05 The Employer’s only obligation under the provisions of this Article is to provide the Union ninety (90) days written notification before modifying, revising or eliminating any practices, policies or provisions under the sections of this Article. ARTICLE XXIV Field Service 24.01 The Employer retains the unilateral right to select and designate certain qualified employees to be available and willing to perform off-site field service and repair work. Employees selected shall receive an additional two dollar and fifty cents ($2.50) per hour Field Service Premium over the hourly rate of their current classification for all hours worked (off-site) at the customer location while holding such designation. 24.02 When assigned to work off-site, the employee(s) shall receive their regular rate of pay on the day of departure for all reasonable time incurred from the point of departure to the employee’s final destination of the day. When at the customer location, the employee shall earn the Field Service Premium in addition to their regular rate of pay. On the day of return, the employee(s) shall receive their regular rate of pay for all reasonable time incurred from the point of departure and end upon the employee’s final point of destination of the day. 24.03 Employees performing off-site field service and repair work will be reimbursed a maximum of thirty (30) dollars per day for receipted meals. Lodging will be reimbursed at the rate equivalent to a moderate priced (Holiday Inn) motel. Required air transportation and/or automobile rental must be arranged through the Employer designated travel operator. Employees shall receive the mileage reimbursement rate corresponding to the published IRS rate when the employee uses their personal automobile for Employer related business. 24.04 Overtime computation will include all hours worked as defined above. The Field Service Premium will not roll into the overtime calculation. ARTICLE XXV Drug and Alcohol Policy 25.01 By reference the parties have negotiated a Drug and Alcohol Policy. ARTICLE XXVI 22 Savings Clause 26.01 Should any provision of this Agreement be declared illegal by any court of competent jurisdiction, such provision shall immediately become null and void, leaving the remainder of the Agreement in full force and effect, and the parties shall thereupon meet and confer in good faith regarding a substitute provision which is in conformity with the applicable law. ARTICLE XXVII Duration of Agreement 27.01 The Agreement shall become effective on January 10, 2000 and shall remain in effect through January 15, 2002. Either party desiring to change, modify or terminate the Agreement must notify the other in writing at least sixty (60) days prior to January 15, 2002, the expiration date of this Agreement. If such notice is given and the parties fail to reach agreement by the expiration date of this Agreement, then this Agreement shall in all respects be deemed void and terminated. Date                            , 2000               For the Union For the Employer           -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Thomas M. Hoffman Eric M. Rottier           -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Steve Powers Scott R. Brittain           -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Rick Kadrlik Roger Chlan           --------------------------------------------------------------------------------   Dale Vosejpka             --------------------------------------------------------------------------------   23 Ken Gosewisch -------------------------------------------------------------------------------- Tammy Sondrol APPENDIX A Classifications and Pay Rates --------------------------------------------------------------------------------   GROUP 3   GROUP 4     --------------------------------------------------------------------------------   AI Boxer       Welder Helper         AI Light Assembler   Liquid Penetrant Tester     Parts Washer   Machine Operator         Maintenance Helper   Material Handler                 Wrapper                 Buffer       -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   Pay Rate       Pay Rate         1/16/00   1/1/01   1/16/00   1/1/01 Start 8.21   8.71   8.51   9.01 3 months 8.90   9.40   9.22   9.72 6 months 9.59   10.09   9.93   10.43 9 months 10.28   10.78   10.64   11.14 12 months 10.97   11.47   11.35   11.85 15 months 11.46   12.16   12.06   12.56 18 months 12.35   12.85   12.77   13.27 21 months 13.09   13.59   13.48   13.98 Full Rate 13.73   14.23   14.24   14.74 --------------------------------------------------------------------------------   GROUP 5   GROUP 6 --------------------------------------------------------------------------------   Overhead Crane Operator   LPV/JPV Roller Operator     Electro Polisher   Maintenance Tech 6         Inventory Accuracy Coordinator   Mass Spec/Welding         Machinist       Plumber 6 (Welding)         Maintenance Tech 5   Q.C. Inspector 6         Mass Spec/Pumping   Specialty Machinist         Painter       Welder 6         Pipe Bender   Straddle Crane Operator     Plasma Cutter   Programmable Plasma Cutter   Purchase Rec./Inspect Tech             Q.C. Inspector 5             Shear Operator             Shipping/Receiving Coordinator   *Rates Paid Above Group 6   Truck Driver   NDE   $1.00   Tube Rack Technician   Master Welder   $1.00   Welder 5       Jig and Fixtures   $1.00   Plumber 5       Electrician   $3.00   AI Liquid Test/Mass Spec Operator   Electronic Tech   $8.78 --------------------------------------------------------------------------------   Pay Rate       Pay Rate         1/16/00   1/1/01   1/16/00   1/1/01   Start 9.29   9.79   9.98   10.48   3 months 10.07   10.57   10.82   11.32   -------------------------------------------------------------------------------- 24 -------------------------------------------------------------------------------- 6 months 10.85 11.35 11.66 12.16 9 months 11.63 12.13 12.50 13.00 12 months 12.41 12.91 13.34 13.84 15 months 13.19 13.69 14.18 14.68 18 months 13.97 14.47 15.02 15.52 21 months 14.75 15.25 15.86 16.36 Full Rate 15.53 16.03 16.70 17.20 -------------------------------------------------------------------------------- 25 APPENDIX B Lead Persons Employees working as Lead Persons shall receive a twenty-five (25) cents per hour premium over the top of their rate or the rate of the classification they lead, whichever is greater. Lead Persons shall be selected solely by the Employer. APPENDIX C Tuition Reimbursement Full-time employees who have accrued seniority of at least one (1) year shall be eligible for tuition and book reimbursement not to exceed $1,500 per calendar year for work related courses taken at accredited educational institutions. Reimbursement shall be made upon verification of satisfactorily completing the course along with properly receipted expenditures. APPENDIX D Pension Plan The Employer shall offer a Pension Plan to all bargaining unit employees who have satisfactorily completed their probationary period. The benefit level for all active eligible employees shall be twenty-five dollars ($25.00) for all benefit service earned as defined by the Plan. All aspects and operations of this Plan shall be governed by the Plan documents and shall not be subject to the grievance and arbitration provisions of this Agreement. If any conflict arises between the Plan documents and this section of the Agreement, the terms of the Plan’s documents shall control. Except as to benefit level, the Employer shall retain sole right to modify or amend the Plan without notice or bargaining to the extent permitted by ERISA, the IRC or other related regulations. APPENDIX E Life & AD&D Insurance The Employer shall provide employees with life insurance equal to one (1) times the employee’s annual basic earnings as defined by the Plan not to exceed fifty (50) thousand dollars. All aspects of this Plan shall be governed by the Plan’s document and shall not be subject to grievance or 26 arbitration. If any conflict arises between the Plan and this section, the terms of the Plan’s documents shall control. The Employer shall provide employees with Accidental Death and Dismemberment Insurance equal to one (1) times the employees annual basic earnings as defined by the Plan not to exceed fifty (50) thousand dollars. All aspects of this Plan shall be governed by the Plan’s document and shall not be subject to grievance or arbitration. If any conflict arises between the Plan and this section, the terms of the Plan’s documents shall control. APPENDIX F Health Insurance All full-time employees, after a prescribed waiting period, shall be eligible to participate in the Employers health insurance plan(s) as described by the Employee’s Group Benefit Plan booklet. Upon thirty (30) days written notice and subsequently informing the Union of specific changes to the plan(s), the Employer may modify, amend or change carriers, benefit levels or terms of coverage without negotiation or approval by the Union, provided the employee/Employer cost sharing is the same for all employees (union and non-union) regularly assigned and working at the New Prague and Lonsdale facilities. The Employer agrees that the benefit levels and the premium contribution rates in effect as of January 1, 2000 shall remain in effect without change or modification through the calendar year ending December 31, 2000. The Employer’s liability in any claim for benefits under these group insurance plans is governed by the plan documents and is limited to the benefits provided by the specific plan. A copy of these plans shall be given to each employee. 27   [GRAPHIC]      Chart Industries, Inc. Storage Systems Division Schedule of Benefits Effective January 1, 2000 PLAN A PLAN B SINGLE COVERAGE - $9.50 per month SINGLE COVERAGE - $27.00 per month FAMILY COVERAGE - $24.00 per month FAMILY COVERAGE - $67.00 per month       Deductible $500 per individual $200 per individual   $1,000 family max. $400 family max.     Co-insurance 80% of $2,000 then 100% 80% of $2,000 then 100%     to an unlimited maximum to an unlimited maximum     Out of Pocket $900 per individual $600 per individual   $1,400 family max. $1,000 family max.     Diagnostic Applies to deductible $250 per individual    X-Ray & Lab       Out patient Surgery 100% 100%     Maternity Applies to deductible Applies to deductible     Mental & Nervous Outpatient: 50% per visit Outpatient: 50% per visit       Prescriptions Drug card Drug card   Generic - $7.00 Generic - $7.00   Non-generic - $12.00 Non-generic - $12.00       Vision Exam 1 Exam per year per person. 1 Exam per year per person.   20% discount on prescription 20% discount on prescription   glasses from participating provider. glasses from participating     provider. For more complete details of coverages outlined above or specifics regarding pre-existing coverage limitations, please refer to a Summary Plan Document available in the Human Resources Department. 28 APPENDIX G Dental Insurance All full-time employees, after a prescribed waiting period, shall be eligible to participate in the Employer existing Dental Insurance plan as described by the Employee’s Group Benefit Plan booklet. Upon thirty (30) days written notice and subsequently informing the Union of the specific changes to the plan, the Employer may modify, amend or change insurance carriers, benefit levels or terms of coverage without negotiation or approval by the Union, provided the employee/Employer cost sharing is the same for all employees (union or nonunion) regularly assigned and working at the New Prague or Lonsdale facilities. The Employer agrees that the benefit levels and the premium contribution rates in effect as of January 1, 2000 shall remain in effect without change or modification through the calendar year ending December 31, 2000. The Employer’s liability in any claim for benefits under this group insurance program is governed by the plan documents and is limited to the benefits provided by the specific plan. A copy of the plan shall be given to each employee. DELTA DENTAL Single - $4.00 per month Family - $11.00 per month Unit 1 – Diagnostic and Preventive 100%     Unit 2 – Basic Procedures 80% plus deductible     Unit 3 – Major Procedures 80% plus deductible     Unit 4 – Orthodontia 50% plus deductible (Available only to Dependent Children between ages of 8 and 19 years up to a lifetime maximum of $1,000 per person)     Deductible - $50.00 per individual $150.00 per family 29 APPENDIX H 401K Plan The Employer shall offer eligible employees a savings plan qualified under the Internal Revenue Code (“IRC”). The Employer anticipates continuing to match employee contributions at the rate designated by the plan as of January 1, 2000 [of seventy-five percent (75%) for the first one percent (1%) of base pay contributed by an eligible employee and twenty-five percent (25%) for the next five percent (5%) of base pay contributed by eligible employee.] Although the Employer anticipates continuing contributions at those rates, the Employer shall retain its current rights under the Plan to unilaterally increase, decrease or terminate Employer contributions and to determine other aspects of the Plan operation. The Employer shall provide the Union thirty (30) days written notice prior to implementing any changes in the Plan and shall not terminate the plan without discussing such action with the Union. All aspects of the Plan, including but not limited to eligibility requirements, contribution levels, employer match, borrowing and withdrawal shall be governed by the Plan and applicable statutes and regulations. Disputes regarding participation and operation of the Plan shall not be subject to grievance or arbitration under this Agreement. If any conflict arises between the Plan, this Agreement and applicable statutes and regulations, the terms of this Plan and the applicable statutes and regulations shall control. APPENDIX I Flex Spending Account The Employer shall provide a Flex Spending Account for pre tax payroll deductions to be used for out-of-pocket medical and/or day care expenses and group insurance premium payments. 30   [GRAPHIC] Storage System Division --------------------------------------------------------------------------------   407 Seventh Street NW   New Prague, MN 56071   June 25, 1998 Mr. Thomas M. Hoffman Sub District Director United Steelworkers of America 2829 University Ave. SE Suite 100 Minneapolis, MN 55414 Dear Mr. Hoffman; Effective with the commencement date of the Agreement this letter will clarify MVE’s policy with regard to temporary employees, temporary service and seasonal employees. Employer may keep these people working in bargaining unit jobs for a period not to exceed ninety (90) calendar days. During this time these people will not be subject to the terms and conditions of the Agreement. At the conclusion of the ninety (90) calendar day period they would serve a thirty (30) calendar day probationary period. Upon the successful completion of the probationary period they would become full time employees. After the employee completes his probationary period the employee shall be credited with seniority measured by the commencement of the most recent ninety (90) day period. Sincerely, Scott Brittain Director of Human Resources 31   TABLE OF CONTENTS             Article Title Page             Agreement 1     Preamble 1         I Responsibilities of the Parties 1         II Recognition 2         III Retention of Management Rights 3         IV Union Membership 4         V Dues Check Off 4         VI No Strike No Lockout 5         VII Successorship 6         VIII Bargaining Unit Work 6         IX Pay 6         X Job Classifications 7         XI Hours of Work 8         XII Holiday 9         XIII Leave of Absence 9         XIV Overtime 11         XV Seniority and Lay Off 12         XVI Job Posting 14         XVII Grievance and Arbitration 15         XVIII Union Representation 17         XIX Bulletin Boards 19         XX Personal Time Off and Vacation 19         XXI Safety and Health 20         XXII Tool Accountability 21         XXIII Activities 22         XXIV Field Service 22         XXV Drugs and Alcohol 23         XXVI Savings Clause 23         XXVII Duration 24              Appendix A Classifications and Pay Rates 25      Appendix B Lead Persons 26      Appendix C Tuition Reimbursement 26      Appendix D Pension Plan 26      Appendix E Life and AD&D Insurance 26      Appendix F Health Insurance 27      Appendix G Dental Insurance 29      Appendix H 401K Plan 30      Appendix I Flex Spending Account 30     Letter of Understanding 31   32

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.42 Lease Agreement LEASE AGREEMENT     THIS LEASE AGREEMENT, hereinafter referred to as Lease, entered into this 19th day of October 2001, between T.J.T. Enterprises LLC, hereinafter called the Lessor and T.J.T., Inc., a Washington Corporation, hereinafter referred to as Lessee:     Witnesseth     That the Lessor does hereby lease to Lessee and Lessee does hereby hire from Lessor the following described premises situated in Gem County, Idaho as described on Exhibit "A" (commonly known as T.J.T., Inc. Idaho Sales Office) attached hereto:     Together with all appurtenances thereto and with easements of ingress and egress necessary and adequate for the conduct of Lessee's business, for the term of five (5) years, running from and including the first day of November, 2001, up to and including the 31st day of October 2006, for use in Lessee's regular business, or any other legitimate business, subject to the terms and conditions of this lease. 1.Lessee covenants to pay to Lessor at T.J.T., Inc., office in Emmett, Idaho, or at such other place in Emmett, Idaho, as Lessor shall designate in writing as rent for such premises, the monthly sum of One thousand Three hundred and Nineteen Dollars ($1,319.00), payable in advance commencing November 1, 2001. In addition, One hundred and Fifty-two Dollars ($152.00) is payable November 19, 2001 for 3% increase of payments for July, August, September and October 2001. Lease payment shall increase three per cent (3%) annually for duration of this lease.     In addition to the above, Lessor and Lessee mutually covenant and agree as follows: 11.Lessee may, at its own expense, either at the commencement of or during the term of this lease, make such additions to the leased premises including, without prejudice to the generality of the foregoing, alterations in the water, gas and the electric wiring systems, as may be necessary to fit the same for its business, upon first obtaining the written approval of Lessor as to the materials to be used and the manner of making such alterations and/or additions. Lessor covenants not to unreasonably withhold approval of alterations and/or additions proposed to be made by Lessee. At any time prior to the expiration or earlier termination of the lease, Lessee may remove any or all such alterations, additions or installations in such a manner as will not substantially injure the leased premises. In the event Lessee shall elect to make any such removal, Lessee shall restore the premises, or the portion or portions affected by such removal, to the same condition as existed prior to the making of such alteration, addition or installation, ordinary wear and tear excepted, All alterations, additions or installations not so removed by Lessee shall become the property of the Lessor without liability on Lessor's part to pay for the same. 12.Lessee shall, during the term of this lease, maintain and make all necessary repairs to any structures and improvements located on the leased premises. 13.Lessee shall pay all charges for water, gas and electricity consumed by Lessee upon the leased premises. 14.Lessee shall duly obey and comply with all public laws, ordinances, rules or regulations related to the use of the leased premises. 15.Lessee shall not assign, transfer, sublease, mortgage, pledge or otherwise encumber or dispose of this lease or any portion thereof without written approval of Lessor. If any assignment is 1 -------------------------------------------------------------------------------- made without said specific written permission, it shall be declared void and the Lessor, at its option, may cancel this lease. 16.Lessee shall be responsible for the payment of all real estate taxes assessed against the leased premises during the term of this lease, and shall be responsible for all other expenses associated with this property during the term of this lease. 17.Lessee shall insure the improvements on the leased premises against loss by fire, flood, civil commotion or other casualty, and shall maintain such insurance in amounts sufficient to repair or replace any structures so damaged to as good a condition existing at the beginning of this lease. Lessee shall provide the Lessor with proof of such insurance and failure to provide such proof shall be a default by the terms of this lease agreement. Lessee shall also maintain a good and sufficient liability insurance policy and hold Lessor harmless from all liability associated with the use of the leased premises. 18.In the event that the leased premises shall be taken for public use by the city, state, federal government, public authority or other corporation having the power of eminent domain, then this lease shall terminate as of the date on which possession thereof shall be taken for such public use, or at the option of Lessee, as of the date on which the premises shall become unsuitable for Lessee's regular business by reason of such taking; provided, however, that if only a part of the leased premises shall be so taken, such termination shall be at the option of the Lessee only. If such a taking of only a part of the leased premises occurs, a proportionate reduction of the rent to be paid from and after the date such possession is taken for public use. Lessee shall have the right to participate, directly or indirectly, in any award for such public taking to the extent that it may have suffered compensatable damages as a Lessee on account of such public taking. 19.Either of the parties has the right to terminate this Lease with ninety days' notice.     And it is mutually understood and agreed that the covenants and agreements herein contained shall inure to the benefit of and shall be equally binding upon the respective executors, administrators, heirs and assigns of the parties hereto.     In witness whereof, the parties hereto have executed this lease. /s/ TERRY J. SHELDON    -------------------------------------------------------------------------------- Terry J. Sheldon, Partner T.J.T. Enterprises LLC   October 19, 2001 Date     /s/ JERRY L. RADANDT    -------------------------------------------------------------------------------- Jerry L. Radandt, Partner T.J.T. Enterprises LLC   October 19, 2001 Date     /s/ TERRY J. SHELDON    -------------------------------------------------------------------------------- Terry J. Sheldon, Partner T.J.T. Enterprises LLC   October 19, 2001 Date     /s/ LARRY PRESCOTT    -------------------------------------------------------------------------------- Larry Prescott, CFO, T.J.T. Enterprises LLC   October 19, 2001 Date     2 -------------------------------------------------------------------------------- EXHIBIT A (ID Sales Shop)     A tract of land in Lot 9, Section 6, Twp. 6 N., R. 1 W.B.M., Gem County, Idaho, as follows:     Commencing from the South quarter corner, Section 6, TWP. 6 N., R. 1 W.B.M., running East 675.5 feet; thence North 1383.6 feet to the North bank of the Payette River, the place of beginning; thence     North 339 feet to the South line of the County Road; thence West along said South line 136 feet; thence Southwest 343 feet to the North bank of the Payette River; thence Northeast along the said North bank 157 feet to the Place of beginning.     EXCEPTING THEREFROM the following described tract of land:     A parcel of land being on the Westerly side of the Centerline of State Highway No. 52, project No. s-3836(2) Highway Survey as shown on the plans thereof now on file in the office of the Department of Highways of the State of Idaho, as to that portion of the following described land lying within Government Lot 9 of Section 6, TWP. 6 N., R. 1 W.B.M., described as follows, to-wit:     Beginning at the Southwest corner of the tract of land as described in that certain Warranty Deed dated march 6, 1928, recorded March 15, 1928 in Book 18 of Deeds, at page 420, as Instrument No. 20887, records of Gem County, Idaho, which corner is shown of record to be East 687.0 feet and North 1383.6 feet from the South quarter corner of Section 6, Twp. 6 N., R. 1 W.B.M.; thence Northerly (shown of record to be North) along the East line of said tract of land 339.0 feet, more or less, to a point in the South line of an existing County Road; thence Westerly along the South line of said existing County Road 88.0 feet, more or less, to a point that bears South 22 degrees 20'42" West 30.74 feet from Station 1+18.24 of the County Road Survey as shown on the plans of said State Highway No. 52, Project N. s-3836(2) Highway Survey; thence South 72 Degrees 57'04" East 62.54 feet to a point that bears North 89 Degrees 40'54" West from Station 82+35.30 of said Highway Survey; thence South 5 Degrees 37'31" West 186.10 feet to a point in a line parallel with and 80.0 feet Westerly from the centerline and bears North 89 Degrees 40'54" West from Station 80+50 of said Highway Survey; thence South 0 Degrees 19'06" West along said parallel line 236.0 feet, more or less, to a point in the Northerly Highwater line of the Payette River; thence Southeasterly along said Northerly Highwater line 55.0 feet, more or less, to a point in the Westerly right of way line of existing State Highway No. 52; thence North 0 Degrees 12'24" East 135.0 feet, more or less, to the place of beginning.     EXCEPTING THEREFROM that portion thereof lying between the Highwater lines of the Payette River. Highway Station reference: 77+83 and 82+56.     AND ALSO EXCEPTING a tract of land 54 feet by 218 feet located in the Southwest corner of the above described tract of land.     INCLUDING all water and ditch rights appurtenant thereto or used in connection therewith. Subject to easements, rights of ways, exceptions and reservations, if any. -------------------------------------------------------------------------------- QuickLinks EXHIBIT A (ID Sales Shop)

--------------------------------------------------------------------------------      Execution Copy STOCK PURCHASE AGREEMENT      This Agreement (the “Agreement”) is made as of November 7, 2001 by and between SCIENTIFIC LEARNING CORPORATION, a Delaware corporation (the “Company”), and Warburg, Pincus Ventures, L.P., a Delaware limited partnership (the “Investor”). In consideration of the mutual covenants herein and for other good and valuable consideration, the adequacy and sufficiency of which is hereby acknowledged, the parties hereby agree as follows:      1. AUTHORIZATION OF SALE OF THE SHARES. Subject to the terms and conditions of this agreement, the Company has authorized the issuance and sale of Four Million (4,000,000) shares (the “Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”).      2. AGREEMENT TO SELL AND PURCHASE THE SHARES. At the Closing (as defined in Section 3), the Company shall issue and sell the Shares to the Investor and the Investor shall buy the Shares from the Company for an aggregate purchase price of $5,000,000.00, representing a purchase price of $1.25 per Share (the “Purchase Price”).      3. THE CLOSING.        3.1. Closing Date. The closing of the issuance, purchase and sale and delivery of the Shares (the “Closing”) shall take place on November 20, 2001, or at such date and time as soon as possible thereafter on which all of the conditions to closing set forth in this Agreement have been satisfied. If the Closing does not occur on or before January 15, 2002, this Agreement shall automatically terminate and be of no further force and effect; provided, however, that such termination shall not release any party from liability for any breach of this Agreement by such party that occurs prior to such termination.        3.2. Delivery. At the Closing, against payment to the Company of the Purchase Price by wire transfer to the Company of immediately available funds, the Company shall instruct its transfer agent to deliver promptly to the Investor a certificate representing the Shares, registered in the name of Warburg, Pincus Ventures, L.P.,. A facsimile or other copy of such certificate shall be made available to Investor at the Closing.        3.3 Legends.To the extent applicable, each certificate evidencing any of the Shares shall be endorsed with the legends set forth below:        (a) “THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”        (b) Any legend imposed or required by applicable state securities laws. --------------------------------------------------------------------------------      4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.        The Company hereby represents and warrants to the Investor and agrees as follows:        4.1. Corporate Power. 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 to do business as a foreign corporation and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on the condition (financial or otherwise), properties, business, prospects or results of operations of the Company taken as a whole (a “Material Adverse Effect”). The Company has all requisite corporate power and authority to own and operate its properties and assets and to carry on its business as now conducted and as presently proposed to be conducted, to execute and deliver this Agreement, and to issue and deliver the Shares and to carry out and perform its obligations hereunder.        4.2. Authorization. All corporate action on the part of the Company, its directors and its stockholders necessary for the authorization, execution and delivery of this Agreement and the performance of the Company’s obligations hereunder, including the issuance and delivery of the Shares, has been duly and properly taken or will be duly and properly taken prior to the Closing. This Agreement, when executed and delivered by the Company, shall constitute a valid and binding obligation of the Company enforceable in accordance with its terms, subject only to laws of general application relating to bankruptcy, insolvency and the relief of debtors and as limited by general principles of equity that restrict the availability of equitable remedies. The Shares, when issued in accordance with the terms of this Agreement, will be duly authorized, validly issued, fully paid and nonassessable and free of any liens or encumbrances or restrictions on transfer other than restrictions under applicable state and federal securities laws and liens or encumbrances, if any, created by the Investor. The Board of Directors of the Company has taken, or will have taken prior to Closing, all action necessary to render inapplicable, as they relate to the Investor or any of its affiliates, the provisions of Section 203 of the General Corporation Law of Delaware.        4.3. Governmental Consents. All consents, approvals, orders or authorizations of, or registrations, qualifications, designations, declarations or filings with, any governmental authority required on the part of the Company in connection with the valid execution and delivery of this Agreement and the offer, sale and issuance of the Shares have been obtained and will be effective at the Closing, except for any notices required or permitted to be filed thereafter with certain state and federal securities commissions, which notices, if any, shall be filed on a timely basis.        4.4. Offering. Assuming the accuracy of the representations and warranties of the Investor contained in Section 5 of this Agreement, the offer, sale and issuance of the Shares is exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the “1933 Act”), and has been registered or qualified (or is exempt from registration and qualification) under the registration, permit, or qualification requirements of all applicable state securities laws. 2 --------------------------------------------------------------------------------        4.5. Capitalization. The authorized capital of the Company consists of 40,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock, par value $0.001. As of October 31, 2001, 11,474,659 shares of the Common Stock and no shares of the Preferred Stock were issued and outstanding. All of the issued and outstanding shares of capital stock of the Company have been duly authorized and validly issued, are fully paid and non-assessable, were issued in accordance with the registration or qualification provisions of the 1933 Act and any relevant state securities laws or pursuant to valid exemptions therefrom, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities. Except as otherwise disclosed in or contemplated by the Company’s (i) Annual Report on Form 10-K for the year ended December 31, 2000, (ii) any Current Reports on Form 8-K filed with the Securities and Exchange Commission (the “Commission”) since the filing of the Company’s Annual Report on Form 10-K on March 30, 2001, (iii) Quarterly Reports on Form 10-Q for the Quarters ended March 31 and June 30, 2001, (v) Proxy Statement for its Annual Meeting of Stockholders on May 31, 2001, (vi) draft Quarterly Report on Form 10-Q for the Quarter ended September 30, 2001, a copy of which was delivered by the Company to the Investor prior to the date of this Agreement and (vii) any disclosure schedule delivered by the Company to the Investor simultaneously with the execution of this Agreement (collectively, the “Disclosure Documents”) there have been no issuances of Common Stock since October 31, 2001, other than pursuant to the exercise of outstanding stock options or the Company’s 1999 Employee Stock Purchase Plan. Except (i) for the options issued under the Company’s 1999 Equity Incentive Plan, 1999 Non-Officer Equity Incentive Plan and 1999 Non-Employee Directors Stock Option Plan , (ii)for the issuance of shares of Common Stock pursuant to the Company’s 1999 Employee Stock Purchase Plan(iii) for warrants to purchase 1,498,888 shares of the Company’s Common Stock and (iv) as set forth in the Disclosure Documents, the Company does not have outstanding any options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of its capital stock, any shares of capital stock of any subsidiary or any such options, rights, convertible securities or obligations. The description of the Company’s stock, stock bonus and other stock plans or arrangements and the options or other rights granted and exercised thereunder that is contained in the Disclosure Documents accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights.        4.6. Compliance With Other Instruments; Consents. The Company is not in violation or default of any provision of its Certificate of Incorporation or Bylaws, or in violation in any material respect of (i) any provision of any mortgage, indenture, agreement, instrument or contract to which it is a party or by which it is bound, or (ii) to the best of its knowledge, any federal or state judgment, order, writ, decree, statute, rule, regulation or restriction applicable to the Company. The execution, delivery and performance by the Company of this Agreement, the offer, issuance and sale of the Shares, and the consummation of the transactions contemplated by this Agreement, will not result in any such violation or the suspension, revocation, impairment, forfeiture or nonrenewal of any material permit, license, authorization or approval applicable to the Company, its business or operations or any of its assets or properties or be in material conflict with or constitute, with or without the passage of time or giving of notice, either a material default under any such provision or an event that results in the creation of any material lien, charge or encumbrance upon any assets of the Company. The execution, delivery and performance by the Company of this Agreement, the issuance and sale of the Shares, and the consummation of the transactions contemplated by this Agreement, do not require the Company to obtain any consent or approval of, or make any filing with or give any notice to, any person, entity, governmental or judicial authority, except such as have been duly obtained or made or such as will be duly obtained or made prior to the Closing. 3 --------------------------------------------------------------------------------        4.7. Disclosure Documents. The information contained or incorporated by reference in the Disclosure Documents was true and correct in all material respects as of the respective dates of the filing thereof with the Commission; and, as of such respective dates, the Disclosure Documents did not contain an 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, except to the extent updated or superseded by any report subsequently filed by the Company with the Commission.        4.8. Absence of Certain Developments. Since the filing on August 14, 2001 of the Company’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2001, and except as described in or specifically contemplated by the Disclosure Documents, there has been no: (i) declaration, setting aside or payment of any dividend or other distribution with respect to the capital stock of the Company; (ii) issuance of capital stock, options, warrants, securities convertible or exchangeable for capital stock or rights to acquire capital stock, other than as approved by the Board of Directors of the Company (including the affirmative vote of a representative of Investor) or as approved pursuant to authority delegated by the Board of Directors (which delegation was approved by the Board of Directors of the Company, including the affirmative vote of a representative of Investor); (iii) material litigation or loss, destruction or damage to any property of the Company, whether or not insured; (iv) acceleration or prepayment of any indebtedness for borrowed money or the refunding of any such indebtedness; or (v) acquisition or disposition of any material assets (or any contract or arrangement therefor), or any other material transaction by the Company otherwise than for fair value in the ordinary course of business.        4.9. Broker’s Fee.There are no other brokers or finders entitled to compensation in connection with the offer, issuance and sale of the Shares to the Investor on the basis of any actions and agreements by the Company.        4.10. Compliance. The Company has not been advised, nor does it have any reason to believe, that it is not conducting business in compliance with all applicable laws, rules and regulations of the jurisdictions in which it conducts its business; except where failure to be so in compliance would not have a Material Adverse Effect.        4.11. Nasdaq National Market. The Company’s Common Stock is registered pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the “1934 Act”) and is listed on the Nasdaq National Market, and the Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the 1934 Act or de-listing the Common Stock from the Nasdaq National Market, nor has the Company received any notification that the Commission or the National Association of Securities Dealers, Inc. is contemplating terminating such registration or listing. 4 --------------------------------------------------------------------------------   4.12. No Manipulation of Stock. The Company has not taken and will not take, in violation of applicable law, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the transactions contemplated hereby.   4.13. No Integration. Neither the Company nor any of its affiliates nor any person acting on the Company’s behalf has, directly or indirectly, at any time within the past six months made, nor will any such party make within six months of the second Closing Date, any offer or sale of any security or solicitation of any offer to buy any security under circumstances, that in the opinion of the Company’s counsel, concurred by the Investor’s counsel, would eliminate the availability of the exemption from registration under Regulation D under the 1933 Act in connection with the offer and sale of the Securities as contemplated hereby.      5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR.      The Investor hereby represents and warrants to the Company and agrees as follows:        5.1. Purchase for Own Account. The Investor is acquiring the Shares solely for its own account for investment and not for sale or with a view to distribution of the Shares or any part thereof, has no present intention of selling, granting any participation in, or otherwise distributing the same, and does not presently have reason to anticipate a change in such intention.        5.2. Information and Sophistication. The Investor has received all the information it has requested from the Company that it considers necessary or appropriate for deciding whether to acquire the Shares. The Investor has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the Shares and to obtain any additional information necessary to verify the accuracy of the information given to the Investor. The Investor further represents that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risk of the investment in the Shares. The Shares were not offered or sold to Investor by any form of general solicitation or advertising. Investor has, in connection with its decision to purchase the Shares, relied solely upon the Disclosure Documents and the representations and warranties of the Company contained herein. The office of the Investor in which its investment decision was made is located at the address of the Investor set forth in Section 7.5 hereof.        5.3. Ability to Bear Economic Risk. The Investor acknowledges that investment in the Shares involves a high degree of risk. The Investor is able, without materially impairing its financial condition, to hold the Shares for an indefinite period of time and to suffer a complete loss of its investment.        5.4. Limitation on Disposition. The Investor will not make any disposition of all or any portion of the Shares unless and until:        (a) There is then in effect a registration statement under the 1933 Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or 5 --------------------------------------------------------------------------------        (b) The Investor has notified the Company of the proposed disposition and has furnished the Company with a statement of the circumstances surrounding the proposed disposition, and if reasonably requested by the Company, the Investor has furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration under the 1933 Act. The Investor has not engaged and will not engage in any short sales of the Company’s Common Stock prior to the effectiveness of any registration statement covering a proposed disposition of the Shares, except to the extent that any short sale is fully covered by shares of Common Stock of the Company other than the Shares.        5.5. Experience. The Investor is an "accredited investor" as such term is defined in Rule 501 of the 1933 Act.        5.6. Broker's Fee. There are no other brokers or finders entitled to compensation in connection with the offer, issuance and sale of the Shares to the Investor on the basis of any actions and agreements by the Investor.        5.7 Requisite Power and Authority.Investor has all necessary power and authority under all applicable provisions of law to execute and deliver this Agreement and to carry out its provisions. All action on Investor’s part required for the lawful execution and delivery of this Agreement have been or will be effectively taken prior to Closing. This Agreement, when executed and delivered by the Investor, shall constitute a valid and binding obligation of the Investor enforceable in accordance with its terms, subject only to laws of general application relating to bankruptcy, insolvency and the relief of debtors and as limited by general principles of equity that restrict the availability of equitable remedies.      6. Closing Conditions.        6.1. Company Conditions. The Company's obligation to complete the purchase and sale of the Shares and deliver one or more stock certificates representing the Shares to the Investor at the Closing shall be subject to the following conditions:        (a) receipt by the Company of same-day funds in the full amount of the Purchase Price;        (b) the accuracy on and as of the Closing of the representations and warranties made by the Investor and the fulfillment of those undertakings of the Investor to be fulfilled prior to the Closing;        (c) receipt by the Company of written confirmation by representatives of the Nasdaq National Market that the transactions contemplated by this Agreement do not require the Company to obtain shareholder approval or receipt by the Company of any requisite approval of its shareholders; and 6 --------------------------------------------------------------------------------        (d) execution and delivery of an amendment to the Amended and Restated Registration Rights Agreement dated as of December 30, 1998 (the “Registration Rights Agreement”), to include the Shares as “Registrable Shares”, in addition to the shares of Common Stock already included in such definition in the Registration Rights Agreement.        6.2. Investor Conditions. The Investor's obligation to accept delivery of such stock certificate(s) and to pay for the Shares evidenced thereby at the Closing shall be subject to the following conditions:        (a) the accuracy on and as of the Closing of the representations and warranties made by the Company herein and the fulfillment of those undertakings of the Company to be fulfilled prior to the Closing;        (b) execution and delivery of an amendment to the Amended and Restated Registration Rights Agreement dated as of December 30, 1998 (the “Registration Rights Agreement”), to include the Shares as “Registrable Shares”, in addition to the shares of Common Stock already included in such definition in the Registration Rights Agreement;        (c) evidence reasonably satisfactory to the Investor of receipt by the Company of written confirmation by representatives of the Nasdaq National Market that the transactions contemplated by this Agreement do not require the Company to obtain shareholder approval or of receipt by the Company of any requisite approval by its shareholders;        (d) receipt by the Investor of a legal opinion of Cooley Godward, LLP, counsel to the Company, reasonably satisfactory to the Investor and counsel to the Investor, relating to the due organization and good standing of the Company, the due authorization, execution and delivery of the Agreements, and the status of the Shares to be delivered at such Closing as duly authorized, validly issued, fully paid and non-assessable shares of Common Stock of the Company, free (to such counsel’s knowledge) of any pre-emptive rights; and        (e) receipt by the Investor from the Company of a certificate executed by the Chairman of the Board or President and the chief financial or accounting officer of the Company, dated the Closing Date, in form and substance reasonably satisfactory to the Investor, to the effect that the representations and warranties of the Company set forth in Section 4 of this Agreement are true and correct as of the date of this Agreement and as of the Closing Date, and the Company has complied with all the agreements and satisfied all the conditions herein on its part to be performed or satisfied on or prior to the Closing Date.      7. MISCELLANEOUS.        7.1. Binding Agreement; Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any third party any rights, remedies, obligations, or liabilities under or by reason of this Agreement except as expressly otherwise provided in this Agreement.        7.2. Governing Law. This Agreement shall be governed by and construed under the laws of the State of New York as applied to agreements among New York residents, made and to be performed entirely within the State of New York, irrespective of any contrary result otherwise required under the conflict or choice of law rules of New York. 7 --------------------------------------------------------------------------------        7.3. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but both of which together shall constitute one and the same instrument.        7.4. Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.        7.5. Notices. Any notice required or permitted under this Agreement must be given in writing and shall be deemed effectively given upon personal delivery or upon deposit with the United States Post Office, postage prepaid, addressed to the Company at 300 Frank H. Ogawa Plaza, Suite 500, Oakland, CA 94612-2040, or to the Investor at 466 Lexington Avenue, New York, New York 10017, or at such other address as a party may designate by ten days’advance written notice to the other party.        7.6. Modification; Waiver. No modification or waiver of any provision of this Agreement or consent to departure therefrom shall be effective unless in writing and approved by the Company and the Investor.        7.7. Further Assurances. The parties shall take such further actions, and execute, deliver and file such documents, as may be reasonably necessary or appropriate to effectuate the intent of this Agreement.        7.8. Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party. Any references to any federal, state, local or foreign statute or law shall also refer to all rules and regulations promulgated thereunder, unless the context otherwise requires. Unless the context otherwise requires: (a) a term has the meaning assigned to it by this Agreement; (b) forms of the word “include” mean that the inclusion is not limited to the items listed; (c) “or” is disjunctive but not exclusive; (d) words in the singular include the plural, and in the plural include the singular; (e) provisions apply to successive events and transactions; (f) “hereof”, “hereunder”, “herein” and “hereto” refer to the entire Agreement and not any section or subsection; and (g) “$” means the currency of the United States.        7.9. Severability. If any one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any such instrument. Furthermore, in lieu of any such invalid or unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Agreement a provision as similar in terms and commercial effect to such invalid or unenforceable provision as may be possible and be valid and enforceable.        7.10. Entire Agreement. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party will be liable or bound to the other in any manner by any representations, warranties, covenants and agreements other than those specifically set forth herein. 8 --------------------------------------------------------------------------------        7.11. Survival of Representations, Warranties and Agreements. Notwithstanding any investigation made by any party to this Agreement, the respective representations and warranties given by the parties hereto shall survive the Closing and the consummation of the transactions contemplated herein for a period of one year. The other covenants and agreements contained herein shall survive for the period specified therein, or if not specified, for a period of two years. [THE NEXT PAGE IS THE SIGNATURE PAGE] 9 --------------------------------------------------------------------------------      IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. SCIENTIFIC LEARNING CORPORATION By: /s/ Sheryle J. Bolton —————————————— Sheryle J. Bolton President and Chief Executive Officer WARBURG, PINCUS VENTURES, L.P. By: Warburg, Pincus & Co., its general partner By: /s/ Rodman W. Moorhead, III —————————————— Rodman W. Moorhead, III Partner [SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT] 10

Exhibit (10) (g) EARLY RETIREMENT AND CONSULTING AGREEMENT                 THIS EARLY RETIREMENT AND CONSULTING AGREEMENT (the "Agreement"), made and entered into as of the 27th day of July, 2001 (the "Effective Date"), by and between BROWN SHOE COMPANY, INC., a New York corporation (the "Company"), and BRIAN C. COOK ("Executive").                 WITNESSETH THAT:                 WHEREAS, Executive currently serves as Executive Vice President of the Company, as well as President of Famous Footwear, a division of the Company;                 WHEREAS, Executive is desirous of stepping down as Executive Vice President of the Company and President of Famous Footwear and retiring prior to age 65 and Executive shall voluntarily retire as an employee of the Company, effective on such date as is mutually agreeable to the Company and Executive, but no later than February 1, 2002 (the "Retirement Date");                 WHEREAS, Executive possesses skills and leadership experience which the Company is desirous of calling upon from time to time for a period not to exceed the forty-eight month period following the Retirement Date; and                 WHEREAS, Executive is willing to provide his skills and the benefit of his leadership from time to time during such period following the Retirement Date as a consultant to the Company.                 NOW, THEREFORE, in consideration of the mutual undertakings contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Executive agree as follows:                 1. Engagement as Consultant. The Company shall retain Executive as a consultant for the period commencing on the first day after the Retirement Date through the end of the forty-eight (48) month period following the Retirement Date (the "Consulting Period"). During the Consulting Period, Executive shall be an independent contractor. Executive and the Company acknowledge that while Executive will step down as Executive Vice President of the Company and President of Famous Footwear as of his 62nd birthday, he may still remain as an active employee of the Company after such date and the Consulting Period will not begin until the day after the Retirement Date.                 2. Consulting Duties. The Chief Executive Officer and/or the Chairman of the Board of Directors may from time to time request Executive to furnish his services as a consultant. Such services shall include:                     (a) consultation concerning the management and overall policy and strategic direction of the businesses of the Company and the financial consequences thereof; --------------------------------------------------------------------------------                     (b) assisting with the transition of leadership at Famous Footwear and maintaining and expanding relationships with vendors;                     (c) consultation regarding real estate strategies, which may include site visits to current and prospective store locations;                     (d) consultation and strategizing regarding merchandising practices and inventory management; and                     (e) consultation with respect to special projects designated by the Chief Executive Officer and/or the Chairman of the Board of the Company. Executive shall not be required to hold himself available for consulting services at any fixed time, but shall be "available on a reasonable basis." Executive's presence shall not be required at any particular office or place in order to render his consulting services unless such services could not reasonably be performed in another location or by telephone or letter. For purposes of this Agreement, "available on a reasonable basis" shall mean, for each 12-month period during the Consulting Period, either: (i) up to a total of 100 days, or (ii) 8 days per month during each month of the 12-month period.                     3. Consulting Fee. Subject to the terms of this Agreement, the Company shall pay Executive a per month consulting fee during the Consulting Period, in each case payable on the last day of the month, in accordance with the following schedule:   Month Consulting Fee Per Month Months 1-18  $47,917 Months 19-34 $40,000 Months 35-48  $20,000 Executive and the Company acknowledge that it is in both their best interests for Executive to step down as Executive Vice President of the Company and President of Famous Footwear on August 23, 2001 (his 62nd birthday). When Executive does step down as Executive Vice President of the Company and President of Famous Footwear and if he does not at that time retire as an employee of the Company, Executive shall assume the duties of "special assistant" to the Chairman of the Company at the same salary that he was paid as Executive Vice President of the Company and President of Famous Footwear and Executive and the Company agree that the length of time (in months) that the Executive is no longer serving as Executive Vice President of the Company and President of Famous Footwear prior to the Retirement Date shall be deducted from the Consulting Period. (For illustrative purposes, when Executive steps down as Executive Vice President of the Company and President of Famous Footwear as of August 23, 2001 and if he retires as an employee on February 1, 2002, then 5 months will be deducted from the Consulting Period and the Consulting Period will end forty-one (41) months after the Retirement Date. If, however, after Executive steps down as Executive Vice President of the Company and President of Famous Footwear on August 23, 2001, he officially retires as an employee of the 2 -------------------------------------------------------------------------------- Company prior to February 1, 2002, the Consulting Period will begin the day after the Retirement Date.)                     4. Annual Bonus. Subject to the terms of this Agreement, during the Consulting Period, Executive shall receive three fiscal year bonuses as follows:   Fiscal Year Payment Date Amount* 2001 No later than April, 2002 The greater of (i) the amount actually earned pursuant to the terms of the Company's bonus plan (not to exceed the maximum amount available to Executive thereunder), or (ii) $150,000. 2002 No later than April, 2003 The greater of (i) the amount actually earned pursuant to the terms of the Company's bonus plan (not to exceed the target amount available to Executive thereunder), or (ii) $125,000. 2003 No later than April, 2004 The greater of (i) the amount actually earned pursuant to the terms of the Company's bonus plan (not to exceed the target amount available to Executive thereunder), or (ii) $100,000. *For purposes of determining the bonus amount actually earned for each of three bonuses under the terms of the Company's bonus plan during the Consulting Period, Executive's base salary amount in effect while he was employed by the Company will not be used. Instead, solely for purposes of applying the terms of the Company's bonus plan to determine the bonus amount to which Executive is entitled, Executive's "base salary" for each fiscal year shall be deemed to be an amount equal to the sum of the consulting fees paid for the last full month preceding the end of the fiscal year for which the bonus is being paid, multiplied by 12.                     5. Long-Term Incentive Payments. Subject to the terms of this Agreement, during the Consulting Period, Executive shall be eligible to receive a long-term incentive cash payment for each of the three performance periods specified below in the table. The three payments will not be made pursuant to awards granted under the Brown Shoe Company, Inc. Incentive and Stock Compensation Plan (the "Incentive Plan"), but the amount of each payment will be based on the achievement of the performance targets established by the Board of Directors of the Company for the corresponding performance periods under the Incentive Plan. In consideration of the foregoing, Executive acknowledges and agrees that all long-term incentive awards which have been granted to him under the Incentive Plan with respect to the performance periods specified below are hereby canceled and forfeited in all respects as of the Effective Date and the Company shall have no obligation to honor such awards. Further, Executive acknowledges that any long-term incentive cash payment to which he may be entitled 3 -------------------------------------------------------------------------------- under this Section 5 shall only be paid in the form of cash and not shares of Company common stock. The three long-term incentive payments that Executive is eligible to receive pursuant to this Section 5 shall be made in accordance with the following terms and conditions:   Performance Period Number of Performance Shares/Units Granted Form of Payment/Payment Amount Payment Date Fiscal Years 99-01 Same number as originally awarded by Company pursuant to Incentive Plan for performance period  Cash payment equal to (i) the number of performance shares/units earned over performance period, taking into consideration the extent to which the applicable performance targets established for the performance period under the Incentive Plan have been achieved, multiplied by (ii) the Fair Market Value (as defined in the Incentive Plan) of one share of the Company's common stock as of the date immediately preceding the date on which such cash payment is made to Executive Payment no later than April 30, 2002 Fiscal Years 00-02 Same number as originally awarded by Company pursuant to Incentive Plan for performance period Cash payment determined pursuant to same formula described above Payment no later than April 30, 2003 Fiscal Years 01-03 Same number as originally awarded by Company pursuant to Incentive Plan for performance period Cash payment determined pursuant to same formula described above Payment no later than April 30, 2004                     6. Pension Benefits. As of the Retirement Date, pension payments to which Executive is entitled under the Brown Shoe Company, Inc. Retirement Plan and the Brown Shoe Company, Inc. Executive Retirement Plan (the "SERP") shall be determined, and paid, in accordance with the terms of the plans, except that, solely for purposes of calculating retirement benefits under the SERP, Executive shall receive an additional 10 years of service as provided in the agreement dated October, 1997.                     7. Restricted Stock and Stock Options. All transfer and forfeiture restrictions on any shares of restricted stock held by Executive as of the Retirement Date shall lapse on such date. With respect to each non-vested option to purchase Company stock held by Executive on the Retirement Date, the Company shall make a cash lump sum payment to Executive in an amount equal to the excess, if any, of the fair market value of the Company     4 -------------------------------------------------------------------------------- stock subject to such option, determined as of the close of business on the Retirement Date (or, if the Retirement Date is not a business day, then the next business day), over the exercise price of such option. After Executive shall have received such lump sum payment, all such non-vested options shall be cancelled as of the Retirement Date.                     8. Medical and Dental Benefits. Until Executive attains age 65, the Company shall provide Executive and his dependents with medical and dental benefits consistent with the medical and dental benefits being provided to Executive and his dependents immediately prior to the Retirement Date.                     9. Perquisites. Executive shall be entitled:                         (a) to receive reimbursement from the Company during the Consulting Period for outside office space in an amount not to exceed $2,000 per month;                         (b) to keep his office furniture and furnishings from his present office;                         (c) to receive and utilize until he attains age 65 a Product Discount Card; and                         (d) to receive reimbursement from the Company during the Consulting Period for any club food minimums owed to any club in which Executive was a member immediately prior the Retirement Date.                     10. Death or Permanent Disability. In the event of the death or permanent disability (as determined by the Company in good faith) of Executive during the Consulting Period, the Company's obligation to provide the payments, benefits and perquisites described in this Agreement shall cease as of the date of such death or permanent disability; provided, however, monthly consulting fees shall continue to be paid in accordance with the schedule set forth in Section 3 hereof until the earlier of (i) the end of the calendar year in which such death or permanent disability occurs, or (ii) the end of the Consulting Period, and any undistributed pension benefits shall be paid in accordance with the terms of the plans. In the event of death, any monthly consulting fees payable as provided in this Section 10 shall be made to Executive's designated beneficiary, or if Executive leaves no designated beneficiary, to his estate.                     11. Covenant Not to Compete. Payments made pursuant to Sections 3, 4 and 5 hereof are subject to the following restrictions:                         (a) Restrictions.                             (i) Executive acknowledges that (A) the Company has spent substantial money, time and effort over the years in developing and solidifying its relationships with its Customers (as defined below) throughout the world and in developing its Confidential Information (as defined in Section 12 hereof); and (B) under this Agreement, the Company is agreeing to provide Executive with certain benefits based upon Executive's assurances and 5 -------------------------------------------------------------------------------- promises contained herein not to divert the Company's Customers' goodwill or to put himself in a position following his employment with the Company in which the confidentiality of the Company's Confidential Information might somehow be compromised.                             (ii) Accordingly, Executive agrees that, during the Consulting Period and for thirty-six (36) months thereafter, Executive will not, directly or indirectly, on Executive's own behalf or on behalf of any other person, firm, corporation or entity (whether as owner, partner, consultant, employee or otherwise):                                 (A) provide any executive- or managerial-level services in the shoe industry in the United States in competition with the Company, for any Competitor (as defined below)                                 (B) hold any executive- or managerial-level position with any Competitor in the United States;                                 (C) engage in any research and development activities or efforts for a Competitor, whether as an employee, consultant, independent contractor or otherwise, to assist the Competitor in competing in the shoe industry in the United States;                                 (D) cause or attempt to cause any Customer to divert, terminate, limit, modify or fail to enter into any existing or potential relationship with the Company;                                 (E) cause or attempt to cause any shoe supplier or manufacturer of the Company to divert, terminate, limit, modify or fail to enter into any existing or potential relationship with the Company;                                 (F) solicit, entice, employ or seek to employ, in the shoe industry, any executive- or managerial-level executive of, or any consultant or advisor to, the Company; and                                 (G) communicate in any way that negatively reflects upon, or disparages in any way, or induces or encourages others to disparage in any way, the Company, its services, its products, or any of its current or former directors, officers, employees or agents, or the Company's practices, policies or strategies. For purposes of this Agreement, "Competitor" shall mean any person, firm, corporation, partnership or other entity for which, in its prior fiscal year, the wholesale or retail footwear business accounted for at least 2% of his or its total business. Provided, however, that for the thirty-six (36) months after the Consulting Period, for purposes of subsections (A), (B) and (C) above, the term "Competitor" shall only refer to direct competitors of the Company in the retail shoe industry. In addition, for purposes of this Agreement, "Customer" shall mean any wholesale customer of the Company which purchased, or is reasonably expected to purchase, from the Company during, or within one (1) year immediately following the expiration of, the     6 -------------------------------------------------------------------------------- Consulting Period more than $1,000,000 in shoes.                     (b) Acknowledgment Regarding Restrictions. Executive recognizes and agrees that the restraints contained in Section 11.(a) (both separately and in total) are reasonable and should be fully enforceable in view of the high-level positions Executive has had with the Company, the national and international nature of both the Company's business and competition in the shoe industry, and the Company's legitimate interests in protecting its Confidential Information and its Customer goodwill and relationships. Executive specifically hereby acknowledges and confirms that he is willing and intends to, and will, abide fully by the terms of Section 11.(a) of this Agreement. Executive further agrees that the Company would not have adequate protection if Executive were permitted to work for its Competitors in violation of the terms of this Agreement since the Company would be unable to verify whether (i) its Confidential Information was being disclosed and/or misused, and (ii) Executive was involved in diverting or helping to divert the Company's Customers and/or its Customer goodwill.                     (c) Company's Right to Injunctive Relief. In the event of a breach or threatened breach of any of Executive's duties and obligations under the terms and provisions of Section 11.(a) of this Agreement, the Company shall be entitled, in addition to any other legal or equitable remedies it may have in connection therewith (including any right to damages that it may suffer), to temporary, preliminary and permanent injunctive relief restraining such breach or threatened breach. Executive hereby expressly acknowledges that the harm which might result to the Company's business as a result of noncompliance by Executive with any of the provisions of Section 11.(a) would be largely irreparable. Executive specifically agrees that if there is a question as to the enforceability of any of the provisions of Section 11.(a) hereof, Executive will not engage in any conduct inconsistent with or contrary to such Section until after the question has been resolved by a final judgment of a court of competent jurisdiction. Executive undertakes and agrees that if Executive breaches or threatens to breach the Agreement, Executive shall be liable for any attorneys' fees and costs incurred by Company in enforcing its rights hereunder.                     (d) Executive Agreement to Disclose this Agreement. So long as the terms of this Section 11 are in effect, Executive agrees to disclose such terms to any potential future employer.             12. Confidential Information. Executive acknowledges and confirms that certain data and other information (whether in human or machine readable form) that comes into his possession or knowledge (whether before or after the date of this Agreement) and which was obtained from the Company, or obtained by Executive for or on behalf of the Company, and which is identified herein is the secret, confidential property of the Company (the "Confidential Information"). This Confidential Information includes, but is not limited to:                     (a) lists or other identification of customers or prospective customers of the Company (and key individuals employed or engaged by such parties);                     (b) lists or other identification of sources or prospective sources of the 7 -------------------------------------------------------------------------------- Company's products or components thereof (and key individuals employed or engaged by such parties);                     (c) all compilations of information, correspondence, designs, drawings, files, formulae, lists, machines, maps, methods, models, notes or other writings, plans, records, regulatory compliance procedures, reports, specialized or technical data, schematics, source code, object code, documentation, and software used in connection with the development, manufacture, fabrication, assembly, marketing and sale of the Company's products;                     (d) financial, sales and marketing data relating to the Company or to the industry or other areas pertaining to the Company's activities and contemplated activities (including, without limitation, manufacturing, transportation, distribution and sales costs and non-public pricing information);                     (e) equipment, materials, procedures, processes, and techniques used in, or related to, the development, manufacture, assembly, fabrication or other production and quality control of the Company's products and services;                     (f) the Company's relations with its customers, prospective customers, suppliers and prospective suppliers and the nature and type of products or services rendered to such customers (or proposed to be rendered to prospective customers);                     (g) the Company's relations with its employees (including, without limitation, salaries, job classifications and skill levels); and                     (h) any other information designated by the Company to be confidential, secret and/or proprietary (including without limitation, information provided by customers or suppliers of the Company). Notwithstanding the foregoing, the term "Confidential Information" shall not consist of any data or other information which has been made publicly available or otherwise placed in the public domain other than by Executive in violation of this Agreement.                 13. Waiver and Release. As a condition precedent to the Company's obligations under this Agreement, concurrently with the execution of this Agreement, Executive shall execute the release attached hereto as Exhibit A (the "Release"). In the event Executive exercises his right to revoke the Release within seven (7) days after the execution thereof, all of the terms and conditions of this Agreement shall be deemed null and void and of no force and effect and the Company and Executive shall have no obligation to honor the terms of this Agreement.                 14. Taxes. Executive acknowledges that, during the Consulting Period, he will not be an "employee" (or person of similar status) of the Company or any of its affiliates for purposes of the Internal Revenue Code of 1986, as amended (the "Code") or the Employee Retirement Income Security Act of 1974, as amended. Executive acknowledges that he will not 8 -------------------------------------------------------------------------------- be paid any "wages" (as defined in the Code) in respect of the consulting services. As such, Executive shall be responsible for the payment of any and all required federal, state and local taxes incurred, or to be incurred, in connection with any amounts payable to Executive under this Agreement.                 15. Miscellaneous.                     (a) Notices. Any notice to be given by either party hereunder shall be in writing and shall be deemed to have been duly given if delivered or mailed, certified or registered mail, postage prepaid, as follows:                 If to the Company:                 Brown Shoe Company, Inc.                 8300 Maryland Avenue                 St. Louis, MO 63166-0029                 Attention: Chief Executive Officer                 If to Executive                 Brian C. Cook                 4830 Morris Court                 Waunakee, WI 53597 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.                     (b) Successors; Binding Agreement.                         (i) The Company will 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, upon or prior to such succession, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. A copy of such assumption and agreement shall be delivered to Executive promptly after its execution by the successor. Failure of the Company to obtain such agreement upon or prior to the effectiveness of any such succession shall be a breach of this Agreement. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Subsection 15.(b)(i) or which otherwise becomes bound by the terms and provisions of this Agreement by operation of law.                         (ii) This Agreement is personal to Executive and Executive may not assign or delegate any part of his rights or duties hereunder to any other person, except 9 -------------------------------------------------------------------------------- that this Agreement shall inure to the benefit of, and be enforceable by, Executive's legal representatives, executors, administrators, heirs and beneficiaries.                     (c) Severability. If any provision of this Agreement, or the application thereof to any person or circumstance, shall to any extent be held to be invalid or unenforceable, the remainder of this Agreement and the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.                     (d) Headings. The headings in this Agreement are inserted for convenience of reference only and shall not in any way affect the meaning of interpretation of this Agreement.                     (e) Counterparts. This Agreement may be executed in one or more identical counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.                     (f) Waiver. Neither any course of dealing nor any failure or neglect of either party hereto in any instance to exercise any right, power or privilege hereunder or under law shall constitute a waiver of such right, power or privilege or of any other right, power or privilege or of the same right, power or privilege in any other instance. All waivers by either party hereto must be contained in a written instrument signed by the party to be charged therewith, and, in the case of the Company, by its duly authorized officer.                     (g) Entire Agreement. This instrument constitutes the entire agreement of the parties in this matter and shall supersede any other agreement, including, but not limited to, the Severance Agreement dated July 27, 1998 (the "Severance Agreement"), between the parties, oral or written, concerning the same subject matter. As a result thereof, Executive agrees and acknowledges that, as of the Effective Date of this Agreement, the Severance Agreement shall be deemed terminated and of no further force and effect, and that the Company shall have no obligation whatsoever to provide any payments or benefits to Executive described in the Severance Agreement.                     (h) Amendment. This Agreement may be amended only by a writing which makes express reference to this Agreement as the subject of such amendment and which is signed by Executive and by a duly authorized officer of the Company.                         (i) Governing Law. In light of the Company's and Executive's substantial contacts with the State of Missouri, the fact that the Company is headquartered in Missouri and Executive resides in and/or reports to Company management in Missouri, the parties' interests in ensuring that disputes regarding the interpretation, validity and enforceability of this Agreement are resolved on a uniform basis, and the Company's execution of, and the making of, this Agreement in Missouri, the parties agree that: (a) any litigation involving any noncompliance with or breach of the Agreement, or regarding the interpretation, validity and/or 10 -------------------------------------------------------------------------------- enforceability of the Agreement, shall be filed and conducted exclusively in the state or federal courts in St. Louis City or County, Missouri; and (b) the Agreement shall be interpreted in accordance with and governed by the laws of the State of Missouri, without regard for any conflict of law principles.                 IN WITNESS WHEREOF, Executive and the Company have executed this Agreement as of the 27th day of July, 2001.                                                                                     BROWN SHOE COMPANY, INC.                                                                                     By:    /s/ Ronald A. Fromm                                                                                     Name: Ronald A. Fromm                                                                                     Title: Chairman, Chief Executive Officer and President                                                                                       EXECUTIVE                                                                                     By:_/s/ Brian C. Cook__________________________                                                                                             Brian C. Cook     11 -------------------------------------------------------------------------------- Exhibit A RELEASE                 RELEASE (the "Release") dated as of the Retirement Date (as defined in the Consulting Agreement as defined below) by and between Brian C. Cook ("Executive") and Brown Shoe Company, Inc., a New York corporation (the "Company").                 WITNESSETH THAT:                 WHEREAS, the Company and Executive are parties to an Early Retirement and Consulting Agreement dated July 27, 2001 (the "Consulting Agreement"); and                 WHEREAS, the execution of this Release is a condition precedent to, and material inducement to, the Company's obligations under the Consulting Agreement.                 NOW, THEREFORE, the parties hereto agree as follows:                 1. Mutual Promises. The Company undertakes the obligations contained in the Consulting Agreement in exchange for Executive's promises and obligations contained herein.                 2. Release of Claims; Agreement Not to File Suit. a. Executive, for and on behalf of himself and his heirs, beneficiaries, executors, administrators, successors, assigns and anyone claiming through or under any of the foregoing, agrees to, and does, remise, release and forever discharge the Company and its subsidiaries and affiliates, each of their shareholders, directors, officers, employees, agents and representatives, and its successors and assigns (collectively, the "Company Released Persons"), from any and all matters, claims, demands, damages, causes of action, debts, liabilities, controversies, judgments and suits of every kind and nature whatsoever, foreseen or unforeseen, known or unknown, which have arisen or could arise from matters which occurred prior to the date of this Release, which matters include without limitation: (i) the matters covered by this Release or the Consulting Agreement, (ii) Executive's employment and/or termination from employment with the Company, and (iii) any claims which might otherwise arise in the future as a result of arrangements or agreements in effect as of the date of this Release or the continuance of such arrangements and agreements. b. Executive, for and on behalf of himself and his heirs, beneficiaries, executors, administrators, successors, assigns, and anyone claiming through or under any of the foregoing, agrees that he will not file or otherwise submit any charge, claim, complaint, or action to any agency, court, organization, or judicial forum (nor will Executive permit     -------------------------------------------------------------------------------- any person, group of persons, or organization to take such action on his behalf) against any Company Released Person arising out of any actions or non-actions on the part of any Company Released Person arising before the date of this Release. Executive further agrees that in the event that any person or entity should bring such a charge, claim, complaint, or action on his behalf, he hereby waives and forfeits any right to recovery under said claim and will exercise every good faith effort to have such claim dismissed. c. The charges, claims, complaints, matters, demands, damages, and causes of action referenced in Sections 2(a) and 2(b) include, but are not limited to: (i) any breach of an actual or implied contract of employment between Executive and any Company Released Person, (ii) any claim of unjust, wrongful, or tortuous discharge (including any claim of fraud, negligence, retaliation for whistleblowing, or intentional infliction of emotional distress), (iii) any claim of defamation or other common law action, or (iv) any claims of violations arising under the Civil Rights Act of 1964, as amended, 42 U.S.C. §2000e et seq., the Age Discrimination in Employment Act, 29 U.S.C. §621 et seq., the Americans with Disabilities Act of 1990, 42 U.S.C. §12101 et seq., the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. §201 et seq., the Rehabilitation Act of 1973, as amended, 29 U.S.C. §701 et seq., or of the Missouri Human Rights Act, §213.000 R.S. Mo. et seq., the Missouri Service Letter Statute, §209.140 R.S. Mo. or any other relevant federal, state, or local statutes or ordinances, or any claims for pay, vacation pay, insurance, or welfare benefits or any other benefits of employment with any Company Released Person arising from events occurring prior to the date of this Release other than those payments and benefits specifically provided herein. d. This Release shall not affect Executive's right to any governmental benefits payable under any Social Security or Worker's Compensation law now or in the future.                 3. Release of Benefit Claims. Executive, for and on behalf of himself and his heirs, beneficiaries, executors, administrators, successors, assigns and anyone claiming through or under any of the foregoing, further releases and waives any claims for pay, vacation pay, insurance or welfare benefits or any other benefits of employment with any Company Released Person arising from events occurring prior to the date of this Release other than claims to the payments and benefits specifically provided for in the Consulting Agreement.                 4. Revocation Period; Knowing and Voluntary Agreement. a. Executive acknowledges that he has been given a period of at least twenty-one (21) days from the date of receipt of this Release to consider whether or not to accept this Release. Furthermore, Executive may revoke this Release for seven (7) days following its execution. b. Executive represents, declares and agrees that he voluntarily accepts the payments described in the Consulting Agreement for purposes of making a full and final   Page 2 -------------------------------------------------------------------------------- compromise, adjustment and settlement of all potential claims hereinabove described. Executive hereby acknowledges that he has been advised of the opportunity to consult an attorney and that he understands the Release and the effect of signing the Release.                 5. Severability. If any provision of this Release or the application thereof to any person or circumstance shall to any extent be held to be invalid or unenforceable, the remainder of this Release and the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each provision of this Release shall be valid and enforceable to the fullest extent permitted by law.                 6. Headings. The headings in this Release are inserted for convenience of reference only and shall not in any way affect the meaning or interpretation of this Release.                 7. Counterparts. This Release may be executed in one or more identical counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.                 8. Entire Agreement. This Release and Consulting Agreement constitutes the entire agreement of the parties in this matter and shall supersede any other agreement between the parties, oral or written, concerning the same subject matter.                 9. Governing Law. This Release shall be governed by, and construed and enforced in accordance with, the laws of the State of Missouri, without reference to the conflict of laws rules of such State.                 IN WITNESS WHEREOF, Executive and the Company have executed this Release as of the day and year first above written.                                                                                         BROWN SHOE COMPANY, INC.                                                                                         By: __/s/ Ronald A. Fromm______________________                                                                                         Name: Ronald A. Fromm                                                                                         Title: Chairman, Chief Executive Officer and President                                                                                           EXECUTIVE                                                                                         By:    /s/ Brian C. Cook _________________________                                                                                                 Brian C. Cook     Page 3 --------------------------------------------------------------------------------

Exhibit 10.01- Bonus Agreement between Rational Software Corporation and Kevin J. Haar, dated October 5, 2000 RATIONAL SOFTWARE CORPORATION RELOCATION BONUS AGREEMENT   This Relocation Bonus Agreement (the "Agreement") is entered into effective as of October 5, 2000 (the "Effective Date"), by and between Rational Software Corporation, a Delaware corporation (the "Company"), and Kevin J. Haar (the " Employee"). 1. Nature of Employment. The Company agrees to employ Employee as Senior Vice President, Worldwide Field Operations. The Company and Employee agree that Employee's employment with the Company is and shall continue to be "at- will" and may be terminated at any time with or without cause or notice by either the Company or Employee. 2. Terms of Relocation Bonus. (a) Relocation Bonus. Conditioned only upon continued employment with the Company, Employee shall receive a relocation bonus of $1,500,000 (the "Relocation Bonus") plus an amount equal to interest on the outstanding relocation loan, payable in equal parts according to the following schedule: Scheduled Payment Dates Bonus Payment Amount Relocation Loan Interest Amount Total Payment         October 30, 2001 $375,000 $96,650 $471,650 October 30, 2002 $375,000 $67,500 $442,000 October 30, 2003 $375,000 $45,000 $420,000 October 30, 2004 $375,000 $22,500 $397,500 (b) Voluntary Termination: Termination for Cause. If (i) Employee voluntarily terminates his employment with the Company, or (ii) the Company terminates Employee for "Cause", Employee shall not be eligible for any remaining unpaid amounts under the Relocation Bonus Agreement. (c) Involuntary Termination; Other Termination. If the Company terminates Employee's employment without "cause", or if Employee terminates his employment with "good reason", any outstanding bonus payments will be accelerated to the date of termination. In addition, Employee shall not be obligated to repay any portion of the Relocation Loan if Employee's employment terminates by reason of Employee's death or disability. 3. Definition. (a) Cause. For purposes of this Agreement, the term "Cause" shall mean (i) Employee's conviction by, or entry of a plea of guilty or nolo contendere in, a court of competent and final, jurisdiction for any intentional crime which constitutes a felony in the jurisdiction involved; or (ii) Employee's conviction of an act of fraud or misappropriation of material property, subsequent to the date hereof, upon the Company, or any of its respective affiliates. (b) Good reason. For purposes of this Agreement, the term "good reason" for Employee to terminate his employment shall consist of a reduction in base compensation; or any transfer demanded of Employee prior to October 30, 2002 that would necessitate physical relocation of his Massachusetts residence of more than thirty miles. (c) Disability. The inability of the Employee, due to physical or mental impairment to perform the usual and customary duties of his employment. 4. Right to Advice of Counsel. Employee acknowledges that he has had the right to consult with counsel and is fully aware of his rights and obligations under this Agreement. 5. Arbitration and Equitable Relief. (a) Except as provided in Section 5(c) below, the Company and Employee agree that any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof shall be settled by arbitration to be held in Massachusetts in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the "Rules"). The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction. (b) The Company shall pay all costs and expenses of such arbitration. (c) The parties may apply to any court of competent jurisdiction for a temporary restraining order, preliminary injunction or other interim or conservatory relief as necessary, without breach of this arbitration agreement and without abridgment of the powers of the arbitrator. (d) EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION 5, WHICH DISCUSSES ARBITRATION. EMPLOYEE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EMPLOYEE AGREES, EXCEPT AS PROVIDED IN SECTION 5 (c), TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THISAGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH, OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A JURY TRAIL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECETS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP.   RATIONAL SOFTWARE CORPORATION (Company) BY: /s/ Timothy A. Brennan Accepted by: /s/ Kevin J. Haar Kevin J. Haar (Employee) --------------------------------------------------------------------------------

EXHIBIT 10.29 PLEDGE AGREEMENT      THIS PLEDGE AGREEMENT (as amended from time to time, this “Agreement”), dated as of April 6, 2001, is made by Douglas G. Bryant (“Pledgor”), in favor of Network Engines, Inc., a Delaware corporation (“Secured Party”).      In order to induce Secured Party to make the loan contemplated by the promissory note of even date herewith in the amount of $153,068.00 as the same may be amended, replaced, restated or otherwise modified from time to time (the “Note”), Pledgor hereby agrees as follows: ARTICLE 1. THE PLEDGE. Section 1.1. Pledge. Pledgor hereby pledges to Secured Party, and grants to Secured Party a security interest in, the following (the “Pledged Collateral”):      (a) All shares of capital stock of the Company now owned or hereafter acquired by the Debtor and all options and other rights to acquire shares of capital stock of the Company now owned or hereafter acquired by the Debtor (the “Pledged Securities”), and all stock dividends and other property and proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for or upon sale of any or all of the Pledged Securities; and      (b) all additional securities or other consideration from time to time acquired by Pledgor in substitution for or in respect of the Pledged Securities, and the certificates representing such additional securities, and all stock dividends and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such securities. Section 1.2. Security for Obligations. This Agreement secures the payment of all obligations of the Pledgor now or hereafter existing under the Note (all such obligations being the “Obligations”). Section 1.3. Delivery of Pledged Collateral; Sale of Pledged Collateral. All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to Secured Party to be held by Secured Party and shall be in suitable form for transfer by delivery, or such certificates or instruments shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Secured Party. Secured Party shall have the right, at any time following an Event of Default, in its sole discretion and without notice to Pledgor, to sell or to transfer to or to register in the name of Secured Party, or any of Secured Party’s nominees (or to direct the Escrow Agent to sell or to so transfer) any or all of the Pledged Collateral, subject only to the revocable rights specified in Section 4.2(a). Secured Party shall send notice to Pledgor of any such sale, transfer, registration or exchange of the Pledged Collateral promptly after such event. Section 1.4. Continuing Agreement. This Agreement shall create a continuing security interest in the Pledged Collateral and shall remain in full force and effect until payment in full of the Obligations. Upon the payment in full of the Obligations, in cash, Pledgor shall be entitled to the return and re-transfer to him, upon his request, of such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof. Section 1.5. Security Interest Absolute. All rights of Secured Party and security interests hereunder, and all obligations of Pledgor hereunder shall be absolute and unconditional, irrespective of any defenses whatsoever available to the Pledgor. ARTICLE 2. COVENANTS. Section 2.1. Further Assurances. Pledgor agrees that at any time and from time to time, at Pledgor’s expense, Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Secured Party may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or under the Note or to enable Secured Party to exercise and enforce Secured Party’s rights and remedies hereunder or under the Note with respect to any Pledged Collateral. ARTICLE 3. SECURED PARTY. Section 3.1. Attorney-in-Fact. Pledgor hereby irrevocably appoints the Secured Party as the Pledgor’s attorney-in-fact with full power of substitution and with full authority in the place and stead of Pledgor and in the name of Pledgor or otherwise, from time to time in Secured Party’s discretion to take any action and to execute any instrument which Secured Party may reasonably deem necessary or advisable to accomplish the purposes of this Agreement, including without limitation to receive, endorse and collect all instruments made payable to Pledgor representing any dividend, interest payment or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same. Section 3.2. Right To Perform. If Pledgor fails to perform any agreement contained herein, Secured Party may perform, or cause performance of, such agreement. ARTICLE 4. DEFAULT. Section 4.1. Default; Event of Default.      For purposes of this Agreement the terms “Default” and “Event of Default” shall have the following meanings:      (a) “Default” means the occurrence of any event or condition that with the passage of time or giving of notice, or both, would constitute an Event of Default.      (b) The occurrence of any one or more of the following events or conditions shall constitute an “Event of Default” under this Agreement: >      (i) Failure of the Pledgor to make any payment of principal or interest > when due under the Note; > >      (ii) Receipt by the Pledgor of written notice that the Pledgor has > violated the non-competition or confidentiality provisions of any employment > contract, confidentiality and nondisclosure agreement or other agreement > between the Pledgor and the Secured Party; > >      (iii) Breach of or failure in the due observance or performance of any > covenant, condition or agreement on the part of Pledgor to be observed or > performed pursuant to this Agreement or the Note, which such breach or failure > is not cured within 30 days after written notice thereof; >      (iv) if Pledgor becomes insolvent, files or has filed against him or her > a petition under any chapter of the United States Bankruptcy Code, 11 U.S.C. § > 101 et seq. (or any similar petition under any insolvency law of any > jurisdiction), proposes any liquidation, composition or financial > reorganization with his creditors, makes an assignment or trust mortgage for > the benefit of creditors, or if a receiver, trustee, custodian or similar > agent is appointed or takes possession with respect to any property or > business of Pledgor; or > >      (v) if any lien, encumbrance or adverse claim of any nature whatsoever is > asserted with respect to any Shares. Section 4.2. Sale of Pledged Securities; Voting Rights; Dividends; Etc.      (a) So long as no Default or Event of Default shall have occurred which has not been expressly waived: >      (i) Pledgor shall be entitled to sell all or a portion of the Pledged > Securities, provided that, as a condition to the release of the Secured > Party's security interest, 75% of all proceeds from any such sale are promptly > applied to payment of Obligations outstanding under the Note, and Pledgor > agrees to reasonable procedures and safeguards requested by the Secured Party > to facilitate any such application of proceeds; > >      (ii) Pledgor shall be entitled to exercise any and all voting and other > consensual rights pertaining to the Pledged Collateral or any part thereof for > any purpose not inconsistent with the terms of this Agreement or the Note; and > >      (iii) Pledgor shall be entitled to receive and retain any and all cash > dividends paid in respect of the Pledged Collateral.      (b) Upon the occurrence of a Default or Event of Default and thereafter unless expressly waived: >      (i) All rights of Pledgor to sell Pledged Securities which Pledgor would > otherwise be entitled to sell under Section 4.2(a)(i), to exercise the voting > and other consensual rights which Pledgor would otherwise be entitled to > exercise pursuant to Section 4.2.(a)(ii) and to receive the dividends which > Pledgor would otherwise be authorized to receive and retain pursuant to > Section 4.2.(a)(iii) shall cease, and all such rights shall thereupon become > vested in Secured Party, who shall thereupon have the sole right to exercise > such voting and other consensual rights and to receive and hold as Pledged > Collateral such dividends. > >      (ii) All proceeds and dividends which are received by Pledgor contrary to > the provisions of Section 4.2.(b)(i) shall be received in trust for the > benefit of Secured Party, shall be segregated from other funds of Pledgor, and > shall be forthwith paid over to Secured Party as Pledged Collateral in the > same form as so received (with any necessary endorsement). Section 4.3. Remedies Upon Default. If any Event of Default shall have occurred which has not been expressly waived:      (a) Secured Party may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to Secured Party, all the rights and remedies of a secured party on default under the Uniform Commercial Code (the “UCC”) in effect in the Commonwealth of Massachusetts at that time.      (b) Any cash held by Secured Party as Pledged Collateral and all cash proceeds received by Secured Party in respect of any sale of, collection from or other realization upon all or any part of the Pledged Collateral may, in the discretion of Secured Party be held by Secured Party as collateral for, and/or then or at any time thereafter applied in whole or in part by Secured Party against, all or any part of the Obligations in such order as Secured Party shall elect. Any surplus of such cash or cash proceeds held by Secured Party and remaining after payment in full of all the Obligations shall be paid over to Pledgor or to whomsoever may be lawfully entitled to receive such surplus. ARTICLE 5. MISCELLANEOUS. Section 5.1. Amendments, Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by Pledgor herefrom, shall in any event be effective unless the same shall be in writing and signed by Secured Party, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of Secured Party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof or preclude any other or further exercise thereof or the exercise of any other right. The remedies provided herein are cumulative and not exclusive of any remedies provided at law. Section 5.2. Notices. All notices made or required to be made hereunder shall be sent by United States first class or certified or registered mail, with postage prepaid, or delivered by hand to the Pledgor or the Secured Party, as the case may be, at the respective address first written above. Notice by mail shall be deemed to have been made on the date when the notice is deposited in the mail. Section 5.3. Binding Nature. This Agreement shall (a) be binding upon Pledgor, his heirs, executors, personal representatives and assigns, and (b) inure, together with the rights and remedies of Secured Party hereunder, to the benefit of Secured Party’s successors, transferees and assigns. Section 5.4. Governing Law; Terms. This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Massachusetts. Unless otherwise defined herein, terms defined in Article 9 of the Uniform Commercial Code in the Commonwealth of Massachusetts are used herein as therein defined. Section 5.5. Headings for Convenience. The underlined or capitalized captions of this Agreement are for convenience of reference only and shall not be deemed to define or limit the provisions hereof or to affect their construction or application. Section 5.6. Termination. This Agreement shall terminate on the payment in full of the Obligations. [Signature Page to Follow]      IN WITNESS WHEREOF, Pledgor and Secured Party have caused this Agreement to be duly executed and delivered as of the date first above written.   PLEDGOR       /s/ Douglas G. Bryant   --------------------------------------------------------------------------------   Douglas G. Bryant           NETWORK ENGINES, INC.       By: /s/ John H. Curtis   --------------------------------------------------------------------------------   Its: President and Chief Executive Officer

Exhibit 10.17 Executive Director Department of Labor and Employment Division of Workers' Compensation 1515 Arapahoe Street Denver, CO 80202-2117 Surety Bond for Self-Insuring Employers Bond #08167815 KNOW ALL MEN BY THESE PRESENTS: That LABOR READY, INC. of 1016 South 28th Street – Tacoma, WA 98409 asPrincipal,and FIDELITY AND DEPOSIT COMPANY OF MARYLAND of P.O. Box 1227 - Baltimore, MD 21203-1227 as Surety, are held and firmly bound unto the Executive Director, as Obligee, for the use and benefit of claimants entitled to benefits under the Workers' Compensation Act in respect to the employees of said Principal, in the penal sum of FIVE HUNDRED FORTY THOUSAND Dollars ($ 540, 000. 00), for the payment of which, the Principal and the Surety bind themselves respectively, and their respective heirs, administrators, executors, successors and assigns, jointly and severally, by these presents.           WHEREAS, in accordance with the provisions of said Workers' Compensation Act of Colorado, the Principal has elected and applied to be permitted by the Executive Director of Colorado to operate as a self-insurance carrier; and to be issued a Self-Insurance Permit with the block number ________; and,           WHEREAS, In consideration thereof, and in consideration of the acceptance of this bond, the Principal hereby agrees as follows:           To pay compensation according to the terms and provisions of said Act to its employees, or to their dependents when death ensues, and to furnish medical aid pursuant to C.R.S. section 8-42-101, as amended, and to pay funeral expenses, as provided by said Act, and to pay, perform and discharge any lawful award entered in regard to such injured or killed employees, or dependents of deceased employees, and to cover all administrative and other costs incidental to the payment of said compensation benefits under the Colorado Workers' Compensation Act.           And it is further agreed by said Principal and Surety that any lawful award entered against said Principal, shall likewise be accepted as an award against said Surety, and notice to said Principal shall be deemed notice to the Surety.           And it is further agreed by said Principal that said Self-Insurance Permit is accepted subject to authority of the Executive Director to prescribe the rules and regulations, upon which said Permit shall be granted or continued, and subject to the full right and authority of The ExecutiveDirector at any and all times during the life of said Permit prescribe new and additional rules and regulations.           And it is further agreed, that the proceeds of this bond can be used for no other purpose than to pay workers' compensation on behalf of claimants subject to Title 8 Articles 40 to 47 of the Colorado Revised Statutes and cannot be used for compensating employees of the employer not subject to the Colorado Workers' Compensation Act.           And it is further agreed that the Surety will become liable for workers' compensation obligations of the Principal on the date that workers' compensation benefits are suspended and the Surety will begin payment within thirty (30) days after receipt of written notification by the Executive Director to begin payments under the terms of this bond.           And it is further agreed that the liability of the Surety hereunder is limited to the payment of such compensation benefits for and on account of any accident or injury occurring to the employees of said Principal within the term of this bond, beginning with the date of execution, and for which compensation shall at any time be granted by any award or awards under the Workers' Compensation Act of Colorado. And it is particularly understood and agreed that the liability of said Principal for any such award or compensation is not limited to or by the amount of this bond, nor diminished, curtailed, nor lessened by anything herein contained, and it is further understood and agreed that the said Surety shall be liable to the full penal sum herein mentioned for the default of the Principal in fully discharging any liability on the part of the Principal accruing hereunder. The liability herein imposed shall be joint and several as to and between said Principal and Surety, and each and all of them. The word "Surety" when herein used includes plural as well as singular.           NOW, THEREFORE, If said Principal and Surety shall performor cause to be performed, each and every agreement, stipulation, term and covenant herein set forth and to pay or cause to be paid, all awards entered or made under the Workers' Compensation Act of Colorado, as provided by this bond, or under and in accordance with the terms, provisions and limitations of said Act, then this obligation to be null and void, otherwise to remain in full force and effect.           PROVIDED, HOWEVER; (a) This bond shall continue in force until canceled as herein provided; (b) This bond may be canceled by the Surety by sending of notice in writing to the Obligee, stating when, not less than ninety (90) days thereafter, liability hereunder shall terminate. Such cancellation, however, shall not affect any liability incurred or accrued under this bond, prior to the effective date of such cancellation specified in such notice. IN TESTIMONY WHEREOF, Said Principal and Surety have caused this instrument to be duly executed and have hereunto affixed their seals this 28th day of June, A.D. 2000. Attest: Labor Ready Inc.           (Principal) By /s/ Ronald L. Junck Ronald L. Junck, Secretary By /s/ Richard L. King Richard L. King, President and CEO By Fidelity and Deposit Company of Maryland By /s/ Deborah L. Poppe Deborah L. Poppe, Attorney-in-Fact (Seal)

Exhibit 10.15 AMENDED AND RESTATED SECURITY AGREEMENT This Amended and Restated Security Agreement ("Agreement") is made and entered into as of July 12, 2001, by and between E-Loan, Inc., a Delaware corporation ("Company" or "Debtor"), and Christian A. Larsen ("Secured Party"). RECITALS A. Secured Party has previously entered into a Loan Agreement dated April 2, 2001 with the Company, pursuant to which Secured Party agreed to loan or advance to the Company up to a maximum of $7,500,000, which loans or advances would be evidenced by one or more promissory notes (collectively, the "Prior Note"). B. The Company repaid in full all principal and interest owing under the Prior Note and the Prior Note was subsequently canceled. C. The Company and Secured Party have entered into an Amended and Restated Loan Agreement (the "Loan Agreement") dated as of July 12, 2001 which reduces Secured Party's loan commitment to $2,500,000. Under the Loan Agreement each draw down against the $2,500,000 loan commitment, when and if they occur, will be evidenced by a promissory note, in substantially the form attached hereto as Exhibit A (the "Note"). As security for the Company's obligations to Secured Party under the Note and certain other obligations of the Company to Secured Party pursuant to the Loan Agreement, the Company granted to Secured Party a lien against certain of the Company's assets pursuant to a Security Agreement dated April 2, 2001 (the "First Security Agreement"). D. The Company and The Charles Schwab Corporation ("Schwab") are entering into a Note Purchase Agreement dated July 12, 2001 (as the same may be amended from time to time, the "Note Purchase Agreement"), pursuant to which Schwab has agreed to purchase the Company's 8% Convertible Note in the principal amount of $5,000,000 (the "Schwab Note"). As security for the Company's obligations to Schwab under the Schwab Note and certain other obligations of the Company to Schwab pursuant to the Note Purchase Agreement and related agreements, the Company is granting to Schwab a lien against certain of the Company's assets pursuant to a Security Agreement dated July 12, 2001 (the "Schwab Security Agreement"). E. The Company and Secured Party desire to (i) amend the collateral description set forth in the First Security Agreement so that it is identical to the collateral description in the Schwab Security Agreement and Secured Party is thus granted a lien against the same collateral as is being granted to Schwab and (ii) amend the First Security Agreement so that it contemplates the cancellation of the Prior Note and the securing of the Note. TERMS AND CONDITIONS NOW, THEREFORE, the parties hereto agree to amend and restate the First Security Agreement in its entirety as follows: Definitions . Specific Terms . As used in this Agreement, the following terms have the following meanings (such meanings being equally applicable to both the singular and plural forms of the terms defined): "Code" means the Uniform Commercial Code, as in effect from time to time, as the same may from time to time be in effect in the State of California (and each reference in this Agreement to an Article thereof (denoted as a Division of the Code as adopted and in effect in the State of California) shall refer to that Article (or Division, as applicable) as from time to time in effect, which in the case of Article 9 shall include and refer to Revised Article 9 from and after the date Revised Article 9 shall become effective in the State of California); provided, however, in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of Secured Party's security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of California, the term "Code" shall mean the Uniform Commercial Code (including the Articles thereof) as in effect at such time in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions. "Collateral" means all of Debtor's right, title and interest in and to each of the following: All Accounts of Debtor; All Contracts and Chattel Paper of Debtor, including without limitation, Contracts and Chattel Paper, whether in written or electronic form, evidencing both a debt and security interest in motor vehicles; All Commercial Tort Claims of Debtor; the Debtor's Auto Base Account, Account #: [*], and Auto ZBA/Draft Account, Account # [*], held by Bank One, N.A. (collectively, the "Deposit Accounts"); All Documents of Debtor; All Equipment of Debtor; All Fixtures of Debtor; All General Intangibles of Debtor, including, without limitation, all Payment Intangibles and all Intellectual Property; All Instruments of Debtor, including without limitation, Promissory Notes; All Investment Property of Debtor, including the securities accounts identified on Schedule C hereto (the "Securities Accounts"); All Letter of Credit Rights of Debtor; All Supporting Obligations of Debtor; All of Debtor's Books; All other goods and personal property of Debtor (excepting therefrom all deposit accounts of Debtor not set forth under Section 1.1(d) above), wherever located, whether tangible or intangible, and whether now owned or hereafter acquired, existing, leased or consigned by or to Debtor; and a. All proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any or all of the Collateral, and any and all accounts, general intangibles, negotiable collateral, money, deposit accounts (excepting therefrom all deposit accounts of Debtor not set forth under Section 1.1(d) above), or other tangible or intangible property resulting form the sale, exchange, collection or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof. PROVIDED, HOWEVER, that the Collateral shall not in any event include property included in the "Collateral" described in the Warehouse Credit Agreement dated as of June 24, 1998, as amended, among Cooper River Funding Inc., GE Capital Mortgage Services, Inc. and Debtor, or the property included in the "Collateral" described in the Master Loan and Security Agreement dated as of May 20, 1999 between Greenwich Capital Mortgage Services, Inc. and Debtor. "Contracts" means all contracts (including any customer, vendor, supplier, service or maintenance contract), leases, licenses, undertakings, purchase orders, permits, franchise agreements, conditional or installment sales contracts, and other agreements, including, without limitation, instruments or documents arising from the financing of the purchase of motor vehicles evidencing both a debt and security interest in such motor vehicles, whether in written or electronic form, in or under which Secured Party now holds or hereafter acquires any right, title or interest. "Debtor's Books" means all of the Debtor's books and records including: ledgers; records indicating, summarizing, or evidencing the Debtor's properties or assets (including the Collateral) or liabilities; all information relating to the Debtor's business operations or financial condition; and all computer programs, disk or tape files, printouts, runs, or other computer prepared information. "Event of Default" means (a) an Event of Default under the Note, (b) any breach by Debtor of any warranty, representation, or covenant of this Agreement, (c) the commencement of any case, proceeding or other action relating to Debtor in bankruptcy or seeking any relief under any bankruptcy, insolvency, reorganization, liquidation, dissolution or other similar act or law of any jurisdiction, or the making of a general assignment for the benefit of creditors by Debtor or the admission by Debtor in writing of his inability to pay his debts generally as they become due, or (d) the commencement against Debtor of any case, proceeding or other action in bankruptcy or other similar act or law of any jurisdiction, which involuntary case or proceeding shall remain unstayed for a period of thirty (30) days. "Intellectual Property" means any intellectual property, in any medium, of any kind or nature whatsoever, now or hereafter owned or acquired or received by Debtor or in which Debtor now holds or hereafter acquires or receives any right or interest, and shall include, in any event, any Trademark, trade secret, customer list, internet domain name (including any right related to the registration thereof), proprietary or confidential information, mask work, source, object or other programming code, invention (whether or not patented or patentable), technical information, procedure, design, knowledge, know-how, software, data base, data, skill, expertise, recipe, experience, process, model, drawing, material or record. "Lien" means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance. "Permitted Lien" means: (a) any Liens existing on the date of this Agreement and set forth on Schedule A attached hereto; (b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings, provided the same have no priority over any of Secured Party's security interests; and (c) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of setoff or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution. "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature. "Revised Article 9" has the meaning set forth in Section 4. "Senior Indebtedness" means any sums due, owing or payable under, as a result of, or with respect to any warehouse, revolving or general lines of credit, regardless of the amount(s) or terms thereof, whether such credit facilities are now existing or are hereafter obtained by Debtor, for use primarily to fund, on a short-term or temporary basis, mortgage loans, automobile purchase and lease contracts, and other conditional or installment sale contracts or similar loan transactions, including, without limitation, the credit facilities provided to Debtor by Greenwich Capital Financial Products, Inc., GE Capital Mortgage Services, Inc., as security for Cooper River Funding Inc., and Bank One, NA, and any and all extensions, renewals, amendments and modifications thereto and replacements thereof. "Trademarks" means any of the following in which Debtor now holds or hereafter acquires any interest: (a) any trademarks, trade names, corporate names, company names, business names, trade styles, services marks, logos other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof and any applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof of any other country (collectively, the "Marks"); (b) any reissues, extensions or renewals thereof; (c) the goodwill of the business symbolized by or associated with the Marks; (d) income, royalties, damages, claims and payments now and hereafter due and/or payable with respect to the Marks, including, without limitation, damages, claims and recoveries for past, present or future infringement; and (e) rights to sue for past, present and future infringements of the Marks. In addition, the following terms shall be defined terms having the meaning set forth for such terms in the Code: "Account" (including health-care-insurance receivables), "Account Debtor," "Chattel Paper" (including tangible and electronic chattel paper), "Commercial Tort Claims," "Documents," "Equipment" (including all accessions and additions thereto), "Fixtures," "General Intangible" (including payment intangibles and software), "Instrument," "Investment Property" (including securities and securities entitlements), "Letter-of-Credit Right" (whether or not the letter of credit is evidenced by a writing), "Payment Intangibles," "Promissory Notes," and "Supporting Obligations." Each of the foregoing defined terms shall include all of such items now owned, or hereafter acquired, by Debtor. Other Definitional Provisions . All capitalized terms not otherwise defined in this Agreement shall have the same meanings as defined in the Code. The words "hereof" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section, subsection, schedule and exhibit references are to this Agreement unless otherwise specified. Attachment of Security Interest. Debtor hereby grants and assigns to Secured Party a security interest (the "Security Interest") in and to the Collateral to secure payment by Debtor of the Note. In addition, the Security Interest hereby created shall attach immediately upon execution of this Agreement by Debtor and shall secure (a) any and all amendments, extensions, renewals of the Note; (b) strict performance and observance of all agreements, warranties and covenants contained in the Note and this Agreement; and (c) the repayment of all monies expended by Secured Party under the provisions hereof, with interest thereon from the date of expenditure at the highest lawful rate. Subordination of Security Interest . The Security Interest granted by Debtor to the Secured Party pursuant to this Agreement shall be subject, junior and subordinate to the Senior Indebtedness. At the request of Debtor, Secured Party agrees to promptly execute and deliver at any time and from time to time, as requested by the holders of the Senior Indebtedness, subordination agreements, on forms requested by the holder(s) of the Senior Indebtedness, and other evidence or agreements ratifying, confirming and/or consenting to the subordination of the Secured Party's Security Interest to the Lien(s) in favor of the holder(s) of the Senior Indebtedness. Revised Article 9 . The parties acknowledge that revised Article 9 of the Uniform Commercial Code in the form approved by the American Law Institute and the National Conference of Commissioners on Uniform State Law and contained in the 1999 official text of Revised Article 9 ("Revised Article 9") has been adopted in the State of California and elsewhere and hereby agree to the following provisions of this Agreement in anticipation of the possible application thereof, in one or more jurisdictions, to the transactions contemplated hereby. Revised Article of Collateral . In applying the law of any jurisdiction in which Revised Article 9 is in effect, the Collateral is all assets of Debtor included in the definition of "Collateral" in Section 1, whether or not within the scope of Revised Article 9. Continuation Statements . Secured Party may at any time and from time to time file financing statements, continuation statements (including "in lieu" financing statements) and amendments thereto that describe the Collateral and which contain any other information required by Part 5 of Revised Article 9 for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment, including whether Debtor is an organization, the type of organization and any organization identification number issued to Debtor. Debtor agrees to furnish any such information to Secured Party promptly upon request. Any such financing statements, continuation statements or amendments may be signed by Secured Party on behalf of Debtor and may be filed at any time in any jurisdiction whether or not Revised Article 9 is then in effect in that jurisdiction. Cooperation . Debtor shall at any time and from time to time, whether or not Revised Article 9 is in effect in any particular jurisdiction, take such steps as Secured Party may reasonably request (i) to obtain an acknowledgment, in form and substance reasonably satisfactory to Secured Party, of any bailee having possession of any of the Collateral that the bailee holds such Collateral for Secured Party, (ii) for Secured Party to obtain "control" of any investment property, letter-of-credit rights or electronic chattel paper (as such terms are defined in Revised Article 9 with corresponding provisions in Rev. 9-104, 9-105, 9-106 and 9-107 relating to what constitutes "control" for such items of Collateral), with any agreements establishing control to be in form and substance reasonably satisfactory to Secured Party, and (iii) otherwise to insure the continued perfection and priority of Secured Party's security interest in any of the Collateral and of the preservation of its rights therein, whether in anticipation of or following the effectiveness of Revised Article 9 in any jurisdiction. No Impairment . Nothing contained in this Section 4 shall be construed to narrow the scope of Secured Party's security interest in any of the Collateral or the perfection or priority thereof or to impair or otherwise limit any of the rights, powers, privileges or remedies of Secured Party hereunder except (and then only to the extent) mandated by Revised Article 9 to the extent then applicable. Obligations of Secured Party; Collection of Accounts. Obligations of Secured Party . Secured Party shall have no obligation or liability under any Contract by reason of or arising out of this Agreement or the granting to Secured Party of a lien therein or the receipt by Secured Party of any payment relating to any Contract pursuant hereto, nor shall Secured Party be required or obligated in any manner to perform or fulfill any of the obligations of Debtor under or pursuant to any Contract, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any Contract, or to present or file any claim, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. Collection of Accounts . Secured Party authorizes Debtor to collect its Accounts, provided that such collection is performed in a prudent and businesslike manner, and Secured Party may, upon the occurrence and during the continuation of any Event of Default and without notice, limit or terminate said authority at any time. Upon the occurrence and during the continuance of any Event of Default, at the request of Secured Party, Debtor shall deliver all original and other documents evidencing and relating to the performance of labor or service which created such Accounts, including, without limitation, all original orders, invoices and shipping receipts. Notification of Third Parties . Secured Party may at any time, upon the occurrence and during the continuance of any Event of Default, without notifying Debtor of its intention to do so, notify Account Debtors of Debtor, parties to the Contracts of Debtor, obligors in respect of Instruments of Debtor and obligors in respect of Chattel Paper of Debtor that the Accounts and the right, title and interest of Debtor in and under such Contracts, Instruments and Chattel Paper have been assigned to Secured Party and that payments shall be made directly to Secured Party. Upon the request of Secured Party, Debtor shall so notify such Account Debtors, parties to such Contracts, obligors in respect of such Instruments and obligors in respect of such Chattel Paper. Upon the occurrence and during the continuance of any Event of Default, Secured Party may, in its name or in the name of others, communicate with such Account Debtors, parties to such Contracts, obligors in respect of such Instruments and obligors in respect of such Chattel Paper to verify with such parties, to Secured Party's satisfaction, the existence, amount and terms of any such Accounts, Contracts, Instruments or Chattel Paper. Debtor agrees that it will hold in trust for the Secured Party, as the Secured Party trustee, any collections that it receives with respect to any such Accounts, Contracts, Instruments or Chattel Paper and immediately will deliver said collections to the Secured Party in their original form as received by Debtor. Representations and Warranties. Debtor hereby represents and warrants to Secured Party that: Organization; Good Standing, etc . Debtor is a corporation, validly existing under the laws of the State of Delaware. Debtor has the requisite power and all necessary governmental authority to conduct its business as currently being conducted. Debtor's taxpayer identification number is, and chief executive office, principal place of business, and the place where Debtor maintains its records concerning the Collateral are set forth on the signature page hereof. Ownership of Collateral . Except for the security interest granted to Secured Party under this Agreement and Permitted Liens, Debtor is the sole legal and equitable owner or, has the power to transfer each item of the Collateral in which it purports to grant a security interest hereunder. Priority . No effective Agreement, financing statement, equivalent security or lien instrument or continuation statement covering all or any part of the Collateral exists, except such as may have been filed by Debtor in favor of Secured Party pursuant to this Agreement, except for Permitted Liens. Perfected Security Interest . This Agreement creates a legal and valid security interest on and in all of the Collateral in which Debtor now has rights and all filings and other actions necessary or desirable to perfect and protect such security interest will be duly taken. Accordingly, Debtor will undertake all necessary action required by it to create a fully perfected security interest for the benefit of Secured Party in all of the Collateral in which Debtor now has rights subject only to Permitted Liens. This Agreement will create a legal and valid and fully perfected security interest in the Collateral in which Debtor later acquires rights, when Debtor acquires those rights subject only to Permitted Liens and additional filings to be made by Secured Party as are necessary to perfect Secured Party's security interest in subsequent ownership rights. Location of Principal Place of Business and Records . Debtor's principal place of business and the place where Debtor maintains his records concerning the Collateral are set forth on the signature page hereof. Debtor shall not change his legal residence or remove or cause to be removed, the records concerning the Collateral from those premises without prior written notice to Secured Party. Location of Collateral . The Collateral, other than Deposit Accounts and motor vehicles and other mobile goods of the type contemplated in Section 9103(3)(a) of the Code, is presently located at such address and at such additional addresses set forth on Schedule B attached hereto. Account Information . The name and address of each depository institution at which Debtor maintains any Securities Account consisting of a portion of the Collateral and the account number and account name of each such Securities Account is listed on Schedule C attached hereto. Debtor agrees to amend Schedule C from time to time within five (5) business days after opening any additional Securities Account or closing or changing the account name or number on any existing Securities Account. Ownership of Securities . Debtor is the sole holder of record and the sole beneficial owner of all certificated securities and uncertificated securities pledged to Secured Party by Debtor under Section 2 of this Agreement, free and clear of any adverse claim, as defined in Section 8102(a)(1) of the Code, except for the Lien created in favor of Secured Party by this Agreement. Compliance with Securities Laws . None of the Investment Property of Debtor has been transferred in violation of the securities registration, securities disclosure or similar laws of any jurisdiction to which such transfer may be subject. Description of Intellectual Property . All Trademarks, patents, copyrights and other Intellectual Property now owned, held or in which Debtor otherwise has any interest are listed on Schedule D attached hereto. Debtor shall amend Schedule D from time to time within twenty (20) business days after the filing of any application for a patent, Trademark or copyright or the issuance of any patent or registration of any Trademark or copyright to reflect any additions to or deletions from this list. Except as set forth on Schedule D, none of the patents, Trademarks or copyrights has been licensed to any third party. Affirmative Covenants of Debtor . So long as any sums are due Secured Party under the Note or this Agreement, Debtor hereby covenants and agrees as follows: Disposition of Collateral . Other than in the ordinary course of business, Debtor shall not sell, lease, transfer or otherwise dispose of any of the Collateral, or attempt or contract to do so. Change of Jurisdiction of Organization, Relocation of Business or Collateral . Debtor shall not change its jurisdiction of organization, relocate its chief executive office, principal place of business or its records, or allow the relocation of any Collateral (except as allowed pursuant to Section 7.1 immediately above) from such address(es) provided to the Secured Party pursuant to Section 6 above without thirty (30) days prior written notice to the Secured Party. Corporate Existence, Etc. At all times to preserve and keep in full force and effect its corporate existence and rights and franchises material to its business. Limitation on Liens on Collateral . Debtor shall not, directly or indirectly, create, permit or suffer to exist, and shall defend the Collateral against and take such other action as is necessary to remove, any Lien on the Collateral, except (a) Permitted Liens and (b) the Lien granted to the Secured Party under this Agreement. Debtor shall further defend the right, title and interest of the Secured Party in and to any of Debtor's rights under the Chattel Paper, Contracts, Documents, General Intangibles, Instruments and Investment Property and to the Equipment and Fixtures and in and to the Proceeds thereof against the claims and demands of all persons whomsoever. Insurance . To maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by corporations of established reputation engaged in the same or similar businesses and similarly situated, of such types and in such amounts as are customarily carried under similar circumstances by such other corporations. Every policy of insurance referred to in this Section shall contain an agreement by the insurer that it will not cancel such policy except after 30 days' prior written notice to Secured Party. Inspection . To permit any authorized representatives designated by the Secured Party to visit and inspect any of the properties of the Debtor and Debtor's Books, and to make copies and take extracts therefrom, and to discuss Debtor's affairs, finances and accounts with its officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested. Compliance with Laws, Etc. To exercise due diligence in order to comply with the requirements of all applicable laws, rules, regulations and orders of any governmental authority, noncompliance with which would materially and adversely affect the business, properties, assets, operations or condition (financial or otherwise) of Debtor. Notice of Default under Senior Indebtedness . Debtor shall promptly deliver to Secured Party any written notice which it receives from any holder(s) of the Senior Indebtedness of any claim of breach or default under the Senior Indebtedness or of any event or occurrence which with notice or the passage of time, or both, constitutes or may constitute a breach or default under the Senior Indebtedness. Attachment of Collateral; Litigation . Debtor shall immediately notify Secured Party of any attachment or other legal process levied against the Collateral and the commencement, or threatened commencement, of any legal action against Debtor and/or the Collateral. Consents and Approvals . At Debtor's expense and Secured Party's request, before or after an Event of Default, Debtor shall file or cause to be filed such applications and take such other actions as Secured Party may request to obtain the consent or approval of any governmental authority to Secured Party's rights, remedies, powers, privileges and benefits hereunder, including, without limitation, the right to sell all the Collateral upon an Event of Default without additional consent or approval from such governmental authority (and, because Debtor agrees that Secured Party's remedies at law for failure of Debtor to comply with this provision would be inadequate and that such failure would not be adequately compensable in damages, Debtor agrees that its covenants in this provision may be specifically enforced). Taxes, Assessments, Etc. Debtor shall pay promptly when due all property and other taxes, assessments and government charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, any item of Collateral, except to the extent the validity thereof is being contested in good faith and adequate reserves are being maintained in connection therewith. Maintenance of Records . Debtor shall keep and maintain at his own cost and expense satisfactory and complete records of the Collateral. Further Assurances; Pledge of Instruments . At any time and from time to time, upon the written request of Secured Party, and at the sole expense of Debtor, Debtor shall promptly and duly execute and deliver any and all such further instruments and documents and take such further action as Secured Party may reasonably deem necessary or desirable to obtain the full benefits of this Agreement. Debtor also hereby authorizes Secured Party to file any such financing or continuation statement (including "in lieu" continuation statements) without the signature of Debtor. If any amount payable under or in connection with any of the Collateral is or shall become evidenced by any Instrument, such Instrument, other than checks and notes received in the ordinary course of business, shall be duly endorsed in a manner reasonably satisfactory to Secured Party and delivered to Secured Party promptly and in any event within five (5) business days of Debtor's receipt thereof; provided until an Event of Default shall have occurred and be continuing, Debtor shall have no obligation to endorse and deliver to secured party any instruments arising out of or related to Debtor's auto loan activities. Notification Regarding Changes in Intellectual Property . Debtor shall promptly advise Secured Party of any subsequent ownership right or interest of the Debtor in or to any item of Intellectual Property not specified on Schedule D hereto, and any subsequent changes to Debtor's ownership right or interest in any item of Intellectual Property specified on Schedule D hereto, and shall amend such Schedule, as necessary, to reflect any addition, deletion or other change to such ownership rights. Defense of Intellectual Property . Debtor shall (i) protect, defend and maintain the validity and enforceability of the copyrights, patents and Trademarks, (ii) use its reasonable best efforts to detect infringements of the copyrights, patents and Trademarks and promptly advise Secured Party in writing of material infringements detected and (iii) not allow any copyrights, patents or Trademarks to be abandoned, forfeited or dedicated to the public without the written consent of Secured Party. Remedies in Favor of Secured Parties . Upon the occurrence of an Event of Default, the Secured Party shall have the following rights and remedies: Rights . The Secured Party shall have all rights and remedies afforded a secured party by the chapter on "Default" of Division 9 of the Code, in addition to the rights and remedies provided in this Agreement, the Note or otherwise permitted by law. Without limiting the generality of the foregoing, Debtor expressly agrees that in any such event Secured Party, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon Debtor or any other person (all and each of which demands, advertisements and notices are hereby expressly waived to the maximum extent permitted by the Code and other applicable law), may (i) reclaim, take possession, recover, store, maintain, finish, repair, prepare for sale or lease, shop, advertise for sale or lease and sell or lease (in the manner provided herein) the Collateral, and in connection with the liquidation of the Collateral and collection of the accounts receivable pledged as Collateral, use any Trademark, copyright or process used or owned by Debtor and (ii) forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, lease, assign, give an option or options to purchase or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange or broker's board or at any of Secured Party offices or elsewhere at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. To the extent Debtor has the right to do so, Debtor authorizes Secured Party, on the terms set forth in this Section 8 to enter the premises where the Collateral is located, to take possession of the Collateral, or any part of it, and to pay, purchase, contact, or compromise any encumbrance, charge, or lien which, in the opinion of Secured Party, appears to be prior or superior to its security interest. Secured Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of said Collateral so sold, free of any right or equity of redemption, which equity of redemption Debtor hereby releases. Debtor further agrees, at Secured Party's request, to assemble his Collateral and make it available to Secured Party at places which Secured Party shall reasonably select, whether at Debtor's premises or elsewhere. To the maximum extent permitted by applicable law, Debtor waives all claims, damages, and demands against Secured Party arising out of the repossession, retention or sale of the Collateral. Debtor agrees that Secured Party need not give more than ten (10) days' notice of the time and place of any public sale or of the time after which a private sale may take place and that such notice is reasonable notification of such matters. Remedies Cumulative . The rights and remedies of the Secured Party under this Agreement shall be cumulative. The Secured Party shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Secured Party of one right or remedy shall be deemed an election, and no waiver by Secured Party of any Event of Default shall be deemed a continuing waiver. No delay by the Secured Party shall constitute a waiver, election, or acquiescence by it. Disposition of Collateral . Secured Party shall apply the proceeds of any sale or other disposition of the Collateral under this Section 8 in the following order: first, to the payment of all its expenses incurred in retaking, holding, and preparing any of the Collateral for sale or other disposition, in arranging for such sale or other disposition, and in actually selling or disposing of the same (all of which are part of the obligations secured by this Agreement); second, toward repayment of amounts expended by Secured Party under Section 7; third, toward payment of the balance of the obligations secured by this Agreement in such order and manner as Secured Party, in its discretion, may deem advisable, or as a court of competent jurisdiction may direct, fourth, to Debtor. If the proceeds are insufficient to pay the obligations secured by this Agreement in full, Debtor shall remain liable for any deficiency, Debtor also being liable for the attorney costs of any attorneys employed by Secured Party to collect such deficiency. The Collateral may be sold, transferred or otherwise disposed of by Debtor in the ordinary course of business for a fair consideration and upon commercial credit terms. Financing Statement . Debtor shall sign and execute alone or with the Secured Party any financing statements, notices or other document or procure any document reasonably requested by the Secured Party in order to create, perfect or continue the security interest created by this Agreement. Waiver of Demand, Etc. Debtor hereby expressly waives demand, presentment, protest and notice of protest and notice of dishonor with respect to any and all instruments and commercial paper, included in or evidencing any of the obligations, and any and all other demands and notices of any kind or nature whatsoever with respect to the obligations and this Agreement, except such as are expressly provided for herein. No notice to or demand on Debtor which the Secured Party may elect to give shall entitle Debtor to any other or further notice or demand in the same, similar or other circumstances. Indemnification . Debtor hereby assumes all liability for the Collateral, for the Security Interest, and for any use, possession, maintenance, and management of, all or any of the Collateral, including, without limitation, any taxes arising as a result of, or in connection with, the transactions contemplated herein, and agrees to assume liability for, and to indemnify and hold Secured Party harmless from and against, any and all claims, causes of action, or liability, for injuries to or deaths of persons and damage to property, howsoever arising from or incident to such use, possession, maintenance, and management, whether such persons be agents or employees of Debtor or of third parties, or such damage be to property of Debtor or of others. Debtor agrees to indemnify, save, and hold Secured Party harmless from and against, and covenants to defend Secured Party against, any and all losses, damages, claims, costs, penalties, liabilities, and expenses, including, without limitation, court costs and reasonable attorneys' fees, howsoever arising or incurred because of, incident to, or with respect to Collateral or any use, possession, maintenance, or management thereof (a " Claim "). In the event that any Claim is brought against Secured Party, Secured Party agrees to give prompt written notice to Debtor with respect to same, together with a copy of such claim, and so long as no Event of Default shall have occurred and be continuing, Debtor shall have the right in good faith and by appropriate proceedings to defend Secured Party against such Claim and employ counsel acceptable to Secured Party to conduct such defense (at Debtor's sole expense) so long as such defense shall not involve any danger of the foreclosure, sale, forfeiture or loss, or imposition of any Lien, other than a Permitted Lien, on any part of the Collateral, or subject Secured Party to criminal liability. Should Debtor elect to engage its own counsel acceptable to Secured Party, Secured Party may continue to participate in the defense of any such claim and will retain the right to settle any such matter on terms and conditions satisfactory to Secured Party and Debtor. All such settlements shall be paid by and remain the sole responsibility of Debtor. In the event Debtor does not accept the defense of the Claim as provided above, Secured Party shall have the right to defend against such Claim, in its sole discretion, and pursue its rights hereunder. Reinstatement . This Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Debtor for liquidation or reorganization, should Debtor become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of Debtor's property and assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the obligations secured hereby, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the obligations secured hereby, whether as a "voidable preference," "fraudulent conveyance," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the obligations secured hereby shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. Termination of this Agreement . Subject to Section 12 hereof, this Agreement shall terminate upon the payment and performance in full of all of the obligations secured hereby. Notices . All notices or other written communications required or permitted to be given by Agreement shall be deemed given if personally delivered or five (5) days after it has been sent (the date of posting shall be considered as the first day and there shall be excluded any Sundays, legal holidays or other days upon which the United States mail generally is not delivered) by United States registered or certified mail, postage prepaid, properly addressed to the party to receive the notice at the following address or any other address given to the other party in the manner provided by this Section 14: If to Secured Party: Christian Larsen c/o E-Loan, Inc. 5875 Arnold Road, Suite 100 Dublin, California 94568 San Francisco, California     If to the Debtor: E-Loan, Inc. 5875 Arnold Road, Suite 100 Dublin, California 94568 Attention: Joseph J. Kennedy With a copy to: Allen Matkins Leck Gamble & Mallory, LLP 333 Bush Street, Suite 1700 San Francisco, California 94104 Attention: Roger S. Mertz, Esq. Severability . If any provision of this Agreement is determined to be invalid or unenforceable, the provision shall be deemed to be severable from the remainder of this Agreement and shall not cause the invalidity or unenforceability of the remainder of this Agreement. Attorneys' Fees and Litigation Costs . If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any provision of this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and other costs incurred in that action or proceeding, in addition to any other relief to which it may be entitled. Governing Law . This Agreement shall be governed by, interpreted under, and construed and enforced in accordance with the internal laws, and not the laws pertaining to conflicts or choice of laws, of the State of California applicable to agreements made and to be performed wholly within the State of California. Captions . The captions of the sections and subsections of this Agreement are included for reference purposes only and are not intended to be a part of the Agreement or in any way to define, limit or describe the scope or intent of the particular provision to which they refer. 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. Entire Agreement; Amendment . This Agreement contains the entire understanding between the parties with respect to the subject matter hereof and supersedes any and all prior and contemporaneous written or oral negotiations and agreements between them regarding the subject matter hereof. This Agreement may be amended only in a writing signed by both of the parties. Successor and Assigns . This Agreement and all obligations of Debtor hereunder shall be binding upon the successors and assigns of Debtor, and shall, together with the rights and remedies of Secured Party hereunder, inure to the benefit of Secured Party, any future holder of any of the obligations secured hereby and their respective successors and assigns. No sales of     [Remainder of page intentionally left blank] participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the obligations secured hereby or any portion thereof or interest therein shall in any manner affect the lien granted to Secured Party hereunder. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above mentioned. "COMPANY" or "DEBTOR" E-Loan, Inc., a Delaware corporation By: /s/ Joseph J. Kennedy Joseph J. Kennedy, President and Chief Operating Officer ADDRESS OF DEBTOR 5875 Arnold Road, Suite 100 Dublin, California 94568 "SECURED PARTY"   /s/ Christian A. Larsen CHRISTIAN A. LARSEN TAXPAYER IDENTIFICATION NUMBER OF DEBTOR 77-0460084   -------------------------------------------------------------------------------- Schedule A Liens Existing On The Date Of This Security Agreement 1. A lien in favor of GE Capital Mortgage Services, Inc. ("GECMSI") pursuant to a Warehouse Credit Agreement between Cooper River Funding Inc., GECMSI and E-LOAN, Inc. (the "Company") dated as of June 24, 1998, as amended, for the financing of the Company's origination and sale of certain mortgage loans (the "GECMSI Credit Agreement"). To secure certain obligations of Cooper River Funding Inc. to General Electric Capital Corporation ("GECC"), GECMSI has pledged its interest as Security Agent to GECC, as reflected on UCC-1 Financing Statements filed with the California Secretary of State. The obligations of the Company under the GECMSI Credit Agreement are secured by a lien on the certain mortgage loans and other personal property as set forth in the GECMSI Credit Agreement. 2. A lien in favor of Greenwich Capital Financial Products, Inc. ("Greenwich") pursuant to a Master Loan and Security Agreement between Greenwich and the Company dated as of May 20, 1999, as amended, for the financing of the Company's origination and sale of certain mortgage loans (the "Greenwich Credit Agreement"). The obligations of the Company under the Greenwich Credit Agreement are secured by a lien on the mortgage-related property as set forth in the Greenwich Credit Agreement. 3. A lien in favor of Bank One, NA ("Bank One") pursuant to a Master Loan and Security Agreement between Bank One and the Company dated as of April 2, 2001 for the financing of the Company's funding of direct auto loans (the "Bank One Credit Agreement"). The obligations of the Company under the Bank One Credit Agreement are secured by a lien on all Vehicle Chattel Paper and certain other personal property of the Company. 4. A lien in favor of AmeriCredit Financial Services, Inc. ("AmeriCredit") pursuant to an Auto Loan Purchase and Sale Agreement between AmeriCredit and the Company dated as of June 5, 2000, as amended. 5. A lien in favor of Christian A. Larsen ("Larsen") pursuant to a Security Agreement between Larsen and the Company entered into as of the date of this Security Agreement. 6. A lien in favor of The Charles Schwab Corporation ("Schwab") pursuant to a Security Agreement between Schwab and the Company entered into as of the date of this Security Agreement. 7. Liens arising from equipment leases between various lessors and the Company. -------------------------------------------------------------------------------- Schedule B Location of Collateral Entity Address E-LOAN, Inc. 5875 Arnold Road Dublin, CA 94568 E-LOAN, Inc. 3563 - 501 Phillips Highway Jacksonville, FL 32207 -------------------------------------------------------------------------------- Schedule C SECURITIES ACCOUNTS (Including Type of Account, Account Name, Account Number and Name of Institution/Intermediary) The securities accounts are as follows: Bank One Liquidity Management Account Account #: [*] -------------------------------------------------------------------------------- Schedule D INTELLECTUAL PROPERTY The Intellectual Property of the Company is as follows: E-LOAN, Inc. Trademarks Country Name Trademark Name Class File Date Appl Number Reg Date Reg Number Status Argentina E-LOAN 36 11-Aug-99 2.234.033 Filed Australia Austria E-LOAN ELOAN 36 936 08-Feb-99 784887 Filed Filed Benelux ELOAN 93642 26-Nov-98 200196 Filed Brazil E-LOAN 36(10;20;70) 12-Feb-99 821.409.301 Published Canada E-LOAN 36 10-Feb-99 1004826 Filed Czech Republic E-LOAN 36 12-Feb-99 140073 12-Feb-99 224 149 Registered Denmark ELOAN 936 Filed Fed. Republic of Germany ELOAN 936 26-Nov-98 30116007.4. Filed Hungary E-LOAN 36 08-Feb-99 M99 00567 22-Dec-99 159331 Registered India E-LOAN 16 16-Aug-99 871424 Filed Italy ELOAN 936 Filed Japan E-LOAN 36 08-Feb-99 010704/1999 16-Feb-01 4454085 Registered Korea (South) ELOAN 36 22-Mar-00 2000-0007985 Filed Mexico E-LOAN 36 11-Feb-99 363367 19-May-99 609626 Registered Poland E-LOAN 36 12-Feb-99 Z-197777 Filed South Africa E-LOAN 36 08-Feb-99 9901920 Filed Spain ELOAN 936 26-Nov-98 2384272 Filed Switzerland E-LOAN 36 08-Feb-99 01089/1999 08-Feb-99 463.788 Registered Taiwan E-LOAN 36 06-Feb-99 88005454 Filed United States of America E-LOAN EXPRESS 36 06-May-98 75/480,352 Allowed United States of America MY E-LOAN 36 23-Aug-99 75/782,810 Published   E-LOAN, Inc. Domain Names Argentina (ar) eloan.com.ar Argentina (ar) e-loan.com.ar Australia (au) eloan.com.au Australia (au) e-loan.com.au Austria (at) Eloan.at Austria (at) E-loan.at Austria (at) Eloan.co.at* Austria (at) E-loan.co.at Austria (at) eloaneurope.at Austria (at) e-loaneurope.at Austria (at) mortgage.at Austria (at) mortgage.co.at Belgium (be) eloan.be Belgium (be) e-loan.be Brazil (br) eloan.com.br Brazil (br) e-loan.com.br Canada (ca) e-loan.ca Denmark (dk) eloan.dk Denmark (dk) e-loan.dk Denmark (dk) eloaneurope.dk Denmark (dk) e-loaneurope.dk Denmark (dk) mortgage.dk France (fr) eloan.fr Germany (de) eloan.de Germany (de) e-loan.de Germany (de) eloaneurope.de Germany (de) e-loaneurope.de Israel (il) eloan.co.il Israel (il) e-loan.co.il Italy (it) eloan.it Italy (it) e-loan.it Italy (it) eloaneurope.it Italy (it) e-loaneurope.it Japan (jp) eloan.co.jp Liechtenstein (li) eloan.li Liechtenstein (li) e-loan.li Liechtenstein (li) mortgage.li Lithuania (lt) e-loan.lt Luxembourg (lu) eloan.lu Luxembourg (lu) e-loan.lu Luxembourg (lu) eloaneurope.lu Luxembourg (lu) e-loaneurope.lu Luxembourg (lu) mortgage.lu Mexico (mx) e-loan.com.mx Netherlands (nl) eloan.nl Netherlands (nl) e-loan.nl New Zealand (nz) eloaninc.co.nz New Zealand (nz) e-loans.co.nz New Zealand (nz) eloannz.co.nz New Zealand (nz) kiwi-eloan.co.nz New Zealand (nz) nz-eloan.co.nz Poland (pl) eloan.pl Poland (pl) e-loan.pl Poland (pl) mortgage.pl Romania (ro) eloan.ro Romania (ro) e-loan.ro Russia (ru) eloan.ru Russia (ru) e-loan.ru South Africa (za) eloan.co.za South Africa (za) e-loan.co.za Spain (es) eloan.es Switzerland (ch) eloan.ch Switzerland (ch) e-loan.ch Switzerland (ch) mortgage.ch Turkey (tr) eloan.com.tr Turkey (tr) e-loan.com.tr United Kingdom (uk) eloanlimited.co.uk United Kingdom (uk) e-loanlimited.co.uk United Kingdom (uk) eloanltd.co.uk United Kingdom (uk) e-loanltd.co.uk *GENERIC* carfinance.com *GENERIC* digital-united.com *GENERIC* digital-united.net *GENERIC* digital-united.org *GENERIC* elaon.com *GENERIC* e-laon.com *GENERIC* e-lender.net *GENERIC* eloan.com *GENERIC* e-loan.com *GENERIC* e-loan.org *GENERIC* eloan-auction.com *GENERIC* eloan-auction.net *GENERIC* eloan-sucks.com *GENERIC* eloansucks.net *GENERIC* eloansucks.org *GENERIC* flexe.com *GENERIC* flexedirect.com *GENERIC* flexeinvest.com *GENERIC* flexeloan.com *GENERIC* flexemoney.com *GENERIC* Flexemortgage.com *GENERIC* flex-e-mortgage.com *GENERIC* screweloan.org Internally developed software.     --------------------------------------------------------------------------------

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.1 EXECUTIVE EMPLOYMENT AGREEMENT     This Executive Employment Agreement is made and entered into by and between Labor Ready, Inc., a Washington corporation, including its subsidiaries ("Company") and Steven C. Cooper ("Executive") effective as of January 9, 2001. RECITALS     WHEREAS, Executive has been serving as Vice President of Finance for the Company;     WHEREAS, Company believes that Executive's experience, knowledge of corporate affairs, reputation and abilities are of great value to Company's future growth and profits; and     WHEREAS, Company wishes to continue to employ Executive and Executive is willing to continue to be employed by Company; and     WHEREAS, the Company's Board of Directors has elected Executive to the offices of Executive Vice President and Chief Financial Officer;     NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the Company and Executive agree as follows:     1.  Employment.  The Company agrees to and hereby does employ Executive, and Executive hereby agrees to continue in the employment of the Company, subject to the supervision and direction of the Chief Executive Officer and the Board of Directors. Executive's employment shall be for a period commencing on January 9, 2001 and ending on January 8, 2006, unless such period is extended by written agreement of the parties or is sooner terminated pursuant to the provisions of Paragraphs 4, 11 or 12.     2.  Duties of Executive.  Executive agrees to devote the necessary time, attention, skill and efforts to the performance of his duties as Executive Vice President and Chief Financial Officer of the Company and such other duties as may be assigned by the Board of Directors in its discretion.     3.  Compensation.       (a) Executive's initial salary shall be at the rate of Two Hundred Twenty Thousand and No/100 Dollars ($220,000) per year, payable biweekly, from January 9, 2001, until changed by the Board of Directors as provided herein.     (b) Company, acting through its Board of Directors, may (but shall not be required to) increase, but may not decrease, Executive's compensation and award to Executive such bonuses as the board may see fit, in its sole and unrestricted discretion, commensurate with Executive's performance and the overall performance of the Company. Executives compensation shall be reviewed annually by the Compensation Committee of the Board of Directors.     4.  Failure to Pay Executive.  The failure of Company to pay Executive his salary as provided in Paragraph 3 may, in Executive's sole discretion, be deemed a breach of this Agreement and, unless such breach is cured within fifteen days after written notice to Company, this Agreement shall terminate. Executive's claims against Company arising out of the nonpayment shall survive termination of this Agreement.     5.  Options to Purchase Common Stock.  Executive is granted unvested options to purchase 250,000 shares of the Company's common stock. The terms and conditions of the options are set forth in Exhibits A and B.     6.  Reimbursement for Expenses.  Company shall reimburse Executive for reasonable out-of-pocket expenses that Executive shall incur in connection with his services for Company contemplated by this Agreement, on presentation by Executive of appropriate vouchers and receipts for such expenses to -------------------------------------------------------------------------------- Company. At times it may be in the best interests of the Company for Executive's spouse to accompany him on such business travel. On such occasions Company shall reimburse Executive for reasonable out-of-pocket expenses incurred for his spouse. Such occasions shall be determined by guidelines established by the Chief Executive Officer or the Board of Directors, or in the absence of such guidelines, by Executive's sound discretion.     7.  Vacation.  Executive shall be entitled each year during the term of this Agreement to a vacation of twenty (20) business days, no two of which need be consecutive, during which time his compensation shall be paid in full. The length of annual vacation time shall increase by one day for every year of service to the Company after 2001 to a maximum of 25 business days per year.     8.  Change in Ownership or Control.  In the event of a change in the ownership of Company, effective control of Company, or the ownership of a substantial portion of Company's assets, all unvested stock options shall immediately vest.     9.  Liability Insurance and Indemnification.  The Company shall procure and maintain throughout the term of this Agreement a policy or policies of liability insurance for the protection and benefit of directors and officers of the Company. Such insurance shall have a combined limit of not less than $10,000,000.00 and may have a deductible of not more than $100,000.00. To the fullest extent permitted by law, Company shall indemnify and hold harmless Executive for any and all lost, cost, damage and expense including attorneys' fees and court costs incurred or sustained by Executive, arising out of the proper discharge by Executive of his duties hereunder in good faith.     10.  Other Benefits.  Executive shall be entitled to all benefits offered generally to employees of Company. Nothing in this Agreement shall be construed as limiting or restricting any benefit to Executive under any pension, profit-sharing or similar retirement plan, or under any group life or group health or accident or other plan of the Company, for the benefit of its employees generally or a group of them, now or hereafter in existence.     11.  Termination by Company.  Company may terminate this Agreement under either of the following circumstances:     (a) This Agreement may be terminated for cause at any time upon thirty (30) days written notice to Executive. Cause shall exist if Executive is guilty of dishonesty, gross neglect of duty hereunder, or other act or omission which impairs Company's ability to conduct its ordinary business in its usual manner. The notice of termination shall specify with particularity the actions or inactions constituting such cause. In the event of termination under this section, Company shall pay Executive all amounts due hereunder which are then accrued but unpaid within thirty (30) days after Executive's last day of employment.     (b) In the event that Executive shall, during the term of his employment hereunder, fail to perform his duties as the result of illness or other incapacity and such illness or other incapacity shall continue for a period of more than six months, the Company shall have the right, by written notice either personally delivered or sent by certified mail, to terminate Executive's employment hereunder as of a date (not less than 30 days after the date of the sending of such notice) to be specified in such notice.     12.  Termination by Executive.  If Company shall cease conducting its business, take any action looking toward its dissolution or liquidation, make an assignment for the benefit of its creditors, admit in writing its inability to pay its debts as they become due, file a voluntary petition or be the subject of an involuntary petition in bankruptcy, or be the subject of any state or federal insolvency proceeding of any kind, then Executive may, in his sole discretion, by written notice to Company, terminate his employment and Company hereby consents to the release of Executive under such circumstances and agrees that if Company ceases to operate or to exist as a result of such event, the non-competition and –2– -------------------------------------------------------------------------------- other provisions of Paragraph 16 of this Agreement shall terminate. In addition, Executive shall have the right to terminate this Agreement upon giving three (3) months written notice to Company.     13.  Communications to Company.  Executive shall communicate and channel to Company all knowledge, business, and customer contacts and any other matters of information that could concern or be in any way beneficial to the business of Company, whether acquired by Executive before or during the term of this Agreement; provided, however, that nothing under this Agreement shall be construed as requiring such communications where the information is lawfully protected from disclosure as a trade secret of a third party.     14.  Binding Effect.  This Agreement shall be binding on and shall inure to the benefit of any successor or successors of employer and the personal representatives of Executive.     15.  Confidential Information.       (a) As the result of his duties, Executive will necessarily have access to some or all of the confidential information pertaining to Company's business. It is agreed that "Confidential Information" of Company includes:     (1) The ideas, methods, techniques, formats, specifications, procedures, designs, systems, processes, data and software products which are unique to Company;     (2) All customer, marketing, pricing and financial information pertaining to the business of Company;     (3) All operations, sales and training manuals;     (4) All other information now in existence or later developed which is similar to the foregoing; and     (5) All information which is marked as confidential or explained to be confidential or which, by its nature, is confidential.     (b) Executive understands that he will necessarily have access to some or all of the Confidential Information. Executive recognizes the importance of protecting the confidentiality and secrecy of the Confidential Information and, therefore, agrees to use his best efforts to protect the Confidential Information from unauthorized disclosure to other persons. Executive understands that protecting the Confidential Information from unauthorized disclosure is critically important to the success and competitive advantage of Company and that the unauthorized disclosure of the Confidential Information would greatly damage Company.     (c) Executive agrees not to disclose any Confidential Information to others or use any Confidential Information for his own benefit. Executive further agrees that upon request of the Chief Executive Officer of Company, he shall immediately return all Confidential Information, including any copies of Confidential Information in his possession.     16.  Covenants Against Competition.  It is understood and agreed that the nature of the methods employed in Company's business is such that Executive will be placed in a close business and personal relationship with the customers of Company. Thus, during the term of this Executive Employment Agreement and for a period of two (2) years immediately following the termination of Executive's employment, for any reason whatsoever, so long as Company continues to carry on the same business, said Executive shall not, for any reason whatsoever, directly or indirectly, for himself or on behalf of, or in conjunction with, any other person, persons, company, partnership, corporation or business entity:     (a) Call upon, divert, influence or solicit or attempt to call, divert, influence or solicit any customer or customers of Company; –3– --------------------------------------------------------------------------------     (b) Divulge the names and addresses or any information concerning any customer of Company;     (c) Solicit, induce or otherwise influence or attempt to solicit, induce or otherwise influence any employee of the Company to leave his or her employment;     (d) Own, manage, operate, control, be employed by, participate in or be connected in any manner with the ownership, management, operation or control of the same, similar, or related line of business as that carried on by Company within a radius of twenty-five (25) miles from any then existing or proposed office of Company; and     The time period covered by the covenants contained herein shall not include any period(s) of violation of any covenant or any period(s) of time required for litigation to enforce any covenant. If the provisions set forth are determined to be too broad to be enforceable at law, then the area and/or length of time shall be reduced to such area and time and that shall be enforceable.     17.  Enforcement of Covenants.       (a) The covenants set forth herein on the part of Executive shall be construed as an agreement independent of any other provision in this Executive Employment Agreement and the existence of any claim or cause of action of Executive against Company, whether predicated on this Executive Employment Agreement or otherwise, shall not constitute a defense to the enforcement by Company of the covenants contained herein.     (b) Executive acknowledges that irreparable damage will result to Company in the event of the breach of any covenant contained herein and Executive agrees that in the event of any such breach, Company shall be entitled, in addition to any and all other legal or equitable remedies and damages, to a temporary and/or permanent injunction to restrain the violation thereof by Executive and all of the persons acting for or with Executive.     18.  Law to Govern Contract.  It is agreed that this Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Washington.     19.  Arbitration.  Company and Executive agree with each other that any claim of Executive or Company arising out of or relating to this Agreement or the breach of this Agreement or Executive's employment by Company, including, without limitation, any claim for compensation due, wrongful termination and any claim alleging discrimination or harassment in any form shall be resolved by binding arbitration, except for claims in which injunctive relief is sought and obtained. The arbitration shall be administered by the American Arbitration Association under its Employment Arbitration Rules at the American Arbitration Association Office nearest the place of employment. The award entered by the arbitrator shall be final and binding in all respects and judgment thereon may be entered in any Court having jurisdiction.     20.  Entire Agreement.  This Agreement shall constitute the entire agreement between the parties and any prior understanding or representation of any kind preceding the date of this Agreement shall not be binding upon either party except to the extent incorporated in this Agreement.     21.  Modification of Agreement.  Any modification of this Agreement or additional obligation assumed by either party in connection with this Agreement shall be binding only if evidenced in writing signed by each party or an authorized representative of each party.     22.  No Waiver.  The failure of either party to this Agreement to insist upon the performance of any of the terms and conditions of this Agreement, or the waiver of any breach of any of the terms and conditions of this Agreement, shall not be construed as thereafter waiving any such terms and conditions, but the same shall continue and remain in full force and effect as if no such forbearance or waiver had occurred. –4– --------------------------------------------------------------------------------     23.  Attorneys' Fees.  In the event that any action is filed in relation to this Agreement, the unsuccessful party in the action shall pay to the successful party, in addition to all other required sums, a reasonable sum for the successful party's attorneys' fees.     24.  Notices.  Any notice provided for or concerning this Agreement shall be in writing and shall be deemed sufficiently given when personally delivered or when sent by certified or registered, return receipt requested mail if sent to the respective address of each party as set forth below, or such other address as each party shall designate by notice.     25.  Survival of Certain Terms.  The terms and conditions set forth in Paragraphs 15 through 19 of this Agreement shall survive termination of the remainder of this Agreement.     IN WITNESS WHEREOF, each party to this Agreement has caused it to be executed on the date indicated below.     EXECUTIVE:       COMPANY:     Steven C. Cooper       Labor Ready, Inc., a Washington corporation By:       By:         -------------------------------------------------------------------------------- Steven C. Cooper       -------------------------------------------------------------------------------- Richard L. King, Chief Executive Officer Date:       Date:         --------------------------------------------------------------------------------       -------------------------------------------------------------------------------- –5– -------------------------------------------------------------------------------- EXHIBIT A Stock Option Grant GRANT DATE:   January 9, 2001 GRANT PRICE:   Closing price on the Grant Date TOTAL NUMBER OF SHARES:   150,000 VESTING SCHEDULE:   Options for the specified number of shares shall vest on the following dates: DATE --------------------------------------------------------------------------------   NUMBER OF SHARES -------------------------------------------------------------------------------- January 9, 2002   37,500 January 9, 2003   37,500 January 9, 2004   37,500 January 9, 2005   37,500 TERMS AND CONDITIONS OF THE STOCK OPTION GRANT:     1.  Except as otherwise provided herein, all unexercised options shall expire five (5) years from the Grant Date or upon the termination date, whichever is earlier, if the Executive Employment Agreement is terminated for cause. If the Executive Employment Agreement is terminated by Executive without cause, then all options shall terminate ninety days after termination of employment. If the Executive Employment Agreement is terminated for any other reason, then all options shall immediately vest and the exercise date shall be extended to a date which is five years after the date of termination.     2.  The options are categorized as non-qualified stock options. A non-qualified stock option requires payment of income taxes on the difference between the option price and the market value on the date of exercise. Executive shall be responsible for any income tax consequences and expense associated with the grant or exercise of the options, and is responsible for consulting his individual tax advisor.     3.  Payment for shares purchased through the exercise of options may be made either in cash or its equivalent or by tendering previously acquired shares at market value, or both.     The closing price on January 9, 2001 was $3.25. –6– -------------------------------------------------------------------------------- EXHIBIT B Stock Option Grant GRANT DATE:   January 9, 2001 GRANT PRICE:   Closing price on the Grant Date TOTAL NUMBER OF SHARES:   100,000 VESTING SCHEDULE:   Options for the specified number of shares shall vest on the following dates: DATE --------------------------------------------------------------------------------   NUMBER OF SHARES -------------------------------------------------------------------------------- July 9, 2005   100,000 TERMS AND CONDITIONS OF THE STOCK OPTION GRANT:     1.  Except as otherwise provided herein, all unexercised options shall expire five (5) years from the Grant Date or upon the termination date, whichever is earlier, if the Executive Employment Agreement is terminated for cause. If the Executive Employment Agreement is terminated by Executive without cause, then all options shall terminate ninety days after termination of employment. If the Executive Employment Agreement is terminated for any other reason, then all options shall immediately vest and the exercise date shall be extended to a date which is five years after the date of termination.     2.  The options are categorized as non-qualified stock options. A non-qualified stock option requires payment of income taxes on the difference between the option price and the market value on the date of exercise. Executive shall be responsible for any income tax consequences and expense associated with the grant or exercise of the options, and is responsible for consulting his individual tax advisor.     3.  Payment for shares purchased through the exercise of options may be made either in cash or its equivalent or by tendering previously acquired shares at market value, or both.     The closing price on January 9, 2001 was $3.25. –7– -------------------------------------------------------------------------------- QuickLinks Exhibit 10.1 EXECUTIVE EMPLOYMENT AGREEMENT RECITALS EXHIBIT A Stock Option Grant EXHIBIT B Stock Option Grant

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.20 -------------------------------------------------------------------------------- SEEBEYOND TECHNOLOGY CORPORATION COMERICA BANK—CALIFORNIA LOAN AND SECURITY AGREEMENT -------------------------------------------------------------------------------- --------------------------------------------------------------------------------     This LOAN AND SECURITY AGREEMENT is entered into as of December 4, 2000, by and among COMERICA BANK—CALIFORNIA ("Bank") and SEEBEYOND TECHNOLOGY CORPORATION ("Borrower"). RECITALS     Borrower desires to obtain credit from Bank and Bank desires to provide credit to Borrower. This Agreement sets forth the terms on which Bank will advance credit to Borrower, and Borrower will repay the amounts owing to Bank. AGREEMENT     The parties agree as follows:     1.  Definitions and Construction.       1.1  Definitions.  As used in this Agreement, the following terms shall have the following definitions:     "Accounts" means all presently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to a Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by a Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower's Books relating to any of the foregoing.     "Advance" or "Advances" means a cash advance under the Revolving Facility.     "Affiliate" means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person's senior executive officers, directors, and partners.     "Bank Expenses" means all reasonable costs or expenses (including reasonable attorneys' fees and expenses) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents; and Bank's reasonable attorneys' fees and expenses incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal).     "Borrower's Books" means all of Borrower's books and records including: ledgers; records concerning Borrower's assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information.     "Borrowing Base" means an amount equal to eighty percent (80%) of Eligible Accounts, as determined by Bank with reference to the most recent Borrowing Base Certificate delivered by Borrower.     "Business Day" means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close.     "Closing Date" means the date of this Agreement.     "Code" means the California Uniform Commercial Code.     "Collateral" means the property described on Exhibit A attached hereto. 1 --------------------------------------------------------------------------------     "Committed Revolving Line" means a credit extension of Fifteen Million Dollars ($15,000,000).     "Contingent Obligation" means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term "Contingent Obligation" shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.     "Copyrights" means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held.     "Credit Extension" means each Advance, Equipment Advance, or any other extension of credit by Bank for the benefit of Borrower hereunder.     "Current Assets" means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current assets on the consolidated balance sheet of a Borrower and its Subsidiaries as at such date.     "Current Liabilities" means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current liabilities on the consolidated balance sheet of Borrower and its Subsidiaries, as at such date, plus, to the extent not already included therein, all outstanding Credit Extensions made under this Agreement, including all Indebtedness that is payable upon demand or within one year from the date of determination thereof unless such Indebtedness is renewable or extendable at the option of a Borrower or any Subsidiary to a date more than one year from the date of determination.     "Daily Balance" means the amount of the Obligations owed at the end of a given day.     "Eligible Accounts" means those Accounts that arise in the ordinary course of Borrower's business that comply with all of the representations and warranties to Bank set forth in Section 5.4; provided, that standards of eligibility may be fixed and revised from time to time by Bank as a consequence of any Collateral audits done pursuant to Section 6.3 in Bank's reasonable judgment and upon notification thereof to Borrower in accordance with the provisions hereof. Unless otherwise agreed to by Bank, Eligible Accounts shall not include the following:     (a)  Accounts that the account debtor has failed to pay within ninety (90) days of invoice date; 2 --------------------------------------------------------------------------------     (b)  Accounts with respect to an account debtor, twenty-five percent (25%) or more of whose Accounts the account debtor has failed to pay within ninety (90) days of invoice date.     (c)  Accounts with respect to which the account debtor is an officer, employee, or agent of Borrower;     (d)  Accounts with respect to which goods are placed on consignment, guaranteed sale, sale or return, sale on approval, bill and hold, or other terms by reason of which the payment by the account debtor may be conditional;     (e)  Accounts with respect to which the account debtor is an Affiliate of Borrower;     (f)  Accounts with respect to which the account debtor does not have its principal place of business in the United States and is not supported by one or more letters of credit in an amount and of a tenor, and issued by a financial institution, acceptable to Bank, except for Eligible Foreign Accounts;     (g)  Accounts with respect to which the account debtor is the United States or any agency or subdivision thereof;     (h)  Accounts with respect to which Borrower is liable to the account debtor for goods sold or services rendered by the account debtor to Borrower, but only to the extent of any amounts owing to the account debtor against amounts owed to Borrower;     (i)  Accounts with respect to an account debtor, including Subsidiaries and Affiliates of such account debtor, whose total obligations to Borrower exceed twenty percent (20%) of all Accounts, to the extent such obligations exceed the aforementioned percentage;     (j)  Accounts with respect to which the account debtor disputes liability or makes any claim with respect thereto as to which Bank believes, in its sole discretion, that there may be a basis for dispute (but only to the extent of the amount subject to such dispute or claim), or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business; and     (k)  Accounts the collection of which Bank reasonably determines to be doubtful.     "Eligible Foreign Accounts" means Accounts with respect to which the account debtor does not have its principal place of business in the United States and that Bank approves on a case-by-case basis.     "Equipment" means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest.     "Equipment Advance" has the meaning set forth in Section 2.1.2.     "Equipment Drawdown Expiration Date" means the earlier of the date that is twelve (12) months after the Closing Date or November 30, 2001.     "Equipment Line" means a Credit Extension of up to Three Million Dollars ($3,000,000).     "Equipment Maturity Date" means the earlier of (i) thirty-six (36) months from the Equipment Drawdown Expiration Date or (ii) November 30, 2004.     "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.     "Event of Default" has the meaning assigned in Article 8. 3 --------------------------------------------------------------------------------     "Foreign Subsidiary" means any Subsidiary whose principal place of business is located outside the United States or whose assets and business are located outside the United States.     "GAAP" means generally accepted accounting principles.     "Greyrock" means Greyrock Capital, a division of Banc of America Commercial Finance Corporation.     "Indebtedness" means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations and (d) all Contingent Obligations.     "Insolvency Proceeding" means any proceeding commenced by or against any person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.     "Intellectual Property Collateral" means all of Borrower's right, title and interest in and to the following:     (a)  Copyrights, Trademarks and Patents;     (b)  Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held;     (c)  Any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held;     (d)  Any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above;     (e)  All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights;     (f)  All amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and     (g)  All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing.     "Interest Period" means for each LIBOR Rate Extension, a period of approximately (i) three (3) months for LIBOR Rate Advances, and (ii) six (6) months for LIBOR Rate Equipment Advances, as Borrower may elect, provided that the last day of an Interest Period for a LIBOR Rate Extension shall be determined in accordance with the practices of the LIBOR interbank market as from time to time in effect, provided, further, in the case of Advances such period shall expire not later than the Revolving Maturity Date and in the case of the Equipment Advances such period shall expire not later than the Equipment Maturity Date. 4 --------------------------------------------------------------------------------     "Inventory" means all present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or at any time hereafter owned by or in the custody or possession, actual or constructive, of Borrower, including such inventory as is temporarily out of its custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrower's Books relating to any of the foregoing.     "Investment" means any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person.     "IRC" means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.     "LIBOR Base Rate" means, for any Interest Period for a LIBOR Rate Extension, the rate of interest per annum determined by Bank to be the per annum rate of interest at which deposits in United States Dollars are offered to Bank in the London interbank market in which Bank customarily participates at 11:00 a.m. (local time in such interbank market) three (3) Business Days before the first day of such Interest Period for a period approximately equal to such Interest Period and in an amount approximately equal to the amount of such Credit Extension.     "LIBOR Rate" shall mean, for any Interest Period for a LIBOR Rate Extension, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) equal to (i) the LIBOR Base Rate for such Interest Period divided by (ii) 1 minus the Reserve Requirement for such Interest Period.     "LIBOR Rate Advances" means any Advances or a portion thereof, on which interest is payable based on the LIBOR Rate in accordance with the terms hereof.     "LIBOR Rate Equipment Advances" means any Equipment Advances or any portion thereof, on which interest is payable based on the LIBOR Rate in accordance with the terms hereof.     "LIBOR Rate Extensions" means any LIBOR Rate Advances or LIBOR Rate Equipment Advances, as applicable, or any portion thereof bearing interest at a rate based on the LIBOR Rate.     "Lien" means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.     "Loan Documents" means, collectively, this Agreement, any note or notes executed by Borrower, and any other agreement entered into between Borrower and Bank in connection with this Agreement, all as amended or extended from time to time.     "Material Adverse Effect" means a material adverse effect on (i) the business operations or condition (financial or otherwise) of Borrower and its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan Documents.     "Negotiable Collateral" means all of Borrower's present and future letters of credit of which it is a beneficiary, notes, drafts, instruments, securities, documents of title, and chattel paper, and Borrower's Books relating to any of the foregoing. 5 --------------------------------------------------------------------------------     "Obligations" means all loans, advances, debts, liabilities and obligations for monetary amounts owing by Borrower to Bank, whether due or to become due, matured or unmatured, liquidated or unliquidated, contingent or non-contingent, and all covenants and duties regarding such amounts, of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument, including those arising under any of the Loan Documents. This term includes, without limitation, all principal, interest (including interest that accrues after the commencement against Borrower or any Subsidiary of Borrower under the Bankruptcy Code), fees, including, without limitation, any and all closing fees, prepayment fees, commitment fees, advisory fees, and attorneys' fees and any and all other fees, expenses, costs or other amounts chargeable to Borrower under any of the Loan Documents.     "Patents" means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.     "Periodic Payments" means all interest payments and other recurring payments that Borrower may now or hereafter become obligated to pay to Bank.     "Permitted Indebtedness" means:     (a)  Indebtedness of Borrower in favor of Bank arising under this Agreement or any other Loan Document;     (b)  Indebtedness existing on the Closing Date and disclosed in the Schedule; and     (c)  Indebtedness secured by a lien described in clause (c) of the defined term "Permitted Liens", provided the amount of such Indebtedness shall not exceed the cost of the Equipment acquired with the proceeds of such Indebtedness.     "Permitted Investment" means:     (a)  Investments existing on the Closing Date disclosed in the Schedule;     (b)  (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor's Corporation or Moody's Investors Service, Inc., (iii) certificates of deposit maturing no more than one (1) year from the date of investment therein issued by Bank, and (iv) Bank's money market accounts, or other institutions' money market funds which are rated Am or better by Standard & Poor's Corporation;     (c)  Obligations the interest on which is excludable from gross income pursuant to Internal Revenue Code section 103 and which are rated A or better by Standard & Poor's Corporation;     (d)  Obligations issued by any corporation organized and operating within the United States of America having assets in excess of $500,000,000, which obligations are rated A or better by Standard & Poor's Corporation;     (e)  Investment agreements or guaranteed investment contracts with, or guaranteed by, a financial institution or corporation, the long-term unsecured obligations of which are or, in the case of an insurance company, the long term financial strength of which is, rated "AA-" or better by Standard & Poor's Corporation at the time of initial investment; 6 --------------------------------------------------------------------------------     (f)  Repurchase agreements with (i) any domestic bank, or domestic branch of a foreign bank, the long-term debt of which is rated at least A-2 or P-2 from either Standard & Poor's Corporation or Moody's Investors Service, Inc.; (ii) any broker-dealer with "retail customers" or a related affiliate thereof, which broker-dealer has, or the parent company (which guarantees the provider) of which has, long-term debt rated at least A-2 or P-2 from either Standard & Poor's Corporation or Moody's Investors Service, Inc., which broker-dealer falls under the jurisdiction of the Securities Investors Protection Corporation; or (iii) any other entity (or entity whose obligations are guaranteed by an affiliate or parent company) rated at least A-2 or P-2 from either Standard & Poor's Corporation or Moody's Investors Service, Inc.; and     (g)  Investments consisting of loans and advances to employees, officers or directors not to exceed Five Hundred Thousand Dollars ($500,000) in the aggregate outstanding at any time.     "Permitted Liens" means the following:     (a)  Any Liens existing on the Closing Date and disclosed in the Schedule or arising under this Agreement or the other Loan Documents;     (b)  Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings, provided the same have no priority over any of Bank's security interests;     (c)  Liens (i) upon or in any equipment acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition of such equipment, or (ii) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment; and     (d)  Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase.     "Person" means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency.     "Prime Rate" means the variable rate of interest, per annum, most recently announced by Bank, as its "prime rate" or "reference rate," whether or not such announced rate is the lowest rate available from Bank.     "Prime Rate Advances" means any Advances or any portion thereof, on which interest is payable based on the Prime Rate in accordance with the terms hereof.     "Prime Rate Equipment Advances" means any Equipment Advances or any portion thereof, on which interest is payable based on the Prime Rate in accordance with the terms hereof.     "Prime Rate Extensions" means any Prime Rate Advances or Prime Rate Equipment Advances or any portion thereof bearing interest at a rate based on the Prime Rate. 7 --------------------------------------------------------------------------------     "Quick Assets" means, at any date as of which the amount thereof shall be determined, the cash, cash-equivalents, net trade receivables and marketable securities not classified as long term investments, of Borrower determined in accordance with GAAP.     "Reserve Requirement" means, for any Interest Period, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D against "Eurocurrency liabilities" (as such term is used in Regulation D) by member banks of the Federal Reserve System. Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by Bank by reason of any Regulatory Change against (i) any category of liabilities which includes deposits by reference to which the LIBOR Rate is to be determined as provided in the definition of "LIBOR Base Rate" or (ii) any category of extensions of credit or other assets which include Advances.     "Responsible Officer" means each of the Chief Executive Officer, the Chief Operating Officer and the Chief Financial Officer of Borrower.     "Revolving Facility" means the facility under which Borrower may request Bank to make Advances, as specified in Section 2.1.1 hereof.     "Revolving Maturity Date" means May 31, 2002.     "Schedule" means the schedule of exceptions attached hereto, if any.     "Shares" means (i) sixty-six and two-thirds percent (662/3%) of the issued and outstanding capital stock owned or held of record by Borrower in any subsidiary of Borrower which is not an entity organized under the laws of the United States or any territory thereof, and (ii) one hundred percent (100%) of the issued and outstanding capital stock owned or held of record by Borrower in any subsidiary of Borrower which is an entity organized under the laws of the United States or any territory thereof.     "Subordinated Debt" means any debt incurred by Borrower that is subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank (and identified as being such by Bank).     "Subsidiary" means any corporation or partnership in which (i) any general partnership interest or (ii) more than 50% of the stock of which by the terms thereof ordinary voting power to elect the Board of Directors, managers or trustees of the entity shall, at the time as of which any determination is being made, is owned by Borrower, either directly or through an Affiliate.     "Tangible Net Worth" means at any date as of which the amount thereof shall be determined, the gross book value of Borrower's assets, excluding goodwill, patents, trademarks and other like intangibles, and monies due from affiliates, officers, shareholders or directors of Borrower, plus Subordinated Debt, less total liabilities, on a consolidated basis determined in accordance with GAAP.     "Total Liabilities" means at any date as of which the amount thereof shall be determined, all obligations that should, in accordance with GAAP be classified as liabilities on the consolidated balance sheet of Borrower, including in any event all Indebtedness, but excluding Subordinated Debt and/or any deferred revenues..     "Trademarks" means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks. 8 --------------------------------------------------------------------------------     1.2  Accounting Terms.  All accounting terms not specifically defined herein shall be construed in accordance with GAAP and all calculations made hereunder shall be made in accordance with GAAP. When used herein, the terms "financial statements" shall include the notes and schedules thereto.     2.  Loan and Terms of Payment.       2.1.1  Revolving Advances.       (a)  Subject to and upon the terms and conditions of this Agreement, Borrower may request Advances in an aggregate outstanding amount not to exceed the lesser of (i) the Committed Revolving Line or (ii) the Borrowing Base, minus the face amount of outstanding Letters of Credit, including any drawn but unreimbursed Letters of Credit. Subject to the terms and conditions of this Agreement, amounts borrowed pursuant to this Section 2.1.1 may be repaid and reborrowed at any time prior to the Revolving Maturity Date, at which time all Advances under this Section 2.1.1 shall be immediately due and payable.     (b)  Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission or telephone no later than 3:00 p.m. California time, on the Business Day that a Prime Rate Advance is to be made, and 3:00 p.m. California time on the Business Day that is three (3) Business Days prior to the Business Day on which a LIBOR Rate Advance is made. Each such notification shall be promptly confirmed by a Payment/Advance Form in substantially the form of Exhibit B-1 hereto. Bank is authorized to make Advances under this Agreement, based upon instructions received from a Responsible Officer or a designee of a Responsible Officer, or without instructions if in Bank's discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any telephonic notice given by a person who Bank reasonably believes to be the Chief Financial Officer, the Vice President of Finance or a designee of either, and Borrower shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance. Bank will credit the amount of Advances made under this Section 2.1.1 to Borrower's deposit account.     Each such notice shall specify: (i)the date such Advance is to be made, which shall be a Business Day; (ii)the amount of such Advance; (iii)whether such Advance is to be a Prime Rate Advance or a LIBOR Rate Advance; and (iv)if the Advance is to be a LIBOR Rate Advance, the Interest Period for such Advance.     Each written request for an Advance, and each confirmation of a telephone request for such an Advance, shall be in substantially the form of Exhibit B-1 hereto executed by Borrower.     (c)  Prime Rate Advances.  The outstanding principal balance of each Prime Rate Advance shall bear interest until principal is due (computed daily on the basis of a 360 day year and actual days elapsed), at a floating rate per annum equal to one half of one percent (0.50%) above the Prime Rate. Borrower shall pay the entire outstanding principal amount of each Prime Rate Advance on the Revolving Maturity Date.     (d)  LIBOR Rate Advances.  Each LIBOR Rate Advance shall be in an amount of not less than One Million Dollars ($1,000,000). The outstanding principal balance of each LIBOR Rate Advance shall bear interest until principal is due (computed daily on the basis of a 9 -------------------------------------------------------------------------------- 360 day year and actual days elapsed) at a rate per annum equal to the LIBOR Rate plus 250 basis points for such LIBOR Rate Advance. The entire outstanding principal amount of each LIBOR Rate Advance shall be due and payable on the earlier of (i) the last day of the LIBOR Rate Interest Period for such LIBOR Rate Advance, and (ii) on the Revolving Maturity Date.     (e)  Prepayment of the Advances.  Borrower may at any time prepay any Prime Rate Advance or any LIBOR Rate Advance, in full or in part. Each partial prepayment for a LIBOR Rate Advance shall be in an amount not less than One Hundred Thousand Dollars ($100,000). Each prepayment shall be made upon the irrevocable written or telephone notice of Borrower received by Bank not later than 10:00 a.m. California time on the date of the prepayment of a Prime Rate Advance, and not less than three (3) Business Days prior to the date of the prepayment of a LIBOR Rate Advance. The notice of prepayment shall specify the date of the prepayment, the amount of the prepayment, and the Advance or Advances prepaid. Each prepayment of a LIBOR Rate Advance shall be accompanied by the payment of accrued interest on the amount prepaid and any amount required by Section 2.6.     2.1.2  Equipment Advances.       (a)  Subject to and upon the terms and conditions of this Agreement, at any time from the Closing Date through the Equipment Drawdown Expiration Period, Bank agrees to make advances (each an "Equipment Advance" and, collectively, the "Equipment Advances") to Borrower in an aggregate outstanding amount not to exceed the Equipment Line. Each Equipment Advance shall not exceed ninety percent (90%) of the invoice amount of equipment, software and corporate purposes approved by Bank from time to time (which Borrower shall, in any case, have purchased within 90 days of the date of the corresponding Equipment Advance), excluding taxes, shipping, warranty charges, freight discounts and installation expense.     (b)  Interest shall accrue from the date of each Equipment Advance at the rate specified below, and shall be payable monthly on the last day of each month through the Equipment Drawdown Expiration Period. Any Equipment Advances that are outstanding on the Equipment Drawdown Expiration Period shall be payable in thirty-six (36) equal monthly installments of principal, plus all accrued interest, beginning on the last day of the first month after the Equipment Drawdown Expiration Period and continuing on the same day of each month thereafter through the Equipment Maturity Date, at which time all amounts due under this Section 2.1.2 shall be immediately due and payable. Equipment Advances, once repaid, may not be reborrowed. Borrower may prepay any Equipment Advances without penalty or premium.     (c)  Whenever Borrower desires an Equipment Advance, Borrower will notify Bank by facsimile transmission or telephone no later than 3:00 p.m. California time, on the Business Day that a Prime Rate Equipment Advance is to be made, and 3:00 p.m. California time on the Business Day that is three (3) Business Days prior to the Business Day on which a LIBOR Rate Equipment Advance is to be made. Each such notification shall be promptly confirmed by a Payment/Advance Form in substantially the form of Exhibit B-1 hereto, signed by a Responsible Officer or a designee thereof, and shall include a copy of the invoice for any Equipment to be financed.     Each such notice shall specify: (i)the date such Equipment Advance is to be made, which shall be a Business Day; (ii)the amount of such Equipment Advance; 10 -------------------------------------------------------------------------------- (iii)whether such Equipment Advance is to be a Prime Rate Equipment Advance or a LIBOR Rate Equipment Advance; and (iv)if the Equipment Advance is to be a LIBOR Rate Equipment Advance, the Interest Period for such Equipment Advance.     Each written request for an Equipment Advance, and each confirmation of a telephone request for such an Advance, shall be in substantially the form of Exhibit B-1 hereto executed by Borrower.     (d)  Prime Rate Equipment Advances. The outstanding principal balance of each Prime Rate Equipment Advance shall bear interest until principal is due (computed daily on the basis of a 360 day year and actual days elapsed), at a floating rate per annum equal to three quarters of one percent (0.75%) above the Prime Rate.     (e)  LIBOR Rate Equipment Advances. Each LIBOR Rate Equipment Advance shall be in an amount of not less than One Million Dollars ($1,000,000). The outstanding principal balance of each LIBOR Rate Equipment Advance shall bear interest until principal is due (computed daily on the basis of a 360 day year and actual days elapsed) at a rate per annum equal to the LIBOR Rate plus 275 basis points for such LIBOR Rate Equipment Advance.     2.1.3  Letters of Credit.       (a)  Subject to the terms and conditions of this Agreement, from the Closing Date through the Revolving Maturity Date, Bank agrees to issue or cause to be issued letters of credit (each a "Letter of Credit," collectively, the "Letters of Credit") for the account of Borrower in an aggregate face amount not to exceed (A) the lesser of the Committed Revolving Line or the Borrowing Base, minus the sum of (x) the then outstanding principal balance of the Advances, and (y) the aggregate face amount of any outstanding Letters of Credit, or (B) Five Million Dollars ($5,000,000). Each such Letter of Credit shall be renewable annually and shall have an expiration date no later than the Revolving Maturity Date. All such Letters of Credit shall be, in form and substance, acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank's form of application and letter of credit agreement. All amounts actually paid by Bank in respect of a Letter of Credit shall, when paid, constitute an Advance under this Agreement.     (b)  The obligation of Borrower to immediately reimburse Bank for drawings made under Letters of Credit shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement and such Letters of Credit, under all circumstances whatsoever. Borrower shall indemnify, defend, protect, and hold Bank harmless from any loss, cost, expense or liability, including, without limitation, reasonable attorneys' fees, arising out of or in connection with any Letters of Credit.     If at any time the availability of Advances hereunder is subject to the Borrowing Base, the outstanding Advances under this Section 2.1.1 exceed the lesser of the Borrowing Base or the Committed Revolving Line, Borrower shall immediately pay Bank, in cash, the amount of such excess.     2.2  Interest Rates, Payments, and Calculations.       (a)  Interest Rates. Except as set forth in Section 2.2(b), the Advances and the Equipment Advances shall bear interest, on the outstanding daily balance thereof, at the rates specified in Sections 2.1.1 and 2.1.2 hereof. 11 --------------------------------------------------------------------------------     (b)  Default Rate. All Obligations shall bear interest, from and after the occurrence of an Event of Default, at a rate equal to three (3) percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default.     (c)  Payments. Except as otherwise set forth herein, interest hereunder shall be due and payable in arrears upon the earlier of (i) the end of the Interest Period or (ii) any payment of principal or (iii) the last Business Day of each calendar month. Bank shall automatically charge such interest, all Bank Expenses, and all Periodic Payments against Borrower's deposit account held at Bank or against the Committed Revolving Line, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder.     (d)  Computation. In the event the Prime Rate is changed from time to time hereafter, the applicable rate of interest hereunder shall be increased or decreased effective as of the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed.     2.3  Crediting Payments.  Prior to the occurrence of an Event of Default, Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies. After the occurrence of an Event of Default, the receipt by Bank of any wire transfer of funds, check, or other item of payment shall be immediately applied to conditionally reduce Obligations, but shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 12:00 noon California time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension.     2.4  Fees.  Borrower shall pay to Bank the following:     (a)  Facility Fees. On account of the Revolving Facility, Borrower shall pay to Bank a fee equal to 0.375 percent per annum of the difference between the Revolving Committed Line and the average daily outstanding balance in a fiscal quarter under the Revolving Committed Line, which fee shall be payable within five (5) days of the last day of such fiscal quarter. On account of any Letter of Credit, one and one quarter percent (1.25%) per annum of the face amount of each Letter of Credit, whether or not drawn. On account of the Equipment Line, Borrower shall pay Bank a fee equal to Thirty Thousand Dollars ($30,000), which fee shall be due and payable and shall be fully earned and nonrefundable as of the Closing Date.     (b)  Bank Expenses. On the Closing Date, all Bank Expenses incurred through the Closing Date, including reasonable attorneys' fees and expenses and, after the Closing date, all Bank Expenses, including reasonable attorneys' fees and expenses, as and when they become due.     2.5  Conversion/Continuation of Extensions.       (a)  Borrower may from time to time submit in writing a request that Prime Rate Extensions be converted to LIBOR Rate Extensions or that any existing LIBOR Rate Extensions continue for an additional Interest Period. Such request shall specify the amount of the Prime Rate Extensions which will constitute LIBOR Rate Extensions (subject to the limits 12 -------------------------------------------------------------------------------- set forth below) and the Interest Period to be applicable to such LIBOR Rate Extensions. Each written request for a conversion to a LIBOR Rate Extension or a continuation of a LIBOR Rate Extension shall be substantially in the form of a Libor Rate Conversion/Continuation Certificate as set forth on Exhibit B-2, which shall be duly executed by a Responsible Officer. Subject to the terms and conditions contained herein, three (3) Business Days after Bank's receipt of such a request from Borrower, such Prime Rate Extensions shall be converted to LIBOR Rate Extensions or such LIBOR Rate Extensions shall continue, as the case may be provided that: (i)no Event of Default or event which with notice or passage of time or both would constitute an Event of Default exists; (ii)no party hereto shall have sent any notice of termination of the Agreement; (iii)Borrower shall have complied with such customary procedures as Bank has established from time to time for Borrower's requests for LIBOR Rate Extensions; (iv)the amount of a LIBOR Rate Extension shall be $1,000,000 or such greater amount which is an integral multiple of $500,000; and (v)Bank shall have determined that the Interest Period or LIBOR Rate is available to Bank as of the date of the request for such LIBOR Rate Extension.     Any request by Borrower to convert Prime Rate Extensions to LIBOR Rate Extensions or continue any existing LIBOR Rate Extensions shall be irrevocable. Notwithstanding anything to the contrary contained herein, Bank shall not be required to purchase United States Dollar deposits in the London interbank market or other applicable LIBOR Rate market to fund any LIBOR Rate Extensions, but the provisions hereof shall be deemed to apply as if Bank had purchased such deposits to fund the LIBOR Rate Extensions.     (b)  Any LIBOR Rate Extensions shall automatically convert to Prime Rate Extensions upon the last day of the applicable Interest Period, unless Bank has received and approved a complete and proper request to continue such LIBOR Rate Extension at least three (3) Business Days prior to such last day in accordance with the terms hereof. Any LIBOR Rate Extensions shall, at Bank's option, convert to Prime Rate Extensions in the event that an Event of Default shall exist. Borrower shall pay to Bank, upon demand by Bank any amounts required to compensate Bank for any loss (including loss of anticipated profits), cost or expense incurred by such person, as a result of the conversion of LIBOR Rate Extensions to Prime Rate Extensions pursuant to any of the foregoing.     2.6  Additional Requirements/Provisions Regarding LIBOR Rate Extensions.       (a)  If for any reason (including voluntary or mandatory prepayment or acceleration), Bank receives all or part of the principal amount of a LIBOR Rate Extension prior to the last day of the Interest Period for such LIBOR Rate Extension, Borrower shall on demand by Bank, pay Bank the amount (if any) by which (i) the additional interest which would have been payable on the amount so received had it not been received until the last day of such Interest Period or term exceeds (ii) the interest which would have been recoverable by Bank by placing the amount so received on deposit in the certificate of deposit markets or the offshore currency interbank markets or United States Treasury investment products, as the case may be, for a period starting on the date on which it was so received and ending on the last day of such Interest Period or term at the interest rate determined by Bank. Bank's determination as to such amount shall be conclusive absent manifest error.     (b)  Borrower shall pay to Bank, upon demand by Bank, from time to time such amounts as Bank may reasonably determine to be necessary to compensate it for any costs incurred by 13 -------------------------------------------------------------------------------- Bank that Bank determines are attributable to its making or maintaining of any amount receivable by Bank hereunder in respect of any Credit Extensions relating thereto (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), in each case resulting from any Regulatory Change that: (i)changes the basis of taxation of any amounts payable to Bank under this Agreement in respect of any Credit Extensions (other than changes which affect taxes measured by or imposed on the overall net income of Bank by the jurisdiction in which Bank has its principal office); or (ii)imposes or modifies any reserve, special deposit or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of Bank (including any Credit Extensions or any deposits referred to in the definition of "LIBOR Base Rate"); or (iii)imposes any other material condition affecting this Agreement (or any of such extensions of credit or liabilities).     Bank will notify Borrower of any event occurring after the date of the Agreement that will entitle Bank to compensation pursuant to this section as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. Bank will furnish Borrower with a statement setting forth the basis and amount of each request by Bank for compensation under this Section 2.6. Determinations and allocations by Bank for purposes of this Section 2.6 of the effect of any Regulatory Change on its costs of maintaining its obligations to make Credit Extensions or of making or maintaining Credit Extensions or on amounts receivable by it in respect of Credit Extensions, and of the additional amounts required to compensate Bank in respect of any Additional Costs, shall be conclusive absent manifest error.     (c)  Borrower shall pay to Bank, upon the request of Bank, such amount or amounts as shall be sufficient (in the sole good faith opinion of Bank) to compensate it for any reasonable loss, costs or expense incurred by it as a result of any failure by Borrower to borrow a LIBOR Rate Extension on the date for such borrowing specified in the relevant notice of borrowing hereunder.     (d)  If Bank shall determine that the adoption or implementation of any applicable law, rule, regulation or treaty 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 Bank (or its applicable lending office) with any respect or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of Bank or any person or entity controlling Bank (a "Parent") as a consequence of its obligations hereunder to a level below that which Bank (or its Parent) could have achieved but for such adoption, change or compliance (taking into consideration its policies with respect to capital adequacy) by an amount deemed by Bank to be material, then from time to time, within 15 days after demand by Bank, Borrower shall pay to Bank such additional amount or amounts as will compensate Bank for such reduction. A statement of Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive absent manifest error.     (e)  If at any time Bank, in its sole and absolute discretion, determines that: (i) the amount of the LIBOR Rate Extensions for periods equal to the corresponding Interest Periods or any other period are not available to Bank in the offshore currency interbank 14 -------------------------------------------------------------------------------- markets, or (ii) the LIBOR Rate does not accurately reflect the cost to Bank of lending the LIBOR Rate Extension, then Bank shall promptly give notice thereof to Borrower, and upon the giving of such notice Bank's obligation to make the LIBOR Rate Extensions shall terminate, unless Bank and Borrower agree in writing to a different interest rate applicable to LIBOR Rate Extensions. If it shall become unlawful for Bank to continue to fund or maintain any Advances, or to perform its obligations hereunder, upon demand by Bank, Borrower shall prepay the Advances in full with accrued interest thereon and all other amounts payable by Borrower hereunder (including, without limitation, any amount payable in connection with such prepayment pursuant to Section 2.6(a)).     2.7  Term.  This Agreement shall become effective on the Closing Date and, subject to Section 12.7, shall continue in full force and effect for so long as any Obligations are outstanding. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default. Notwithstanding termination, Bank's Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding.     3.  Conditions of Loans.       3.1  Conditions Precedent to Initial Credit Extension.  The obligation of Bank to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following:     (a)  this Agreement;     (b)  a certificate of the Secretary of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement;     (c)  a financing statement (Form UCC-1);     (d)  a termination statement (Form UCC-2), terminating the interest(s) of Greyrock in the assets of Borrower;     (e)  termination of Greyrock's security interest(s) in Borrower's Intellectual Property Collateral;     (f)  an intellectual property security agreement;     (g)  an unconditional guaranty, executed by each of Borrower's Subsidiaries;     (h)  a third party security agreement, executed by each of Borrower's Subsidiaries;     (i)  an agreement to provide insurance;     (j)  an audit of the Collateral, the results of which shall be satisfactory to Bank;     (k)  payment of the fees and Bank Expenses then due specified in Section 2.4 hereof; and     (l)  such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.     3.2  Conditions Precedent to all Credit Extensions.  The obligation of Bank to make each Credit Extension, including the initial Credit Extension, is further subject to the following conditions:     (a)  timely receipt by Bank of the Payment/Advance Form as provided in Section 2.1; and 15 --------------------------------------------------------------------------------     (b)  the representations and warranties contained in Section 5 shall be true and correct in all material respects on and as of the date of such Payment/Advance Form and on the effective date of each Credit Extension as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would result from such Credit Extension. The making of each Credit Extension shall be deemed to be a representation and warranty by Borrower on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2(b).     4.  Creation of Security Interest.       4.1  Grant of Security Interest.  Borrower hereby grants and pledges to Bank a continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all Obligations and in order to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. Such security interest shall constitute a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in Collateral acquired after the date hereof.     4.2  Delivery of Additional Documentation Required.  Borrower shall from time to time execute and deliver to Bank, at the request of Bank, all Negotiable Collateral, all financing statements and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue perfected Bank's security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents.     4.3  Right to Inspect.  Bank (through any of its officers, employees, or agents) shall have the right at Borrower' expense upon reasonable prior notice, from time to time during Borrower's usual business hours, to inspect Borrower's Books and to make copies thereof and to check, test, and audit and appraise the Collateral in order to verify a Borrower's financial condition or the amount, condition of, or any other matter relating to, the Collateral.     4.4  Pledge of Collateral.  Borrower hereby pledges, assigns and grants to Bank a security interest in the Shares, together with all proceeds and substitutions thereof, all cash, stock and other moneys and property paid thereon, all rights to subscribe for securities declared or granted in connection therewith, and all other cash and noncash proceeds of the foregoing, as security for the performance of the Obligations. Upon the Closing Date, the certificate or certificates for the Shares shall be delivered to Bank, accompanied by an instrument of assignment duly executed in blank by Borrower. Borrower shall cause the books of each entity whose shares are part of the Collateral and any transfer agent to reflect the pledge of the Shares. Upon the occurrence of an Event of Default hereunder, Bank may effect the transfer of the Shares into the name of Bank and cause new certificates representing such Shares to be issued in the name of Bank or its transferee. Borrower will execute and deliver such documents, and take or cause to be taken such actions, as Bank may reasonably request to perfect or continue the perfection of Bank's security interest in the Shares. Unless an Event of Default shall have occurred and be continuing, Borrower shall be entitled to exercise any rights with respect to the Shares and to give consents, waivers and ratifications in respect thereof, provided that no vote shall be cast or consent, waiver or ratification given or action taken which would be inconsistent with any of the terms of this Agreement or which would constitute or create any violation of any of such terms. All such rights to vote and give consents, waivers and ratifications shall terminate upon the occurrence and continuance of an Event of Default.     5.  Representations and Warranties.       Borrower represents and warrants as follows:     5.1  Due Organization and Qualification.  Borrower and each Subsidiary is a corporation duly existing under the laws of its state of incorporation and qualified and licensed to do business in 16 -------------------------------------------------------------------------------- any state in which the conduct of its business or its ownership of property requires that it be so qualified.     5.2  Due Authorization; No Conflict.  The execution, delivery, and performance of the Loan Documents are within Borrower's powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower's Articles of Incorporation or Bylaws, nor will they constitute an event of default under any material agreement to which Borrower is a party or by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound, which default could have a Material Adverse Effect.     5.3  No Prior Encumbrances.  Borrower has good and indefeasible title to the Collateral, free and clear of Liens, except for Permitted Liens.     5.4  Bona Fide Accounts.  The Accounts are bona fide existing obligations. The property or services giving rise to such Accounts have been delivered to the account debtor (or, in the case of property, to the account debtor's agent for immediate shipment to and unconditional acceptance by the account debtor). Borrower has not received notice of actual or imminent Insolvency Proceeding of any account debtor that is included in any Borrowing Base Certificate as an Eligible Account.     5.5  Merchantable Inventory.  All Inventory is in all material respects of good and marketable quality, free from all material defects, except for Inventory for which adequate reserves have been made.     5.6  Name; Location of Chief Executive Office.  Except as disclosed in the Schedule, Borrower has not done business under any name other than that specified on the signature page hereof. The chief executive office of Borrower is located at the address indicated in Section 10 hereof.     5.7  Intellectual Property Collateral.  Borrower is the sole owner of the Intellectual Property Collateral, except for non-exclusive licenses granted by Borrower to its customers in the ordinary course of business. Each of the Patents is valid and enforceable, and no part of the Intellectual Property Collateral has been judged invalid or unenforceable, in whole or in part, and no claim has been made that any part of the Intellectual Property Collateral violates the rights of any third party. Except as set forth in the Schedule, no part of the Intellectual Property Collateral is subject to any agreement restricting the transfer thereof or the grant of a security interest therein. The Copyrights, Patents and Trademarks listed on the Exhibits to the Intellectual Property Security Agreement constitute all of the intellectual property necessary to sell, license or distribute all of Borrower's products in the ordinary course of business.     5.8  Litigation.  Except as set forth in the Schedule, there are no actions or proceedings pending by or against Borrower or any Subsidiary before any court or administrative agency in which an adverse decision could have a Material Adverse Effect or a material adverse effect on Borrower's interest or Bank's security interest in the Collateral. Borrower does not have knowledge of any such pending or threatened actions or proceedings.     5.9  No Material Adverse Change in Financial Statements.  All consolidated financial statements related to Borrower and any Subsidiary that are delivered by Borrower to Bank fairly present in all material respects Borrower's consolidated financial condition as of the date thereof and Borrower's consolidated results of operations for the period then ended. There has not been a material adverse change in the consolidated financial condition of Borrower since the date of the most recent of such financial statements submitted to Bank.     5.10  Solvency, Payment of Debts.  Borrower is solvent and able to pay its debts (including trade debts) as they mature. 17 --------------------------------------------------------------------------------     5.11  Regulatory Compliance.  Borrower and each Subsidiary have met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. No event has occurred resulting from Borrower's failure to comply with ERISA that is reasonably likely to result in Borrower's incurring any liability that could have a Material Adverse Effect. Borrower is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940. Borrower is not engaged principally, or as one of the important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of any regulations promulgated by the Board of Governors of the Federal Reserve System). Borrower has complied with all the provisions of the Federal Fair Labor Standards Act. Borrower has not violated any statutes, laws, ordinances or rules applicable to it, violation of which could have a Material Adverse Effect.     5.12  Environmental Condition.  None of Borrower's or any Subsidiary's properties or assets has ever been used by Borrower or any Subsidiary, to the best of Borrower's knowledge, by previous owners or operators, in the disposal of, or to produce, store, handle, treat, release, or transport, any hazardous waste or hazardous substance other than in accordance with applicable law; to the best of Borrower's knowledge, none of Borrower's properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute; no lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal, state or other governmental agency concerning any action or omission by Borrower or any Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste or hazardous substances into the environment.     5.13  Taxes.  Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed, and have paid, or have made adequate provision for the payment of, all taxes reflected therein.     5.14  Subsidiaries.  Borrower does not own any stock, partnership interest or other equity securities of any Person, except for Permitted Investments.     5.15  Government Consents.  Borrower and each Subsidiary have obtained all material consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrower's business as currently conducted, the failure to obtain which could have a Material Adverse Effect.     5.16  Full Disclosure.  No representation, warranty or other statement made by Borrower in any certificate or written statement furnished to Bank contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading.     5.17  Shares.  Borrower has full power and authority to create a first lien on the Shares and no disability or contractual obligation exists that would prohibit Borrower from pledging the Shares pursuant to this Agreement. There are no subscriptions, warrants, rights of first refusal or other restrictions on, or options exercisable with respect to the Shares. The Shares have been and will be duly authorized and validly issued, and are fully paid and non-assessable. To the best of Borrower's knowledge, the Shares are not the subject of any present or threatened suit, action, arbitration, administrative or other proceeding, and Borrower knows of no reasonable grounds for the institution of any such proceedings. 18 --------------------------------------------------------------------------------     6.  Affirmative Covenants.       Borrower covenants and agrees that, until payment in full of all outstanding Obligations, and for so long as Bank may have any commitment to make a Credit Extension hereunder, such Borrower shall do all of the following:     6.1  Good Standing.  Borrower shall maintain its and each of its Subsidiaries' corporate existence in its jurisdiction of incorporation and maintain qualification in each jurisdiction in which the failure to so qualify could have a Material Adverse Effect. Borrower shall maintain, and shall cause each of its Subsidiaries to maintain in force all licenses, approvals and agreements, the loss of which could have a Material Adverse Effect.     6.2  Government Compliance.  Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, noncompliance with which could have a Material Adverse Effect or a material adverse effect on the Collateral or the priority of Bank's Lien on the Collateral.     6.3  Financial Statements, Reports, Certificates.  Borrower shall deliver to Bank: (a) as soon as available, but in any event within thirty (30) days after the end of each calendar month, a company prepared consolidated balance sheet and income statement covering Borrower's consolidated operations during such period, in a form reasonably acceptable to Bank and certified by a Responsible Officer; (b) as soon as available, but in any event within ninety (90) days after the end of Borrower's fiscal year, audited consolidated financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an unqualified opinion on such financial statements of an independent certified public accounting firm reasonably acceptable to Bank, which financial statements shall reflect no material adverse changes from the financial statements prepared by Borrower and delivered to Bank; (c) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in uninsured damages or costs to Borrower or any Subsidiary of Five Hundred Thousand Dollars ($500,000) or more; (d) as soon as available, but in any case within thirty (30) days after the first day of each fiscal year, Borrower's business plan, including operating budget, for such year; (e) such budgets, sales projections, operating plans or other financial information as Bank may reasonably request from time to time; and (f) within thirty (30) days of the last day of each fiscal quarter, a report signed by Borrower in a form reasonably acceptable to Bank, listing any applications or registrations that Borrower has made or filed in respect of any Patents, Copyrights or Trademarks and the status of any outstanding applications or registrations as well as any material changes in Borrower's intellectual property. Within thirty (30) days after the last day of each month in which any Advances are outstanding under Sections 2.1.1 or 2.1.2 or, if no Advances are outstanding, within thirty (30) days after the last day of each quarter, Borrower shall deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in substantially the form of Exhibit C hereto, together with aged listings of accounts receivable and payable.     Borrower shall deliver to Bank copies of its Forms 10-K and 10-Q as filed with the United States Securities and Exchange Commission, in each case within five (5) days following the filing thereof, accompanied by a Compliance Certificate signed by a Responsible Officer in substantially the form of Exhibit D hereto.     Bank shall have the right from time to time hereafter to audit Borrower's Accounts and appraise Collateral at Borrower's expense, provided that such audits will be conducted not more frequently than two (2) times per year, unless an Event of Default has occurred and is continuing, in which event such audits shall be conducted in Bank's sole discretion. 19 --------------------------------------------------------------------------------     6.4  Inventory; Returns.  Borrower shall keep all Inventory in good and marketable condition, free from all material defects except for Inventory for which adequate reserves have been made. Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist at the time of the execution and delivery of this Agreement. Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims, where the return, recovery, dispute or claim involves more than Five Hundred Thousand Dollars ($500,000).     6.5  Taxes.  Borrower shall make, and shall cause each Subsidiary to make, due and timely payment or deposit of all material federal, state, and local taxes, assessments, or contributions required of it by law, and will execute and deliver to Bank, on demand, appropriate certificates attesting to the payment or deposit thereof; and Borrower will make, and will cause each Subsidiary to make, timely payment or deposit of all material tax payments and withholding taxes required of it by applicable laws, including, but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Bank with proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower.     6.6  Insurance.  Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where Borrower's business is conducted on the date hereof. Borrower shall also maintain insurance relating to Borrower's ownership and use of the Collateral in amounts and of a type that are customary to businesses similar to Borrower's. All such policies of insurance shall be in such form, with such companies, and in such amounts as reasonably satisfactory to Bank. All such policies of property insurance shall contain a Bank's loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional loss payee thereof and all liability insurance policies shall show the Bank as an additional insured, and shall specify that the insurer must give at least twenty (20) days notice to Bank before canceling its policy for any reason. Upon Bank's request, Borrower shall deliver to Bank certified copies of such policies of insurance and evidence of the payments of all premiums therefor. After the occurrence and during the continuance of an Event of Default, all proceeds payable under any such policy shall, unless Borrower can demonstrate to Bank's satisfaction that such proceeds will be used to repair or replace property material to Borrower's business, and no Event of Default then exists, at the option of Bank, be payable to Bank to be applied on account of the Obligations.     6.7  Registration of Intellectual Property Rights.       (a)  Borrower shall register or cause to be registered on an expedited basis (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 Exhibits A, B and C to the Intellectual Property Security Agreement delivered to Bank by Borrower in connection with this Agreement within thirty (30) days of the date of this Agreement. Borrower shall, on an expedited basis, register or cause to be registered with the United States Patent and Trademark Office or the United States Copyright Office, as applicable, and notify Bank of, all registerable intellectual property rights which constitute or give rise to more than five percent (5%) of Borrower's gross income in any given month which Borrower has developed as of the date of this Agreement but heretofore failed to register and give Bank notice thereof. Borrower shall register or cause to be registered with the United States Patent and Trademark Office or the United States Copyright Office, as applicable, and notify Bank of those additional intellectual property rights which constitute or give rise to more than five 20 -------------------------------------------------------------------------------- percent (5%) of Borrower's gross income in any given month which are developed or acquired by Borrower from time to time in connection with any product prior to the sale or licensing of such product to any third party and prior to Borrower's use of such product (including without limitation major revisions or additions to the intellectual property rights listed on such Exhibits A, B and C) and shall give Bank notice thereof.     (b)  Borrower shall execute and deliver such additional instruments and documents from time to time as Bank shall reasonably request to perfect Bank's security interest in the Intellectual Property Collateral.     (c)  Borrower shall (i) protect, defend and maintain the validity and enforceability of the Trademarks, Patents and Copyrights, (ii) use its best efforts to detect infringements of the Trademarks, Patents and Copyrights and promptly advise Bank in writing of material infringements detected and (iii) not allow any material Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to the public without the written consent of Bank, which shall not be unreasonably withheld.     (d)  Bank may audit Borrower's Intellectual Property Collateral to confirm compliance with this Section 6.7, provided such audit may not occur more often than once per year, unless an Event of Default has occurred and is continuing. Bank shall have the right, but not the obligation, to take, at Borrower's sole expense, any actions that Borrower is required under this Section 6.7 to take but which Borrower fails to take, after fifteen (15) days' notice to Borrower. Borrower shall reimburse and indemnify Bank for all reasonable costs and reasonable expenses incurred in the reasonable exercise of its rights under this Section 6.7.     6.8  Quick Ratio.  Borrower shall maintain, as of the last day of each fiscal quarter, a Quick Ratio of not less than 1.1 to 1.0. "Quick Ratio" means the ratio of Quick Assets to Current Liabilities, excluding deferred revenue, but including Advances under the Revolving Facility and Equipment Advances under the Equipment Line.     6.9  Tangible Net Worth.  Borrower shall maintain a minimum Tangible Net Worth, as of the last day of each fiscal quarter, a Tangible Net Worth of not less than Thirty Million Dollars ($30,000,000) plus, commencing with the quarter ending June 30, 2001, 75% of Borrower's net income per quarter and 100% of the proceeds received from the sale or issuance of equity securities.     6.10  Total Liabilities—Tangible Net Worth.  Beginning on the Closing Date and continuing through May 31, 2001, Borrower shall maintain, as of the last day of each fiscal quarter, a ratio of Total Liabilities to Tangible Net Worth of not more than 1.00 to 1.00; thereafter, Borrower shall maintain, as of the last day of each fiscal quarter, a ratio of Total Liabilities to Tangible Net Worth of not more than 0.75 to 1.00.     6.11  EBITDA.  Borrower shall maintain positive earnings before interest, taxes, depreciation and amortization ("EBITDA") commencing with the fiscal quarter ending September 30, 2001 and continuing thereafter as long as any Obligations are outstanding. Commencing with the fiscal year ending December 31, 2002, borrower shall maintain positive EBITDA on an annual basis, with no more than one (1) fiscal quarter of negative EBITDA, not to exceed negative EBITDA in any such quarter of One Million Five Hundred Thousand Dollars ($1,500,000).     6.12  Profitability.  Borrower shall not suffer a loss in more than two (2) fiscal quarters during any fiscal year. Borrower shall be profitable before and after taxes on a rolling four quarter basis commencing with the fiscal quarter ending March 31, 2003. 21 --------------------------------------------------------------------------------     6.13  Further Assurances.  At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement.     7.  Negative Covenants.       Borrower covenants and agrees that, so long as any credit hereunder shall be available and until payment in full of the outstanding Obligations or for so long as Bank may have any commitment to make any Credit Extensions, such Borrower will not do any of the following:     7.1  Dispositions.  Convey, sell, lease, transfer or otherwise dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, other than: (i) Transfers of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries; or (iii) Transfers of surplus, worn-out or obsolete Equipment.     7.2  Change in Business.  Without the prior written consent of Bank, which shall not be unreasonably withheld, engage in any business, or permit any of its Subsidiaries to engage in any business, other than the business currently engaged in by Borrower and any business substantially similar or related thereto (or incidental thereto). Borrower will not, without thirty (30) days prior written notification to Bank, relocate its chief executive office.     7.3  Mergers or Acquisitions.  Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person; provided, however, that Borrower may acquire the capital stock of another Person (i) engaged in the same or similar business as Borrower, (ii) a majority of whose assets are located in the United States, (iii) in a transaction in which Borrower is the surviving entity and does not suffer a material change in management, (iv) as long as no Event of Default exists before or would result after giving effect to such acquisition, provided, further, that such transaction does not exceed a total stock-for-stock consideration of a value of $50,000,000.     7.4  Indebtedness.  Create, incur, assume or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness.     7.5  Encumbrances.  Create, incur, assume or suffer to exist any Lien with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens.     7.6  Distributions.  Pay any cash dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock, or otherwise Transfer any assets to any Affiliates.     7.7  Investments.  Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments.     7.8  Transactions with Affiliates.  Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrower's business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm's length transaction with a nonaffiliated Person.     7.9  Transaction with Foreign Affiliates.  Transfer any assets or consideration to Foreign Subsidiaries, except for transfers in the ordinary course of Borrower's and such Foreign Subsidiaries' business.     7.10  Subordinated Debt.  Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such 22 -------------------------------------------------------------------------------- Subordinated Debt, or amend any provision contained in any documentation relating to the Subordinated Debt without Bank's prior written consent.     7.11  Inventory and Equipment.  Store the Inventory or Equipment with a bailee, warehouseman, or similar party unless Bank has received a pledge of the warehouse receipt covering such Inventory or Equipment; provided, however, that Borrower may deposit software code in escrow for customers in the ordinary course of business. Except for that sold in the ordinary course of business and except for such other locations as Bank may approve in writing, Borrower shall keep the Inventory and Equipment only at the location set forth in Section 10 hereof and such other locations of which Borrower gives Bank prior written notice and as to which Borrower signs and files a financing statement where needed to perfect Bank's security interest.     7.12  Compliance.  Become an "investment company" or be controlled by an "investment company," within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Credit Extension for such purpose. Fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the Federal Fair Labor Standards Act or violate any law or regulation, which violation could have a Material Adverse Effect or a material adverse effect on the Collateral or the priority of Bank's Lien on the Collateral, or permit any of its Subsidiaries to do any of the foregoing.     7.13  Intellectual Property Agreements.  Borrower shall not permit the inclusion in any material contract to which it becomes a party of any provisions that could or might in any way prevent the creation of a security interest in Borrower's rights and interests in any property included within the definition of the Intellectual Property Collateral acquired under such contracts.     8.  Events of Default.       Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement:     8.1  Payment Default.  If Borrower fails to pay, within three (3) Business Days of the date due, any of the Obligations;     8.2  Covenant Default.  If Borrower fails within ten (10) calendar days to perform any obligation under Article 6 or violates any of the covenants contained in Article 7 of this Agreement, or fails or neglects to perform, keep, or observe any other material term, provision, condition, covenant, or agreement contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Bank and as to any default under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure such default within twenty (20) calendar days after Borrower receives notice thereof or any officer of Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the twenty (20) calendar day period or cannot after diligent attempts by Borrower be cured within such twenty (20) calendar day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default (provided that no Credit Extensions will be required to be made during such cure period);     8.3  Material Adverse Change.  If there occurs a Material Adverse Effect, if Bank reasonably determines that Borrower is likely to fail to comply with any of the financial covenants set forth in Section 6 as of any date of measurement; or a material impairment of the value or priority of Bank's security interests in the Collateral; 23 --------------------------------------------------------------------------------     8.4  Attachment.  If any portion of a Borrower's assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within thirty (30) days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower's assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of Borrower's assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within thirty (30) days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower (provided that no Credit Extensions will be required to be made during such cure period);     8.5  Insolvency.  If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced against Borrower and is not dismissed or stayed within forty-five (45) days (provided that no Credit Extensions will be made prior to the dismissal of such Insolvency Proceeding);     8.6  Other Agreements.  If there is a default in any agreement to which Borrower is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of Fifty Thousand Dollars ($50,000) or that could have a Material Adverse Effect;     8.7  Subordinated Debt.  If Borrower makes any payment on account of Subordinated Debt, except to the extent such payment is allowed under any subordination agreement entered into with Bank;     8.8  Judgments.  If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least Five Hundred Thousand Dollars ($500,000) shall be rendered against a Borrower which is not covered by insurance, and which remains unsatisfied and unstayed for a period of thirty (30) days (provided that no Credit Extensions will be made prior to the satisfaction or stay of such judgment);     8.9  Misrepresentations.  If any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document.     9.  Bank's Rights and Remedies.       9.1  Rights and Remedies.  Upon the occurrence and during the continuance of an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower:     (a)  Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.5 all Obligations shall become immediately due and payable without any action by Bank);     (b)  Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other agreement between Borrower and Bank;     (c)  Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable; 24 --------------------------------------------------------------------------------     (d)  Make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Bank's determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrower's owned premises, Borrower hereby grants Bank a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Bank's rights or remedies provided herein, at law, in equity, or otherwise;     (e)  Set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Bank;     (f)  Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank's exercise of its rights under this Section 9.1, Borrower's rights under all licenses and all franchise agreements shall inure to Bank's benefit;     (g)  Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as Bank determines is commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank deems appropriate;     (h)  Bank may credit bid and purchase at any public sale; and     (i)  Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower.     9.2  Power of Attorney.  Effective only upon the occurrence and during the continuance of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Bank's designated officers, or employees) as Borrower's true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Bank's security interest in the Accounts; (b) endorse Borrower's name on any checks or other forms of payment or security that may come into Bank's possession; (c) sign Borrower's name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims under and decisions with respect to Borrower's policies of insurance; and (f) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; (g) to modify, in its sole discretion, any intellectual property security agreement entered into between Borrower and Bank without first obtaining Borrower's approval of or signature to such modification by amending Exhibits A, B, and C, thereof, as appropriate, to include reference to any right, title or interest in any Copyrights, Patents or Trademarks acquired by Borrower after the execution hereof or to delete any reference to any right, title or interest in any Copyrights, Patents or Trademarks in which Borrower no longer has or claims to have any right, title or interest; (h) to file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of Borrower where permitted by law; and (i) to transfer the 25 -------------------------------------------------------------------------------- Intellectual Property Collateral into the name of Bank or a third party to the extent permitted under the California Uniform Commercial Code; provided Bank may exercise such power of attorney to sign the name of Borrower on any of the documents described in Section 4.2 regardless of whether an Event of Default has occurred. The appointment of Bank as Borrower's attorney in fact, and each and every one of Bank's rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank's obligation to provide advances hereunder is terminated.     9.3  Accounts Collection.  At any time during the term of this Agreement, Bank may notify any Person owing funds to a Borrower of Bank's security interest in such funds and verify the amount of such Account. Borrower shall collect all amounts owing to Borrower for Bank, receive in trust all payments as Bank's trustee, and immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit.     9.4  Bank Expenses.  If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following after reasonable notice to Borrower: (a) make payment of the same or any part thereof; (b) set up such reserves under the Revolving Facility as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.6 of this Agreement, and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement.     9.5  Bank's Liability for Collateral.  Bank shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower.     9.6  Remedies Cumulative.  Bank's rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given.     9.7  Demand; Protest.  Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Bank on which Borrower may in any way be liable.     10.  Notices.       Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery 26 -------------------------------------------------------------------------------- service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses set forth below:   If to Borrower:   SEEBEYOND TECHNOLOGY CORPORATION 404 E. Huntington Drive Monrovia, CA 91016 Attn: Barry Plaga FAX: (626) 471-6108   If to Bank:   Comerica Bank—California 611 Anton Boulevard, Second Floor Costa Mesa, CA 92626 Attn: Ms. Bonnie E. Kehe FAX: (714) 424-3857     The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.     11.  Choice of Law and Venue; Jury Trial Waiver.       This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Borrower and Bank hereby submits to the exclusive jurisdiction of the state and Federal courts located in the County of Santa Clara, State of California. BORROWER AND BANK HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.     12.  General Provisions.       12.1  Successors and Assigns.  This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties; provided, however, that neither this Agreement nor any rights hereunder may be assigned by Borrower without Bank's prior written consent, which consent may be granted or withheld in Bank's sole discretion. Bank shall have the right without the consent of or notice to Borrower to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank's obligations, rights and benefits hereunder.     12.2  Indemnification.  Borrower shall defend, indemnify and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank as a result of or in any way arising out of, following, or consequential to transactions between Bank and Borrower whether under this Agreement, or otherwise (including without limitation reasonable attorneys fees and expenses), except for losses caused by Bank's gross negligence or willful misconduct. 27 --------------------------------------------------------------------------------     12.3  Time of Essence.  Time is of the essence for the performance of all obligations set forth in this Agreement.     12.4  Severability of Provisions.  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.     12.5  Amendments in Writing, Integration.  This Agreement cannot be amended or terminated orally. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement, if any, are merged into this Agreement and the Loan Documents.     12.6  Counterparts.  This Agreement 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 Agreement.     12.7  Survival.  All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run.     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.     SEEBEYOND TECHNOLOGY CORPORATION     By: /s/ BARRY J. PLAGA    --------------------------------------------------------------------------------     Title: --------------------------------------------------------------------------------     COMERICA BANK—CALIFORNIA     By: /s/ BONNIE KEHE    --------------------------------------------------------------------------------     Title: Senior VP/Regional Manager Southern California -------------------------------------------------------------------------------- 28 -------------------------------------------------------------------------------- EXHIBIT A COLLATERAL DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT     The Collateral shall consist of all right, title and interest of Borrower in and to the following:     (a)  All goods and equipment now owned or hereafter acquired, including, without limitation, all machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located;     (b)  All inventory, now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is temporarily out of Borrower's custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrower's Books relating to any of the foregoing;     (c)  All contract rights and general intangibles now owned or hereafter acquired, including, without limitation, goodwill, trademarks, servicemarks, trade styles, trade names, patents, patent applications, leases, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, computer programs, computer discs, computer tapes, literature, reports, catalogs, design rights, income tax refunds, payments of insurance and rights to payment of any kind;     (d)  All now existing and hereafter arising accounts, contract rights, royalties, license rights and all other forms of obligations owing to Borrower arising out of the sale or lease of goods, the licensing of technology or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower's Books relating to any of the foregoing;     (e)  All documents, cash, deposit accounts, securities, securities accounts, security entitlements, financial assets, investment property, letters of credit, certificates of deposit, instruments and chattel paper now owned or hereafter acquired and Borrower's Books relating to the foregoing;     (f)  All copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished, now owned or hereafter acquired; all trade secret rights, including all rights to unpatented inventions, know-how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; all mask work or similar rights available for the protection of semiconductor chips, now owned or hereafter acquired; all claims for damages by way of any past, present and future infringement of any of the foregoing; and     (g)  Any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof.     Notwithstanding the foregoing, the collateral shall include (i) sixty-six and two-thirds percent (662/3%) of the issued and outstanding capital stock owned or held of record by Borrower in any subsidiary of Borrower which is not an entity organized under the laws of the United States or any territory thereof, and (ii) one hundred percent (100%) of the issued and outstanding capital stock owned or held of record by Borrower in any subsidiary of Borrower which is an entity organized under the laws of the United States or any territory thereof. -------------------------------------------------------------------------------- QuickLinks EXHIBIT 10.20 SEEBEYOND TECHNOLOGY CORPORATION COMERICA BANK—CALIFORNIA LOAN AND SECURITY AGREEMENT RECITALS AGREEMENT EXHIBIT A COLLATERAL DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT

Exhibit 10.3 - Agreement for Purchase and Sale AGREEMENT FOR PURCHASE AND SALE           THIS AGREEMENT FOR PURCHASE AND SALE is made and entered into this 10th day of April, 2001, by and between PRIME FINANCIAL CORPORATION, an Oklahoma corporation (hereinafter referred to as "Seller"), and RAPTOR MASTER, L.L.C., an Oklahoma limited liability company (hereinafter referred to as "Buyer") upon the terms and conditions set forth herein.           NOW THEREFORE, in consideration of the foregoing, the mutual covenants herein contained, the amounts to be paid hereunder and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties agree as follows:           1.  Definitions. When used herein the following terms shall have the meanings set forth in this section.                1.1  Property. All of Seller's right, title and interest in and to the real property, improvements and appurtenances thereunto belonging located in Oklahoma County, Oklahoma, as described on Exhibit A, including but not limited to:                      1.1.1  Improvements. All building structures, parking areas, landscaping and other improvements on the Property.                      1.1.2  Easements. All right, title and interest of Seller in and to any easements, rights-of-way, and rights of ingress or egress benefiting and appurtenant to the Property and to the Improvements.                1.2  Personal Property. All equipment, appliances, furnishings and other personal property owned by Seller and attached to, appurtenant to, and used in connection with the ownership or operation of the Property excluding, however, those items of equipment, appliances, furnishings or other tangible and intangible personal property owned or leased by Seller, Climate Master, Inc., a Delaware Corporation ("Climate Master"), an affiliate of Seller, or their affiliates and located on the Property and used in connection with the operation of Seller's or Climate Master's business.                1.3  Title Company. Lawyers Title Insurance Company.                1.4  Brokers or Agents. Those persons listed on Exhibit B hereto.           2.  Purchase and Sale. Seller shall sell and Buyer shall purchase from Seller, for the consideration and on the terms herein provided, the Property, free and clear of all mortgages, security interests, liens, encumbrances and charges whatsoever except as shown on Exhibit C hereto and such other matters as Buyer may approve in writing.           3.  Purchase Price. The Purchase Price for the Property shall be Eight Million One Hundred Thousand Dollars ($8,100,000) and shall be payable Six Million Five Hundred Thousand Dollars ($6,500,000) in cash at Closing and the balance by a promissory note in the form attached as Exhibit D.             4.  Lease. At Closing as defined below, and as a material condition to Buyer's obligation to close, Climate Master shall lease the Property from Buyer and execute the lease attached hereto as Exhibit E (the "Lease"). The tenant's obligations under the Lease shall be guaranteed by Seller.           5.  Earnest Money. The amount of $10,000 together with interest earned thereon (the "Earnest Money Deposit") in the form of cash, certified check or a negotiable certificate of deposit properly endorsed to the Title Company shall be delivered to the Title Company upon execution by the parties of this Agreement and shall be held under the terms and conditions of this Agreement and applied to the cash portion of the purchase price at Closing as defined below. The Earnest Money Deposit shall be invested at the instructions of Buyer and interest earned shall be for the account of Buyer except in the event of a default of Buyer under Section 12.2.           6.  Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at 10:00 a.m. on or before May 31, 2001 (provided such date may be extended as provided in Section 7.2 hereof) at the offices of the Title Company, or at such other time as the parties may hereafter agree in writing.           7.  Title Material.                7.1  Commitment for Title Insurance. Within twenty (20) days after the date of this Agreement, Seller shall furnish to Buyer (i) a survey of the Property of current date sufficient to cause removal of the survey exception from the title insurance policy (the "Survey"), and (ii) a commitment for title insurance issued by the Title Company, by which said company agrees to issue at Closing an owner's form in the amount of the Purchase Price insuring the fee simple title to the Property to Buyer, excepting only such matters as are approved by Buyer herein or hereafter in writing. Buyer agrees that the title insurance policy may be subject to easements, covenants and restrictions of record, including, but not limited to, utility easements, building restrictions and zoning regulations which do not hinder the use of the Property for its current use and a leasehold mortgage granted by Climate Master to the Oklahoma Industrial Finance Authority to secure the debt associated with certain equipment owned by Climate Master and located on the Property.                7.2  Buyer's Objections. Buyer shall have a period of ten (10) days following receipt of the commitment for title insurance in which to advise Seller of any defects in the Survey or title which are unacceptable. Seller shall have until Closing to cure such defects to the reasonable satisfaction of Buyer. If Seller is unable to cure defects noted by Buyer at Closing, Buyer may, at its option (i) waive any such defects, or (ii) extend the time of Closing for a period reasonably required to cure such defects but in no event later than fifteen (15) days, or (iii) terminate this Agreement whereupon neither party shall have any further obligation hereunder, and the Earnest Money Deposit shall be promptly returned to Buyer. Seller agrees to use its best efforts to cure any such matter.   2           8.  Representations and Warranties.                8.1  Seller's Representations and Warranties. Seller represents and warrants to Buyer, as of the date of Closing, as follows:                      8.1.1  Authority. Seller is a corporation duly organized under the laws of the State of Oklahoma and is validly existing under the laws of the State of Oklahoma, and has the power to enter into and carry out the transactions described in this Agreement and has taken such action necessary to authorize the execution of this Agreement.                      8.1.2  Condemnation. Seller has no knowledge that the property or any portion thereof is or will be the subject of or affected by any condemnation, eminent domain or similar proceeding.                      8.1.3  Litigation. To the Seller's knowledge, there is no existing or threatened action, suit or proceeding affecting the Property or any part thereof or relating to or arising out of Seller's ownership and operation of the Property or any part thereof in any court or before or by any federal, state, county or municipal department, commission, board, bureau or governmental instrumentality.                      8.1.4  Labor and Materials. All bills for work done at the order of Seller or materials furnished at the order of Seller with respect to the Property have been paid in full or discharged by law.                      8.1.5  Legal Compliance. To Seller's knowledge, Seller has complied with all federal, state, local laws and administrative regulations relating to the maintenance and operation of the Property including, without limitation, all building codes and zoning ordinances of the City of Oklahoma City, Oklahoma.                      8.1.6  Grant of Rights. Seller has not granted and will not grant any person, firm or other entity a right or option to acquire the Property or any portion thereof.                      8.1.7  Taxes. All general taxes and special assessments on the Property due and payable with respect to calendar years prior to 2001 have been paid in full.                      8.1.8  Insurance. Seller has not received any request from any insurer under a policy of hazard insurance covering the Property or by any board of underwriters to perform any repairs to or other work on the Property.                      8.1.9  Utilities. To the best of the Seller's knowledge, the existing water, sewer, gas, electricity and other utility systems on the Property are adequate to serve the utility needs of the Property. All utilities required for the current operation of the Property enter the Property through adjoining public streets or public utility easements.                     8.1.10  Covenants. To Seller's knowledge, no default or breach exists by Seller or by any other party thereto under any of the covenants, conditions, restrictions or easements affecting the Property or any portion thereof. 3                      8.1.11  Hazardous Materials. To Seller's knowledge there are no hazardous materials or environmental contaminants located in or on the Property other than in compliance with the law.                8.2  Buyer's Representations and Warranties. Buyer represents and warrants to the Seller that Buyer is a duly organized and validly existing limited liability company under the laws of the State of Oklahoma, has the power to enter into and carry out the transactions described in this Agreement and the execution and performance of this Agreement will not conflict with or result in any breach of the terms or provisions of Buyer's organization agreement or any other instrument or agreement to which Buyer is a party or by which Buyer is bound. All action necessary to authorize the manager of Buyer to enter into this Agreement and to consummate the transactions provided for herein has been taken.           9.  Covenants Pending Closing.                9.1  Expenses and Claims. Seller shall pay all bills and expenses which are incurred by Seller in connection with the ownership and operation of the Property to the date of Closing.           10.  Conditions Precedent to Buyer's Obligations. The obligations of Buyer hereunder at Closing shall be subject at its option to the following conditions:                 10.1  Representation and Warranties. All representations and warranties by Seller hereunder shall be true and correct in all material respects as of the date hereof and as of Closing.                 10.2  Condemnation. Neither the Property nor any portion thereof shall have been condemned by any authority having the right and power, nor shall the Property or any portion thereof be the subject of any pending or threatened eminent domain proceeding.                  10.3  Building and Personal Property. The Improvements and all Personal Property constituting equipment used in connection therewith shall be in the same condition as of the date of this Agreement, ordinary wear and tear excepted.           11  Conditions Precedent to Seller's Obligations. Seller's obligations hereunder shall be subject at its option to the following conditions:                  11.1  Performance by Buyer. Buyer shall have performed all its obligations to be performed hereunder at or prior to Closing.                 11.2  Representations and Warranties. All representations and warranties of Buyer hereunder shall be true and correct as of the date hereof and as of Closing.                 11.3  Exercise Price of Option Agreement with West Point Company, L.L.C. The purchase price under the Option Agreement between West Point Company, L.L.C. ("West Point") and Climate Master, dated November 12, 1987, as assigned to Seller, shall not exceed a total of $4.4 million, including the prepayment of 4   the First Fee Mortgage referenced in such Option Agreement, and West Point shall have conveyed title to the Property to Seller in accordance with such Option Agreement.           12.  Default.                 12.1  Default by Seller. In the event Seller defaults in the performance of its obligations hereunder arising prior to or at Closing or any representation or warranty of Seller shall be untrue when made or at Closing, Buyer may at its option, pursue one of the following remedies which shall be Buyer's sole remedies: (i) waiver any default(s) and close according to this Agreement, (ii) terminate this Agreement by written notice to Seller on or prior to Closing and obtain the return to Buyer of the Earnest Money Deposit, or (iii) enforce specific performance of this Agreement against Seller. Buyer shall be entitled to damages for Seller's willful failure to perform its obligations hereunder.                 12.2  Default by Buyer. In the event Buyer fails to perform any of its obligations hereunder arising prior to or at Closing or if any representation or warranty made by Buyer hereunder is untrue when made or at Closing, Seller shall be entitled to pursue one of the following remedies which shall be Seller's sole remedies: (i) retain the Earnest Money Deposit as its sole and exclusive remedy, including all accrued interest, it being agreed between Buyer and Seller that such sum shall be liquidated damages for the default of Buyer hereunder because of the difficulty, inconvenience and uncertainty of ascertaining the actual damages in the event of any such default, or (ii) enforce specific performance of this Agreement against Buyer.           13.  Transactions at Closing. The following transactions and deliveries shall take place at Closing:                 13.1  Deliveries. Seller shall deliver to Buyer a Warranty Deed and Bill of Sale covering the Property. Buyer and Climate Master shall execute and deliver counterparts of the Lease to each other. Buyer and Climate Master shall execute the Option Agreement attached hereto as Exhibit F.                 13.2  Documentary Stamp Taxes. Seller shall pay to Buyer all sums necessary for the purchase of the documentary stamps required to be affixed to the warranty deed under Oklahoma law.                 13.3  Title Insurance. The Title Company shall endorse the commitment described in Section 7.1 hereof to be effective as of the Closing and deleting any defects in accordance with Section 7.2 hereof, thereby agreeing to issue a policy of title insurance in accordance therewith.                13.4  Foreign Person Affidavit. Seller shall execute and deliver to Buyer an affidavit to the effect that it is not a "foreign person" as defined in the Internal Revenue Code of 1954, as amended, sufficient to relieve Buyer of any withholding requirement under applicable federal law.                 13.5  Authorization. Seller and Buyer shall each provide to the other with reasonable evidence of such party's authority to perform the transactions contemplated by this Agreement. 5                 13.6  Payments. Buyer shall pay to the Seller by certified or bank cashier's check the Purchase Price, subject to Closing adjustments and execute and deliver the promissory note in the form attached as Exhibit D.           14.  Expenses. The costs of the title insurance policy and the Survey to be provided by Seller hereunder, the cost of documentary stamps required to be affixed to the deed to be delivered hereunder, and one-half of the Closing charges of the Title Company shall be paid by Seller. The cost of recording the deed, any sales taxes payable with respect to the sale of the Personal Property and one-half of the escrow Closing fees of the Title Company shall be paid by Buyer. Otherwise, each party will bear and pay its own expenses including attorneys' expenses, in negotiating and consummating the transactions contemplated hereby.           15.  Damage or Destruction Prior to Closing.                 15.1  Risk. Seller shall bear the risk of all loss, destruction or damage to the Property or any portion thereof prior to Closing.                15.2  Casualty. In the event of casualty, if the cost of repair shall not exceed $50,000, the obligations of the parties hereunder shall not be affected and Seller shall repair such damage according to the terms of the Lease. If the cost of repair exceeds $50,000 and is not covered by insurance, Seller may either (i) terminate this Agreement in which event neither party shall have any further obligations hereunder except the Earnest Money Deposit deposited hereunder shall be returned to the Buyer, or (ii) proceed with the transaction in accordance herewith in which event Seller shall repair the damage according to the terms of the lease. For purposes of this section, the term "cost of repair" shall mean an estimate of the actual cost of repair obtained promptly following such casualty from a reputable contractor reasonably acceptable to Seller and Buyer. All insurance proceeds payable under Seller's policies of insurance for any such casualty shall be paid to Seller.           16.  Broker. The persons listed on Exhibit B hereto are the only brokers or agents involved in this transaction. Seller will pay a brokerage fee to such persons as shown on Exhibit B hereto at Closing provided, no commission shall be payable in the event the transaction contemplated by this Agreement does not close.           17.  Notices. All notices, requests, demands, instructions or other communications called for hereunder or contemplated hereby shall be in writing and shall be personally delivered in return for a receipt or mailed by registered or certified mail, return receipt requested, to the parties at the addresses set forth below. Any party may change the address to which notices are to be given by giving notice in the manner herein provided. Any notice given by mail as herein provided shall be deemed received on the earlier of the date of actual receipt or three business days following the date of mailing.     6                   17.1  Seller. Notices to Seller shall be addressed as follows:                           Prime Financial Corporation                          16 South Pennsylvania Avenue                          Oklahoma City, Oklahoma 73107                          Attn: Jack E. Golsen, President with a copy to:  Office of the General Counsel                         Prime Financial Corporation                         16 South Pennsylvania Avenue                         Oklahoma City, Oklahoma 73107                         Attn: David M. Shear, Esq.                 17.2  Buyer. Notices to Buyer shall be addressed as follows:                          Raptor Master, L.L.C.                          1141 North Robinson, Suite 300                          Oklahoma City, Oklahoma 73103                          Attn: J. Roddy Bates with a copy to:  McAfee & Taft                         Two Leadership Square                         10th Floor                         Oklahoma City, Oklahoma 73102                         Attn: Jack Sargent, Esq.           18.  Whole Agreement -- No Oral Modifications. This Agreement embodies all the representations, warranties and agreements of the parties and may not be altered or modified except by an instrument in writing signed by the parties.           19.  Benefit of Agreement. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns.           20.  Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Oklahoma applicable to contracts made and performed entirely therein.           21.  Counterparts. This Agreement may be executed in any number of counterparts which taken together shall constitute one in the same agreement.          22.  Section Headings. The section headings contained in this Agreement are for convenient reference only and shall not in any way affect the meaning or interpretation hereof.   7             IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written.                                                                                        PRIME FINANCIAL CORPORATION                                                                                        By                                                                                                                                                                                                                     President                                                                                                                                              "SELLER"                                                                                         RAPTOR MASTER, L.L.C.                                                                                          By                                                                                                                                                                                                    General Partner                                                                                                                                             "BUYER"           Performance of all obligations of Buyer herein is guaranteed by Raptor Properties, L.L.C.                                                                                           RAPTOR PROPERTIES, L.L.C.                                                                                            By                                                                                                                                                                                           General Partner           The undersigned agrees to execute and deliver counterparts of the Lease and Option Agreement to Buyer, pursuant to Section 13.1 of this Agreement.                                                                                             CLIMATE MASTER, INC.                                                                                              By                                                                                                                                                                                                         President           The undersigned acknowledges receipt of the Earnest Money Deposit and agreed to hold the same according to the terms of the foregoing Agreement.                                                                               LAWYERS TITLE INSURANCE COMPANY                                                                               By                                                                                                                                                                                                                     President agrmnt\pfc\raptor_01.psa

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.16 CONFIDENTIAL BINDING LETTER OF INTENT & MEMORANDUM OF AGREEMENT REGARDING PURCHASE OF PREFERRED STOCK OF AXIOM BIOTECHNOLOGIES INC. BY ARENA PHARMACEUTICALS, INC. AND RESEARCH COLLABORATION AGREEMENT     This BINDING LETTER OF INTENT & MEMORANDUM OF AGREEMENT REGARDING PURCHASE OF PREFERRED STOCK OF AXIOM BIOTECHNOLOGIES INC. BY ARENA PHARMACEUTICALS, INC. AND RESEARCH COLLABORATION AGREEMENT ("Agreement") is effective as of April 15, 2001 ("Effective Date") by and between Axiom Biotechnologies Inc. ("Axiom") and Arena Pharmaceuticals, Inc. ("Arena"). RECITALS     WHEREAS, Axiom, having a place of business at 3550 General Atomics Court, San Diego, California 92121, is a corporation organized under the laws of the state of California;     WHEREAS, Arena, having a place of business at 6166 Nancy Ridge Drive, San Diego, California 92121, is a corporation organized under the laws of the state of Delaware. Arena is a publicly traded company listed on NASDAQ and trading under the symbol "ARNA";     WHEREAS, Axiom desires to sell two million dollars ($2,000,000) worth of its Series E Preferred Stock to Arena;     WHEREAS, Arena desires to purchase two million dollars ($2,000,000) worth of Series E Preferred Stock from Axiom;     WHEREAS, Axiom and Arena desire to enter into a research collaboration with each other in connection with Axiom's cell lines and primary cultures; and     WHEREAS, owing to the fact that Arena is a publicly traded company and that Axiom is a privately-held company coupled with the mutual objectives of Arena and Axiom in completing the transactions contemplated herein within a reasonable period of time, the parties desire to enter into this Agreement to facilitate the purchase of the Series E Preferred Stock by Arena and commencement of the research collaboration.     NOW THEREFORE, in consideration of the mutual promises and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree to be bound as follows: AGREEMENT     A.  Subject to Arena's satisfactory completion of its due diligence investigation, Arena agrees to purchase and Axiom agrees to sell two million dollars ($2,000,000) worth of Axiom Series E Preferred Stock at three dollars and fifty cents ($3.50) dollars per share ("Preferred Stock Purchase") in accordance with mutually agreed-to terms and conditions of a Preferred Stock Purchase Agreement containing customary and standard terms, representations, warranties, conditions to closing, covenants, registrations rights and investor rights and other provisions for a transaction of this magnitude ("Standard Terms"), within forty-five (45) days of the Effective Date, unless extended by mutual agreement of the parties, with such date being referred to as the "Closing Date". Axiom shall endeavor to obtain the necessary shareholder and Board approval in a timely fashion, so that the Preferred Stock Purchase can be executed by the Closing Date. 1 --------------------------------------------------------------------------------     B.  The parties agree to begin the research collaboration as set forth on the Research Collaboration Term Sheet on Exhibit A, which is incorporated herein by this reference, by transferring the Axiom Human Cell Bank Cell Lines to Arena within five (5) days of the Effective Date.     C.  All terms and conditions set forth in this Agreement shall be incorporated into the documents (and/or restated articles of incorporation of Axiom) necessary to conclude the Preferred Stock Purchase. The Parties agree to engage in good faith activities necessary to complete the Preferred Stock Purchase by the Closing Date, with the acknowledgment and understanding by Axiom that Arena is a publicly traded company. During the due diligence period, Axiom shall grant Arena full access to Axiom's book and records and such documents as Arena shall reasonably request, including its audited financial statements for the year 2000 and any subsequent quarterly financial statements. Arena shall provide notice to Axiom as to its ability to proceed with the Preferred Stock Purchase, based upon Arena's review of such documents and other due diligence investigations as soon as it is determined, but not later than forty-five (45) days from the Effective Date.     D.  The Preferred Stock Purchase Agreement that the parties will enter into in connection with the Preferred Stock Purchase shall contain the Standard Terms. Such Standard Terms in the Preferred Stock Purchase Agreement shall include, but not be limited to, the following provisions requiring that:     1.  Axiom's counsel shall provide to Arena an opinion in a form reasonably satisfactory to Arena's counsel that Axiom is duly organized, validly existing and in good standing under the laws of the state of California, with full corporate power and authority to conduct its business as it is now being conducted and is proposed to be conducted; that the Preferred Stock Purchase Agreement and any other agreements executed in connection therewith have been duly authorized, executed and delivered by Axiom constitute legal, valid and binding obligations of Axiom and are enforceable in accordance with their terms, subject to the standard exceptions for applicable bankruptcy, reorganization, insolvency, moratorium and similar laws affecting creditors' rights and remedies generally and to general principles of equity; that the issuance and delivery of the Series E Preferred Shares and respective conversion shares have been duly authorized by all required legal action by Axiom; that the Series E Preferred Shares and respective conversion shares will be validly issued, fully paid and non-assessable and will be free and clear of all liens, charges, restrictions, claims and encumbrances when issued and paid for.     2.  Axiom has received all necessary corporate, shareholder and director approvals necessary and required to enter into and complete the Preferred Stock Purchase;     3.  Axiom (i) is not a party to any legal proceeding as of the Closing Date, (ii) no legal proceeding has been threatened or commenced against Axiom as of the Closing Date, (iii) Axiom has no knowledge of any facts or circumstances that would lead it to reasonably believe that it will be threatened with a legal proceeding, and (iv) Axiom has not threatened or commenced any legal proceeding against any third party as of the Closing Date each of (i)—(iv) hereof shall be limited to circumstances would have a materially adverse effect on Axiom;     4.  Between the Effective Date of this Agreement and the Closing Date, there has not been any material adverse change in the business, operations, properties, prospects, assets, Axiom intellectual property, or condition of Axiom, and no event has occurred or circumstance exists that may result in a material adverse change;     5.  Axiom will represent that the aggregate amount of all outstanding loans to its shareholders, directors and officers does not exceed twenty thousand dollars ($20,000) as of the Closing Date and that as of the Closing Date there is no commitment or understanding to extend such loans to any of its shareholders, directors and officers; 2 --------------------------------------------------------------------------------     6.  Axiom agrees to indemnify Arena against damages arising from any inaccuracies in Axiom's representations and warranties, with the indemnification ceiling limited to two million dollars ($2,000,000) in the aggregate;     7.  As of the Closing Date, Axiom intends to retain the full-time employees of Axiom on the Effective Date;     8.  No broker's, finder's or other such fee incurred by Axiom in connection with this transaction will be payable by Arena. Each party shall bear its own expenses, including legal fees, in connection with this transaction.     9.  In addition, the Preferred Stock Purchase Agreement shall contain, among other things, representations of the President, CEO and Secretary with respect to patents, litigation, previous employment and outside activities.     E.  The Series E Preferred Stock shall be initially convertible on a 1:1 basis into shares of Axiom Common Stock, subject to adjustment as set forth below. Arena shall have the right to convert its Series E Preferred Stock into Axiom Common Stock at any time. Each share of Series E Preferred Stock shall have a number of votes equal to the number of shares of Axiom Common Stock then issuable upon conversion of such share of Series E Preferred Stock. Each share of Series E Preferred Stock shall have a dividend and liquidation preference in pari passu with the holders of Axiom's Series C and D Preferred Stock, and, in addition, upon any event that leads to a liquidation preference (other than a sale, merger or reorganization of Axiom or sale or disposition of substantially all of Axiom's assets), Arena shall be entitled to obtain from Axiom and Axiom shall make available to Arena an aliquot of each cell line possessed by Axiom in an amount sufficient to allow Arena to establish each cell-line at Arena for unrestricted and unencumbered use by Arena. Each share of Series E Preferred Stock shall have registration rights, information rights, pre-emptive rights, rights of first refusal and any other rights in pari passu with the holders of Axiom's Series B, C and D Preferred Stock, subject only to the following exceptions, which following rights will not apply to the holders of Series E Preferred Stock: (a) the rights granted to Cadus Pharmaceutical Corporation pursuant to the Agreement for Sale of Screening System and License of HTPS Technology entered into between Cadus and Axiom as of May 29, 1997; (b) the rights granted to Cadus pursuant to the Stock Option Agreement entered into between Cadus and Axiom as of May 15, 2000; (c) the rights granted to the holders of Axiom's Series B Preferred Stock pursuant to Article IV, Section 2.B of Axiom's Amended and Restated Articles of Incorporation entitled "Second Tier Treatment of Series B Preferred Stock at Liquidation, Dissolution or Winding Up"; (d) the rights of Cadus pursuant to Section 3 of the First Restated Stockholders' Agreement entered into between Cadus, Axiom and the other shareholders of Axiom named therein, pursuant to which Cadus has the right to designate and cause to be elected not more than two (2) of the directors of Axiom; (e) the rights granted to Biacore International AB ("Biacore") pursuant to Section 5.05 of the Preferred Stock Purchase Agreement entered into between Biacore and Axiom as of May 15, 2000; (f) the rights granted to Biacore pursuant to the Distribution Agreement entered into between Biacore and Axiom as of May 15, 2000; and (g) the rights granted to Biacore pursuant to the Option and License Agreement entered into between Biacore and Axiom as of May 15, 2000.     F.  Each share of Series E Preferred Stock shall be automatically converted into Axiom Common Stock upon the closing of an underwritten public offering on a firm commitment basis at a price per share of at least nine dollars ($9.00) and for a total offering of not less than ten million dollars ($10,000,000) (after deduction of underwriters' commissions and discounts but before calculation of expenses).     G.  So long as Arena is the owner of at least fifty thousand (50,000) shares of Axiom Series E Preferred Stock, after the Effective Date Axiom shall not grant to any other holder of equity securities or securities convertible into equity securities of Axiom, any rights, covenants or agreements superior to 3 -------------------------------------------------------------------------------- those granted to Arena. In addition, after the issuance of any shares of Axiom Series E Preferred Stock and while any shares of Axiom Series E Preferred Stock remain outstanding, if Axiom shall issue or sell shares of Common Stock or shares of stock convertible into Common Stock at a price less than the 1:1 conversion price, then the conversion price for the Series E Preferred Stock owned by Arena shall be subject to an adjustment to reduce dilution (other than the shares already reserved for employees, officers, directors or consultants) in pari passu with the holders of Axiom's Series B, C and D Preferred Stock; in addition, the conversion price will be subject to proportional adjustment for stock splits, stock dividends, recapitalizations and the like.     H.  So long as Arena owns at least fifty thousand (50,000) shares of Axiom Series E Preferred Stock, the consent of at least two-thirds of the Series E Preferred Stock shall be required for any action which (i) alters or changes the rights, preferences or privileges of the Series E Preferred Stock (ii) increases or decreases the authorized number of shares of Series E Preferred Stock (iii) creates (by reclassification or otherwise) any new class or series of shares having rights preferences or privileges senior to or on a parity with the Series E Preferred stock, or (iv) amends or waives any provision of Axiom's Articles of Incorporation or bylaws relative to the Series E Preferred Stock. So long as Arena owns at least fifty thousand (50,000) shares of Axiom Series E Preferred Stock, the consent of a simple majority of all holders of Preferred Stock, all deemed to be voting as one class shall be required for any action which (i) results in the redemption of any shares of Common Stock or (ii) results in any merger, other corporation reorganization, sale of control, or any transaction in which all or substantially all of the assets of Axiom are sold.     I.  Prior to the Closing Date, Axiom's business will be conducted in the ordinary course in substantially the same manner as it has been conducted in the past consistent with previous practices, with no dividend or stock repurchase distributions made from Axiom's business and in accordance with such covenants as may be customarily set forth in such agreements.     J.  In connection with the Preferred Stock Purchase by Arena, Arena shall be entitled to one seat on the Board of Directors of Axiom ("Arena Nominee"). In order to facilitate this arrangement, Axiom shall amend and restate the First Restated Stockholder Agreement dated May 15, 2000 to effectuate the following: Axiom acknowledges and agrees that the initial Arena Nominee shall be Jack Lief. In the event that Mr. Lief leaves the employ of Arena, then Arena shall be entitled to submit a substitute Arena Nominee to Axiom for approval, which approval shall not be unreasonably withheld by Axiom.     K.  Because the investors in Axiom may occasionally have divergent business and investment objectives, Axiom agrees that it shall use its best efforts to secure agreement from Cadus, Jafco and Biacore, and both Axiom and Arena shall also agree to enter into a Cooperative Voting Rights Agreement substantially in the form attached hereto as Exhibit B, which is incorporated herein by this reference. The intent of the Cooperative Voting Rights Agreement is to ensure that when a Board Super Majority (as defined therein) votes in favor of certain events, then the members of the Axiom Board of Directors who control Axiom Preferred Stock shall automatically vote their shares in favor of an event approved by a Board Super Majority.     L.  The following "For Cause" circumstances shall give Arena the right to terminate its obligation to purchase the Axiom Series E Preferred Stock:     1.  As of the Closing Date, there has been a material adverse change in Axiom' business;     2.  As of the Closing Date, Axiom is in default under any material contract or loan agreement that would have a material adverse effect on Axiom;     3.  The key employees of Axiom are no longer employed by Axiom as of the Closing Date;     4.  The representations and warranties of Axiom regarding its business are not accurate in all material respects as of the Closing Date; 4 --------------------------------------------------------------------------------     5.  Axiom (i) becomes a party to any legal proceeding as of the Closing Date, (ii) a legal proceeding is threatened or commenced against Axiom as of the Closing Date, or (iii) Axiom becomes aware of any facts or circumstances that would lead it to reasonably believe that it will be threatened with a legal proceeding; each of subsections (i)-(iii) hereof shall be limited to those circumstances that would have a material adverse effect on Axiom; or     6.  Arena determines, through its due diligence investigation of Axiom, circumstances that were not contemplated at the time of the Effective Date of this Agreement such that Arena's counsel advises Arena that the Preferred Stock Purchase is contrary to the best interests of Arena and Arena's stockholders.     M. In the event that Arena terminates the Preferred Stock Purchase "For Cause", then Arena shall pay to Axiom a one-time non-refundable license fee of five hundred thousand dollars ($500,000) in connection with a non-exclusive, perpetual Research Collaboration Agreement for the research collaboration as set forth on the Research Collaboration Term Sheet on Exhibit A. Confidentiality.  The Parties agree that prior to disclosure of the terms of this Binding Letter of Intent by Arena in connection with any required governmental rules, regulations and/or requirements, the terms and conditions of this Agreement are confidential and will be kept in strict confidence until the Closing Date or upon entering into a definitive Research Collaboration Agreement in accordance with the Research Collaboration Term Sheet set forth on Exhibit A. Axiom represents and warrants that prior to any public announcement by Arena as to this Agreement or the Preferred Stock Purchase, whichever Arena in its sole discretion first discloses, Axiom shall not disclose to any third party (excluding those persons necessary to complete the transactions contemplated herein) any of the transactions contemplated by this Agreement. The parties agree that the issuance of a press release approved by Arena regarding this Binding Letter of Intent shall constitute a "disclosure" under this paragraph. Termination.  This Agreement shall terminate upon the occurrence of any of the following events:     A.  The written agreement of both of the parties hereto; or     B.  As to prospective rights or obligations, upon the bankruptcy, receivership or dissolution of Axiom.     WHEREUPON, each party, having read and understood the foregoing, and agreeing to be bound by the terms and conditions herein, have caused this Agreement to be executed by their authorized agents as of the Effective Date. ARENA PHARMACEUTICALS, INC.   AXIOM BIOTECHNOLOGIES INC. By: /s/ JACK LIEF    -------------------------------------------------------------------------------- Name: Jack Lief Title: President & CEO   By: /s/ PANDI VEERAPANDIAN    -------------------------------------------------------------------------------- Name: Pandi Veerapandian Title: President & CEO 5 -------------------------------------------------------------------------------- EXHIBIT A ARENA PHARMACEUTICALS, INC. AND AXIOM BIOTECHNOLOGIES INC. RESEARCH COLLABORATION AGREEMENT TERM SHEET     Arena Pharmaceuticals, Inc. ("Arena") and Axiom Biotechnologies Inc. ("Axiom") agree that they shall enter into a definitive Research Collaboration Agreement, comprising two phases, to be defined herein, on or before the Closing Date, or within forty-five (45) days of the Effective Date in the event that Arena exercises its rights under Section M of the Agreement. The collaboration shall be directed to profiling GPCR gene expression in Axiom Human Cell Bank Cell Lines (the "Cell Lines" or the "Axiom Human Cell Bank Cell Lines") by Arena and profiling hit and lead compounds from Arena's drug discovery initiatives across all the Cell Lines by Axiom. The objective of the research collaboration is to cooperatively maximize information on GPCR gene expression using the Cell Lines and enhance information of small molecule signal transduction effects in the Cell Lines. For purposes of this collaboration agreement, an "orphan GPCR" is a GPCR for which the endogenous ligand has not been publicly identified as of the date of this collaboration agreement, and a "known GPCR" is a GPCR for which the endogenous ligand has been publicly identified as of the date of this collaboration agreement. Phase I Term     Phase I of the research collaboration shall extend for approximately one (1) year from receipt by Arena of the RNA for the Cell Lines. The RNA for the Cell Lines as in stock as of April 15, 2001 shall be delivered to Arena within five (5) days of the Effective Date. Small Molecule Profiling     During Phase I of the research collaboration, Arena will supply Axiom with one thousand (1,000) compounds approximately every three (3) months, for a total of four thousand (4,000) compounds, for use in the research collaboration. These small molecules will be derived from Arena's GPCR screening efforts, or from structures of interest to Arena. Axiom will profile these compounds on Axiom Human Cell Bank Cell Lines and provide the following information to Arena within three (3) months of receipt of each set of one thousand (1,000) Arena compounds: A. Primary screening 1.Calcium release will be measured by Axiom using Axiom's proprietary HTPS platform. 2.Membrane potential will be measured by Axiom in all Cell Lines for all Arena compounds provided by Arena to Axiom. 3.Data on interaction with the HERG channel will be provided by Axiom to Arena for all compounds in all Cell Lines. 4.Data on activation of cAMP +/- forskolin treatment will be measured by Axiom in all Cell Lines. B. Secondary screening 1.Axiom will provide to Arena dose response data for any compounds that show positive activation data in any of the Primary screening assays set forth above. Prior to completion of a definitive Research Collaboration Agreement, the parties shall mutually agree-upon the criteria for "positive activation data" and such criteria shall be defined in the Research Collaboration Agreement. 6 -------------------------------------------------------------------------------- 2.For compounds that evidence positive activation data, Axiom will determine and shall provide to Arena flow cytometry data for membrane permeability, light scattering, calcium release, glutathione activation, mitochondrial membrane potential, and potential to activate the caspase cascade and induce cell apotosis. GPCR gene expression profiling     Within five (5) days of the Effective Date, Axiom shall provide Arena with RNA for all Axiom Human Cell Bank Cell Lines for use in accordance with the research collaboration. Axiom will supply any Cell Lines to Arena for maintenance as requested by Arena; in the event that Arena requests Axiom to establish and grow such Cell Lines on behalf of Arena, Arena shall reimburse Axiom for the reasonable costs associated with such activities. Arena will use the RNA provided by Axiom to profile Arena's database of GPCRs utilizing Affymetrix gene chip technology. The first generation chip containing approximately four hundred (400) GPCRs will be profiled by Arena during the first half of Phase I. A second generation chip is intended to be made during the second half of Phase I which will contain sequences for the remaining GPCRs. Arena will use this chip to profile GPCR gene expression in all the Axiom Human Cell Bank Cell Lines. Ligand activation profiles on known receptors     Arena will supply Axiom with the localization data for the known GPCR receptor expression. During Phase I of the research collaboration, Axiom will profile available endogenous ligand activation of signal transduction cascades for all known GPCRs in the Cell Lines. Axiom acknowledges and agrees that Arena will have ongoing access to the ligand activation profiles that Axiom generates for known receptors. Axiom will determine relevant calcium release, membrane potential, and cAMP +/- forskolin responses for known receptors in Cell Lines for all known endogenous ligands and provide such data to Arena. Training in Axiom technology     During Phase I of the research collaboration, and as reasonably requested by Arena, Axiom will make available to Arena Axiom scientists and personnel to train Arena scientists in using Axiom technology at Arena's facility so that Arena can accomplish the objectives of the research collaboration. It is anticipated that such training may require the transfer of one Axiom HTPS machine to Arena (at a cost of $100,000 due and payable within 30 days of receipt by Arena of such HTPS machine) for use during the collaboration. Data and information ownership and use A. Known GPCRs     Arena and Axiom will jointly own and may use for any purposes whatsoever all information developed from Phase I of the research collaboration on known receptor gene localization in the Cell Lines. B. Orphan GPCRs     Arena will exclusively own and may use for any purposes whatsoever all information developed from Phase I the research collaboration on orphan receptor gene localization in the Cell Lines. C. Cooperative Activities     In the event that Arena, through its collaborations with any third party, receives a request for access to the Axiom Human Cell Bank Cell Lines, Arena shall direct such requests to Axiom. Arena 7 -------------------------------------------------------------------------------- agrees that it shall not transfer any Axiom Human Cell Bank Cell Lines to any third party without the prior express written permission of Axiom, and Arena further agrees that it shall not engage in any fee-for-service activity on behalf of any thirds party using the Axiom Human Cell Bank Cell Lines. Phase II Term     Phase II of the research collaboration shall extend for approximately one (1) year from completion of Phase I of the research collaboration. Prior to initiation of Phase II of the research collaboration, the parties shall negotiate the number and FTE cost of each Axiom employee that will engage in Phase II of the collaboration, and prior to initiation of Phase II, the parties shall determine the payment schedule for any such reimbursement by Arena to Axiom. Continued profiling     During Phase II of the research collaboration, Arena will continue to supply Axiom with one thousand (1,000) compounds approximately every three (3) months for profiling, for a maximum of four thousand (4,000) compounds, for use in accordance with the research collaboration. Axiom will profile these compounds on Axiom Human Cell Bank Cell Lines and provide the following information to Arena within three (3) months of receipt of each set of one thousand (1,000) Arena compounds: A. Primary screening 1.Calcium release will be measured by Axiom using Axiom's proprietary HTPS platform. 2.Membrane potential will be measured by Axiom in all Cell Lines for all Arena compounds provided by Arena to Axiom. 3.Data on interaction with the HERG channel will be provided by Axiom to Arena for all compounds in all Cell Lines. 4.Data on activation of cAMP +/- forskolin treatment will be measured by Axiom in all Cell Lines. B. Secondary screening 1.Axiom will provide to Arena dose response data for any compounds that show positive activation data in any of the Primary screening assays set forth above. Prior to completion of a definitive Research Collaboration Agreement, the parties shall mutually agree-upon the criteria for "positive activation data" and such criteria shall be defined in the Research Collaboration Agreement. 2.For compounds that evidence positive activation data, Axiom will determine and shall provide to Arena flow cytometry data for membrane permeability, light scattering, calcium release, glutathione activation, mitochondrial membrane potential, and potential to activate the caspase cascade and induce cell apotosis. GPCR gene expression     Any additional GPCRs that are obtained by Arena during Phase II of the research collaboration will be profiled by Arena using the Affymetrix gene chip technology on RNA provided for each Cell Line. 8 -------------------------------------------------------------------------------- Continued training in Axiom technology     During Phase II of the research collaboration, and as reasonably requested by Axiom, Axiom will make available to Arena Axiom scientists and personnel to train Arena scientists in using Axiom technology at Arena to accomplish the objectives of the research collaboration. Data and information ownership and use A. Known GPCRs     Arena and Axiom will jointly own and may use for any purposes whatsoever all information developed from Phase II of the research collaboration on known receptor gene localization in the Cell Lines. B. Orphan GPCRs     Arena will exclusively own and may use for any purposes whatsoever all information developed from Phase II the research collaboration on orphan receptor gene localization in the Cell Lines. Intellectual property:     The following provisions shall apply with respect to the research collaboration intellectual property: A.Arena and Axiom will jointly own all localization and regulation of GPCR expression data for known receptors in all of the Cell Lines. B.Arena will exclusively own all localization and regulation of orphan GPCR expression data in all of the Cell Lines. C.Arena shall have access to all data developed by Axiom relating to known endogenous and non-endogenous ligand stimulation of second messenger responses in the Cell Lines. D.Arena shall exclusively own all data relating to any small molecule/compound provided to Axiom by Arena (Arena will not reveal structures of small molecules/compounds provided to Axiom and Axiom shall not attempt to determine the structure of any such molecules/compounds). E.Arena shall be permitted to use RNAs supplied by Axiom and specific Cell Lines as supplied from Axiom in any way for its own discovery purposes in perpetuity and without remuneration. F.Axiom will supply Arena with any new Cell Lines that Axiom acquires within 3 years from today. General Provisions     Governing Law; Consent to Jurisdiction.  This research collaboration agreement term sheet shall be governed by and construed under applicable federal law of the United States of America and the laws of the State of California, excluding any conflict of law provisions. In addition, each Party consents to the service of process by personal service or any manner in which notices may be delivered hereunder. Each Party hereby voluntarily and irrevocably waives trial by jury in any action or other proceeding brought in connection with this research collaboration agreement term sheet, any of the other transaction documents or any of the transactions contemplated hereby or thereby. The Parties further agree that any action initiated by the parties under this research collaboration agreement term sheet shall take place in San Diego, California. 9 --------------------------------------------------------------------------------     Notice.  Unless otherwise provided, any notice required or permitted under this research collaboration agreement term sheet shall be given in writing and shall be deemed effectively given upon personal delivery to the Party to be notified or upon deposit with the United States Post Office registered or certified mail, postage prepaid, or upon deposit with an internationally recognized express courier with proof of delivery, postage prepaid and addressed to the Party to be notified at the address or addresses indicated below, or upon the date of fax transmission of such notice (with proof of such fax transmission established by the sender's fax receipt) using the fax numbers listed below, or at such other address or fax number as such Party may designate by ten (10) days' advance written notice to the other Party with copies to be provided as follows: If to AXIOM addressed to: Axiom Biotechnologies Inc. 3550 General Atomics Court San Diego, California 92121 Attention: Pandi Veerapandian, President & CEO Fax: with a copy to:   Van E. Haynie, Esq. Address:   Ross, Dixon & Bell LLP 550 West B Street, Suite 400 San Diego, California 92101 Fax: (619) 231-8796 If to Arena, addressed to: Arena Pharmaceuticals, Inc. 6166 Nancy Ridge Drive San Diego, CA 92121 Attention: Jack Lief, President & CEO Fax: (858) 677-0065 with a copy to:   General Counsel Address:   same as above Fax:   same as above     Waiver.  The provisions of any paragraph or subparagraph of this research collaboration agreement term sheet may be waived by obtaining a written consent of the party waiving such provision.     Binding Upon Successors in Interest.  This research collaboration agreement term sheet shall be binding upon and inure to the benefit of the parties, and their respective heirs, legatees, legal representatives, successors and assigns.     Amendments.  This research collaboration agreement term sheet may be modified or amended in whole or in part at any time only by a writing signed by all of the parties.     Counterparts.  This research collaboration agreement term sheet may be executed in two or more counterparts, each of which shall be deemed to be an original hereof.     Schedules.  All Schedules and Exhibits to which reference is made are deemed incorporated in full in this research collaboration agreement term sheet, whether or not actually attached.     Interpretation.  The Parties expressly and intentionally waive all rights and benefits which they now have or in the future may have under the principle of contra proferentem, which provides that "the language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist," as stated in California Civil Code Section 1654. Moreover, the Parties agree that this entire Agreement, and each provision hereof, shall be deemed to have been drafted jointly by the Parties. 10 -------------------------------------------------------------------------------- This research collaboration agreement term sheet shall be construed as a whole and in accordance with its fair meaning. In interpreting this research collaboration agreement term sheet, any gender shall be deemed to include the other gender, the singular includes the plural, and vice versa, as the context may require. The headings and captions to this research collaboration agreement term sheet are for convenience only and are to be of no force or effect in construing or interpreting the provisions of this research collaboration agreement term sheet.     IN WITNESS WHEREOF, the parties have executed this research collaboration agreement term sheet on the 15th day April, 2001. ARENA PHARMACEUTICALS, INC.   AXIOM BIOTECHNOLOGIES INC. By: /s/ JACK LIEF    -------------------------------------------------------------------------------- Name: Jack Lief Title: President & CEO   By: /s/ PANDI VEERAPANDIAN    -------------------------------------------------------------------------------- Name: Pandi Veerapandian Title: President & CEO 11 -------------------------------------------------------------------------------- EXHIBIT B COOPERATIVE VOTING AGREEMENT 12 -------------------------------------------------------------------------------- COOPERATIVE VOTING RIGHTS AGREEMENT     This COOPERATIVE VOTING RIGHTS AGREEMENT ("Agreement") is effective as of              , 2001 ("Effective Date"), and is entered into by and among Axiom Biotechnologies Inc., a California corporation ("Axiom"); Arena Pharmaceuticals, Inc., a Delaware corporation ("Arena"); Cadus Pharmaceutical Corporation, a Delaware corporation ("Cadus"); Jafco Co., Ltd., Jafco R-03 Investment Enterprise Partnership, Jafco JS-3 Investment Enterprise Partnership, Jafco G-6(A) Investment Enterprise Partnership, Jafco G-6(B) Investment Enterprise Partnership, Jafco G-7(A) Investment Enterprise Partnership, Jafco G-7(B) Investment Enterprise Partnership, (collectively "Jafco") and Biacore International AB, a Swedish corporation ("Biacore) (with Arena, Cadus, Jafco and Biacore collectively referred to herein as the "Preferred Shareholders").     WHEREAS, the AMENDED AND RESTATED ARTICLES OF INCORPORATION OF AXIOM BIOTECHNOLOGIES INC. ("Articles") sets forth certain rights with respect to, inter alia, the following classes of Axiom Preferred Stock: Series B, Series C, Series D and Series E (a copy of the Articles being attached hereto as Appendix 1 and is incorporated herein by this reference);     WHEREAS, the Articles provide, inter alia, the following with respect to certain voting rights of the Preferred Shareholders in Section 3(b)(5) (hereinafter, collectively, the "Voting Rights"): "(5) This corporation shall not take any of the following actions without the approval by the affirmative vote of the holders of more than fifty percent (50%) of the then outstanding shares of the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock, all voting together as a separate class, each share thereof to be entitled to one vote in each instance, at the record date for the determination of stockholders entitled to vote on such matters or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is solicited: (a)increase the authorized number of shares of preferred stock of this corporation; (b)merge this corporation with or into another corporation if such transaction requires stockholder approval; (c)sell all or substantially all of the assets of this corporation in one or several related transactions; (d)voluntarily dissolve or liquidate this corporation; (e)declare or pay any divided on the Common Stock of this corporation other than a dividend payable solely in shares of Common Stock of this corporation; (f)increase the number of shares of Common Stock authorized to be issued by this corporation; (g)redeem any shares of Preferred Stock or Common Stock of this corporation other than pursuant to stock repurchase agreements with employees; and (h)amend Sections 2.1, 2.2, or 2.8.5 of the Bylaws of this corporation"; and     WHEREAS, as of the Effective Date, the following parties to this Agreement own and/or control the indicated number of shares of the indicated Preferred Stock: Owned or Controlled By: --------------------------------------------------------------------------------   Series B --------------------------------------------------------------------------------   Series C --------------------------------------------------------------------------------   Series D --------------------------------------------------------------------------------   Series E -------------------------------------------------------------------------------- Cadus   2,109,161   N/A   N/A   N/A Jafco   N/A   1,373,295   N/A   N/A Biacore   N/A   N/A   1,333,333   N/A Arena   N/A   N/A   N/A   571,429 13 --------------------------------------------------------------------------------     WHEREAS, as of the Effective Date, the Board of Directors ("Board") of Axiom shall be comprised of seven (7) directors.     NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:     1.  Articles Remain in Full Force and Effect. The Articles shall remain in full force and effect, and nothing in this Agreement shall be construed as an amendment to the Articles.     2.  Board Super Majority. For purposes of this Agreement, and as of the Effective Date, the phrase "Board Super Majority" shall mean three (3) of the five (5) directors, if the number of directors on the Board is five (5), OR sixty percent (60%) if the number of directors on the Board is greater or less than five (5), rounded to the next greater whole number.     3.  Agreement of Arena Upon Board Super Majority Vote. In the event that the Board, by a Board Super Majority, approves any of the following transactions, Arena hereby agrees to deliver such votes or written consent as necessary for effecting or validating such transaction, and to take no actions under Section 3(b)(5) of the Articles that would be inconsistent with the provisions of this Paragraph 3: (1)increase the authorized number of shares of preferred stock of this corporation; (2)merge this corporation with or into another corporation if such transaction requires stockholder approval; (3)sell all or substantially all of the assets of this corporation in one or several related transactions; (4)declare or pay any divided on the Common Stock of this corporation other than a dividend payable solely in shares of Common Stock of this corporation; (5)increase the number of shares of Common Stock authorized to be issued by this corporation; and (6)amend Section 2.2 of the Bylaws of this corporation.     4.  Articles Super Majority Vote Not Applicable To Certain Voting Rights. The provisions of Paragraph 3 of this Agreement shall not apply to Arena with respect to the following Voting Rights: (1)voluntarily dissolve or liquidate this corporation; (2)redeem any shares of Preferred Stock or Common Stock of this corporation other than pursuant to stock repurchase agreements with employees; and (3)amend Sections 2.1 or 2.8.5 of the Bylaws of this corporation.     5.  Agreement of Biacore Upon Board Super Majority Vote. In the event that the Board, by a Board Super Majority, approves any of the following transactions, Biacore hereby agrees to deliver such votes or written consent as necessary for effecting or validating such transaction, and to take no actions under Section 3(b)(5) of the Articles that would be inconsistent with the provisions of this Paragraph 5: (1)increase the authorized number of shares of preferred stock of this corporation; (2)merge this corporation with or into another corporation if such transaction requires stockholder approval; (3)sell all or substantially all of the assets of this corporation in one or several related transactions; (4)declare or pay any divided on the Common Stock of this corporation other than a dividend payable solely in shares of Common Stock of this corporation; 14 -------------------------------------------------------------------------------- (5)increase the number of shares of Common Stock authorized to be issued by this corporation; and (6)amend Section 2.2 of the Bylaws of this corporation.     6.  Articles Super Majority Vote Not Applicable To Certain Voting Rights. The provisions of Paragraph 5 of this Agreement shall not apply to Biacore with respect to the following Voting Rights: (1)voluntarily dissolve or liquidate this corporation; (2)redeem any shares of Preferred Stock or Common Stock of this corporation other than pursuant to stock repurchase agreements with employees; and (3)amend Sections 2.1 or 2.8.5 of the Bylaws of this corporation.     7.  Agreement of Cadus Upon Board Super Majority Vote. In the event that the Board, by a Board Super Majority, approves any of the following transactions, Cadus hereby agrees to deliver such votes or written consent as necessary for effecting or validating such transaction, and to take no actions under Section 3(b)(5) of the Articles that would be inconsistent with the provisions of this Paragraph 7: (1)increase the authorized number of shares of preferred stock of this corporation; (2)merge this corporation with or into another corporation if such transaction requires stockholder approval; (3)sell all or substantially all of the assets of this corporation in one or several related transactions; (4)declare or pay any divided on the Common Stock of this corporation other than a dividend payable solely in shares of Common Stock of this corporation; (5)increase the number of shares of Common Stock authorized to be issued by this corporation; and (6)amend Section 2.2 of the Bylaws of this corporation.     8.  Articles Super Majority Vote Not Applicable To Certain Voting Rights. The provisions of Paragraph 7 of this Agreement shall not apply to Cadus with respect to the following Voting Rights: (1)voluntarily dissolve or liquidate this corporation; (2)redeem any shares of Preferred Stock or Common Stock of this corporation other than pursuant to stock repurchase agreements with employees; and (3)amend Sections 2.1 or 2.8.5 of the Bylaws of this corporation.     9.  Agreement of Jafco Upon Board Super Majority Vote. In the event that the Board, by a Board Super Majority, approves any of the following transactions, Jafco hereby agrees to deliver such votes or written consent as necessary for effecting or validating such transaction, and to take no actions under Section 3(b)(5) of the Articles that would be inconsistent with the provisions of this Paragraph 9: (1)increase the authorized number of shares of preferred stock of this corporation; (2)merge this corporation with or into another corporation if such transaction requires stockholder approval; (3)sell all or substantially all of the assets of this corporation in one or several related transactions; (4)declare or pay any divided on the Common Stock of this corporation other than a dividend payable solely in shares of Common Stock of this corporation; 15 -------------------------------------------------------------------------------- (5)increase the number of shares of Common Stock authorized to be issued by this corporation; and (6)amend Section 2.2 of the Bylaws of this corporation.     10. Certificate Super Majority Vote Not Applicable To Certain Voting Rights. The provisions of Paragraph 9 of this Agreement shall not apply to Jafco: (1)voluntarily dissolve or liquidate this corporation; (2)redeem any shares of Preferred Stock or Common Stock of his corporation other than pursuant to stock repurchase agreements with employees; and (3)amend Sections 2.1 or 2.8.5 of the Bylaws of this corporation.     11. Rights and Obligations Transferred to Successors. The rights and obligations as set forth in this Agreement shall inure to (i) any successor of Arena, in the case of Arena's rights and obligations; (ii) any successor of Biacore, in the case of Biacore rights and obligations; (iii) any successor of Cadus, in the case of Cadus' rights and obligations; and (iv) any successor of Jafco, in the case of Jafco rights and obligations.     12. Governing Law; Consent to Jurisdiction. This Agreement shall be governed by and construed under the laws of the state of California, excluding any conflict of law provisions.     13. Waiver Of Jury Trial. Each of the parties hereto hereby voluntarily and irrevocably waives trial by jury in any action or other proceeding brought in connection with this Agreement.     14. Entire Agreement; Amendment. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject matter hereof. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought.     15. Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, delivered by hand or by messenger, or sent by facsimile and confirmed by mail addressed (a) if to the Preferred Shareholders, to their respective addresses as shall have been furnished to Axiom in writing by the Preferred Shareholders, or (b) if to the Axiom, to Axiom Biotechnologies Inc., 3550 General Atomics Court, San Diego, California 92121-1194 addressed to the attention of the President & CEO, or at such other address as Axiom shall have furnished to the Preferred Shareholders.     16. Termination. This Agreement shall terminate and be of no further force or effect upon the closing of a firm commitment underwritten public offering of Axiom's Common Stock at a price per share of at least nine dollars ($9.00) and for a total offering of not less than ten million dollars ($10,000,000) (after deduction of underwriters' commissions and discounts but before calculation of expenses) pursuant to an effective registration statement under the Securities Act of 1933, as amended.     17. Counterparts; Fax Signatures. This Agreement may be executed in two or more counterparts, each of which shall be deemed as an original, but all of which together shall constitute one and the same instrument; for purposes of this Agreement, fax signatures by any party hereto shall be accepted as and construed as an original signature.     18. Transferees of Shares Bound. The parties to this Agreement agree that any transferee of Axiom stock held by Arena, Biacore, Cadus and Jafco shall, as a condition of such transfer, agree to be bound by all of the provisions of this Agreement.     19. Interpretation. The Parties expressly and intentionally waive all rights and benefits which they now have or in the future may have under the principle of contra proferentem, which provides that 16 -------------------------------------------------------------------------------- "the language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist," as stated in California Civil Code Section 1654. Moreover, the Parties agree that this entire Agreement, and each provision hereof, shall be deemed to have been drafted jointly by the Parties. This contract shall be construed as a whole and in accordance with its fair meaning. In interpreting this Agreement, any gender shall be deemed to include the other gender, the singular includes the plural, and vice versa, as the context may require.     IN WITNESS WHEREOF, the parties have executed this Cooperative Voting Agreement on the day and year first set forth above.     AXIOM BIOTECHNOLOGIES INC. a California corporation     By: -------------------------------------------------------------------------------- Name: Pandi Veerapandian Title: President & CEO     ARENA PHARMACEUTICALS, INC. a Delaware Corporation     By: -------------------------------------------------------------------------------- Name: Jack Lief Title: President & CEO     CADUS PHARMACEUTICAL CORPORATION a Delaware corporation     By: -------------------------------------------------------------------------------- Name: Title: 17 --------------------------------------------------------------------------------     JAFCO CO., LTD. JAFCO R-03 INVESTMENT ENTERPRISE PARTNERSHIP JAFCO JS-3 INVESTMENT ENTERPRISE PARTNERSHIP JAFCO G-6(A) INVESTMENT ENTERPRISE PARTNERSHIP JAFCO G-6(B) INVESTMENT ENTERPRISE PARTNERSHIP JAFCO G-7(A) INVESTMENT ENTERPRISE PARTNERSHIP JAFCO G-7(B) INVESTMENT ENTERPRISE PARTNERSHIP Collectively agreed to:     By: -------------------------------------------------------------------------------- Name: Akira Tsuda Title: Executive Vice President     BIACORE INTERNATIONAL AB, a Swedish corporation     By: -------------------------------------------------------------------------------- Name: Title: ************************************ 18 -------------------------------------------------------------------------------- APPENDIX 1 ARTICLES 19 -------------------------------------------------------------------------------- QuickLinks BINDING LETTER OF INTENT & MEMORANDUM OF AGREEMENT REGARDING PURCHASE OF PREFERRED STOCK OF AXIOM BIOTECHNOLOGIES INC. BY ARENA PHARMACEUTICALS, INC. AND RESEARCH COLLABORATION AGREEMENT RECITALS AGREEMENT EXHIBIT A ARENA PHARMACEUTICALS, INC. AND AXIOM BIOTECHNOLOGIES INC. RESEARCH COLLABORATION AGREEMENT TERM SHEET EXHIBIT B COOPERATIVE VOTING AGREEMENT COOPERATIVE VOTING RIGHTS AGREEMENT APPENDIX 1 ARTICLES

QuickLinks -- Click here to rapidly navigate through this document AMENDMENT TO SECURITIES PURCHASE AGREEMENT, CONSENT TO ALLONGE TO SENIOR SUBORDINATED NOTE AND PIK NOTES, CONSENT TO DISPOSITIONS AND WAIVER     THIS AMENDMENT TO SECURITIES PURCHASE AGREEMENT, CONSENT TO ALLONGE TO SENIOR SUBORDINATED NOTE AND PIK NOTES, CONSENT TO DISPOSITIONS AND WAIVER(this "Amendment") is entered into as of the thirteenth day of April 2001, by and among GENTLE DENTAL SERVICE CORPORATION, a Washington corporation ("GDSC"), GENTLE DENTAL MANAGEMENT, INC., a Delaware corporation ("GDMI"), DENTAL CARE ALLIANCE, INC., a Delaware corporation ("DCA"), INTERDENT, INC., a Delaware corporation ("Parent"), the Subsidiaries of the Issuers named as "Subsidiary Guarantors" herein, and LEVINE LEICHTMAN CAPITAL PARTNERS II, L.P., a California limited partnership (the "Purchaser").     WHEREAS, the Issuers and the Purchaser entered into that certain Securities Purchase Agreement, dated as of June 15, 2000 (the "Securities Purchase Agreement") providing, inter alia, for the sale to the Purchaser of the Note in the principal amount of $25,500,000.00; and     WHEREAS, the Issuers have committed certain defaults and events of default under the Senior Credit Agreements and have requested the Senior Lenders to waive those defaults and events of default and to amend the Senior Credit Agreements; and     WHEREAS, the Senior Lenders have conditioned their waivers to and the amendments of the Senior Credit Agreements upon the Issuers and the Purchaser entering into this Amendment and amending the Note as set forth in the Allonge (as defined below); and     WHEREAS, the Purchaser will receive significant benefits from the waivers and amendments to the Senior Credit Agreements; and     WHEREAS, the Issuers have requested that the Purchaser consent, and the Purchaser has agreed to consent, to (i) the sale of assets of GDSC and its subsidiary, DentalCo Management Services of Maryland, Inc. ("DMSM"), that are used in the operations of the Affiliated Dental Practices known as Mid-Atlantic Dental Associates of Annapolis and Mid-Atlantic Dental Associates of Cross Keys (the "Annapolis/Cross Keys Practices") to MON Acquisition Corp., pursuant to an Asset Purchase Agreement dated on or about April 12, 2001 (the "MON Disposition"), (ii) the sale of assets of GDSC that are used in the operations of the Affiliated Dental Practice conducted by Burns Dental Corporation under the name Naismith Dental Group to Villanova, LLC., pursuant to an Asset Purchase Agreement dated April 2001 (the "Villanova Disposition"), and (iii) the sale by Parent of all outstanding stock of DCA and assets used in connection with the operation and management of DCA and certain Attributed Dental Practices (the "DCA Disposition", the MON Disposition, the Villanova Disposition and the DCA Disposition being herein referred to as the "Dispositions"); and     WHEREAS, in connection with the MON Disposition, GDSC will enter into an amendment to the Management Agreement for the Annapolis/Cross Keys Practices, which amendment requires the consent of the Purchaser.     NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows:     1.  Capitalized Terms.  Capitalized terms used herein without definition have the meanings assigned to such terms in the Securities Purchase Agreement.     2.  Allonge to the Note and the PIK Notes.       (a) The Purchaser hereby consents to and accepts the amendment to the Note set forth in that Allonge dated as of the date hereof in the form attached hereto as Exhibit A (the "Allonge"), and agrees that the terms of the Note are modified by the Allonge. 1 --------------------------------------------------------------------------------     (b) The Purchaser hereby consents to and agrees to amend each PIK Note on the terms set forth in the Allonge, and agrees that the terms of each PIK Note are modified by the Allonge.     (c) Purchaser will attach an Allonge to the Note and to each PIK Note. If Purchaser sells or assigns the Note (in whole or in part) or any PIK Note (in whole or in part) or sells a participation in any of them, it will deliver to its purchaser, Assignee or participant, as the case may be, the Allonge and take appropriate steps so that its purchaser, Assignee or participant is aware that the Allonge has amended the Note and all PIK Notes.     (d) The Purchaser represents and warrants that: (i) it is the sole holder of the Note and all PIK Notes, (ii) it has not assigned, hypothecated or sold any interest or participation in the Note or any PIK Note, and (iii) it has full power and authority to enter into this Amendment and to consent to and accept the Allonge to the Note and to the PIK Notes.     3.  Amendments to Securities Purchase Agreement.       (a) Section 1.1 of the Securities Purchase Agreement is hereby amended by adding the following definitions:     "'Allonge' has the meaning set forth in the Amendment.     'Amendment' shall mean that certain Amendment to Securities Purchase Agreement, Consent to Allonge to Senior Subordinated Note and PIK Notes, Consent to Dispositions and Waiver, dated as of April 13, 2001.     'Dispositions' has the meaning set forth in the Amendment.     'DCA Disposition' has the meaning set forth in the Amendment.     'MON Disposition' has the meaning set forth in the Amendment.     'PIK Note' means any note issued as the payment of interest pursuant to the Note or any other PIK Note.     'Villanova Disposition' has the meaning set forth in the Amendment."     (b) Section 1.1 of the Securities Purchase Agreement is hereby amended by deleting clause (v) of the definition of the term "Change in Control," and inserting the following in lieu thereof:     "(v)  Stephen R. Matzkin, D.D.S. shall cease to be the Co-Chairman, President and Chief Dental Officer of Parent with significant daily senior management responsibilities, provided that Mr. Matzkin is not replaced, or, if such change occurred in connection with the DCA Disposition, all senior management responsibilities of Mr. Matzkin are not reallocated to other officers of Parent, on an interim basis by the Board of Directors of Parent within ninety (90) days after the effective date of his resignation, termination, removal or death and such Board of Directors does not thereafter use its best efforts to retain a permanent replacement or permanently reallocate his duties to other officers of the Parent provided, that if Mr. Matzkin's significant management responsibilities are reallocated in connection with the DCA Disposition, such reallocation must be acceptable to the Purchaser in its reasonable discretion, and Purchaser's exercise of such discretion shall not be unreasonably withheld or delayed or require that any Company Party pay the Purchaser consideration in any form or type (other than any consideration payable pursuant to Section 1(e) of the Note or Section 5 of the Note); or"     (c) Effective upon the closing of the DCA Disposition, the Securities Purchase Agreement is amended to delete DCA from the definition of "Company Party," "Company Parties," "Issuer" and "Issuers." 2 --------------------------------------------------------------------------------     (d) Section 1.1 of the Securities Purchase Agreement is hereby amended by adding to the definition of "Obligations," immediately after the phrase "the Note," the phrase "the Allonge."     (e) Section 1.1 of the Securities Purchase Agreement is hereby amended by deleting the definition of the term "Senior Financial Covenants", and inserting the following in lieu thereof:     "Senior Financial Covenants' shall mean, individually or collectively, the financial covenants set forth in Sections 7.08 (Cash Flow), 7.09 (Leverage Ratio), and 7.10 (Liquidity) of the Senior Credit Agreements, as such financial covenants may be modified from time to time, together with any new financial covenants included in the Senior Credit Documents on or after the date hereof."     (f)  Clause (i) of Section 10.5 of the Securities Purchase Agreement is amended by deleting the phrase "so long as no Default or Event of Default has occurred and is continuing or would occur as a result thereof,".     (g) Effective March 31, 2001, Sections 10.16(a), (b) and (c) of the Securities Purchase Agreement are hereby amended by deleting these Sections in their entirety and inserting the following in lieu thereof:     "(a)  Cash Flow. The Company Parties shall not permit Cash Flow (as defined in the March 2000 Senior Credit Agreement) at the end of the fiscal quarter ending March 31, 2001, the two fiscal quarter period ending June 30, 2001, the three fiscal quarter period ending September 30, 2001 and any four fiscal quarter period ending thereafter to be less than the amounts shown below opposite such quarter end date: Quarter Ending --------------------------------------------------------------------------------   Cash Flow -------------------------------------------------------------------------------- March 31, 2001   $ 3,825,000 June 30, 2001     7,735,000 September 30, 2001     11,645,000 December 31, 2001     15,810,000 March 31, 2002     16,745,000 June 30, 2002     17,680,000 September 30, 2002     18,615,000 December 31, 2002     19,550,000 March 31, 2003     20,612,500 June 30, 2003 and thereafter     21,250,000     "(b)  Leverage Ratio. The Company Parties shall not permit the Leverage Ratio (as defined in the March 2000 Senior Credit Agreement) of Holdings and its Subsidiaries (on a consolidated basis) at the end of any fiscal quarter to be greater than: Quarter Ending --------------------------------------------------------------------------------   Ratio -------------------------------------------------------------------------------- March 31, 2001   3.76:1.00 June 30, 2001   3.76:1.00 September 30, 2001   3.76:1.00 December 31, 2001   3.53:1.00 March 31, 2002   3.24:1.00 June 30, 2002   2.94:1.00 September 30, 2002   2.65:1.00 December 31, 2002   2.24:1.00 March 31, 2003   2.00:1.00 June 30, 2003 and thereafter   1.76:1.00 3 --------------------------------------------------------------------------------     "(c)  Liquidity. The Company Parties shall not permit the sum of (i) the undrawn Revolving Credit Commitments (as defined in the Senior Credit Agreements) for the two Senior Credit Agreements combined, plus (ii) unused commitments under new debt financing ranked junior to the obligations under the Senior Credit Agreements, plus (iii) cash on hand of the Company Parties on deposit with the Senior Administrative Agent or subject to blocked account agreements in favor of the Senior Lenders, on the last day of each month shown below, to be less than the correlative amount for such month: Month --------------------------------------------------------------------------------   Liquidity Amount -------------------------------------------------------------------------------- March 31, 2001   $ 1,955,000 April 30, 2001     1,955,000 May 31, 2001     1,955,000 June 30, 2001     3,230,000 July 31, 2001     2,975,000 August 31, 2001     2,720,000 September 30, 2001     2,465,000 October 31, 2001 and thereafter     2,125,000 provided, that the minimum liquidity amount at April 30, 2001 and May 31, 2001 shall increase to $3,230,000 if the Dispositions occur in April 2001, and the minimum liquidity amount at May 31, 2001 shall increase to $3,230,000 if the Dispositions occur in May 2001.     (h) Sections 10.16(d), (e), (f) and (g) of the Securities Purchase Agreement are hereby deleted in their entirety.     (i)  Section 10.16(h) of the Securities Purchase Agreement is hereby amended by adding the following at the end thereof: "provided, however, that, on the date on which the Senior Financial Covenants are modified to give effect to the DCA Disposition, on one occasion only, the covenant levels set forth in clauses (a), (b) and (c) above shall be modified to reflect the modifications made to the corresponding Senior Financial Covenants at levels such that such covenant levels are 15% less restrictive than the new Senior Financial Covenants (e.g., if the new Senior Financial Covenant level for Cash Flow is $30,000,000, the Cash Flow level herein shall be $25,500,000; if the Senior Financial Covenant level for the Leverage Ratio is 2.25:1.00, the Leverage Ratio herein shall be 2.65:1.00); provided that to the extent that the modifications to the Senior Financial Covenants include other modifications other than pro forma accounting and financial changes occurring as a result of the DCA Disposition, the modifications to the covenants set forth herein shall be made without giving effect to such other modifications."     4.  Waiver of existing Defaults and Events of Default; Mergers and Dissolutions of Subsidiaries.       (a) Purchaser hereby waives, as of the date hereof, but only for the dates specified in Schedule A attached hereto, those Defaults and Events of Default set forth on Schedule A, as well as all defaults set forth in Section 3 of Amendment Agreement No. 3 and Waiver to the March 2000 Senior Credit Agreement, Section 3 of Amendment Agreement No. 6 and Waiver to the June 1999 Senior Credit Agreement and any defaults arising under the Securities Purchase Agreement or the Note as a result thereof. LLCP represents that it is not aware of any other Defaults or Events of Defaults.     (b) Purchaser consents to (i) the dissolution of SPDS DMI, Inc., Gentle Dental IF, Inc., GMS Dental Group Management of Southern California, Inc., Gentle Dental of Irvine, Inc., Gentle Dental Legacy, Inc., GMS Dental Management of Hawaii, Inc., and GDSC of Piedmont, Inc., provided that each such dissolution results in the assets (if any) and liabilities (if any) of each 4 -------------------------------------------------------------------------------- dissolving company being assumed by the dissolving company's immediate parent, and (ii) the merger of Serra Park Dental Services, Incorporated into GDMI. Purchaser waives any Default or Event of Default that resulted or would result from any such merger or dissolution and agrees that no such merger or dissolution shall constitute a Change in Control. Upon such dissolution or merger becoming effective, the dissolving or merged company shall cease to be a Guarantor of the Obligations.     5.  Consent to Dispositions.       (a) Notwithstanding Sections 10.10, 10.11 or any other provision of the Securities Purchase Agreement to the contrary, Purchaser hereby consents to the Dispositions, including (without limitation) the amendment to the Management Agreement for Mid-Atlantic Dental Associates, P.A. that excludes the Annapolis/Cross Keys Practices from the operation of such agreement entered into in connection with the MON Disposition, and agrees that no Disposition shall constitute a Change in Control.     (b) Contemporaneously with the closing of the DCA Disposition, (i) DCA and DCA's subsidiaries shall be, and are hereby automatically released from all Obligations, (ii) Purchaser will accept an allonge to the Note and each PIK Note deleting DCA as an Issuer and payor of such notes, and (iii) each Subsidiary of DCA shall be released from any Guarantee of any Obligations.     (c) The foregoing consent to the DCA Disposition is expressly conditioned upon, and shall not be effective until satisfaction of, the following conditions:      (i) The Senior Lenders shall have given their written consent to the DCA Disposition, and a copy of such written consent shall have been delivered to Purchaser;     (ii) The Holders of the 7% Convertible Subordinated Notes shall have given their written consent to the DCA Disposition, and a copy of such written consent shall have been delivered to Purchaser, and shall have received no additional consideration therefor, other than the reduction of the conversion price thereof by an amount not to exceed $2.71 per share;     (iii) If and to the extent that either the Senior Lenders or the Holders of the 7% Convertible Subordinated Notes shall receive any further or additional consideration for, in respect of or in connection with granting their consent to any Disposition, Purchaser shall have received equivalent consideration. By way of example and not limitation, if the conversion price of the 7% Convertible Subordinated Notes is reduced pursuant to the 7% Subordinated Debt Amendments or otherwise, then the exercise price for the Restated LLCP Warrant shall be reduced dollar for dollar. Further, if any consideration in excess of or in addition to the consideration reflected in the Senior Credit Agreements, as amended through the date hereof by Amendment Agreement No. 3 and Waiver and Amendment Agreement No. 6 and Waiver in the form provided to Purchaser on the date hereof is paid to the Senior Lenders under the Senior Credit Agreements in connection with the Dispositions, or any of them, then Purchaser shall be entitled to additional consideration, equal in kind and amount, computed on a dollar for dollar basis; and     (iv) All expenses of Purchaser reimbursable in accordance with Section 8.6 of the Securities Purchase Agreement not previously reimbursed to Purchaser shall have been reimbursed in full.     6.  Additional Guarantors.  DentalCo Management Services of Maryland, Inc. and the Dental Center, Inc., each agrees to join the Securities Purchase Agreement as a Guarantor of the Obligations and hereby agrees to be bound by the terms and conditions of the Securities Purchase Agreement as a Subsidiary Guarantor, including the provisions of Article 11 of the Securities Purchase Agreement. 5 --------------------------------------------------------------------------------     7.  Conditions to Effectiveness.       This Amendment shall become effective upon the execution and delivery of counterparts hereof by the parties and the fulfillment of the following conditions (provided, however, that the effectiveness of the consent given in Section 5 hereof shall be further conditioned on the express conditions set forth in Section 5):     (a) Purchaser shall have received certified copies of resolutions of the board of directors for each Company Party, approving and authorizing the execution, delivery, and performance of this Amendment, the Allonge and the Restated LLCP Warrant, certified as of the date hereof by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment.     (b) Purchaser shall have received each of the following documents, duly executed by each person which is a party thereto:      (i) The Restated LLCP Warrant;     (ii) The Allonge;     (iii) One (1) copy of each of the Bank Warrants;     (iv) One (1) copy of each of the Credit Agreements, including but not limited to that certain Amendment Agreement No. 3 and Waiver and that certain Amendment Agreement No. 6 and Waiver;     (v) One (1) copy of the consent of the Holders of the 7% Convertible Subordinated Notes, and the Amendment to the 7% Convertible Subordinated Promissory Notes;     (vi) A certificate of an officer of Parent, stating that (x) no consideration has been paid or accrued by the Senior Lenders or the holders of the 7% Convertible Subordinated Notes in respect of the transactions consented to hereby other than that previously disclosed to Purchaser in writing, and (y) all other terms and provisions of that certain Letter Agreement by and between Purchaser and Parent, dated as of April 9, 2001 have been fully complied with; and    (vii) All expenses of Purchaser reimbursable in accordance with Section 8.6 of the Securities Purchase Agreement incurred in connection with this Amendment have been reimbursed in full.     (c) Parent hereby agrees and acknowledges that the amendment fee and all other consideration to be given to Purchaser in connection with this Amendment or the consents granted herein, expressly including, but not limited to, the amendment fee in the amount of Two Million Two Hundred Fifty Thousand Dollars ($2,250,000), as reflected in the Allonge to the Senior Subordinated Note, or the amendment and restatement of the LLCP Warrant, as reflected in the Amended and Restated Warrant, of even date herewith, are fully earned and non-refundable upon execution and delivery of this Amendment.     8.  Miscellaneous.       (a) Except as herein expressly amended, the Securities Purchase Agreement is ratified and affirmed in all respects and shall remain in full force and effect in accordance with its terms.     (b) The waivers set forth in Section 4 hereof shall be limited precisely as written and shall not be deemed to constitute a waiver of compliance by any Company Party of any term or condition of the Securities Purchase Agreement or the Note occurring after the date hereof. 6 --------------------------------------------------------------------------------     (c) This Amendment may be executed by the parties hereto individually or in combination, in one or more counterparts, each of which shall be an original and all which shall constitute one and the same agreement.     (d) Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment.     (e) This Amendment shall be governed by, construed and interpreted in accordance with, the laws of the State of California applicable to contracts made and performed in that state (without regard to the choice of law or conflicts of law provisions thereof) and any applicable laws of the United States of America.     (f)  The parties hereto shall, at any time and from time to time following the execution of this Amendment, execute and deliver all such further instruments and take all such further actions as may be reasonably necessary or appropriate in order to carry out the provisions of this Amendment. 7 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered by their duly authorized representatives on the date first above written.     ISSUERS     GENTLE DENTAL SERVICE CORPORATION, a Washington corporation     By:   /s/ MICHAEL T. FIORE -------------------------------------------------------------------------------- Michael T. Fiore President and Chief Executive Officer     GENTLE DENTAL MANAGEMENT, INC., a Delaware corporation     By:   /s/ MICHAEL T. FIORE -------------------------------------------------------------------------------- Michael T. Fiore President and Chief Executive Officer     DENTAL CARE ALLIANCE, INC., a Delaware corporation     By:   /s/ STEVEN R. MATZKIN, D.D.S. -------------------------------------------------------------------------------- Steven R. Matzkin, D.D.S. President and Chief Executive Officer     PARENT AND GUARANTOR     INTERDENT, INC., a Delaware corporation     By:   /s/ MICHAEL T. FIORE -------------------------------------------------------------------------------- Michael T. Fiore Co-Chairman and Chief Executive Officer 8 --------------------------------------------------------------------------------     SUBSIDIARY GUARANTORS     GMS DENTAL GROUP MANAGEMENT OF HAWAII, INC., a Hawaii corporation     By:   /s/ MICHAEL T. FIORE -------------------------------------------------------------------------------- Michael T. Fiore President     GENTLE DENTAL OF IRVINE, a California corporation     By:   /s/ MICHAEL T. FIORE -------------------------------------------------------------------------------- Michael T. Fiore President     GDSC OF PIEDMONT, INC., a California corporation     By:   /s/ MICHAEL T. FIORE -------------------------------------------------------------------------------- Michael T. Fiore President     GENTLE DENTAL LEGACY, INC., a Nevada corporation     By:   /s/ MICHAEL T. FIORE -------------------------------------------------------------------------------- Michael T. Fiore President     DENTAL CARE ALLIANCE OF FLORIDA, INC., a Florida corporation     By:   /s/ STEVEN R. MATZKIN -------------------------------------------------------------------------------- Steven R. Matzkin President 9 --------------------------------------------------------------------------------     DENTAL CARE ALLIANCE OF MICHIGAN, INC., a Michigan corporation     By:   /s/ STEVEN R. MATZKIN -------------------------------------------------------------------------------- Steven R. Matzkin President     DENTAL CARE ALLIANCE OF GEORGIA, INC., a Florida corporation     By:   /s/ STEVEN R. MATZKIN -------------------------------------------------------------------------------- Steven R. Matzkin President     DENTAL CARE ALLIANCE OF INDIANA, INC., a Florida corporation     By:   /s/ STEVEN R. MATZKIN -------------------------------------------------------------------------------- Steven R. Matzkin President     DENTAL ONE ASSOCIATES, INC., a Georgia corporation     By:   /s/ STEVEN R. MATZKIN -------------------------------------------------------------------------------- Steven R. Matzkin President     DENTAL CARE ALLIANCE OF PENNSYLVANIA, INC., a Florida corporation     By:   /s/ STEVEN R. MATZKIN -------------------------------------------------------------------------------- Steven R. Matzkin President 10 -------------------------------------------------------------------------------- Additional Companies as Guarantors:   DENTALCO MANAGEMENT SERVICES OF MARYLAND, INC., as a Guarantor     By:   /s/ MICHAEL T. FIORE --------------------------------------------------------------------------------     Name: Michael T. Fiore Title: President     THE DENTAL CENTER, INC., as a Guarantor     By:   /s/ MICHAEL T. FIORE --------------------------------------------------------------------------------     Name: Michael T. Fiore Title: President     PURCHASER     LEVINE LEICHTMAN CAPITAL PARTNERS, INC., a California corporation             On behalf of LEVINE LEICHTMAN         CAPITAL PARTNERS II, L.P., a California         limited partnership             By: /s/ LAUREN B. LEICHTMAN               _______________________________               Lauren B. Leichtman               Chief Executive Officer 11 -------------------------------------------------------------------------------- Schedule A List of Defaults 1.Leverage Ratio; Interest Leverage Ratio, (a) Leverage Ratio (senior debt leverage ratio) 2.Leverage Ratio; Interest Leverage Ratio, (b) Interest Leverage Ratio (total debt leverage ratio) 3.Net Worth 4.Fixed Charge Ratio 5.Interest Coverage Ratio {EBITDA / (Cash Interest + Preferred Dividends)} 6.Interest Coverage Ratio {(EBITDA—CAPEX) / (Cash Interest + Preferred Dividends)} 7.Cross Default to Senior Debt through the effective date of this amendment, for those defaults waived in Section 3 of the Amendment Agreement No. 3 and Waiver, and in Section 3 of the Amendment Agreement No. 6 and Waiver, only as of the dates, for the periods, and to the extent waived by the Senior Lenders in such documents 8.Payment Default with respect to October 2000, November 2000, December 2000, January 2001, February 2001 and March 2001 interest payments 9.Any failure to notify the Purchaser of any of the defaults specified above. 10.Any cross default to the Convertible Subordinated Notes to the same extent that any such defaults have been waived by the holders of such notes as of the date hereof. Defaults noted in items 1 and 2 are defaults occurring as of September 30, 2000, December 31, 2000 and March 31, 2001. Defaults noted in items 3 through 6, inclusive, are defaults occurring as of December 31, 2000 and March 31, 2001. Schedule A–1 -------------------------------------------------------------------------------- QuickLinks AMENDMENT TO SECURITIES PURCHASE AGREEMENT, CONSENT TO ALLONGE TO SENIOR SUBORDINATED NOTE AND PIK NOTES, CONSENT TO DISPOSITIONS AND WAIVER Schedule A

EX-10 3 thagree.htm SEVERANCE AGREEMENT This Severance Agreement ("Agreement") is made and entered into effective the 1st day of September, 2001 by and between LABONE, INC. ("LabOne") and THOMAS J. HESPE ("Employee"); WITNESSETH: WHEREAS, LabOne and Employee entered into an Employment Agreement, dated March 5, 2001 ("Employment Agreement"); and WHEREAS, LabOne and Employee have agreed to the termination of Employee's employment; and WHEREAS, LabOne and Employee desire to enter into agreements with respect to such termination and to their relationship prior to and after Employee's termination; NOW, THEREFORE, in consideration of the promises herein contained, the parties hereto agree as follows: 1. Effective Date of Termination. The effective time and date of Employee's termination shall be midnight, August 31, 2002, or earlier in accordance with the provisions of paragraph 9 hereof ("Termination Date"). 2. Resignation of Offices; Duties and Responsibilities. Employee resigns all offices held by Employee with LabOne and its affiliates effective immediately. From September 1, 2001 through December 2, 2001 ("Initial Term"), Employee shall use his best efforts to effect a smooth transition of his prior duties and responsibilities for LabOne to Jim Mussatto (and others designated by LabOne), to retain and preserve for LabOne its relationships with employees, customers, contractors and others having existing or prospective relationships with LabOne, and to protect and maintain the business and goodwill LabOne now enjoys. From December 3, 2001 through the Termination Date ("Final Term"), Employee shall be available at reasonable times, at the request of LabOne, to assist LabOne in the retention of its relationships with customers and others having existing relationships with LabOne. During both the Initial Term and the Final Term, Employee shall not engage in any behavior or act or omit to act in any manner which has or tends to have the effect of: (a) disparaging LabOne, its affiliates or their management to their employees or any third party, (b) promoting a negative image of management of LabOne or its affiliates or the prospects of LabOne or its affiliates, or (c) maligning the officers, directors, tactics or strategies of LabOne. 3. Extent of Continuation of Employment Agreement. (a) In general. Except as otherwise provided herein, the Employment Agreement is hereby terminated and is of no further force or effect. (b) Compensation. Employee's compensation as described in paragraph 4 of the Employment Agreement shall continue during the Initial Term. Thereafter, Employee shall be paid monthly compensation of $1,044.21 payable on the 15th day of each month during the Final Term. (c) Noncompetition and Nonsolicitation. Employee acknowledges his continuing obligations pursuant to paragraph 8 of the Employment Agreement and agrees to fulfill the requirements of said paragraph 8 of the Employment Agreement for a period of two (2) years following the Termination Date; provided, however, that Employee acknowledges that LabOne currently is engaged in performing substance abuse testing for employment purposes and that the restrictive covenants set forth in paragraph 8 of the Employment Agreement shall apply to that business in addition to the clinical and insurance laboratory testing businesses. (d) Confidentiality, Developments and Property. Employee acknowledges his continuing obligations pursuant to paragraph 7 of the Employment Agreement and agrees to continue hereafter to fulfill the requirements of said paragraph 7 of the Employment Agreement. Employee hereby represents and warrants that he has fully complied with paragraph 6 of the Employment Agreement. To the extent Employee may have not already done so, he hereby: (i) assigns, transfers and conveys all of his right, title and interest in and to any and all Developments (as defined in paragraph 5 of the Employment Agreement) to LabOne, which Developments shall become and remain the sole and exclusive property of LabOne; and (ii) except the laptop computer and cell phone presently used by Employee (which he may keep as his own), immediately upon the request of LabOne shall return to LabOne all of its property in his possession, including (but not limited to) computers and other equipment, credit and debit cards, phones, files, correspondence, notes, recordings, marketing and other brochures, client information and other original materials and copies thereof, in whatever format, pertaining to any aspect of the business of LabOne. In addition, any information stored or contained in computers or computer equipment, or accessible thereby, which is owned by or pertains to LabOne or its affiliates shall be returned to LabOne and all disks, back-ups or copies thereof in the possession of Employee shall be returned to LabOne. (e) Judicial Relief. LabOne and Employee agree that the provisions of paragraph 9 of the Employment Agreement continue in full force and effect and are not terminated by this Agreement. 4. Effect of Agreement on Rights Under Certain Plans. This Agreement shall not alter any right Employee has as of the Termination Date as a terminated employee under LabOne's Long-Term Incentive Plans, Profit Sharing 401(K) Plan, Employees' Money Purchase Pension Plan or Medical Benefits Plan. Payments made to Employee pursuant to paragraphs 7 and 8 hereof shall not be considered compensation for purposes of the Employees' Money Purchase Pension Plan and the Profit Sharing 401(K) Plan. 5. Communications. Employee agrees that he shall not hereafter voluntarily say, write or do anything inconsistent with the terms of this Agreement which has an adverse effect on the business, affairs, reputation or interests of LabOne or its affiliates. Employee acknowledges that he has been privy to attorney-client communications concerning LabOne's business and legal affairs. Employee agrees never to voluntarily disclose to anyone any advice, recommendation or work product of any of LabOne's attorneys without having first received a writing from LabOne authorizing any such disclosure. Employee further agrees to give LabOne prompt written notice in order to permit LabOne to seek injunctive relief to protect its interests in the event of any attempt by a third party to require any communication, disclosure or act by Employee which Employee is prohibited by the foregoing from making or doing voluntarily. 6. Release. Employee hereby releases and discharges LabOne, its parent and subsidiaries, and their respective officers, directors, agents, employees, representatives, successors and assigns, from and against any and all demands, claims, causes of actions, sums due (except for those provided herein), damages, costs and expenses, related to or arising out of the Employment Agreement, Employee's employment, and any act or omission of LabOne, its subsidiaries and other affiliates, or their respective officers, directors, agents, employees or representatives which has occurred as of the Termination Date, INCLUDING WITHOUT LIMITATION THOSE ARISING UNDER THE EMPLOYMENT RETIREMENT INCOME SECURITY ACT, AS AMENDED, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED, and all state statutes and regulations prohibiting discrimination, whether such demands, claims or causes of action are presently known or unknown. 7. Payments to Employee. Subject to any applicable withholding, LabOne agrees to pay to Employee by check on the following dates the sums set forth below:          Date                                                                                                 Payment (a) One payment on December 1, 2001 16,667 (b) Eight payments commencing January 1, 2002,  and continuing monthly on the first day of each month thereafter ending August 1,   2002. 12,500 (c) Four payments commencing September 1, 2002, and continuing monthly on the first day of each month thereafter ending December 1, 2002. 1,044 8. Contingent Additional Payment to Employee. In the events that Employee has performed all his obligations to be then performed by him as required by this Agreement and that the transition of customers and the retention of employees and the business and goodwill of LabOne have been, in the subjective opinion of the president of LabOne, smoothly and otherwise successfully completed, Employee shall be paid an additional $75,000.00 on June 1, 2002. 9. Termination of Employment; Effect. Employee's employment pursuant to this Agreement shall terminate prior to midnight, August 31, 2002, upon the occurrence of Employee's death or disability (as defined in paragraph 10(b) of the Employment Agreement), for cause which shall include any breach of this Agreement, or in the event that at any time the transition of customers and the retention of employees and the business and goodwill of LabOne are not, in the subjective opinion of the president of LabOne, proceeding smoothly and successfully. LabOne and Employee agree that (a) only the obligations of Employee contained in paragraphs 3(c)-(e), 5, 6, 10 and 13 hereof shall survive and continue after any termination of Employee's employment pursuant to this Agreement; and (b) only the obligations of LabOne contained in paragraphs 4, 7(a) and (b), 10 and 13 shall survive and continue after any termination of Employee's employment pursuant to this paragraph 9. 10. Miscellaneous. (a) Injunctive Relief. LabOne and Employee agree that in the event Employee violates, or threatens to violate, paragraphs 3(c), 3(d) or 5 hereof, LabOne is reasonably likely to suffer irreparable damages which may be difficult or impossible to value in monetary damages and entitling LabOne to injunctive relief. (b) Integrated Agreement. This Agreement sets forth the final and complete understanding of the parties with respect to the subject matter hereof. Any previous agreements or understandings between the parties regarding the subject matter hereof are merged into and are superseded by this Agreement. This Agreement may not be amended without the written consent of the parties hereto. (c) Assignment. This Agreement is not assignable by Employee. This Agreement shall bind any successor of LabOne. (d) Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of Kansas. All remedies provided for herein are nonexclusive. 11. TWENTY ONE-DAY EVALUATION PERIOD. EMPLOYEE UNDERSTANDS THAT HE HAS TWENTY-ONE (21) DAYS IMMEDIATELY FOLLOWING THE DAY THAT HE RECEIVES THIS SEVERANCE AGREEMENT IN WHICH TO CONSIDER WHETHER OR NOT HE WANTS TO SIGN THIS SEVERANCE AGREEMENT. 12. CONSULTATION WITH ATTORNEY AND RIGHT TO REVOKE. EMPLOYEE ACKNOWLEDGES THAT HE HEREBY IS ADVISED TO CONSULT WITH AN ATTORNEY OF HIS CHOICE PRIOR TO SIGNING THIS AGREEMENT, AS IMPORTANT RIGHTS ARE AFFECTED BY THIS AGREEMENT. EMPLOYEE MAY REVOKE THIS AGREEMENT AT ANY TIME DURING THE SEVEN (7) DAYS IMMEDIATELY FOLLOWING ITS SIGNING BY GIVING LABONE WRITTEN NOTICE OF REVOCATION. THIS AGREEMENT WILL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL SUCH SEVEN-DAY REVOCATION PERIOD HAS EXPIRED. 13. Confidential Agreement. The parties agree not to disclose to any person or private or government entity (except their respective legal counsel, taxing authorities for the purpose of disputing or resolving tax controversies or as required by law) the facts or circumstances out of which this Agreement arises and not to disclose to any person or private or government entity (except their respective legal counsel, taxing authorities for the purpose of disputing or resolving tax controversies or as required by law) the terms and fact of this Agreement, except as may be necessary to enforce its terms. IN WITNESS WHEREOF, this Agreement has been executed as of the date and year first above written.   "Employer" "Employee" LabONE, Inc.           By: /s/ W. Thomas Grant II              /s/ Thomas J. Hespe   Thomas J. Hespe

EXHIBIT 10.108 1995 LONG-TERMINCENTIVE COMPENSATION PLAN (AS AMENDED THROUGH FEBRUARY 24, 1999) SECTION 1. PURPOSE      The purpose of the Puget Energy, Inc. 1995 Long-Term Incentive Compensation Plan (the “Plan”) is to enhance the long-term profitability and shareholder value of Puget Energy, Inc., a Washington corporation (the “Company”), by offering incentives and rewards to those employees of the Company and its Subsidiaries (as defined in Section 5 of the Plan) who are key to the Company’s growth and success, and to encourage them to remain in the service of the Company and its Subsidiaries and to acquire and maintain stock ownership in the Company. SECTION 2. ADMINISTRATION    2.1 Plan Administrator      The Plan shall be administered by a committee or committees (the “Plan Administrator”) (which term includes subcommittees) appointed by, and consisting of one or more members of, the Company’s Board of Directors (the “Board”). The Board may delegate the responsibility for administering the Plan with respect to designated classes of eligible Participants (as defined in Section 3 of the Plan) to different committees, subject to such limitations as the Board deems appropriate. Committee members shall serve for such term as the Board may determine, subject to removal by the Board at any time. The composition of any committee responsible for administering the Plan with respect to officers and directors of the Company who are subject to Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to securities of the Company shall comply with the requirements of Rule 16b-3 under Section 16(b) of the Exchange Act.    2.2 Administration and Interpretation by the Plan Administrator      Except for the terms and conditions explicitly set forth in the Plan, the Plan Administrator shall have exclusive authority, in its discretion, to determine all matters relating to Awards (as defined in Section 3 of the Plan) under the Plan, including the selection of individuals to be granted Awards, the type of Awards, the number of shares of the Company’s common stock, par value $.01 per share (the “Common Stock”), subject to an Award, all terms, conditions, restrictions and limitations, if any, of an Award and the terms of any instrument that evidences the Award, and to authorize the Trustee (the “Trustee”) of the 1995 Long-Term Incentive Compensation Plan Trust, a trust established under the laws of the State of Washington (the “Trust”), to grant Awards. The Plan Administrator shall also have exclusive authority to interpret the Plan and may from time to time adopt and change, rules and regulations of general application for the Plan’s administration. The Plan Administrator’s interpretation of the Plan and its rules and regulations, and all actions taken and determinations made by the Plan Administrator pursuant to the Plan, shall be conclusive and binding on all parties involved or affected. The Plan Administrator may delegate administrative duties to such of the Company’s officers as it so determines. SECTION 3. AWARDS    3.1 Form and Grant of Awards      The Plan Administrator shall have the authority, in its sole discretion, to determine the type or types of awards (an “Award”) to be made under the Plan, which may include, but are not limited to, Stock Awards, Performance Awards, Other Stock-Based Awards (including any Dividend Equivalent Rights granted in connection with such Awards) as those terms are defined in Sections 6, 7, 8 and 9, respectively, of the Plan. Awards may be granted singly, in combination or in tandem so that the settlement or payment of one automatically reduces or cancels the other. Awards may also be made in combination or in tandem with, in replacement of, as alternatives to, or as the payment form for, grants or rights under any other employee or compensation plan of the Company. For purposes of the Plan, a “Participant” means an individual who is a Holder of an Award or, as the context may require, any employee of the Company or a Subsidiary who has been designated by the Plan Administrator as eligible to participate in the Plan, and a “Holder” means the Participant to whom an Award is granted, or the personal representative of a Holder who has died.    3.2 Acquired Company Awards      Notwithstanding anything in the Plan to the contrary, the Plan Administrator may grant Awards under the Plan in substitution for awards issued under other plans, or assume under the Plan awards issued under other plans, if the other plans are or were plans of other entities (“Acquired Entities”) (or the parent of the Acquired Entity) and the new Award is substituted, or the old award is assumed, by reason of a merger, consolidation, acquisition of property or of stock, reorganization or liquidation (the “Acquisition Transaction”). In the event that a written agreement pursuant to which the Acquisition Transaction is completed is approved by the Board and said agreement sets forth the terms and conditions of the substitution for or assumption of outstanding awards of the Acquired Entity, said terms and conditions shall be deemed to be the action of the Plan Administrator without any further action by the Plan Administrator, except as may be required for compliance with Rule 16b-3 under the Exchange Act, and the persons holding such Awards shall be deemed to be Participants and Holders.    3.3 1995 Long-Term Incentive Compensation Plan Trust      Awards may be, but need not be, paid to the Trustee, such payments to be used by the Trustee to purchase shares of the Common Stock. Shares purchased by the Trustee pursuant to the terms of the Trust (“Trustee Shares”) shall be held for the benefit of Participants, and shall be distributed to Participants or their beneficiaries by the Trustee at the direction of the Plan Administrator in accordance with the terms and conditions of the Awards. Awards may also be made in units that are redeemable (in whole or part) in Trustee Shares. SECTION 4. STOCK SUBJECT TO THE PLAN    4.1 Authorized Number of Shares      Subject to adjustment from time to time as provided in Section 11.1 of the Plan, the maximum number of shares of Common Stock that may be purchased by the Trustee as Trustee Shares for purposes of the Plan shall be 500,000. Common Stock shall be purchased by the Trustee on the open market. The Company shall not issue any Common Stock under the Plan to the Trust or to any Participant, nor shall the Company purchase any Trustee Shares from the Trust.    4.2 Limitations      Subject to adjustment from time to time as provided in Section 11.1 of the Plan, no Awards denominated in stock that constitute more than 40,000 shares of Common Stock shall be payable to any individual Participant in any one fiscal year of the Company, and no Awards denominated in cash that have an aggregate maximum dollar value in excess of $400,000 shall be payable to any individual Participant in any one fiscal year of the Company, such limitations to be applied in a manner consistent with the requirements of, and only to the extent required for compliance with, the exclusion from the limitation on deductibility of compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).    4.3 Reuse of Shares      Any shares of Common Stock that have been made subject to an Award that cease to be subject to the Award (other than by reason of exercise or payment of the Award to the extent it is exercised for or settled in shares), including, without limitation, in connection with the cancellation of an Award and the grant of a replacement Award, shall again be available for issuance in connection with future grants of Awards under the Plan. Shares that are subject to tandem Awards shall be counted only once. SECTION 5. ELIGIBILITY      Awards may be granted under the Plan to those officers and key employees (including directors who are also employees) of the Company and its Subsidiaries as the Plan Administrator from time to time selects. For purposes of the Plan, “Subsidiary,” except as expressly provided otherwise, means any entity that is directly or indirectly controlled by the Company or in which the Company has a significant ownership interest, as determined by the Plan Administrator, and any entity that may become a direct or indirect parent of the Company. SECTION 6. STOCK AWARDS    6.1 Grant of Stock Awards      The Plan Administrator is authorized to grant Awards of Common Stock (“Stock Awards”) to Participants on such terms and conditions, and subject to such restrictions, if any (whether based on performance standards, periods of service or otherwise), as the Plan Administrator shall determine, which terms, conditions and restrictions shall be set forth in the instrument evidencing the Award (shares subject to such restrictions are referred to herein as “Restricted Stock”). The terms, conditions and restrictions that the Plan Administrator shall have the power to determine shall include, without limitation, the manner in which shares subject to Stock Awards are held during the periods they are subject to restrictions and the circumstances under which forfeiture of Restricted Stock shall occur by reason of termination of the Holder’s employment.    6.2 Issuance of Shares      Upon the satisfaction of any terms, conditions and restrictions prescribed in respect to a Stock Award, or upon the Holder’s release from any terms, conditions and restrictions of a Stock Award, as determined by the Plan Administrator, the Company shall deliver, as soon as practicable, to the Holder or, in the case of the Holder’s death, to the personal representative of the Holder’s estate or as the appropriate court directs, a stock certificate for the appropriate number of shares of Common Stock.    6.3 Waiver of Restrictions      Notwithstanding any other provisions of the Plan, the Plan Administrator may, in its sole discretion, waive the forfeiture period and any other terms, conditions and restrictions on any Restricted Stock under such circumstances and subject to such terms and conditions as the Plan Administrator shall deem appropriate. SECTION 7. PERFORMANCE AWARDS    7.1 Plan Administrator Authority      Awards made under this Section 7 (“Performance Awards”) may be denominated in cash, shares of Common Stock or any combination thereof. The Plan Administrator is authorized to grant Performance Awards and shall determine the nature, length and starting date of the performance period for each Performance Award and the performance objectives to be used in valuing Performance Awards and determining the extent to which such Performance Awards have been earned. Performance objectives and other terms may vary from Participant to Participant and between groups of Participants. Performance objectives shall be based on profits, profit growth, profit-related return ratios, cash flow or total shareholder return, whether applicable to the Company or any relevant Subsidiary or business unit, comparisons with competitor companies or groups and with stock market indices, or any combination thereof, as the Plan Administrator deems appropriate. Additional performance measures may be used to the extent their use would comply with the exclusion from the limitation on deductibility of compensation under Section 162(m) of the Code. Performance periods may overlap and Participants may participate simultaneously with respect to Performance Awards that are subject to different performance periods and different performance factors and criteria. The Plan Administrator shall determine for each Performance Award the range of dollar values or number of shares of Common Stock (which may, but need not, be shares of Restricted Stock pursuant to Section 6 of the Plan), or a combination thereof, to be received by the Participant at the end of the performance period if and to the extent that the relevant measures of performance for such Performance Awards are met. The performance measures must include a minimum performance standard below which no payment will be made and a maximum performance level above which no increased payment will be made, such limitation to be applied in a manner consistent with the requirements of, and to the extent required for compliance with, the exclusion from the limitation on deductibility of compensation under Section 162(m) of the Code. The earned portion of a Performance Award may be paid currently or on a deferred basis with such interest or earnings equivalent as may be determined by the Plan Administrator. Payment shall be made in the form of cash, whole shares of Common Stock (which may, but need not, be shares of Restricted Stock pursuant to Section 6 of the Plan), or any combination thereof, either in a single payment or in annual installments, all as the Plan Administrator shall determine.    7.2 Adjustment of Awards      The Plan Administrator may adjust the performance goals and measurements applicable to Performance Awards to take into account changes in law and accounting and tax rules and to make such adjustments as the Plan Administrator deems necessary or appropriate to reflect the inclusion or exclusion of the impact of extraordinary or unusual items, events or circumstances, except that, to the extent required for compliance with the exclusion from the limitation on deductibility of compensation under Section 162(m) of the Code, no adjustment shall be made that would result in an increase in the compensation of any Participant whose compensation is subject to such limitation for the applicable year. The Plan Administrator also may adjust the performance goals and measurements applicable to Performance Awards and thereby reduce the amount to be received by any Participant pursuant to such Awards if and to the extent that the Plan Administrator deems it appropriate.    7.3 Payout Upon Termination      The Plan Administrator shall establish and set forth in each instrument that evidences a Performance Award whether the Award will be payable, and the terms and conditions of such payment, if a Holder ceases to be employed by the Company or its Subsidiaries, which provisions may be waived or modified by the Plan Administrator at any time. If not so established in the instrument evidencing the Performance Award, the Award will be payable according to the following terms and conditions, which may be waived or modified by the Plan Administrator at any time. If during a performance period a Participant’s employment with the Company terminates by reason of the Participant’s Retirement, Early Retirement at the Company’s request, Disability, position elimination or death, such Participant shall be entitled to a payment with respect to each outstanding Performance Award at the end of the applicable performance period (a) based, to the extent relevant under the terms of the Performance Award, on the Participant’s performance for the portion of such performance period ending on the date of termination and (b) prorated for the portion of the performance period during which the Participant was employed by the Company, all as determined by the Plan Administrator. For purposes of the Plan, “Retirement” and “Disability” mean “retirement” and “disability” as those terms are defined in the Company’s Investment Plan for Employees or other similar successor plan applicable to salaried employees, and “Early Retirement” means “early retirement” as that term is defined by the Plan Administrator from time to time for purposes of the Plan. The Plan Administrator may provide for an earlier payment in settlement of such Performance Award discounted at a reasonable interest rate and otherwise in such amount and under such terms and conditions as the Plan Administrator deems appropriate. Except as otherwise provided in Section 11 of the Plan or in the instrument evidencing the Performance Award, if during a performance period a Participant’s employment with the Company terminates other than by reason of the Participant’s Retirement, Early Retirement at the Company’s request, Disability, position elimination or death, then such Participant shall not be entitled to any payment with respect to the Performance Awards relating to such performance period, unless the Plan Administrator shall otherwise determine. In case of termination of the Holder’s employment for Cause, the Performance Award shall automatically terminate upon first notification to the Holder of such termination, unless the Plan Administrator determines otherwise. For purposes of the Plan, “Cause” means dishonesty, fraud, misconduct, unauthorized use or disclosure of confidential information or trade secrets, or conviction or confession of a crime punishable by law (except minor violations), in each case as determined by the Plan Administrator, whose determination shall be conclusive and binding. If a Holder’s employment with the Company is suspended pending an investigation of whether the Holder shall be terminated for Cause, all of the Holder’s rights under any Performance Award likewise shall be suspended during the period of investigation. A transfer of employment between or among the Company and its Subsidiaries shall not be considered a termination of employment. Unless the Plan Administrator determines otherwise, a leave of absence approved in accordance with Company procedures shall not be considered a termination of employment. SECTION 8. OTHER STOCK-BASED AWARDS      The Plan Administrator may grant other Awards under the Plan (“Other Stock-Based Awards”) pursuant to which shares of Common Stock (which may, but need not, be shares of Restricted Stock pursuant to Section 6 of the Plan) are or may in the future be acquired, or Awards denominated in stock units, including Awards valued using measures other than market value. Such Other Stock-Based Awards may be granted alone or in addition to or in tandem with any Award of any type granted under the Plan and must be consistent with the Plan’s purpose. SECTION 9. DIVIDEND EQUIVALENT RIGHTS      Any Awards under the Plan may, in the Plan Administrator’s discretion, earn Dividend Equivalent Rights (“Dividend Equivalent Rights”). In respect of any Award that is outstanding on the dividend record date for Common Stock, the Participant may be credited with an amount equal to the cash or stock dividends or other distributions that would have been paid on the shares of Common Stock covered by such Award had such covered shares been issued and outstanding on such dividend record date. The Plan Administrator shall establish such rules and procedures governing the crediting of Dividend Equivalent Rights, including the timing, form of payment and payment contingencies of such Dividend Equivalent Rights, as it deems are appropriate or necessary. SECTION 10. ASSIGNABILITY      No Performance Award, Other Stock-Based Award or Dividend Equivalent Right granted under the Plan may be assigned or transferred by the Holder other than by will or by the laws of descent and distribution and, during the Holder’s lifetime, such Awards may be exercised only by the Holder. Notwithstanding the foregoing, and to the extent permitted by Rule 16b-3 under the Exchange Act, the Plan Administrator, in its sole discretion, may permit such assignment, transfer and exercisability and may permit a Holder of such Awards to designate a beneficiary who may exercise the Award or receive compensation under the Award after the Holder’s death. SECTION 11. ADJUSTMENTS    11.1 Adjustment of Shares      In the event that at any time or from time to time a stock dividend, stock split, spin-off, combination or exchange of shares, recapitalization, merger, consolidation, distribution to shareholders other than a normal cash dividend, or other change in the Company’s corporate or capital structure results in (a) the outstanding shares, or any securities exchanged therefor or received in their place, being exchanged for a different number or class of securities of the Company or of any other corporation or (b) new, different or additional securities of the Company or of any other corporation being received by the holders of shares of Common Stock, then the Plan Administrator, in its sole discretion, shall make such equitable adjustments as it shall deem appropriate under the circumstances in (i) the maximum number of and class of securities subject to the Plan as set forth in Section 4.1 of the Plan, (ii) the maximum number and class of securities and dollar amount subject to Awards that may be paid to any individual Participant as set forth in Section 4.2 of the Plan, and (iii) the number and class of securities that are subject to any outstanding Award and the per share price of such securities, without any change in the aggregate price to be paid therefor. The determination by the Plan Administrator as to the terms of any of the foregoing adjustments shall be conclusive and binding.    11.2 Change of Control      Except as otherwise provided in the instrument that evidences an Award, in the event of any Change of Control (as defined below), each outstanding Stock Award shall automatically accelerate so that each such Award shall, immediately prior to the specified effective date for the Change of Control, become 100% vested and all restrictions on shares of restricted stock awarded under the Plan shall lapse, except that such acceleration will not occur in the case of a specific Award if in the opinion of the Company’s accountants such Award was made in contemplation of the Change of Control and, acceleration of such Award would render unavailable “pooling of interest” accounting for a merger that would otherwise qualify for such accounting treatment.      With respect to all Awards granted pursuant to the Plan that are accelerated, the Company shall issue to the Holder within 30 days after the Effective Date, (or if required by “pooling of interest” accounting, within 20 days after financial results covering at least 30 days of post-merger combined operations have been published):      (a) cash equal to the higher of (1) the average of the last sale prices of the Company’s Common Stock on the New York Stock Exchange in each of the twenty business days preceding the Effective Date or (2) the highest price per share actually paid for any of the Company Common Stock in connection with the Change in Control, multiplied by the aggregate number of shares of the Company’s Common Stock (or, if the event that triggered the Effective Date is a Business Combination, the equivalent number of shares of the then outstanding common stock of the corporation resulting from or effecting such Business Combination into which such shares of Common Stock have been converted) equal to the greater of (x) the total number of the shares payable at the target Award level upon full vesting of each such Award and (y) such higher number of shares payable upon full vesting of each such Award if the Company achieved for each outstanding Award cycle the performance measures which the Company had achieved for the applicable cycle during the period commencing upon the starting year of such cycle and ending with the fiscal quarter immediately preceding the Effective Date; and      (b) cash equal to the amount of the Dividend Equivalents associated with the number of shares determined under subparagraph (a) above, in accordance with the Plan.      For the purpose of this Plan, a “Change of Control” means:      (a) The acquisition by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of (i) 20% or more of the outstanding Company Common Stock; provided, however, that the following acquisitions of beneficial ownership shall not constitute a Change of Control: (x) any acquisition by the Company, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (z) any acquisition by any corporation pursuant to a Business Combination, if, following such Business Combination, the conditions described in clauses (i), (ii) and (iii) of subsection (c) below are satisfied; or      (b) A “Board Change” which, for purposes of this Agreement, shall have occurred if a majority of the seats (other than vacant seats) on the Board of the Company or its successor are occupied by individuals who were neither (i) nominated by a majority of the Incumbent Directors of the Company nor (i) appointed by directors so nominated; or      (c) Approval by applicable regulatory agencies of a Business Combination unless immediately following such Business Combination, (i) more than 60% of the then outstanding shares of common stock of the corporation resulting from or effecting such Business Combination and the combined voting power of the then outstanding voting 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 the individuals and entities who were the beneficial owners of the outstanding Company Common Stock immediately prior to such Business Combination is substantially the same proportion as their ownership, immediately prior to such Business Combination, of the outstanding Company Common Stock, (ii) no Person (excluding the Company or any employee benefit plan (or related trust) of the Company or the corporation resulting from or effecting such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from or effecting such Business Combination or the combined voting power of the then outstanding voting 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 or effecting such Business Combination were Incumbent Directors of the Company at the time of the execution of the initial agreement or action of the Board providing for such Business Combination.      “Business Combination” means (a) a merger or consolidation, exchange of securities or reorganization of the Company or (b) the sale or other disposition of substantially all the assets of the Company. “Incumbent Direct” means a member of the Board who has been either (a) nominated by a majority of the directors of the Company then in office or (b) appointed by directors so nominated, but excluding for this purpose any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board. “Person” means any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d) of the Exchange Act).      Any specific Awards that do not accelerate (because the Company’s independent accountants have determined that such acceleration would render pooling of interest accounting unavailable or because the instrument evidencing the Award specifically provided that acceleration of such Award shall not occur upon a change of control) shall be assumed by the successor company or parent thereof or shall be replaced with a comparable award of equivalent value and with the same vesting schedule. Any such Awards that are assumed or replaced shall be accelerated in the event the Holder’s employment should subsequently terminate within two years following the Change of Control, unless employment is terminated by the Company for Cause or voluntarily by the Holder without Good Reason.      Also for purposes of the Plan, “Good Reason” means the occurrence of any of the following events or conditions:      (a) a change in the Holder’s status, title, position or responsibilities (including reporting responsibilities) that, in the Holder’s reasonable judgment, represents a substantial reduction of the status, title, position or responsibilities as in effect immediately prior thereto; the assignment to the Holder of any duties or responsibilities that, in the Holder’s reasonable judgment, are inconsistent with such status, title, position or responsibilities; or any removal of the Holder from or failure to reappoint or reelect the Holder to any of such positions, except in connection with the termination of the Holder’s employment for Cause, for Disability or as a result of his or her death, or by the Holder other than for Good Reason; (b) a reduction in the Holder's annual base salary;      (c) the Company’s requiring the Holder (without the Holder’s consent) to be based at any place outside a 35-mile radius of his or her place of employment prior to a Change of Control, except for reasonably required travel on the Company’s business that is not materially greater than such travel requirements prior to the Change of Control;      (d) the Company’s failure to (i) continue in effect any material compensation or benefit plan (or the substantial equivalent thereof) in which the Holder was participating at the time of a Change of Control, including, but not limited to, the Plan, or (ii) provide the Holder with compensation and benefits at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each employee benefit plan, program and practice as in effect immediately prior to the Change of Control (or as in effect following the Change of Control, if greater); (e) any material breach by the Company of any provision of the Plan; or      (f) any purported termination of the Holder’s employment for Cause by the Company that does not comply with the terms of the Plan.    11.3 Further Adjustment of Awards      Without limiting the preceding Section 11.2 of the Plan, and subject to the limitations set forth in Section 7 of the Plan, the Plan Administrator shall have the discretion, exercisable at any time before a sale, merger, consolidation, reorganization, liquidation or change in control of the Company, as defined by the Plan Administrator, to take such further action as it determines to be necessary or advisable, and fair and equitable to Participants, with respect to Awards. Such authorized action may include (but shall not be limited to) establishing, amending or waiving the type, terms, conditions or duration of, or restrictions on, Awards so as to provide for earlier, later, extended or additional time for exercise, payment or settlement or lifting restrictions, differing methods for calculating payments or settlements, alternate forms and amounts of payments and settlements and other modifications, and the Plan Administrator may take such actions with respect to all Participants, to certain categories of Participants or only to individual Participants. The Plan Administrator may take such actions before or after granting Awards to which the action relates and before or after any public announcement with respect to such sale, merger, consolidation, reorganization, liquidation or change in control that is the reason for such action.    11.4 Limitations      The grant of Awards will in no way affect the Company’s right to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. SECTION 12. WITHHOLDING OF TAXES      The Company may require the Holder to pay to the Company the amount of any withholding taxes that the Company is required to withhold with respect to the grant, exercise, payment or settlement of any Award. In such instances, the Plan Administrator may, in its discretion and subject to the Plan and applicable law, permit the Holder to satisfy withholding obligations, in whole or in part, by paying cash, by electing to have the Company withhold shares of Common Stock or by transferring shares of Common Stock to the Company, in such amounts as are equivalent to the Fair Market Value of the withholding obligation. For purposes of the Plan, “Fair Market Value” means the mean of the high and low per share trading prices for the Common Stock as reported in The Wall Street Journal for the New York Stock Exchange --Composite Transactions (or similar successor consolidated transactions reports) for a single trading day. SECTION 13. AMENDMENT AND TERMINATION OF PLAN    13.1 Amendment of Plan      The Plan may be amended by the shareholders of the Company. The Board may also amend the Plan in such respects as it shall deem advisable; however, to the extent required for compliance with Rule 16b-3 under the Exchange Act or any applicable law or regulation, shareholder approval will be required for any amendment that will (a) increase the total number of shares that may be used in payment of Awards under the Plan, (b) materially modify the class of persons eligible to receive Awards, (c) materially increase the benefits accruing to Participants under the Plan, or (d) otherwise require shareholder approval under any applicable law or regulation.    13.2 Termination of Plan      The Company’s shareholders or the Board may suspend or terminate the Plan at any time. The Plan will have no fixed expiration date.    13.3 Consent of Holder      The amendment or termination of the Plan shall not, without the consent of the Holder of any Award under the Plan, alter or impair any rights or obligations under any Award theretofore granted under the Plan. SECTION 14. GENERAL    14.1 Notification      The Plan Administrator shall promptly notify a Participant of an Award, and a written grant shall promptly be executed and delivered by or on behalf of the Company.    14.2 Continued Employment; Rights in Awards      Neither the Plan, participation in the Plan as a Participant nor any action of the Plan Administrator taken under the Plan shall be construed as giving any Participant or employee of the Company any right to be retained in the employ of the Company or limit the Company’s right to terminate the employment of the Participant.    14.3 Registration; Certificates for Shares      The Company shall be under no obligation to any Participant to register for offering or resale under the Securities Act of 1933, as amended, or register or qualify under state securities laws, any shares of Common Stock, security or interest in a security paid or issued under, or created by, the Plan. The Company may issue certificates for shares with such legends and subject to such restrictions on transfer and stop-transfer instructions as counsel for the Company deems necessary or desirable for compliance by the Company with federal and state securities laws.    14.4 No Rights as a Shareholder      No Performance Award, Other Stock-Based Award or Dividend Equivalent Right shall entitle the Holder to any dividend (except to the extent provided in an Award of Dividend Equivalent Rights), voting or other right of a shareholder unless and until the date of issuance under the Plan of the shares that are the subject of such Award, free of all applicable restrictions.    14.5 Compliance With Laws and Regulations      It is the Company’s intention that, so long as any of the Company’s equity securities are registered pursuant to Section 12(b) or 12(g) of the Exchange Act, the Plan shall comply in all respects with Rule 16b-3 under the Exchange Act and, if any Plan provision is later found not to be in compliance with Rule 16b-3, the provision shall be deemed null and void, and in all events the Plan shall be construed in favor of its meeting the requirements of Rule 16b-3. Notwithstanding anything in the Plan to the contrary, the Board, in its sole discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan to Participants who are officers or directors subject to Section 16 of the Exchange Act without so restricting, limiting or conditioning the Plan with respect to other Participants.    14.6 Unfunded Plan      The Plan is intended to constitute an “unfunded” plan. Nothing contained herein shall require the Company to segregate any monies or other property, or shares of Common Stock, or to create any trusts, or to make any special deposits for any immediate or deferred amounts payable to any Participant, and no Participant shall have any rights that are greater than those of a general unsecured creditor of the Company.    14.7 Governing Law      The Plan and all interpretations of its provisions shall be governed by the laws of the state of Washington and applicable federal laws.    14.8 Severability      If any provision of the Plan or any Award is determined to be invalid, illegal or unenforceable in any jurisdiction, or as to any person, or would disqualify the Plan or any Award under any law deemed applicable by the Plan Administrator, such provision shall be construed or deemed amended to conform to applicable laws, or, if it cannot be so construed or deemed amended without, in the Plan Administrator’s determination, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person or Award, and the remainder of the Plan and any such Award shall remain in full force and effect. SECTION 15. EFFECTIVE DATE      The Plan’s effective date is the date on which it is adopted by the Board, so long as it is approved by the Company’s shareholders, to the extent required for compliance with Rule 16b-3 under the Exchange Act and Section 162(m) of the Code, at the next annual meeting of the Company’s shareholders after adoption of the Plan by the Board.

Exhibit 10.1 APPENDIX A TEKGRAF, INC. 1997 STOCK OPTION PLAN (As Amended and Restated Effective June 29, 2001) 1.          Purpose.              The purpose of this plan (the “Plan”) is to secure for TEKGRAF, INC. (the “Company”) and its stockholders the benefits arising from capital stock ownership by employees, officers and directors of, and consultants or advisors to, the Company who are expected to contribute to the Company’s future growth and success. Except where the context otherwise requires, the term “Company” shall include all present and future subsidiaries of the Company as defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended or replaced from time to time (the “Code”). Those provisions of the Plan which make express reference to Section 422 shall apply only to Incentive Stock Options (as that term is defined in the Plan). 2.          Type of Options and Administration.              (a)             Types of Options. Options granted pursuant to the Plan may be either incentive stock options (“Incentive Stock Options”) meeting the requirements of Section 422 of the Code or nonqualified stock options which are not intended to meet the requirements of Section 422 of the Code, as determined by the Committee (as defined below).              (b)             Administration. The Plan will be administered by a committee (the “Committee”) appointed by the Board of Directors of the Company (“Board”), whose construction and interpretation of the terms and provisions of the Plan shall be final and conclusive. To the extent determined necessary or desirable by the Board, the Committee shall consist of two or more members of the Board, each of whom shall constitute both a “non-employee director” within the meaning of Rule 16b-3 (“Rule 16b-3”) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”) and an “outside director” within the meaning of Code Section 162(m). The Committee may in its sole discretion grant options to purchase shares of the Company’s Class A Common Stock, $.001 par value per share (“Common Stock”) and issue shares upon exercise of such options as provided in the Plan. The Committee shall have authority, subject to the express provisions of the Plan, to construe the respective option agreements and the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions of the respective option agreements, which need not be identical, and to make all other determinations in the judgment of the Committee necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any option agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. No director or person acting pursuant to authority delegated by the Committee shall be liable for any action or determination under the Plan made in good faith. If at any time the Board has not appointed a Committee under the Plan, the Board shall act as the Committee. 3.          Eligibility              Options may be granted to persons who are, at the time of grant, employees, officers or directors of, or consultants or advisors to, the Company provided, that Incentive Stock Options may only be granted to individuals who are employees of the Company (within the meaning of Section 3401(c) of the Code). A person who has been granted an option may, if he or she is otherwise eligible, be granted additional options if the Committee shall so determine. 4.          Stock Subject to Plan.              The stock subject to options granted under the Plan shall be shares of authorized but unissued or reacquired Common Stock. Subject to adjustment as provided in Section 15 below, (i) the maximum number of shares of Common Stock of the Company which may be issued and sold under the Plan is 1,250,000 shares, and (ii) in no event shall the number of shares of Common Stock underlying options awarded to any individual in any 12-month period exceed 300,000 shares. If an option granted under the Plan shall expire, terminate or is cancelled for any reason without having been exercised in full, the unpurchased shares subject to such option shall again be available for subsequent option grants under the Plan. 5.          Forms of Option Agreements.              As a condition to the grant of an option under the Plan, each recipient of an option shall execute an option agreement in such form not inconsistent with the Plan as may be approved by the Committee. Such option agreements may differ among recipients. 6.          Purchase Price.              (a)             General. The purchase price per share of stock deliverable upon the exercise of an option shall be determined by the Committee at the time of grant of such option; provided, however, that in the case of an Incentive Stock Option, the exercise price shall not be less than 100% of the Fair Market Value (as hereinafter defined) of such stock, at the time of grant of such option, or less than 110% of such Fair Market Value in the case of options described in Section 11(b). “Fair Market Value” of a share of Common Stock of the Company as of a specified date for the purposes of the Plan shall mean the closing price of a share of the Common Stock on the principal securities exchange on which such shares are traded on the day immediately preceding the date as of which Fair Market Value is being determined, or on the next preceding date on which such shares are traded if no shares were traded on such immediately preceding day, or if the shares are not traded on a securities exchange, Fair Market Value shall be deemed to be the average of the high bid and low asked prices of the shares in the over-the-counter market on the day immediately preceding the date as of which Fair Market Value is being determined or on the next preceding date on which such high bid and low asked prices were recorded. If the shares are not publicly traded, Fair Market Value of a share of Common Stock (including, in the case of any repurchase of shares, any distributions with respect thereto which would be repurchased with the shares) shall be determined in good faith by the Committee.              (b)             Payment of Purchase Price. Options granted under the Plan may provide for the payment of the exercise price by delivery of cash or a check to the order of the Company in an amount equal to the exercise price of such options, or, to the extent provided in the applicable option agreement, (i) by delivery to the Company of shares of Common Stock of the Company that have been held by the optionee at least six months having a Fair Market Value on the date of exercise equal in amount to the exercise price of the options being exercised, (ii) by any other means which the Committee determines are consistent with the purpose of the Plan and with applicable laws and regulations (including, without limitation, the provisions of Rule 16b-3 and Regulation T promulgated by the Federal Reserve Board) or (iii) by any combination of such methods of payment. Payment of the exercise price by delivery of Common Stock then owned by the optionee may be made, if permitted by the Committee, only if such payment does not result in a charge to earnings for financial accounting purposes as determined by the Committee. 7.          Option Period.              Subject to earlier termination as provided in the Plan, each option and all rights thereunder shall expire on such date as determined by the Board of Directors and set forth in the applicable option agreement, provided, that such date shall not be later than (10) ten years after the date on which the option is granted. 8.          Exercise of Options.              Each option granted under the Plan shall be exercisable either in full or in installments at such time or times and during such period as shall be set forth in the option agreement evidencing such option, subject to the provisions of the Plan. If an option is not at the time of grant immediately exercisable, the Committee may (i) in the agreement evidencing such option, provide for the acceleration of the exercise date or dates of the subject option upon the occurrence of specified events, and/or (ii) at any time prior to the complete termination of an option, accelerate the exercise date or dates of such option. 9.             Nontransferability of Options.              No option granted under this Plan shall be assignable or otherwise transferable by the optionee except by will or by the laws of descent and distribution or pursuant to a domestic relations order that would satisfy the applicable requirements of a qualified domestic relations order within the meaning of Section 414(p) of the Code and the rules thereunder, if those provisions were applicable to the Plan. An option may be exercised during the lifetime of the optionee only by the optionee. In the event an optionee dies during his employment by the Company or any of its subsidiaries, or during the three-month period following the date of termination of such employment, his option shall thereafter be exercisable, during the period specified in the option agreement, by his executors or administrators to the full extent to which such option was exercisable by the optionee at the time of his death during the periods set forth in Section 10 or 11(d).  Notwithstanding the foregoing provisions of this Section 9, the Committee may, in its sole discretion and subject to such limits as the Committee may determine, provide at the time an option is granted or thereafter, that the option may be transferred for no consideration to members of the optionee’s immediate family, to a trust solely for the benefit of the optionee or members of the optionee’s immediate family, or to a partnership or limited liability company, the sole partners or members of whom are the optionee or members of the optionee’s immediate family.  For purposes of this Section 9, “immediate family” means the optionee’s spouse, children, stepchildren, brothers, sisters and grandchildren, and the spouse of any such individual. Any option transferred pursuant to this Section 9 shall remain subject to all of the terms and conditions applicable to the option prior to such transfer. 10.        Effect of Termination of Employment or Other Relationship.              Except as provided in Section 11(d) with respect to Incentive Stock Options, and subject to the provisions of the Plan, an optionee may exercise an option at any time within three (3) months following the termination of the optionee’s employment or other relationship with the Company or within one (1) year if such termination was due to the death or disability (as determined by the Committee) of the optionee, to the extent that such option was exercisable at the optionee’s termination of employment or other relationship, but in no event later than the expiration date of the option. If the termination of the optionee’s employment or relationship with the Company is for cause or is otherwise attributable to a breach by the optionee of an employment or confidentiality or non-disclosure agreement, the option shall expire immediately upon such termination. The Committee shall have the power to determine what constitutes a termination for cause or a breach of an employment or confidentiality or non-disclosure agreement, whether an optionee has been terminated for cause or has breached such an agreement, and the date upon which such termination for cause or breach occurs. Any such determinations shall be final and conclusive and binding upon the optionee.  Unless the Committee determines otherwise, any portion of an option that is not exercisable on the optionee’s termination of employment or other relationship with the Company will be forfeited on such termination date. 11.        Incentive Stock Options.              Options granted under the Plan which are intended to be Incentive Stock Options shall be subject to the following additional terms and conditions:              (a)             Express Designation. All Incentive Stock Options granted under the Plan shall, at the time of grant, be specifically designated as such in the option agreement covering such Incentive Stock Options.              (b)             10% Stockholder. If any employee to whom an Incentive Stock Option is to be granted under the Plan is, at the time of the grant of such option, the owner of stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (after taking into account the attribution of stock ownership rules of Section 424(d) of the Code), then the following special provisions shall be applicable to the Incentive Stock Option granted to such individual:              (i)     The purchase price per share of the Common Stock subject to such Incentive Stock Option shall not be less than 110% of the Fair Market Value of one share of Common Stock at the time of grant; and                (ii)    the option exercise period shall not exceed five years from the date of grant.              (c)             Dollar Limitation. For so long as the Code shall so provide, options granted to any employee under the Plan (and any other incentive stock option plans of the Company) which are intended to constitute Incentive Stock Options shall not, in the aggregate, become exercisable for the first time in any one calendar year for shares of Common Stock with an aggregate Fair Market Value, as of the respective date or dates of grant, of more than $100,000.              (d)             Termination of Employees, Death or Disability. No Incentive Stock Option may be exercised unless, at the time of such exercise, the optionee is, and has been continuously since the date of grant of his or her option, employed by the Company, except that:              (i)     an Incentive Stock Option may be exercised within the period of three months after the date the optionee ceases to be an employee of the Company (or within such lesser period as may be specified in the applicable option agreement), provided, that the agreement with respect to such option may designate a longer exercise period and that the exercise after such three-month period shall be treated as the exercise of a non-statutory option under the Plan;                (ii)    if the optionee dies while in the employ of the Company, or within three months after the optionee ceases to be such an employee, the Incentive Stock Option may be exercised by the person to whom it is transferred by will or the laws of descent and distribution within the period of one year after the date of death (or within such lesser period as may be specified in the applicable option agreement); and                (iii)   if the optionee becomes disabled (within the meaning of Section 22(e) (3) of the Code or any successor provisions thereto) while in the employ of the Company, the Incentive Stock Option may be exercised within the period of one year after the date the optionee ceases to be such an employee because of such disability (or within such lesser period as may be specified in the applicable option agreement).                For all purposes of the Plan and any option granted hereunder, “employment” shall be defined in accordance with the provisions of Section 1.421-7(h) of the Income Tax Regulations (or any successor regulations). Notwithstanding the foregoing provisions, no Incentive Stock Option may be exercised after its expiration date.  Unless determined otherwise by the Committee, any portion of an Incentive Stock Option which is not exercisable on the optionee’s termination of employment with the Company shall be forfeited.  To the extent that an option which is intended to be an Incentive Stock Option does not satisfy the requirements of Code Section 422, it shall be treated as a nonqualified option. 12.        Additional Provisions.              (a)             Additional Option Provisions. The Committee may, in its sole discretion, include additional provisions in option agreements covering options granted under the Plan, including without limitation restrictions on transfer, repurchase rights, rights of first refusal, commitments to pay cash bonuses, to make, arrange for or guaranty loans or to transfer other property to optionees upon exercise of options, or such other provisions as shall be determined by the Committee; provided, that such additional provisions shall not be inconsistent with any other term or condition of the Plan.              (b)             Acceleration, Extension, Etc. The Committee may, in its sole discretion, (i) accelerate the date or dates on which all or any particular option or options granted under the Plan may be exercised or (ii) extend the dates during which all, or any particular, option or options granted under the Plan may be exercised. 13.        General Restrictions.              (a)             Investment Representations. The Company may require any person to whom an option is granted, as a condition of exercising such option, to give written assurances in substance and form satisfactory to the Company to the effect that such person is acquiring the Common Stock subject to the option for his or her own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws, or with covenants or representations made by the Company in connection with any public offering of its Common Stock.              (b)             Compliance With Securities Laws. Each option shall be subject to the requirement that if, at any time, counsel to the Company shall determine that the listing, registration or qualification of the shares subject to such option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, or that the disclosure of non-public information or the satisfaction of any other condition is necessary as a condition of, or in connection with the issuance or purchase of shares thereunder, such option may not be exercised, in whole or in part, unless such listing, registration, qualification, consent, or approval, or satisfaction of such condition shall have been effected or obtained on conditions acceptable to the Committee. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration or qualification, or to satisfy such condition. 14.        Rights as a Stockholder.              The holder of an option shall have no rights as a stockholder with respect to any shares covered by the option (including, without limitation, any rights to receive dividends or non-cash distributions with respect to such shares) until the date of issue of a stock certificate to him or her for such shares. 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. 15.             Adjustment Provisions for Recapitalizations, Reorganizations and Related Transactions.              (a)             Recapitalizations and Related Transactions. If, through or as a result of any recapitalization, reclassification, stock dividend, stock split, reverse stock split, spinoff or other similar transaction, (i) the outstanding shares of Common Stock are increased, decreased or exchanged for a different number or kind of shares or other securities of the Company, or (ii) additional shares or new or different shares or other non-cash assets are distributed with respect to such shares of Common Stock or other securities, the Committee, in its sole discretion, shall make an appropriate and proportionate adjustment in (x) the maximum number and kind of shares reserved for issuance under the Plan, (y) the number and kind of shares or other securities subject to any then outstanding options under the Plan, and (z) the price for each share subject to any then outstanding options under the Plan, without changing the aggregate purchase price as to which such options remain exercisable.              (b)             Reorganization, Merger and Related Transactions. If the Company shall be the surviving corporation in any reorganization, merger or consolidation of the Company with one or more other corporations, any then outstanding option granted pursuant to the Plan shall pertain to and apply to the securities to which a holder of the number of shares of Common Stock subject to such options would have been entitled immediately following such reorganization, merger, or consolidation, with a corresponding proportionate adjustment of the purchase price as to which such options may be exercised so that the aggregate purchase price as to which such options may be exercised shall be the same as the aggregate purchase price as to which such options may be exercised for the shares remaining subject to the options immediately prior to such reorganization, merger, or consolidation.  For purposes of this Section 15 and Section 16, the Company will be treated as the “surviving corporation” in a merger, consolidation or similar transaction if substantially all of the individuals and entities who were the beneficial owners of the voting securities of the Company immediately prior to the transaction continue to own, directly or indirectly, immediately after the transaction at least 60% of the outstanding shares of voting securities of the corporation resulting from the transaction.              (c)             Board Authority to Make Adjustments. Any adjustments under this Section 15 will be made by the Committee, whose determination as to what adjustments, if any, will be made and the extent thereof will be final, binding and conclusive. No fractional shares will be issued under the Plan on account of any such adjustments. 16.        Merger, Consolidation, Asset Sale, Liquidation, Etc.              (a)             General. In the event of a consolidation or merger in which the Company is not the surviving corporation, or sale of all or substantially all of the assets of the Company in which outstanding shares of Common Stock are exchanged for securities, cash or other property of any other corporation or business entity or in the event of a liquidation of the Company (collectively, a “Corporate Transaction”), the Committee, or the board of directors of any corporation assuming the obligations of the Company, may, in its discretion, take any one or more of the following actions, as to outstanding options: (i) provide that such options shall be assumed, or equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof), provided that any such options substituted for Incentive Stock Options shall meet the requirements of Section 424(a) of the Code, (ii) upon written notice to the optionees, provide that all unexercised options will terminate immediately prior to the consummation of such transaction unless exercised by the optionee within a specified period following the date of such notice, (iii) in the event of a Corporate Transaction under the terms of which holders of the Common Stock of the Company will receive upon consummation thereof a cash payment for each share surrendered in the Corporate Transaction (the “Transaction Price”), make or provide for a cash payment to the optionees equal to the difference between (A) the Transaction Price times the number of shares of Common Stock subject to such outstanding options (to the extent then exercisable at prices not in excess of the Transaction Price) and (B) the aggregate exercise price of all such outstanding options in exchange for the termination of such options, and (iv) provide that all or any outstanding options shall become exercisable in full immediately prior to such event.              (b)             Substitute Options. The Company may grant options under the Plan in substitution for options held by employees of another corporation who become employees of the Company, or a subsidiary of the Company, as the result of a merger or consolidation of the employing corporation with the Company or a subsidiary of the Company, or as a result of the acquisition by the Company, or one of its subsidiaries, of property or stock of the employing corporation. The Company may direct that substitute options be granted on such terms and conditions as the Committee considers appropriate in the circumstances. 17.        No Special Employment Rights.              Nothing contained in the Plan or in any option shall confer upon any optionee any right with respect to the continuation of his or her employment by the Company or interfere in any way with the right of the Company at any time to terminate such employment or to increase or decrease the compensation of the optionee. 18.        Other Employee Benefits.              Except as to plans which by their terms expressly include such amounts as compensation, the amount of any compensation deemed to be received by an employee as a result of the exercise of an option or the sale of shares received upon such exercise will not constitute compensation with respect to which any other employee benefits of such employee are determined, including, without limitation, benefits under any bonus, pension, profit-sharing, life insurance or salary continuation plan, except as otherwise specifically determined by the Board of Directors. 19.             Amendment of the Plan.              The Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect; provided, however, subject to Sections 15 and 16 (relating to adjustments to shares), no such modification or amendment shall, without the optionee’s consent, adversely affect the rights of such optionee with respect to options previously granted to him or her under the Plan. 20.             Withholding.              (a)             The Company shall have the right to deduct from payments of any kind otherwise due to the optionee any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon exercise of options under the Plan. Subject to the prior approval of the Committee, which may be withheld by the Committee in its sole discretion, the optionee may elect to satisfy the minimum tax withholding obligations required by law, in whole or in part, (i) by causing the Company to withhold shares of Common Stock otherwise issuable pursuant to the exercise of an option or (ii) by delivering to the Company shares of Common Stock already owned by the optionee. The shares so delivered or withheld shall have a Fair Market Value equal to such withholding obligation as of the date that the amount of tax to be withheld is to be determined. An optionee who has made an election pursuant to this Section 20(a) may only satisfy his or her withholding obligation with shares of Common Stock which are not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements.              (b)             The acceptance of shares of Common Stock upon exercise of an Incentive Stock Option shall constitute an agreement by the optionee (i) to notify the Company if any or all of such shares are disposed of by the optionee within two years from the date the option was granted or within one year from the date the shares were issued to the optionee pursuant to the exercise of the option, and (ii) if required by law, to remit to the Company, at the time of and in the case of any such disposition, an amount sufficient to satisfy the Company’s federal, state and local withholding tax obligations with respect to such disposition, whether or not, as to both (i) and (ii), the optionee is in the employ of the Company at the time of such disposition. 21.             Cancellation and New Grant of Options, Etc.              The Committee shall have the authority to effect, at any time and from time to time, with the consent of the affected optionees, (i) the cancellation of any or all 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 Common Stock and having an option exercise price per share which may be lower or higher than the exercise price per share of the cancelled options or (ii) the amendment of the terms of any and all outstanding options under the Plan to provide an option exercise price per share which is higher or lower than the then-current exercise price per share of such outstanding options. 22.        Effective Date and Duration of the Plan.              (a)             Effective Date. This amendment and restatement of the Plan shall become effective when adopted by the Board of Directors, subject to the approval of the Company’s stockholders to the extent so provided by the Board.              (b)             Termination. Unless sooner terminated in accordance with Section 16, the Plan shall terminate upon the earlier of (i) the close of business on the day next preceding the tenth anniversary of the date of its initial adoption by the Board, or (ii) the date on which all shares available for issuance under the Plan shall have been issued pursuant to the exercise or cancellation of options granted under the Plan. If the date of termination is determined under (i) above, then options outstanding on such date shall continue to have force and effect in accordance with the provisions of the instruments evidencing such options. 23.        Provision for Foreign Participants.              The Committee may, without amending the Plan, modify awards or options granted to participants who are foreign nationals or employed outside the United States to recognize differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters. 24.             Governing Law.              The provisions of this Plan shall be governed and construed in accordance with the laws of the State of Delaware without regard to the principles of conflicts of laws.              Adopted by the Board of Directors on August 7, 1996, amended on May 26, 1999, amended and restated effective March 26, 2000, February 22, 2001 and June 29, 2001.

EX 10.47 BUSINESS LOAN AGREEMENT              This Agreement dated as of March 30, 2001, is between Bank of America, N.A. (the “Bank”) and Global Vacation Group, Inc., a New York corporation (the “Borrower”). 1. FACILITY NO. ONE: LINE OF CREDIT AMOUNT AND TERMS       1.1 Line of Credit Amount.         (a) During the availability period described below, the Bank will provide a line of credit to the Borrower. The amount of the line of credit (the “Commitment”) is Five Million Dollars ($5,000,000).         (b) This is a revolving line of credit providing for the issuance of standby letters of credit.         (c) The Borrower agrees not to permit the outstanding amounts of any letters of credit, including amounts drawn on letters of credit and not yet reimbursed, to exceed the Commitment.       1.2 Availability Period. The line of credit is available between the date of this Agreement and May 1, 2004 (the “Expiration Date”) unless an Event of Default (as defined in Section 9) exists.       1.3 Letters of Credit.         (a) This line of credit shall be used for financing standby letters of credit with a maximum maturity of 365 days but not to extend beyond the Expiration Date. The standby letters of credit may include a provision providing that the maturity date will be automatically extended each year for an additional year unless the Bank gives written notice to the contrary to the beneficiary in the manner provided therein.         (b) The Borrower agrees:         (i) to pay the Bank an amount equal to any amount drawn under any letter of credit either (x) immediately after such drawing is honored and in any event before 4:00 p.m. (Los Angeles time) on the same Banking Day (as defined in Section 3.5) as such drawing is honored, or (y) within thirty (30) days of the date such drawing is honored (an “Advance”), provided that the unpaid principal amount of such Advance shall bear interest at a fluctuating interest rate equal to 1% per annum above the Bank’s Prime Rate in effect from time to time for the initial five (5) days that such Advance is outstanding, and thereafter, until paid in full, shall bear interest at a fluctuating interest rate equal to 3% per annum above the Bank’s Prime Rate in effect from time to time. The Bank’s Prime Rate is the per annum rate of interest publicly announced from time to time by the Bank as its Prime Rate. The Prime Rate is set by the Bank based on various factors, including the Bank’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans. The Bank may price loans to its customers at, above or below the Prime Rate. Any change in the Prime Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Bank’s Prime Rate. 22 --------------------------------------------------------------------------------         (ii) the issuance of any letter of credit and any amendment to a letter of credit is subject to the Bank’s written approval and must be in form and content satisfactory to the Bank and in favor of a beneficiary reasonably acceptable to the Bank.         (iii) to sign the Bank’s form Application and Agreement for Standby Letter of Credit or any other method agreed to by Bank.         (iv) to pay any standard issuance and/or other standard fees that the Bank notifies the Borrower will be charged for issuing and processing letters of credit for the Borrower.         (v) to allow the Bank to automatically charge its checking account for applicable fees, discounts, and other charges.         (vi) to pay the Bank a non-refundable fee equal to 0.75% per annum of the outstanding undrawn amount of each standby letter of credit, payable quarterly in arrears, calculated on the basis of the average undrawn amount outstanding during the prior quarterly period. If there is an Event of Default which has occurred and is continuing under this Agreement, at the Bank’s option upon written notice to the Borrower, the amount of the fee shall be increased to 2.75% per annum, effective on the date of occurrence of such Event of Default 2. FEES AND EXPENSES       2.1 Unused Commitment Fee. The Borrower agrees to pay a fee on any difference between the Commitment and the amount of credit it actually uses, determined by the weighted average credit outstanding during the specified period. The fee will be calculated at 0.25% per year. The calculation of credit outstanding shall include the undrawn amount of letters of credit. The fee will be payable quarterly in arrears, commencing July 1, 2001 for the quarter ending June 30, 2001.       2.2 Reimbursement Costs. The Borrower agrees to reimburse the Bank for any reasonable expenses it incurs in the preparation of this Agreement and any agreement or instrument required by this Agreement. Expenses include, but are not limited to, reasonable attorneys’ fees, but shall not include any allocated costs of the Bank’s in-house counsel. 3. DISBURSEMENTS, PAYMENTS AND COSTS       3.1 Requests for Credit. Each request for an extension of credit will be made in writing in a manner acceptable to the Bank, or by another means acceptable to the Bank.       3.2 Payments.                (a) All payments shall be made in immediately available funds;                (b) All payments shall be evidenced by records kept by the Bank       3.3 Telephone and Telefax Authorization.         (a) The Bank may honor telephone requests for repayment, and telefax requests for the issuance of letters of credit and repayment of any amounts drawn under letters of credit, given by any one of the individuals authorized to sign loan agreements on behalf of the Borrower, or any other individual designated by any one of such authorized signers. 23 --------------------------------------------------------------------------------         (b) Repayments will be withdrawn from the Borrower’s account number 14878-03783 or such other of the Borrower’s accounts with the Bank as designated in writing by the Borrower.         (c) The Bank will provide written confirmation to the Borrower of transactions made based on telephone or telefax instructions. The Borrower agrees to notify the Bank promptly of any discrepancy between the confirmation and the telephone or telefax instructions.         (d) The Borrower indemnifies and excuses the Bank (including its officers, employees, and agents) from all liability, loss, and costs in connection with any act resulting from telephone or telefax instructions the Bank reasonably believes are made by any individual authorized by the Borrower to give such instructions. This indemnity and excuse will survive this Agreement’s termination.       3.4 Direct Debit.         (a) The Borrower agrees that fees and other amounts due hereunder will be deducted automatically on the due date from the Borrower’s deposit account number 14878-03783, or such other of the Borrower’s accounts with the Bank as designated in writing by the Borrower.         (b) The Borrower will maintain sufficient funds in the account on the dates the Bank enters debits authorized by this Agreement. If there are insufficient funds in the account on the date the Bank enters any debit authorized by this Agreement, the Bank may reverse the debit.       3.5 Banking Days. Unless otherwise provided in this Agreement, a Banking Day is a day, other than a Saturday or a Sunday, on which the Bank is open for business in California. All payments and disbursements which would be due on a day which is not a Banking Day will be due on the next Banking Day. All payments received on a day which is not a Banking Day will be applied to the credit on the next Banking Day.       3.6 Taxes.         (a) If any payments to the Bank under this Agreement are made from outside the United States, the Borrower will not deduct any foreign taxes from any payments it makes to the Bank. If any such taxes are imposed on any payments made by the Borrower (including payments under this paragraph), the Borrower will pay the taxes and will also pay to the Bank, at the time interest is paid, any additional amount which the Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such taxes had not been imposed. The Borrower will confirm that it has paid the taxes by giving the Bank official tax receipts (or notarized copies) within 30 days after the due date.         (b) Payments made by the Borrower to the Bank will be made without deduction of United States withholding or similar taxes, except to the extent required by applicable law. If the Borrower is required to pay U.S. withholding taxes, the Borrower will pay such taxes in addition to the amounts due to the Bank under this Agreement. If the Borrower fails to make such tax payments when due, the Borrower indemnifies the Bank against any liability for such taxes, as well as for any related interest, expenses, additions to tax, or penalties asserted against or suffered by the Bank with respect to such taxes.       3.7 Additional Costs. The Borrower will pay the Bank, on demand, for the Bank’s costs or losses arising from any statute or regulation, or any request or requirement of a regulatory agency which is applicable to all national banks or a class of all national banks. The costs and losses will be allocated to the 24 -------------------------------------------------------------------------------- Commitment in a manner determined by the Bank, using any reasonable method. The costs include the following:              (a) any reserve or deposit requirements; and              (b) any capital requirements relating to the Bank’s assets and commitments for credit.       3.8 Interest Calculation. Except as otherwise stated in this Agreement, all interest and fees, if any, will be computed on the basis of a 360-day year and the actual number of days elapsed. This results in more interest or a higher fee than if a 365-day year is used. Installments of principal which are not paid when due under this Agreement shall continue to bear interest until paid.       3.9 Interest Compounding. At the Bank’s sole option in each instance, any interest, fees or costs which are not paid when due under this Agreement shall bear interest from the due date at the Bank’s Prime Rate plus two (2) percentage points. This may result in compounding of interest. 4. CONDITIONS       The Bank must receive the following items, in form and content acceptable to the Bank, before it is required to extend any credit to the Borrower under this Agreement:       4.1 Authorizations. Evidence that the execution, delivery and performance by the Borrower of this Agreement and any instrument or agreement required under this Agreement have been duly authorized.       4.2 Governing Documents. A copy of the articles of incorporation or organization for the Borrower.       4.3 Good Standing. Certificates of good standing for the Borrower from its state of formation and from the State of California where the Borrower is qualified to conduct its business.       4.4 Payment of Fees. Payment of all accrued and unpaid expenses incurred by the Bank as required by the paragraph entitled “Reimbursement Costs.”       4.5 Security Agreement. Signed original security agreement which the Bank requires, together with any collateral in which the Bank requires a possessing security interest.       4.6 Legal Opinion. A written opinion from the Borrower’s legal counsel, covering such matters as the Bank may require. The legal counsel and the terms of the opinion must be acceptable to the Bank. 5. REPRESENTATIONS AND WARRANTIES       When the Borrower signs this Agreement, and until the Bank is repaid in full, the Borrower makes the following representations and warranties. Each request for an extension of credit constitutes a renewed representation:       5.1 Organization of Borrower. The Borrower is a corporation duly formed and existing under the laws of the state of New York. Each subsidiary of the Borrower including without limitation, the subsidiaries set forth on Exhibit A hereto (individually a “Subsidiary” and collectively, the “Subsidiaries”), is a corporation duly formed and existing under the laws of the state where organized. Nothing herein shall prohibit any Subsidiary from merging, liquidating or dissolving as permitted under Section 7.10(b) hereof. 25 --------------------------------------------------------------------------------       5.2 Authorization. This Agreement, and any instrument or agreement required hereunder, are within the Borrower’s powers, have been duly authorized, and do not conflict with any of its organizational papers.       5.3 Enforceable Agreement. This Agreement is a legal, valid and binding agreement of the Borrower, enforceable against the Borrower in accordance with its terms, and any instrument or agreement required hereunder from the Borrower, when executed and delivered, will be similarly legal, valid, binding and enforceable, except as enforceability thereof may be limited by bankruptcy, insolvency or other similar laws relating to or affecting enforcement of creditors§ rights generally or by general equitable principles.       5.4 Good Standing. In each state in which the Borrower and each Subsidiary does business, it is properly licensed, in good standing, and, where required, in compliance with fictitious name statutes, except where the failure to do so would not have a material adverse effect on the Borrower and its Subsidiaries taken as a whole.       5.5 No Conflicts. This Agreement does not conflict with any law (including, without limitation, Sections 17550 et. seq. of the California Business and Professions Code), agreement, or obligation by which the Borrower, or any Subsidiary is bound, including, without limitation that certain Note Purchase Agreement dated as of June 20, 2000 between the Borrower and GV Investment LLC and that certain Second Amended and Restated Credit Agreement dated as of October 28, 1999, as amended, among the Borrower, the banks party thereto and The Bank of New York, as administrative agent.       5.6 Collateral. All collateral required in this Agreement is owned by the Borrower free of any title defects or any liens or interest of others. The time certificate of deposit pledged by the Borrower to secure its obligations to the Bank hereunder was purchased with earnings from travel completed in a prior year.       5.7 Financial Information. All financial and other information that has been or will be supplied to the Bank, including the Borrower’s consolidated financial statement dated as of December 31, 2000, is:         (a) prepared in accordance with accounting principles generally accepted in the United States, consistently applied, recognizes income only after it is fully earned, and fairly presents the financial condition, including all material contingent liabilities, of the Borrower and its Subsidiaries.         (b) in compliance in all material respects with all government regulations that apply. Since December 31, 2000, there has been no material adverse change in the business condition (financial or otherwise), operations, properties or prospects of the Borrower and its Subsidiaries taken as a whole.       5.8 Lawsuits. There is no lawsuit, tax claim or other dispute pending or threatened against the Borrower or any Subsidiary which, if lost, would materially impair the Borrower’s and its Subsidiaries financial condition taken as a whole or ability to repay the loan, except as have been disclosed in writing to the Bank.       5.9 Permits, Franchises. The Borrower and each Subsidiary possesses all permits, memberships, franchises, contracts and licenses required and all trademark rights, trade name rights, patent rights and fictitious name rights necessary to enable it to conduct the business in which it is now engaged, except where the failure to own or possess any of the foregoing would not have a material adverse effect on the financial condition or operations of the Borrower and its Subsidiaries taken as a whole. 26 --------------------------------------------------------------------------------       5.10 Other Obligations. Neither the 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, except as have been disclosed in writing to the Bank.       5.11 Income Tax Matters. The Borrower has no knowledge of any materially adverse pending assessments or adjustments of its income tax for any year, except as have been disclosed in writing to the Bank.       5.12 No Tax Avoidance Plan. The Borrower’s obtaining of credit from the Bank under this Agreement does not have as a principal purpose the avoidance of U.S. withholding taxes.       5.13 No Event of Default. There is no Event of Default which has occurred and is continuing.       5.14 Insurance. The Borrower has obtained, and maintained in effect, the insurance coverage required in the “Covenants” section of this Agreement.       5.15 ERISA Plans.         (a) Each Plan (other than a multiemployer plan) is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law, except to the extent that any non-compliance would not result in a material liability of Borrower. Each Plan has received a favorable determination letter from the IRS and to the best knowledge of the Borrower, nothing has occurred which would cause the loss of such qualification in any case where the failure to be qualified would result in a material liability of Borrower. The Borrower has fulfilled its obligations, if any, under the minimum funding standards of ERISA and the Code with respect to each Plan, except to the extent that any failure to fulfill such obligation would not result in a material liability of Borrower, and has not incurred any material liability with respect to any Plan under Title IV of ERISA.         (b) There are no claims, lawsuits or actions (including by any governmental authority), and there has been no prohibited transaction or violation of the fiduciary responsibility rules, with respect to any Plan which has resulted or could reasonably be expected to result in a material adverse effect.         (c) With respect to any Plan subject to Title IV of ERISA:         (i) No reportable event has occurred under Section 4043(c) of ERISA for which the PBGC requires 30-day notice, which would result in a material liability of Borrower.         (ii) No action by the Borrower or any ERISA Affiliate to terminate or withdraw from any Plan has been taken and no notice of intent to terminate a Plan has been filed under Section 4041 of ERISA, which termination or withdrawal would result in a material liability of Borrower.         (iii) No termination proceeding has been commenced with respect to a Plan under Section 4042 of ERISA, and to Borrower’s knowledge, no event has occurred or condition exists which might constitute grounds for the commencement of such a proceeding.         (d) The following terms have the meanings indicated for purposes of this Agreement:         (i) “Code” means the Internal Revenue Code of 1986, as amended from time to time. 27 --------------------------------------------------------------------------------         (ii) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.         (iii) “ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with the Borrower within the meaning of Section 414(b) or (c) of the Code.           (iv) “PBGC” means the Pension Benefit Guaranty Corporation.         (v) “Plan” means a pension, profit-sharing, or stock bonus plan intended to qualify under Section 401(a) of the Code, maintained or contributed to by the Borrower or any ERISA Affiliate, including any multiemployer plan within the meaning of Section 4001(a)(3) of ERISA.       5.16 Location of Borrower. The Borrower’s place of business (or, if the Borrower has more than one place of business, its chief executive office) is located at the address listed under the Borrower’s signature on this Agreement.       5.17 Environmental Matters. Neither the Borrower nor any Subsidiary (a) is in violation of any health, safety, or environmental law or regulation regarding hazardous substances and (b) is the subject of any claim, proceeding, notice, or other communication regarding hazardous substances, which could reasonably be expected to have a material adverse effect on the financial condition or operations of the Borrower and its Subsidiaries taken as a whole. “Hazardous substances” means any substance, material or waste that is or becomes designated or regulated as “toxic,” “hazardous,” “pollutant,” or “contaminant” or a similar designation or regulation under any federal, state or local law (whether under common law, statute, regulation or otherwise) or judicial or administrative interpretation of such, including without limitation petroleum or natural gas. 6. COLLATERAL       6.1 Personal Property. The Borrower’s obligations to the Bank under this Agreement will be secured by personal property the Borrower now owns or will own in the future listed below. The collateral is further defined in the security agreement executed by the Borrower.   (a) a Bank of America time certificate of deposit in an amount not less than $5,150,000.00 (or such other investment as the Borrower and the Bank shall agree). 7. COVENANTS       The Borrower agrees, so long as credit is available under this Agreement and until the Bank is repaid in full:       7.1 Use of Proceeds. To use the proceeds of the Commitment only for the issuance of standby letters of credit.       7.2 Financial Information. To provide the following financial information and statements in form and content reasonably acceptable to the Bank, and such additional information as reasonably requested by the Bank from time to time: 28 --------------------------------------------------------------------------------         (a) Copies of the Borrower’s Form 10-K Annual Report, Form 10-Q Quarterly Report and Form 8-K Current Report within 15 days after the date of filing with the Securities and Exchange Commission.         (b) Promptly, upon sending or receipt, copies of any management letters and correspondence relating to management letters, sent or received by the Borrower to or from the Borrower’s independent auditor.       7.3 Notices to Bank. To promptly notify the Bank in writing of Borrower’s knowledge of:         (a) any substantial dispute between the Borrower or any Subsidiary and any government authority.           (b) any failure to comply with this Agreement.         (c) any material adverse change in the business condition (financial or otherwise), operations, properties or prospects of the Borrower and its Subsidiaries taken as a whole, or in the Borrower’s ability to repay the credit.         (d) any change in the Borrower’s name, legal structure, place of business, or chief executive office if the Borrower has more than one place of business.         (e) any actual contingent liabilities of the Borrower, and any such contingent liabilities which are reasonably foreseeable.       7.4 Books and Records. To maintain, and cause each of its Subsidiaries to maintain, adequate books and records.       7.5 Compliance with Laws. To comply, and cause each Subsidiary to comply, with the laws (including any fictitious name statute), regulations, and orders of any government body with authority over the Borrower’s business and the business of each Subsidiary, except where failure to comply will not have a material adverse effect on the Borrower and its Subsidiaries taken as a whole.       7.6 Preservation of Rights. To maintain and preserve all rights, privileges, and franchises the Borrower and each Subsidiary now has, except where the failure to maintain the foregoing will not have a material adverse effect on the Borrower and its Subsidiaries taken as a whole.       7.7 Maintenance of Properties. To make any repairs, renewals, or replacements to keep the Borrower’s properties and the properties of its Subsidiaries in good working condition, except where the failure to do so will not have a material adverse effect on the Borrower and its Subsidiaries taken as a whole.       7.8 Cooperation. To take any action reasonably requested by the Bank to carry out the intent of this Agreement.       7.9 Insurance.         (a) General Business Insurance. To maintain insurance of the kind customarily carried or maintained under similar circumstances by corporations of established reputation engaged in similar businesses covering property damage (including loss of use and occupancy) to any of the Borrower’s and its Subsidiaries properties, public liability insurance including coverage for contractual liability, 29 --------------------------------------------------------------------------------   product liability and workers’ compensation, and any other insurance which is usual for the Borrower’s and its Subsidiaries businesses.         (b) Evidence of Insurance. Upon the request of the Bank, to deliver to the Bank a copy of each insurance policy, or, if permitted by the Bank, a certificate of insurance listing all insurance in force.       7.10 Additional Negative Covenants. The Borrower shall not and shall not permit any Subsidiary to, without the Bank’s written consent, which consent shall not be unreasonably withheld:         (a) engage in any business activities substantially different from the present business of the Borrower and its Subsidiaries.         (b) merge, liquidate or dissolve the business of the Borrower or any Subsidiary, except with or into Borrower or its wholly-owned Subsidiaries.         (c) sell, assign, lease, transfer or otherwise dispose of any assets for less than fair market value, or enter into any agreement to do so.         (d) sell, assign, lease, transfer or otherwise dispose of all or a substantial part of the business or the assets of the Borrower.         (e) enter into any sale and leaseback agreement covering any of its fixed assets; and         (f) voluntarily suspend all or a substantial part of its business operations.       7.11 ERISA Plans. With respect to a Plan subject to Title IV of ERISA, to give prompt written notice to the Bank of:         (a) The occurrence of any reportable event under Section 4043(c) of ERISA for which the PBGC requires 30-day notice.         (b) Any action by the Borrower or any ERISA Affiliate to terminate or withdraw from a Plan or the filing of any notice of intent to terminate under Section 4041 of ERISA.         (c) The commencement of any proceeding with respect to a Plan under Section 4042 of ERISA. 8. HAZARDOUS WASTE INDEMNIFICATION       The Borrower will indemnify and hold harmless the Bank from any loss or liability directly or indirectly arising out of the use, generation, manufacture, production, storage, release, threatened release, discharge, disposal or presence of a hazardous substance. This indemnity will apply whether the hazardous substance is on, under or about the Borrower’s property or operations or property leased to the Borrower. The indemnity includes but is not limited to attorneys’ fees (including the reasonable estimate of the allocated cost of in-house counsel and staff). The indemnity extends to the Bank, its parent, subsidiaries and all of their directors, officers, employees, agents, successors, attorneys and assigns. Notwithstanding anything to the contrary herein, the Borrower shall not have any obligation hereunder to indemnify the Bank for any loss or liability resulting from the gross negligence or willful misconduct of the Bank. “Hazardous substances” means any substance, material or waste that is or becomes designated or regulated as “toxic,” “hazardous,” “pollutant,” or “contaminant” or a similar designation or regulation under any federal, state or local law 30 -------------------------------------------------------------------------------- (whether under common law, statute, regulation or otherwise) or judicial or administrative interpretation of such, including without limitation petroleum or natural gas. This indemnity will survive repayment of the Borrower’s obligations to the Bank. 9. DEFAULT       If any of the following events (“Event of Default”) occurs and is continuing, the Bank may do one or more of the following: declare the Borrower in default, stop making any additional credit available to the Borrower, and require the Borrower to repay its entire debt immediately and without prior notice. If an event of default occurs under the paragraph entitled “Bankruptcy,” below, with respect to the Borrower, then the entire debt outstanding under this Agreement will automatically be due immediately.       9.1 Failure to Pay. The Borrower fails to make any payment of principal and interest when due, or fails to pay any fee or other sum under this Agreement within five (5) Banking Days of the date when due.       9.2 False Information. The Borrower has given the Bank information or representations that are false or misleading in any material respect.       9.3 Bankruptcy. The Borrower or any Subsidiary files a bankruptcy petition, a bankruptcy petition is filed against the Borrower or any Subsidiary or the Borrower or any Subsidiary makes a general assignment for the benefit of creditors. The default will be deemed cured if any bankruptcy petition filed against the Borrower or any Subsidiary is dismissed within a period of 30 days after the filing; provided, however, that the Bank will not be obligated to extend any additional credit to the Borrower during that period.       9.4 Receivers. A receiver or similar official is appointed for the Borrower’s or any Subsidiary’s business, or the business is terminated.       9.5 Lien Priority. The Bank fails to have an enforceable first lien on or security interest in any property given as security for this Agreement.       9.6 Government Action. Any government authority takes action that materially adversely affects the financial condition of the Borrower and its Subsidiaries, taken as a whole, or their ability to repay the credit.       9.7 Material Adverse Change. A material adverse change occurs in the business condition (financial or otherwise), operations, properties or prospects of the Borrower and its Subsidiaries, taken as a whole, or their ability to repay the credit.       9.8 Cross-default. Any default occurs and is continuing under any agreement in connection with any credit the Borrower has obtained from anyone else or which the Borrower has guaranteed in an amount in excess of One Million Dollars ($1,000,000.00).       9.9 Other Bank Agreements. The Borrower fails to meet the conditions of, or fails to perform any material obligation under any other agreement the Borrower has with the Bank or any affiliate of the Bank, which is not cured within any applicable cure period.       9.10 ERISA Plans. Any one or more of the following events occurs, and continues unremedied for more than thirty (30) days, with respect to a Plan of the Borrower subject to Title IV of ERISA, provided such event or events could reasonably be expected, in the judgment of the Bank, to subject the Borrower to any tax, penalty or liability (or any combination of the foregoing) which, in the aggregate, could have a material adverse effect on the financial condition of the Borrower and its Subsidiaries taken as a whole: 31 --------------------------------------------------------------------------------         (a) A reportable event shall occur under Section 4043(c) of ERISA with respect to a Plan.         (b) Any Plan termination (or commencement of proceedings to terminate a Plan) or the full or partial withdrawal from a Plan by the Borrower or any ERISA Affiliate.       9.11 Other Breach Under Agreement. The Borrower fails to meet the conditions of, or fails to perform any obligation under any term of this Agreement not specifically referred to in this Article, which remains uncured fifteen (15) days after the Bank shall have notified the Borrower thereof. 10. ENFORCING THIS AGREEMENT; MISCELLANEOUS       10.1 GAAP. Except as otherwise stated in this Agreement, all financial information provided to the Bank and all financial covenants will be made under accounting principles generally accepted in the United States, consistently applied.       10.2 California Law. This Agreement is governed by California law.       10.3 Successors and Assigns. This Agreement is binding on the Borrower’s and the Bank’s successors and assignees. The Borrower agrees that it may not assign this Agreement without the Bank’s prior consent. The Bank may sell participations in or, with the prior written consent of the Borrower, assign this loan, and may exchange financial information about the Borrower with actual or potential participants or assignees; provided that such actual or potential participants or assignees shall agree to treat all financial information exchanged as confidential. If a participation is sold or the loan is assigned, the purchaser will have the right of set-off against the Borrower.       10.4 Arbitration and Waiver of Jury Trial         (a) This paragraph concerns the resolution of any controversies or claims between the Borrower and the Bank, whether arising in contract, tort or by statute, including but not limited to controversies or claims that arise out of or relate to: (i) this Agreement (including any renewals, extensions or modifications); or (ii) any document related to this Agreement (collectively a “Claim”).         (b) At the request of the Borrower or the Bank, any Claim shall be resolved by arbitration in accordance with the Federal Arbitration Act (Title 9, United States Code) (the “Act”). The Act will apply even though this Agreement provides that it is governed by the law of a specified state.         (c) Arbitration proceedings will be determined in accordance with the Act, the rules and procedures for the arbitration of financial services disputes of J.A.M.S./Endispute or any successor thereof (“J.A.M.S.”), and the terms of this paragraph. In the event of any inconsistency, the terms of this paragraph shall control.         (d) The arbitration shall be administered by J.A.M.S. and conducted in any state where the Bank office originating the Indebtedness of the Borrower hereunder is located. All Claims shall be determined by one arbitrator; however, if the Claim is in excess of Five Million U.S. Dollars ($5,000,000), upon the request of any party, the Claim shall be decided by three arbitrators. All arbitration hearings shall commence within 90 days of the demand for arbitration and close within 90 days of commencement, and the award of the arbitrator(s) shall be issued within 30 days of the close of the hearing. However, the arbitrator(s), upon a showing of good cause, may extend the commencement of the hearing for up to an additional 60 days. The arbitrator(s) shall provide a concise 32 --------------------------------------------------------------------------------   written statement of reasons for the award. The arbitration award may be submitted to any court having jurisdiction to be confirmed and enforced.         (e) The arbitrator(s) will have the authority to decide whether any Claim is barred by the statute of limitations and, if so, to dismiss the arbitration on that basis. For purposes of the application of the statute of limitations, the service on J.A.M.S. under applicable J.A.M.S. rules of a notice of claim is the equivalent of the filing of a lawsuit. Any dispute concerning this arbitration provision or whether a Claim is arbitrable shall be determined by the arbitrator(s). The arbitrator(s) shall have the power to award legal fees pursuant to the terms of this Agreement.     (f) This paragraph does not limit the right of the Borrower or the Bank to: (i) exercise self-help remedies, such as but not limited to, setoff, (ii) initiate judicial or nonjudicial foreclosure against any real or personal property collateral, (iii) exercise any judicial or power of sale rights, or (iv) act in a court of law to obtain an interim remedy, such as but not limited to, injunctive relief, writ of possession or appointment of a receiver, or additional or supplementary remedies.         (g) The procedure described above will not apply if the Claim, at the time of the proposed submission to arbitration, arises from or relates to an obligation to the Bank secured by real property located in California. In this case, both the Borrower and the Bank must consent to submission of the Claim to arbitration. If both parties do not consent to arbitration, the Claim will be resolved as follows: The Borrower and the Bank will designate a referee (or a panel of referees) selected under the auspices of J.A.M.S. in the same manner as arbitrators are selected in J.A.M.S. administered proceedings. The designated referee(s) will be appointed by a court as provided in California Code of Civil Procedure Section 638 and the following related sections. The referee (or the presiding referee of the panel) will be an active attorney or a retired judge. The award that results from the decision of the referee(s) will be entered as a judgment in the court that appointed the referee, in accordance with the provisions of California Code of Civil Procedure Sections 644 and 645.         (h) The filing of a court action is not intended to constitute a waiver of the right of the Borrower or the Bank, including the suing party, thereafter to require submittal of the Claim to arbitration.         (i) By agreeing to binding arbitration, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of any claim. Furthermore, without intending in any way to limit this agreement to arbitrate, to the extent any claim is not arbitrated, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of such claim. This provision is a material inducement for the parties entering into this Agreement.       10.5 Severability; Waivers. If any part of this Agreement is not enforceable, the rest of the Agreement may be enforced. The Bank retains all rights, even if it makes a loan after default. If the Bank waives a default, it may enforce a later default. Any consent or waiver under this Agreement must be in writing.       10.6 Attorneys’ Fees. The Borrower shall reimburse the Bank for any reasonable costs and attorneys’ fees incurred by the Bank in connection with the enforcement or preservation of any rights or remedies under this Agreement and any other documents executed in connection with this Agreement, and in connection with any amendment, waiver, “workout” or restructuring under this Agreement. In the event of a lawsuit or arbitration proceeding, the prevailing party is entitled to recover costs and reasonable attorneys’ fees incurred in connection with the lawsuit or arbitration proceeding, as determined by the court or arbitrator. In the event that any case is commenced by or against the Borrower under the Bankruptcy Code (Title 11, United States Code) or any similar or successor statute, the Bank is entitled to recover costs and reasonable 33 -------------------------------------------------------------------------------- attorneys’ fees incurred by the Bank related to the preservation, protection, or enforcement of any rights of the Bank in such a case. As used in this paragraph, “attorneys’ fees” includes the costs of the Bank’s in-house counsel.       10.7 One Agreement. This Agreement and any related security or other agreements required by this Agreement, collectively:         (a) represent the sum of the understandings and agreements between the Bank and the Borrower concerning this credit;         (b) replace any prior oral or written agreements between the Bank and the Borrower concerning this credit; and         (c) are intended by the Bank and the Borrower as the final, complete and exclusive statement of the terms agreed to by them. In the event of any conflict between this Agreement and any other agreements required by this Agreement, this Agreement will prevail.       10.8 Indemnification. The Borrower will indemnify and hold the Bank harmless from any loss, liability, damages, judgments, and costs of any kind relating to or arising directly or indirectly out of (a) this Agreement or any document required hereunder, (b) any credit extended or committed by the Bank to the Borrower hereunder, and (c) any litigation or proceeding related to or arising out of this Agreement, any such document, or any such credit. This indemnity includes but is not limited to attorneys’ fees (including the costs of in-house counsel). This indemnity extends to the Bank, its parent, subsidiaries and all of their directors, officers, employees, agents, successors, attorneys, and assigns. This indemnity will survive repayment of the Borrower’s obligations to the Bank. All sums due to the Bank hereunder shall be obligations of the Borrower, due and payable immediately without demand.       10.9 Confidentiality. The Bank shall hold all nonpublic information obtained pursuant to the requirements of this Agreement from the Borrower in accordance with such Bank’s customary procedures for handling confidential information of this nature and in accordance with safe and sound lending practices, and shall use such nonpublic information only in connection with the negotiation, execution, administration, enforcement, assignment and participation of the transactions contemplated hereunder and the matters contemplated hereby and by the other loan documents or in connection with other business now or hereafter existing or contemplated with the Borrower or any of its Subsidiaries, provided that the Bank in any event may make disclosure (a) if such information was or becomes generally available to the public other than by disclosure by the Bank, (b) was or becomes available on from a non-confidential basis from a source other than the Borrower, (c) to any of its legal or financial advisors or as reasonably required by a bona fide offeree, transferee or participant in connection with any contemplated transfer or participation or any recipient reasonably acceptable to the Borrower or as required or requested by an governmental or regulatory agency or representative thereof or pursuant to legal process or other requirement of law or order or as reasonably required in any litigation to which the Bank is a party, (d) to the extent reasonably required in connection with the enforcement of this Agreement or any other loan document and (e) to their affiliates, so long as any such legal or financial advisor, offeree, transferee or participant or other approved recipient shall be made aware of the provisions of this Section 10.9 and shall undertake to comply (and undertake to each of any of its offerees, transferees or participants or other approved recipient to comply) with this Section 10.9.       10.10 Notices. All notices required under this Agreement shall be personally delivered or sent by first class mail, postage prepaid, to the addresses on the signature page of this Agreement, or to such other addresses as the Bank and the Borrower may specify from time to time in writing. 34 --------------------------------------------------------------------------------       10.11 Headings. Article and paragraph headings are for reference only and shall not affect the interpretation or meaning of any provisions of this Agreement.       10.12 Counterparts. This Agreement may be executed in as many counterparts as necessary or convenient, and by the different parties on separate counterparts each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same agreement. This Agreement is executed as of the date stated at the top of the first page.       Bank of America, N.A Global Vacation Group, Inc. By: /s/ Laksmi Wolterding By: /s/ Ronald M. Letterman Name: Lakshmi Wolterding Name: Ronald M. Letterman Title: Vice President Title: President and CEO Address where notices to Address where notices to the Bank are to be sent: the Borrower are to be sent: 125 South Market Street One North First Street San Jose, CA 95113 San Jose, CA 95113 35

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.02 AMENDMENT NO. 4 TO THE WELLPOINT HEALTH NETWORKS INC. PENSION ACCUMULATION PLAN (As Amended and Restated January 1, 1997) (As Amended through October 1, 1997)     The WellPoint Health Networks Inc. Pension Accumulation Plan is amended as of June 1, 2001 as follows:     1.  Section 8.04(c) requiring a one-year delay in payment of a single sum benefit to a Participant who terminates employment prior to age 55 will cease to apply to a Participant who terminates employment on or after June 1, 2001.     2.  A new Section 3.19 is added to Article III to read:     3.19 Georgia Retirement Program. Former participants in the Non-Contributory Retirement Program for Certain Employees of Blue Cross and Blue Shield of Georgia, Inc. will receive credit for service prior to June 1, 2001 as described in Appendix VII.     3.  "Appendix VI: Participating Companies" is amended, effective as of June 1, 2001 to include Blue Cross and Blue Shield of Georgia, Inc.     4.  A new Appendix VII: Special Provisions Applicable to Georgia Participants and Transition Participants is added effective June 1, 2001 at the end of the Plan to read: APPENDIX VII: SPECIAL PROVISIONS APPLICABLE TO GEORGIA PARTICIPANTS AND TRANSITION PARTICIPANTS     The Non-Contributory Retirement Program for Certain Employees of Blue Cross and Blue Shield of Georgia, Inc. (the "Georgia Retirement Program") is merged into the Plan effective as of 11:59 p.m. on May 31, 2001. Assets and liabilities of the Georgia Retirement Program, together with the assets and liabilities of this Plan, constitute a single plan within the meaning of Code Section 414(l) as of June 1, 2001. Unless otherwise expressly provided herein, the rights and benefits of a participant in the Georgia Retirement Program who ceased to be an employee of Blue Cross and Blue Shield of Georgia, Inc. ("BCBSGA") on or prior to May 31, 2001 are determined in accordance with the applicable provisions of the Georgia Retirement Program in effect prior to June 1, 2001. References in the Plan to "Participant" as defined in Article II include each individual with an interest in the Georgia Retirement Program on May 31, 2001 who has an interest in the Plan on June 1, 2001 without regard to whether the individual is a former Employee. This Appendix VII is designed to preserve under the Plan any benefits that were accrued under the Georgia Retirement Program prior to June 1, 2001 to the extent such benefits are protected under Code Section 411(d)(6). The provisions of the Plan apply to the benefits of employees and former employees of BCBSGA described in this Appendix subject to the prior sentence and except to the extent modified by the terms of this Appendix. In the event of a conflict, the provisions of this Appendix will control.     Section 1.01.  Definitions. The following definitions apply to this Appendix VII:     (a) "Benefit Accrual Increase" means, on any date, the aggregated present value of the Transition Participants' Georgia Benefits that accrue during the period beginning January 1, 2000 and ending on the determination date less the aggregated present value of the benefits that the Transition Participants would have accrued if they had been accruing benefits under the cash balance formula in Section 8.01 of the Plan for the same period. For purposes of this definition, 1 -------------------------------------------------------------------------------- "present value" will be determined using the Georgia Factors. The Benefit Accrual Increase calculated as of any date will be discounted back to January 1, 2000 using the applicable interest rate determined under Section 9.02(d) of the Plan.     (b) "Credited Service" means, with regard to a Georgia Participant and a Transition Participant, the participant's years of benefit accrual service recognized under the Georgia Retirement Program immediately prior to the Plan Merger Date.     (c) "Final Average Salary" means the highest five consecutive years of an individual's earnings determined over a 10-year period. "Earnings" includes an individual's basic compensation rate in effect on January 1, plus overtime pay, bonuses and additional compensation earned in the prior year. With regard to a Georgia Participant, Final Average Salary will be frozen at May 31, 2001. With regard to a Transition Participant, Final Average Salary will be frozen at the Transition End Date.     (d) "Georgia Benefit" means, with respect to a Georgia Participant, the benefit accrued under the Georgia Retirement Program that is frozen at May 31, 2001, and with respect to a Transition Participant, the benefit accrued under the Georgia Retirement Program prior to the Plan Merger Date plus the benefit accrued under the Georgia Benefit Formula described in Section 1.05 of this Appendix through the Transition End Date.     (e) "Georgia Factors" means, on any date, the Moody's AAA bond index rate determined as of the last day of the prior Plan Year and rounded up to the next higher 0.25%, the applicable mortality table as defined in Section 417(e) of the Code and the rates of retirement, termination and disability shown on Schedule B of Form 5500 for the 2000 Plan Year of the Georgia Retirement Program.     (f)  "Georgia Participant" means an individual with an interest in the Georgia Retirement Program at May 31, 2001, other than a Transition Participant, who becomes a Participant in the Plan as of June 1, 2001.     (g) "Georgia Retirement Program" means the Non-Contributory Retirement Program for Certain Employees of Blue Cross and Blue Shield of Georgia, Inc.     (h) "Plan Merger Date" means June 1, 2001 when the Georgia Retirement Program and the Plan are one plan for purposes of Code Section 414(l).     (i)  "Primary Social Security Benefit" means an individual's estimated Primary Insurance Amount under the federal Social Security program as defined in the Georgia Retirement Program as in effect at May 31, 2001.     (j)  "Transition End Date" means the earliest of (i) December 31, 2004 or (ii) the first day of the month following the date on which the Benefit Accrual Increase reaches $3 million; or (iii) the date the Transition Participant ceases to be an Eligible Employee.     (k) "Transition Participant" means an individual with an interest in the Georgia Retirement Program at May 31, 2001 who satisfies the following conditions:     (1) the individual is an Eligible Employee on June 1, 2001;     (2) the individual was not less than age 45 on December 31, 1999;     (3) the sum of the individual's age and service recognized under the Georgia Retirement Program for benefit accrual purposes at December 31, 1999 was not less than 65 points; and     (4) the individual had base pay and incentive pay of $80,000 or less in 1999. 2 --------------------------------------------------------------------------------     Section 1.02.  Eligibility.     (a) Effective as of the Plan Merger Date, Blue Cross and Blue Shield of Georgia, Inc. will become a Participating Company under the Plan.     (b) Each individual employed by Blue Cross and Blue Shield of Georgia, Inc. immediately prior to the Plan Merger Date, who becomes an Employee on the Plan Merger Date, will commence participation in the Plan as of the Plan Merger Date, provided he or she otherwise satisfies the Plan's eligibility requirements.     Section 1.03.  Benefit Accrual. A Georgia Participant other than a Transition Participant will begin accruing benefits under the cash benefit formula in Section 8.01 of the Plan as of the Plan Merger Date. A Transition Participant will continue accruing benefits under the Georgia Benefit Formula described in Section 1.05 of this Appendix through the Transition End Date. A Transition Participant who continues as an Eligible Employee after the Transition End Date will begin accruing benefits under the cash benefit formula in Section 8.01 immediately following the Transition End Date.     Section 1.04.  Service Credit. Service recognized under the Georgia Retirement Program for eligibility and vesting purposes as of the Plan Merger Date will be taken into account for the same purposes under the Plan. The sum of a Georgia Participant's or a Transition Participant's Credited Service and years of Benefit Service (if any) will be taken into account for purposes of determining the rate at which his or her Annuity Credits accrue under the cash benefit formula in Section 8.01 of the Plan. Hours of Service completed by a Georgia Participant or a Transition Participant in the period beginning January 1, 2001 and ending May 31, 2001 will be taken into account for purposes of determining whether such individual will accrue a benefit under Section 8.01(a) of the Plan for the 2001 Plan Year (or hypothetical benefit in the case of a Transition Participant), but the amount of any such benefit will be based only on Compensation accrued by such individual while a Participant in the Plan.     Section 1.05.  Georgia Benefit Formula. The Georgia Benefit of a Georgia Participant or a Transition Participant is a single life annuity payable over the life of the participant in monthly installments commencing at the participant's Normal Retirement Date determined under the following formula:     (a) With respect to a Georgia Participant: 2% of the participant's Final Average Salary times his or her years of Credited Service, up to 30 years, reduced by 1.667% of the participant's Primary Social Security Benefit times his or her years of Credited Service, up to 30 years.     (b) With respect to a Transition Participant: 2% of the participant's Final Average Salary times the sum of his or her (i) years of Credited Service and (ii) years of Benefit Service accrued through the Transition End Date, up to 30 years total, reduced by 1.667% of the participant's Primary Social Security Benefit times the sum of his or her (i) years of Credited Service and (ii) years of Benefit Service accrued through the Transition End Date, up to 30 years total.     Section 1.06.  Retirement Benefit. If a Georgia Participant or a Transition Participant elects to receive his or her Georgia Benefit at or after attaining age 62, the amount of the benefit will not be 3 -------------------------------------------------------------------------------- reduced for early retirement. If a Georgia Participant or Transition Participant elects to receive his or her Georgia Benefit prior to attaining age 62, the following reduction factors will apply: Age When Early Retirement Benefit Payments Begin --------------------------------------------------------------------------------   Percentage of Program Formula Benefit --------------------------------------------------------------------------------   62   100 % 61   97 % 60   94 % 59   91 % 58   88 % 57   85 % 56   82 % 55   79 %     The applicable percentage of the Georgia Retirement Program benefit shown above will be interpolated to the nearest month for ages between the ages shown.     A Georgia Participant or Transition Participant is not eligible to receive his or her Georgia Benefit prior to attaining age 55.     Section 1.07.  Vesting. A Georgia Participant's Georgia Benefit will vest as provided in Article VI of the Plan. Thus, if a Georgia Participant was hired after attaining age 60, he or she will vest at his or her Normal Retirement Date as defined in Section 2.23 rather than after completion of five years of Vesting Service or five years of participation in the Georgia Retirement Program and the Plan.     Section 1.08.  Distributions.     (a) If a Georgia Participant or a Transition Participant accrues a benefit under the cash benefit formula in Section 8.01 of the Plan attributable to service performed on or after the Plan Merger Date, the participant's Accrued Benefit attributable to such service will be payable at the time, and in the forms, described in Articles VIII and IX of the Plan. The Georgia Benefit of a Georgia Participant or a Transition Participant will be payable upon such individual's attaining age 55, provided the participant has separated from service with all Affiliated Companies, and in any of the forms described in Section 9.02 of the Plan. A Georgia Participant or a Transition Participant who accrues a benefit under the cash benefit formula in Section 8.01 of the Plan attributable to service performed on or after the Plan Merger Date will make separate elections as to his or her Accrued Benefit and Georgia Benefit, provided, however, that payment may be made in one check if the same form is elected for both benefits. No benefits (including such participant's Georgia Benefit) will be paid out prior to a Georgia Participant's or Transition Participant's attainment of age 701/2 without such participant's prior written consent, subject to the automatic cashout provisions.     (b) The Georgia Benefit of a Georgia Participant who terminated employment prior to the Plan Merger Date, and thus has no benefit under the Plan that is attributable to service performed on or after the Plan Merger Date, will be payable under the applicable terms of the Georgia Retirement Program as in effect at the Plan Merger Date.     Section 1.09.  Death Benefits Attributable to Georgia Benefit.     (a) If a Georgia Participant or a Transition Participant is vested in his or her Georgia Benefit, and has not started to receive benefits under the Plan at the time of his or her death, such participant's surviving spouse will be eligible to receive a survivor benefit. The benefit will be paid as a monthly annuity over the life of the surviving spouse. If, however, the participant had attained age 55 and was an active Employee (or on short-term disability) at his or her death, the surviving spouse may elect to receive the benefit as a lump sum. Regardless of the participant's age 4 -------------------------------------------------------------------------------- and employment status, if the present value of the survivor benefit is less than $5,001 (taking into account any survivor benefit accrued under the cash benefit formula in Section 8.01 of the Plan), such value will be paid to the surviving spouse as soon as practicable after the participant's death.     (b) If a Georgia Participant or a Transition Participant is vested in his or her Georgia Benefit, and is not less than age 55 and an active Employee (or on short-term disability) at his or her death, such participant's spouse will be eligible to receive 100% of the Georgia Benefit that would have been payable to the Participant as a joint and 50% survivor annuity, determined as if the Participant had terminated employment on the day prior to his or her death and elected to have benefits commence on the date that benefits commence to his or her surviving spouse.     (c) If a Georgia Participant or a Transition Participant is vested and an active Employee (or on short-term disability) at his or her death, but has not attained age 55, or if such participant had separated from service from all Affiliated Companies before his or her death, such participant's spouse will be eligible to receive a percentage of the participant's Georgia Benefit accrued as of the day prior to the participant's death. The percentage will be 50% less 2 percentage points for each full calendar year between the date the spouse's pension starts and the date the participant would have attained age 65 or a full 50% if the Participant was entitled to a unreduced Georgia Benefit on the day prior to his or her death. Such benefit will be payable at the date the Georgia Participant or Transition Participant would have attained age 65. Alternatively, the surviving spouse of a Georgia Participant or a Transition Participant may elect a reduced benefit determined under Section 1.06, provided that benefit payments commence as of a date the participant would have attained one of the specified ages. In no event will the benefits received by a surviving spouse where the participant's death occurs on or before the date the participant attained age 55 be less than the amount the participant would have been entitled to receive if he or she had terminated employment on the date of his or her death (or if earlier, the date the participant actually terminated employment), survived until age 55, retired, and died on the follow day.     (d) If the surviving spouse of a Georgia Participant or a Transition Participant defers commencement of the survivor benefit, and dies before payment begins, no survivor benefit attributable to the participant's Georgia Benefit will be paid.     (e) A surviving spouse may defer payment of the survivor benefit attributable to the Georgia Benefit of a Georgia Participant or Transition Participant, as applicable, until the date such participant would have attained age 65. If the surviving spouse has not requested payment prior to that date, payment will commence at the date the participant would have attained age 65 without regard to whether the surviving spouse has provided written consent.     Section 1.10.  Conversion Factors. For purposes of determining the present value of a Georgia Participant's or Transition Participant's Georgia Benefit payable as a lump sum, the following factors will be used:     (a) The interest rate will be determined on the first day of each calendar quarter based the average yield on 30-year Treasury securities for the fifth calendar month preceding the quarterly change date     (b) The applicable mortality table will be consistent with the requirements of Code Section 417(e).     A benefit payable as a qualified joint and survivor annuity will be determined as of the date benefits are to commence under the simplified conversion factors set forth in Section 5.01 of the Georgia Retirement Program as in effect at May 31, 2001.     A benefit payable in an optional form other than a single sum will be determined as of the date benefits are to commence under the simplified conversion factors applicable to a single life 5 -------------------------------------------------------------------------------- annuity, life benefit with 120 or 240 payments guaranteed, joint and contingent benefit and Social Security adjusted benefit set forth in Section 5.03 of the Georgia Retirement Program as in effect at May 31, 2001.     IN WITNESS WHEREOF, WellPoint Health Networks Inc. caused this Amendment to be executed this 8th day of May, 2001.     WELLPOINT HEALTH NETWORKS INC.     By:   /s/ THOMAS C. GEISER    -------------------------------------------------------------------------------- Thomas C. Geiser Executive Vice President 6 -------------------------------------------------------------------------------- QuickLinks EXHIBIT 10.02 AMENDMENT NO. 4 TO THE WELLPOINT HEALTH NETWORKS INC. PENSION ACCUMULATION PLAN (As Amended and Restated January 1, 1997) (As Amended through October 1, 1997)

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.30 ANCHOR GAMING DIRECTOR STOCK OPTION AGREEMENT     THIS AGREEMENT (this "AGREEMENT"), effective as of September 24, 2000 is made and entered into by and between Anchor Gaming, a Nevada Company (the "COMPANY"), and Glen Hettinger (the "OPTIONEE"). RECITALS:     A.  This Agreement is entered into in conjunction with and subject to the Anchor Gaming 2000 Stock Incentive Plan (the "2000 PLAN") and the Anchor Gaming 1995 Stock Option Plan (as amended, the "1995 PLAN").     B.  The entire Board of Directors has approved the grant of the Option under his Agreement to the Optionee.     C.  The 2000 Plan is subject to the approval of the stockholders of the Company and the next annual meeting of Stockholders.     D.  All Options granted under this Agreement that vest on the consummation of the Fulton Transactions (as defined in ATTACHMENT A) are granted under and will be subject to the terms of the 1995 Plan.     NOW, THEREFORE, in consideration of the premises and mutual covenants and promises set forth in this Agreement, and other good and valuable consideration the receipt and sufficiency of which are mutually acknowledged, the parties agree as follows:     1.  GRANT OF OPTION. The Company hereby grants to the Optionee, upon the terms and subject to the conditions, limitations, and restrictions set forth in this Agreement, an option (the "OPTION") to acquire 25,000 shares of Common Stock, par value $.01 per share of the Company (the "COMMON STOCK"), at an exercise price per share of $71.875 (the "EXERCISE PRICE"). The Optionee hereby confirms his acceptance of the Option from the Company.     2.  EXERCISE.     (a) The Option will vest in accordance with ATTACHMENT A. Notwithstanding any other provision of the Agreement, in the event of a Change of Control (as defined below), the Options of the Optionee under this Agreement will become immediately exerciseable and constitute an Exercisable Portion. Such Options will remain fully exercisable for one year from the date of the Change of Control. As used in this Agreement, "CHANGE OF CONTROL" means the occurrence of any of the following events, as a result of one transaction or a series of transactions: (i) any "person" (as that term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, (the "EXCHANGE ACT"), but excluding the Company, its affiliates, and any qualified or non-qualified plan maintained by the Company or its affiliates) becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company's then outstanding securities; (ii) individuals who constitute a majority of the Board of Directors of the Company immediately prior to a contested election for positions on the Board cease to constitute a majority as a result of such contested election; (iii) the Company is combined (by merger, share exchange, consolidation, or otherwise) with another entity and as a result of such combination, less than 50% of the outstanding securities of the surviving or resulting entity are owned in the aggregate by the former shareholders of the Company; (iv) the Company sells, leases, or otherwise transfers all or a majority of all of its properties, assets, income or revenue generating capacity to another person or entity; (v) a dissolution or liquidation of the Company or; (vi) any other transaction or series of transactions is consummated that results in a required disclosure under Item 1 of Form 8-K or successor form. --------------------------------------------------------------------------------     In order to exercise the Option with respect to any Exercisable Portion, the Optionee will provide written notice (the "EXERCISE NOTICE") to the Company at its principal executive office stating the number of shares in respect of which the Option is being exercised. The Exercise Notice must be signed by the Optionee and must include his complete address and social security number. If the person exercising the Option is a transferee of the Optionee by will or under the laws of descent and distribution, the Exercise Notice must be accompanied by appropriate proof of the right of such transferee to exercise this Option. At the time of exercise, the Optionee will pay to the Company the exercise price per share set forth in SECTION 1 times the number of shares as to which the Option is being exercised. Subject to the terms of the 1995 Plan and the 2000 Plan, as applicable, the Optionee will make such payment (i) by certified check; (ii) by the delivery of shares of Common Stock having a Fair Market Value (defined below) on the date immediately preceding the exercise date equal to the aggregate exercise price; or (iii) cancellation of the Option with respect to a number of shares of Common Stock having an aggregate Fair Market Value on the date immediately preceding the date of exercise that exceeds the aggregate Exercise Price by the amount of the Exercise Price due with respect to such Exercise Notice. If the Option is exercised in full, the Optionee will surrender this Agreement to the Company at the Company's option for cancellation. If the Option is exercised in part, the Optionee will surrender this Agreement to the Company, at the Company's option, so that the Company may make appropriate notation on this Agreement or cancel this Agreement and issue a new agreement representing the unexercised portion of the Option. The Option may not be exercised for less than 100 shares at a time or the remaining shares purchasable under the Option, if less than 100 shares. "FAIR MARKET VALUE" means (i) the last reported sale price, regular way, of the Common Stock on the Nasdaq National Market or other market or exchange on which the Common Stock is traded; or (ii) if there is no reported price information for the Common Stock, the Fair Market Value as determined in good faith by the Board of Directors.     (b) If the shares to be purchased are covered by an effective registration statement under the Securities Act of 1933, as amended (the "ACT"), the Option may be exercised by a broker-dealer acting on behalf of the Optionee if (i) the broker-dealer has received from the Optionee or the Company a fully and duly endorsed agreement evidencing such option, together with instructions signed by the Optionee requesting the Company to deliver the shares of Common Stock subject to such option to the broker-dealer on behalf of the Optionee and specifying the account into which such shares should be deposited, (ii) adequate provision has been made with respect to the payment of any withholding taxes due upon such exercise, and (iii) the broker-dealer and the Optionee have otherwise complied with Section 220.3(e)(4) of Regulation T, 12 CFR Part 220, or any successor provision.     (c) The Option will be exercisable during the lifetime of the Optionee only by the Optionee. To the extent exercisable after the Optionee's death, the Option will be exercised only by the Optionee's representatives, executors, successors, or beneficiaries.     3.  EXPIRATION OF OPTION. The Option will expire, and will not be exercisable with respect to any Exercisable Portion as to which the Option has not been exercised, on the first to occur of: (a) the eleventh anniversary of the Award Date; or (b) one year after the effective date of any Change of Control.     4.  TAX WITHHOLDING. Any provision of this Agreement to the contrary notwithstanding, the Company may take such steps as it deems necessary or desirable for the withholding of any taxes that it is required by law or regulation of any governmental authority, federal, state, or local, domestic or foreign, to withhold in connection with any of the shares of Common Stock subject to this Agreement, including requiring the Optionee to pay to the Company the amount of such withholding tax before the Company issued any shares pursuant to the exercise of the Option. 2 --------------------------------------------------------------------------------     5.  DILUTION. If the number of shares of Common Stock outstanding is changed by reason of a stock dividend, stock split, recapitalization, or combination of shares, the number of shares of Common Stock then issuable upon exercise of the Option and the exercise price per share will be appropriately adjusted. In the event of any merger, consolidation, reorganization, recapitalization of the Company or similar transaction pursuant to which holders of the Common Stock receive other securities or property (a "REORGANIZATION TRANSACTION"), then upon any subsequent exercise of the Option, the Optionee will be entitled to receive, for each share of Common Stock issuable upon exercise of the Option prior to such Reorganization Transaction, the number and kind of securities and other property received in respect of one share of Common Stock as a result of such Reorganization Transaction.     6.  TRANSFER OF OPTION. The Optionee will not, directly or indirectly, sell, transfer, pledge, encumber, or hypothecate ("TRANSFER") any of the Option or the rights and privileges pertaining thereto except for the Exercisable Portion. In addition, the Optionee will not, directly or indirectly, transfer any portion of the Option or any shares of Common Stock acquired upon exercise of the Option other than (a) with the prior written consent of the Company, (b) by will or the laws of descent and distribution, (c) with respect to shares of Common Stock acquired upon exercise of the Option, pursuant to an effective registration statement filed under the Act, or (d) with respect to shares of Common Stock acquired upon exercise of the Option, pursuant to an exemption from the registration requirements of the Act. Any permitted transferee to whom the Optionee transfers the Option pursuant to (a) or (b) above will agree to be bound by this Agreement. Neither the Option nor the underlying shares of Common Stock is liable for or subject to, in whole or in part, the debts, contracts, liabilities or torts of the Optionee, nor will they be subject to garnishment, attachment, execution, levy, or other legal or equitable process.     7.  CERTAIN LEGAL RESTRICTIONS. The Company will not be obligated to sell or issue any shares of Common Stock upon the exercise of the Option or otherwise unless the issuance and delivery of such shares complies with all relevant provisions of law and other legal requirements including, without limitation, any applicable federal or state securities laws and the requirements of any stock exchange upon which shares of the Common Stock may then be listed. As a condition to the exercise of the Option or the sale by the Company of any additional shares of Common Stock to the Optionee, the Company may require the Optionee to make such representations and warranties as may be necessary to assure the availability of an exemption from the registration requirements of applicable gaming regulations or federal or state securities laws. The Company will not be liable for refusing to sell or issue any shares if the Company cannot obtain authority from the appropriate regulatory bodies deemed by the Company to be necessary to lawfully sell or issue such shares. The Company agrees to use its best efforts to cause a registration statement covering resales of the Common Stock issued on exercise of the Option to be filed with the Securities and Exchange Commission and to be effective, and to list such shares on the Nasdaq National Market or other exchange on which the Common Stock is then traded. The shares of Common Stock issued upon the exercise of the Option may not be transferred except in accordance with applicable federal or state securities laws. At the Company's option, the certificate evidencing shares of Common Stock issued to the Optionee will bear appropriate legends restricting transfer under gaming and other applicable law.     Any Common Stock issued pursuant to the exercise of Options granted pursuant to this Agreement during the Optionee's service as an director or executive officer of the Company under Rule 16b-3 will not be transferred until at least six months have elapsed from the date of grant of such Option to the date of a disposition of the Common Stock underlying such Option.     8.  MISCELLANEOUS.     (a) The granting of the Option will impose no obligation upon the Optionee to exercise the Option or any part thereof. 3 --------------------------------------------------------------------------------     (b) Neither the Optionee nor any person claiming under or through the Optionee will be or will have any of the rights or privileges of a stockholder of the Company in respect of any of the shares issuable upon the exercise of the Option unless and until certificates representing such shares have been issued and delivered to the Optionee or such Optionee's agent.     (c) Any notice to be given to the Company under the terms of this Agreement or any deliver of the Option to the Company will be addressed to the Company at its principal executive offices, and any notice to be given to the Optionee will be addressed to the Optionee at the address set forth beneath his signature on this Agreement, or at such other address for a party as such party may hereafter designate in writing to the other. Any such notice will be deemed to have been duly given if mailed, postage prepaid, addressed as aforesaid. Subject to the limitations in this Agreement on the transferability by the Optionee of the Option and any shares of Common Stock, this Agreement will be binding upon and inure to the benefit of the representatives, executors, successors or beneficiaries of the parties hereto.     (d) THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAW: OF THE STATE OF NEVADA AND THE UNITED STATES, AS APPLICABLE, WITHOUT REFERENCE TO THE CONFLICT OF LAWS PROVISIONS THEREOF.     (e) If court of competent jurisdiction (in a final determination) or the Board of Directors, by a majority vote of disinterested directors that are Continuing Directors (as defined below) after receipt of a written opinion of independent counsel selected by the Optionee and the Company, determines that any provision of this Agreement (i) is illegal, unenforceable, or void, in whole or in part or (ii) would result in liability for monetary damages for the Company or any of its directors, then the parties will be relieved of all obligations arising under such provision, but only to the extent that it is illegal, unenforceable, or void or would result in such damages, and this Agreement shall be deemed amended by modifying such provision to the extent necessary to make it legal and enforceable and to eliminate such liability while preserving its intent or, if that is not possible, by substituting therefor another provision that is legal and enforceable and achieves the same objectives. For the purposes of this Agreement, the term "Continuing Directors" has the meaning given to it Rights Agreement dated as of October 17, 1997 between the Company and The Chase Manhattan Bank, as the Rights Agent, as then in effect.     (f)  All section titles and captions in this Agreement are for convenience only, will not be deemed part of this Agreement, and in no way will define, limit, extend, or describe the scope or intent of any provisions of this Agreement.     (g) The parties will execute all documents, provide all information, and take or refrain from taking all actions as may be necessary or appropriate to achieve the purposes of this Agreement     (h) This Agreement constitutes the entire agreement between the parties to this Agreement pertaining to the subject matter of this Agreement and supersedes all prior agreements and understandings pertaining to such subject matter.     (i)  No failure by any party to insist upon the strict performance of any covenant, duty, agreement, or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof will constitute waiver of any such breach or any other covenant, duty, agreement, or condition.     (j)  This Agreement may be executed in counterparts, all of which together will constitute one agreement binding on all the parties to this Agreement, notwithstanding that all such parties are not signatories to the original or the same counterpart. 4 --------------------------------------------------------------------------------     (k) No supplement, modification, or amendment of this Agreement or waiver of any provision of this Agreement will be binding unless executed in writing by all parties to this Agreement. No waiver of any of the provisions of this Agreement will be deemed or will constitute a waiver of any other provision of this Agreement (regardless of whether similar), nor will any such waiver constitute a continuing waiver unless otherwise expressly provided.     9.  COMPLIANCE WITH PLANS. Participant acknowledges receipt of a copy of the 2000 Plan and the 1995 Plan and further acknowledges that this Agreement is entered into, and the Option is granted, pursuant to the applicable Plan. If the provisions of such Plans are INCONSISTENT with the provisions of this Agreement, the provisions of such Plans supersede the provisions of this Agreement.     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.     COMPANY:     ANCHOR GAMING     By: /s/ T.J. Matthews -------------------------------------------------------------------------------- T.J. Matthews CHIEF EXECUTIVE OFFICER             OPTINEE:             /s/ Glen Hettinger -------------------------------------------------------------------------------- Glen Hettinger 5 -------------------------------------------------------------------------------- STOCK OPTION AGREEMENT VESTING     Twenty percent (20%) of the number of Options granted under this Agreement will vest upon the closing of the transactions contemplated by the Stock Purchase Agreement dated September 24, 2000 between Anchor Gaming and the Fulton Parties named therein. Thereafter, beginning on March 31, 2001, 5% of the number of Options granted under this Agreement will vest, and 5% will vest on each subsequent June 30, September 30, December 31 and March 31 until all Options have vested. 6 -------------------------------------------------------------------------------- QuickLinks EXHIBIT 10.30 ANCHOR GAMING DIRECTOR STOCK OPTION AGREEMENT RECITALS STOCK OPTION AGREEMENT VESTING

Exhibit 10.iii.A.2   UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES DIRECTORS’ RESTRICTED STOCK/UNIT PROGRAM     Incumbent non-employee directors of United Technologies received on January 2, 1992, a one-time grant of United Technologies Corporation restricted common stock equal to 200 shares for each year of service remaining between that date and their scheduled retirement date, but in no case exceeding 1,000 shares per director. Directors who joined the Board after January 2, 1992, received a one time grant of 1,000 restricted shares or deferred stock units (described below), adjusted for any subsequent stock splits. Shares and units vest in increments of 200 shares or units on the date of each Annual Shareowners Meeting, but may not be transferred by the director until such director retires or resigns from the Board. If a director leaves the Board because of a "change of control" or a "restructuring event" as defined by the United Technologies Corporation Long Term Incentive Plan, because of death or disability, or when a director retires or resigns to accept full time employment with a charitable or non-profit organization or with state, federal or local government, all shares or deferred stock units not previously vested will immediately vest and restrictions on transfer will immediately lapse. Should the director leave the Board for any other reason before all restricted shares and units vest, the non-vested shares and units will be forfeited.     Any foreign national who serves as a director is eligible to receive a one-time grant of deferred restricted share units in lieu of restricted shares, each unit being equal in value to a share of common stock. Vesting provisions for units are the same as restricted stock. At retirement the then-current value of a share of common stock times the number of units will be payable in cash or shares. Each unit and share of restricted stock will, on a quarterly basis, generate a cash payment equal to the dividend paid on a share of common stock.     Effective April 28, 2000, all non-employee directors who join the Board receive a one-time grant of deferred stock units equal in value to $100,000. The number of deferred restricted stock units will be based on the closing price of United Technologies Corporation common stock on the date the director is elected to the Board. The units will continue to vest in 20% increments on the date of the Annual Shareowners Meeting, will be payable in cash or shares and will be subject to the terms and conditions set forth above.

LOAN AND SECURITY AGREEMENT BETWEEN WELLS FARGO RETAIL FINANCE LLC AND PAPER WAREHOUSE, INC., ET AL TABLE OF CONTENTS   ARTICLE 1 - THE REVOLVING CREDIT 1-1.       Establishment of Revolving Credit 1-2.       Availability 1-3.       Risks of Value of Inventory 1-4.       Procedures Under Revolving Credit 1-5.       The Loan Account 1-6.       The Master Note 1-7.       Payment of Loan Account 1-8.       Interest 1-9.       Fees 1-10.     Lender’s Discretion 1-11.     Fees for L/C’s 1-12.     Concerning L/C’s ARTICLE 2 - GRANT OF SECURITY INTEREST 2-1.       Grant of Security Interest 2-2.       Deposit Accounts 2-3.       Collateral in the Possession of a Bailee 2-4        Letter of Credit Rights 2-5.       Commercial Tort Claims 2-6.       Authorization to File Financing Statements 2-7.       Extent and Duration of Security Interest ARTICLE 3 - DEFINITIONS ARTICLE 4 - CONDITIONS PRECEDENT 4-1.       Corporate Due Diligence 4-2.       Opinion 4-3.       Cash Management, Control Agreements and Additional Documents 4-4.       Key Life Policies 4-5.       Officers’ Certificates 4-6.       Representations and Warranties 4-7.       Initial Minimum Excess Availability 4-8.       No Event of Default 4-9.       No Material Adverse Change 4-10.     Delivery of Warrants 4-11.     Landlord Waivers and “Access Agreements” 4-12.     Delivery of Documents ARTICLE 5 - GENERAL REPRESENTATIONS. WARRANTIES AND COVENANTS 5-1.       Payment and Performance of Liabilities 5-2.       Due Organization - Authorization - No Conflicts 5-3.       Trade Names 5-4.       Location, Landlord’s Consents, Waivers 5-5.       Title to Assets 5-6.       Indebtedness 5-7.       Insurance Policies 5-8.       Licenses 5-9.       Leases and Capital Leases 5-10.     Requirements of Law 5-11.     Maintain Properties 5-12.     Pay Taxes 5-13.     No Margin Stock 5-14.     ERISA 5-15.     Hazardous Materials 5-16.     Litigation 5-17.     Dividends or Investments 5-18.     Loans 5-19.     Protection of Assets 5-20.     Line of Business 5-21.     Affiliate Transactions 5-22.     Executive Pay 5-23.     Additional Assurances 5-24.     Adequacy of Disclosure 5-25.     Minimum Excess Availability 5-26.     No Material Adverse Change 5-27.     Other Covenants 5-28.     Covenants Regarding Franchise Agreements ARTICLE 6 - USE AND COLLECTION OF COLLATERAL 6-1.       Use of Inventory Collateral 6-2.       Inventory Quality 6-3.       Adjustments and Allowances 6-4.       Validity of Accounts 6-5.       Notification to Account Debtors ARTICLE 7 - CASH MANAGEMENT 7-1.       Depository Accounts 7-2.       Credit Card Receipts 7-3.       The Concentration Account, the Blocked Account and the Funding Accounts 7-4.       Proceeds and Collection of Accounts 7-5.       Payment of Liabilities 7-6.       The Funding Account 7-7.       Capital Infusions, Etc. ARTICLE 8 - LENDER AS BORROWER’S ATTORNEY-IN-FACT 8-1.       Appointment as Attorney-In-Fact 8-2.       No Obligation to Act ARTICLE 9 - FINANCIAL AND OTHER REPORTING REQUIREMENTS/FINANCIAL COVENANTS 9-1.       Maintain Records 9-2.       Access to Records 9-3.       Immediate Notice to Lender 9-5.       Weekly Reports 9-6.       Monthly Reports 9-7.       Annual Reports 9-8.       Officers’ Certificates 9-9.       Inventories, Appraisals, and Audits 9-10.     Additional Financial Information 9-11.     Financial Performance and Inventory Covenants 9-12.     Electronic Reporting ARTICLE 10 - EVENTS OF DEFAULT 10-1.     Failure to Pay Revolving Credit (No Grace Period) 10-2.     Failure To Make Other Payments (No Grace Period) 10-3.     Failure to Comply with Cash Management and Financial/Inventory Covenants  (No Grace Period) 10-4.     Failure to Perform Covenant or Liability (Grace Period) 10-5.     Misrepresentation (No Grace Period) 10-6.     Acceleration of Other Debt; Breach of Lease 10-7.     Default Under Other Agreements 10-8.     Casualty Loss; Non-Ordinary Course Sales (No Grace Period) 10-9.     Judgment; Restraint of Business  (No Grace Period) 10-10.   Business Failure (Grace Period if initiated against any Borrower) 10-11.   Bankruptcy (No Grace Period) 10-12.   Insecurity (No Grace Period) 10-13.   Default by Guarantor or Related Entity 10-14.   Indictment - Forfeiture (Grace Period) 10-15.   Termination of Guaranty 10-16.   Challenge to Loan Documents (No Grace Period) 10-17.   Executive Management (Grace Period) 10-18.   Change in Control (No Grace Period) 10-19.   Material Adverse Change (No Grace Period) ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT 11-1.     Rights of Enforcement 11-2.     Sale of Collateral 11-3.     Occupation of Business Location 11-4.     Grant of Nonexclusive License 11-5.     Assembly of Collateral 11-6.     Rights and Remedies 11-7      Standards for Exercising Remedies ARTICLE 12 - NOTICES 12-1.     Notice Addresses 12-2.     Notice Given ARTICLE 13 - TERM 13-1.     Termination of Revolving Credit 13-2.     Effect of Termination 13-3.     Early Termination Premium ARTICLE 14 - GENERAL 14-1.     Protection of Collateral 14-2.     Successors and Assigns 14-4.     Amendments; Course of Dealing 14-5.     Power of Attorney 14-6.     Application of Proceeds 14-7.     Lender’s Cost and Expenses 14-8.     Copies and Facsimiles 14-9.     Massachusetts Law 14-10.   Consent to Jurisdiction 14-11.   Indemnification 14-12.   Right of Set-Off 14-13.   Usury Savings Clause 14-14.   Waivers 14-15.   Confidentiality 14-16.   Right to Publish Notice 14-17.   Right of First Refusal 14-18.   Credit Inquiries EXHIBITS 1-6 Master Note 1-8(b) Eurodollar Conversion /Continuation 2-2(c) Excluded Capital Leases 3 Definitions 5-2 Related Entities 5-3 Trade Names 5-4 Locations 5-5 Encumbrances 5-6 Indebtedness 5-7 Insurance Policies 5-9 Leases/Equipment Leases 5-12 Taxes 5-16 Litigation 5-22 Executive Agreements 5-28 Franchise Agreements 7-1 DDA’s 7-2 Credit Card Arrangements 7-6 Disbursement Accounts 9-R Reporting Requirements 9-4 Borrowing Base Certificate 9-10 Business Plan 9-11 Financial Performance Covenants                THIS AGREEMENT is made between Wells Fargo Retail Finance LLC (hereinafter, “WFRF” or “Lender”), a Delaware limited liability company with its principal executive offices at One Boston Place, 18th Floor, Boston, Massachusetts 02108 and Paper Warehouse, Inc. a Minnesota corporation with its principal executive offices at 7630 Excelsior Boulevard, Minneapolis, Minnesota, 55426-4504 (hereinafter “Paper Warehouse”), jointly and severally withPaper Warehouse Franchising, Inc. a Minnesota corporation with its principal executive offices at 7630 Excelsior Boulevard, Minneapolis, Minnesota, 55426-4504 (hereinafter “PWFI”), PartySmart.com, Inc. a Minnesota corporation with its principal executive offices at 7630 Excelsior Boulevard, Minneapolis, Minnesota, 55426-4504 (“PartySmart”) (hereinafter Paper Warehouse, PWFI and PartySmart may be collectively referred to as collectively Borrowers and any one of them individually as “Borrower”), in consideration of the mutual covenants contained herein and benefits to be derived herefrom, WITNESSETH: ARTICLE 1 - THE REVOLVING CREDIT              1-1.       Establishment of Revolving Credit                            (a)         The Lender establishes a revolving line of credit (the “Revolving Credit”) in the Borrowers’ favor pursuant to which the Lender, subject to, and in accordance with, this Agreement, shall make loans and advances and otherwise provide financial accommodations to and for the account of the Borrowers as provided herein. The amount of the Revolving Credit shall be determined by the Lender by reference to Availability, as determined by the Lender from time to time hereafter. All loans made by the Lender under this Agreement, and all of the Borrowers’ other Liabilities to the Lender under or pursuant to this Agreement, are payable as provided herein.                            (b)        The Lender agrees, subject to the terms and conditions of this Agreement, and at all times only to the extent of Availability, to make loans to the Borrower.                           (c)         Availability shall be calculated based upon Borrowing Base Certificates furnished as provided in Section 9-4, below.                            (d)        Anything to the contrary in Section 1-1(b) above notwithstanding, Lender, in the exercise of its discretion, may reduce Advance Rates, maximum Effective Advance Rates or create Reserves without declaring an Event of Default if it determines that (i) there has occurred a Material Adverse Change; or (ii) Borrower is not in compliance with covenants set forth in EXHIBIT 9-11.                            (e)         The proceeds of loans and advances under the Revolving Credit shall be used solely in accordance with the Business Plan for working capital purposes and general corporate purposes of the Borrowers and for its Capital Expenditures, all solely to the extent permitted by this Agreement and to pay in full Borrower’s previous credit facility.              1-2.       Availability. The Lender does not have any obligation to make any loan or advance, or otherwise to provide any credit for the benefit of any Borrower in excess of Availability. The making of loans, advances, and credits and the providing of financial accommodations in excess of Availability is for the benefit of any Borrower and does not affect the obligations of the Borrowers hereunder; such loans, advances, credits, and financial accommodations constitute Liabilities. The making of any such loans, advances, and credits and the providing of financial accommodations, on any one occasion in excess of Availability shall not obligate the Lender to make any such loans, credits, or advances or to provide any financial accommodation on any other occasion nor to permit such loans, credits, or advances to remain outstanding.              1-3.       Risks of Value of Inventory.  The Lender’s reference to a given asset in connection with the making of loans and advances and the providing of financial accommodations under the Revolving Credit and/or the monitoring of compliance with the provisions hereof shall not be deemed a determination by the Lender relative to the actual value of the asset in question. All risks concerning the saleability of the Inventory are and remain upon the Borrowers. All Collateral secures the prompt, punctual, and faithful performance of the Liabilities whether or not relied upon by the Lender in connection with the making of loans, credits, and advances and the providing of financial accommodations under the Revolving Credit.              1-4.       Procedures Under Revolving Credit.                            (a)         Paper Warehouse may request loans and advances under the Revolving Credit, each in an amount of not less than Ten Thousand ($10,000) Dollars. Each such request shall be in such manner as may from time to time be acceptable to the Lender.                            (b)        The Lender, subject to the terms and conditions of this Agreement, will provide the Borrowers with the loan or advance so requested, if such request is received by 2:30P.M., Boston time on a Banking Day, by the end of business on that Banking Day; otherwise, by the end of the then next Banking Day.  The Lender may revise such schedule, from time to time, by giving notice to Paper Warehouse at least one day in advance.                            (c)         Provided that Availability will not be exceeded (but subject, however, to Subsection 1-4(i), below (which deals with the effect of a Suspension Event)), a loan or advance under the Revolving Credit so requested by the Borrower shall be made by the transfer of the proceeds of such loan or advance to the Funding Account.                            (d)        A loan or advance shall be deemed to have been made under the Revolving Credit upon:                                         (i)          The Lender’s initiation of the transfer of the proceeds of such loan or advance in accordance with any Borrower’s instructions (if such loan or advance is of funds requested by the Borrower).                                         (ii)         The charging of the amount of such loan or advance to the Loan Account (in all other circumstances).                            (e)         There shall not be any recourse to, nor liability of, the Lender on account of any of the following which is not caused by Lender’s gross negligence or willful misconduct:                                         (i)          Any delay in the making of any loan or advance requested under the Revolving Credit.                                         (ii)         Any delay in the proceeds of any such loan or advance constituting collected funds.                                         (iii)        Any delay in the receipt, and/or any loss, of funds which constitute a loan or advance under the Revolving Credit, the wire transfer of which was initiated by the Lender in accordance with wire instructions provided to the Lender by any Borrower.                            (f)         The Lender may rely on any request for a loan or advance or financial accommodation which the Lender, in good faith, believes to have been made by a person duly authorized to act on behalf of any Borrower and may decline to make any such requested loan or advance or to provide any such financial accommodation until the Lender is furnished with such documentation concerning that Person’s authority to act as may be satisfactory to the Lender.                            (g)        A request by any Borrower for any loan or advance or financial accommodation under the Revolving Credit or of the issuance of an L/C shall be irrevocable and shall constitute certification by any Borrower that as of the date of such request, each of the following is true and correct:                                         (i)          There has been no Material Adverse Change.                                         (ii)         Each Borrower is in compliance with, and has not breached any of, its covenants contained in this Agreement.                                         (iii)        Each representation which is made herein or in any of the Loan Documents is then true and complete as of and as if made on the date of such request.                                         (iv)       No Suspension Event is then in existence.                            (h)        The Borrowers shall immediately become indebted to the Lender for the amount of each loan or advance under or pursuant to this Agreement when such loan or advance is deemed to have been made.                            (i)          Upon the occurrence from time to time of any Suspension Event, the Lender may suspend the Revolving Credit immediately and shall not be obligated, during such suspension, to make any loan or advance or to provide any financial accommodation hereunder.                            (j)          Paper Warehouse may request that the Lender cause the issuance of L/C’s for the account of the Paper Warehouse.                                         (i)          Each such request shall be in such manner as may from time to time be acceptable to the Lender.                                         (ii)         The Lender will endeavor to cause the issuance of any L/C so requested by the Paper Warehouse, provided that the requested L/C is in form satisfactory to the Lender and if so issued:   (A)       The aggregate Stated Amount of all L/C’s then outstanding, does not exceed              Two Million ($2,000,000) Dollars.           (B)        The expiry of the L/C is not later than the earlier of thirty (30) days prior to              the Maturity Date or the following:             (I)         L/C’s other than Documentary L/C’s: One (1) year from initial              issuance.             (II)        Documentary L/C’s: one hundred twenty (120) days from issuance; and           (C)        Availability would not be exceeded.                                                 (iii)        Paper Warehouse shall execute such documentation to apply for and support the issuance of an L/C as may be required by the Issuer.                                         (iv)       There shall not be any recourse to, nor liability of, the Lender on account of:   (A)       Any delay or refusal by an Issuer to issue an L/C.           (B)        Any action or inaction of an Issuer on account of or in respect to, any L/C.                                         (v)        The Borrowers shall reimburse the Issuer, immediately upon the drawing under any L/C, for the amount of such drawing. In the event that the Borrowers fail to so reimburse the Issuer, the Borrowers immediately shall reimburse the Lender for the amount of such drawing. To the extent which the Borrowers fail to so reimburse the Issuer or the Lender, the Lender, without the request of any Borrower, may advance under the Revolving Credit any amount which the Borrowers are so obligated to pay to the Lender or the Issuer, or for which any of the Borrowers, the Issuer, or the Lender becomes obligated on account of, or in respect to, any L/C. Such Advance shall be made whether or not a Suspension Event is then in existence or such Advance would result in Availability being exceeded. Such action shall not constitute a waiver of the Lender’s rights under Section 1-7(b), below.              1-5.       The Loan Account.                            (a)         An account (“Loan Account”) shall be opened on the books of the Lender in which Loan Account a record may be kept of all Advances  made under or pursuant to this Agreement and of all payments thereon.                            (b)        The Lender may also keep a record (either in the Loan Account or elsewhere, as the Lender may from time to time elect) of all interest, fees, service charges, costs, expenses, and other debits owed the Lender on account of the Liabilities and of all credits against such amounts so owed.                            (c)         All credits against the Liabilities shall be conditional upon final payment to the Lender of the items giving rise to such credits such that, without limitation, the amount of any item credited against the Liabilities which is charged back against the Lender for any reason or is not so paid shall be a Liability and shall be added to the Loan Account, whether or not the item so charged back or not so paid is returned.                            (d)        Except as otherwise provided herein, all fees, service charges, costs, and expenses for which the Borrowers are obligated hereunder are payable on demand. In the determination of Availability, the Lender may deem fees, service charges, accrued interest, and other payments or deposits as having been advanced under the Revolving Credit if such amounts are then due and payable exclusive of deposits for fees whether incurred at the time of deposit or as duly accounted for in accordance with the terms set forth herein.                            (e)         The Lender, without the request of any Borrower, may advance under the Revolving Credit any interest, fee, service charge, or other payment to which the Lender is entitled from the Borrowers pursuant hereto and may charge the same to the Loan Account notwithstanding that such amount so advanced may result in an Overadvance.  Such action on the part of the Lender shall not constitute a waiver of the Lender’s rights under Section 1-7(b), below. Any amount which is added to the principal balance of the Loan Account as provided in this Section shall bear interest at the interest rate applicable from time to time to the unpaid principal balance of the Loan Account.                            (f)         Any statement rendered by the Lender to the Borrowers in writing concerning the Liabilities shall be considered correct and accepted by the Borrowers and shall be conclusively binding upon the Borrowers unless Borrowers provide the Lender with written objection thereto within twenty (20) days from the mailing of such statement, which written objection shall indicate, with particularity, the reason for such objection. The Loan Account and the Lender’s books and records concerning the loan arrangement contemplated herein and the Liabilities shall be prima facie evidence and proof of the items described therein.              1-6.       The Master Note. The obligation to repay loans and advances under the Revolving Credit, with interest as provided herein, may be evidenced by a note (the “Master Note”) in the form of EXHIBIT 1-6, annexed hereto, executed by the Borrowers. Neither the original nor a copy of the Master Note shall be required, however, to establish or prove any Liability. In the event that the Master Note is ever lost, mutilated, or destroyed, the Borrowers shall execute a replacement thereof and deliver such replacement to the Lender, upon receipt of reasonable assurances of indemnification with respect to such original Master Note, if requested by the Borrower, provided however, nothing in this Section 1-6 shall be deemed to require Lender to produce the Master Note as a condition of enforcement of any of Lender’s rights under this Agreement.              1-7.       Payment of Loan Account.                            (a)         The Borrowers may repay all or any portion of the principal balance of the Loan Account from time to time until the Termination Date.                            (b)        The Borrowers, without notice or demand from the Lender, shall pay the Lender that amount, from time to time, which is necessary so that Availability is not less than Zero ($0) Dollars.                            (c)         The Borrowers shall pay the then entire unpaid balance of the Loan Account and all other Liabilities on the Termination Date.              1-8.       Interest.                            The unpaid principal balance of the Loan Account shall bear interest, until repaid, with respect to advances:                            (a)         Borrower shall pay interest, at the following rates:                                         (i)          with respect to Eurodollar Loans, at the Eurodollar Rate (which includes the Eurodollar Margin);                                         (ii)         with respect to Index Rate Loans,  Base plus the Index Rate Margin;                                         (iii)        with respect to Advances under the Special Sub-Line, Base plus the Special Sub-Line Margin; all computations of interest are calculated on a per annum basis on the basis of a three hundred and sixty (360) day year, in each case for the actual number of days occurring in the period for which such interest payable. The applicable margins will be as follows: Eurodollar Margin 250 Basis Points     Index Rate Margin 0 Basis Points     Special Sub-Line Margin 150 Basis Points                            (b)        So long as no Suspension Event or Event of Default which has not been remedied within any grace period expressly provided herein or otherwise waived in writing by Lender, shall have occurred, Paper Warehouse shall have the option to (i) request that all or any part of any Advances under the Standard Line only be made as a Eurodollar Loan, (ii) convert at any time all or any part of outstanding Advances under Standard Line from Index Rate Loans to Eurodollar Loans, (iii) convert any Eurodollar Loan to a Index Rate Loan, subject to payment of Eurodollar breakage costs in accordance with Section 1.8(c) if such conversion is made prior to the expiration of the Eurodollar Period applicable thereto, or (iv) continue all or any portion of any Advances under the Standard Line as a Eurodollar Loan upon the expiration of the applicable Eurodollar Period and the succeeding Eurodollar Period of that continued Eurodollar Loan shall commence on the day after the last day of the Eurodollar Period of the Eurodollar  Loan to be continued.  Under no circumstances shall any Advances under the Credit Card Receivables or the Special Sub-Line be a Eurodollar Loan.  Any Advances to be made or continued as, or converted into, a Eurodollar Loan must be in a minimum amount of Five Hundred Thousand ($500,000) Dollars and integral multiples of One Hundred Thousand ($100,000.00) Dollars in excess of such amount.  Any such election must be made by 1:30 P.M.  (Boston time)  on the third (3rd) Banking Day prior to (1) the date of any proposed Advance which is to bear interest at the Eurodollar Rate, (2) the end of each Eurodollar Period with respect to any Eurodollar Loans to be continued as such, or (3) the date on which Paper Warehouse wishes to convert any Index Rate Loan to a Eurodollar Loan for a Eurodollar Period designated by Paper Warehouse in such election.  If no election is received with respect to a Eurodollar Loan by 1:30 P.M.  (Boston time) on the third (3rd) Business Day prior to the end of the Eurodollar Period with respect thereto (or if a Default or an Event of Default which has not been remedied within any grace period expressly provided herein or otherwise waived in writing by Lender, that Eurodollar Loan shall be converted to an Index Rate Loan at the end of its Eurodollar Period.  Paper Warehouse must make such election by notice to Lender in writing, by telecopy or overnight courier.  In the case of any conversion or continuation, such election must be made pursuant to a written notice (a “Notice of Conversion/Continuation”) in the form of Exhibit 1.8(b).  No loan may be made as or converted into a Eurodollar Loan which has a Eurodollar Period greater than one month until ninety (90) days after the Closing Date.                            (c)         To induce Lender to provide the Eurodollar Rate option on the terms provided herein, if (i) any Eurodollar Loans are repaid in whole or in part prior to the last day of any applicable Eurodollar Period (whether that repayment is made pursuant to any provision of this Agreement or any other Loan Document or is the result of acceleration, by operation of law or otherwise); (ii) Borrowers shall default in payment when due of the principal amount of or interest on any Eurodollar Loan; (iii) Borrowers shall default in making any borrowing of, conversion into or continuation of Eurodollar Loans after a Borrower has given notice requesting the same in accordance herewith; or (iv) Borrowers shall fail to make any prepayment of a Eurodollar Loan after any Borrower has given a notice thereof in accordance herewith, Borrowers shall indemnify and hold harmless Lender from and against all losses, costs and expenses resulting from or arising from any of the foregoing.  Such indemnification shall include any loss (including loss of margin) or expense arising from the reemployment of funds obtained by it or from fees payable to terminate deposits from which such funds were obtained.  This covenant shall survive the termination of this Agreement and the payment of the Liabilities and all other amounts payable hereunder.  As promptly as practicable under the circumstances, Lender shall provide Borrowers with its written calculation of all amounts payable pursuant to this Section 1.8 (c), and such calculation shall be binding on the parties hereto unless Borrowers shall object in writing within ten (10) Business Days of receipt thereof, specifying the basis for such objection in reasonable detail.                            (d)        Following the occurrence of any Event of Default which has not been remedied within any grace period expressly provided herein or otherwise waived in writing by Lender (and whether or not the Lender exercises any of the Lender’s rights on account of such Event of Default), all loans and Advances made under the Revolving Credit shall, at Lender’s option, bear interest, through the End Date, at a rate which is the aggregate of that provided for in Section 1-8(a), above, plus two (2%) percent per annum.  Lender shall use its best efforts to provide advance notice to Borrowers of its intention to charge interest at the default rate, but Lender’s right to charge such default rate is not subject to notice hereunder.                            (e)         Accrued interest shall be payable:                                         (i)          if for Index Rate Loans, monthly in arrears on the first day of the month next following that during which such interest accrued; if for Eurodollar Loans upon the maturity of the subject Eurodollar contract.                                         (ii)         On the Termination Date.                                         (iii)        On the End Date.              1-9.       Fees.    Borrowers shall pay to the Lender the following fees:                            (a)         Annual Facility Fee.   On each anniversary of the Closing Date hereof, an “Annual Facility Fee” in an amount equal to one quarter of one (0.25%) percent of the Credit Limit (each of which Annual Facility Fees shall be fully earned upon each respective anniversary of the Closing Date occurring on or prior to the End Date), shall be due and payable.                            (b)        Loan Maintenance Fee.  Intentionally deleted.                            (c)         Unused Line Fee.  On the first day of each month during the term of this Agreement, an “Unused Line Fee” in an amount equal to one quarter of one  (0.25%) percent of the Average Unused Portion of the Credit Limit.                            (d)        Commitment Fee.  On the Closing Date, a “Commitment Fee” of three quarters of one (0.75%) percent of the Credit Limit or One Hundred Twelve Thousand Five Hundred ($112,500) Dollars                            (e)         Excess Plan Fee.  Intentionally deleted.                            (f)         Financial Examination, Legal Investigation, Documentation, and Appraisal Fees.   Subject to the provisions of Article 9-9, Lender’s actual charges paid or incurred for each financial analysis and examination (i.e., audits) of Borrowers performed by personnel employed by Lender; Lender’s actual charges paid or incurred for each appraisal of the Collateral performed by personnel employed by Lender; and, the actual charges paid or incurred by Lender if it elects to employ the services of one or more third Persons to perform legal investigation, documentation, financial analysis and examinations (i.e., audits) of Borrowers or to appraise the Collateral.                            (g)        In addition to any other right to which the Lender is then entitled on account thereof, the Lender may assess a reasonable additional fee payable by the Borrowers on account of the accommodation of Lender to the Borrowers’ request that the Lender depart or dispense with one or more of the administrative provisions of this Agreement and/or the Borrower’s failure to comply with any of such provisions.                                         (i)          By way of non-exclusive example, the Lender may assess a fee on account of any of the following: (A) The Borrowers’ failure to pay any amounts required under Section 1-7(b), above.     (B) The providing of a loan or advance under the Revolving Credit such that Availability would be exceeded.     (C) The providing of a same Banking Day loan requested after the time set forth in Section 1-4(b)(i), above.     (D) The Borrowers’ failure to provide a financial statement or report within the applicable time-frame provided for such report under Article 9, below.                                         (ii)         The inclusion of the foregoing right on the part of the Lender to assess a fee does not constitute an obligation, on the part of the Lender, to waive any provision of this Agreement under any circumstances. The assessment of any such fee in any particular circumstance shall not constitute the Lender’s waiver of any breach of this Agreement on account of which such fee was assessed nor a course of action on which the Borrower may rely.                            (h)        The Borrower shall not be entitled to any credit, rebate or repayment of any Annual Facility Fee, Commitment Fee, Unused Line Fee or other fee previously earned by the Lender pursuant to this Section notwithstanding any termination of this Agreement or suspension or termination of the Lender’s obligation to make loans and advances hereunder.              1-10.     Lender’s Discretion.                            (a)         Each reference in the Loan Documents to the exercise of discretion or the like by the Lender shall be to the Lender’s exercise of its judgement, in good faith (which shall be presumed), based upon the Lender’s consideration of any such factor as the Lender, taking into account information of which that Lender then has actual knowledge, believes:                                         (i)          Will or reasonably could be expected to affect the value of the Collateral, the enforceability of the Lender’s security and collateral interests therein, or the amount which the Lender would likely realize therefrom (taking into account delays which may possibly be encountered in the Lender’s realizing upon the Collateral and likely Costs of Collection).                                         (ii)         Indicates that any report or financial information delivered to the Lender by or on behalf of the Borrowers is incomplete, inaccurate, or misleading in any material manner or was not prepared in accordance with the requirements of this Agreement.                                         (iii)        Suggests an increase in the likelihood that any of the Borrower will become the subject of a bankruptcy or insolvency proceeding.                                         (iv)       Constitutes a Suspension Event. and Borrower agrees that any exercise of discretion based upon the foregoing shall be deemed commercially reasonable.                            (b)        In the exercise of such judgement, the Lender also may take into account any of the following factors the existence of which shall be deemed a commercial reasonable basis upon which Lender may exercise its discretion:                                         (i)          Those included in, or tested by, the definitions of “Eligible Credit Card Receivables”, “Eligible Inventory”, “Retail”,  and “Cost”.                                         (ii)         The current financial and business climate of the industry in which any of the Borrowers competes (having regard for the Borrower’s position in that industry).                                         (iii)        General economic conditions which have a material effect on cost structure.                                         (iv)       Material changes in or to the mix of Paper Warehouse’s Inventory.                                         (v)        Seasonality with respect to Paper Warehouse’s Inventory and pattern of Paper Warehouse’s  retail sales versus that which was projected, and                                         (vi)       Material changes in Availability versus that which was projected.                                         (vii)      Such other factors as the Lender determines as having a material bearing on credit risks associated with the providing of loans and financial accommodations to the Borrowers.                            (c)         The burden of establishing the failure of the Lender to have acted in a commercially reasonable manner in Lender’s exercise of discretion shall be the Borrowers’.              1-11.     Fees for L/C’s.                            (a)         Borrowers shall pay to the Lender a fee payable monthly in arrears; for each outstanding L/C at the rate of one (1.0%) percent per anum of the Stated Amount of that L/C.                            (b)        In addition to the fee to be paid as provided in Subsection 1-11(a), above, the Borrowers shall pay to the Lender (or to the Issuer, if so requested by the Lender), on demand, all issuance, processing, negotiation, amendment, and administrative fees and other amounts charged by the Issuer on account of, or in respect to, any L/C, provided that such fee is not duplicative of the fee paid to Lender in accordance with Section 1-11(a) above.              1-12.     Concerning L/C’s.                            (a)         None of the Issuer, the Issuer’s correspondents, or any advising, negotiating, or paying bank with respect to any L/C shall be responsible in any way for:                                         (i)          The performance by any beneficiary under any L/C of that beneficiary’s obligations to the Borrowers.                                         (ii)         The form, sufficiency, correctness, genuineness, authority of any person signing; falsification; or the legal effect of; any documents called for under any L/C if such documents on their face appear to be in order.                            (b)        The Issuer may honor, as complying with the terms of any L/C and of any drawing thereunder, any drafts or other documents otherwise in order, but signed or issued by an administrator, executor, conservator, trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, liquidator, receiver, or other legal representative of the party authorized under such L/C to draw or issue such drafts or other documents.                            (c)         Unless otherwise agreed to, in the particular instance, the Borrowers hereby authorize any Issuer to:                                         (i)          Select an advising bank, if any.                                         (ii)         Select a paying bank, if any.                                         (iii)        Select a negotiating bank.                            (d)        All directions, correspondence, and funds transfers relating to any L/C are at the risk of the Borrowers. The Issuer shall have discharged the Issuer’s obligations under any L/C which, or the drawing under which, includes payment instructions, by the initiation of the method of payment called for in, and in accordance with, such instructions (or by any other commercially reasonable and comparable method). Neither the Lender (to the extent not caused by Lender’s gross negligence or willful misconduct) nor the Issuer shall have any responsibility for any inaccuracy, interruption, error, or delay in transmission or delivery by post, telegraph or cable, or for any inaccuracy of translation.                            (e)         The Lender’s and the Issuer’s rights, powers, privileges and immunities specified in or arising under this Agreement are in addition to any heretofore or at any time hereafter otherwise created or arising, whether by statute or rule of law or contract.                            (f)         Except to the extent otherwise expressly provided hereunder or agreed to in writing by the Issuer and the Borrowers, the L/C will be governed by the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce, Publication No.500, and any subsequent revisions thereof.                            (g)        If any change in any law, executive order or regulation, or any directive of any administrative or governmental authority (whether or not having the force of law), or in the interpretation thereof by any court or administrative or governmental authority charged with the administration thereof, shall either:                                         (i)          Impose, modify or deem applicable any reserve, special deposit or similar requirements against letters of credit heretofore or hereafter issued by any Issuer or with respect to which the Lender or any Issuer has an obligation to lend to fund drawings under any L/C.                                         (ii)         Impose on any Issuer any other condition or requirements relating to any such letters of credit; and the result of any event referred to in Section 1-12(g)(i) above, shall be to increase the cost to any Issuer of issuing or maintaining any L/C (which increase in cost shall be the result of such Issuer’s reasonable allocation among that Issuer’s letter of credit customers of the aggregate of such cost increases resulting from such events), then, upon demand by the Lender and delivery by the Lender to the Borrowers of a certificate of an officer of the subject Issuer describing such change in law, executive order, regulation, directive, or interpretation thereof, its effect on such Issuer, and the basis for determining such increased costs and their allocation, the Borrowers shall immediately pay to the Lender for payment to the Issuer, from time to time as specified by the Lender, such amounts as shall be sufficient to compensate such Issuer for such increased cost. Any Issuer’s determination of costs incurred under Section 1-12(g)(i), above, and the allocation, if any, of such costs among the Borrowers and other letter of credit customers of such Issuer, if done in good faith and made on an equitable basis and in accordance with the officer’s certificate, shall be conclusive and binding on the Borrowers.                            (h)        The obligations of the Borrowers under this Agreement with respect to L/C’s are absolute, unconditional, and irrevocable and shall be performed strictly in accordance with the terms hereof under all circumstances whatsoever including, without limitation, the following:                                         (i)          Any lack of validity or enforceability or restriction, restraint, or stay in the enforcement of this Agreement, any L/C, or any other agreement or instrument relating thereto.                                         (ii)         Any amendment or waiver of, or consent to the departure from, any L/C.                                         (iii)        The existence of any claim, set-off, defense, or other right which the Borrowers may have at any time against the beneficiary of any L/C.                                         (iv)       Any honoring of a drawing under any L/C, which drawing possibly could have been dishonored based upon a strict construction of the terms of the L/C.                                         (v)        The Borrowers shall not present to Lender or cause the amendment of an L/C without satisfactory evidence of one or more of the following: (a) change in delivery date; (b) Borrowers’ receipt of partial shipment; or (c) change to original order reflected in OTB (open to Buy) or other information which may be so reasonably requested by the Lender.                            (i)          In no event, shall Lender or Issuer have any obligation to honor any L/C presented for payment after its expiration.  In the event no payment has been made, the Stated Amount of such L/C shall continue to be deducted from Availability for thirty (30) business days beyond expiration of said L/C, unless such L/C has been previously cancelled or terminated and Lender has received reasonably satisfactory written evidence of such termination or cancellation. ARTICLE 2 - GRANT OF SECURITY INTEREST              2-1.       Grant of Security Interest. To secure the Borrowers prompt, punctual, and faithful performance of all and each of the Liabilities, the Borrowers hereby grant to the Lender a continuing security interest in and to, and assigns to the Lender, all assets and property, including, without limitation, the following, and each item thereof, whether now owned or now due, or in which any of the Borrowers has an interest, or hereafter acquired, arising, or to become due, or in which the Borrowers obtain an interest (all of which, together with any other property in which the Lender may in the future be granted a security interest, is referred to herein as the “Collateral”):                            (a)         All Inventory.                            (b)        All Accounts, accounts receivable, contracts, contract rights, notes, bills, drafts, acceptances, General Intangibles (excluding only the Richfield Account but such exclusion terminates upon the termination of the Richfield Account and any obligations owed to Borrowers thereunder shall be deemed part of the Collateral), Instruments, including Promissory Notes, Documents, Documents of Title, Chattel Paper, securities, Security Entitlements, Security Accounts, Investment Property, Deposit Accounts, Letter of Credit Rights, Supporting Obligations, choses in action, and all other debts, obligations and liabilities in whatever form, owing to Borrowers from any Person, firm or corporation or any other legal entity, whether now existing or hereafter arising, now or hereafter received by or belonging or owing to Borrowers, for goods sold by it or for services rendered by it, or however otherwise established or created, all guarantees and securities therefor, all right, title and interest of Borrowers in the merchandise or services which gave rise thereto, including the rights of reclamation and stoppage in transit, all rights to replevy goods, and all rights of an unpaid seller of merchandise or services.                            (c)         All machinery, Equipment, Fixtures and other Goods, whether now owned or hereafter acquired by any Borrower and wherever located, all replacements and substitutions therefor or accessions thereto and all proceeds thereof, but excluding motor vehicles and excluding Equipment subject to any Capital Lease whichexpressly prohibits the granting of a lien and is identified on EXHIBIT 2-1(c) but such exclusion for Equipment subject to any such Capital Lease identified on EXHIBIT 2-1(c) shall terminate if such Capital Lease is not renewed and terminates and such Equipment shall thereupon be deemed Collateral hereunder.                            (d)        Leasehold Interests and rights of occupancy.                            (e)         Real Estate, except the Real Estate owned by Paper Warehouse located at Excelsior Boulevard, Minneapolis, Minnesota.                            (f)         All proceeds, products, substitutions and accessions of or to any of the foregoing in any form, including, without limitation, all proceeds, refunds and premium rebates of credit, fire or other insurance covering the Collateral, and also including, without limitation, rents and profits resulting from the temporary use of any of the foregoing.              2-2.       Deposit Accounts.  For each Deposit Account that any Borrower at any time opens or maintains, Borrower shall, at Lender’s request and option, pursuant to an agreement in form and substance satisfactory to Lender, either (a) cause the depositary Lender to agree to comply at any time with instructions from Lender to such depositary Lender directing the disposition of funds from time to time credited to such Deposit Account, without further consent of Borrower, or (b) arrange for Lender to become the customer of the depositary Lender with respect to the Deposit Account, with Borrower being permitted, only with the consent of Lender, to exercise rights to withdraw funds from such deposit account.              2-3.       Collateral in the Possession of a Bailee.  If any goods of any Borrower are at any time in the possession of a bailee, Borrower shall promptly notify Lender thereof and, if requested by Lender, shall promptly obtain an acknowledgment from the bailee, in form and substance satisfactory to Lender, that the bailee holds such Collateral for the benefit of Lender and shall act upon the instructions of Lender, without the further consent of Borrower.              2-4        Letter of Credit Rights.  If any Borrower is at any time a beneficiary under a letter of credit now or hereafter issued in favor of Borrower, Borrower shall promptly notify Lender thereof and, at the request and option of Lender, Borrower shall, pursuant to an agreement in form and substance satisfactory to Lender, either (a) arrange for the issuer and any confirmer of such letter of credit to consent to an assignment to Lender of the proceeds of any drawing under the letter of credit, or (b) arrange for Lender to become the transferee beneficiary of the letter of credit, with Lender agreeing, in each case, that the proceeds of any drawing under the letter of credit are to be applied  in the same manner as any other payment on an Account.              2-5.       Commercial Tort Claims.  If any Borrower shall at any time hold or acquire a commercial tort claim, Borrower shall immediately notify Lender in a writing signed by Borrower of the brief details thereof and grant to Lender in such writing a security interest therein, and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to Lender.              2-6.       Authorization to File Financing Statements.  Borrowers hereby irrevocably authorize Lender at any time and from time to time to file in any Uniform Commercial Code jurisdiction any initial financing statements and amendments thereto that (a) indicate the Collateral (i) as “all assets” of Borrower (subject to the limitations set forth in Sections 2-1 (b), (c) and (e) above) or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the Uniform Commercial Code of such jurisdiction, or (ii) as being of an equal or lesser scope or with greater detail, and (b) contain any other information required by the Uniform Commercial Code for the sufficiency or filing office acceptance of any financing statement or amendment, including (i) whether any Borrower is an organization, the type of organization and any organization identification number issued to any Borrower, and (ii) in the case of a financing statement filed as a fixture filing or indicating Collateral as as-extracted Collateral or timber to be cut, a sufficient description of real property to which the Collateral relates. Borrowers agree to furnish any such information to Lender promptly upon request.  Borrowers also ratify any authorization for Lender to have filed in any Uniform Commercial Code jurisdiction any like initial financing statements or amendments thereto if filed prior to the date hereof.              2-7.       Extent and Duration of Security Interest. This grant of a security interest is in addition to, and supplemental of, any security interest previously granted by the Borrowers to the Lender and shall continue in full force and effect applicable to all Liabilities until all Liabilities have been paid and/or satisfied in full and the security interest granted herein is specifically terminated in writing by a duly authorized officer of the Lender. ARTICLE 3 - DEFINITIONS              All capitalized terms used in this agreement which are not otherwise defined herein or in the UCC shall have the meanings assigned to them in EXHIBIT 3, annexed hereto. ARTICLE 4 - CONDITIONS PRECEDENT              The effectiveness of this Agreement, the establishment of the Revolving Credit, and the making of the first loan under the Revolving Credit, is conditioned upon the delivery to Lender of the documents described below, each in form and substance satisfactory to the Lender, and the satisfaction of the conditions described below:              4-1.       Corporate Due Diligence.                            (a)         A Certificate of legal existence and good standing issued by the Secretary of State or other governing authority of the State where each Borrower is a Registered Organization.                            (b)        Certificates of due qualification and good standing, issued by the Secretary(ies) of State or other governing authority of each state in which the nature of the   business conducted by any  Borrower or assets owned could require such qualification and the failure to be so qualified could have a material adverse effect on the business, operations or rights of any such Borrower.                            (c)         A Certificate of each Borrower’s secretary, clerk or otherwise authorized officer or other Person attesting to the due adoption, continued effectiveness, and setting forth the texts of, each resolution or authorization adopted in connection with the establishment of the loan arrangement contemplated by the Loan Documents and attesting to the true signatures of each Person authorized as a signatory to any of the Loan Documents.              4-2.       Opinion. An opinion of counsel to each of the Borrowers in form and substance satisfactory to Lender and Lender’s counsel.              4-3.       Cash Management, Control Agreements and Additional Documents. Such additional instruments and documents including, without limitation, an agreement for the Blocked Account(s) executed by the Borrowers, Lender and the applicable bank, agreements with each Borrower’s credit card processors and/or other credit service providers executed by the Borrower, Lender and each such processor or service provider, and any other notices or agreements required under Article 7 hereof and any other document to provide Lender with control with respect to collateral consisting of Deposit Accounts, Investment Property, Letter of Credit Rights and Electronic Chattel Paper as the Lender or its counsel reasonably may require or request, in each case in form and substance satisfactory to Lender and its counsel, and all other Loan Documents, including without limitation, guaranties, pledges and security agreements from all affiliates and subordination and intercreditor agreements from all holders of debt not to be paid from proceeds hereunder, all in form and substance satisfactory to Lender and its counsel.              4-4.       Key Life Policies.  The Collateral Assignment to the Lender of policies on the lives of the following for the amounts stated:                                         Yale Dolginow:                                        $800,000              4-5.       Officers’ Certificates. Certificates executed by the president or chief executive officer and the chief financial officer of each Borrower and stating that the representations and warranties made by the Borrowers to the Lender in the Loan Documents are true and complete as of the date of such Certificate, and that no event has occurred which is or which, solely with the giving of notice or passage of time (or both) would be an Event of Default.              4-6.       Representations and Warranties.  Each of the representations made by or on behalf of the Borrowers in this Agreement or in any of the other Loan Documents or in any other report,  statement, document, or paper provided by and or on behalf of the Borrowers shall be true and complete as of the date as of which such representation or warranty was made.              4-7.       Initial Minimum Excess Availability.  Availability, after giving effect to the first loans and advances to be made under the Revolving Credit; any charges to the Loan Account made in connection with the establishment of the credit facility contemplated hereby; and L/C’s to be issued at, or immediately subsequent to, the establishment of such Revolving Credit, is not less than Two Million  ($2,000,000) Dollars.              4-8.       No Event of Default. No event shall have occurred, or failed to occur, which occurrence or which failure constitutes, or which, solely with the passage of time or the giving of notice (or both) would constitute, an Event of Default.              4-9.       .No Material Adverse Change.  No Material Adverse Change has occurred.              4-10.     Delivery of Warrants.  Intentionally deleted.              4-11.     Landlord Waivers and “Access Agreements’’.  Such agreements from landlords and warehousemen, bailees and any other third parties who may control any premises upon which any of the Collateral is located as Lender may in its discretion require in form and substance satisfactory to Lender.              4-12.     Delivery of Documents.   No document shall be deemed delivered to the Lender until received and accepted by the Lender at its head offices in Boston, Massachusetts or at the offices of Lender’s counsel. Under no circumstances will this Agreement take effect until executed and accepted by the Lender at said head office or at the offices of Lender’s counsel.  In the event that Lender agrees, at Borrower’s request, to make the initial advance or any subsequent advance hereunder, prior to Borrowers’ delivery of any documents required under this Article 4 or otherwise by this Agreement or the date required under any “open items” letter executed in connection therewith, an additional fee, equal to the greater of one-tenth of one (0.1%) percent of the then outstanding amount of the Loan Account or Five Hundred ($500) Dollars shall be payable weekly on the next Thursday following the date by which such documents are due until such time as all such documents are provided, subject to pro-ration in the event that documents are delivered after such due date, but prior to such following Thursday ARTICLE 5 - GENERAL REPRESENTATIONS. WARRANTIES AND COVENANTS              To induce the Lender to establish the loan arrangement contemplated herein and to make loans and Advances and to provide financial accommodations under the Revolving Credit (each of which loans and Advances shall be deemed to have been made in reliance thereupon) each Borrower, in addition to all other representations, warranties, and covenants made by the Borrowers in any other Loan Document, makes those representations, warranties, and covenants included in this Agreement.              5-1.       Payment and Performance of Liabilities. The Borrowers shall pay each Liability due Lender when due (or when demanded if payable on demand) and shall promptly, punctually, and faithfully perform each other Liability due Lender and, except to the extent such other obligations are being contested in good faith, adequate reserves for same are maintained in accordance with GAAP and Borrower has provided Lender notice of same in accordance herewith, pay each obligation due others in accordance with its current custom and practice.  If any Borrower has any dispute with any Person with respect to any Liability or other material obligation, such Borrower shall give Lender notice of said dispute.              5-2.       Due Organization - Authorization - No Conflicts.                            (a)         Each Borrower presently is and shall hereafter remain in good standing as a, Minnesota corporation, a Registered Organization in the state of Minnesota, which is the state in which it is legally formed, and Borrower shall not change such state of legal formation and is and shall hereafter remain duly qualified and in good standing in every other state in which, by reason of the nature or location of the Borrowers’ assets or operation of the Borrower’s businesses, such qualification may be necessary and the failure to be so qualified could have a material adverse effect on the business operations or rights of any such Borrower                            (b)        Each Borrower’s legal name is as set forth in the introduction to this agreement and none of the Borrowers shall change its legal name.                            (c)         Each Related Entity (other than another Borrower, Yale Dolginow, or any director of any of the Borrowers) is listed on EXHIBIT 5-2, annexed hereto. Each such Related Entity is and shall hereafter remain in good standing in the state in which legally formed  and is and shall hereafter remain duly qualified in every other state in which, by reason of the nature and location of that entity’s assets or the operation of such entity’s business, such qualification may be necessary and the failure to be so qualified could have a material adverse effect on the business operations or rights of any such Borrower. The Borrowers shall provide the Lender with prior written notice of any such entity’s becoming or ceasing to be a Related Entity.                            (d)        Each Borrower has all legal corporate power and authority to execute and deliver all and each of the Loan Documents to which each Borrower is a party and has and will hereafter retain all requisite legal power and authority to perform any and all of the Liabilities.                            (e)         The execution and delivery by each Borrower of each Loan Document to which it is a party; each Borrower’s consummation of the transactions contemplated by such Loan Documents (including, without limitation, the creation of security interests by the Borrower as contemplated hereby); each Borrower’s performance under those of the Loan Documents to which it is a party; the borrowings hereunder; the use of the proceeds thereof and the exercise of any of Lender’s remedies thereunder:                                         (i)          Have been duly authorized by all necessary legal action.                                         (ii)         Do not, and will not, contravene in any material respect any provision of any Requirement of Law or obligation of any Borrower.                                         (iii)        Will not result in the creation or imposition of, or the obligation to create or impose, any Encumbrance upon any assets of any Borrower pursuant to any Requirement of Law or obligation, except pursuant to the Loan Documents.                                         (vi)       Will not violate any provisions of any of the Franchise Agreements                            (f)         The Loan Documents to which each Borrower is a party have been duly executed and delivered by each such Borrower and are the legal, valid and binding, and joint and several obligations of such Borrower, enforceable against the Borrowers in accordance with their respective terms.                            (g)        PWFI and PartySmart are each wholly owned subsidiaries of Paper Warehouse.              5-3.       Trade Names.                            (a)         EXHIBIT 5-3, annexed hereto, is a listing as of the Closing Date of:                                         (i)          All names under which each Borrower ever conducted its business, all trademark and service mark registrations and applications with respect to any trademark or service mark; and all licenses pursuant to which each Borrower has the right to use any trademark or service mark.                                         (ii)         All entities and/or Persons with whom any Borrower ever consolidated or merged, or from whom any Borrower ever acquired in a single transaction or in a series of related transactions substantially all of Person’s assets.                            (b)        Except (i) upon not less than twenty-one (21) days prior written notice given the Lender which notice shall include a proposed revised Exhibit 5-3, and (ii) in compliance with all other provisions of this Agreement, none of the Borrowers will undertake or commit to undertake any action such that the results of that action, if undertaken prior to the date of this Agreement, would have been reflected on EXHIBIT 5-3.                            (c)         Each Borrower owns and possesses, or has the right to use all patents, industrial designs, trademarks, trade names, trade styles, brand names, service marks, logos, copyrights, trade secrets, know-how, confidential information, and other intellectual or proprietary property of any third Person necessary for the Borrower’ conduct of its business.                            (d)        The conduct by each Borrower and any other Persons party to any Franchise Agreement of its business in accordance with such Franchise Agreement does not infringe on the patents, industrial designs, trademarks, trade names, trade styles, brand names, service marks, logos, copyrights, trade secrets, know-how, confidential information, or other intellectual or proprietary property of any third Person.              5-4.       Location, Landlord’s Consents, Waivers.                            (a)         The Collateral, and the books, records, and papers of Borrowers pertaining thereto, are kept and maintained solely at the Borrowers’ chief executive offices as set forth at the beginning of this Agreement and at those locations which are listed on EXHIBIT 5-4, annexed hereto, which exhibit includes all service bureaus with which any such records are maintained and the names and addresses of each of the Borrowers’ landlords. Except (i) to accomplish sales of Inventory in the ordinary course of business or (ii) to utilize such of the Collateral as is removed from such locations in the ordinary course of business, the Borrowers shall not remove any Collateral from said chief executive offices or those locations listed on EXHIBIT 5-4, provided however, in the event that any Borrower enters into a new Lease for executive offices and/or for new store locations in accordance with section 5-4 (e) below, provides Lender with a proposed revised EXHIBIT 5-4 identifying such new executive offices and/or store locations within the applicable notice period and there has not occurred any Event of Default which has not been remedied within any grace period expressly provided herein or otherwise waived in writing by Lender, Borrower may move Collateral to such new executive offices and/or store locations.                            (b)        The Borrower shall obtain and deliver to the Lender a consent, waiver and subordination agreement executed by the landlords for all of Borrowers’ warehouse and distribution center locations, all store locations located in a Landlord Lien State or One-Turn State, upon or before the Closing Date, and shall use its commercially reasonable efforts to obtain such consent waiver and subordination agreement for the balance of Paper Warehouse store locations within sixty (60) days of the Closing Date with respect to stores listed in EXHIBIT 5-4 and with respect to any new stores opened in accordance with Section 5-4(e)(ii) prior to opening such new store, provided however, any failure of the Borrower to deliver Landlord Waivers  after having used such commercially reasonable efforts, shall not be deemed an Event of Default hereunder, but shall entitle Lender to establish Availability Reserves in accordance with Section 5-4(c) below                            (c)         Lender may at any time after thirty (30) days after the Closing Date, in its discretion, establish an Availability Reserve for up to sixty (60) days rent for each of the Borrowers’ locations in a Landlord Lien State or in a One Turn State for which a satisfactory consent, waiver and subordination has not been received.  Such Availability Reserve may be reduced or eliminated but only if no Suspension Event is then in existence or has not theretofore occurred, upon the furnishing to the Lender of a consent, waiver and subordination agreement executed by the landlord for the subject location.                            (d)        Without duplication of any Availability Reserve described above, the Lender may establish an Availability Reserve for past due rent.                            (e)         No Borrower shall:                                         (i)          Alter, modify, or amend any Lease, except for such Borrower’s benefit and except for renewals of Leases which renewals are on terms substantially similar to terms in effect as of the Closing Date and with at least ten (10) days prior written notice to Lender.                                         (ii)         Commit to, or open or close any location at which the Borrower maintains, offers for sale, or stores any of the Collateral, except (x) Borrower may open up to five (5) locations per year but only to the extent provided in the Business Plan, approved by Borrower’s Board of Directors and with at least fifteen (15) days prior written notice to Lender and (y) Borrower may close up to ten (10)  locations per year but only to the extent provided for in the Business Plan, as approved by Borrower’s Board of Directors, with at least thirty (30) days prior written notice to Lender, and, if Borrower determines to employ an agent to effect any such closings, whether on a guarantee or fee basis or otherwise, subject to bidding procedures and an agreement acceptable to the Lender.                            (f)         Except as otherwise disclosed on EXHIBIT 5-4, no tangible personal property of any  Borrower is in the care or custody of any third party or stored or entrusted with a bailee or other third party and none shall hereafter be placed under such care, custody, storage, or entrustment.  Borrower shall obtain and deliver a consent, waiver and subordination (in form reasonably satisfactory to the Lender) from each bailee disclosed on EXHIBIT 5-4 on or prior to the date of execution hereof.              5-5.       Title to Assets.                            (a)         The Borrowers are, and shall hereafter remain, the owners of the Collateral free and clear of all Encumbrances with the exceptions of the following:                                         (i)          The security interest created herein.                                         (ii)         Those Encumbrances (if any) listed on EXHIBIT 5-5, annexed hereto.                                         (iii)        Encumbrances in favor of lessors under future Capital Leases permitted under section 5-6 (c) hereof provided, that (a) any such Encumbrances attach to such the subject property concurrently with or within 20 days after the acquisition thereof, (b) such Encumbrances attach solely to the property so acquired in such transaction, and  (c) the principal amount of the debt secured thereby does not exceed 100% of the Cost of such property.                            (b)        The Borrowers do not and shall not have possession of any property on consignment to any Borrower.              5-6.       Indebtedness.  The Borrowers do not and shall not hereafter have any Indebtedness with the exceptions of:                            (a)         Any Indebtedness to the Lender.                            (b)        The Indebtedness listed on EXHIBIT 5-6.                            (c)         Indebtedness of any Borrower under any future Capital Leases not listed on EXHIBIT 5-6, not to exceed aggregate annual payments of One Million ($1,000,000) Dollars per year, provided that (i) Lender is given prompt written notice of any Capital Lease, such notice to include a proposed revised EXHIBIT 5-6 and a summary of each such proposed Capital Lease (ii) such Capital Leases permit the Lender to maintain a junior lien on the subject Equipment and provides for lessor’s consent to Lender’s use of such equipment in accordance with Section 11 hereof, subject to Lender’s maintenance of lease payments (such conditions be acknowledged substantially in the form attached hereto as EXHBIT 5-6(c)); (iii) no lien on the Collateral (other than a lien on the subject Equipment) arises as a result thereof and (iv) there has not occurred Event of Default which has not been remedied within any grace period expressly provided herein or otherwise waived in writing by Lender.                5-7.       Insurance Policies.                            (a)         EXHIBIT 5-7, annexed hereto, is a schedule of all insurance policies owned by the Borrowers or under which any Borrower is the named insured. Each of such policies is in full force and effect. Neither the issuer of any such policy nor any Borrower is in default or violation of any such policy.                            (b)        The Borrowers shall have and maintain at all times insurance covering such risks, in such amounts, containing such terms, in such form, for such periods, and written by such companies as may be reasonably satisfactory to the Lender.  The coverage reflected on EXHIBIT 5-7 presently satisfies the foregoing requirements, it being recognized by the Borrowers, however, that such requirements may change hereafter to reflect changing circumstances. All insurance carried by the Borrowers shall provide for a minimum of twenty (20) days’ written notice of cancellation to the Lender and all such insurance which covers the Collateral shall include an endorsement in favor of the Lender, which endorsement shall provide that the insurance, to the extent of the Lender’s interest therein, shall not be impaired or invalidated, in whole or in part, by reason of any act or neglect of the Borrowers or by the failure of the Borrowers to comply with any warranty or condition of the policy. In the event of the failure by the Borrowers to maintain insurance as required herein, the Lender, at its option, may obtain such insurance, provided, however, the Lender’s obtaining of such insurance shall not constitute a cure or waiver of any Event of Default  occasioned by the Borrowers’ failure to have maintained such insurance.  The Borrowers shall furnish to the Lender certificates or other evidence satisfactory to the Lender regarding compliance by the Borrowers with the foregoing insurance provisions.                            (c)         The Borrowers shall advise the Lender of each claim in excess of Fifty Thousand ($50,000) Dollars made by any Borrower under any policy of insurance which covers the Collateral and will permit the Lender, at the Lender’s option in each instance, to the exclusion of the Borrowers, to conduct the adjustment of each such claim (and of all claims following the occurrence of any Suspension Event or Event of Default which has not been remedied within any grace period expressly provided herein or otherwise waived in writing by Lender.). The Borrowers hereby appoint the Lender as each Borrower’s attorney in fact to obtain, adjust, settle, and cancel any insurance claim described in this section and to endorse in favor of the Lender any and all drafts and other instruments with respect to such insurance claim. This appointment, being coupled with an interest, is irrevocable until this Agreement is terminated by a written instrument executed by a duly authorized officer of the Lender. The Lender shall not be liable on account of any exercise pursuant to said power except for any exercise in actual willful misconduct and bad faith. The Lender may apply any proceeds of such insurance against the Liabilities, whether or not such have matured, in such order of application as the Lender may determine.                            (d)        The Borrowers shall maintain at all times those policies of insurance obtained by the Borrowers and assigned to the Lender as required by Section 4-4, above.                5-8.       Licenses.  EXHIBIT 5-8, annexed hereto, is a schedule of each license, distributorship, franchise (other than Franchise Agreements subject to Section 5-28 hereof), and/or similar agreement, except for Franchise Agreements, issued to, or to which any Borrower is a party in effect as of the Closing Date.   Each such license or agreement  is and shall remain in full force and effect until terminated in accordance with its terms. No Borrower is in default or violation of any such license or agreement and, as of the Closing Date, to any Borrower’s Knowledge, no other party to any such license or agreement is in default or violation thereof. Except as described on EXHIBIT 5-8 hereof, no Borrower has received any notice or threat of cancellation of any such license or agreement and Borrower shall provide Lender with notice of any future default or violation of any such license or agreement, and of its receipt of any notice or threat of cancellation  of any such agreements  in accordance with Section 9-3 hereunder. No Borrower shall enter into any future license, distributorship, franchise (other than Franchise Agreements subject to Section 5-28 hereof), and/or similar agreement, except with (a) at least thirty (30) days advance written notice to Lender, which notice shall include a proposed revised EXHIBIT 5-8 and a summary of such proposed license or agreement and (b) Lender’s consent which consent shall not be withheld if (x) there has not occurred any Event of Default which has not been remedied within any grace period expressly provided herein or otherwise waived in writing by Lender, and (y) any such proposed license or agreement is in accordance with the Business Plan.              5-9.       Leases and Capital Leases.  EXHIBIT 5-9, annexed hereto, is a schedule of all Leases in effect as of the Closing Date, and EXHIBIT 5-6 is a schedule of all Capital Leases Each of the Leases, Capital Leases, Equipment Leases or other leases of any other personal property is and shall remain in full force and effect until termination in accordance with its terms. No Borrower is in default or violation of any Lease, Capital Lease, Equipment Lease or other lease of any other personal property, and, as of the Closing Date to Borrower’s Knowledge, no party other than any Borrower to any such Lease, Equipment Lease, Capital Lease other lease of any other personal property is in default or violation of any such Lease, Capital Lease, Equipment Lease or other lease of any other personal property and none of the Borrowers has received any notice or threat of cancellation of any such Lease, Capital Lease, Equipment Lease or other lease of any other personal property and Borrower shall provide Lender with notice of any future default or violation of any such Leases, Capital Leases, Equipment Leases or other leases, and of any notice or threat of cancellation  of any such Leases, Capital Leases, Equipment Leases or other leases of any other personal property in accordance with Section 9-3. The Borrowers hereby authorize the Lender at any time and from time to time to contact any of the Borrowers’ landlords in order to confirm the Borrowers’ continued compliance with the terms and conditions of the Lease(s) between the Borrowers and that landlord and to discuss such issues, concerning the Borrowers’ occupancy under such Lease(s), as the Lender may determine.  Except to the extent permitted by Section 5-4 and 5-6 hereof, no Borrower shall enter into any Lease or Capital Lease and no Borrower shall enter into any future Equipment Lease or other lease of any other personal property (other than Capital Leases subject to Section 5-6 above) except upon the conditions that: (i) Lender is given prompt written notice of any such Equipment Lease or other lease of any other personal property, such notice to include a summary of each such proposed Equipment Lease or other lease (ii) such Borrower’s entry in to such Equipment Lease or other lease of any other personal property is consistent with the Business Plan; (iv) no lien on any Collateral (other than a lien on the subject Equipment) arises as a result thereof and (v) there has not occurred Event of Default which has not been remedied within any grace period expressly provided herein or otherwise waived in writing by Lender.                5-10.     Requirements of Law.  The Borrowers are in compliance with, and shall hereafter comply with and use its assets in compliance with, all Requirements of Law. No Borrower has received any notice of any violation of any Requirement of Law (whether or not such violation is material) which violation has not been cured or otherwise remedied.              5-11.     Maintain Properties.  Each Borrower shall:                            (a)         Keep the Collateral in good order and repair (ordinary reasonable wear and tear and insured casualty excepted).                            (b)        Not suffer or cause the waste or destruction of any material part of the Collateral.                            (c)         Not use any of the Collateral in violation of any policy of insurance thereon.                            (d)        Not sell, lease, or otherwise dispose of any of the Collateral, other than the following, in each case, subject to the turning over to the Lender of all Receipts with respect to the same as provided herein,                            (i)   The sale of Inventory in compliance with this Agreement.       (ii)   The disposal of Equipment which is obsolete, worn out, or damaged beyond repair, which Equipment is replaced to the extent necessary to preserve or improve the operating efficiency of such Borrower.       (iii)   Use of Advances in accordance with the terms of this Agreement              5-12.     Pay Taxes                            (a)         As of the Closing Date, the federal income tax returns of each Borrower have been audited by the Internal Revenue Service (or closed by applicable statutes) for all fiscal years through and including the Borrower’s taxable year referenced on EXHIBIT 5-12, annexed hereto, and all deficiencies, assessments, and other amounts asserted as a result of such examinations have been fully paid or settled.  As of the Closing Date, no agreement is in existence which waives or extends any statute of limitations applicable to the right of the Internal Revenue Service to assert a deficiency or make any other claim for or in respect to federal income taxes and no Borrower shall enter into such agreement except with at least ten (10) days prior written notice to Lender.  As of the Closing Date, no issue has been raised in any such examination which reasonably could be expected to result in the assertion of a deficiency for any fiscal year open for examination, assessment, or claim by the Internal Revenue Service, and each Borrower shall provide Lender with notice of any such issue in accordance with Section 9-3 hereunder.                              (b)        As of the Closing Date, all returns of each Borrower for state and local income, excise, sales, and other taxes have been audited (or closed by applicable statutes) for all fiscal years through and including such Borrower’s taxable year referenced on EXHIBIT 5-12, annexed hereto, and all deficiencies, assessments, and other amounts asserted as a result of such examinations have been fully paid or settled.  As of the Closing Date, no agreement is in existence which waives or extends any statute of limitations applicable to the right of any state taxing authority to assert a deficiency or make any other claim for or in respect to any such state taxes and no Borrower shall enter into such agreement except with at least ten (10) days prior written notice to Lender. As of the Closing Date, no issue has been raised in any such examination which reasonably could be expected to result in the assertion of a deficiency for any fiscal year open for examination, assessment, or claim by any state or local taxing authority and each Borrower shall provide Lender with notice of any such issue in accordance with Section 9-3 hereunder.                            (c)         Except as disclosed on said EXHIBIT 5-12, as of the Closing Date there are no examinations of or with respect to any Borrower presently being conducted by the Internal Revenue Service or any state taxing authority, and each Borrower shall provide Lender with notice of any such examination in accordance with Section 9-3 hereunder.                            (d)        Each Borrower has, and hereafter shall: pay, as they become due and payable, all taxes and unemployment contributions and other charges of any kind or nature levied, assessed or claimed against such Borrower or the Collateral by any Person or entity whose claim could result in an Encumbrance upon any asset of such Borrower or by any governmental authority, except if contested in good faith and Borrowers maintain appropriate reserves in accordance with GAAP and Borrowers have provided Lender with notice of same in accordance with section 9-3 hereunder; properly exercise any trust responsibilities imposed upon such Borrower by reason of withholding from employees’ pay; timely make all contributions and other payments as may be required pursuant to any Employee Benefit Plan now or hereafter established by such Borrower; and timely file all tax and other returns and other reports with each governmental authority to whom such Borrower is obligated to so file.                            (e)         At its option, the Lender may, but shall not be obligated to, pay any taxes, unemployment contributions, and any and all other charges levied or assessed upon any Borrower or the Collateral by any Person or entity or governmental authority, and make any contributions or other payments on account of any Borrower’s Employee Benefit Plan as the Lender, in the Lender’s discretion, may deem necessary or desirable, to protect, maintain, preserve, collect, or realize upon any or all of the Collateral or the value thereof or any right or remedy pertaining thereto, provided, however, the Lender’s making of any such payment shall not constitute a cure or waiver of any Event of Default occasioned by any Borrower’s failure to have made such payment.                5-13.     No Margin Stock.  No Borrower is engaged in the business of extending credit for the purpose of purchasing or carrying any margin stock (within the meaning of Regulations G, U, T, and X, of the Board of Governors of the Federal Reserve System of the United States). No part of the proceeds of any borrowing hereunder will be used at any time to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock.              5-14.     ERISA.  None of  the Borrowers nor any ERISA Affiliate ever has or hereafter shall:                            (a)         Violate or fail to be in full compliance with the Borrower’s Employee Benefit Plan.                            (b)        Fail timely to file all reports and filings required by ERISA to be filed by the Borrower.                            (c)         Engage in any “prohibited transactions” or “reportable events” (respectively as described in ERISA).                            (d)        Engage in, or commit, any act such that a tax or penalty could be imposed on account thereof pursuant to ERISA.                            (e)         Accumulate any material funding deficiency within the meaning of ERISA.                            (f)         Terminate any Employee Benefit Plan such that a lien could be asserted of the Borrower on account thereof pursuant to ERISA.                            (g)        Be a member of, contribute to, or have any obligation under any Employee Benefit Plan which is a multiemployer plan within the meaning of Section 4001(a) of ERISA.              5-15.     Hazardous Materials.                            (a)         No Borrower has ever:                                         (i)          Been legally responsible for any release or threat of release of any Hazardous Material.                                         (ii)         Received notification of any release or threat of release of any Hazardous Material from any site or vessel occupied or operated by any Borrower and/or of the incurrence of any expense or loss in connection with the assessment, containment, or removal of any release or threat of release of any Hazardous Material from any such site or vessel.                            (b)        The Borrowers shall:                                           (i)          Dispose of any Hazardous Material only in compliance with all Environmental Laws.                                         (ii)         Not store on any site or vessel occupied or operated by the Borrowers and not transport or arrange for the transport of any Hazardous Material, except if such storage or transport is in the ordinary course of the Borrowers’ businesses and is in compliance with all Environmental Laws.                            (c)         The Borrowers shall provide the Lender with written notice upon any Borrower’s obtaining knowledge of any incurrence of any expense or loss by any governmental authority or other Person in connection with the assessment, containment, or removal of any Hazardous Material, for which expense or loss any Borrower may be liable.              5-16.     Litigation.  As of the Closing Date, there is not presently pending or threatened by or against any Borrower any suit, action, proceeding, or investigation which, if determined adversely to such Borrower, would reasonably forseeably have a material adverse effect upon such Borrower’s financial condition or ability to conduct its business as such business is presently conducted or is contemplated to be conducted in the foreseeable future.              5-17.     Dividends or Investments.  The Borrowers shall not:                            (a)         Pay any cash dividend or make any other distribution in respect of any class of any Paper Warehouse capital stock.                            (b)        Own, redeem, retire, purchase, or acquire any of any Paper Warehouse capital stock.                            (c)         Invest in or purchase any stock or securities or rights to purchase any stock or securities of any corporation or other entity other than in a Permitted Acquisition.                            (d)        Merge or consolidate or be merged or consolidated with or into any other corporation or other entity, except that any Borrower may be merged into any other Borrower on reasonable advance written notice to Lender.                            (e)         Consolidate any of any Borrower’s operations with those of any other corporation or other entity, other than another Borrower.                            (f)         Organize or create any Related Entity, other than as permitted under Section 5-17(c).                            (g)        Subordinate any debts or obligations owed to the Borrower by any third party to any other debts owed by such third party to any other Person.                5-18.     Loans.  None of the Borrowers shall make any loans or advances to, nor acquire the Indebtedness of, any Person, provided, however, the foregoing does not prohibit any of the following:                            (a)         Advance payments made to any Borrower’s suppliers in the ordinary course.                            (b)        Advances to any Borrower’s officers, employees, and salespersons with respect to reasonable expenses to be incurred by such officers, employees, and salespersons for the benefit of such Borrower, which expenses are properly substantiated by the Person seeking such advance and properly reimbursable by the Borrower.                            (c)         Acts permitted under Section 5-17(c).              5-19.     Protection of Assets.  The Lender, in the Lender’s discretion, and from time to time, may discharge any tax or Encumbrance on any of the Collateral, or take any other action that the Lender may deem necessary or desirable to repair, insure, maintain, preserve, collect, or realize upon any of the Collateral. The Lender shall not have any obligation to undertake any of the foregoing and shall have no liability on account of any action so undertaken except where there is a specific finding in a judicial proceeding (in which the Lender has had an opportunity to be heard), from which finding no further appeal is available, that the Lender had acted in actual bad faith or in a grossly negligent manner.  The Borrowers shall pay to the Lender, on demand, or the Lender, in its discretion, may add to the Loan Account, all amounts paid or incurred by the Lender pursuant to this section. The obligation of the Borrowers to pay such amounts is a Liability.              5-20.     Line of Business.  No Borrower shall engage in any business other than the business in which it is currently engaged or a business reasonably related thereto.              5-21.     Affiliate Transactions.  No Borrower shall make any payment, nor give any value to any Related Entity (other than Borrower) except for goods and services actually purchased by the Borrower from, or sold by the Borrower to, such Related Entity for a price which shall:                            (a)         Be competitive and fully deductible as an “ordinary and necessary business expense” and/or fully depreciable under the Internal Revenue Code of 1986 and the Treasury Regulations, each as amended; and                            (b)        Not differ from that which would have been charged in an arms length transaction.              5-22.     Executive Pay                            (a)         The only Executive Officers of the Borrowers, at the execution of this Agreement, are those individuals referenced in the definition of “Executive Officers”.                              (b)        Prior to the execution of this Agreement, the Borrowers furnished the Lender with copies of (i) all written Executive Agreements, (ii) outlines of the salient features of all unwritten Executive Agreements (as amended to date) then in existence, and (iii) outlines of the status of currently contemplated terms of proposed but not yet executed Executive Agreements described in EXHIBIT 5-22. There are no unwritten agreements or understandings between any Borrower and any Executive Officer which relate to Executive Pay, written disclosure of which has not been made to the Lender.                            (c)         The Borrowers will not:                                         (i)          Enter into any Executive Agreement not existing as of the date of execution of this Agreement, and not disclosed under Section 5-22(b).                                         (ii)         Alter, amend, supplement, or otherwise change any Executive Agreement.                                         (iii)        Pay, provide, or facilitate any Executive Pay other than as provided in an Executive Agreement or, if not covered by an Executive Agreement, as permitted pursuant to Section 5-21, above.              5-23.     Additional Assurances.                            (a)         No Borrower is the owner of, nor has it any interest in, any property or asset which, immediately upon the satisfaction of the conditions precedent to the effectiveness of the credit facility contemplated hereby (Article 4) will not be subject to a perfected security interest in favor of the Lender to secure the Liabilities except for the Richfield Account, motor vehicles and Capital Leases identified on EXHIBITS 2-1(c) and 5-6 and subject only to those Encumbrances (if any) described on EXHIBIT 5-5, annexed hereto.                            (b)        The Borrowers will not hereafter acquire any asset or any interest in property which is not, immediately upon such acquisition, subject to such a perfected security interest in favor of the Lender to secure the Liabilities except for the acquisition of equipment subject to future Capital Lease entered into in accordance with Section 5-6 hereof subject only to Encumbrances (if any) permitted pursuant to Section 5-5, above.                            (c)         The Borrowers shall execute and deliver to the Lender such instruments, documents, and papers, and shall do all such things from time to time hereafter as the Lender may request to carry into effect the provisions and intent of this Agreement; to protect and perfect the Lender’s security interests in the Collateral; and to comply with all applicable statutes and laws, and facilitate the collection of any Receivables Collateral. The Borrowers shall execute all such instruments as may be required by the Lender with respect to the recordation and/or perfection of the security interests created herein.                            (d)        A carbon, photographic, or other reproduction of this Agreement or of any financing statement or other instrument executed pursuant to this Section 5-23 shall be sufficient for filing to perfect the security interests granted herein.                5-24.     Adequacy of Disclosure.                            (a)         All financial statements furnished to the Lender by the Borrowers have been prepared in accordance with GAAP, except for the absence of footnotes and year end adjustments with respect to interim financial statements, consistently applied and present fairly the condition of the Borrowers at the date(s) thereof and the results of operations and cash flows for the period(s) covered. There has been no change in the financial condition, results of operations, or cash flows of the Borrowers since the date(s) of such financial statements, other than changes in the ordinary course of business, which changes have not been materially adverse, either singularly or in the aggregate.                            (b)        No Borrower has any contingent obligations or obligation under any Lease or Capital Lease, except to the extent permitted by Sections 5-4 and 5-5 hereof, which is not noted in the Borrower’s financial statements furnished to the Lender prior to the execution of this Agreement.                            (c)         No document, instrument, agreement, or paper now or hereafter given the Lender by or on behalf of any Borrower or any guarantor of the Liabilities in connection with the execution of this Agreement by the Lender contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements therein not misleading. There is no fact known to any Borrower which has, or which, in the foreseeable future could have, a material adverse effect on the financial condition of any Borrower or any such guarantor which has not been disclosed in writing to the Lender.              5-25.     Minimum Excess Availability.  At all times Paper Warehouse shall maintain Minimum  Excess Availability as set forth in Exhibit 9-11.              5-26.     No Material Adverse Change.  There has not been a Material Adverse Change.              5-27.     Other Covenants.  The Borrower shall not indirectly do or cause to be done any act which, if done directly by the Borrower, would breach any covenant contained in this Agreement.              5-28.     Covenants Regarding Franchise Agreements.                            (a)         All Franchise Agreement in effect as of the Closing Date are identified on EXHIBIT 5-28 and Borrower, in connection with the monthly reporting required under Section 9-6(a)(ii) below shall identify any anticipated future Franchise Agreements and any newly executed Franchise Agreements and shall describe the termination of any Franchise Agreements.                            (b)        Except at set forth on EXHIBIT 5-28, Borrowers and as of the Closing Date any other parties to any Franchise Agreements are in compliance with all provisions of such agreements and all Requirements of Law relating thereto.                              (c)         Lender’s exercise of any of it rights under this Agreement and in accordance Article 11 and the UCC, including without limitation, the conduct of any going out of business or similar sales hereof shall not violate any provision of any Franchise Agreement.                            (d)        All payments made to PWFI or any other Borrower under the Franchise Agreements shall be deposited into a DDA and wired to the Blocked Account in accordance with Article 7 hereof. ARTICLE 6 - USE AND COLLECTION OF COLLATERAL              6-1.       Use of Inventory Collateral.                            (a)         No Borrower shall not engage in any sale of the Inventory other than for fair consideration in the conduct of its business in the ordinary course and shall not engage in sales or other dispositions to creditors; sales or other dispositions in bulk; and any use of any of the Inventory in breach of any provision of this Agreement.                            (b)        No sale of Inventory shall be on consignment, approval, or under any other circumstances such that, with the exception of a Borrower’s customary return policy applicable to the return of Inventory purchased by such Borrower’s retail customers in the ordinary course, such Inventory may be returned to such Borrower without the consent of the Lender.              6-2.       Inventory Quality.  All Inventory now owned or hereafter acquired by the Borrowers is and will be of good and merchantable quality and free from defects (other than defects within customary trade tolerances).              6-3.       Adjustments and Allowances.  Any Borrower may grant such allowances or other adjustments to such Borrower’s Account Debtors (exclusive of extending the time for payment of any Account or Account Receivable, which shall not be done without first obtaining the Lender’s prior written consent in each instance except up to forty-five (45) days in the ordinary course for Accounts other than Accounts of Credit Card Processors) as such Borrower may reasonably deem to accord with sound business practice, provided, however, the authority granted the Borrowers pursuant to this Section 6-3 may be limited or terminated by the Lender at any time in the Lender’s discretion.              6-4.       Validity of Accounts.                            (a)         The amount of each Account shown on the books, records, and invoices of each Borrower represented as owing by each Account Debtor is and will be the correct amount actually owing by such Account Debtor, except for minor adjustments in the ordinary course with respect to Accounts other than Accounts owed by Credit Card Processors, and shall have been fully earned by performance by such Borrower.                              (b)        No Borrower has any Knowledge of any impairment of the validity or collectibility of any of any Accounts and shall notify the Lender of any such fact immediately after any Borrower becomes aware of any such impairment.                            (c)         No Borrower shall post any bond to secure such Borrower’s performance under any agreement to which such Borrower is a party nor cause any surety, guarantor, or other third party obligee to become liable to perform any obligation of such Borrower (other than to the Lender, or under any L/C issued in accordance herewith, and the Richfield L/C’s) in the event of the Borrower’s failure so to perform.              6-5.       Notification to Account Debtors.  The Lender shall have the right at any time (whether or not an Event of Default has occurred) to notify any of the Borrower’s Account Debtors to make payment directly to the Lender and to collect all amounts due on account of the Collateral. ARTICLE 7 - CASH MANAGEMENT              7-1.       Depository Accounts.                            (a)         Annexed hereto as EXHIBIT 7-1 is a Schedule of all present DDA’s, which Schedule includes, with respect to each depository (i) the name and address of that depository; (ii) the account number(s) of the account(s) maintained with such depository; (iii) a contact Person at such depository; and (iv) the telephone number of the contact Person.                            (b)        Each Borrower shall, as a condition to the effectiveness of this Agreement:                                         (i)          Establish an account in the name of, for the benefit of and under the control of, Lender into which all Receipts shall be deposited in accordance with this Article 7 (the “Blocked Account”);                                         (ii)         Cause Bank of America to enter in a control agreement for Lender’s benefit reasonably satisfactory to Lender with respect to the Bank of America DDA.                                         (ii)         Deliver to Lender proof of the mailing, to each depository institution with which any DDA is maintained (other than the Funding Account or any Local DDA) of notification (in form satisfactory to the Lender) of the Lender’s interest in such DDA.  In the event that Agent or any Borrower shall receive notice that any depository at which a DDA is maintained on the date hereof, or is subsequently established as contemplated under paragraph (c) below,  refuses to accept and comply with the notifications delivered by such Borrower to such depository institution of the Lender’s interest in such DDA, such Borrower will immediately close all DDAs maintained with such depository institution and establish new DDAs with depository institutions which accept and agree to such notifications.                                         (iii)        Deliver to Lender an agreement (in form satisfactory to the Lender) with any depository institution at which a Blocked Account is maintained.                              (c)         The Borrower will not establish any DDA hereafter (other than a Local DDA) unless Borrower, contemporaneous with such establishment, the Borrower delivers to the Lender proof of mailing to any such institution, a notification (in form satisfactory to the Lender) of the Lender’s interest in such DDA.                            (d)        The Borrower will establish and maintain separate accounts exclusively for purposes of payroll and payroll tax deposits and payments.                            (e)         The contents of each DDA constitutes Collateral and Proceeds of Collateral.              7-2.       Credit Card Receipts.                            (a)         Annexed hereto as EXHIBIT 7-2, is a Schedule which describes all Credit Card Processors, which term shall include any “instant credit” providers and any other arrangements to which any Borrower is a party with respect to the payment to such Borrower of the proceeds of all credit card charges for sales by such Borrower.                            (b)        The Borrowers shall deliver to the Lender the written acknowledgment and consent of each of the Credit Card Processors to a notice in form satisfactory to the Lender, which notice provides that payment of all credit card charges submitted by each Borrower to that Credit Card Processor payable to such Borrower by such Credit Card Processor shall be directed to the Blocked Account.  Each Borrower shall not change such direction or designation except upon and with the prior written consent of the Lender.              7-3.       The Concentration Account, the Blocked Account and the Funding Accounts.                            (a)         The following accounts have been or will be established (and are so referred to herein):                                         (i)          The “Concentration Account”: An account owned and established by the Lender with The Chase Manhattan Bank, N.A.                                         (ii)         The “Funding Account”: A Deposit Account established by the Borrowers with the institution identified on Exhibit 7-6 and into which the sole deposits shall be surpluses in accordance with Section 7-1(b) hereof or Advances made by Lender hereunder.                                         (iii)        The Blocked Account established by the Borrowers with Wells Fargo Bank, NA, which also includes certain sub-accounts, all of which are subject to a control agreement in favor of Lender.                            (b)        The contents of all DDA’s, Deposit Accounts and the Blocked Account constitute Collateral and Proceeds of Collateral.                              (c)         The Borrowers shall pay all fees and charges of, and maintain such impressed balances as may be required by the Lender or by any bank in which any account is opened as required hereby (even if such account is opened by the Lender).              7-4.       Proceeds and Collection of Accounts.                            (a)         All Receipts constitute Collateral and proceeds of Collateral and shall be held in trust by the Borrowers for the Lender; shall not be commingled with any of the Borrowers’ other funds; and shall be deposited and/or transferred only to the Blocked Account.                            (b)        The Borrowers shall cause the ACH or wire transfer to the Blocked Account, of:                                         (i)          No less frequently than daily (and whether or not there is then an outstanding balance in the Loan Account), the then contents of each DDA (other than (A) any Local DDA (B) the Funding Account and (C) the Bank of America DDA), each such transfer to be net of any minimum balance, not to exceed (so long as there are no DDA’s other than those listed on Exhibit 7-1) Three Thousand ($3,000) Dollars in collected  funds, as may be required to be maintained in the subject DDA by the bank at which such DDA is maintained and the proceeds of all credit card charges, then payable, not otherwise provided for pursuant hereto.                                         (ii)         No less frequently than every Tuesday and Friday (and whether or not there is then an outstanding balance in the Loan Account), the then contents of the Bank of America DDA. Telephone or email advice (and if requested by Lender confirmed by written notice) shall be provided to the Lender on each Banking Day on which any such transfer is made.                            (c)         Whether or not any Liabilities are then outstanding, the Borrowers shall cause the ACH or wire transfer to the Concentration Account, no less frequently than daily, of the entire previous day’s closing collected balance of the Blocked Account.                            (d)        In the event that, notwithstanding the provisions of this Section 7-4, any Borrower receives or otherwise has dominion and control of any Receipts, or any proceeds or collections of any Collateral, such Receipts, proceeds, and collections shall be held in trust by the Borrower for the Lender and shall not be commingled with any of any Borrower’s other funds or deposited in any account of any Borrower other than as instructed by the Lender.              7-5.       Payment of Liabilities.                            (a)         On each Banking Day, upon receipt by Lender, the Lender shall apply towards the Liabilities, the then collected balance of the Concentration Account (net of fees charged, and of such impressed balances as may be required by the bank at which the Concentration Account is maintained), provided, however, for purposes of the calculation of interest on the unpaid principal balance of the Loan Account, such payment shall be deemed to have been made one (1) Banking Days after such transfer.                              (b)        The Lender shall transfer to the Funding Account any surplus in excess of the Liabilities in the Concentration Account (attributable to Borrowers) remaining after the application towards the Liabilities referred to in Section 7-5(a), above (less those amounts which are to be netted out, as provided therein) provided, however, in the event that both (i) a Suspension Event has occurred and (ii) one or more L/C’s are then outstanding, the Lender may establish a funded reserve of up to one hundred ten (110%) percent of the aggregate Stated Amounts of such L/C’s.              7-6.       The Funding Account.  All checks shall be drawn by any Borrowers upon and any other disbursements made by any Borrower shall be solely from the Funding Account or any of the disbursement accounts identified on EXHIBIT 7-6 hereto, which accounts shall be funded solely from the Funding Account.              7-7.       Capital Infusions, Etc.  The proceeds of any investment in any Borrower from any source, including without limitation, proceeds of the issuance or sale of any capital stock, debt or debt instruments, shall be deposited by the purchaser thereof directly into the Blocked Account.  In addition, any funds received by any Borrower other than from ordinary business operations, including, without limitation, proceeds or payments under any contracts for liquidation of any Collateral, tax refunds, insurance or condemnation proceeds or damage awards, shall be deposited directly into the Blocked Account.   ARTICLE 8 - LENDER AS BORROWER’S ATTORNEY-IN-FACT              8-1.       Appointment as Attorney-In-Fact.  Each Borrower hereby irrevocably constitutes and appoints the Lender as such Borrower’s true and lawful attorney, with full power of substitution, to convert the Collateral into cash at the sole risk, cost, and expense of the Borrower, but for the sole benefit of the Lender. The rights and powers granted the Lender by this appointment include but are not limited to the right and power to:                            (a)         Prosecute, defend, compromise, or release any action relating to the Collateral.                            (b)        Sign change of address forms to change the address to which the Borrower’s mail is to be sent to such address as the Lender shall designate; receive and open the Borrower’s mail; remove any Receivables Collateral and Proceeds of Collateral therefrom and turn over the balance of such mail either to the Borrower or to any trustee in bankruptcy, receiver, assignee for the benefit of creditors of any Borrower, or other legal representative of such Borrower whom the Lender determines to be the appropriate Person to whom to so turn over such mail.                            (c)         Endorse the name of any Borrower in favor of the Lender upon any and all checks, drafts, notes, acceptances, or other items or instruments; sign and endorse the name of any Borrower on, and receive as secured party, any of the Collateral, any invoices, schedules of Collateral, freight or express receipts, or bills of lading, storage receipts, warehouse receipts, or other documents of title respectively relating to the Collateral.                            (d)        Sign the name of any Borrower on any notice to such Borrower’s Account Debtors or verification of the Receivables Collateral; sign any Borrower’s name on any Proof of Claim in Bankruptcy against Account Debtors, and on notices of lien, claims of mechanic’s liens, or assignments or releases of mechanic’s liens securing the Accounts.                            (e)         Take all such action as may be necessary to obtain the payment of any letter of credit and/or banker’s acceptance of which the Borrower is a beneficiary.                            (f)         Repair, manufacture, assemble, complete, package, deliver, alter or supply goods, if any, necessary to fulfill in whole or in part the purchase order of any customer of the Borrower.                            (g)        Use, license or transfer any or all General Intangibles of any Borrower. Notwithstanding anything to the contrary, Lender agrees not to exercise any such rights unless an Event of Default which has not been remedied within any grace period expressly provided herein or otherwise waived in writing by Lender.                8-2.       No Obligation to Act.  The Lender shall not be obligated to do any of the acts or to exercise any of the powers authorized by Section 8-1 herein, but if the Lender elects to do any such act or to exercise any of such powers, it shall not be accountable for more than it actually receives as a result of such exercise of power, and shall not be responsible to any Borrower for any act or omission to act except for any act or omission to act as to which there is a final determination made in a judicial proceeding (in which proceeding the Lender has had an opportunity to be heard) which determination includes a specific finding that the subject act or omission to act had been grossly negligent or in actual bad faith. ARTICLE 9 - FINANCIAL AND OTHER REPORTING REQUIREMENTS/FINANCIAL COVENANTS              9-1.       Maintain Records.  The Borrowers shall:                            (a)         At all times, keep proper books of account, in which full, true, and accurate entries shall be made of all of any Borrower’s transactions, all in accordance with GAAP applied consistently with prior periods to fairly reflect the financial condition of the Borrowers at the close of, and its results of operations for, the periods in question.                            (b)        Timely provide the Lender with those financial reports, statements, and schedules required by this Article 9 or otherwise, each of which reports, statements and schedules shall be prepared, to the extent applicable, in accordance with GAAP, except for the absence of footnotes and year end adjustments with respect to interim financial statements, applied consistently with prior periods to fairly reflect the financial condition of any Borrower at the close of, and its results of operations for, the period(s) covered therein.                            (c)         At all times, keep accurate current records of the Collateral including, without limitation, accurate current stock, cost, and sales records of its Inventory, accurately and sufficiently itemizing and describing the kinds, types, and quantities of Inventory and the cost and selling prices thereof.                            (d)        At all times, retain independent certified public accountants who are reasonably satisfactory to the Lender and shall cause Borrower’s audit committee to instruct such accountants to fully cooperate with, and be available to, the Lender to discuss any Borrower’s financial performance, financial condition, operating results, controls, and such other matters, within the scope of the retention of such accountants, as may be raised by the Lender.                            (e)         Not change any Borrower’s fiscal year.                            (f)         Not change any Borrower’s taxpayer identification number.                9-2.       Access to Records.                            (a)         The Borrowers shall accord the Lender and the Lender’s representatives with access from time to time as the Lender and such representatives may require to all properties owned by or over which any Borrower has control. The Lender and the Lender’s representatives shall have the right, and the Borrowers will permit the Lender and such representatives from time to time as the Lender and such representatives may request, to examine, inspect, copy, and make extracts from any and all of the Borrowers’ books, records, electronically stored data, papers, and files. The Borrowers shall make all of the Borrowers’ copying facilities available to the Lender.  Lender shall use commercially reasonable efforts to maintain the confidentiality of any of Borrowers’ confidential information, but shall be free to share any information with its agents, counsel representatives, successors and assigns in connection with the administration and monitoring of the of the Revolving Credit and this Agreement and any exercise of it remedies under this Agreement.                            (b)        The Borrowers hereby authorize the Lender and the Lender’s representatives to:                                         (i)          Inspect, copy, duplicate, review, cause to be reduced to hard copy, run off, draw off, and otherwise use any and all computer or electronically stored information or data which relates to the Borrowers, or any service bureau, contractor, accountant, or other Person, and directs any such service bureau, contractor, accountant, or other Person fully to cooperate with the Lender and the Lender’s representatives with respect thereto.                                         (ii)         Verify at any time the Collateral or any portion thereof, including verification with Account Debtors, and/or with the Borrowers’ computer billing companies, collection agencies, and accountants and to sign the name of any Borrower on any notice to the Borrowers’ Account Debtors or verification of the Collateral.              9-3.       Immediate Notice to Lender.                            (a)         The Borrowers shall provide the Lender with written notice immediately upon the occurrence of any of the following events, which written notice shall be with reasonable particularity as to the facts and circumstances in respect of which such notice is being given:                                         (i)          Any change in the Borrowers’ Executive Officers and directors.                                         (ii)         The completion of any physical count of any Borrower’s Inventory (together with a copy of the certified or such other results as may then be available thereof).                                         (iii)        Except in the ordinary course of business, any ceasing of the any Borrower’s making of payment to any of its creditors (including the ceasing of the making of such payments on account of a dispute with the subject creditor).                                           (iv)       Any failure by any Borrower to pay rent at any of the Borrowers’ locations, which failure continues for more than three (3) days following the day on which such rent first came due.  If any Borrower has any dispute with any Landlord with respect to rent payable or other matters, such Borrower shall give Lender written notice of said dispute.                                         (v)        Any failure by any Borrower to pay trade liabilities or other expense liabilities in accordance with their past business practices.                                         (vi)       Any material change in the business, operations, or financial affairs of any Borrower.                                         (vii)      The occurrence of any Suspension Event or Event of Default.                                         (viii)     Any intention on the part of any Borrower to discharge the Borrowers’ present independent accountants or any withdrawal or resignation by such independent accountants from their acting in such capacity (as to which, see Subsection 9-1(d)).                                         (ix)        Any litigation which, if determined adversely to any Borrower, might have a material adverse effect on the financial condition of such Borrower.                                         (x)         The reduction by any of any Borrower’s material vendors in the amount of trade credit or terms provided by such vendor to such Borrower on the date of execution hereof.                                         (xi)        The engagement or employment by Borrower of any bankruptcy, restructuring or “turn-around” professionals.                                         (xii)       Any default by any party to or any Borrower’s receipt of  any notice or threat of cancellation of any agreement described on EXHIBITS 5-6, 5-8, 5-9  and 5-28 (as the same may be revised from time to time in accordance herewith).                                         (xiii)      Any examination of any Borrower by any taxing authority and the existence of any issue which reasonably could be expected to result in the assertion of a deficiency for any fiscal year open for examination, assessment, or claim by the Internal Revenue Service.                            (b)        The Borrowers shall:                                         (i)          Provide the Lender, when so distributed, with copies of any materials distributed to the shareholders of the Borrowers (qua such shareholders).                                         (ii)         Add the Lender as an addressee on all mailing lists maintained by or for the Borrowers.                                           (iii)        At the request of the Lender, from time to time, provide the Lender with copies of all advertising (including copies of all print advertising and duplicate tapes of all video and radio such advertising).                                         (iv)       Provide the Lender, when received by the Borrowers, with a copy of any management letter or similar communications from any accountant of the Borrowers.              9-4.       Borrowing Base Certificate.  Paper Warehouse shall provide the Lender, daily, with a Borrowing Base Certificate (in the form of EXHIBIT 9-4 annexed hereto, as such form may be revised from time to time by the Lender). Such Certificate may be sent to the Lender by facsimile transmission, provided that the original thereof is forwarded to the Lender on the date of such transmission at its request.  No adjustments to the Borrowing Base Certificate may be made without support documentation and such other documentation as may be requested by Lender from time to time.              9-5.       Weekly Reports.  Weekly, not later than Wednesday for the immediately preceding fiscal week:                            See EXHIBIT 9-R. In the event that Availability equals Two Hundred Fifty Thousand ($250,000) Dollars or less for seven (7) consecutive days, then Borrowers shall provide Lender with weekly cash flow reports in form and content satisfactory to Lender.              9-6.       Monthly Reports.                            (a)         Monthly, the Borrowers shall provide the Lender with original counterparts of (each in such form as the Lender from time to time may specify):                                         (i)          Within fifteen (15) days of the end of the previous month:                                                      See EXHIBIT 9-R                                         (ii)         Within thirty (30) days of the end of the previous month:                                                      See EXHIBIT 9-R                            (b)        For purposes of Section 9-6(a)(i), above, the first “previous month” in respect of which the items required by that Section shall be provided shall be September and for purposes of Section 9-6(a)(ii), above, the first “previous month” in respect of which the items required by that Section shall be provided shall be September.  For purposes of this section, reports for the month of August shall be due no later than thirty (30) days after the execution of this Agreement.                9-7.       Annual Reports.                            (a)         In addition to the monthly reports required under Article 9-6, annually, within ninety (90) days following the end of the Borrowers’ fiscal year, the Borrowers shall furnish the Lender with an original signed counterpart of the Borrowers’ annual financial statement, which statement shall have been prepared by, and bearing the unqualified opinion of, the Borrowers’ independent certified public accountants (i.e. said statement shall be “certified” by such accountants). Such annual statement shall include, at a minimum (with comparative information for the then prior fiscal year) a balance sheet, income statement, statement of changes in shareholders’ equity, and cash flows.                            (b)        Each annual statement shall be accompanied by such accountant’s certificate indicating that to the best knowledge of such accountant, no event has occurred which is or which, solely with the passage of time or the giving of notice (or both) would be, an Event of Default.                            (c)         Borrowers shall provide interim draft annual financial statements (inclusive of subsequent periods, until year-end statements are delivered) within forty-five (45) days of each year end.              9-8.       Officers’ Certificates.  The Borrower shall cause the Borrower’s President and Chief Financial Officer respectively to provide such Person’s Certificate with those monthly, and annual statements to be furnished pursuant to this Agreement, which Certificate shall:                            (a)         Indicate that the subject statement was prepared in accordance with GAAP, except for the absence of footnotes and year end adjustments with respect to interim financial statements, consistently applied, and presents fairly the financial condition of the Borrowers at the close of, and the results of the Borrowers’ operations and cash flows for, the period(s) covered, subject, however (with the exception of the Certificate which accompanies such annual statement) to usual year end adjustments.                            (b)        Indicate either that (i) no Suspension Event has occurred or (ii) if such an event has occurred, its nature (in reasonable detail) and the steps (if any) being taken or contemplated by the Borrower to be taken on account thereof.                            (c)         Include calculations concerning each Borrower’s compliance (or failure to comply) at the date of the subject statement with each of the financial performance covenants included in Section 9-11 (and Exhibit  9-11), below.                            (d)        Indicate that all taxes) have or have not been paid, and with respect to taxes not paid, broken down by type and taxing authority.                            (e)         Indicate that all rent and additional rent due pursuant to any store lease have or have not been paid and with respect to rent and additional rent not paid, broken down by store location.                9-9.       Inventories, Appraisals, and Audits.                            (a)         The Lender, at the expense of the Borrowers, may participate in and/or observe each physical count and/or inventory of so much of the Collateral as consists of Inventory which is undertaken on behalf of any  Borrower.                            (b)        Upon the Lender’s request from time to time, the Borrowers shall obtain, or shall permit the Lender to obtain (in all events, at the Borrowers’ expense) financial or SKU based physical counts and/or inventories of the Collateral, conducted by such inventory takers as are satisfactory to the Lender and following such methodology as may be required by the Lender, each of which physical counts and/or financial or SKU based inventories shall be observed by the Borrowers’ accountants. The Lender will require the Borrowers to conduct one (1) such count and/or inventory during each twelve (12) month period during which this Agreement is in effect and to provided Lender with the results of any SKU, cycle or any other internal counts or inventories, but after the occurrence of any Event of Default, Lender, in its discretion, may require Borrowers, at Borrowers’ expense, to undertake additional such counts or inventories during such period.  The draft or unaudited results of all inventories or counts shall be furnished to Lender immediately thereafter and final, reconciled results within as soon as practicable thereafter but in no event later then than ten (10) Banking Days of the taking of such inventories or counts.  The Borrowers agree that the Lender is entitled to request and receive directly from the inventory taker the unaudited or draft results of any such inventory or audit.                            (c)         Upon the Lender’s request from time to time, the Borrowers shall permit the Lender to obtain appraisals conducted by such appraisers as are satisfactory to the Lender two (2) of which such appraisals and one “desktop update” thereof during each calendar year of the term of this Agreement shall be at Borrower’s expense, and any additional appraisals may be conducted at any time in Lender’s discretion at Lender’s expense, provided that after the occurrence of any Event of Default, any such additional appraisals shall also be at Borrowers’ expense.                            (d)        The Lender contemplates conducting three (3) commercial finance audits (in each event, at the Borrower’s expense) of the Borrowers’ books and records during any twelve (12) month period during which this Agreement is in effect, but after the occurrence of any Event of Default, Lender in its discretion, may, at Borrowers’ expense, undertake additional such audits during such period.                            (e)         The Lender from time to time (in all events, at the Borrowers’ expense) may undertake “mystery shopping” (so-called) visits to all or any of the Borrowers’ business premises.  The Lender shall provide the Borrowers with a copy of any non-company confidential results of such mystery shopping upon a Borrower’s written request.                9-10.     Additional Financial Information.                            (a)         In addition to all other information required to be provided pursuant to this Article 9, the Borrowers promptly shall provide the Lender with such other and additional information concerning the Borrowers, the Collateral, the operation of the Borrowers’ businesses, and the Borrowers’ financial condition, including original counterparts of financial reports and statements, as the Lender may from time to time request from the Borrowers.                            (b)        The Borrowers have provided the Lender with their current Business Plan, a copy of which is annexed hereto as EXHIBIT 9-10.  The Borrowers may provide the Lender, from time to time hereafter, with updated Business Plans. In all events, the Borrowers, not later than forty five (45) days prior to the end of each of the Borrowers’ fiscal years, shall furnish the Lender with an updated and extended Business Plan which shall go out at least through the end of the then next fiscal year and the final Business Plan within fifteen (15) days prior to the end of Borrowers’ fiscal year. In each event, such updated and extended Business Plans shall be prepared pursuant to a methodology and shall include such assumptions as are satisfactory to the Lender.   Routinely throughout the year, the Lender, following the receipt of any of such revised forecast which reflects material adverse business performance, may, but shall not be under any obligation to, revise the financial performance covenants included on EXHIBIT 9-11, annexed hereto.              9-11.     Financial Performance and Inventory Covenants..  The Borrowers shall observe and comply with those financial performance and inventory covenants set forth on EXHIBIT 9-11 annexed hereto.              9-12.     Electronic Reporting..  At Lender’s option all information and reports required to be supplied to Lender by Borrowers shall be transmitted electronically, to the extent of Borrowers’ ability, pursuant to an electronic transmitting reporting system and shall be in a record layout format designated by Lender from time to time. ARTICLE 10 - EVENTS OF DEFAULT              The occurrence of any event described in this Article 10 respectively, shall constitute an “Event of Default” herein. Upon the occurrence of any Event of Default described in Section 10-11, any and all Liabilities shall become due and payable without any further act on the part of the Lender. Upon the occurrence of any other Event of Default which has not been remedied within any grace period expressly provided herein or otherwise waived in writing by Lender, any and all Liabilities shall become immediately due and payable, at the option of the Lender and without notice or demand. The occurrence of any Event of Default which has not been remedied within any grace period expressly provided herein or otherwise waived in writing by Lender shall also constitute, without notice or demand, a default under all other agreements between the Lender and the Borrowers and instruments and papers given the Lender by the Borrowers, whether such agreements, instruments, or papers now exist or hereafter arise.              10-1.     Failure to Pay Revolving Credit (No Grace Period).  The failure by any Borrower to pay any amount when due under the Revolving Credit.                10-2.     Failure To Make Other Payments (No Grace Period).  The failure by any Borrower to pay when due (or upon demand, if payable on demand) any payment Liability other than under the Revolving Credit.              10-3.     Failure to Comply with Cash Management and Financial/Inventory Covenants  (No Grace Period).  The failure by any  Borrower to promptly, punctually, faithfully and timely perform, discharge, or comply with any covenant included in Article 7 and Section 9-11 hereof.              10-4.     Failure to Perform Covenant or Liability (Grace Period).  The failure by the any Borrower to promptly, punctually and faithfully perform, or observe any term, covenant or agreement on its part to be performed or observed pursuant to any of the provisions of this Agreement, other than those described in Sections 10-1, 10-2 or 10-3, and in sections 10-5 through 10-19 below, which is not remedied within the Grace Period described below which period shall commence on the earlier of (i) notice thereof by Lender to Borrower, or (ii) the date any Borrower was required to give notice to Lender pursuant to Section 9-3(a)(vii) hereof: 5-4 Location of Collateral/Leases three  (3) Banking Days 5-5 Title to Assets ten (10) Banking Days 5-6 Indebtedness ten (10) Banking Days 5-7 Insurance Policies ten (10) Banking Days 5-12 (d) Pay Taxes ten (10) Banking Days 9-4 to 9-8 Financial Reporting Three (3) Banking Days All others   ten (10) Banking Days              10-5.     Misrepresentation (No Grace Period).  The determination by the Lender that any representation or warranty at any time made by any Borrower to the Lender was not true or complete in all material respects when given.              10-6.     Acceleration of Other Debt; Breach of Lease.  The occurrence of any event, subject to any applicable cure or grace periods, such that any material Indebtedness of any Borrower to any creditor other than the Lender could be accelerated or, without the consent of any Borrower, any Lease could be terminated (whether or not the subject creditor or lessor takes any action on account of such occurrence).              10-7.     Default Under Other Agreements.   Subject to any applicable grace period the occurrence of any breach or default under any agreement between the Lender and any Borrower or instrument or paper given the Lender by any Borrower, whether such agreement, instrument, or paper now exists or hereafter arises (notwithstanding that the Lender may not have exercised its rights upon default under any such other agreement, instrument or paper).              10-8.     Casualty Loss; Non-Ordinary Course Sales (No Grace Period).  The occurrence of any (a) uninsured loss, theft, damage, or destruction of or to any material portion of the Collateral, or (b) sale, without Lender’s consent, (other than sales otherwise expressly permitted hereby) of any material portion of the Collateral.                10-9.     Judgment; Restraint of Business  (No Grace Period).                            (a)         The service of process upon the Lender or any Participant seeking to attach, by trustee, mesne, or other process, any of any of any Borrower’s funds on deposit with, or assets of any Borrower in the possession of, the Lender or such Participant.                            (b)        The entry of any judgment against any Borrower, which judgment is in excess of $50,000 and is not satisfied (if a money judgment) or appealed from (with execution or similar process stayed) within fifteen  (15) days of its entry.                            (c)         The entry of any order or the imposition of any other process having the force of law, the effect of which is which order or process or attachment is not vacated, dismissed or otherwise terminated within three (3) Business Days.              10-10.   Business Failure (Grace Period if initiated against any Borrower).  Any act by, against, or relating to any Borrower, or its property or assets, which act constitutes the application for, consent to, or sufferance of the appointment of a receiver, trustee, or other Person, pursuant to court action or otherwise, over all, or any part of the Borrower’s property; the granting of any trust mortgage or execution of an assignment for the benefit of the creditors of any Borrower, or the occurrence of any other voluntary or involuntary liquidation or extension of debt agreement for the Borrower; or the offering by or entering into by any Borrower of any composition, extension, or any other arrangement seeking relief from or extension of the debts of any Borrower, or the initiation of any other judicial or non-judicial proceeding or agreement by, against, or including such Borrower which seeks or intends to accomplish a reorganization or arrangement with creditors; any which if initiated against (but not by) any Borrower, is not dismissed within thirty (30) days, provided however, Lender shall have no obligation to make any Advances hereunder during such thirty (30) day period.              10-11.   Bankruptcy (No Grace Period).  The failure by any of the Borrowers to generally pay its debts as they mature; the filing of any complaint, application, or petition by or against any Borrower initiating any matter in which such Borrower is or may be granted any relief from the debts of such Borrower pursuant to the Bankruptcy Code or any other insolvency statute or procedure.              10-12.   Insecurity (No Grace Period).  The occurrence of any event or circumstance with respect to any Borrower such that Lender shall believe in good faith that the prospect of payment of all or any part of the Liabilities or the performance by the Borrower under this Agreement or any other agreement between the Lender and the Borrower is impaired.              10-13.   Default by Guarantor or Related Entity.  The occurrence of any of the foregoing Events of Default (and subject to any applicable Grace Period) with respect to any guarantor of the Liabilities, or the occurrence of any of the foregoing Events of Default with respect to any parent (if the Borrower is a corporation), subsidiary, or Related Entity, as if such guarantor, parent, or Related Entity were the “Borrower” described therein.                10-14.   Indictment - Forfeiture (Grace Period).  The indictment of, or institution of any legal process or proceeding against, any of the Borrowers, any Executive Officer or any guarantor of the Liabilities under any federal, state, municipal, and other civil or criminal statute, rule, regulation, order, or other requirement having the force of law where the relief, penalties, or remedies sought or available include the forfeiture of any property of the Borrowers and/or the imposition of any stay or other order, the effect of which could be to restrain in any material way the conduct by any of the Borrower of its business in the ordinary course which order or process or attachment is not vacated, dismissed or otherwise terminated within three (3) Business Days.              10-15.   Termination of Guaranty.  Intentionally deleted.              10-16.   Challenge to Loan Documents (No Grace Period).                            (a)         Any challenge by or on behalf of the Borrowers or any guarantor of the Liabilities to the validity of any Loan Document or the applicability or enforceability of any Loan Document strictly in accordance with the subject Loan Document’s terms or which seeks to void, avoid, limit, or otherwise adversely affect any security interest created by or in any Loan Document or any payment made pursuant thereto.                            (b)        Any determination by any court or any other judicial or government authority that any Loan Document is not enforceable strictly in accordance with the subject Loan Document’s terms or which voids, avoids, limits, or otherwise adversely affects any security interest created by any Loan Document or any payment made pursuant thereto.              10-17.   Executive Management (Grace Period).  The death, long-term disability, or other failure of any Executive Officer at any time to exercise that authority and discharge those management responsibilities with respect to any Borrower as are exercised and discharged by such Person at the execution of this Agreement, which Executive Officer has not been replaced by another Person reasonably acceptable to Lender within thirty (30) days of such failure of any Executive Officer to serve.              10-18.   Change in Control (No Grace Period).  The occurrence of any Change in Control.              10-19.   Material Adverse Change (No Grace Period).  If there is a Material Adverse Change. ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT              In addition to all of the rights, remedies, powers, privileges, and discretions which the Lender is provided prior to the occurrence of an Event of Default, the Lender shall have the following rights and remedies upon the occurrence of any Event of Default which has not been remedied within any grace period expressly provided herein or otherwise waived in writing by Lender and at any time thereafter. No stay which otherwise might be imposed pursuant to the Bankruptcy Code or otherwise shall stay, limit, prevent, hinder, delay, restrict, or otherwise prevent the Lender’s exercise of any of such rights and remedies.                11-1.     Rights of Enforcement. The Lender shall have all of the rights and remedies of a secured party upon default under the UCC, in addition to which the Lender shall have all and each of the following rights and remedies:                            (a)         To collect the Receivables Collateral with or without the taking of possession of any of the Collateral.                            (b)        To take possession of all or any portion of the Collateral.                            (c)         To sell, lease, or otherwise dispose of any or all of the Collateral, in its then condition or following such preparation or processing as the Lender deems advisable and with or without the taking of possession of any of the Collateral.                            (d)        To conduct one or more going out of business sales, strategic sales or other sales which include the sale or other disposition of the Collateral.                            (e)         To apply the Receivables Collateral or the proceeds of the Collateral towards the Liabilities, but not necessarily in complete satisfaction thereof, unless and until the Liabilities would thereby be irrevocably paid.                            (f)         To exercise all or any of the rights, remedies, powers, privileges, and discretions under all or any of the Loan Documents.              11-2.     Sale of Collateral.                            (a)         Any sale or other disposition of the Collateral may be at public or private sale upon such terms and in such manner as the Lender deems advisable, having due regard to compliance with any statute or regulation which might affect, limit, or apply to the Lender’s disposition of the Collateral.                            (b)        The Lender, in the exercise of the Lender’s rights and remedies upon default, may conduct one or more going out of business sales, in the Lender’s own right or by one or more agents and contractors. Such sale(s) may be conducted upon any premises owned, leased, or occupied by the Borrowers. To the extent permitted by law, the Lender and any such agent or contractor, in conjunction with any such sale, may augment the Inventory with other goods (all of which other goods shall remain the sole property of the Lender or such agent or contractor). Any amounts realized from the sale of such goods which constitute augmentations to the Inventory (net of an allocable share of the costs and expenses incurred in their disposition) shall be the sole property of the Lender or such agent or contractor and neither the Borrowers nor any Person(s) claiming under or in right of the Borrowers shall have any interest therein.                              (c)         Unless the Collateral is perishable or threatens to decline speedily in value, or is of a type customarily sold on a recognized market (in which event the Lender shall provide the Borrowers with such notice as may be practicable under the circumstances), the Lender shall give the Borrowers at least five (5) days prior written notice of the date, time, and place of any proposed public sale, and of the date after which any private sale or other disposition of the Collateral may be made. The Borrowers agree that such written notice shall satisfy all requirements for notice to the Borrowers which are imposed under the UCC or other applicable law with respect to the exercise of the Lender’s rights and remedies upon default.                            (d)        The Lender may purchase the Collateral, or any portion of it at any sale held under this Article.                            (e)         The Lender shall apply the proceeds of any exercise of the Lender’s Rights and Remedies under this Article 11 towards the Liabilities in such manner.              11-3.     Occupation of Business Location.  In connection with the Lender’s exercise of the Lender’s rights under this Article 11, the Lender may enter upon, occupy, and use any premises owned or occupied by any Borrower, and may exclude any Borrower from such premises or portion thereof as may have been so entered upon, occupied, or used by the Lender . The Lender shall not be required to remove any of the Collateral from any such premises upon the Lender’s taking possession thereof, and may render any Collateral unusable to the Borrowers. In no event shall the Lender be liable to the Borrowers for use or occupancy by the Lender of any premises pursuant to this Article 11, nor for any charge (such as wages for the Borrowers’ employees and utilities) incurred in connection with the Lender’s exercise of the Lender’s Rights and Remedies.              11-4.     Grant of Nonexclusive License.  Each Borrower hereby grants to the Lender a royalty free nonexclusive irrevocable license to use, apply, and affix any trademark, tradename, logo, or the like in which the Borrower now or hereafter has rights, such license being with respect to the Lender’s exercise of the rights hereunder including, without limitation, in connection with any completion of the manufacture of Inventory or sale or other disposition of Inventory.              11-5.     Assembly of Collateral.  The Lender may require the Borrowers to assemble the Collateral and make it available to the Lender at the Borrowers’ sole risk and expense at a place or places which are reasonably convenient to both the Lender and Borrowers.              11-6.     Rights and Remedies.  The rights, remedies, powers, privileges, and discretions of the Lender hereunder (herein, the “Lender’s Rights and Remedies”) shall be cumulative and not exclusive of any rights or remedies which it would otherwise have. No delay or omission by the Lender in exercising or enforcing any of the Lender’s Rights and Remedies shall operate as, or constitute, a waiver thereof. No waiver by the Lender of any Event of Default or of any default under any other agreement shall operate as a waiver of any other default hereunder or under any other agreement. No single or partial exercise of any of the Lender’s Rights or Remedies, and no express or implied agreement or transaction of whatever nature entered into between the Lender and any Person, at any time, shall preclude the other or further exercise of the Lender’s Rights and Remedies. No waiver by the Lender of any of the Lender’s Rights and Remedies on any one occasion shall be deemed a waiver on any subsequent occasion, nor shall it be deemed a continuing waiver. All of the Lender’s Rights and Remedies and all of the Lender’s rights, remedies, powers, privileges, and discretions under any other agreement or transaction are cumulative, and not alternative or exclusive, and may be exercised by the Lender at such time or times and in such order of preference as the Lender in its sole discretion may determine. The Lender’s Rights and Remedies may be exercised without resort or regard to any other source of satisfaction of the Liabilities.                11-7      Standards for Exercising Remedies.  To the extent that applicable law imposes duties on Lender to exercise remedies in a commercially reasonable manner, Borrowers acknowledge and agrees that it is not commercially unreasonable for Lender (a) to fail to incur expenses reasonably deemed significant by Lender to prepare Collateral for disposition or otherwise to complete raw material or work in process into finished goods or other finished products for disposition, (b) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of, (c) to fail to exercise collection remedies against account debtors or other persons obligated on Collateral or to remove liens or encumbrances on or any adverse claims against Collateral, (d) to exercise collection remedies against account debtors and other persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (e) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (f) to contact other persons, whether or not in the same businesses as Borrowers, for expressions of interest in acquiring  all or any portion of the Collateral, (g) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the Collateral is of a specialized nature, (h) to dispose of the Collateral by utilizing Internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets, (i) to dispose of assets in wholesale rather than retail markets, (j) to disclaim disposition warranties, (k) to purchase insurance or credit enhancements to insure Lender against risks of loss, collection or disposition of Collateral or to provide to Lender a guaranteed return from the collection or disposition of Collateral, or (l) to the extent deemed appropriate by Lender, to obtain the services of other brokers, investment Lenders, consultants and other professionals to assist Lender in the collection or disposition of any of the Collateral. Borrowers acknowledge that the purpose of this section is to provide non-exhaustive indications of what actions or omissions by Lender would not be commercially unreasonable in Lender’s exercise of remedies against the Collateral and that other actions or omissions by Lender shall not be deemed commercially unreasonable solely on account of not being indicated in this section.  Without limitation upon the foregoing, nothing contained in this section shall be construed to grant any rights to Borrowers or to impose any duties on Lender that would not have been granted or imposed by this Agreement or by applicable law in the absence of this section.   ARTICLE 12 - NOTICES              12-1.     Notice Addresses.  All notices, demands, and other communications made in respect of this Agreement (other than a request for a loan or advance or other financial accommodation under the Revolving Credit) shall be made to the following addresses, each of which may be changed upon seven (7) days written notice to all others given by certified mail, return receipt requested: If to the Lender: Wells Fargo Retail Finance LLC   One Boston Place, 18th Floor   Boston, MA  02108   Attention: Andrew H. Moser, Senior Managing     Director and Co-Chief Operating Officer   Tel.: (617) 854-7225   Fax: (617) 523-4032     With a copy to: Ruberto, Israel & Weiner, P.C.   100 North Washington Street   Boston, Massachusetts 02114   Attention: Mary Ellen Welch Rogers, Esq.   Tel.: (617) 742-4200   Fax: (617) 742-2355     If to the Borrowers: Paper Warehouse, Inc.   Paper Warehouse Franchise, Inc.   PartySmart.com, Inc.   7630 Excelsior Boulevard   Minneapolis, MN  55426-4504   Attention: Cheryl W. Newell,     Chief Financial Officer   Tel.: (952) 936-1000   Fax: (952) 936-9800     With a copy to: Oppenheimer, Wolff & Donnelly LLP   45 South 7th Street, Suite 3300   Minneapolis, MN   55402   Tel.: (612) 607-7396   Fax:  (612) 607-7100   Attention: Christopher M. Scotti, Esq.              12-2.     Notice Given.                            (a)         Except as otherwise specifically provided herein, notices shall be deemed made and correspondence received, as follows (all times being local to the place of delivery or receipt):                                         (i)          By mail: the sooner of when actually received or three (3) days following deposit in the United States mail, postage prepaid.                                           (ii)         By recognized overnight express delivery: the Banking Day following the day when sent.                                         (iii)        By hand: If delivered on a Banking Day after 9:00 A.M. at the location of the recipient and no later than three (3) hours prior to the close of customary business hours of the recipient, when delivered. Otherwise, at the opening of the then next Banking Day.                                         (iv)       By facsimile transmission (which must include a header indicating the party sending such transmission): If sent on a Banking Day after 9:00 A.M. (at the location of the recipient) and no later than Three (3) hours prior to the close of customary business hours of the recipient, one (1) hour after being sent. Otherwise, at the opening of the then next Banking Day.                            (b)        Rejection or refusal to accept delivery and inability to deliver because of a changed address or facsimile number for which no due notice was given shall each be deemed receipt of the notice sent.   ARTICLE 13 - TERM              13-1.     Termination of Revolving Credit.  This Agreement is, and is intended to be, a continuing agreement and shall remain in full force and effect for an initial term ending on the Maturity Date, and thereafter, at Lender’s discretion, for successive twelve-month periods, each beginning on the 8th day of September (commencing 2004) of each year and ending on September 8th of the following year (each such twelve-month period is hereinafter referred to as a “renewal term”); provided, however, that either party may terminate this Agreement as of the end of the initial term or any subsequent renewal term by giving the other party notice to terminate in writing at least ninety (90) days prior to the end of any such period whereupon at the end of such period all Liabilities shall be due and payable in full without presentation, demand, or further notice of any kind, whether or not all or any part of the Liabilities is otherwise due and payable pursuant to the agreement or instrument evidencing same.  Subject to Section 13-2 below, Borrower may pay the Liabilities in full at any time prior to the Maturity Date.  Lender may terminate this Agreement immediately and without notice upon the occurrence of an Event of Default which has not been remedied within any grace period expressly provided herein or otherwise waived in writing by Lender.  Notwithstanding the foregoing or anything in this Agreement or elsewhere to the contrary, the security interest, Lender’s rights and remedies hereunder and Borrower’s obligations and liabilities hereunder shall survive any termination of this Agreement and shall remain in full force and effect until all of the Liabilities outstanding, or contracted or committed for (whether or not outstanding), before the receipt of such notice by Lender, and any extensions or renewals thereof (whether made before or after receipt of such notice), together with interest accruing thereon after such notice, shall be finally and irrevocably paid in full.  No Collateral shall be released or financing statement terminated until such final and irrevocable payment in full of the Liabilities, as described in the preceding sentence.              13-2.     Effect of Termination.  Upon the termination of Revolving Credit, the Borrowers shall pay the Lender (whether or not then due), in immediately available funds, all then Liabilities including, without limitation: the entire balance of the Loan Account; any then remaining balances of the Annual Facility Fee and Loan Maintenance Fee; any accrued and unpaid Unused Line Fee; any Early Termination Premium and all unreimbursed costs and expenses of the Lender for which the Borrower is responsible, and shall make such arrangements concerning any L/C’s then outstanding are  reasonably satisfactory to the Lender. Until such payment, all provisions of this Agreement, other than those contained in Article 1 which place an obligation on the Lender to make any loans or advances or to provide financial accommodations under the Revolving Credit or otherwise, shall remain in full force and effect until all Liabilities shall have been paid in full.              13-3.     Early Termination Premium.  If Borrowers pays in full all or substantially all of the Liabilities prior to the end of the initial term of this Agreement (or any renewal term), other than temporarily from funds internally generated in the ordinary course of business, at the time of such payment, Borrower shall also pay to Lender an early termination premium in an amount equal to two (2%) percent ofthe Credit Limit if termination occurs less than one (1) year from the Closing Date and one (1%) percent of the Credit Limit if termination occurs more than one (1) year, but less than two (2) years after the Closing Date, and no Early Termination Premium shall be due if termination occurs more than two (2) years after the Closing Date (the “Early Termination Premium”).  Such Early Termination Premium shall be paid to Lender as liquidated damages for the loss of the bargain by Lender and not as a penalty. In view of the impracticability and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of the Lender’s lost profits as a result thereof, the Early Termination Premium shall be presumed to be the amount of damages sustained by the Lender as the result of the early termination and Borrower agrees that it is reasonable under the circumstances currently existing.  The Early Termination Premium provided for in this Section shall be deemed included in the Liabilities.   Notwithstanding the foregoing, the Early Termination Premium shall be waived in the event that Borrower refinances with Wells Fargo Bank, N.A., or any of its successors or affiliates, ARTICLE 14 - GENERAL              14-1.     Protection of Collateral.  The Lender has no duty as to the collection or protection of the Collateral beyond the safe custody of such of the Collateral as may come into the possession of the Lender and shall have no duty as to the preservation of rights against prior parties or any other rights pertaining thereto. The Lender may include reference to any Borrower (and may utilize any logo or other distinctive symbol associated with any Borrower) in connection with any advertising, promotion, or marketing undertaken by the Lender.              14-2.     Successors and Assigns.  This Agreement shall be binding upon the Borrowers and the Borrowers’ representatives, successors, and assigns and shall enure to the benefit of the Lender and the Lender’s successors and assigns provided, however, no trustee or other fiduciary appointed with respect to any Borrower shall have any rights hereunder. In the event that the Lender assigns or transfers its rights under this Agreement, the assignee shall thereupon succeed to and become vested with all rights, powers, privileges, and duties of the Lender hereunder and the Lender shall thereupon be discharged and relieved from its duties and obligations hereunder.              14-3.     Severability.  Any determination that any provision of this Agreement or any application thereof is invalid, illegal, or unenforceable in any respect in any instance shall not affect the validity, legality, or enforceability of such provision in any other instance, or the validity, legality, or enforceability of any other provision of this Agreement.              14-4.     Amendments; Course of Dealing.                            (a)         This Agreement and the other Loan Documents incorporate all discussions and negotiations between the Borrower and the Lender, either express or implied, concerning the matters included herein and in such other instruments, any custom, usage, or course of dealings to the contrary notwithstanding. No such discussions, negotiations, custom, usage, or course of dealings shall limit, modify, or otherwise affect the provisions thereof. No failure by the Lender to give notice to any Borrower of such Borrower’s having failed to observe and comply with any warranty or covenant included in any Loan Document shall constitute a waiver of such warranty or covenant or the amendment of the subject Loan Document. No change made by the Lender in the manner by which Availability is determined shall obligate the Lender to continue to determine Availability in that manner.                              (b)        Any Borrower may undertake any action otherwise prohibited hereby, and may omit to take any action otherwise required hereby, upon and with the express prior written consent of the Lender. No consent, modification, amendment, or waiver of any provision of any Loan Document shall be effective unless executed in writing by or on behalf of the party to be charged with such modification, amendment, or waiver (and if such party is the Lender, then by a duly authorized officer thereof). Any modification, amendment, or waiver provided by the Lender shall be in reliance upon all representations and warranties theretofore made to the Lender by or on behalf of any Borrower (and any guarantor, endorser, or surety of the Liabilities) and consequently may be rescinded in the event that any of such representations or warranties was not true and complete in all material respects when given.              14-5.     Power of Attorney.  In connection with all powers of attorney included in this Agreement, each Borrower hereby grants unto the Lender full power to do any and all things necessary or appropriate in connection with the exercise of such powers as fully and effectually as such Borrower might or could do, hereby ratifying all that said attorney shall do or cause to be done by virtue of this Agreement. No power of attorney set forth in this Agreement shall be affected by any disability or incapacity suffered by any Borrower and each shall survive the same. All powers conferred upon the Lender by this Agreement, being coupled with an interest, shall be irrevocable until this Agreement is terminated in accordance with Section 13-1 hereof and Lender’s interest in the Collateral is terminated in accordance with Section 2-7 hereof.              14-6.     Application of Proceeds.  The proceeds of any collection, sale, or disposition of the Collateral, or of any other payments received hereunder, shall be applied towards the Liabilities in such order and manner as the Lender determines in its sole discretion. The Borrowers shall remain liable for any deficiency remaining following such application.              14-7.     Lender’s Cost and Expenses.  The Borrowers shall pay on demand all Costs of Collection and all reasonable expenses of the Lender in connection with the preparation, execution, and delivery of this Agreement and of any other Loan Documents, provided however, the Lender’s legal fees payable by Borrower hereunder for preparation of this agreement and any related closing documents, exclusive of fees incurred in connection with the negotiations related thereto, shall be limited to $25,000.00, whether now existing or hereafter arising, and all other reasonable expenses which may be incurred by the Lender in monitoring compliance with this Agreement and in preparing or amending this Agreement and all other agreements, instruments, and documents related thereto, or otherwise incurred with respect to the Liabilities, including, without limiting the generality of the foregoing, any counsel fees or expenses incurred in any bankruptcy or insolvency proceedings.  The Borrower specifically authorizes the Lender to pay all such fees and expenses and in the Lender’s discretion, to add such fees and expenses to the Loan Account.  Borrower shall be obligated, from time to time, to pay Lender’s fees, including reasonable attorneys’ fees and expenses for the preparation, negotiation, amendment and interpretation of this Agreement and related documents.                14-8.     Copies and Facsimiles.  This Agreement and all documents which relate thereto, which have been or may be hereinafter furnished the Lender may be reproduced by the Lender by any photographic, microfilm, xerographic, digital imaging, or other process, and the Lender may destroy any document so reproduced. Any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made in the regular course of business). Any facsimile which bears proof of transmission shall be binding on the party which or on whose behalf such transmission was initiated and likewise shall be so admissible in evidence as if the original of such facsimile had been delivered to the party which or on whose behalf such transmission was received.              14-9.     Massachusetts Law.  This Agreement and all rights and obligations hereunder, including matters of construction, validity, and performance, shall be governed by the laws of The Commonwealth of Massachusetts.              14-10.   Consent to Jurisdiction.                            (a)         Each Borrower agrees that any legal action, proceeding, case, or controversy against the Borrower with respect to any Loan Document may be brought in the Superior Court of Middlesex County, Massachusetts or in the United States District Court, District of Massachusetts, sitting in Boston, Massachusetts, as the Lender may elect in the Lender’s sole discretion. By execution and delivery of this Agreement, each Borrower, for itself and in respect of its property, accepts, submits, and consents generally and unconditionally, to the jurisdiction of the aforesaid courts.                            (b)        Nothing herein shall affect the right of the Lender to bring legal actions or proceedings in any other competent jurisdiction.                            (c)         Each Borrower agrees that any action commenced by such Borrower asserting any claim or counterclaim arising under or in connection with this Agreement or any other Loan Document shall be brought solely in the Superior Court of Middlesex County, Massachusetts or in the United States District Court, District of Massachusetts, sitting in Boston, Massachusetts, and that such Courts shall have exclusive jurisdiction with respect to any such action.              14-11.   Indemnification.  Each Borrower shall indemnify, defend, and hold the Lender and any employee, officer, or agent of the Lender (each, an “Indemnified Person”) harmless of and from any damages, losses, obligations, liabilities, claims, actions or causes of action, including without limitation, with respect to taxes and interest and penalties with respect thereto, brought or threatened against any Indemnified Person by any Borrower, any guarantor or endorser of the Liabilities, or any other Person (as well as from attorneys’ reasonable fees and expenses in connection therewith) on account of the relationship of such Borrower or of any guarantor or endorser of the Liabilities with the Lender or any other Indemnified Person (each of which claims  may be defended, compromised, settled, or pursued by the Indemnified Person with counsel of the Lender’s selection, but at the expense of the Borrower) other than any claim as to which a final determination is made in a judicial proceeding (in which the Lender and any other Indemnified Person has had an opportunity to be heard), which determination includes a specific finding that the Indemnified Person seeking indemnification had acted in a grossly negligent manner or in actual bad faith. This indemnification shall survive payment of the Liabilities and/or any termination, release, or discharge executed by the Lender in favor of the Borrower.                14-12.   Right of Set-Off.  Any and all deposits or other sums at any time credited by or due to the undersigned from the Lender, Issuer or from any participant (a “Participant”) with the Lender in the credit facility contemplated hereby and any cash, securities, instruments or other property of the undersigned in the possession of the Lender, Issuer or any Participant, whether for safekeeping or otherwise (regardless of the reason such Person had received the same) shall at all times constitute security for all Liabilities and for any and all obligations of the undersigned to the Lender, Issuer and any Participant, and may be applied or set off against the Liabilities and against such obligations at any time, whether or not such are then due and whether or not other collateral is then available to the Lender, Issuer or any Participant provided however, so long as no Event of Default which has not been remedied within any grace period expressly provided herein or otherwise waived in writing by Lender has occurred, neither  Lender nor any Participant shall set off against the Funding Account or any disbursement account identified on EXHIBIT 7-6.              14-13.   Usury Savings Clause.  It is the intention of the parties hereto to comply strictly with applicable usury laws, if any; accordingly, notwithstanding any provisions to the contrary in this Agreement or any other Loan Documents, in no event shall this Agreement or such Loan Document require or permit the payment, taking, reserving, receiving, collecting or charging of any sums constituting interest under applicable laws which exceed the maximum amount permitted by such laws.  If any such excess interest is called for, contracted for, charged, paid, taken, reserved, collected or received in connection with the Liabilities or in any communication by Lender or any other Person to the Borrowers or any other Person, or in the event all or part of the principal of the Liabilities or interest thereon shall be prepaid or accelerated, so that under any of such circumstances or under any other circumstance whatsoever the amount of interest contracted for, charged, taken, collected, reserved, or received on the amount of principal actually outstanding from time to time under this Agreement shall exceed the maximum amount of interest permitted by applicable usury laws, if any, then in any such event it is agreed as follows: (i) the provisions of this paragraph shall govern and control, (ii) neither the Borrowers nor any other Person or entity now or hereafter liable for the payment of the Liabilities shall be obligated to pay the amount of such interest to the extent such interest is in excess of the maximum amount of interest permitted by applicable usury laws, if any, (iii) any such excess which is or has been received notwithstanding this paragraph shall be credited against the then unpaid principal balance hereof or, if the Liabilities have been or would be paid in full by such credit, refunded to the Borrowers, and (iv) the provisions of this Agreement and the other Loan Documents, and any communication to the Borrowers, shall immediately be deemed reformed and such excess interest reduced, without the necessity of executing any other document, to the maximum lawful rate allowed under applicable laws as now or hereafter construed by courts having jurisdiction hereof or thereof.  Without limiting the foregoing, all calculations of the rate of interest contracted for, charged, taken, collected, reserved, or received in connection herewith which are made for the purpose of determining whether such rate exceeds the maximum lawful rate shall be made to the extent permitted by applicable laws by amortizing, prorating, allocating and spreading during the period of the full term of the Liabilities, including all prior and subsequent renewals and extensions, all interest at any time contracted for, charged, taken, collected, reserved or received. The terms of this paragraph shall be deemed to be incorporated in every Loan Document and communication relating to the Liabilities.              14-14.   Waivers.                            (a)         Each Borrower and each and every guarantor, endorser, and surety of the Liabilities) makes each of the waivers included in Section 14-14(b), below, knowingly, voluntarily, and intentionally, and understands that the Lender, in entering into the financial arrangements contemplated hereby and in providing loans and other financial accommodations to or for the account of the Borrowers as provided herein, whether not or in the future, is relying on such waivers.                            (b)        EACH BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY RESPECTIVELY WAIVES THE FOLLOWING.                                         (i)          Except as otherwise specifically required in this Agreement, notice of non-payment, demand, presentment, protest and all forms of demand and notice, both with respect to the Liabilities and the Collateral.                                         (ii)         Except as otherwise specifically required in this Agreement, the right to notice and/or hearing prior to the Lender’s exercising of the Lender’s rights upon default.                                         (iii)        THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH THE LENDER IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN ANY BORROWER OR ANY OTHER PERSON AND THE LENDER (AND THE LENDER LIKEWISE WAIVES THE RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH CASE OR CONTROVERSY).                                         (iv)       Intentionally deleted.                                         (v)        Any defense, counterclaim, set-off, recoupment, or other basis on which the amount of any Liability, as stated on the books and records of the Lender, could be reduced or claimed to be paid otherwise than in accordance with the tenor of and written terms of such Liability.                                         (vi)       Any claim to consequential, special, or punitive damages.                14-15.   Confidentiality.  Except as required to be filed by any Borrower in connection with its securities law filings, this Agreement and the terms hereof are confidential, and neither the contents of this Agreement or the details of this Agreement may be shown or disclosed by the Borrowers to any bank, finance company or other lender without the prior written consent of the Lender.              14-16.   Right to Publish Notice.  Lender may, at Lender’s discretion and expense, publicize or otherwise advertise by so-called “tombstone” advertising or otherwise Lender’s and any Participant’s financing transaction with the Borrowers.              14-17.   Right of First Refusal.  During the period commencing on the Closing Date and ending on the second anniversary of the Closing Date, Borrowers hereby grant to Lender an irrevocable right of first refusal to provide any financing to Borrowers.  Borrowers shall not obtain any loans, advances or other financial accommodation from any person or entity other than Lender unless (a) Borrowers shall have obtained a commitment in writing from such person or entity; (b) Borrowers shall have delivered such commitment to the Lender; and (c) the Lender has not, within thirty (30) days after receipt of the commitment, given the Borrower notice that Lender will extend financing to the Borrowers on substantially the same terms and conditions set forth in the commitment.  In the event that the Lender does not give the Borrowers notice of its desire to extend financing to the Borrowers on the terms and conditions set forth in the commitment within the time specified above, the Borrowers is free to accept the financing from such person or entity on the terms and conditions set forth in the commitment.              14-18.   Credit Inquiries.  Borrowers authorize Lender to (provided, however, Lender shall incur no liability for the failure to) respond to credit inquiries concerning any Borrower in accordance with Lender’s normal and customary practices.  Borrowers hereby indemnify and hold Lender harmless for any action taken by Lender in reliance upon the foregoing authorization.                Executed as a sealed instrument this 7th day of September, 2001. PAPER WAREHOUSE, INC. (BORROWER)         By: --------------------------------------------------------------------------------   Yale T. Dolginow, President and CEO         By: --------------------------------------------------------------------------------    Cheryl W. Newell, Vice President and CFO     PAPER WAREHOUSE FRANCHISING, INC. (BORROWER)         By: --------------------------------------------------------------------------------   Yale T. Dolginow, President and CEO         By: --------------------------------------------------------------------------------    Cheryl W. Newell, Vice President and CFO     PARTYSMART.COM, INC. (BORROWER)         By: --------------------------------------------------------------------------------   Yale T. Dolginow, President and CEO         By: --------------------------------------------------------------------------------   Cheryl W. Newell, Vice President and CFO     WELLS FARGO RETAIL FINANCE LLC (LENDER)         By: --------------------------------------------------------------------------------   Robert C. Chakarian, Vice President     EXHIBIT 1-6 TO LOAN AND SECURITY AGREEMENT MASTER NOTE (REVOLVING) $ Boston, Massachusetts   _____________, 2001              For value received, each of the undersigned,                      ., each a              corporation (the “Borrower”), hereby jointly and severally, promise to pay on                             to the order of Wells Fargo Retail Finance LLC, a Delaware limited liability company (the “Lender”), at its main office in Boston, Massachusetts, or at any other place designated at any time by the holder hereof, in lawful money of the United States of America and in immediately available funds, the principal sum of                        ($                      ) Dollars or, if less, the aggregate unpaid principal amount of all advances made by the Lender to the Borrower hereunder, together with interest on the principal amount hereunder remaining unpaid from time to time, computed on the basis of the actual number of days elapsed and a 360-day year, from the date hereof until this Note is fully paid at the rate from time to time in effect under the Loan and Security Agreement of even date herewith (the “Loan Agreement”) by and between the Lender and the Borrower.  The principal hereof and interest accruing thereon shall be due and payable as provided in the Loan Agreement.  This Note may be prepaid only in accordance with the Loan Agreement.              This Note is issued pursuant, and is subject, to the Loan Agreement, which provides, among other things, for acceleration hereof.  This Note is the Master Note referred to in the Loan Agreement.              This Note is secured, among other things, pursuant to the Loan Agreement and may now or hereafter be secured by one or more other security agreements, mortgages, deeds of trust, assignments or other instruments or agreements.              The Borrower hereby agrees to pay all costs of collection, including attorneys’ fees and legal expenses in the event this Note is not paid when due, whether or not legal proceedings are commenced.              Presentment or other demand for payment, notice of dishonor and protest are expressly waived.              This Note shall be deemed to be under seal. By --------------------------------------------------------------------------------   EXHIBIT 3              “Account Debtor”: Has the meaning given that term in the UCC.              “Account(s) Receivable” include, without limitation, “accounts” as defined in the UCC.              “ACH”: Automated clearing house.              “Advances”:  Means funds advanced to Borrower or otherwise in accordance with this Agreement.              “Advance Rate(s)”: Means the percentage(s) of the Cost of Eligible Inventory or Net Retail Liquidation Value used to calculate the Borrowing Base.              “Affiliate”: With respect to any two Persons, a relationship in which (a) one holds, directly or indirectly, not less than twenty-five (25%) percent of the capital stock, beneficial interests, partnership interests, or other equity interests of the other; or (b) one has, directly or indirectly, Control of the other; or (c) not less than twenty-five (25%) percent of their respective ownership is directly or indirectly held by the same third Person.              “Annual Facility Fee”: Is defined in Section 1-9(a).              “Availability”: Means at any time of determination an amount equal to the lesser of the Borrowing Base or the Credit Limit in either case, minus: (i) the then unpaid principal balance of the Loan Account, minus (ii) the then aggregate of such Reserves (other than Inventory Reserves) as may have been established by Lender, minus (iii) one hundred (100%) percent of the then outstanding Stated Amount of all L/C’s.              “Availability Reserves”: Such reserves as the Lender from time to time determines in the Lender’s discretion as being appropriate to reflect the impediments to the Lender’s ability to realize upon the Collateral. Lender shall use commercially reasonable efforts to provide Borrower with advance notice of any changes in Availability Reserves, but such notice shall not be a condition of Lender’s right to determine such reserves.  Without limiting the generality of the foregoing, Availability Reserves may include (but are not limited to) reserves based on the following:                            (a)         Rent or Leases (based upon past due rent and/or whether or not Landlord’s Waiver, acceptable to the Lender,     has been received by the Lender).                            (b)        In store customer credits and gift certificates.                            (c)         Payables (based upon payables which are past due normal trade terms).                            (d)        Frequent Shopper Programs.                              (e)         Layaway and Customer Deposits.                            (f)         Taxes and other governmental charges, including, ad valorem, personal property, and other taxes which may         have priority over the security interests of the Lender in the Collateral.                            (g)        Held or post-dated checks.              “Average Unused Portion of the Credit Limit”: Means, as of any date of determination, (a) the Credit Limit, minus (b) the sum of (i) the average daily balance of advances that were outstanding during the immediately preceding month, plus, (ii) the average daily balance of the undrawn L/C’s outstanding during the immediately preceding month.              “Bank of America DDA”: The DDA established by Paper Warehouse with Bank of America and into which daily receipts for the Paper Warehouse locations identified on Exhibit 7-1 hereto are deposited.              “Banking Day”: Any day other than (a) a Saturday, Sunday; (b) any day on which banks in Boston, Massachusetts are not open to the general public for the purpose of conducting commercial banking business; or (c) a day on which the Lender is not open to the general public to conduct business.              “Bankruptcy Code”: Title 11, U.S.C., as amended from time to time.              “Base”: The Base Rate announced from time to time by Wells Fargo Bank, N.A. (or any successor in interest to Wells Fargo Bank, N.A). In the event that said bank (or any such successor) ceases to announce such a rate, “Base” shall refer to that rate or index announced or published from time to time as the Lender, in good faith, designates as the functional equivalent to said Base Rate. Any change in “Base” shall be effective, for purposes of the calculation of interest due hereunder, when such change is made effective generally by the bank on whose rate or index “Base” is being set.              “Basis Point(s)”: An amount which is equal to 1/100th of one (1%) percent.  For example, one and one-half (1.5%) percent equals 150 basis points.              “Blocked Account”: Is defined in Article 7-1(b)(i).              “Borrower”: Is defined in the Preamble.              “Borrowing Base”: Means amounts up to: the lesser of: (i)          the aggregate of the Standard Line plus the Special Sub-Line plus the Credit Card Receivables Line or   (ii)         (ii) ninety (90%) percent of the Net Retail Liquidation Value, in either case, plus  amounts equal to the Advance Rate then applicable to Standard Line Advances  times the Stated Amount of Eligible Documentary L/C’s (less any freight and duty included therein), minus the aggregate of such Reserves (other than Inventory Reserves) as may have been established by Lender.              “Borrowing Base Certificate”: Means the certificate in the same form attached as EXHIBIT 9-4, provided to Lender in connection with any request for advances and/or L/C’s, setting forth, among other things, Availability.              “Business Plan”: The Borrowers’ business plan annexed hereto as EXHIBIT 9-10 and any revision, amendment, or update of such business plan to which the Lender has provided its written sign-off.              “Capital Expenditures”: The expenditure of funds or the incurrence of liabilities which may be capitalized in accordance with GAAP.              “Capital Lease”: Any lease which may be capitalized in accordance with GAAP.              “Change In Control”:   The occurrence of any of the following:              (a)         The acquisition, by any group of persons (within the meaning of the Securities Exchange Act of 1934, as amended) or by any Person (in either case other than such a group or Person that includes the current chief executive officer of the Borrowers) of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission) of 20% or more of the issued and outstanding capital stock of the Borrowers having the right, under ordinary circumstances, to vote for the election of directors of the Borrower, unless the current chief executive officer of the Borrowers owns or controls directly or through voting trusts or agreements (in the case of such capital stock owned by his family members or by trusts or by other entities established for their benefit) at least 7% more of the issued and outstanding capital stock of the Borrowers than the issued and outstanding capital stock of the Borrowers acquired by such group or Person.              (b)        Any Executive Officer (including the current chief executive officer) who were directors of Paper Warehouse on the first day of any period consisting of Twelve (12) consecutive calendar months (the first of which Twelve (12) month periods commencing with the first day of the month during which this Agreement was executed), cease, for any reason other than death or disability, to be directors of the Borrower.              “Chattel Paper”: Has the meaning given that term in the UCC.                “Closing Date”: means the date of the first to occur of the making of the initial Advance or  the issuance of the initial L/C.              “Collateral”: Is defined in Section 2-1.              “Concentration Account”: Is defined in Section 7-3.              “Control”: The direct or indirect power to direct or cause the direction of the management and policies of another Person, whether through ownership of voting securities, by contract, or otherwise. Included among such powers, with respect to a corporation, are power to cause any of following: (a) the election of a majority of its Board of Directors; (b) the issuance of additional shares of its common stock; (c) the issuance and designation of rights and shares of its preferred stock (if any); (d) the distribution and timing of dividends; (e) the award of performance bonuses to its management; (f) the termination or severance of officers or key employees; and (g) all or any similar matters.              “Cost”: The calculated cost of purchases, as determined from invoices received by the Paper Warehouse, the Paper Warehouse’s Purchase Journal or Stock Ledger, based upon the Paper Warehouse’s accounting practices, known to the Lender, which practices are in effect on the date on which this Agreement was executed. “Cost” does not include any inventory capitalization costs inclusive of advertising, but may include other charges used in the Paper Warehouse’s determination of cost of goods sold and bringing goods to market, all within Lender’s sole discretion and in accordance with GAAP.              “Cost Factor”: The result of 1 minus the Paper Warehouse’s then cumulative markup percent derived from the Paper Warehouse’s purchase journal on a rolling twelve (12) month basis.              “Costs of Collection”: includes, without limitation, all attorneys’ reasonable fees and reasonable out-of-pocket expenses incurred by the Lender’s attorneys, and all reasonable costs incurred by the Lender in the administration of the Liabilities and/or the Loan Documents, including, without limitation, reasonable costs and expenses associated with travel on behalf of the Lender, which costs and expenses are directly or indirectly related to or in respect of the Lender’s: administration and management of the Liabilities; negotiation, documentation, and amendment of any Loan Document; or efforts to preserve, protect, collect, or enforce the Collateral, the Liabilities, and/or the Lender’s Rights and Remedies and/or any of the Lender’s rights and remedies against or in respect of any guarantor or other Lender liable in respect of the Liabilities (whether or not suit is instituted in connection with such efforts). The Costs of Collection are Liabilities, and at the Lender’s option may bear interest at the highest post-default rate which the Lender may charge the Borrowers hereunder as if such had been lent, advanced, and credited by the Lender to, or for the benefit of, the Borrowers.              “Credit Card Processor”: Means any Person which acts as a credit card clearinghouse or processor of credit card payments accepted by any Borrower.                Credit Card Receivables Line”:  Means amounts up to the lesser of: (x) Eighty (80%) percent of Eligible Credit Card Receivables, or (y) One Million ($1,000,000) Dollars.              “Credit Limit”: Means  Fifteen Million ($15,000,000) Dollars.              “DDA”: Any checking or other demand daily depository account maintained by the Borrower.              “Deposit Account”  Has the meaning given that term in the  UCC.              “Documentary L/C”: Means a documentary L/C issued to support the purchase by Paper Warehouse of Inventory prior to its transport to a location set forth on EXHIBIT 5-4 that provides that all draws thereunder must require presentation of customary documentation including, if applicable, commercial invoices, packing lists, certificate of origin, bill of lading, an airway bill, customs clearance documents, quota statement, certificate, beneficiaries statement and bill of exchange, bills of lading, dock warrants, dock receipts, warehouse receipts or other documents of title, in form and substance satisfactory to Lender and reflecting passage to Paper Warehouse of title to first quality Inventory conforming to Paper Warehouse’s contract with the seller thereof.              “Duly Authorized Person”: Means any individual authorized by the Borrower to request loans or financial accommodations and/or sign reports to Lender.              “Early Termination Premium”: Is defined in Section 13-3.              “EBITDA”: Means the Borrower’s earnings from continuing operations (excluding extraordinary items), before interest, taxes, depreciation and amortization, each as determined in accordance with GAAP.              “Effective Advance Rate”:  Means the percentage obtained by dividing the sum of the then existing balance of the Loan Account plus the Stated Amount of outstanding L/C’s by the then Cost value of Eligible Inventory.              “Eligible Credit Card Receivables”:  Means Paper Warehouse’s Accounts owed by Credit Card Processors which Accounts are reflected in the most recent Borrowing Base Certificate delivered by Paper Warehouse to Lender and on other information available to Lender, Lender shall in its reasonable discretion determine are “eligible” and shall not include, without limitation, Accounts owed by Credit Card Processors which:   (a) do not arise from the sale of goods or the performance of services by Paper Warehouse in the ordinary course of its business;         (b) upon which Paper Warehouse’s right to receive payment is not absolute or is contingent upon the fulfillment of any condition whatsoever or as to which Paper Warehouse is not able to bring suit or otherwise enforce its remedies against the through judicial process;     (c) with respect to which any Credit Card Processor has not signed a written acknowledgment and consent in accordance with Section 7-2(b) hereof;         (d) is the subject of any defense, counterclaim, setoff or dispute is asserted as to such Account;         (e) that is not a true and correct statement of bona fide indebtedness incurred in the amount of the Account for merchandise sold to or services rendered and accepted by the valid holder of the subject credit card;         (f) that is in default; provided, that, without limiting the generality of the foregoing, an Account shall be deemed in default upon the occurrence of any of the following:           i.   the Account is not paid within three (3) days past the date payment first becomes due;               ii.   the Credit Card Processor obligated upon such Account suspends business, makes a general assignment for the benefit of creditors or fails to pay its debts generally as they come due; or               iii.   a petition is filed by or against any Credit Card Processor obligated upon such Account under any bankruptcy law or any other federal, state or foreign (including any provincial) receivership, insolvency relief or other law or laws for the relief of debtors;             (g) as to which Lender’s Encumbrance thereon is not a first priority perfected lien;         (h) as to which any of the representations or warranties in the Loan Documents is untrue;         (i) to the extent such Account exceeds any credit limit established by Lender, in its discretion         (j) that is payable in any currency other than Dollars; or         (n) that is otherwise unacceptable to Lender in its discretion.              “Eligible Documentary L/C”:  Documentary L/C’s for which finished goods have been delivered for shipment to Borrowers and which have an expiry of sixty  (60) days or less and which are otherwise determined to be “eligible” in Lender’s discretion.              ”Eligible Inventory”: Such of the Paper Warehouse’s Inventory, at such locations, and of such types, character, qualities and quantities, (net of Inventory Reserves) as the Lender in its sole discretion from time to time determines to be acceptable for borrowing, as to which Inventory, the Lender has a perfected security interest which is prior and superior to all security interests, claims, and Encumbrances.                “Employee Benefit Plan”: As defined in ERISA.              “Encumbrance”: Each of the following:                            (a)         security interest, mortgage, pledge, hypothecation, lien, attachment, or charge of any kind (including any agreement to give any of the foregoing); the interest of a lessor under a Capital Lease; conditional sale or other title retention agreement; sale of accounts receivable or chattel paper; or other arrangement pursuant to which any Person is entitled to any preference or priority with respect to the property or assets of another Person or the income or profits of such other Person or which constitutes an interest in property to secure an obligation; each of the foregoing whether consensual or nonconsensual and whether arising by way of agreement, operation of law, legal process or otherwise.                            (b)        The filing of any financing statement under the UCC or comparable law of any jurisdiction.              “End Date”:     The date upon which both (a) all Liabilities have been paid in full and (b) all obligations of the Lender to make loans and advances and to provide other financial accommodations to the Borrowers hereunder shall have been irrevocably terminated.              “Environmental Laws”: (a) Any and all federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees or requirements which regulates or relates to, or imposes any standard of conduct or liability on account of or in respect to environmental protection matters, including, without limitation, Hazardous Materials, as is now or hereafter in effect; and (b) the common law relating to damage to Persons or property from Hazardous Materials.              “Equipment”:  Shall have the meaning given such term under the UCC.              “Equipment Lease”:  Shall mean any Capital Lease or other contract pursuant to which any Borrower purchases or leases Equipment for use in the ordinary course of any of Borrower’s business.              “ERISA”: The Employee Retirement Security Act of 1974, as amended.              “ERISA Affiliate”: Any Person which is under common control with any Borrower within the meaning of Section 4001 of ERISA or is part of a group which includes any Borrower and which would be treated as a single employer under Section 414 of the Internal Revenue Code of 1986, as amended.                “Eurodollar Business Day”:  Shall mean a Banking Day on which dealings are carried on and banks are open for business in the relevant interbank market.              “Eurodollar Loan”:  Shall mean Advances under the Standard Line or any portion of Advances under the Standard Line bearing interest by reference to the Eurodollar Rate.              “Eurodollar Period”:  Shall mean, with respect to any Eurodollar Loan, each period commencing on a Eurodollar Business Day selected by Paper Warehouse pursuant to the Agreement and ending one, two or three months thereafter, as selected by Paper Warehouse’s irrevocable notice to Lender as set forth in Section 1.8(b); provided that the foregoing provision relating to Eurodollar Periods is subject to the following:                            (a)         if any Eurodollar Period would otherwise end on a day that is not a Eurodollar Business Day, such Eurodollar Period shall be extended to the next succeeding Eurodollar Business Day unless the result of such extension would be to carry such Eurodollar Period into another calendar month in which event such Eurodollar Period shall end on the immediately preceding Eurodollar Business Day;                            (b)        any Eurodollar Period that would otherwise extend beyond the Termination Date shall end two (2) Eurodollar Business Days prior to such date;                            (c)         any Eurodollar Period pertaining to a Eurodollar Loan that begins 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 Eurodollar Period) shall end on the last Eurodollar Business Day of a calendar month;                            (d)        Paper Warehouse shall select Eurodollar Periods so as not to require a payment or prepayment of any Eurodollar Loan during a Eurodollar Period for such Loan; and                            (e)         Paper Warehouse shall select Eurodollar Periods so that there shall be no more than four (4) separate Eurodollar Loans in existence at any one time.              “Eurodollar Margin”:  250 Basis Points              “Eurodollar Offer Rate”:  That rate of interest (rounded upwards, if necessary, to the next 1/100 of 1%) determined by the Lender in good faith (which shall be presumed) to be the average prevailing rate per annum at which deposits on U.S. Dollars are offered to Wells Fargo Bank, N.A., by first class banks in the Eurodollar market in which Wells Fargo Bank, N.A. participates at or about 10:00 A.M. (Boston time) Two (2) Eurodollar Business Days before the first day of the Eurodollar Period for the subject Eurodollar Loan, for a deposit approximately in the amount of the subject loan for a period of time approximately equal to such Eurodollar Period.                “Eurodollar Rate”:  That per annum rate which is the aggregate of the Eurodollar Offer Rate plus the Eurodollar Margin except that, in the event that the Lender determines in good faith (which shall be presumed) that the Lender is subject to the Reserve Percentage, the “Eurodollar Rate” shall mean, with respect to any Eurodollar Loans then outstanding (from the date on which that Reserve Percentage first became applicable to such loans), and with respect to all Eurodollar Loans thereafter made (but only so long as the Reserve Percentage’s applying to such Eurodollar Loans), an interest rate per annum equal the sum of (a) plus (b) where  (a) is the decimal equivalent of the following fraction: Eurodollar Offer Rate 1 minus Reserve Percentage; and              (b) is the applicable Eurodollar Margin.              “Event of Default”: Is defined in Article 10.              “Executive Agreement”: Any agreement or understanding (whether or not written) to which the Paper Warehouse is a party or by which the Paper Warehouse may be bound, which agreement or understanding relates to Executive Pay.              “Executive Officer”: Each of Yale T. Dolginow and  Cheryl W. Newell and any other Person who (without regard to title) exercises a substantial portion of the authority being exercised, at the execution of this Agreement, by any of the foregoing or a combination of the such authority of more than one of the foregoing or who otherwise has Control of the Borrower.              “Executive Pay”: All salary, bonuses, and other value directly or indirectly provided by or on behalf of the Borrower to or for the benefit of any Executive Officer or any Affiliate, spouse, parent, or child of any Executive Officer.              “Franchise Agreements:”  means the present and future franchise agreements between (i) PWFI and any other Borrower and (ii) Persons who are franchisees or otherwise operating retail locations owned by such Persons under license of Borrowers’ trademarks Paper Warehouse, Party Universe and Party Smart or other trademarks.              “Funding Account”: Is defined in Section 7-3.              “GAAP”: Principles which are consistent with those promulgated or adopted by the Financial Accounting Standards Board and its predecessors (or successors) in effect and applicable to that accounting period in respect of which reference to GAAP is being made.                “General Intangibles”: Includes, without limitation, “general intangibles” as defined in the UCC; and also all: rights to payment for credit extended; deposits; deposit accounts; amounts due to the Borrowers; credit memoranda in favor of the Borrowers; warranty claims; tax refunds and abatements; insurance refunds and premium rebates; all Investment Property and all means and vehicles of investment or hedging, including, without limitation, options, warrants, and futures contracts; records; customer lists; mailing lists; telephone numbers; goodwill; causes of action; judgments; payments under any settlement or other agreement; literary rights; rights to performance; royalties; license and/or franchise fees; rights of admission; licenses; franchises; license agreements, including all rights of the Borrowers to enforce same; permits, certificates of convenience and necessity, and similar rights granted by any governmental authority; patents, patent applications, patents pending, and other intellectual property; Internet addresses and domain names; developmental ideas and concepts; proprietary processes; blueprints, drawings, designs, diagrams, plans, reports, and charts; catalogs; manuals; technical data; computer software programs (including the source and object codes therefor), computer records, computer software, rights of access to computer record service bureaus, service bureau computer contracts, and computer data; tapes, disks, semiconductors chips and printouts; trade secrets rights, copyrights, mask work rights and interests, and derivative works and interests; user, technical reference, and other manuals and materials; trade names, trademarks, service marks, and all good will relating thereto; applications for registration of the foregoing; and all other general intangible property of the Borrowers in the nature of intellectual property; proposals; cost estimates, and reproductions on paper, or otherwise, of any and all concepts or ideas, and any matter related to, or connected with, the design, development, manufacture, sale, marketing, leasing, or use of any or all property produced, sold, or leased, by the Borrowers or credit extended or services performed, by the Borrowers, whether intended for an individual customer or the general business of the Borrowers, or used or useful in connection with research by the Borrowers.              “Gross Margin”: With respect to the subject accounting period for which being calculated, the following (determined in accordance with the cost method of accounting): Sales (Minus) Cost of Goods Sold -------------------------------------------------------------------------------- Sales              “Hazardous Materials”: Any (a) hazardous materials, hazardous waste, hazardous or toxic substances, petroleum products, which (as to any of the foregoing) are defined or regulated as a hazardous material in or under any Environmental Law and (b) oil in any physical state.              “Indebtedness”: All indebtedness and obligations of or assumed by any Person on account of or in respect to any of the following:                            (a)         In respect of money borrowed (including any indebtedness which is non-recourse to the credit of such Person but which is secured by an Encumbrance on any asset of such Person) whether or not evidenced by a promissory note, bond, debenture or other written obligation to pay money.                            (b)        For the payment of the purchase price of goods or services deferred for more than thirty (30) days beyond then current trade terms provided to such Person by the supplier of such goods or services.                            (c)         In connection with any letter of credit or acceptance transaction (including, without limitation, the face amount of all letters of credit and acceptances issued for the account of such Person or reimbursement on account of which such Person would be obligated).                              (d)        In connection with the sale or discount of accounts receivable or chattel paper of such Person.                            (e)         On account of deposits or advances.                            (f)         As lessee under Capital Leases.              “Indebtedness” of any Person shall also include:                            (a)         Indebtedness of others secured by an Encumbrance on any asset of such Person, whether or not such Indebtedness is assumed by such Person.                            (b)        Any guaranty, endorsement, suretyship or other undertaking pursuant to which that Person may be liable on account of any obligation of any third party.                            (c)         The Indebtedness of a partnership or joint venture in which such Person is a general partner or joint venturer.              “Indemnified Person”: Is defined in Section 14-11.              “Index Rate Loan:” Shall mean any Advances under the Credit Card Receivable Line and Advances under the Standard Line or portion of Advances under the Standard Line  bearing interest by reference to the Index Rate Margin.              “Index Rate Margin:”  Is defined in Section 1-8(a).              “Inventory”: Includes, without limitation, “inventory” as defined in the Uniform Commercial Code and including all goods, merchandise, raw materials, goods and work in process, finished goods, and other tangible personal property now owned or hereafter acquired and held for sale or lease or furnished or to be furnished under contracts of service or used or consumed in any of Borrower’s business.              “Inventory Reserves”: Such reserves as may be established from time to time by the Lender in the Lender’s discretion with respect to the determination of the saleability, at retail, of the Eligible Inventory or which reflect such other factors as affect the current Retail or market value of the Eligible Inventory. Without limiting the generality of the foregoing, Inventory Reserves may include (but are not limited to) reserves based on the following:                            (a)         Obsolescence (determined based upon Inventory on hand beyond a given number of days).                            (b)        Seasonality.                            (c)         Shrinkage.                              (d)        Imbalance.                            (e)         Change in Inventory character, composition or mix.                            (f)         Markdowns (both permanent and point of sale).                            (g)        Retail markons or markups inconsistent with prior period practice and performance; current business plans; or advertising calendar and planned advertising events.                            (h)        The relationship between the amount expended for Inventory purchases and the cost of goods sold. Notwithstanding the foregoing, so long as the Business Plan attached on the Closing Date as EXHIBIT9-10 is in effect and Borrower performs in substantial compliance therewith, Lender shall not establish Reserves for obsolescent and aged Inventory which are consistent with Borrower’s ordinary course of business.              “Investment Property”: Has the meaning given that term in the Uniform Commercial Code.              “Issuer”: The issuer of any L/C.              “Knowledge”: Means actual knowledge of any of Borrower’s Executive Officer(s) and management level employees after diligent investigation.              “L/C”: Any letter of credit, the issuance of which is procured by the Lender for the account of the Borrower and any acceptance made on account of such letter.              “Landlord Lien State”: Any state or other jurisdiction under whose statutory or common law the rights of a landlord in assets of that landlord’s tenant, for unpaid rent, may be senior to a perfected security interest in such assets.              “Lease”: Any lease or other agreement, no matter how styled or structured, which the Borrower is entitled to the use or occupancy of any space.              “Leasehold Interests”: Shall mean any Borrower’s leasehold estate or interest in each of the properties at or upon which such Borrower conducts business, offers any Inventory for sale, or maintains any of the Collateral, whether or not for retail sale, together with such Borrower’s interest in any of the improvements and fixtures located upon or appurtenant to each such estate or interest, including without limitation, any rights of any Borrower to payment, proceeds or value of any kind or nature realized upon the sale or transfer of any such estate or interest.              “Lender’s Rights and Remedies”: Is defined in Section 11-6.              “Letter of Credit Rights”  Has the meaning given that term in the  UCC.                “Liabilities” (in the singular, “Liability”): Includes, without limitation, all and each of the following, whether now existing or hereafter arising:                            (a)         Any and all direct and indirect liabilities, debts, and obligations of any Borrower to the Lender, each of every kind, nature, and description.                            (b)        Each obligation to repay any loan, advance, indebtedness, note, obligation, overdraft, or amount now or hereafter owing by the Borrowers to the Lender (including all future advances whether or not made pursuant to a commitment by the Lender), whether or not any of such are liquidated, unliquidated, primary, secondary, secured, unsecured, direct, indirect, absolute, contingent, or of any other type, nature, or description, or by reason of any cause of action which the Lender may hold against any Borrower.                            (c)         All notes and other obligations of the Borrowers now or hereafter assigned to or held by the Lender, each of every kind, nature, and description.                            (d)        All interest, fees, and charges and other amounts which may be charged by the Lender to the Borrowers and/or which may be due from the Borrower to the Lender from time to time.                            (e)         All costs and expenses incurred or paid by the Lender in respect of any agreement between the Borrowers and the Lender or instrument furnished by the Borrowers to the Lender (including, without limitation, Costs of Collection, attorneys’ reasonable fees, and all court and litigation costs and expenses).                            (f)         Any and all covenants of the Borrowers to or with the Lender and any and all obligations of the Borrowers to act or to refrain from acting in accordance with any agreement between the Borrowers and the Lender or instrument furnished by the Borrowers to the Lender.              “Loan Account”: Is defined in Section 1-5.              “Loan Documents”: This Agreement, each instrument and document executed and/or delivered as contemplated by Article 4, and each other instrument or document from time to time executed and/or delivered in connection with the arrangements contemplated hereby, as each may be amended from time to time.              “Local DDA”: A depository account maintained by any Borrower, the only contents of which may be transfers from the Funding Account (i) and actually used solely for petty cash purposes; or (ii) which is a disbursement account identified on Exhibit 7-6 hereto .              “Loan Maintenance Fee”: Intentionally deleted.              “Master Note”: Is defined in Section 1-6.                “Material Adverse Change”: Means (a) a material adverse change in the business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of Borrowers (as a whole), including, without limitation, a material adverse change in the business, prospects, operations, results or operations, assets, liabilities or condition since the date of the latest financial information submitted to Lender on or before the Closing Date, and since the date of the latest financial information supplied hereunder or at any time as compared to the Business Plan attached hereto on the date of execution hereof as EXHIBIT 9-10; (b) the material impairment of Borrowers’ ability to perform its obligations under the Loan Documents to which it is a party or of Lender to enforce the Liabilities or realize upon the Collateral, (c) a material adverse effect on the value of the Collateral or the amount that Lender would be likely to receive (after giving consideration to delays in payment and costs of enforcement) in the liquidation of such Collateral, or (d) a material impairment of the priority of Lender’s liens with respect to the Collateral.              “Maturity Date”:  Means September 07, 2004              “Net Retail Liquidation Value”: Means the appraised liquidation value of Eligible Inventory less liquidation expenses as determined by Lender or its agents from time to time.              “One Turn State”: Any state or other jurisdiction under whose statutory or common law the relative priority of the rights of a landlord in assets of that landlord’s tenant, for unpaid rent, vis a vis the rights of the holder of a perfected security interest therein is dependent upon whether such security interest arose prior or subsequent to the subject assets coming onto the demised premises.              “Overadvance”: Any amounts advanced hereunder which exceed Availability.              “Participant”: Is defined in Section 14-12.              “Percentage Points”: The number of whole (and, if indicated, fractions (or decimal equivalents) of) integers of a percentage referred to in a financial performance covenant. For example, if a projected percentage were fifty (50%) percent and the actual percentage turned out to be fifty-five and 6/10 (55.6%) percent, the variance would be 5.6 Percentage Points.              “Permitted Acquisition”:    Means a transaction where the Borrower is a party to a merger, consolidation or exchange of stock, or purchase or otherwise acquires all or substantially all of the assets or stock of, or any partnership or joint venture interest in, any other Person, and where such transaction meets the following criteria:                            (a)  no Event of Default which has not been remedied within any  grace period expressly provided herein or otherwise waived in writing by Lender has occurred and the proposed transaction will not otherwise create an Event of Default hereunder;                            (b)  the business to be acquired is consistent with Borrower’s current line of business and with the Business Plan;                              (c)  the business to be acquired operates in the United States of America;                            (d)  in the case of an asset acquisition, all of the assets to be acquired shall be owned by the Borrower or a newly created Subsidiary of the Borrower, 100% of the stock of which has been or will be pledged to the Lender or which is or will become a Borrower or a guarantor, in the case of a stock acquisition or an acquisition by merger, the acquired company shall become a wholly owned subsidiary of the Borrower or shall be merged with the Borrower or any wholly-owned Subsidiary of the Borrower;                            (e)  the aggregate cash consideration to be paid by the Borrower in connection with any such transaction or transactions(including the aggregate amount of all Indebtedness assumed) shall be primarily for inventory purchases and shall not exceed $250,000 in the aggregate in any fiscal year without the consent of the Lender, which consent shall not be unreasonably withheld;                            (f)  the transaction shall be preceded by the standard due diligence practices of the Borrower;                            (g)  the board of directors and (if required by applicable law) the stockholders, or the equivalent thereof, of the business to be acquired has approved such acquisition; and                            (h)  in the case of transactions where the cash consideration (including assumed Indebtedness) exceeds $250,000 but is not more than $1,000,000 to which the Lender has consented and the Lender shall have been provided with (i) a certificate demonstrating that the Borrowers are in current compliance with and, giving effect to the proposed Acquisition (including any borrowings made or to be made in connection therewith), will continue to be in compliance with, all of the covenants set forth on Exhibit 9-11 hereto, (ii)  a copy of the purchase agreement, together with audited (if available, or otherwise unaudited) financial statements for any business to be acquired for the preceding two (2) fiscal years, and (iii) a summary of the results of the Borrower’s due diligence investigations.              “Person”: Any natural person, and any corporation, limited liability company, trust, partnership, joint venture, or other enterprise or entity.              “Promissory Note: ”  Has the meaning given that term in the  UCC.              “Real Estate”: Means any estates or interests in real property now owned or hereafter acquired by Borrower.              “Receipts”: All cash, cash equivalents, checks, and credit card slips and receipts as arise out of the sale of the Collateral and any other cash, cash equivalents or checks otherwise received by Borrower, whether as a result of any loan, investment by the Borrower, investment in the Borrower or otherwise.                “Receivables Collateral”: That portion of the Collateral which consists of the Borrowers’ Accounts, Accounts Receivable, Contract Rights, General Intangibles, Chattel Paper, Instruments, Investment Property, Documents of Title, Documents, Securities, letters of credit for the benefit of the Borrower, and bankers’ acceptances held by the Borrower, and any rights to payment.              “Registered Organization”  Has the meaning given that term in the  UCC.              “Related Entity”:                            (a)         Any corporation, limited liability company, trust, partnership, joint venture, or other enterprise which: is a parent, brother, sister or  subsidiary, of the Borrower; could have such enterprise’s tax returns or financial statements consolidated with the Borrower’s; could be a member of the same controlled group of corporations (within the meaning of Section 1563(a)(1), (2) and (3) of the Internal Revenue Code of 1986, as amended from time to time) of which the Borrower is a member; Controls or is Controlled by the Borrower or by any Affiliate of the Borrower.                            (b)        Any Affiliate.              “Requirement of Law”:  As to any Person:                            (a) (i)  All statutes, rules, regulations, orders, or other requirements having the force of law and (ii) all court orders and injunctions, arbitrator’s decisions, and/or similar rulings, in each instance ((i) and (ii)) of or by any federal, state, municipal, and other governmental authority, or court, tribunal, panel, or other body which has or claims jurisdiction over such Person, or any property of such Person, or of any other Person for whose conduct such Person would be responsible.                            (b)        That Person’s charter, certificate of incorporation, articles of organization, and/or other organizational documents, as applicable; and                             (c) that Person’s by-laws and/or other instruments which deal with corporate or similar governance, as applicable.              “Reserve Percentage”  AReserve Percentage:” The decimal equivalent of that rate applicable to the Lender under regulations issued from time to time by the Board of Governors of the Federal Reserve System for determining the maximum reserve requirement of the Lender with respect to AEurocurrency Liabilities@ as defined in such regulations.  The Reserve Percentage applicable to a particular Eurodollar Loan shall be based upon that in effect during the subject interest period, with changes in the Reserve Percentage which take effect during such interest period to take effect (and to consequently change any interest rate determined with reference to the Reserve Percentage) if and when such change is applicable to such loans.                “Reserves”: All (if any) Availability Reserves, Inventory Reserves, and any other reserves which may be established under the Loan Agreement.              “Retail”:  The Cost of Inventory divided by the Cost Factor.              “Revolving Credit”: Is defined in Section 1-1.              “Richfield Account”: Means  that Deposit Account of Paper Warehouse maintained at Richfield Bank and Trust under account #30815138 solely for the purpose of holding $60,000 as cash collateral for the Richfield L/C’s              “Richfield L/C’s”:  Means those L/C’s issued by Richfield Bank and Trust for the benefit of the landlords identified on EXHIBIT 5-6 (Guaranties).              “Special Sub-Line”:  Means, Available during the months of July though November only, amounts of up to the lesser of:  (a) five (5%) percent of the Cost value of Eligible Inventory or (b) together with the Standard Line, ninety (90%) percent of the Net Retail Liquidation Value.              “Standard Line”:  Means amounts of up to the lesser of: (a) sixty-six (66%) percent of the Cost value of Eligible Inventory or (b) eighty-five  (85%) percent of the Net Retail Liquidation Value.              “Stated Amount”: The maximum amount for which an L/C may be honored.              “Supporting Obligations”  Has the meaning given that term in the  UCC.              “Suspension Event”: Any occurrence, circumstance, or state of facts which (a) is an Event of Default; or (b) would become an Event of Default if any requisite notice were given and/or any requisite period of time were to run and such occurrence, circumstance, or state of facts were not absolutely cured within any applicable grace period.              “Termination Date”: The earliest of (a) the Maturity Date; or (b) the occurrence of any event described in Section 10-11; or (c) the date set forth in Lender’s notice to the Borrower setting the Termination Date on account of the occurrence of any Event of Default other than as described in Section 10-11.              “UCC”:  The Uniform Commercial Code as presently in effect in Massachusetts (Mass. Gen. Laws, Ch. 106).

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.25 BUSINESS LOAN AGREEMENT (ASSET BASED) -------------------------------------------------------------------------------- Principal Loan Date Maturity Loan No. Call/Coll Account Officer Initials $5,000,000.00 10-19-2001 07-02-2002   2000   024   -------------------------------------------------------------------------------- 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. Any item above containing "***" has been omitted due to text length limitations. -------------------------------------------------------------------------------- Borrower:   Niku Corporation 350 Convention Way Redwood City, CA 94063   Lender:   Mid-Peninsula Bank Palo Alto Main 420 Cowper Street Palo Alto, CA 94301 -------------------------------------------------------------------------------- THIS BUSINESS LOAN AGREEMENT (ASSET BASED) dated October 19, 2001, is made and executed between Niku Corporation ("Borrower") and Mid-Peninsula Bank ("Lender") on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans or other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement. Borrower understands and agrees that: (A) in granting, renewing, or extending any Loan hereunder, Lender is relying upon Borrower's representations, warranties, and agreements as set forth in this Agreement, and (B) the Loan shall be and remain subject to the terms and conditions of this Agreement. TERM.  This Agreement shall be effective as of October 19, 2001, and shall continue in full force and effect until such time as the Loan has been paid in full, including principal, interest, costs, expenses, attorneys' fees, and other fees and charges, or until such time as the parties may agree in writing to terminate this Agreement. LINE OF CREDIT.  On the terms and subject to the conditions set forth in this Agreement, from time to time, on any business day after the date hereof and prior to the maturity date indicated above, and so long as no Event of Default has occurred under the Note, this Agreement, and/or under any of the Related Documents, Lender agrees to make Advances to Borrower from time to time from the date of this Agreement to the Expiration Date, provided the aggregate amount of such Advances outstanding at any time does not exceed the Borrowing Base. Lender's Advances shall be evidenced by the Note, with appropriate entries on Lender's records to reflect the outstanding principal balance owing thereunder following each Advance and full or partial repayment thereof, all interest accruing on such Advances, and all Lender's Expenditures, attorneys' fees and expenses, and other fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document. All Advances, all interest, all Lender's Expenditures and all attorneys' and other fees, charges, and other expenses which are from time to time due and payable as specified in this Agreement or any Related Document are and shall be due and payable on demand by Lender. Lender is hereby authorized and empowered to pay itself for any Advances, interest, Lender's Expenditures, and/or any attorneys' and other fees, charges, and other expenses which are from time to time due and payable as specified in this Agreement or any Related Document and charge same to any deposit or other accounts maintained or established by Borrower with Lender and/or to make Advances under this Agreement or any Related Document in connection with same. Within the foregoing limits, Borrower may borrow, partially or wholly prepay, and reborrow under this Agreement as follows: Conditions Precedent to Each Advance.  Lender's obligation to make any Advance to or for the account of Borrower under this Agreement is subject to the following conditions precedent, with -------------------------------------------------------------------------------- all documents, instruments, opinions, reports, and other items required under this Agreement to be in form and substance satisfactory to Lender:   (1)   Lender shall have received evidence that this Agreement and all Related Documents have been duly authorized, executed, and delivered by Borrower to London.   (2)   Lender shall have received such opinions of counsel, supplemental opinions, and documents as Lender may request.   (3)   The Security Interests in the Collateral shall have been duly authorized, created, and perfected with first lien priority and shall be In full force and effect.   (4)   Lender, at its option, at such time or times as Lender may designate, at Borrower's expense, and for Lender's sole benefit, shall have conducted an audit of Borrower's Accounts, books, records, and operations, and Lender shall be reasonably satisfied as to their condition.   (5)   Borrower shall have paid to Lender all fees, costs, and expenses specified in this Agreement and the Related Documents as are then due and payable.   (6)   There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement, and Borrower shall have delivered to Lender the compliance certificate called for in the paragraph below titled "Compliance Certificate." Making Loan Advances.  Advances under this credit facility, as well as directions for payment from Borrower's accounts, may be requested orally or in writing by authorized persons. Lender may, but need not, require that all oral requests be confirmed in writing. Each Advance shall be conclusively deemed to have been made at the request of and for the benefit of Borrower (1) when credited to any deposit account of Borrower maintained with Lender or (2) when advanced in accordance with the instructions of an authorized person. Lender, at its option, may set a cutoff time, after which all requests (or Advances will be treated as having been requested on the next succeeding Business Day. Mandatory Loan Repayments.  If at any time the aggregate principal amount of the outstanding Advances shall exceed the applicable Borrowing Base, Borrower, immediately upon written or oral notice from Lender, shall pay to Lender an amount equal to the difference between the outstanding principal balance of the Advances and the Borrowing Base. On the Expiration Date, Borrower shall pay to Lender in full the aggregate unpaid principal amount of all Advances then outstanding and all accrued unpaid interest, together with all other applicable fees, costs and charges, if any, not yet paid. Loan Account.  Lender shall maintain on its books a record of account in which Lender shall make entries for each Advance and such other debits and credits as shall be appropriate in connection with the credit facility. Lender shall provide Borrower with periodic statements of Borrower's account, which statements shall be considered to be correct and conclusively binding on Borrower unless Borrower notifies Lender to the contrary within thirty (30) days after Borrower's receipt of any such statement which Borrower deems to be incorrect. COLLATERAL.  To secure payment of the Loan and performance of all other Loan obligations and duties owed by Borrower to Lender, Borrower (and its Subsidiaries, if required) grants to Lender the Security Interests granted pursuant to the Security Agreement. Lender's Security interests in the Collateral shall be continuing liens and shall include the proceeds and products of the Collateral, including without limitation the proceeds of any insurance. With respect to the Collateral, Borrower agrees and represents and warrants to Lender: Perfection of Security Interests.  Borrower agrees to execute financing statements and all documents requested by Lender perfecting Lender's Security Interest and to take whatever other actions are requested by Lender to perfect and continue Lender's Security Interests in the Collateral. Upon request of Lender, Borrower will deliver to Lender any and all of the documents -------------------------------------------------------------------------------- evidencing or constituting the Collateral, and Borrower will note Lender's interest upon any and all chattel paper and instruments if not delivered to Lender for possession by Lender. Contemporaneous with the execution of this Agreement, Borrower will execute one or more UCC financing statements and any similar statements as may be required by applicable law which are requested by Lender, and Lender will file such financing statements and all such similar statements in the appropriate location or locations. Borrower hereby appoints Lender as its irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue any Security Interest in the Collateral. Lender may at any time, and without further authorization from Borrower, file a carbon, photograph, facsimile, or other reproduction of any financing statement for use as a financing statement. Borrower will reimburse Lender for all expenses for the perfection, termination, and the continuation of the perfection of Lender's security interest in the Collateral. Borrower promptly will notify Lender before any change in Borrower's name including any change to the assumed business names of Borrower. Borrower also promptly will notify Lender before any change in Borrower's employer identification number. Borrower further agrees to notify Lender in writing prior to any change in address or location of Borrower's principal governance office or should Borrower merge or consolidate with any other entity. Collateral Records.  Borrower does now, and at all times hereafter shall, keep materially correct and accurate records of the Collateral, all of which records shall be available to Lender or Lender's representative upon demand for inspection and copying at any reasonable time and upon reasonable notice. With respect to the Accounts, Borrower agrees to keep and maintain such records as Lender may require, including without limitation information concerning Eligible Accounts and Account balances and agings. Records related to Accounts (Receivables) are or will be located at 350 Convention Way, Redwood City, California. The above is an accurate and complete list of all locations at which Borrower keeps or maintains business records concerning Borrower's collateral. Collateral Schedules.  Concurrently with the execution and delivery of this Agreement Borrower shall execute and deliver to Lender schedules of Accounts and schedules of Eligible Accounts in form and substance reasonably satisfactory to the Lender. Thereafter supplemental schedules shall be delivered according to the following schedule: With respect to Eligible Accounts, schedules shall be delivered as follows: Monthly accounts receivable aging within fifteen (15) days of month end with Borrowing Base Certificate. Representations and Warranties Concerning Accounts.  With respect to the Accounts, Borrower represents and warrants to Lender: (1) Each Account represented by Borrower to be an Eligible Account for purposes of this Agreement conforms to the requirements of the definition of an Eligible Account; (2) All Account information listed on schedules delivered to Lender will be true and correct in all material respects, subject to immaterial variance; and (3) Lender, its assigns, or agents shall have the right during normal business hours and upon reasonably notice and at Borrower's expense to inspect, examine, and audit Borrower's records, to confirm with Account Debtors the accuracy of such Accounts, and to confirm the credit-worthiness and payment history of the Account Debtors. CONDITIONS PRECEDENT TO EACH ADVANCE.  Lender's obligation to make the Initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents. Loan Documents and Applicable Fees and Charges.  In addition to this Agreement, Borrower shall on the date hereof provide to Lender the following documents for the Loan: (1) the Note; (2) the Security Agreement granting to Lender security interests in the Collateral; (3) financing statements and all other documents perfecting Lender's Security Interests; (4) evidence of insurance as required below; and (5) all Related Documents as Lender may require for the Loan; all in form and substance reasonably satisfactory to Lender and Lender's counsel. In addition and if required by Lender, Borrower shall have paid Lender all Lender's Expenditures in accordance with the Disbursement Authorization and Request of even date herewith and other fees, charges, -------------------------------------------------------------------------------- and other expenses which are then due and payable as specified in this Agreement or any Related Document. Borrower's Authorization.  Borrower shall have provided in form and substance reasonably satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions, authorizations, documents and instruments as Lender or its counsel may reasonably require. Payment of Fees and Expenses.  Borrower shall have paid to Lender a fee in the amount of Ten Thousand Dollars ($10,000) as consideration for Lender's execution of this Agreement, together with all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document. Representations and Warranties.  The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct in all material respects as of the date of such Advance, except for those representations and warranties which specifically refer to an earlier date which shall only be required to be true in all material respects as of such earlier date. No Event of Default.  There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document. REPRESENTATIONS AND WARRANTIES.  Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of Loan proceeds, as of the date of any renewal, extension or modification of the Loan, and at all times any Indebtedness exists: Organization.  Borrower is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Delaware. Borrower is duly authorized to transact business in all other states in which Borrower is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Borrower has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Borrower maintains its principal office at 350 Convention Way, Redwood City, CA 94063. Unless Borrower has designated otherwise in writing, the principal office is the office at which Borrower keeps its books and records including its records concerning the Collateral. Borrower will notify Lender prior to any change in the location of Borrower's state of organization or any change in Borrower's name. Borrower shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower and Borrower's business activities, except to the extent that failure to so comply would not reasonably be expected to have a material adverse effect on Borrower's financial condition, operations or assets. Assumed Business Names.  Borrower has filed or recorded all documents or filings required by law relating to all assumed business names used by Borrower. Excluding the name of Borrower, the following is a complete list of all assumed business names under which Borrower does business: None. Authorization.  Borrower's execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower and do not conflict with, result in a violation of, or constitute a default under (1) any provision of Borrower's articles of incorporation or organization, or bylaws, or any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower's properties. -------------------------------------------------------------------------------- Financial Information.  Each of Borrower's financial statements supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement. Legal Effect.  This Agreement constitutes, and any instrument or agreement Borrower is required to give under this Agreement when delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms. Properties.  Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable and other Permitted Liens, Borrower owns and has good title to all of Borrower's properties (other than properties leased or licensed in the ordinary course of business) free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's owned properties are titled in Borrower's legal name, and Borrower has not used, or filed a financing statement under, any other name for at least the last five (5) years. Hazardous Substances.  Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (1) During the period of Borrower's ownership of Borrower's Collateral, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance by any person on, under, about or from any of the Collateral. (2) Borrower has no knowledge of, or reason to believe that there has been (a) any breach or violation of any Environmental Laws; (b) any use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance on, under, about or from the Collateral by any prior owners or occupants of any of the Collateral; or (c) any actual or threatened litigation or claims of any kind by any person relating to such matters. (3) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the Collateral shall use, generate, manufacture, store, treat, dispose of or release any Hazardous Substance on, under, about or from any of the Collateral; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, Including without limitation all Environmental Laws. Borrower authorizes Lender and its agents to enter upon the Collateral to make such inspections and tests as Lender may deem appropriate to determine compliance of the Collateral with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. Prior to an Event of Default, Borrower shall only be required to pay for the inspection test per year. The representations and warranties contained herein are based on Borrower's due diligence in investigating the Collateral for hazardous waste and Hazardous Substances. Borrower hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (2) agrees to indemnify and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the Collateral. The provisions of this section of the Agreement, including the obligation to indemnify, shall survive the payment of the Indebtedness and the termination, expiration or satisfaction of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the Collateral, whether by foreclosure or otherwise. Litigation and Claims.  To Borrower's knowledge after a reasonably diligent investigation and inquiry, no litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or to Borrower's knowledge threatened, and no other claim, suit, investigation or proceeding has occurred which in either case may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to by Lender in writing pursuant to the notice provisions of this Agreement. -------------------------------------------------------------------------------- Taxes.  To the best of Borrower's knowledge, all of Borrower's material tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided. Lien Priority.  Unless otherwise previously disclosed to Lender in writing and except for Permitted Liens, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral. Binding Effect.  This Agreement, the Note, all Security Agreements (if any), and all Related Documents are binding upon the signers thereof, as well as upon their successors, representatives and assigns, and are legally enforceable in accordance with their respective terms. AFFIRMATIVE COVENANTS.  Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will: Notices of Claims and Litigation.  Promptly inform Lender in writing of (1) all material adverse changes in the rate at which Borrower is, on a quarterly basis, incurring operating losses or expending available cash, cash equivalent and marketable securities assets, and (2) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower which could materially affect the financial condition of Borrower. Financial Records.  Maintain its books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times and upon reasonable notice, giving adequate consideration to Borrower's status as a public company with quarterly reporting obligations. Financial Information.  Furnish Lender with the following: Additional Requirements.  Borrower agrees to furnish Lender with the following:   (1)   A full copy of Borrower's most recently filed federal income tax return and full copies of all other full federal tax returns filed after the date of this Agreement within fifteen (15) days of filing, but in no more than one hundred twenty (120) days after Borrower's fiscal year-end unless extended in accordance with applicable law.   (2)   Quarterly submission of Form 10-Q report within fifteen (15) days of filing.   (3)   Annual Form 10-K report within fifteen (15) days of filing.   (4)   Monthly financial statements within fifteen (15) days after the end of each calendar month, including (without limitation) a balance sheet, a profit and loss statement, an aged balance of outstanding accounts receivable and accounts payable. All financial reports required to be provided in accordance with clauses (2), (3), and (4) immediately above shall be prepared in accordance with GAAP, applied on a consistent basis (except as noted in the financial statements set forth in such reports), and shall be certified by Borrower as being true and correct in all material respects. Additional Information.  Furnish such additional information and statements, as Lender may reasonably request from time to time. Financial Covenants.  Comply with the following covenants: Liquidity Requirements.  Borrower agrees that the aggregate amount of its cash, cash equivalents and marketable securities (excluding for such purposes (i) any amounts are borrowed under this Agreement or any Related Document or under the other Business Loan Agreement of even date herewith (the "Other Business Loan Agreement") or any Related -------------------------------------------------------------------------------- Documents under such Other Business Loan Agreement and (ii) amounts that are pledged or hypothecated to any third parties or are in a restricted account with Lender as collateral for any specific letter of credit or similar advance by Lender to or for the benefit of Borrower) shall, at all times during the term of this Agreement, equal at least Ten Million Dollars ($10,000,000). Operating Expenses.  Borrower shall not incur any Operating Expenses for Borrower's fiscal quarter ending October 27, 2001 in a amount exceeding Thirty-One Million Dollars ($31,000,000) for such fiscal quarter, shall not incur Operating Expenses for Borrower's fiscal quarter beginning on October 28, 2001 and ending on January 26, 2002 in an amount exceeding Twenty-Nine Million Dollars ($29,000,000) for such fiscal quarter, and shall not incur Operating Expenses for Borrower's fiscal quarter beginning January 27, 2002 and ending April 30, 2002 in an amount exceeding Twenty-Seven Million Dollars ($27,000,000) for such fiscal quarter. Available Cash Expenditures.  Borrower shall not expend or consume Available Cash for Borrower's fiscal quarter ending October 27, 2001 in a amount exceeding Twenty-Two Million Dollars ($22,000,000) for such fiscal quarter, shall not expend or consume Available Cash for Borrower's fiscal quarter beginning on October 28, 2001 and ending on January 26, 2002 in an amount exceeding Fifteen Million Dollars ($15,000,000) for such fiscal quarter, and shall not expend or consume Available Cash for Borrower's fiscal quarter beginning January 27, 2002 and ending April 30, 2002 in an amount exceeding Twelve Million Dollars ($12,000,000) for such fiscal quarter. Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be made in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct in all material respects. Insurance.  Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may reasonably require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form reasonably satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such Lender's loss payable or other endorsements as Lender may require. Insurance Reports.  Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties insured; (5) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (6) the expiration date of the policy. Other Agreements.  Comply with all terms and conditions of each agreement, the breach or default of which would be reasonably likely to have a material adverse effect on Borrower's financial condition, operations or assets whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any such agreement, except where the failure to so comply with any such agreement would not reasonably be likely to have a material adverse effect on Borrower's financial condition, operations or assets or where the failure to so comply with any such agreement will not result in a material default thereunder. -------------------------------------------------------------------------------- Loan Proceeds.  Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing. Taxes, Charges and Liens.  Pay and discharge when due all of its material indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits, except for any such obligations, taxes or claims which are being contested in good faith and for which there are adequate reserves. Performance.  Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Related Documents, and in all other instruments and agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of any default in connection with any agreement, except in the case of any default which would not reasonably be likely to have a material adverse effect on Borrower's financial condition, operations or assets. Operations.  Continue to employ and maintain a chief executive officer and chief financial officer with substantially the same qualifications and experience as the present chief executive officer and chief financial officer; provide written notice to Lender of any change in such personnel; conduct its business affairs in a reasonable and prudent manner, except where the failure to so conduct its business affairs would not reasonably be likely to have a material adverse effect on Borrower's financial condition, operations or assets. Environmental Studies.  Promptly conduct and complete, at Borrower's expense, all such investigations, studies, samplings and testings as may be requested by Lender or any governmental authority relative to any substance, or any waste or by-product of any substance defined as toxic or a hazardous substance under applicable federal, state, or local law, rule, regulation, order or directive, at or affecting any property or any facility owned, leased or used by Borrower. Compliance with Governmental Requirements.  Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrower's properties, businesses and operations, and to the use or occupancy of the Collateral, including without limitation, the Americans With Disabilities Act, except where such compliance would not reasonably be likely to have a material adverse effect on Borrower's financial condition, operations or assets. Borrower may contest in good faith any such law, ordinance, or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender's sole opinion, Lender's interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender's interest. Inspection.  Permit employees or agents of Lender at any reasonable time and upon reasonable notice giving adequate consideration to Borrower's status as a public company with quarterly reporting obligations to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense. Compliance Certificates.  Unless waived in writing by Lender, provide Lender at least annually, with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct in all material respects as of the date of the certificate, except for those -------------------------------------------------------------------------------- representations and warranties which specifically refer to an earlier date which shall only be required to be true in all material respects as of such earlier date, and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement. Environmental Compliance and Reports.  Borrower shall comply in all respects with any and all Environmental Laws; not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower's part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources. Additional Assurances.  Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests granted pursuant to the Security Agreements. Disbursement of Loan Proceeds.  Lender shall pay and advance the proceeds of any Advance into Borrower's deposit account number 37337609 maintained by Borrower with Lender or to such other deposit or other accounts as Lender may designate that are established and maintained by Borrower with Lender. RECOVERY OF ADDITIONAL COSTS.  If the imposition of or any change in any law, rule, regulation or guideline, or the Interpretation or application of any thereof by any court or administrative or governmental authority (including any request or policy not having the force of law) shall impose, modify or make applicable any taxes (except federal, state or local income or franchise taxes imposed on Lender), reserve requirements, capital adequacy requirements or other obligations which would (A) increase the cost to Lender for extending or maintaining the credit facilities to which this Agreement relates, (B) reduce the amounts payable to Lender under this Agreement or the Related Documents, or (C) reduce the rate of return on Lender's capital as a consequence of Lender's obligations with respect to the credit facilities to which this Agreement relates, then Borrower agrees to pay Lender such additional amounts as will compensate Lender therefor, within five (5) days after Lender's written demand for such payment, which demand shall be accompanied by an explanation of such imposition or charge and a calculation in reasonable detail of the additional amounts payable by Borrower, which explanation and calculations shall be conclusive in the absence of manifest error. LENDER'S EXPENDITURES.  If any action or proceeding is commenced that would materially adversely affect Lender's interest in the Collateral or if Borrower fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower's failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving any Collateral. All such expenditures ("Lender's Expenditures") incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Borrower. All such Lender's Expenditures will become a part of the Indebtedness and, at Lenders option will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity. -------------------------------------------------------------------------------- NEGATIVE COVENANTS.  Borrower covenants and agrees with Lender that while this Agreement is in effect, from and after the date hereof, Borrower shall not, and shall not permit any Subsidiary of Borrower to, without the prior written consent of Lender: Indebtedness and Liens.  (1) Except for trade debt incurred in the normal course of business, Permitted Indebtedness and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (2) sell, transfer mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets (except as allowed as Permitted Liens, except for sales, leases or licenses of any intellectual property rights embodied in products of Borrower and its Subsidiaries and dispositions of office fixtures and equipment consistent with the ordinary course of Borrower's business), or (3) sell with recourse any of Borrower's accounts, except to Lender. Continuity of Operations.  (1) Engage in any business activities substantially different than those in which Borrower is presently engaged, (2) cease operations, liquidate, merger, transfer, acquire or consolidate with any other entity, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, or (3) pay any dividends on Borrower's stock (other than dividends payable in its stock). Loans, Acquisitions and Guaranties.  (1) Loan, invest in or advance money or assets, except for Permitted Investments, (2) purchase, create or acquire any interest in any other enterprise or entity, except for Permitted Investments, or (3) incur any obligation as surety or guarantor other than in the ordinary course of business. CESSATION OF ADVANCES.  If Lender has made any commitment to make any Advance to Borrower under this Agreement or any loan under any other agreement, Lender shall have no obligation to make Advances or to disburse such loan proceeds if: (A) Borrower is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower has with Lender; (B) Borrower becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; or (C) there occurs a material adverse change in the aggregate value of the Collateral securing any Loan. DEFAULT.  Each of the following shall constitute an Event of Default under this Agreement: Payment Default.  Borrower fails to make any payment of principal when due or of interest or fees within five (5) days of when due under the Loan. Covenant Default.  A default or breach shall occur in Borrower's obligations under the section entitled "Financial Covenants." Default in Favor of Third Parties.  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 adversely affect Borrower's financial condition, operation or assets or Borrower's ability to repay the Loans or perform its obligations under this Agreement or any of the Related Documents. False Statements.  Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or, in the case of representations made at the time of any Advance, at the time made or furnished. Insolvency.  The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. Defective Collateralization.  This Agreement or any of the Related Documents granting Security Interests in Collateral ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason. -------------------------------------------------------------------------------- Creditor or Forfeiture Proceedings.  Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute. Change in Ownership.  The acquisition by any individual (other than the Company's chief executive officer) or entity of twenty-five percent (25%) or more of the common stock of Borrower. Adverse Change.  Lender believes the prospect of payment or performance of the Loan is impaired. Other Defaults.  Either (a) Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement and such failure continues for ten (10) days after the date of written notice from Lender identifying such failure and/or (b) an Event of Default (as defined in such agreement) occurs in any of the Related Documents or under any other agreement between Lender and Borrower. Right to Cure.  If any default, other than a default on Indebtedness, is curable and if Borrower or Grantor, as the case may be, has not been given a notice of a similar default within the preceding twelve (12) months, it may be cured (and no Event of Default will have occurred) if Borrower or Grantor, as the case may be, after receiving written notice from Lender demanding cure of such default: (1) cure the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, immediately initiate steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continue and complete all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. EFFECT OF AN EVENT OF DEFAULT.  If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make further Advances or disbursements), and, at Lender's option, all indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies. EXHIBIT A.  Exhibit A is attached to this Agreement and, by this reference, is made a part of this Agreement just as if all of the provisions, terms, and conditions of Exhibit "A" had been fully set forth in this Agreement. DEPOSIT RELATIONSHIP.  Borrower agrees that until such time as Borrower is no longer subject to the terms of this Agreement, any Related Document, any other credit agreement(s) with Lender, Borrower shall maintain all of its cash and cash equivalents in accounts established and maintained with Lender and Borrower's primary deposit account(s) will be placed and maintained with Lender, or a bank affiliated with Lender, except for amounts as may be reasonably be required for the operation and maintenance of Borrower's operations outside of the Untied States. -------------------------------------------------------------------------------- ACCOUNT RECEIVABLE AUDITS.  Bank shall have received, reviewed and approved an audit of Borrower's Accounts and of the Account Debtors under such Accounts prior to the Initial Advance under this Agreement. Audits of accounts receivable may be conducted annually, or at such frequency as Lender shall require. Borrower to pay for all loan origination costs including but not limited to, audit fees, attorney fees, search and filing fees, or any other action necessary for documentation of the proposed facilities. MISCELLANEOUS PROVISIONS.  The following miscellaneous provisions are a part of this Agreement: Amendments.  This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged with or bound by the alteration or amendment. Attorneys' Fees; Expenses.  Borrower agrees to pay upon demand all of Lender's costs and expenses, including Lender's attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including 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. Borrower also shall pay all court costs and such additional fees as may be directed by the court. Caption Headings.  Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. Consent to Loan Participation.  Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender. Governing Law.  This Agreement will be governed by, construed and enforced in accordance with federal law and the laws of the State of California. This Agreement has been accepted by Borrower and Lender in the State of California. Choice of Venue.  If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Santa Clara County, State of California. No Waiver by Lender.  Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and -------------------------------------------------------------------------------- Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any of Borrower's or any Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender. Notices.  Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's current address. Severability.  If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement. Subsidiaries of Borrower.  To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used in this Agreement shall include all of Borrower's Subsidiaries. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any of Borrower's Subsidiaries. Successors and Assigns.  All covenants and agreements contained in this Agreement by or on behalf of Borrower shall bind Borrower's successors and assigns and shall inure to the benefit of Lender and its successors and assigns. Borrower shall not, however, have the right to assign Borrower's rights under this Agreement or any interest therein, without the prior written consent of Lender. Survival of Representations and Warranties.  Borrower understands and agrees that in extending Advances Lender is relying on all representations, warranties, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations, warranties and covenants will survive the extension of Advances and delivery to Lender of the Related Documents, shall be continuing in nature, shall be deemed made and redated by Borrower at the time each Advance is made, and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur. Time Is of the Essence.  Time is of the essence in the performance of this Agreement. DEFINITIONS.  The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement: -------------------------------------------------------------------------------- Account.  The word "Account" means a trade account, account receivable, other receivable, or other right to payment for goods sold or services rendered owing to Borrower or any of its consolidating Subsidiaries that has guaranteed the Indebtedness, which guaranty shall be in a form and content prepared by and acceptable to Lender, and that has granted a security interest to Lender in such Accounts, which security interest shall be in a form and content prepared by and acceptable to Lender (or to a third party grantor acceptable to Lender). Account Debtor.  The words "Account Debtor" mean any debtor, guarantor, or other person, partnership, corporation, limited liability company, association or other legal entity obligated on an Account and includes (without limitation) the primary obligor on such account and any guarantor, successor, assignee, insurer, surety, or other party obligated (whether primarily or secondarily, absolutely or contingently) on the Account. Advance.  The word "Advance" means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower's behalf on a line of credit or multiple advance basis under the terms and conditions of this Agreement. The "Initial Advance" means the first disbursement of Loan funds under this Agreement. Agreement.  The word "Agreement" means this Business Loan Agreement (Asset Based), as this Business Loan Agreement (Asset Based) may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement (Asset Based) from time to time. Available Cash.  The words "Available Cash" mean the sum of Borrower's cash, cash equivalents, and marketable securities that are not pledged or hypothecated to any third parties or are not in a restricted account with Lender as collateral for any specific letter of credit or similar advance by Lender to or for the benefit of Borrower. Borrower.  The word "Borrower" means Niku Corporation. Borrowing Base.  The words "Borrowing Base" mean, as determined by Lender from time to time, the lesser of (1) $5,000,000.00 or (2) 75.000% of the aggregate amount of Eligible Accounts. Business Day.  The words "Business Day" mean a day on which commercial banks are open in the State of California. Collateral.  The word "Collateral" means (i) the Collateral, as such term is defined in the Security Agreement and, (ii) as applicable, any other Collateral ("Other Collateral") from time to time pledged as collateral for the Loan. Eligible Accounts.  The words "Eligible Accounts" mean at any time, all of Borrower's Accounts which contain selling terms and conditions acceptable to Lender and are owing by Account Debtors acceptable to Lender. The net amount of any Eligible Account against which Borrower may borrow shall exclude all returns, discounts, credits, and offsets of any nature. Unless otherwise agreed to by Lender in writing, Eligible Accounts do not include:   (1)   Accounts with respect to which the Account Debtor is employee or, other than resellers of Borrower's and its Subsidiaries' products, agent of Borrower.   (2)   Accounts with respect to which the Account Debtor is a subsidiary of, or affiliated with Borrower.   (3)   Accounts with respect to which goods are placed on consignment, guaranteed sale, or other terms by reason or which the payment by the Account Debtor may be conditional.   (4)   Accounts with respect to which either the Account Debtor or the Subsidiary generating such Account (if applicable) is not a resident of the United States.   (5)   Accounts with respect to which Borrower is or may become liable to the Account Debtor for goods sold or services rendered by the Account Debtor to Borrower. --------------------------------------------------------------------------------   (6)   Accounts which are subject to dispute, counterclaim, or setoff.   (7)   Accounts with respect to which the goods have not been shipped or delivered, or the services have not been rendered, to the Account Debtor.   (8)   Accounts with respect to which Lender, in its sole discretion, deems the creditworthiness or financial condition of the Account Debtor to be unsatisfactory.   (9)   Accounts of any Account Debtor who has filed or has had filed against it a petition in bankruptcy or an application for relief under any provision of any stale or federal bankruptcy, insolvency, or debtor-in-relief acts; or who has had appointed a trustee, custodian, or receiver for the assets of such Account Debtor; or who has made an assignment for the benefit of creditors or has become insolvent or fails generally to pay its debts (including its payrolls) as such debts become due.   (10)   Accounts with respect to which the Account Debtor is the United States government or any department or agency of the United States.   (11)   Accounts which have not been paid in full within [90] days from the invoice date. The entire balance of any Account of any single Account Debtor will be ineligible whenever the portion of the Account which has not been paid within [90] days from the invoice date is in excess of 20.000% of the total amount outstanding on the Account.   (12)   That portion of the Accounts of any single Account Debtor which exceeds 25.000% of all of Borrower's Accounts.   (13)   C.O.D. accounts, cash accounts, non-customer miscellaneous accounts and finance charges incurred on past due account balances.   (14)   Accounts in which the Borrower fails to provide Lender with requested financial information concerning the subject accounts. (Although certain concentrations are examined on a case-by-case basis, Lender's standard procedure is to request D & B reports or financial statements on all potential concentrations greater than 25%.)   (15)   Unbilled accounts receivable.   (16)   Accounts not due within sixty (60) days after the date of invoice.   (17)   Refundable maintenance contract accounts receivable.   (18)   Bonded accounts receivable.   (19)   Retainages (amounts withheld from billing and which may not be due depending on acceptable performance or completion of a contract.) Environmental Laws.  The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safely Code, Section 25100, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto. Event of Default.  The words "Event of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement. Expiration Date.  The words "Expiration Date" mean the date of termination of Lender's commitment to lend under this Agreement. GAAP.  The word "GAAP" means generally accepted accounting principles. -------------------------------------------------------------------------------- Grantor.  The word "Grantor" means each and all of the persons or entitles granting a Security Interest in any Collateral for the Loan, including without limitation all Borrowers granting such a Security Interest. Grantor.  The word "Grantor" means each and all of the persons or entities granting a Security Interest in any Collateral for the Loan, including without limitation Borrower. Hazardous Substances.  The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos. Indebtedness.  The word "Indebtedness" means the Indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other Indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents. Lender.  The word "Lender" means Mid-Peninsula Bank, its successors and assigns. Loan.  The word "Loan" means any and all loans and financial accommodations from Lender to Borrower made pursuant to this Agreement, or described on any exhibit or schedule attached to this Agreement from time to time, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions thereof. Note.  The word "Note" means the Note dated as of October 19, 2001, executed by Borrower, and in the principal amount of $5,000,000.00, together with all renewals of, extensions of, modifications of, refinancings of. consolidations of, and substitutions for the Note or this Agreement. Operating Expenses.  The words "Operating Expenses" mean (without repetition) the sum of (i) costs of sales, (ii) sales and marketing operating expenses, (iii) research and development operating expenses and (iv) general and administrative operating expenses, determined in accordance with GAAP. Permitted Acquisitions.  The words "Permitted Acquisitions" mean an acquisition (whether pursuant to an acquisition of stock, assets or otherwise) by Borrower of any entity or the assets of any entity which meets all of the following conditions: (i) the purchase price paid by Borrower pursuant to such acquisition consists solely of securities of Borrower; (ii) such entity is primarily engaged in a similar line of business as Borrower as of the date of this Agreement; (iii) more than 80 percent of the assets acquired or owned by the entity being acquired are located in the United States and such entity (in the case of a stock acquisition) is organized under the laws of the United States or a state thereof; (iv) immediately before and after giving effect to such acquisition, no Event of Default shall have occurred and be continuing or would result therefrom; (v) Borrower shall have delivered to Lender a pro forma financial statement for the period of four full fiscal quarters immediately preceding such acquisition (prepared in good faith and in a manner and using such methodology which is consistent with the most recent financial statements delivered to Lender) giving pro forma effect to the consummation of such acquisition and evidencing compliance with the financial covenants and ratios set forth above and in compliance with the financial ratios contained in any Related Documents; and (vi) Lender shall have received a true and complete copy of each purchase agreement, and all other material documents and instruments delivered in connection with the consummation of any Permitted Acquisition (the delivery of which would not violate any confidentiality obligations). -------------------------------------------------------------------------------- Permitted Indebtedness.  The words "Permitted Indebtedness" mean: (a) unsecured indebtedness (i) incurred in the ordinary course of business of Borrower or its Subsidiaries (including open accounts extended by suppliers on normal trade terms in connection with purchases of goods and services which are not overdue for a period of more than 90 days or, if overdue for more than 90 days, as to which a dispute exists and adequate reserves in conformity with GAAP have been established on the books of Borrower or such Subsidiary) and (ii) in respect of any performance, surety or appeal bonds provided in the ordinary course of business, which bonds are issued in accordance with an agreement approved by Lender; (b) indebtedness of any Subsidiary owing to Borrower or any other Subsidiary, which is not forgiven or otherwise discharged for any consideration other than payment in full or in part in cash; (c) indebtedness of Borrower and its Subsidiaries in respect of purchase money indebtedness for property and equipment purchased in the ordinary course of business consistent with any capital budget; and (d) indebtedness of Borrower and its Subsidiaries in respect of capitalized leases for equipment not in excess of the initial purchase price of such equipment. Permitted Investments.  The words "Permitted Investments" mean: (a) loans to officers and other key employees of Borrower and its Subsidiaries which (i) are made as book entries and in which no cash is actually advanced and which are made to permit the purchase of securities of Borrower and are secured by such securities and (ii) are made in cash in amounts not exceeding two hundred fifty thousand dollars ($250,000) in any one transaction and not exceeding (in the aggregate) one million dollars ($1,000,000) for all such transactions outstanding at any time; (b) (i) investments of cash balances in cash equivalents and short term investments, consistent with any investment guidelines and practices in effect on the date of this Agreement or as may from time to time be approved by Lender in writing and (ii) repurchases of common stock (1) pursuant to any agreements with employees providing for such repurchase at the time of execution thereof at a purchase price not exceeding the lesser of the fair market value of such stock or the purchase price for same actually paid by the employee, and (2) pursuant to any share repurchase program in effect on the date of this Agreement or in accordance with such other program as may from time to time be approved by Lender in writing; (c) without duplication, investments to the extent permitted as Permitted Indebtedness; (d) investments by way of contributions to capital or purchases of equity by Borrower in any Subsidiary that has guaranteed the Indebtedness, which guaranty shall be in a form and content prepared by and acceptable to Lender; (e) investments constituting (i) accounts receivable arising, (ii) trade debt granted, or (iii) deposits made in connection with the purchase price (or license or other similar fee) of goods or services, in each case in the ordinary course of business; and (f) Investments by way of Permitted Acquisitions in companies that have guaranteed the Indebtedness, which guaranty shall be in a form and content prepared by and acceptable to Lender. Permitted Liens.  The words "Permitted Liens" mean (1) liens and security interests securing Indebtedness (or other indebtedness) owed by Borrower to Lender; (2) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (3) liens of materialmen, mechanics, warehousemen, landlords or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (4) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or -------------------------------------------------------------------------------- permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens"; (5) liens of lessors in respect of equipment and other operating and capital leases of property leased in the ordinary course of business; (6) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; (7) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets; and (8) judgment liens (x) in an aggregate amount not exceeding at any one time $500,000 that have been outstanding less than 45 days, or (y) are covered by adequate insurance, or (z) the execution of which has been stayed. Related Documents.  The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan. Security Agreement.  The words "Security Agreement" mean (i) the Amended and Restated Commercial Security Agreement dated as of the date hereof and, (ii) in respect of any Other Collateral that may from time to time be pledged as collateral for the Loan, any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest in such Other Collateral. Security Interest.  The words "Security Interest" mean, without limitation, any and all types of collateral security, present and future, whether in the form of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise. Subsidiary.  Subsidiary means any corporation, limited liability company, limited partnership or other similar entity which is either eligible to be consolidated with Borrower in accordance with GAAP on the financial statements of Borrower or in which Borrower either directly or indirectly holds 50% or more of the outstanding capital stock, membership interests, partnership interest, or any other indicia of ownership. BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS DATED OCTOBER 19, 2001. BORROWER:   NIKU CORPORATION   By:       -------------------------------------------------------------------------------- Joshua Pickus, Chief Financial Officer of Niku Corporation   LENDER:   MID-PENINSULA BANK   By:       -------------------------------------------------------------------------------- Authorized Signer   -------------------------------------------------------------------------------- EXHIBIT "A" TO BUSINESS LOAN AGREEMENT -------------------------------------------------------------------------------- Principal Loan Date Maturity Loan No. Call/Coll Account Officer Initials $5,000,000.00 10-19-2001 07-02-2002   2000   024   -------------------------------------------------------------------------------- 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. Any item above containing "***" has been omitted due to text length limitations. -------------------------------------------------------------------------------- Borrower:   Niku Corporation 350 Convention Way Redwood City, CA 94063   Lender:   Mid-Peninsula Bank Palo Alto Main 420 Cowper Street Palo Alto, CA 94301 -------------------------------------------------------------------------------- This EXHIBIT "A" TO BUSINESS LOAN AGREEMENT is attached to and by this reference is made a part of the Business Loan Agreement (Asset Based), dated October 19, 2001, and executed in connection with a loan or other financial accommodations between MID-PENINSULA BANK and Niku Corporation. ADDITIONAL PROVISION As applicable, the definition(s) of the following financial covenants and/or defined terms contained in this Business Loan Agreement are amended to read as follows: Working Capital. The words "Working Capital" mean Borrower's current assets (excluding any prepaid expenses) less current liabilities. Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total assets excluding all intangible assets (i.e., goodwill, trademarks, patents, copyrights, franchises, capitalized software, covenants not to compete, organizational costs, investments, employee/owner and intercompany accounts receivable and similar intangible items) less total debt, excluding subordinated debt and less any accounts, accounts receivable, notes receivable or similar rights to payment from any Subsidiary. Cash Flow. The words "Cash Flow" mean Borrower's net income after taxes, exclusive of extraordinary gains and income, plus depreciation and amortization less cash dividends, distributions and withdrawals, and repurchase of treasury stock. Debt / Worth Ratio. The ratio "Debt / Worth" means Borrower's Total Liabilities, excluding subordinated debt, divided by Borrower's Tangible Net Worth. THIS EXHIBIT "A" TO BUSINESS LOAN AGREEMENT IS EXECUTED ON OCTOBER 19, 2001. BORROWER:   NIKU CORPORATION   By:       -------------------------------------------------------------------------------- Joshua Pickus, Chief Financial Officer of Niku Corporation   LENDER:   MID-PENINSULA BANK   By:       -------------------------------------------------------------------------------- Authorized Signer   -------------------------------------------------------------------------------- PROMISSORY NOTE—Asset Based Loan Agreement -------------------------------------------------------------------------------- Principal Loan Date Maturity Loan No. Call/Coll Account Officer Initials $5,000,000.00 10-19-2001 07-02-2002   2000   024   -------------------------------------------------------------------------------- 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. Any item above containing "***" has been omitted due to text length limitations. -------------------------------------------------------------------------------- Borrower:   Niku Corporation 350 Convention Way Redwood City, CA 94063   Lender:   Mid-Peninsula Bank Palo Alto Main 420 Cowper Street Palo Alto, CA 94301 -------------------------------------------------------------------------------- Principal Amount: $25,000,000.00 Rate: 7.000% Date of Note: October 19, 2001 PROMISE TO PAY.  ON DEMAND BY LENDER OR, IF NO DEMAND IS MADE, THEN OTHERWISE IN ACCORDANCE WITH THE COVENANTS, TERMS AND CONDITIONS OF THIS NOTE, Niku Corporation ("Borrower") promises to pay to Mid-Peninsula Bank ("Lender"), or order, in lawful money of the United States of America, the lesser of (1) the principal amount of Five Million & 00/100 Dollars ($5,000,000.00) and (2) the unpaid principal amount of all Advances (as such term is defined in the Business Loan Agreement (Asset Based)) made by Lender to Borrower as Loans under the Business Loan Agreement (Asset Based). Borrower promises to pay 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 may repay all or any portion of the amount of any Advance under the Business Loan Agreement (Asset Based) at any time (together with accrued but unpaid interest thereon), but in any case shall pay all outstanding amounts on July 2, 2002. All Advances, all interest, all Lender's Expenditures [as defined in the Business Loan Agreement (Asset Based)] and all attorneys' and other fees, charges, and other expenses which are from time to time due and payable as specified in this Agreement or any Related Document are and shall be due and payable on demand by Lender. Lender is hereby authorized and empowered to pay itself for any Advances, interest, Lender's Expenditures, and/or any attorneys' and other fees, charges, and other expenses which are from time to time due and payable as specified in this Agreement or any Related Document and charge same to any deposit or other accounts maintained or established by Borrower with Lender and/or to make Advances under this Note or any Related Document in connection with same. Absent any demand or payment by Lender to itself in accordance with the authority contained in this Note, Borrower will pay regular monthly payments of all accrued unpaid interest due as of each interest payment date, the first of which shall be November 15, 2001, with all subsequent interest payments to be due on the same day of each month after that. Unless otherwise agree or required by applicable law, payments will be applied first to any unpaid collection costs and late charges, next to accrued unpaid interest, and any remaining amount then to principal. The annual interest rate for this Note is 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. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. INTEREST RATE.  The interest rate on this Note is and shall be seven percent (7%) per annum compounded daily. NOTICE:  Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. PREPAYMENT; MINIMUM INTEREST CHARGE.  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. In any event, even upon full prepayment of the amounts outstanding at any time under this Note, -------------------------------------------------------------------------------- Borrower understands that Lender is entitled to a minimum interest charge of $250.00. Other than Borrower's obligation to pay any minimum interest charge, 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, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked "paid in full", "without recourse", or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: Mid-Peninsula Bank, Palo Alto Main, 420 Cowper Street, Palo Alto, CA 94301. LATE CHARGE.  If a payment is 10 days or more late, Borrower will be charged 5.000% of the unpaid portion of the regularly scheduled payment. INTEREST AFTER DEFAULT.  Upon Borrower's failure to pay all amounts declared due pursuant to this section, including failure to pay upon final maturity, Lender, at its option, may, if permitted under applicable law, increase the variable interest rate on this Note to 4.000 percentage points over the interest rate that would have been applicable had no such Event of Default occurred. DEFAULT.  Each of the following shall constitute an event of default ("Event of Default") under this Note: Payment Default.  Borrower fails to make any payment of principal when due or of interest within five (5) days of when due under this Note. Covenant Default.  A default or breach shall occur in Borrower's obligations under the section of the Business Loan Agreement entitled "Financial Covenants" or an event or condition exists and is continuing that, with the passage of time, the giving of notice or both would constitute breach or default under such section. Default in Favor of Third Parties.  Borrower or any Grantor 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 adversely affect Borrower's financial condition, operations or assets or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the related documents. False Statements.  Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the related documents is false or misleading in any material respect, either now or, in the case of representations made at the time of any Advance after the date hereof, at the time made or furnished. Insolvency.  The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. Creditor or Forfeiture Proceedings.  Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute. -------------------------------------------------------------------------------- Change In Ownership.  Any individual or entity (other than Borrower's chief executive officer) shall acquire of twenty-five percent (25%) or more of the common stock of Borrower. Adverse Change.  Lender believes the prospect of payment or performance of this Note is impaired. Other Defaults.  Either (a) Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note and such failure continues for ten (10) days after the date of written notice from Lender identifying such failure and/or (b) an Event of Default (as defined in such agreement) occurs in any of the Related Documents or in any other agreement between Lender and Borrower. Cure Provisions.  If any default, other than a default in payment is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured (and no event of default will have occurred) if Borrower, after receiving written notice from Lender demanding cure of such default: (1) cures the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. LENDER'S RIGHTS.  Upon the occurrence of an Event of Default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount. ATTORNEYS' FEES; EXPENSES.  Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including attorneys' fees, expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. Borrower also will pay any court costs, in addition to all other sums provided by law. GOVERNING LAW. This Note will be governed by, construed and enforced in accordance with federal law and the laws of the State of California. This Note has been accepted by Lender in the State of California. CHOICE OF VENUE.  If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Santa Clara County, State of California. COLLATERAL.  Borrower acknowledges this Note is secured by the Collateral as described in that certain Amended and Restated Commercial Security Agreement dated October 19, 2001. LINE OF CREDIT.  This Note evidences a revolving line of credit. Advances under this Note may be requested orally by Borrower or as provided in this paragraph. Lender may, but need not, require that all oral requests be confirmed in writing on the day of the request. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. The following persons currently are authorized, except as provided in this paragraph, to request advances and authorize payments under the line of credit until Lender receives from Borrower, at Lender's address shown above, written notice of revocation of their authority: Joshua Pickus, Chief Financial Officer of Niku Corporation; Farzad Dibachi, Chief Executive Officer of Niku Corporation; and Naomi Estep, Controller of Niku Corporation. 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 is in default under the terms of this Note or any agreement that Borrower has with Lender, including any agreement made in connection with the signing of this Note; (B) Borrower ceases doing business or is insolvent; or -------------------------------------------------------------------------------- (D) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender. BUSINESS LOAN AGREEMENT (ASSET BASED).  In addition to the terms and conditions contained in the Note, it is also subject to the terms and conditions contained in that certain Business Loan Agreement (Asset Based) dated as of October 19, 2001, executed by Borrower in favor of Lender. SUCCESSOR INTERESTS.  The terms of this Note shall be binding upon Borrower, and upon Borrower's heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns. GENERAL PROVISIONS.  Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower, to the extent allowed by law, waives any applicable statute of limitations, presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, Borrower shall not be released from liability. Borrower agrees that Lender may renew or extend (repeatedly and for any length of time) this Note and/or the Business Loan Agreement (Asset Based) or release any party 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. The obligations under this Note are joint and several. 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 THE NOTE. BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE. BORROWER:   NIKU CORPORATION   By:       -------------------------------------------------------------------------------- Joshua Pickus, Chief Financial Officer of Niku Corporation   -------------------------------------------------------------------------------- QuickLinks Exhibit 10.25 BUSINESS LOAN AGREEMENT (ASSET BASED) EXHIBIT "A" TO BUSINESS LOAN AGREEMENT PROMISSORY NOTE—Asset Based Loan Agreement

EXHIBIT 10(n) – FIRST AMENDMENT TO THE BRIDGE CREDIT AGREEMENT BEMIS COMPANY, INC. AND SUBSIDIARIES FIRST AMENDMENT              THIS FIRST AMENDMENT dated as of August 7, 2001 (this “Amendment”) amends the Bridge Credit Agreement dated as of January 12, 2001 (the “Credit Agreement”) among BEMIS COMPANY, INC., various financial institutions and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent.  Terms defined in the Credit Agreement are, unless otherwise defined herein or the context otherwise requires, used herein as defined therein.              WHEREAS, the Borrower, the Banks and the Administrative Agent have entered into the Credit Agreement; and              WHEREAS, the parties hereto desire to amend the Credit Agreement as set forth herein;              NOW, THEREFORE, the parties hereto agree as follows:              SECTION 1  Amendments.  Subject to the effectiveness hereof pursuant to Section 3, the Credit Agreement is amended as follows:   1.1  Addition of New Definition.  the following new definition is added to Section 1.1 in appropriate alphabetical order:          “2001 Senior Notes” means the senior notes issued by the Borrower in the third quarter of 2001 in an amount not   exceeding $250,000,000.              1.2  Amendment of Definition of Reduction Event.  Clause (c) of the definition of “Reduction Event” is amended by (a) deleting the word “or” at the end of clause (iii) and inserting a comma in its place, (b) adding the word “or” at the end of clause (iv) and (c) inserting the following new clause (v): “(v) the 2001 Senior Notes”.              SECTION 2  Representations and Warranties.  The Borrower represents and warrants to the Banks and the Agent that (a) each of the representations and warranties set forth in Section 5 of the Credit Agreement is true and correct as of the date hereof, with the same effect as if made on such date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they were true and correct as of such earlier date), (b) the execution and delivery hereof by the Borrower and the performance by the Borrower of its obligations under the Credit Agreement, as amended hereby (as so amended, the “Amended Credit Agreement”), (i) are within the corporate powers of the Borrower, (ii) have been duly authorized by all necessary action on the part of the Borrower, (iii) have received all necessary governmental approval and (iv) do not and will not contravene or conflict with (x) any provision of applicable law or the certificate of incorporation or by-laws or other organizational documents of the Borrower or (y) any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower and (c) the Amended Credit Agreement is a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws of general application affecting the enforcement of creditors’ rights or by general principles of equity limiting the availability of equitable remedies.              SECTION 3  Effectiveness.  The amendments set forth in Section 1 above shall become effective when the Administrative Agent shall have received (by facimile or otherwise) counterparts of this Amendment executed by the Company and the Required Banks.              SECTION 4  Miscellaneous.              4.1  Counterparts.  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 one and the same Amendment.              4.2  Expenses.  The Borrower agrees to pay all reasonable expenses of the Administrative Agent, including reasonable fees and charges of special counsel to the Administrative Agent, in connection with the preparation, execution and delivery of this Amendment.              4.3  Governing Law.  This Amendment shall be construed in accordance with and governed by the law of the State of New York.              4.4  Successors and Assigns.  This Amendment shall be binding upon the Borrower, the Banks and the Administrative Agent and their respective successors and assigns, and shall inure to the benefit of the Borrower, the Banks and the Administrative Agent and the respective successors and assigns of the Banks and the Administrative Agent.              IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.       BEMIS COMPANY, INC.             By:         --------------------------------------------------------------------------------     Title:         --------------------------------------------------------------------------------             MORGAN GUARANTY TRUST COMPANY OF NEW     YORK, as Administrative Agent             By:         --------------------------------------------------------------------------------     Title:         --------------------------------------------------------------------------------             BANK ONE, NA (Main Office Chicago)             By:         --------------------------------------------------------------------------------     Title:         --------------------------------------------------------------------------------             WACHOVIA BANK, N.A.             By:         --------------------------------------------------------------------------------     Title:         --------------------------------------------------------------------------------             WELLS FARGO BANK, NATIONAL ASSOCIATION             By:         --------------------------------------------------------------------------------     Title:         --------------------------------------------------------------------------------             By:         --------------------------------------------------------------------------------     Title:         --------------------------------------------------------------------------------             U.S. BANK NATIONAL ASSOCIATION             By:         --------------------------------------------------------------------------------     Title:         --------------------------------------------------------------------------------             BBL INTERNATIONAL (U.K.) LIMITED             By:         --------------------------------------------------------------------------------     Title:         --------------------------------------------------------------------------------             By:         --------------------------------------------------------------------------------     Title:         --------------------------------------------------------------------------------    

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.35 EXECUTIVE CHANGE IN CONTROL SEVERANCE BENEFITS AGREEMENT     This EXECUTIVE CHANGE IN CONTROL SEVERANCE BENEFITS AGREEMENT (the "Agreement") is entered into as of the       day of            , 2001 (the "Effective Date"), between              ("Executive") and ONYX PHARMACEUTICALS, INC. (the "Company"). This Agreement is intended to provide Executive with the compensation and benefits described herein upon the occurrence of specific events. Certain capitalized terms used in this Agreement are defined in Article 5.     The Company and Executive hereby agree as follows: ARTICLE 1 SCOPE OF AND CONSIDERATION FOR THIS AGREEMENT     1.1  Executive is currently employed by the Company.     1.2  The Company and Executive wish to set forth the compensation and benefits that Executive shall be entitled to receive in the event of a Change in Control or upon certain terminations of employment occurring within thirteen (13) months following a Change in Control (each a "Covered Termination").     1.3  The duties and obligations of the Company to Executive under this Agreement shall be in consideration for Executive's past services to the Company, Executive's continued employment with the Company, and, with respect to the benefits described in Article 2, Executive's execution of a release in accordance with Section 3.1.     1.4  This Agreement shall supersede any other policy, plan, program or arrangement, including, without limitation, a contract between Executive and any entity, relating to severance benefits payable by the Company to the Executive. ARTICLE 2 CHANGE IN CONTROL BENEFITS AND SEVERANCE BENEFITS     2.1  Change in Control Benefits.  A Change in Control shall entitle Executive to receive the benefits provided in Article 2.7 with respect to a Change in Control.     2.2  Severance Benefits.  If Executive's employment terminates due to an Involuntary Termination Without Cause or a Constructive Termination within thirteen (13) months following the effective date of a Change in Control, such termination of employment will be deemed a Covered Termination. A Covered Termination shall entitle Executive to receive the following benefits set forth in Sections 2.3, 2.4, 2.5, 2.6 and 2.7.     2.3  Salary Continuation.  Executive shall continue to receive Base Salary for [nine (9)] [eighteen (18)] months following a Covered Termination. Such amount shall be paid in a lump sum and shall be subject to all required tax withholding.     2.4  Continued Health Insurance Benefits.  Provided that Executive elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), the Company shall pay the portion of premiums of Executive's group medical, dental and vision coverage, including coverage for Executive's eligible dependents, that the Company paid prior to the Covered Termination. The number of months of such premium payments shall equal the number of months of salary continuation payments pursuant to Section 2.3 above, but in no event shall such premium payments be made for a period exceeding [nine (9)/eighteen (18)] months or be made following the effective date of 1 -------------------------------------------------------------------------------- Executive's coverage by a medical, dental or vision insurance plan of a subsequent employer. Executive shall be required to notify the Company immediately if Executive becomes covered by a medical, dental or vision insurance plan of a subsequent employer.     No provision of this Agreement shall affect the continuation coverage rules under COBRA, except that the Company's payment of any applicable insurance premiums during the period of salary continuation shall be credited as a payment by Executive for purposes of Executive's payment required under COBRA. Therefore, the period during which Executive must elect to continue the Company's group medical coverage at Executive's own expense under COBRA, the length of time during which COBRA coverage will be made available to Executive, and all other rights and obligations of Executive under COBRA (except the obligation to pay insurance premiums that the Company pays during the period of salary continuation) shall be applied in the same manner that such rules would apply in the absence of this Agreement. At the conclusion of the period of salary continuation during which the Company will pay a portion of the premiums for Executive's group medical, dental and vision coverage, Executive shall be responsible for the entire payment of premiums required under COBRA for the duration of the COBRA period. For purposes of this Section 2.4, applicable premiums that will be paid by the Company shall not include any amounts payable by Executive under an Internal Revenue Code Section 125 health care reimbursement plan, which amounts, if any, are the sole responsibility of Executive.     2.5  Continued Life Insurance Benefit.  The Company shall pay the portion of the premiums of Executive's group life insurance coverage that the Company paid prior to the Covered Termination. The number of months of such premium payments shall be equal to the number of months of salary continuation payments pursuant to Section 2.3 above, but in no event shall such premium payments be made for a period exceeding [nine (9)/eighteen (18)] months or be made following the effective date of Executive's coverage by a life insurance plan or policy of a subsequent employer. Executive shall be required to notify the Company immediately if Executive becomes covered by a life insurance plan or policy of a subsequent employer.     2.6  Outplacement Services.  On behalf of Executive, the Company shall pay for outplacement services for one year with an outplacement service provider selected by the Company; provided, however, that the total cost to the Company of such outplacement services shall not exceed [fifteen thousand dollars ($15,000)/twenty five thousand dollars ($25,000)].     2.7  Acceleration of Vesting.  Effective as of the date of the Change in Control, the vesting and exercisability of fifty percent (50%) of the options to purchase the Company's Common Stock (or other stock awards granted by the Company) that are held by Executive on such date shall be accelerated in full, and such options shall be exercisable by Executive for twelve (12) months following any subsequent termination of Executive's employment but in case beyond the relevant expiration dates of such options. Such acceleration shall occur on a pro rata basis with respect to all outstanding stock awards, such that the accelerated vesting percentage of shares that would otherwise vest at future vesting dates shall become immediately vested. Effective as of the date of a Covered Termination, the vesting and exercisability of all options to purchase the Company's Common Stock (or other stock awards granted by the Company) that are held by Executive on such date shall be accelerated in full, and such options shall be exercisable by Executive for twelve (12) months following such date. Notwithstanding the preceding provisions of this Section 2.7, if a Change in Control transaction is to be accounted for under the "pooling of interests" accounting method pursuant to generally accepted accounting principles, and the acceleration of the vesting and exercisability of Executive's options (or other stock awards), as provided for under this Section 2.7 with respect to such Change in Control transaction, would cause such Change in Control transaction to become ineligible to be accounted for as a "pooling of interests" transaction, then such acceleration shall not occur. 2 --------------------------------------------------------------------------------     2.8  Mitigation.  Except as otherwise specifically provided herein, Executive shall not be required to mitigate damages or the amount of any payment provided under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as a result of employment by another employer or by any retirement benefits received by Executive after the date of a Covered Termination. ARTICLE 3 LIMITATIONS AND CONDITIONS ON BENEFITS     3.1  Release Prior to Payment of Benefits.  Upon the occurrence of a Change in Control or a Covered Termination, and prior to the provision or payment of any benefits under this Agreement on account of such Change in Control or Covered Termination, Executive shall execute a release in the form attached hereto and incorporated herein as, with respect to a Change in Control, Exhibit A and, with respect to a Covered Termination, Exhibit B[, Exhibit C and Exhibit D], as applicable (each a "Release"). Such Release shall specifically relate to all of Executive's rights and claims in existence at the time of such execution and shall confirm Executive's obligations under the Company's standard form of proprietary information and inventions agreement. It is understood that, as specified in the applicable Release, Executive has a certain number of calendar days to consider whether to execute such Release. If Executive does not execute such Release within the applicable period, no benefits shall be provided or payable under this Agreement pursuant to the Change in Control or Covered Termination, whichever is applicable. It is further understood that if Executive is age 40 or older at the time of a Covered Termination, Executive may revoke the applicable Release within seven (7) calendar days after its execution. If Executive revokes such Release within such subsequent seven (7) day period, no benefits shall be provided or payable under this Agreement pursuant to such Covered Termination.     3.2  Parachute Payments.  If any payment or benefit Executive would receive in connection with a Change in Control from the Company or otherwise ("Payment") would (i) constitute a "parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then such Payment shall be reduced to the Reduced Amount. The "Reduced Amount" shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (y) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in Executive's receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting "parachute payments" is necessary so that the Payment equals the Reduced Amount, reduction shall occur in the following order unless Executive elects in writing a different order (provided, however, that such election shall be subject to Company approval if made on or after the date on which the event that triggers the Payment occurs): reduction of employee benefits; cancellation of accelerated vesting of stock awards; reduction of cash payments. In the event that acceleration of vesting of stock award compensation is to be reduced, such acceleration of vesting shall be canceled in the reverse order of the date of grant of Executive's stock awards unless Executive elects in writing a different order for cancellation.     The accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Change in Control shall perform the foregoing calculations. If the accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Company shall appoint a nationally recognized accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder. 3 --------------------------------------------------------------------------------     The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and Executive within fifteen (15) calendar days after the date on which Executive's right to a Payment is triggered (if requested at that time by the Company or Executive) or such other time as requested by the Company or Executive. If the accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it shall furnish the Company and Executive with an opinion reasonably acceptable to Executive that no Excise Tax will be imposed with respect to such Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and Executive.     For purposes of illustrating the intended operation of this Section 3.2, the following examples are provided:     Example 1:  Assume Executive's base amount calculated in accordance with Question and Answer 34 of Proposed Treasury Regulation Section 1.280G-1 is $300,000. Assume further that upon a Covered Termination, Executive would receive $5,000 in health insurance benefits, $225,000 in severance payments, and $674,000 in stock option acceleration valued in accordance with Question and Answer 24 of Proposed Treasury Regulation Section 1.280G-1. Assume further that Executive has a marginal income tax rate of 50%. In this example, Executive's benefits payable pursuant to this Agreement have a value, for purposes of the 20% excise tax under Section 4999 of the Code, of $904,000. Because $904,000 equals or exceeds three times Executive's base amount of $900,000, Executive is subject to the 20% excise tax under Section 4999 of the Code. In the absence of Section 3.2 of this Agreement, upon receipt of the benefits described above, Executive would pay income tax on the severance payment equal to $112,500 (50% × $225,000) and excise tax of $120,800 (20% × ($904,000 - $300,000)). (The excise tax is paid on the excess of the value of payments and benefits triggered by the change in control less the Executive's base amount.) However, if effect were given to Section 3.2 of this Agreement, Executive's benefit would be cut back to provide Executive with greater after tax benefits as follows: Instead of receiving $5,000 in health insurance benefits, Executive would receive $999 in health insurance benefits. As a result of the reduction in health insurance benefits, Executive's benefits payable pursuant to this Agreement would have a value for excise tax purposes of $899,999, which would not equal or exceed three times Executive's base amount and Executive would not be subject to the 20% excise tax. In this example, the $4,001 cut back of health insurance benefits payable to Executive saved $120,800 in excise tax.     Example 2:  Assume the same facts as in Example 1, but the value of the severance payments due Executive is $700,000 instead of $225,000. In this example, Executive's benefits payable pursuant to this Agreement are valued for excise tax purposes at $1,379,000. Because $1,379,000 equals or exceeds three times Executive's base amount of $900,000, Executive is subject to the 20% excise tax of $215,800 (20% × ($1,379,000 - $300,000)). If Executive's benefits were cut back, Executive would avoid the $215,800 excise tax, but he would also forfeit $5,000 in health insurance benefits and $474,001 in severance payments. Pursuant to Section 3.2 of this Agreement, Executive would receive all of the benefits payable under this Agreement and pay the excise tax because that will put him in a better after tax position.     3.3  Certain Reductions and Offsets.  To the extent that any federal, state or local laws, including, without limitation, so-called "plant closing" laws, require the Company to give advance notice or make a payment of any kind to Executive because of Executive's involuntary termination due to a layoff, reduction in force, plant or facility closing, sale of business, change in control, or any other similar event or reason, the benefits payable under this Agreement shall be correspondingly reduced. The benefits provided under this Agreement are intended to satisfy any and all statutory obligations that may arise out of Executive's involuntary termination of employment for the foregoing reasons, and the parties shall so construe and enforce the terms of the Agreement. 4 -------------------------------------------------------------------------------- ARTICLE 4 OTHER RIGHTS AND BENEFITS     Nothing in the Agreement shall prevent or limit Executive's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices provided by the Company and for which Executive may otherwise qualify, nor shall anything herein limit or otherwise affect such rights as Executive may have under other agreements with the Company except as provided in Section 1.4 above. Except as otherwise expressly provided herein, amounts that are vested benefits or that Executive is otherwise entitled to receive under any plan, policy, practice or program of the Company at or subsequent to the date of a Change in Control shall be payable in accordance with such plan, policy, practice or program. ARTICLE 5 DEFINITIONS     For purposes of the Agreement, the following terms are defined as follows:     5.1  "Base Salary" means Executive's annual base salary as in effect during the last regularly scheduled payroll period immediately preceding the effective date of the Change in Control or as increased thereafter.     5.2  "Board" means the Board of Directors of the Company.     5.3  "Change in Control" means one or more of the following events:     (a) There is consummated a sale or other disposition of all or substantially of assets of the Company (other than a sale to an entity where at least fifty percent (50%) of the combined voting power of the voting securities of such entity are owned by the stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale).     (b) Any person, entity or group (other than the Company, a subsidiary or affiliate of the Company, or a Company employee benefit plan, including any trustee of such plan acting as trustee) becomes the beneficial owner, directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities other than by virtue of a merger, consolidation or similar transaction.     (c) There is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such transaction, the stockholders immediately prior to the consummation of such transaction do not own, directly or indirectly, outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving entity in such transaction or more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving entity in such transaction.     5.4  "Company" means Onyx Pharmaceuticals, Inc. or, following a Change in Control, the surviving entity resulting from such transaction, or any subsequent surviving entity resulting from any subsequent Change in Control.     5.5  "Constructive Termination" means that Executive voluntarily terminates employment after one of the following is undertaken without Executive's express written consent:     (a) the assignment to Executive of duties or responsibilities that results in a material diminution in Executive's function as in effect immediately prior to the effective date of the Change in Control; 5 --------------------------------------------------------------------------------     (b) a reduction in Executive's Base Salary, unless the reduction is made pursuant to an across-the-board reduction of the base salaries of all executive officers of the Company of no more than ten percent (10%);     (c) a change in Executive's business location of more than fifteen (15) miles from the business location immediately prior to the effective date of the Change in Control;     (d) a material breach by the Company of any provision of this Agreement; or     (e) any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company, such assumption to be effective no later than the effective date of a Change in Control.     5.6  "Covered Termination" means an Involuntary Termination Without Cause or a Constructive Termination, either of which occurs within thirteen (13) months following the effective date of a Change in Control.     5.7  "Involuntary Termination Without Cause" means Executive's dismissal or discharge for reasons other than Cause. For this purpose, "Cause" means that, in the reasonable determination of the Company, Executive (i) has committed an intentional act or acted with gross negligence that has materially injured the business of the Company; (ii) has intentionally refused or failed to follow lawful and reasonable directions of the Board or the appropriate individual to whom Executive reports; (iii) has willfully and habitually neglected Executive's duties for the Company; or (iv) has been convicted of a felony involving moral turpitude that is likely to inflict or has inflicted material injury on the business of the Company. Notwithstanding the foregoing, Cause shall not exist based on conduct described in clause (ii) or (iii) unless the conduct described in such clause has not been cured within fifteen (15) days following Executive's receipt of written notice from the Company specifying the particulars of the conduct constituting Cause. ARTICLE 6 GENERAL PROVISIONS     6.1  Employment Status.  This Agreement does not constitute a contract of employment or impose upon Executive any obligation to remain as an employee, or impose on the Company any obligation (i) to retain Executive as an employee, (ii) to change the status of Executive as an at-will employee or (iii) to change the Company's policies regarding termination of employment.     6.2  Notices.  Any notices provided hereunder must be in writing, and such notices or any other written communication shall be deemed effective upon the earlier of personal delivery (including personal delivery by facsimile) or the third day after mailing by first class mail, to the Company at its primary office location and to Executive at Executive's address as listed in the Company's payroll records. Any payments made by the Company to Executive under the terms of this Agreement shall be delivered to Executive either in person or at the address as listed in the Company's payroll records.     6.3  Severability.  Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein.     6.4  Waiver.  If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement. 6 --------------------------------------------------------------------------------     6.5  Arbitration.  Unless otherwise prohibited by law or specified below, all disputes, claims and causes of action, in law or equity, arising from or relating to this Agreement or its enforcement, performance, breach, or interpretation shall be resolved solely and exclusively by final and binding arbitration held in the San Francisco Bay Area through Judicial Arbitration & Mediation Services/Endispute ("JAMS") under the then existing JAMS employment law arbitration rules. However, nothing in this Section 6.5 is intended to prevent either party from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Each party in any such arbitration shall be responsible for its own attorneys' fees, costs and necessary disbursement; provided, however, that in the event one party refuses to arbitrate and the other party seeks to compel arbitration by court order, if such other party prevails, it shall be entitled to recover reasonable attorneys' fees, costs and necessary disbursements. Pursuant to California Civil Code Section 1717, each party warrants that it was represented by counsel in the negotiation and execution of this Agreement, including the attorneys' fees provision herein.     6.6  Complete Agreement.  This Agreement, including Exhibit A, Exhibit B and Exhibit C, constitutes the entire agreement between Executive and the Company and is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter, wholly superseding all written and oral agreements with respect to payments and benefits to Executive in the event of employment termination. It is entered into without reliance on any promise or representation other than those expressly contained herein.     6.7  Amendment or Termination of Agreement; Continuation of Agreement.  This Agreement may be changed or terminated only upon the mutual written consent of the Company and Executive. The written consent of the Company to a change or termination of this Agreement must be signed by an executive officer of the Company (other than Executive) after such change or termination has been approved by the Board. Unless so terminated, this Agreement shall continue in effect for as long as Executive continues to be employed by the Company or by any surviving entity following any Change in Control. In other words, if, following a Change in Control, the Executive continues to be employed by the surviving entity without a Covered Termination and the surviving entity then undergoes a Change in Control, following which Executive is terminated by the subsequent surviving entity in a Covered Termination, then Executive shall receive the benefits described in Section 2 hereof.     6.8  Counterparts.  This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement.     6.9  Headings.  The headings of the Articles and Sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof.     6.10  Successors and Assigns.  This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, and the Company, and any surviving entity resulting from a Change in Control and upon any other person who is a successor by merger, acquisition, consolidation or otherwise to the business formerly carried on by the Company, and their respective successors, assigns, heirs, executors and administrators, without regard to whether or not such person actively assumes any rights or duties hereunder; provided, however, that Executive may not assign any duties hereunder and may not assign any rights hereunder without the written consent of the Company, which consent shall not be withheld unreasonably.     6.11  Choice of Law.  All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of California, without regard to such state's conflict of laws rules. 7 --------------------------------------------------------------------------------     6.12  Non-Publication.  The parties mutually agree not to disclose publicly the terms of this Agreement except to the extent that disclosure is mandated by applicable law or to respective advisors (e.g., attorneys, accountants).     6.13  Construction of Agreement.  In the event of a conflict between the text of the Agreement and any summary, description or other information regarding the Agreement, the text of the Agreement shall control.     IN WITNESS WHEREOF, the parties have executed this Agreement on the Effective Date written above.           ONYX PHARMACEUTICALS, INC.   [EXECUTIVE]           By:             --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Name:     Title:             8 -------------------------------------------------------------------------------- Exhibit A:   Release (Change in Control) Exhibit B:   Release (Individual Termination—Age 40 or Older) Exhibit C:   Release (Individual and Group Termination—Under Age 40) Exhibit D:   Release (Group Termination—Age 40 or Older) 9 -------------------------------------------------------------------------------- EXHIBIT A RELEASE (CHANGE IN CONTROL)     Certain capitalized terms used in this Release are defined in the Executive Severance Benefits Agreement (the "Agreement") which I have executed and of which this Release is a part.     I hereby confirm my obligations under the Company's proprietary information and inventions agreement.     I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: "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." I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company.     Except as otherwise set forth in this Release, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to the date I execute this Release, including, but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal Employee Retirement Income Security Act of 1974, as amended; the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company's indemnification obligation pursuant to agreement or applicable law.     I also acknowledge that I am knowingly and voluntarily waiving and releasing any right I may have under the ADEA. I also acknowledge that the consideration given under the Agreement for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing that: (A) my waiver and release do not apply to any rights or claims that may arise on or after the date I execute this Release; (B) I have the right to consult with an attorney prior to executing this Release; and (C) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily execute this Release earlier).   [EXECUTIVE]           --------------------------------------------------------------------------------   Date:           -------------------------------------------------------------------------------- 10 -------------------------------------------------------------------------------- EXHIBIT B RELEASE (INDIVIDUAL TERMINATION—AGE 40 OR OLDER)     Certain capitalized terms used in this Release are defined in the Executive Severance Benefits Agreement (the "Agreement") which I have executed and of which this Release is a part.     I hereby confirm my obligations under the Company's proprietary information and inventions agreement.     I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: "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." I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company.     Except as otherwise set forth in this Release, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to the date I execute this Release, including, but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal Employee Retirement Income Security Act of 1974, as amended; the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company's indemnification obligation pursuant to agreement or applicable law.     I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under ADEA. I also acknowledge that the consideration given under the Agreement for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (A) my waiver and release do not apply to any rights or claims that may arise on or after the date I execute this Release; (B) I have the right to consult with an attorney prior to executing this Release; (C) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily execute this Release earlier); (D) I have seven (7) days following my execution of this Release to revoke the Release; and (E) this Release shall not be effective until the date upon which the revocation period has expired, which shall be the eighth (8th) day after I execute this Release.   [EXECUTIVE]           --------------------------------------------------------------------------------   Date:           -------------------------------------------------------------------------------- 11 -------------------------------------------------------------------------------- EXHIBIT C RELEASE (INDIVIDUAL AND GROUP TERMINATION—UNDER AGE 40)     Certain capitalized terms used in this Release are defined in the Executive Severance Benefits Agreement (the "Agreement") which I have executed and of which this Release is a part.     I hereby confirm my obligations under the Company's proprietary information and inventions agreement.     I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: "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." I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company.     Except as otherwise set forth in this Release, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to the date I execute this Release, including, but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Employee Retirement Income Security Act of 1974, as amended; the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company's indemnification obligation pursuant to agreement or applicable law.     I acknowledge that the consideration given under the Agreement for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing that: (A) my waiver and release do not apply to any rights or claims that may arise on or after the date I execute this Release; (B) I have the right to consult with an attorney prior to executing this Release; and (C) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily execute this Release earlier).   [EXECUTIVE]           --------------------------------------------------------------------------------   Date:           -------------------------------------------------------------------------------- 12 -------------------------------------------------------------------------------- EXHIBIT D RELEASE (GROUP TERMINATION—AGE 40 OR OLDER)     Certain capitalized terms used in this Release are defined in the Executive Severance Benefits Agreement (the "Agreement") which I have executed and of which this Release is a part.     I hereby confirm my obligations under the Company's proprietary information and inventions agreement.     I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: "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." I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company.     Except as otherwise set forth in this Release, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to the date I execute this Release, including, but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal Employee Retirement Income Security Act of 1974, as amended; the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company's indemnification obligation pursuant to agreement or applicable law.     I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the consideration given under the Agreement for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (A) my waiver and release do not apply to any rights or claims that may arise on or after the date I execute this Release; (B) I have the right to consult with an attorney prior to executing this Release; (C) I have forty-five (45) days to consider this Release (although I may choose to voluntarily execute this Release earlier); (D) I have seven (7) days following my execution of this Release to revoke the Release; (E) this Release shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day (8th) after I execute this Release; and (F) I have received with this Release a detailed list of the job titles and ages of all employees who were terminated in this group termination and the ages of all employees of the Company in the same job classification or organizational unit who were not terminated.   [EXECUTIVE]           --------------------------------------------------------------------------------   Date:           -------------------------------------------------------------------------------- 13 -------------------------------------------------------------------------------- QuickLinks Exhibit 10.35

EXHIBIT 10(d)   OPEN-END MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING Maximum Principal Amount Not to Exceed $ 475,000,000 THIS OPEN-END MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING (as the same may from time to time be amended, restated or otherwise modified, this "Agreement") is made as of the 29th day of June, 2001, by ABX AIR, INC., a corporation organized under the laws of Delaware ("ABX"), having its principal place of business at 145 Hunter Drive Wilmington, Ohio 45177, WILMINGTON AIR PARK, INC., a corporation organized under the laws of Ohio ("Air Park"), having its principal place of business at 145 Hunter Drive Wilmington, Ohio 45177, AVIATION FUEL INC., a corporation organized under the laws of Ohio ("Aviation Fuel"), having its principal place of business at 145 Hunter Drive Wilmington, Ohio 45177 (individually, a "Mortgagor," and, collectively, "Mortgagor"), in favor of 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 equal and ratable benefit 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 the Closing Date, by and among Airborne Express, Inc., a Delaware corporation ("Express") and formerly known as Airborne Freight Corporation, a Delaware corporation ("AFC"), ABX Air, Inc. ("ABX" and Express, each, a "Borrower" and together, jointly and severally, the "Borrowers"), Airborne, Inc., a Delaware corporation, as the "Parent," 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 due 2005, 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 any Mortgagor from creating any security interests in certain of the Mortgagors' 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 Mortgagors shall have executed and delivered to the Collateral Agent this Agreement. (8)                The Mortgagors desire to execute this Agreement to satisfy the conditions described in the preceding paragraphs (5) and (7). NOW, THEREFORE, TO SECURE TO COLLATERAL AGENT, for the equal and ratable benefit of the Secured Creditors, all of the Secured Obligations, as hereinafter defined, Mortgagors do hereby MORTGAGE, GRANT, CONVEY AND ASSIGN to Collateral Agent, for the equal and ratable benefit of the Secured Creditors, the Property, as hereinafter defined. TO HAVE AND TO HOLD the Property unto the Collateral Agent for the equal and ratable benefit of the Secured Creditors, forever. And Mortgagors represent and warrant that (i) Mortgagors are lawfully seized of the estate hereby conveyed and have the right to mortgage, grant, convey and assign the Property, (ii) the Property is unencumbered except for the Permitted Encumbrances, and (iii) Mortgagors will warrant and defend generally the title to the Property against all claims and demands whatsoever, except as aforesaid. Mortgagors covenant and agree as follows: 1.                                           DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: "Aggregate Principal Obligations" shall mean the sum of (a) the Indenture Principal Obligations, plus (b) the Facility Principal Obligations. "Agreement" shall mean this Security Agreement as the same may be modified, supplemented or amended from time to time in accordance with its terms. "Borrower" shall have the meaning provided in the Preliminary Statements of this Agreement. "Collateral Agent" shall have the meaning provided in the first paragraph of this Agreement. "Collateral Agent Expenses" shall mean (a) all costs or expenses which any Mortgagor 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 any Mortgagor 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 Property, 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. "Contract Rights" shall mean all rights of an Mortgagor under any Scheduled Contract but shall not include the right to payment thereunder. "Credit Agreement" shall have the meaning provided in the Preliminary Statements of this Agreement. "Documents" shall have the meaning assigned that term under the UCC. "Event of Default," as used in this Agreement, unless otherwise stated, shall have the same meaning given such term in the Credit Agreement. "Facility Notes" shall have 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. "General Intangibles" shall have the meaning assigned that term under the UCC. "Goods" shall have the meaning assigned that term under the UCC. "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 any Mortgagor for the equal and ratable 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, as to any Mortgagor, the Information Disclosure Certificate delivered by or on behalf of such Mortgagor pursuant to the Credit Agreement. "Instrument" shall have the meaning assigned that term under the UCC. "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 24(b). "Mortgagor" or "Mortgagor" shall have the meaning provided in the first paragraph of this Agreement, and their successors and assigns. "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). "Permitted Encumbrances" shall have the meaning given such term in the Credit Agreement. "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 an Mortgagor from time to time with respect to any of the Property, (ii) any and all payments (in any form whatsoever) made or due and payable to an Mortgagor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Property 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 the Mortgagors resulting from the sale (authorized or unauthorized) or other disposition of the Property, including, without limitation, the net earnings of any lease or other agreement relative to the use of the Property, 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 Property. "Property" shall mean all of the real property described on Exhibit A attached hereto and made a part hereof, together with all present and future right, title and interest of Mortgagors therein or in any way appertaining thereto, and all buildings, improvements and tenements now or hereafter erected on the property, and all heretofore or hereafter vacated alleys and streets abutting the property, and all easements, rights, appurtenances, rents, royalties, mineral, oil and gas rights and profits, water, water rights, and water stock appurtenant to the property, and all fixtures, machinery, equipment, engines, boilers, incinerators, building materials, appliances and goods of every nature whatsoever now or hereafter owned by Mortgagors and located in, or on, or used, or intended to be used in connection with the property, including, but not limited to, those for the purposes of supplying or distributing heating, cooling, electricity, gas, water, air and light; all cranes and materials handling equipment; and all elevators, and related machinery and equipment, fire prevention and extinguishing apparatus, security and access control apparatus, plumbing, bath tubs, water heaters, water closets, stoves, refrigerators, dishwashers, disposals, washers, dryers, awnings, storm windows, storm doors, screens, blinds, shades, curtains and curtain rods, mirrors, cabinets, paneling, rugs, attached floor coverings, furniture, fixtures, equipment; and all rentals, revenues, payments, repayments, deposits, income, charges and moneys derived from the use, lease, sublease, rental or other disposition of the property and the proceeds from any insurance or condemnation award pertaining thereto; and all other property (tangible and intangible) now owned or hereafter acquired by Mortgagors and used in, on or about the subject real estate or arising from the operation of the property, all of which, including replacements and additions thereto and proceeds therefrom, shall be deemed to be and remain a part of the real property covered by this Agreement. The Property shall constitute "Collateral" as such term is used in the Credit Agreement. "Secured Creditors" shall have the meaning provided in the Preliminary Statements of this Agreement. "Secured Obligations" shall mean each of the following: (a)                the Borrowers' 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 any Mortgagor arising under or in connection with the Indenture Documents; and (c)                all obligations and liabilities of any Mortgagor under this Agreement, any Subsidiary Guaranty, Parent Guaranty, or any other Loan Document to which any Mortgagor is a party; and (d)                all obligations and liabilities of any Mortgagor under the Indenture Documents to which it is a party; and (e)                all other obligations and liabilities owing by any Mortgagor 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. "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 Ohio, 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. Except as specifically defined herein, capitalized terms used herein that are defined in the Credit Agreement shall have their respective meanings ascribed to them in the Credit Agreement. 2.                                           PAYMENT OF SECURED OBLIGATIONS. Mortgagors shall promptly pay and perform all of the Secured Obligations when due. 3.                                           OPEN-END MORTGAGE. This Agreement is an Open-End Mortgage under Section 5301.232 of the Ohio Revised Code and is intended to secure all of the Secured Obligations, including, without limitation, such Secured Obligations that may be advanced to or payable by Mortgagors or Borrowers after the date of this Agreement. This Agreement shall secure the maximum principal amount of up to Four Hundred Seventy Five Million Dollars ($475,000,000), together with interest thereon and such other amounts as shall become due and owing to Collateral Agent, for the benefit of the Secured Creditors, from Mortgagors pursuant this Agreement. 4.                                           INSURANCE. Mortgagors shall keep all improvements now existing or hereafter erected on the Property insured against loss by fire and such other hazards, casualties, and contingencies in accordance with the Credit Agreement. In the event of foreclosure of this Agreement, all right, title, and interest of Mortgagors in and to any insurance policies then in force shall pass to the purchaser at foreclosure sale, and Collateral Agent is hereby appointed attorney in fact for Mortgagors for the purpose of assigning and transferring such policies and receiving all or any part of the proceeds therefrom. The insurance proceeds or any part thereof may be applied by Collateral Agent, at Collateral Agent's option, either to the reduction of the Secured Obligations or to restoration or repair of the property damaged. 5.                                           FUNDS FOR TAXES, INSURANCE AND OTHER CHARGES. Upon default in payment by Mortgagors of any of the following described items, or upon the occurrence of an Event of Default, as hereinafter defined, Collateral Agent shall have the right, at Collateral Agent's option, to require Mortgagors to pay to Collateral Agent on the first day of each month, until the Secured Obligations shall have been paid in full, a sum (herein "Funds") equal to one-twelfth of (a) the yearly water and sewer rates and taxes and assessments that may be levied on the Property and (b) the yearly premium installments for fire and other hazard insurance, rent loss insurance (if applicable) and such other insurance covering the Property as Collateral Agent may require pursuant to the Credit Agreement, all as reasonably estimated initially and from time to time by Collateral Agent on the basis of assessments and bills and reasonable estimates thereof. Any waiver by Collateral Agent of a requirement that Mortgagors pay such Funds may be revoked by Collateral Agent, in Collateral Agent's sole discretion, at any time upon notice in writing to Mortgagors. Collateral Agent may require Mortgagors to pay to Collateral Agent, in advance, such other Funds for other taxes, charges, premiums, assessments and impositions in connection with Mortgagors or the Property that Collateral Agent shall reasonably deem necessary to protect Collateral Agent's interests (herein "Other Impositions"). Unless otherwise provided by applicable law, Collateral Agent, at Collateral Agent's option, may require Funds for Other Impositions to be paid by Mortgagors in a lump sum (not exceeding Other Impositions due for a one-year period) or in periodic installments. The Funds shall be held by Collateral Agent and shall be applied to pay such rates, rents, taxes, assessments, insurance premiums and Other Impositions so long as no Event of Default has occurred. Collateral Agent shall make no charge for so holding and applying the Funds, analyzing such account or for verifying and compiling said assessments and bills, unless Collateral Agent pays Mortgagors interest, earnings or profits on the Funds and applicable law permits Collateral Agent to make such a charge. Unless applicable law requires interest, earnings or profits on the Funds to be paid, Collateral Agent shall not be required to pay Mortgagors any interest, earnings or profits on the Funds. Collateral Agent shall give to Mortgagors, without charge, an annual accounting of the Funds showing credits and debits to the Funds and the purpose for which each debit to such Funds was made. The Funds are pledged as additional security for the Secured Obligations and shall be subject to the right of set off. If the amount of the Funds held by Collateral Agent at the time of the annual accounting thereof shall exceed the amount deemed necessary by Collateral Agent to provide for the payment of water and sewer rates, taxes, assessments, insurance premiums, rents and Other Impositions, as such payments become due, Collateral Agent (in its sole discretion) may either (i) return the amount of the excess to Mortgagors or (ii) apply a part or all of such excess at such time or times as Collateral Agent may elect to the Secured Obligations. If, at any time, the amount of the Funds held by Collateral Agent shall be less than the amount deemed necessary by Collateral Agent to pay water and sewer rates, taxes, assessments, insurance premiums, rents and Other Impositions, as such payments become due, Mortgagors shall, on demand, pay such deficiency. Upon the occurrence of an Event of Default, Collateral Agent may apply, in any amount and in any order as Collateral Agent shall determine, in Collateral Agent's sole discretion, any Funds held by Collateral Agent at the time of application (A) to pay rates, rents, taxes, assessments, insurance premiums and Other Impositions that are now or shall hereafter become due; or (B) as a credit against sums secured by this Agreement. Upon release of this Agreement and payment in full of the Secured Obligations, Collateral Agent shall promptly refund to Mortgagors any Funds held by Collateral Agent. 6.                                           CHARGES; MECHANICS LIENS. Mortgagors shall pay all water and sewer rates, rents, taxes assessments, premiums, and Other Impositions (not being diligently contested by Mortgagors (a) in a timely manner and (b) with the support of adequate financial reserves), attributable to the Property. Mortgagors shall promptly discharge any lien that has, or may have, priority over or equality with, the lien of this Agreement, other than Permitted Encumbrances. If a mechanic's lien is filed against the Property, Mortgagors shall promptly notify Collateral Agent and, at Collateral Agent's request, shall deliver to Collateral Agent, either of the following, at Mortgagors' option, (i) a cash deposit or (ii) an indemnity bond satisfactory to Collateral Agent issued by a surety satisfactory to Collateral Agent, in the amount claimed by any such lien, together with an additional sum necessary to pay all costs, interest and penalties that may be payable in connection therewith. Without Collateral Agent's prior written consent, Mortgagors shall not allow any lien, encumbrance, or other interest in the Property to be perfected against the Property, other than Permitted Encumbrances, unless Mortgagors are then diligently contesting same and has, as to the lien, encumbrance or interest being contested, complied with (i) or (ii) of the preceding sentence. 7.                                           PRESERVATION AND MAINTENANCE OF PROPERTY. Mortgagors (a) shall not commit waste or permit impairment or deterioration of the Property; (b) shall not abandon the Property; (c) shall, unless Collateral Agent withholds insurance proceeds as security for or application to the Secured Obligations as provided in the Credit Agreement, restore or repair promptly and in a good and workmanlike manner all or any part of the Property to the equivalent of its original condition, or such other condition as Collateral Agent may approve in writing, in the event of any damage, injury or loss thereto, whether or not insurance proceeds are available to cover in whole or in part the costs of such restoration or repair unless the improvements constituting the Property are (i) totally destroyed, (ii) insurance has been maintained thereon as required by this Agreement, and (iii) Collateral Agent applies the proceeds of such insurance to payment of the Secured Obligations; (d) shall keep the Property, including improvements, fixtures, equipment, machinery and appliances, in good repair and shall replace improvements, fixtures, equipment, machinery and appliances on the Property owned by Mortgagors when necessary to keep such items in good repair; (e) shall comply in all material respects with all laws, ordinances, regulations and requirements of any governmental body applicable to the Property, including, without limitation, the American with Disabilities Act, as it may be amended from time to time; and (f) shall give notice in writing to Collateral Agent of, appear in and defend, any action or proceeding purporting to affect the Property, the security of this Agreement or the rights or powers of Collateral Agent, except for any such action or proceeding caused by the gross negligence or intentional misconduct of Collateral Agent. Unless required by applicable law or unless Collateral Agent has otherwise consented in writing, neither Mortgagors nor any tenant or other Person shall remove, demolish or alter any improvement now existing or hereafter erected on the Property or any fixture (other than trade fixtures), equipment, machinery or appliance in or on the Property owned by Mortgagors and used or intended to be used in connection with the Property, except as permitted pursuant to the Credit Agreement. 8.                                           USE OF PROPERTY. Unless required by applicable law or unless Collateral Agent has otherwise agreed in writing, Mortgagors shall not allow changes in the use for which all or any part of the Property was intended at the time this Agreement was executed. Mortgagors shall not initiate or acquiesce in a change in the zoning classification of the Property without Collateral Agent's prior written consent. 9.                                           PROTECTION OF PROPERTY; AGENT'S SECURITY. If Mortgagors fail to perform the covenants and agreements contained in this Agreement, or if any action or proceeding is commenced that affects the Property or title thereto or the interest of Collateral Agent therein, including, but not limited to, eminent domain, insolvency, enforcement of local laws, or arrangements or proceedings involving a bankrupt or decedent, then Collateral Agent, at Collateral Agent's option, may make such appearances, disburse such sums and take such action as Collateral Agent deems necessary, in its sole discretion, to protect the interests of Collateral Agent and the Secured Creditors, including, but not limited to, (a) disbursement of attorneys' fees; (b) entry upon the Property to remedy any failure of Mortgagors to perform hereunder; and (c) procurement of satisfactory insurance. Any amounts disbursed by Collateral Agent pursuant to this Section 9, with interest thereon, shall become part of the Secured Obligations and shall be secured by this Agreement. Unless Mortgagors and Collateral Agent agree in writing to other terms of payment, such amounts shall be immediately due and payable and shall bear interest from the date of disbursement at the Default Rate, unless collection from Mortgagors of interest at such rate would be contrary to applicable law, in which event such amounts shall bear interest at the highest rate that may be collected from Mortgagors under applicable law. Mortgagors hereby covenant and agree that Collateral Agent shall be subrogated to the lien of any mortgage or other lien discharged, in whole or in part, by the Secured Obligations. Nothing contained in this Section 9 shall require Collateral Agent to incur any expense or take any action hereunder. The procurement of insurance of the payment of taxes or other liens or charges by Collateral Agent shall not be a waiver of the right of Collateral Agent or the Lenders to accelerate the maturity of any of the Secured Obligations secured by this Agreement. Collateral Agent's receipt of any awards, proceeds or damages under the insurance or condemnation provisions of the Credit Agreement or this Agreement shall not operate to cure or waive any default in payment of sums secured by this Agreement. 10.                                       CONDEMNATION. Mortgagors shall promptly notify Collateral Agent of any action or proceeding relating to any condemnation or other taking, whether direct or indirect, of the Property, or part thereof, and Mortgagors shall appear in and prosecute any such action or proceeding unless otherwise directed by Collateral Agent in writing. Mortgagors authorize Collateral Agent, at Collateral Agent's option, as attorney-in-fact for Mortgagors, to commence, appear in and prosecute, after the occurrence of an Event of Default, in Collateral Agent's or Mortgagors' name, any action or proceeding relating to any condemnation or other taking of the Property, whether direct or indirect, and to settle or compromise any claim in connection with such condemnation or other taking. The proceeds of any award, payment or claim for damages, direct or consequential, in connection with any condemnation or other taking, whether direct or indirect, of the Property, or part thereof, or for conveyances in lieu of condemnation, are hereby assigned to and shall be paid to Collateral Agent. With the consent of Collateral Agent, which consent may be withheld in Collateral Agent's sole discretion, Mortgagors may apply such awards, payments, proceeds or damages, after the deduction of Collateral Agent's expenses incurred in the collection of such amounts, to restoration or repair of the Property. Otherwise, such sums so received shall be applied to payment of the Secured Obligations. Mortgagors agree to execute such further evidence of assignment of any awards, proceeds, damages or claims arising in connection with such condemnation or taking as Collateral Agent may reasonably require. 11.                                       ESTOPPEL CERTIFICATE. Mortgagors shall, within ten (10) days of a written request from Collateral Agent, furnish Collateral Agent with a written statement, duly acknowledged, setting forth the sums secured by this Agreement and any right of set-off, counterclaim or other defense that exists against such sums and any Secured Obligations. 12.                                       UNIFORM COMMERCIAL CODE AND FIXTURE FILING. This Agreement shall also constitute a "fixture filing" under the Uniform Commercial Code, as adopted in Ohio for the purpose of perfecting Collateral Agent's security interest in all of Mortgagors' property now owned or hereafter acquired which is or becomes a "fixture" to the Property under the Uniform Commercial Code, as in effect from time to time in Ohio, with the names and addresses of the "debtors" and "secured party" for such purpose being: Debtors: ABX AIR, INC. 145 Hunter Drive Wilmington, Ohio 45177   WILMINGTON AIR PARK, INC. 145 Hunter Drive Wilmington, Ohio 45177   AVIATION FUEL INC. 145 Hunter Drive Wilmington, Ohio 45177   Secured Party: WACHOVIA BANK, N.A., as Collateral Agent 191 Peachtree Street, N.E. Atlanta, Georgia 30303 Attn: Syndications Group   13.                                       LEASES OF THE PROPERTY. Mortgagors shall comply with and observe Mortgagors' obligations as landlord or as tenant, as the case may be, under any leases of the Property or any part thereof. Mortgagors shall furnish Collateral Agent with executed copies of the leases now existing or hereafter made of all or any part of the Property, and all future leases and amendments or modifications thereto shall be subject to Collateral Agent's prior written approval. Unless otherwise directed by Collateral Agent, all leases of the Property made after the date hereof shall specifically provide that such leases are subordinate to this Agreement; that the tenant attorns to Collateral Agent, such attornment to be effective upon Collateral Agent's acquisition of title to the Property; that the tenant agrees to execute such further evidences of attornment as Collateral Agent may from time to time request; and that the attornment of the tenant shall not be terminated by foreclosure. Mortgagors shall not, without Collateral Agent's written consent, execute, modify, surrender or terminate, either orally or in writing, any lease hereafter made of all or any part of the Property, permit an assignment or sublease of such a lease, or request or consent to the subordination of any lease of all or any part of the Property to any lien subordinate to this Agreement, provided that such leases are on commercially reasonable terms. If Mortgagors become aware that any tenant proposes to do, or is doing, any act or thing that may give rise to any right to set-off against rent, Mortgagors shall (a) take such steps as shall be reasonably calculated to prevent the accrual of any right to a set-off against rent, (b) notify Collateral Agent thereof and of the amount of said set-offs, and (c) within twenty (20) days after such accrual, reimburse the tenant who shall have acquired such right to set-off or take such other steps as shall effectively discharge such set-off and as shall assure that rents thereafter due shall continue to be payable without set-off or deduction. 14.                                       REMEDIES CUMULATIVE. Each remedy provided in this Agreement is distinct and cumulative to all other rights or remedies under this Agreement or the Credit Agreement or afforded by law or in equity, and may be exercised concurrently, independently, or successively, in any order whatsoever. 15.                                       TRANSFERS OF THE PROPERTY; CHANGES IN CONTROL OR OWNERSHIP OF MORTGAGORS. Except as expressly permitted pursuant to the Credit Agreement, Mortgagors shall not (a) voluntary or involuntary sell, lease, exchange, assign, convey, transfer or otherwise dispose of all or any portion of the Property (or any interest therein), or all or any of the beneficial ownership interest in Mortgagors, or (b) convey to any Person, other than Collateral Agent, a security interest in the Property or any part thereof or voluntarily or involuntarily permit or suffer the Property to be further encumbered. 16.                                       CREDIT AGREEMENT PROVISIONS. Mortgagors agree to comply with the covenants and conditions of the Credit Agreement that is hereby incorporated by reference in and made a part of this Agreement. All sums disbursed by Collateral Agent to protect the security of this Agreement shall be treated as Related Expenses, as defined in the Credit Agreement. All such sums shall bear interest from the date of disbursement at the Default Rate. In the event of any conflict or inconsistency between this Agreement and the Credit Agreement, the terms of the Credit Agreement shall control. 17.                                       NOTICE. 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 any Mortgagor at the address and telecopy number set forth below, or at such other address and telecopy number as such Mortgagor may from time to time designate in writing to the Collateral Agent, and, to the Collateral Agent at the address and telecopy number for notices set forth in the Credit Agreement, or at such other address and telecopy number as the Collateral Agent may designate by written notice to the Parent or either of the Borrowers. P.O. Box 662 Seattle, Washington 98111 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 18.                                       SUCCESSORS AND ASSIGNS BOUND; COLLATERAL AGENTS; CAPTIONS. The covenants and agreements herein contained shall bind, and the rights hereunder shall inure to, the respective successors and permitted assigns of Collateral Agent, the Lenders and Mortgagors. In exercising any rights hereunder or taking any actions provided for herein, Collateral Agent may act through its employees, agents or independent contractors as authorized by Collateral Agent. The captions and headings of the Sections of this Agreement are for convenience only and are not to be used to interpret or define the provisions hereof. 19.                                       GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by the laws of the State of Ohio, without regard to principles of conflicts of laws. In the event that any provision of this Agreement conflicts with applicable law, such conflict shall not affect other provisions of this Agreement that can be given effect without the conflicting provisions, and to this end the provisions of this Agreement are declared to be severable. 20.                                       WAIVER OF MARSHALING. In the event of foreclosure of the lien of this Agreement, the Property may be sold in one or more parcels or as an entirety as Collateral Agent may elect. Notwithstanding the existence of any other security interests in the Property held by Collateral Agent, or by any other Person, Collateral Agent shall have the right to determine the order in which any or all of the Property shall be subjected to the remedies provided herein. Collateral Agent shall have the right to determine the order in which any or all of the Secured Obligations are satisfied from the proceeds realized upon the exercise of the remedies provided herein. Mortgagors, any Person that consents to this Agreement, and any Person that now or hereafter acquires a security interest in the Property and that has actual or constructive notice hereof, hereby waives any and all right to require the marshaling of assets in connection with the exercise of any of the remedies permitted by applicable law or provided herein. 21.                                       ASSIGNMENT OF RENTS; APPOINTMENT OF RECEIVER; COLLATERAL AGENT IN POSSESSION. Mortgagors hereby absolutely and unconditionally assign and transfer to Collateral Agent all of the leases, rents and revenues of the Property, including those now due, past due, or to become due by virtue of any lease or other agreement for the occupancy or use of all or any part of the Property, regardless to whom the rents and revenues of the Property are payable. Although this Agreement is a present assignment, Collateral Agent shall not exercise any of the rights or powers herein conferred upon it until an Event of Default shall have occurred. Mortgagors hereby authorize Collateral Agent or Collateral Agent's agents to collect the aforesaid rents and revenues and hereby directs each tenant of the Property to pay such rents to Collateral Agent or Collateral Agent's agents. Upon the occurrence of an Event of Default, and without the necessity of Collateral Agent entering upon and taking and maintaining full control of the Property in person, by agent or by a court appointed receiver, Collateral Agent shall immediately be entitled to possession of all rents and revenues of the Property as specified in this Section 21 as the same become due and payable (including but not limited to rents then due and unpaid) and all such rents received by Mortgagors shall immediately, upon delivery of such notice, be held by Mortgagors, as trustee for the benefit of Collateral Agent only. This Section 21 may be supplemented by a separate assignment of leases and rents agreement entered into by and between Collateral Agent and Mortgagors, which instrument shall set forth more fully Collateral Agent's rights with respect to the leases, rents and revenue of the Property. 22.                                       ASSIGNMENT OF CONSTRUCTION RIGHTS. From time to time, as Collateral Agent deems necessary to protect its interests, Mortgagors shall, upon request of Collateral Agent, execute and deliver to Collateral Agent, in such form as Collateral Agent shall direct, assignments of any and all rights or claims that relate to the construction of improvements on the Property and which Mortgagors may have against any Person supplying or who has supplied labor, materials or services in connection with construction of the Property. 23.                                       EVENT OF DEFAULT; ACCELERATION; REMEDIES. Each of the following shall constitute an Event of Default hereunder, (a) if any Event of Default, as defined in the Credit Agreement, occurs under the Credit Agreement, or (b) if Mortgagors default in the performance or observance of any of the covenants or agreements of Mortgagors contained in this Agreement . In addition to any other right or remedy that Collateral Agent may now or hereafter have at law or in equity, upon the occurrence of an Event of Default, Collateral Agent shall have the right and power (i) to foreclose upon this Agreement and the lien hereof; (ii) to sell the Property according to law at one or more sales as an entirety or in parcels, if applicable, and at such time and place upon such terms and conditions and after such notices thereof as may be required by law; (iii) to enter upon and take possession of the Property; and (iv) apply for the appointment of a receiver, trustee, liquidator or conservator of the Property, without notice and without regard for the adequacy of the security for the Secured Obligations and without regard for the solvency of Mortgagors, any Borrower or any Person liable for the payment of the Secured Obligations, or any portion thereof. If all sums secured by this Agreement become immediately due and payable in accordance with this Section, Collateral Agent, at Collateral Agent's option, may foreclose this Agreement by judicial proceeding and may invoke any other remedies permitted by applicable law or as provided herein. Collateral Agent shall be entitled to collect all costs and expenses incurred in pursuing such remedies, including, but not limited to, costs of documentary evidence abstracts, title reports and attorneys' fees. 24.                                       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, including by reason of foreclosure, 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 the Mortgagors; (ii)                 Second, subject to Section 24(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 relevant Mortgagor 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 24(a) hereof. (c)                Notwithstanding Section 24(a), (i)                   if any payment by the Collateral Agent to a Secured Creditor pursuant to Section 24(a) would cause any amount recovered by the Collateral Agent from or in respect of the Property 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 24(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 24(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 24(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 24(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 24, 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 each Mortgagor shall remain liable to the extent of any deficiency between (i) the amount of the proceeds of the Property applied pursuant to Section 24(a) and (ii) the aggregate outstanding amount of the Secured Obligations. 25.                                       INDEMNIFICATION. Mortgagors shall protect, indemnify and save harmless Collateral Agent and the Lenders from and against all liabilities and expenses (including, without limitation, reasonable attorneys' fees and expenses, including those incurred in connection with appellate, bankruptcy and post-judgment proceedings) imposed upon or incurred by or asserted against Collateral Agent or any Lender, and not caused by the gross negligence or intentional misconduct of Collateral Agent or such Lender, by reason of (a) ownership of this Agreement, the Property or any interest therein or receipt of any rents, (b) any accident, injury to or death of persons or loss of or damage to property occurring in, on or about the Property or any part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas or streets, (c) any use, non- use or condition in, on or about the Property, or any part thereof, or on the adjoining sidewalks, curbs, adjacent property, parking areas or streets, (d) any failure on the part of Mortgagors to perform or comply with any of the terms of this Agreement, or (e) the performance of any labor or services or the furnishing of any materials or other property in respect of the Property or any part thereof. The obligations of Mortgagors under this Section 24 shall survive any termination or satisfaction of this Agreement. 26.                                       HAZARDOUS WASTE COVENANTS AND INDEMNIFICATION. (a)                Mortgagors covenants and warrants that Mortgagors' use of the Property shall at all times comply with and conform, in all material respects, to all laws, statutes, ordinances, rules and regulations of any governmental, quasi-governmental or regulatory authority now or hereafter in effect ("Laws") which relate to the transportation, storage, placement, handling, treatment, discharge, release, generation, production or disposal (collectively "Treatment") of any waste, waste products, petroleum or petroleum based products, radioactive materials, poly-chlorinated biphenyls, asbestos, hazardous materials or substances of any kind, pollutants, contaminants and any substance which is regulated by any law, statute, ordinance, rule or regulation (collectively "Waste"). Mortgagors further covenant that they shall not engage in or permit any Person to engage in any Treatment of any Waste on or that affects the Property except for activities which comply with all Laws in all material respects. (b)                Except as specifically disclosed to Collateral Agent in writing in any schedule to the Credit Agreement, Mortgagors have no actual knowledge that the Property is the subject of any Notice, as hereinafter defined, from any governmental authority or Person. (c)                Promptly upon receipt of any Notice from any Person, Mortgagors shall deliver to Collateral Agent a true, correct and complete copy of any written Notice or a true, correct and complete report of any non-written Notice. Additionally, Mortgagors shall notify Collateral Agent immediately after having knowledge or Notice of any Waste in or affecting the Property. "Notice" shall mean any note, notice, information, or report of any of the following: (i)                   any suit, proceeding, investigation, order, consent order, injunction, writ, award or action related to or affecting or indicating the Treatment of any Waste in or affecting the Property; (ii)                 any spill, contamination, discharge, leakage, release, threatened release, or escape of any Waste in or affecting the Property, whether sudden or gradual, accidental or anticipated, or of any other nature ("Spill"); (iii)                any dispute relating to Mortgagors' or any other Person's Treatment of any Waste or any Spill in or affecting the Property; (iv)               any claims by or against any insurer related to or arising out of any Waste or Spill in or affecting the Property; (v)                 any recommendations or requirements of any governmental or regulatory authority, insurer or board of underwriters relating to any Treatment of Waste or a Spill in or affecting the Property; (vi)               any legal requirement or deficiency related to the Treatment of Waste or any Spill in or affecting the Property; or (vii)              any tenant, licensee, concessionaire, manager, or other Person occupying or using the Property or any part thereof which has engaged in or engages in the Treatment of any Waste in or affecting the Property in violation of applicable Laws. (d)                In the event that (i) Mortgagors have caused, suffered or permitted, directly or indirectly, any Spill in or affecting the Property during the term of this Agreement, or (ii) any Spill of any Waste has occurred on the Property during the term of this Agreement, then Mortgagors shall immediately take all of the following actions: (A)               notify Collateral Agent, as provided herein; (B)               take all steps necessary or appropriate to clean up such Spill and any contamination related to the Spill, all in accordance with the requirements, rules or regulations of any local, state or federal governmental or regulatory authority or agency having jurisdiction over the Spill; provided that Mortgagors may contest any such requirement, rule or regulation by appropriate proceedings diligently and in good faith, so long as (1) Mortgagors provide Collateral Agent, at Mortgagors' cost, such sureties, performance bonds and other assurances as Collateral Agent may from time to time request in respect of such Spill and contamination and the cleanup thereof, (2) any governmental or other action against Mortgagors and the Property is effectively stayed during Mortgagors' efforts so to contest, and (3) in Collateral Agent's determination, a delay in such clean-up will not result in or increase any loss or liability to Collateral Agent; (C)               restore the Property, provided that such restoration shall be no less than, but need not be more than, what is otherwise required by applicable federal, state or local law or authorities; (D)               allow any local, state or federal governmental or regulatory authority or agency having jurisdiction thereof to monitor and inspect all cleanup and restoration related to such Spill; and (E)                at the written request of Collateral Agent, post a bond or obtain a letter of credit for the benefit of Collateral Agent (drawn upon a company or bank satisfactory to Collateral Agent) or deposit an amount of money in an escrow account under Collateral Agent's name upon which bond, letter of credit or escrow Mortgagors may draw, and which bond, letter of credit or escrow shall be in an amount sufficient to meet all of Mortgagors' obligations under this Section 25; and Collateral Agent shall have the unfettered right to draw against the bond, letter of credit or escrow in its discretion in the event that Mortgagors are unable or unwilling to meet their obligation under this Section 25 or, if Mortgagors fail to post a bond or obtain a letter of credit or deposit such cash as is required herein, then Collateral Agent, at Mortgagors' cost and expense, may, but shall have no obligation to do so for the benefit of Mortgagors and do those things that Mortgagors are required to do under clauses (B), (C) and (D) of this subsection (d). (e)                Mortgagors hereby agree that they shall indemnify, defend, save and hold harmless Collateral Agent and the Secured Creditors and their respective officers, directors employees, agents, successors, assigns and affiliates (collectively, "Indemnified Parties") against and from, and to reimburse the Indemnified Parties with respect to, any and all damages, claims, liabilities, losses, costs and expenses (including, without limitation, reasonable attorneys', engineers' and consultants' fees and expenses, court costs, administrative costs, costs of appeals and all clean up, administrative, fines, penalties and enforcement costs of applicable governmental agencies) that are incurred by or asserted against the Indemnified Parties by reason or arising out of: (i) the breach of any representation, warranty or undertaking of Mortgagors under this Section 25, or (ii) the Treatment of any Waste by Mortgagors or any tenant, licensee, concessionaire, manager, or other Person occupying or using the Property, in or affecting the Property, or (iii) any Spill governed by the terms of this Section 25. (f)                  The obligations of Mortgagors under this Section 25 shall survive any termination or satisfaction of this Agreement. 27.                                       PRIORITY OF MORTGAGE LIEN. Collateral Agent, at Collateral Agent's option, is authorized and empowered to do all things provided to be done by a mortgagee under Section 1311.14 of the Revised Code of Ohio, as in effect from time to time, for the protection of Collateral Agent's interests in the Property. 28.                                       JURY TRIAL WAIVER. MORTGAGORS, COLLATERAL AGENT AND THE LENDERS WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG THEM ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO. THIS WAIVER SHALL NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY THE COLLATERAL AGENT'S ABILITY TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED IN ANY NOTE, OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT BETWEEN MORTGAGORS AND COLLATERAL AGENT AND THE LENDERS. (The balance of this page is intentionally blank.) IN WITNESS WHEREOF, Mortgagors have executed this Agreement as of the day and year first set forth above. In the presence of:     /s/ W. Joseph Payne Print Name: W. Joseph Payne     /s/ Patricia A. Wallace Print Name: Patricia A. Wallace     ABX AIR, INC., a corporation organized under the laws of Delaware     By: /s/ Joseph C. Hete Name: Joseph C. Hete Title: President and COO In the presence of:     /s/ W. Joseph Payne Print Name: W. Joseph Payne     /s/ Patricia A. Wallace Print Name: Patricia A. Wallace     WILMINGTON AIR PARK, INC., a corporation organized under the laws of Ohio     By: /s/ Joseph C. Hete Name: Joseph C. Hete Title: President In the presence of:     /s/ W. Joseph Payne Print Name: W. Joseph Payne     /s/ Patricia A. Wallace Print Name: Patricia A. Wallace     AVIATION FUEL INC., a corporation organized under the laws of Ohio     By: /s/ R.R. Hanke Name: R. R. Hanke Title: President   STATE OF OHIO ) ) SS. COUNTY OF CLINTON )     Before me, a Notary Public in and for said County and State, personally appeared the above-named ABX Air, Inc., a corporation organized under the laws of Delaware by __Joseph C. Hete________________, its ___President and COO___, who acknowledged that s/he did sign the foregoing instrument for and on behalf of ABX Air, Inc., and that the same is the free act and deed of ABX Air, Inc. and his/her free act and deed individually and as such __President and COO_______________________. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at __Wilmington_______, this __29___ day of June, 2001.   /s/ Patricia A. Wallace___ Notary Public   STATE OF OHIO ) ) SS. COUNTY OF CLINTON )     Before me, a Notary Public in and for said County and State, personally appeared the above-named Wilmington Air Park, Inc., a corporation organized under the laws of Ohio by __Joseph C. Hete________________, its ___President and COO___, who acknowledged that s/he did sign the foregoing instrument for and on behalf of Wilmington Air Park, Inc., and that the same is the free act and deed of Wilmington Air Park, Inc. and his/her free act and deed individually and as such __President and COO_______________________. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at __Wilmington_______, this __29___ day of June, 2001.   /s/ Patricia A. Wallace___ Notary Public STATE OF OHIO ) ) SS. COUNTY OF CLINTON )       Before me, a Notary Public in and for said County and State, personally appeared the above-named Aviation Fuel Inc., a corporation organized under the laws of Ohio by __Robert R. Hanke__________, its __President_______________, who acknowledged that s/he did sign the foregoing instrument for and on behalf of Aviation Fuel Inc., and that the same is the free act and deed of Aviation Fuel Inc. and his/her free act and deed individually and as such ____President_____________. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at __Wilmington_______, this __29___ day of June, 2001.   /s/ Patricia A. Wallace___ Notary Public     This instrument prepared by: Richard L. Reppert, Esq. Jones, Day, Reavis & Pogue North Point 901 Lakeside Avenue Cleveland, Ohio 44114-1190

EXHIBIT 10.7   September 19, 2001   John Sluis 20 Old Orchard Lane Tonka Bay, MN  55331   Re:          Retention Plan   Dear John:                   As you may be aware the BP 13D filing indicates that multiple options for the divestiture of BP’s holdings in Vysis will be reviewed. Such options may include a merger or sale of the business.  Therefore, in order to help encourage your continued focused attention on the on-going success of Vysis, Inc (“Vysis”) and its affiliates (“the Company”) and to encourage you to remain employed by the Company during a potential period of transition which may result in a change in control of Vysis, the Board of Directors of Vysis has authorized the establishment of a Retention Plan which will include payment to you of a “Retention Bonus”.  This Retention Bonus will be payable in the event a Change in Control (as defined below) occurs and if certain other minimal terms and conditions are met.  The following describes your Retention Bonus Plan and the terms and conditions relating to the Retention Bonus payment:                   1.             If you satisfy the terms and conditions described below, the Company will pay you a Retention Bonus in an amount equal to 9 (nine) months of your annual base salary (not including any bonus or incentive payments or other types of compensation whatsoever) in effect immediately prior to the closing date of a Change in Control, as defined in the Vysis, Inc. Severance Program adopted by Vysis, Inc. on August 17, 2001 (the “Transaction Closing Date”).                   2.             In order to receive payment of the Retention Bonus, you must remain employed by the Company for ninety (90) days after the Transaction Closing Date (the “Payment Date”); provided, however, that if your employment is terminated (i) by the Company for reasons other than Cause or (ii) by death or disability, after the Transaction Closing Date but before the Payment Date, you will nonetheless receive payment of the Retention Bonus.  For this purpose, the term “Cause” shall mean any of the following:  (A) you have engaged in willful conduct involving misappropriation, dishonesty, or serious moral turpitude which is demonstrably and materially injurious to the Company or (B) you are convicted of a felony.                   3.             The Retention Bonus shall be paid to you on the Payment Date, provided that you remain employed on that date.  If your employment is terminated by the Company before the Payment Date for reasons of death or disability or for reasons other than Cause, the Retention Bonus shall be paid to you on the day your employment is terminated.                   4.             The Retention Bonus will be subject to such deductions as may be required to be made pursuant to law, government regulations or order or by agreement with you.                 5.             If you find it necessary to bring any legal action for the enforcement of this agreement, or because of an alleged dispute, breach or default in connection with any of the provisions of this agreement, and if you are the prevailing party in such action, Vysis shall reimburse you for your reasonable attorneys' fees and any other costs that you incur in connection with such action.  Any payments pursuant to this paragraph 5 shall be in addition to any other relief to which you may be entitled as a result of such action.                   6.             The parties hereto agree to maintain the existence of this Agreement and the terms thereof confidential and shall not disclose them to any third parties (other than Vysis management officials and administrative personnel necessary to effectuate the terms of this Agreement and/or counsel for the parties, their respective tax advisors and accountants and Employee’s immediate family), except as required by law.                   7.             The Company’s obligations under this Agreement shall be governed by the laws of the State of Illinois.  If a Change of Control has not occurred by August 17, 2002, this Agreement shall automatically terminate as of such date.                   If you have any questions regarding the foregoing, please contact Bill Murray.     Sincerely,       /s/ John L. Bishop           John L. Bishop President and CEO     JLB/ld       Agreed: /s/ John Sluis   Employee Name:  John Sluis   Date:  September 19, 2001    

Exhibit 10.12 - Employment Agreement MCMS, INC. 83 Great Oaks Boulevard San Jose, California June 14, 2001   Angelo M. Ninivaggi 8630 W. Atwater Drive Boise, Idaho 83714 Dear Angelo:         This letter agreement sets forth the terms of your ("Executive") employment with MCMS, Inc. (the "Company") as follows: 1.        Employment. The Company shall employ Executive, and Executive hereby accepts employment as an at-will employee with the Company to serve as its Executive Vice President, General Counsel and Corporate Secretary, upon the terms and conditions as set forth in this letter agreement for the period beginning as of June 14, 2001 (the "Commencement Date"). The duration of Executive's employment with the Company shall be referred to as the "Employment Period". 2.        Position and Duties. (a)            During the Employment Period, Executive shall serve as the Executive Vice President, General Counsel and Corporate Secretary of the Company and shall have the normal duties, responsibilities and authority of the Executive Vice President, General Counsel and Corporate Secretary, subject to the power of the Chief Executive Officer or Board of Directors of the Company (the "Board") to expand or limit such duties, responsibilities and authority within the confines of the ordinary duties, responsibilities and authority of an Executive Vice President, General Counsel and Corporate Secretary. (b)            Executive shall report to the Chief Executive Officer, and Executive shall devote his best efforts and his full business time and attention (except for permitted vacation periods and reasonable periods of illness or other incapacity) to the business and affairs of the Company and its subsidiaries. Executive shall perform his duties and responsibilities to the best of his abilities in a diligent, trustworthy, businesslike and efficient manner. 3.         Base Salary and Benefits. (a)            Base Salary. During the Employment Period, Executive's base salary shall be in an amount set by the Board or a Committee of the Board (the "Compensation Committee"), but under no circumstances will be less than $148,000 per annum (the "Base Salary"), which salary shall be payable in regular installments in accordance with the Company's general payroll practices and shall be subject to customary withholding. (b)            Bonus. After each fiscal year during the Employment Period, Executive shall be eligible to receive a cash bonus to be determined by the Board or the Compensation Committee based upon the attainment by the Company of the applicable performance targets for such fiscal year (the "Bonus") equal to up to 70% of the Executive's Base Salary during such fiscal year. The performance targets for each fiscal year during the Employment Period shall be established by the Board or the Compensation Committee no later than by the end of the first quarter of such fiscal year. The Bonus for any fiscal year shall be payable no later than 90 days after the Board has received and approved the Company's audited financial statements for such fiscal year which shall be done with reasonable promptness by the Board.   -------------------------------------------------------------------------------- (c)            Benefits. During the Employment Period, Executive shall be entitled to participate in all of the Company's employee benefit programs for which senior executive employees of the Company and its subsidiaries are generally eligible (collectively the "Benefits"), including the Company's Senior Management Bonus Plan and the 1998 Stock Option Plan, with any awards under such Plans to be set by the Board or the Compensation Committee. (d)            Expenses. The Company shall reimburse Executive for all reasonable expenses incurred by him in the course of performing his duties under this letter agreement which are consistent with the Company's policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to the Company's requirements with respect to reporting and documentation of such expenses. 4.         Employment Termination. (a)            If the Employment Period is terminated by the Company without Cause or if the Company Constructively Terminates Executive, Executive shall be entitled to receive (i) all Base Salary through the date of termination and any accrued and unpaid Bonus for any fiscal year which ended prior to the date of termination, (ii) a severance payment equal to twelve months of his Base Salary, which severance payment shall be payable not in a lump sum but in regular installments in accordance with the Company's general payroll practices, and (iii) health and welfare benefits (but not pension or 401(k) benefits) in accordance with the Company's policy applicable to similarly situated employees for a period of twelve months, subject, in the case of clauses (i) and (ii), to withholding and other appropriate deductions. Executive shall not be required to mitigate Executive's damages by seeking other employment or otherwise. The Company's obligations under this letter agreement shall not be reduced in any way by reason of any compensation or benefits received (or foregone) by Executive from sources other than the Company after the termination of the Employment period or any amounts that might have received by the Executive in other employment had Executive sought such other employment. Executive's entitlement to benefits and coverage under this letter agreement shall continue after, and shall not be effected by, Executive's obtaining other employment after the termination of the Employment Period, provided that such benefit or coverage shall not be furnished if Executive expressly waives the specific benefit or coverage by giving written notice of waiver to the Company (b)         If the Employment Period is terminated by reason of the death or long-term disability (as determined by an independent third party medical authority) of the Executive, Executive shall be entitled to receive all Base Salary through the date of termination and any accrued and unpaid Bonus for any fiscal year which ended prior to the date of termination, subject to withholding and other appropriate deductions. (c)         If the Employment Period is terminated by the Company for Cause or for any reason not covered by paragraph 4(a) or 4(b) above, including due to Executive's voluntary resignation other than by Constructive Termination, Executive shall be entitled to receive his Base Salary only through the date of termination; provided, that if the Employment Period is terminated by the Company 90 days prior to or within twelve (12) months following the consummation of a Sale of the Company (as defined below) without Cause, Executive shall be entitled to receive a severance payment equal to twelve (12) months of his Base Salary, which severance payment shall be payable not in a lump sum but in regular installments in accordance with the Company's general payroll practices, subject to withholding and other appropriate deductions. (d)         Except as expressly provided in paragraphs 4(a), 4(b), and 4(c) above or as required by law, upon the date Executive ceases to be employed by the Company, all of the Executive's rights to Base Salary, Bonus and Benefits hereunder (if any) shall cease and no other severance compensation shall be payable by the Company or its subsidiaries to Executive. (e)         For purposes of this letter, "Cause" shall mean (i) the commission of a felony or a crime involving moral turpitude or the commission of any other act or omission involving dishonesty, disloyalty or fraud with respect to the Company or any of its subsidiaries, or any of their customers or suppliers, (ii) conduct tending to bring the Company or any of its subsidiaries into substantial public disgrace or disrepute, (iii) substantial and repeated failure to perform duties as reasonably directed by the Board, provided that demonstrable harm for such failure has continued for more than 15 days after the Company has given written notice to Executive of such failure and of the Company's intention to terminate Executive's employment because of such failure, (iv) gross negligence or willful misconduct with respect to the Company or any of its subsidiaries, (v) breach by Executive of this obligation under paragraphs 5, 6 or 7 or (vi) any other material breach of this letter agreement which is not cured within 15 days after written notice thereof to Executive. --------------------------------------------------------------------------------   (f)         For purposes of this letter agreement, "Constructive Termination" shall mean, without Executive's express written consent, (i) the Company materially reduces the nature, scope, level or extent of Executive's responsibilities from the nature, scope, level or extent of such responsibilities as of the effectiveness of this Agreement, or fails to provide Executive with adequate office facilities and support services to perform such responsibilities, or (ii) the Company requires Executive, as a condition to Executive's continued employment, that Executive be permanently assigned to perform duties at an office of the Company located more than 50 miles outside of the Boise, Idaho Standard Metropolitan Statistical Areas (which includes Nampa, Idaho); (g)         For purposes of this letter agreement, "Sale of the Company" shall mean the sale of the Company to any third party pursuant to which such party acquires (i) capital stock of the Company possessing the voting power under normal circumstances necessary to elect a majority of the Board (whether by merger, consolidation, sale or transfer of the Company's capital stock) or (ii) all or substantially all of the Company's assets (as determined on a consolidated basis). 5.         Confidential Information. Executive acknowledges that the information, observations and data obtained by him while employed by the Company and its subsidiaries concerning the business or affairs of the Company or any of its subsidiaries ("Confidential Information") are the property of the Company or such subsidiary. Therefore, Executive agrees that he shall not disclose to any unauthorized person or use for his own purposes any Confidential Information without the prior written consent of the Board, unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of the Executive's acts or omissions or were known to the Executive previous to employment with the Company. Executive shall deliver to the Company at the termination of the Employment Period, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes, printouts and software and other documents and data (and copies thereof) relating to the Confidential Information, Work Product (as defined below) or the business of the Company or any subsidiary which he may then possess or have under his control. 6.        Inventions and Patents. Executive acknowledges that all inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports and all similar or related information (whether or not patentable) which related to the Company's or any of its subsidiaries' actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by Executive while employed by the Company and its subsidiaries ("Work Product") belong to the Company or such subsidiary. The Executive will promptly disclose such Work Product to the Company and perform all actions requested by the Company (whether during or after employment) to establish and confirm such ownership (including, without limitation, assignments, consents, power of attorney and other instruments). 7.         Non-Compete, Non-Solicitation. (a)            In further consideration of the compensation to be paid to Executive hereunder, Executive acknowledges that in the course of his employment with the Company he shall become familiar with the Company's trade secrets and with other Confidential Information concerning the Company and its subsidiaries and that his services shall be of special, unique and extraordinary value to the Company and its subsidiaries. Therefore, Executive agrees that, during the Employment Period and for twelve (12) months thereafter (the "Noncompete Period"), he shall not directly or indirectly own any interest in, manage, control, participate in, consult with, render services for, or in any manner engage in any business competing with the business of the Company or any of its subsidiaries, as such businesses exist or are in process at any time during the period beginning on the date hereof and ending on the date of the termination of Executive's employment, within any geographical area in which the Company or its subsidiaries engage in such businesses, which shall include the geographical area in which the Company's customers are located.. The foregoing shall not prohibit Executive from owning directly or indirectly capital stock or similar securities that are listed on a securities exchange or quoted on the National Association of Securities Dealers Automated Quotation System which do not represent more than two percent (2%) of the outstanding capital stock of any business competing with the business of the Company.   -------------------------------------------------------------------------------- (b)             During the Noncompete Period, Executive shall not directly or indirectly through another person or entity (i) induce or attempt to induce any employee of the Company or of any of its subsidiaries to leave the employ of the Company or any such subsidiary, or in any way interfere with the relationship between the Company or any of its subsidiaries and any employee thereof, or (ii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of the Company or any of its subsidiaries to cease doing business with the Company or any such subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any such subsidiary. (c)             If, at the time of enforcement of this paragraph 7, a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. Executive agrees that the restrictions contained in paragraph 7 are reasonable. (d)             In the event of the breach or threatened breach by Executive of any of the provisions of this paragraph 7, the Company, in addition and supplementary to other rights and remedies existing in its favor, may apply to the court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof. 8.         Choice of Law. All issues and questions concerning the construction, validity, enforcement and interpretation of this letter agreement shall be governed by, and construed in accordance with, the laws of the State of Idaho, without giving effect to any choice of law or conflict of law rules or provisions that could cause the application of the laws of any jurisdiction other than the State of Idaho. 9.         Mitigation. Executive shall not be required to mitigate Executive's damages by seeking other employment or otherwise. 10.       Litigation Expenses. The Company shall pay to Executive all out-of-pocket expenses, including attorney's fees, incurred by Executive in the event Executive successfully enforces any provision of this letter agreement in any action, arbitration or lawsuit. 11.       Indemnification. The Company will indemnify and hold harmless Executive from and against any and all costs, liability and expenses from any claim by any person with respect to, or in any way related to, Executive's employment with the Company as contemplated by this letter agreement (including reasonable attorney's fees) (collectively, "Claims") resulting from any act or omission of Executive that relate to Executive's employment with the Company to the maximum extent permitted by law, other than for Claims which shall be proven to be the result of gross negligence, bad faith or willful misconduct by Executive. Notwithstanding this Agreement or any termination of Executive's employment by the Company pursuant to this Agreement or otherwise, the Executive shall be entitled to coverage under the directors' and officers' liability coverage maintained by the Company, as in effect from time to time, to the same extent as other officers and directors of the Company. 12.         Representation by Executive. Executive represents and warrants to the Company that he is not a party to any agreement containing a noncompetition provision or other restriction with respect to (i) the nature of any services or business which he is entitled to perform or conduct for the Company under this letter agreement, or (ii) the disclosure or use of any information which directly or indirectly relates to the nature of the business of the Company or the services to be rendered by Executive under this letter agreement. 13.         Amendment or Termination. This letter agreement may be amended at any time by written agreement between the Company and Executive. 14.         Counterparts. This letter agreement may be executed in one or more counterparts, all of which together shall constitute but one Agreement. -------------------------------------------------------------------------------- 15.         No Waiver. No failure or delay on the part of the Company or Executive in enforcing or exercising any right or remedy hereunder shall operate as a waiver thereof. 16.         Severability. If any provision or clause of this letter agreement, or portion thereof shall be held by any court or other tribunal of competent jurisdiction to be illegal, invalid, or unenforceable in such jurisdiction, the remainder of such provision shall not be thereby affected and shall be given full effect, without regard to the invalid portion. It is the intention of the parties that, if any court construes any provision or clause of this letter agreement, or any portion thereof, to be illegal, void or unenforceable because of the duration of such provision or the area matter covered thereby, such court shall reduce the duration, area, or matter of such provision, and, in its reduced form, such provision shall then be enforceable and shall be enforced.         IN WITNESS WHEREOF, the parties hereto have executed this letter agreement as of the date first written above. MCMS, INC. -------------------------------------------------------------------------------- Name: Title: -------------------------------------------------------------------------------- Angelo M. Ninivaggi

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.32 Pages where confidential treatment has been requested are stamped "Confidential Treatment Requested. The redacted material has been separately filed with the Commission." The appropriate section has been marked at the appropriate place with a star [*]. -------------------------------------------------------------------------------- DISTRIBUTOR AGREEMENT     This agreement is entered into this 28th day of May, 2001 by and between Alcide Corporation, a Delaware corporation whose offices are located at 8561 154th Ave. N.E., Redmond, Washington, U.S.A. (hereinafter "Supplier") and SFAN LABORATOIRE whose offices are located in Rue des Rainettes, Ranes, FRANCE (hereinafter "Distributor"), and supersedes all previous agreements between the parties.     NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows:     1.  Definitions     As used herein, the term     1.1 "Contract Term" shall mean that period stated on Schedule A attached hereto.     1.2 "Products" shall mean Alcide® external udder care products, including UDDERgold® Germicidal Barrier Teat Dip, UDDERgold Platinum® Barrier Teat Dip and 4XLA® Pre and Post Milking Teat Dip.     1.3 "Territories" shall be as defined by the attached Schedule B.     2.  Appointment of Distributor     2.1 Subject to the terms and conditions of this Agreement, Supplier hereby appoints Distributor as exclusive Distributor for the Products for the Territories. Distributor hereby accepts said appointment and agrees to actively promote and sell the Products.     2.2 In accepting this appointment, Distributor agrees that it and its subsidiaries shall not, directly or indirectly, sell or distribute in the Territories, or develop:     (a) Any other external udder disinfectant product during the Contract Term except for Cleaniode® (2% Providine Iodine teat dip) and Trempiode®.     (b) Any product containing acidified chlorite, chlorous acid or chlorine dioxide as its active ingredients or degradents during the Contract Term and for a period of two (2) years thereafter.     (c) Alcide products sourced through other Alcide distributors unless approved in writing by Alcide.     2.3 Distributor may appoint agents, dealers or sales representatives to act on Distributor's behalf for sales of the Products in the Territories, provided that any compensation to such agents, dealers or representatives shall be solely Distributor's responsibility.     2.4 Subject to the terms and conditions of this Agreement, Distributor is authorized to sell the Products purchased from Supplier in such manner, at such prices and upon such terms as Distributor shall determine. Distributor is an independent contractor, not an agent or representative of Supplier. Distributor shall not assume or create any obligation in the name of Supplier or make any representation, warranty or guarantee on behalf of or in the name of Supplier.     2.5 Labeling of the Products shall be determined exclusively by Supplier. Distributor will have the right to review all Product labels prior to final approval by Supplier, and Distributor's name and trademark shall be displayed on all labels for Product delivered in the Territories. Distributor shall reimburse Supplier for art work related to labels making specific reference to Distributor or sub-distributors and, upon termination of this Agreement, Distributor shall purchase such labels 1 -------------------------------------------------------------------------------- from Supplier at the cost incurred by Supplier. When sub-distributor changes, Distributor shall purchase old labels from Supplier.     2.6 In any of the Distributor's activities relating to the promotion and sale of the Products, Supplier's name and trademark shall always be prominently displayed in order to protect Supplier's rights and goodwill in the same. Whenever Supplier's name and trademark are used in advertising and promotional programs, Supplier retains the right to review and approve same.     2.7 All registrations, trade names, trademarks and product names under which the Products are sold shall be the property of Supplier. In the event any registrations (e.g., Product registrations) are taken or issued in the name of Distributor, Distributor shall, upon request, but in any event no later than upon termination of this Agreement, transfer such registrations to Supplier or Supplier's designee and provide any documents and assistance reasonably required in connection therewith.     2.8 This Agreement shall not be construed as establishing a franchise.     2.9 Supplier and Distributor each represent and warrant to the other that it is authorized to enter into and perform this Agreement and that this Agreement does not and shall not conflict with any other agreements it may have.     3.  Terms and Conditions of Sale     3.1 All of Distributor's orders for the Products shall be subject to the terms and conditions set forth in this Section 3 and in the attached Schedule D which provides Product pricing. No additional or different terms set forth in Distributor or Supplier's purchase order, acknowledgment or other forms of correspondence (other than an amendment to this Agreement pursuant to Section 8.1 hereof) shall govern any sales of the Products by Supplier to Distributor.     3.2 Supplier shall be responsible for labeling, packing and shipping all Products ordered in a form agreed upon between Supplier and Distributor as being appropriate for the Territory and suitable for ready sale to the end user in the Territory. All deliveries shall be Ex Works Manufacturing Plant location.     3.3 Schedule A (attached) sets forth a firm commitment of dollar volume to be purchased by Distributor from Supplier. [*]     Ninety (90) days prior to the start of the contract year, Distributor will provide Supplier with a twelve (12) month forecast of anticipated Product purchases by month, of which the first three (3) months shall be a firm purchase order. The twelve (12) month forecast will be updated each ninety (90) days to facilitate Supplier's planning.     Monthly purchase orders will be issued by Distributor to Supplier ninety (90) days in advance.     3.4 Distributor shall make payments to Supplier within sixty (60) days following invoice of Products ordered by Distributor on all orders except those placed during the first Quarter of fiscal year 2002. Distributor shall make payments to Supplier within ninety (90) days following invoice of Products ordered by Distributor and shipped during the first Quarter of fiscal year 2002. Invoice will not be issued by Supplier until Product is manufactured and ready for shipment with proper notification of availability provided to Distributor. Distributor agrees and understands that interest will be charged for all amounts not paid within sixty (60) days from date of shipment except on those orders shipped during the first Quarter of fiscal year 2002. Distributor agrees and understands that interest will be charged for all amounts not paid within ninety (90) days from date of shipment for those orders shipped during the first Quarter of fiscal year 2002. [*]     3.5 Supplier provides the Limited Warranty as described in Schedule C. -------------------------------------------------------------------------------- Confidential Treatment requested. The redacted material has been separately filed with the Commission. 2 --------------------------------------------------------------------------------     3.6 Prices shown in Schedule D may be revised by Supplier annually at the anniversary date of this Agreement.     3.7 Supplier shall have Distributor named as an additional insured under Supplier's Product Liability Insurance policy at all times during the term of this Agreement.     3.8 Upon termination of the Agreement, Distributor shall purchase from Supplier all unused labels and Product inventory which has been manufactured for Distributor.     4.  Promotional Activities     4.1 Distributor shall undertake such advertising and promotional activity relating to Products as is deemed appropriate by Distributor to actively promote sales. Such advertising and promotional activity shall be solely at Distributor's expense unless otherwise agreed to in writing by Supplier. All advertising and promotional materials developed by Distributor shall be in accordance with descriptions of Products provided by Supplier and, to the best of Distributor's knowledge, shall be accurate in all material respects. Upon request, Supplier shall have the right to review and approve all advertising and promotional materials developed by Distributor. Such approval will not be unreasonably withheld and will automatically be given if Supplier does not respond to the request within seven (7) working days.     4.2 Distributor's marketing plans shall be provided to Supplier annually on or before the start of each contract year. A list of major meetings, annual shows, seminars and training programs at which Supplier's participation is desired shall be submitted ninety (90) days in advance by Distributor.     4.3 A tabulation of Distributor sales by Product and Territory shall be provided by Distributor to Supplier at the end of each fiscal quarter. Distributor shall maintain records of sales to sub-distributors or customers for a period of at least two years and, upon request, provide Supplier with copies of such records.     5.  Term and Termination     5.1 This Agreement may be terminated by either party, effective immediately upon notice to the other, in the event the party to which such notice is sent becomes the subject of any bankruptcy or insolvency proceedings.     5.2 In any case where a party claims the other party is in breach of the provisions of this Agreement (other than a failure to purchase at least the commitment goals set forth in Schedule A), the injured party shall give written notice of the breach. The party in breach must commence curing the breach within sixty (60) days of receiving notice thereof. If the breach is not cured within one hundred and twenty (120) days, this Agreement may be terminated by the party claiming breach.     5.3 The provisions of Sections 2.2, 2.6, and 7 and any accrued obligations shall survive termination of this Agreement.     5.4 No later than six (6) months prior to expiration of this Agreement, Distributor and Supplier shall meet to discuss their intentions regarding a new or extended agreement.     6.  Applicable Law.     This Agreement shall be governed by and construed in accordance with the laws of the State of Washington, regardless of its or any other jurisdiction's choice of law principles. The 1980 U.N. Convention on Contracts for the International Sale of Goods shall not apply to this Agreement. Settlement of disputes relating to this Agreement shall be resolved according to the Rules of Arbitration of the International Chamber of Commerce. 3 --------------------------------------------------------------------------------     7.  Confidential Information     (a) Supplier and Distributor agree, with respect to any confidential information received from the other and identified as confidential information, that: (i)the receiving party shall use reasonable care to prevent disclosure of the confidential information to any third party without the prior written consent of the disclosing party, and the degree of care taken by the receiving party shall be at least as great as the degree of care which the receiving party takes in protecting its own confidential information; and (ii)receiving party shall not use confidential information disclosed by the other party for any commercial purpose other than pursuant to this Agreement, or publish or disclose it to third persons without the prior written consent of the disclosing party.     (b) Neither party shall have any obligation with respect to any information disclosed by the other party: (i)which is already in the possession of the receiving party at the time of its receipt from the disclosing party; (ii)which the receiving party lawfully receives from another person whose disclosure thereof to the receiving party does not violate any rights of the disclosing party; or (iii)which is or becomes published or otherwise publicly available through no act or omission of the receiving party.     (c) Upon expiration or termination of this Agreement, Distributor and Supplier shall each, upon the written request of the other, return or destroy all materials, copies thereof and extracts therefrom which include any information designated as confidential by the other pursuant to Section 7. Each may, however, retain for legal archival purposes only, one (1) copy of all such material.     (d) The provisions of this Section 7 and Section 2.2 shall survive termination of this Agreement and remain in full force and effect for a period of three (3) years following termination as to any item of confidential information.     8.  Miscellaneous     8.1 This Agreement constitutes the entire agreement between Distributor and Supplier and may be amended only by a written document signed by both parties hereto.     8.2 All notices, requests or other communications under this Agreement shall be given in the English language and will be deemed properly given if in writing and delivered in person, sent via international courier service or by confirmed facsimile transmission to the intended recipient at the address specified below, or to such other address as a party may specify in writing: If to Supplier:   Alcide Corporation Attn.: Joseph A. Sasenick 8561 154th Avenue N.E. Redmond, WA 98052 U.S.A.       If to Distributor:   SFAN Laboratoire Attn.: Eric Ebstein 13, Rue des Rainettes 61150 Ranes, France 4 --------------------------------------------------------------------------------     8.3 The failure by either party to enforce any term or provision of this Agreement shall not constitute a waiver of the same.     8.4 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and one and the same document.     8.5 The rights of Distributor hereunder shall not be assigned or transferred, either voluntarily or by operation of law, without the prior written consent of Supplier, nor shall the duties of Distributor hereunder be delegated in whole or in part. Any such assignment, transfer or delegation shall be of no force or effect. Any change in control of Distributor shall be deemed an impermissible assignment and entitle Supplier to terminate this Agreement. This Agreement shall be binding upon and inure to the benefit of Supplier, its successors and assigns.     8.6 If any provision of this Agreement is or becomes invalid, illegal or unenforceable, the remaining provisions shall remain in full force and effect, and for the invalid, illegal or unenforceable provision shall be substituted a valid, legal and enforceable provision which shall be as similar as possible in economic and business objectives as intended by the parties.     8.7 Distributor shall comply with all applicable laws and regulations in performing under this Agreement, including the U.S. Foreign Corrupt Practices Act.     8.8 Neither party shall be responsible for non-performance or delay in performance arising from force majeure except the term of this Agreement shall not be extended as a consequence thereof. Force Majeure shall be deemed to include, but not be limited to, those circumstances, if any, whereby Distributor shall be prevented from meeting minimum purchase requirements set forth in Schedule A as a consequence of acts and omissions of Supplier.     9.  Addendum     9.1 The Distributor accepts the terms of this Agreement with the Supplier, without prejudice:     (a) The Distributor will be named on the AMM registration for UDDERgold® as the Exploitant (distributor).     (b) UDDERgold Platinum® will be submitted for homologation to the AFQA, i.e. Agence Française de la Qualité Alimentaire, when the application procedure will be defined by the DGAL.     9.2 The Distributor can use the Product trademarks named hereafter freely and unconditionally in the Territories listed in Schedule B within the auspices of this Agreement:     (a) UDDERgold®     (b) UDDERgold Platinum®     (c) 4XLA®     IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. ALCIDE CORPORATION (Supplier)   SFAN LABORATORIES (Distributor)                             By:   /s/ JOHN P. RICHARDS      By:   /s/ ERIC EBSTEIN    Its:   President   Its:   General Manager               By:   /s/ JOSEPH A. SASENICK            Its:   Chairman, CEO         5 -------------------------------------------------------------------------------- SCHEDULE A (1) Contract Term (2) Commitments to purchase Product (1)The Contract Term shall be a three year period commencing June 1, 2001, and ending May 31, 2004 (Fiscal Year 2002 through Fiscal Year 2004). (2)[*] Confidential Treatment requested. The redacted material has been separately filed with the Commission. 6 -------------------------------------------------------------------------------- SCHEDULE B Territories France Algeria Morocco Tunisia 7 -------------------------------------------------------------------------------- SCHEDULE C Limited Warranty     Alcide Corporation warrants to all purchasers of this Product that it has been manufactured in accordance with U.S. regulatory requirements, is free of defects and is as described in all labeling affixed hereto. Alcide's sole obligation under this warranty and buyer's sole remedy for any defect or failure to meet such requirements or labeling shall be limited to replacement without cost (except all costs for shipping and handling which shall be Distributor's responsibility) of any quantity of the Product sold.     THE WARRANTY PROVIDED HEREIN AND THE OBLIGATIONS AND LIABILITIES OF ALCIDE CORPORATION HEREUNDER ARE EXCLUSIVE AND IN LIEU OF, AND BUYER HEREBY WAIVES ALL OTHER REMEDIES, WARRANTIES, GUARANTIES OR LIABILITIES, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE OR MERCHANTABILITY AND ANY REMEDIES OR LIABILITIES FOR LOST PROFITS OR CONSEQUENTIAL DAMAGES). BUYER ACKNOWLEDGES THAT HE IS NOT RELYING ON THE JUDGMENT OF ALCIDE CORPORATION TO SELECT OR FURNISH COMPONENTS OR MATERIALS SUITABLE FOR ANY PARTICULAR PURPOSE AND THAT ALCIDE CORPORATION MAKES NO WARRANTIES OTHER THAN ON THE FACE HEREOF. 8 -------------------------------------------------------------------------------- SCHEDULE D     [*] Confidential Treatment requested. The redacted material has been separately filed with the Commission. 9 -------------------------------------------------------------------------------- QuickLinks DISTRIBUTOR AGREEMENT

Exhibit 10.16 iomega December 2, 1999 Robert Murrill 7605 Burns Run Dallas TX 75248 Dear Bob:     Iomega is pleased to confirm your offer of employment as Senior Vice President, General Counsel, and Secretary, reporting to Bruce Albertson at our Corporate Headquarters in Roy, Utah. The annual compensation will be $225,000 paid on a bi-weekly basis. We would like your employment to begin as soon as possible.     Your compensation package also includes: •Participation in the Iomega Incentive Bonus Program, with an annual incentive target payment equal to $150,000 (minus applicable withholding taxes), which is based on 50% company performance and 50% individual performance. This bonus will be guaranteed at 50% (75,000) for first full year employment. Your actual award could be greater based on performance. •A benefits package encompassing hospitalization, major medical and dental coverage, 401(k) retirement plan, vacation and holidays, and educational assistance subject to the terms and conditions of these plans. •A $70,000 sign-on bonus (minus applicable withholding taxes) will be payable upon hire. If you voluntarily terminate employment at Iomega Corporation prior to the completion of one (1) year of service, the $70,000 bonus amount, including applicable withholding taxes shall be repaid to Iomega. •In consideration of the above mentioned sign-on bonus, you will forfeit your rights to the following relocation benefits: •Home Purchase Assistance •Home Sale Assistance •Associated Tax Gross Up •All other provisions of the Iomega Relocation Package will apply with the following amendments: •Temporary living accommodations for a 1 year period from hire date. Extension of this benefit will be reviewed after the first year. •Provide weekly air travel to Dallas Texas for a 12 month period at the lowest available fare to accommodate working from your home one day per week. This arrangement will be reviewed after the one-year period. •An option to purchase 50,000 shares of Iomega stock with an exercise price equal to the Fair Market Value on your start date under the 1997 Iomega Corporation Stock Incentive Plan. These option shares will vest in four increments, 25% on your first anniversary, 25% on your second anniversary, 25% on your third anniversary and 25% on your fourth anniversary and will be subject to a stock option agreement, which contains, among other terms, requirements regarding confidentiality, non-solicitation, and non-competition. •An option to purchase 20,000 shares of Iomega stock with an exercise price equal to the Fair Market Value on your start date. These shares will be 100% vested upon your date of hire and -------------------------------------------------------------------------------- will be subject to a stock option agreement, which contains, among other terms, requirements regarding confidentiality, non-solicitation, and non-competition. •As an Executive Staff member, you will be covered by the Change of Control provision adopted and passed by the Board of Directors. Under a modified, single trigger change of control provision your salary, annual bonus at target and benefits will be continued for 12 months under the following circumstances: •If within one year from date of change in control, your employment is terminated by the Company other than for cause. •If you exercise an option to leave within 30 days following completion of one year from date of change of control. However, these payments would be reduced (or in the case of benefits, eliminated) once subsequent employment is obtained during the period. Outplacement services will be provided to assist your search for new employment. •Should the Company terminate your employment for reasons other than illegal acts and/or moral turpitude you would receive up to 8 months of continued salary and benefits. •Eligible to participate in the Executive Life Insurance Program at two times the annual base salary, subject to medical underwriting upon date of hire. •Eligible to participate in the Executive Long-Term Disability Program upon carrier approval. •Eligible to participate in the Executive Tax Planning Services provided by PriceWaterhouse, LLP (or substitute, at your election) upon date of hire.     The start of your employment is contingent upon your acceptance of this offer and the terms and conditions described in this letter, your signature on an agreement regarding confidentiality, non-solicitation and non-competition, and proof of your eligibility to work in the United States. As you will note, this offer for a position constitutes an at-will relationship with Iomega. This means that both you and Iomega share the right to sever the employment relationship at anytime, for any reason or no reason, and with or without notice.     Additionally, it is Iomega's policy that all employees successfully pass a drug screen at an Iomega approved facility prior to beginning employment. The actual test date is at Iomega's discretion. This offer of employment is also contingent upon satisfactory background checks, which are currently pending.     We are looking forward to your joining Iomega effective December 27, 1999. Please fax a copy of the signed offer letter (indicating the date that you will begin work) and relocation agreement tome at (801) 332-3439. In the meantime, if you have any questions, please contact me at (801) 332-3217. Sincerely, /s/ KEVIN M. O'CONNOR    -------------------------------------------------------------------------------- Kevin M. O'Connor Vice President, Human Resources Iomega Corporation         /s/ ROBERT D. MURRILL    -------------------------------------------------------------------------------- Signed and Accepted   12/9/99 -------------------------------------------------------------------------------- Date   12/27/99 -------------------------------------------------------------------------------- Start Date Offer expires: Wednesday, December 8, 1999 --------------------------------------------------------------------------------

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.25 September 13, 2001 Dr. David Kaslow 741 Woodleave Rd. Bryn Mawr, PA 19010 Dear David:     It is with great pleasure that we present our offer to you of the position of Chief Scientific Officer of Vical Incorporated, (the "Company"), effective no later than October 15, 2001. We are all delighted about the prospect of your joining our Senior Management team.     This letter sets forth the basic terms and conditions of your employment with the Company. By signing this letter, you will be agreeing to these terms:     1.  Duties and Scope of Employment.       (a)  Position.  The Company agrees to employ you as Chief Scientific Officer. You will report to the Chief Executive Officer of the Company and have the powers and duties commensurate with such position.     (b)  Obligations.  During the term of your employment, you will devote your full business efforts and time to the Company and its subsidiaries (if any). You will not render services to any other person or entity without the express prior approval of the Chief Executive Officer. During your employment, you will not engage, directly or indirectly, in any other business activity (whether or not pursued for pecuniary advantage) that is or may be competitive with the Company; provided that you may own less than one percent of the outstanding securities of any publicly-traded corporation.     2.  Compensation.       (a)  Salary.  During your employment, the Company agrees to pay you as compensation for your services a base salary at the annual rate of $250,000 or at such higher rate as the Company may determine from time to time. Such salary will be payable in accordance with the Company's standard payroll procedures. (The annual compensation specified in this Section 2(a), together with any increases in such compensation that the Company may grant from time to time, is referred to in this Agreement as "Base Compensation.")     (b)  Bonus.  You will be eligible for a performance-based annual cash bonus, at the discretion of the Board of Directors, targeted at 20% to 30% of your Base Compensation during 2001. Bonuses are generally proposed in January of each year for the previous year and, if approved by the Board of Directors, are paid out in February.     3.  Employee Benefits.       (a)  Company Benefits.  During the term of your employment, you will be eligible to participate in the employee benefit plans maintained by the Company, subject in each case to the generally applicable terms and conditions of the plan in question and to the determinations of any person or committee administering such plan. The benefits may be changed from time to time by the Company. Current employee benefits are described in the enclosed benefit summary.     (b)  Vacation  You will be entitled to five weeks of vacation which accrues according to the following schedule: Annual Accrual (Hours) --------------------------------------------------------------------------------   Pay Period Accrual (Hours) --------------------------------------------------------------------------------   Maximum Accrual -------------------------------------------------------------------------------- 200   8.33   400 --------------------------------------------------------------------------------     4.  Business Expenses.  During your employment, you will be authorized to incur necessary and reasonable travel, entertainment and other business expenses in connection with your duties hereunder. The Company will reimburse you for such expenses upon presentation of an itemized account and appropriate supporting documentation, all in accordance with the Company's generally applicable policies.     5.  Stock Option.  The Company will grant to you a stock option (such option to be an incentive stock option to the extent permitted by law) to purchase from the Company 125,000 shares of the Company's common stock (the "Shares"). The exercise price of your stock option will be equal to the fair market value on the date of the grant. Your stock option will be granted pursuant to the Stock Incentive Plan of Vical Incorporated and will be subject to the terms and conditions of the Plan and the Company's form of stock option agreement, a copy of which is enclosed. Your stock options will vest (become exercisable) on a quarterly basis over a four-year period, subject to a one-year "cliff" vesting provision.     6.  Proprietary Information and Inventions Agreement.  You will be required to sign and abide by the terms of the Company's Employee's Proprietary Information and Inventions Agreement, a copy of which is enclosed.     7.  Immigration Documentation.  Please be advised that your employment is contingent on your ability to prove your identity and eligibility to work in the United States. You must comply with the Immigration and Naturalization Service's employment verification requirements. Please review the attached sample I-9 form. Documents which establish identity and employment eligibility must be presented to Vical within three days of commencing employment.     8.  Term and Termination of Employment.       (a)  "At Will" Employment.  Your employment with the Company is "at will" and not for a specified term and may be terminated by you or the Company at any time for any reason, with or without cause. Except as expressly provided in subsection (c) below, upon a termination of your employment, you will only be entitled to the compensation, benefits and reimbursements described in Section 2, 3 and 4 for the period preceding the effective date of the termination.     (b)  Definitions.  For all purposes under this Agreement,     (i)  "Good Reason" shall mean (A) you have incurred a material reduction in your authority or responsibility, (B) a more than 25 percent reduction in Base Compensation or (C) a material breach of this Agreement by the Company;     (ii) "Cause" shall mean (A) a failure to perform your duties hereunder, other than a failure resulting from complete or partial incapacity due to physical or mental illness or impairment, (B) gross misconduct or fraud or (C) conviction of, or a plea of "guilty" or "no contest" to, a felony.     (iii) "Disability" shall mean that you, at the time your employment is terminated, have performed substantially none of your duties under this Agreement for a period of not less than three consecutive months as the result of your incapacity due to physical or mental illness.     (c)  Salary Continuation.  Subject to subsection (d) below, the Company will continue to pay your Base Compensation (at the annual rate then in effect) for up to twelve months following the termination of your employment if, prior to the fourth annual anniversary of the commencement of your employment:     (i)  the Company terminates your employment without your consent for any reason other than Cause or Disability; or     (ii) you voluntarily resign your employment for Good Reason. 2 -------------------------------------------------------------------------------- The payments under this subsection (c) will cease in the event of your death. In order to receive your salary continuation, you will be required to sign a release in a form acceptable to the Company, of any and all claims that you may have against the Company.     (d)  Mitigation.  The payments under subsection (c) above shall be reduced on a dollar-for-dollar basis by any other compensation earned by you for personal services performed as an employee or independent contractor during the twelve-month period following the termination of your employment, including (without limitation) deferred compensation. You will apply your best efforts to seek and obtain other employment or consulting engagements, whether on a full- or part-time basis, during such twelve-month period in order to mitigate the Company's obligations under subsection (c) above. At reasonable intervals, you will report to the Company with respect to such efforts and any compensation earned during such twelve-month period.     9.  Dispute Resolution.  You and the Company ("the parties ") agree that any dispute arising out of or related to your employment shall be resolved as provided in the Dispute Resolution Procedures attached hereto as Exhibit A.     10.  Relocation & Housing.  Vical will provide you with an interest free promissory note forgivable over a four year period. The total loan amount will be $300,000.00. One fourth of such note shall be forgiven on each of the first four anniversaries of your first day of employment, assuming purchase of a residence in California. I encourage you to discuss the tax consequences of this note, including taxes on the imputed interest amounts, with your tax advisor. Additionally, Vical will provide an interest only promissory note in the amount of $150,000 for a four year period. Interest will be calculated at the Annual Federal Rate (AFR) and payable monthly. In the event that you voluntarily terminate your employment with Vical or if you are involuntarily terminated for cause after less than four consecutive years of service, the unpaid balances of these notes shall be due and payable within 30 days after the last day of employment. In the event of a change of control with respect to the company, any unpaid balance of the forgivable loan will be forgiven as of the date of the closing of the transaction that results in the change of control. You can use these funds as a down payment on a residence in California. Vical will also provide a housing differential in the amount of $1,500 per month for a period of 24 months. Additionally, Vical will cover relocation costs for you and your family including a tax gross up on the following costs: Moving of household goods, packing and unpacking, closing costs, temporary housing for 60 days, reasonable trips for you and your family to locate housing, settle in new schools, etc. Vical will also arrange with a third party to purchase your current residence if you are unable to sell it within 60 days of the start of your employment at Vical. The sales price for the house will be determined by the third party's program for such sales. Please note that this Agreement supersedes any prior agreements, representations or promises of any kind, whether written, oral, express or implied between the parties hereto with respect to the subject matters herein, and it, together with your stock option agreement and Employee's Proprietary Information and Inventions Agreement, constitutes the full, complete and exclusive agreement between you and the Company with respect to the subject matters herein. This Agreement cannot be changed unless in writing, signed by you and an authorized officer of the Company. If any term of this Agreement is held to be invalid, void or unenforceable, the remainder of this Agreement shall remain in full force and effect and shall in no way be affected, and the parties will use their best efforts to find an alternative way to achieve the same result.     This offer letter may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. This Agreement is governed by California law without regard to its choice of law provisions. 3 --------------------------------------------------------------------------------     To indicate your acceptance of this offer of employment, please sign below and return one signed copy to me no later than September 21, 2001.     Sincerely,               VICAL INCORPORATED               By             -------------------------------------------------------------------------------- Vijay B. Samant President and Chief Executive Officer ACCEPTED AND AGREED This      day of      , 2001:                   -------------------------------------------------------------------------------- Dr. David Kaslow         4 -------------------------------------------------------------------------------- EXHIBIT A Dispute Resolution Procedure     You and the Company ("the parties ") agree that any dispute arising out of or related to your employment shall be resolved by binding arbitration, except where the law specifically forbids the use of arbitration as a final and binding remedy, or where subsection (g) below specifically allows a different remedy.     (a) The complainant shall provide the other party with a written statement of the claim identifying any supporting witnesses or documents and the requested relief.     (b) The respondent shall furnish a statement of the relief, if any, that it is willing to provide, and identify supporting witnesses or documents. If the matter is not resolved, the parties shall submit the dispute to nonbinding mediation, paid for by the Company, before a mediator to be selected by the parties.     (c) If the matter is not resolved through mediation, the parties agree that the dispute shall be resolved by binding arbitration. If the parties are unable to jointly select an arbitrator, they will obtain a list of arbitrators from the Federal Mediation and Conciliation Service and select an arbitrator by striking names from that list.     (d) The arbitrator shall have the authority to determine whether the conduct complained of in subsection (a) of this Section 9 violates the complainant's rights and, if so, to grant any relief authorized by law; subject to the exclusions of subsection (g) below. The arbitrator shall not have the authority to modify, change or refuse to enforce the terms of any employment agreement between the parties, or change any lawful policy or benefit plan.     (e) The Company will bear the costs of the arbitration if you prevail. If the Company prevails, you will pay half the cost of the arbitration or $500, whichever is less. Each party shall pay its own attorneys fees, unless the arbitrator orders otherwise pursuant to applicable law.     (f)  Arbitration shall be the exclusive final remedy for any dispute between the parties, such as disputes involving claims for discrimination or harassment (such as claims under the Fair Employment and Housing Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, or the Age Discrimination in Employment Act), wrongful termination, breach of contract, breach of public policy, physical or mental harm or distress or any other disputes, and the parties agree that no dispute shall be submitted to arbitration where the complainant has not complied with the preliminary steps provided for in sections (a) and (b) above.     (g) The parties agree that the arbitration award shall be enforceable in any court having jurisdiction to enforce this Agreement, so long as the arbitrator's findings of fact are supported by substantial evidence on the whole and the arbitrator has not made errors of law; however, either party may bring an action in a court of competent jurisdiction regarding or related to matters involving the Company's confidential, proprietary or trade secret information, or regarding or related to inventions that you may claim to have developed prior to joining the Company or after joining the Company, pursuant to California Labor Code Section 2870 ("Disputes Related to Inventions"). The parties further agree that for Disputes Related to Inventions that the parties have elected to submit to arbitration, each party retains the right to seek preliminary injunctive relief in court in order to preserve the status quo or prevent irreparable injury before the matter can be heard in arbitration. 5 -------------------------------------------------------------------------------- QuickLinks EXHIBIT 10.25 EXHIBIT A Dispute Resolution Procedure

QuickLinks -- Click here to rapidly navigate through this document AMENDMENT TO EMPLOYMENT AGREEMENT     This Amendment to Employment Agreement (the "Amendment") is made and entered into effective as of the 9th day of February, 2001, by and between NetZero, Inc., a Delaware corporation (the "Company"), with principal corporate offices at 2555 Townsgate Road, Westlake Village, CA 91361, and Frederic A. Randall, Jr., whose address is 432 Isabella Terrace, Corona del Mar, California 92625 ("Employee"). All capitalized terms used but not otherwise defined herein shall have the meanings given to them in that certain Employment Agreement by and between the Company and Employee dated March 20, 1999 (the "Agreement" or the "Employment Agreement").     WHEREAS, the Company and Employee desire to modify certain terms of the Employment Agreement.     NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1.The Term of the Employment Agreement is hereby extended through February 9, 2005. 2.Employee's Base Salary and Annual Bonus, as defined in the Employment Agreement, shall be increased to include any increases to Employee's base salary and annual bonus as approved by the Board. 3.Section 4.2 shall be replaced with the following:     4.2  Termination Without Cause.  If Employee's employment is terminated without "cause" as defined in Section 4.1(a), or if Employee is Involuntarily Terminated (as defined below), the Company (or its successor, as the case may be) shall pay to Employee (i) any accrued but unpaid Base Salary and vacation through the date of termination, (ii) reimbursement for any expenses as set forth in Section 3.5, through the date of termination and (iii) a severance payment in an amount equal to four times Employee's Base Salary and Annual Bonus, payable in one lump sum on the date of termination, subject to withholding as may be required by law. In addition, if Employee's employment is terminated without cause (other than if Employee is Involuntarily Terminated) or if Employee's employment is terminated due to death or permanent disability, Employee will be credited with an additional twelve (12) months of service toward vesting in the Option shares in addition to the service he has accrued toward vesting through the date of termination. If Employee is Involuntarily Terminated, vesting of all options to purchase shares of the Company's Common Stock and all restricted stock grants (subject to any vesting deferrals provided in any restricted stock grant) will be accelerated in full and all such options shall remain in effect for a one (1) year period following the date of termination. As used in this Section 4.2, Employee shall be deemed "Involuntarily Terminated" if (i) the Company or any successor to the Company terminates Employee's employment without cause in connection with or following a Corporate Transaction or Change of Control (as defined in the Company's 1999 Stock Incentive Plan); or (ii) in connection with or following a Corporate Transaction or Change of Control there is (a) a decrease in Employee's title or responsibilities (it being deemed to be a decrease in title and/or responsibilities if Employee is not offered the position of Senior Vice President and General Counsel of the Company or its successor as well as the acquiring and ultimate parent entity, if any, following the Corporate Transaction or Change of Control), (b) a decrease in pay and/or benefits from those provided by the Company immediately prior to the Corporate Transaction or (c) a requirement that Employee re-locate out of the greater Los Angeles metropolitan area. 4.For the eighteen (18) month period following the termination of Employee's employment with the Company (the "Noncompetition Period"), Employee shall not directly engage in, or manage or direct persons engaged in, a Competitive Business Activity (as defined below) anywhere in the Restricted Territory (as defined below); provided, that the Noncompetition Period shall terminate if the Company terminates operations or if the Company no longer engages in any Competitive Business Activity. The term "Competitive Business Activity" shall -------------------------------------------------------------------------------- mean the business of providing consumers with dial-up Internet access services (free or pay). The term "Restricted Territory" shall mean each and every county, city or other political subdivision of the United States in which the Company is engaged in business or providing its services.  The Company agrees that providing services to a company or entity that is involved in a Competitive Business Activity but which services are unrelated to the Competitive Business Activity shall not be deemed a violation of this Amendment. 5.Company and Employee agree that, for the purposes of damages to the Company with respect to any breach of Section 4 above, the value of Employee's obligations to the Company under Section 4 equal 37.5% of the severance payment in paragraph 3 above. In the event that any amounts, benefits, and rights payable to Employee upon a termination of employment under Section 4 (CIC Benefits) would be deemed under Section 280G of the Internal Revenue Code (Code) to constitute parachute payments, then the Employee's CIC Benefits shall be payable either (a) in full, or (b) as to such lesser amount which would result in no portion of such CIC Benefits being subject to excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by Employee on an after-tax basis, of the greatest amount of benefits under Section 4 notwithstanding that all or some portion of such benefits may be taxable under Section 4999 of the Code. The determination as to whether and to what extent payments under Section 4 are required to be reduced in accordance with the preceding sentence shall be made at the Company's expense by PricewaterhouseCoopers LLP or by such other nationally recognized certified public accounting firm, law firm, or benefits consulting firm as the Compensation Committee of the Company's Board of Directors may designate, subject to the reasonable approval of Employee. PricewaterhouseCoopers LLP (or such other firm as may have been designated in accordance with the preceding sentence) shall have the right to engage any service provider of their choosing to provide any assistance or services necessary in making such determination. 6.If any provision of this Agreement is held by an arbitrator or a court of competent jurisdiction to conflict with any federal, state or local law, or to be otherwise invalid or unenforceable, such provision shall be construed in a manner so as to maximize its enforceability while giving the greatest effect as possible to the parties' intent. To the extent any provision cannot be construed to be enforceable, such provision shall be deemed to be eliminated from this Agreement and of no force or effect and the remainder of this Agreement shall otherwise remain in full force and effect and be construed as if such portion had not been included in this Agreement. 7.This Amendment shall be deemed incorporated into the Agreement and, except as specifically modified by this Amendment, the Agreement shall remain unchanged and in full force and effect. The Agreement shall be binding upon successors and assigns.     In witness whereof, the parties have executed this Amendment to be effective as of the first date written above.               NETZERO, INC.               By:   /s/ MARK R. GOLDSTON    -------------------------------------------------------------------------------- Mark R. Goldston Chief Executive Officer               EMPLOYEE         /s/ FREDERIC A. RANDALL, JR.    -------------------------------------------------------------------------------- Frederic A. Randall, Jr. -------------------------------------------------------------------------------- QuickLinks AMENDMENT TO EMPLOYMENT AGREEMENT

Exhibit 10.3 PROMISSORY NOTE SECURED BY DEED OF TRUST       $4,750,000.00 San Francisco, California June 19, 2001 FOR VALUE RECEIVED, the undersigned REGAN HOLDING CORP, a California corporation (“Borrower”), promise(s) to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (“Lender”), at the Disbursement and Operations Center in El Segundo, California, or at such other place as may be designated in writing by Lender, the principal sum of Four Million Seven Hundred Fifty Thousand and 00/100ths Dollars ($4,750,000.00) or so much thereof as may from time to time be owing hereunder by reason of advances by Lender to or for the benefit or account of Borrower, with interest thereon, per annum, at one or more of the Effective Rates calculated in accordance with the terms and provisions of the Fixed Rate Agreement attached hereto as Exhibit A and a Fixed Rate Notice described on Exhibit B attached hereto (based on a 360-day year and charged on the basis of actual days elapsed). All sums owing hereunder are payable in lawful money of the United States of America, in immediately available funds. Interest accrued on this note (“Note”) shall be due and payable on the first day of each month commencing with the first month after the date of this Note and continuing until the Maturity Date. Any prinicipal reduction amounts may not be reborrowed. The outstanding principal balance of this Note, together with all accrued and unpaid interest, shall be due and payable in full on December 19, 2001 (“Maturity Date”). This Note is secured by, among other things, that certain Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing (“Deed of Trust”) dated as of June 19, 2001, executed by Borrower, as trustor, to a trustee for the benefit of Lender. If any payment required hereunder is not received by Lender (whether by direct debit or otherwise) on or before the fifteenth (15th) calendar day of the month in which it becomes due, Borrower shall pay, at Lender’s option, a late or collection charge equal to four percent (4%) of the amount of such unpaid payment. If: (a) Borrower shall fail to pay when due any sums payable hereunder; or (b) a Default (as defined in the Deed of Trust) occurs under the Deed of Trust or under any obligation secured thereby; or (c) the property which is subject to the Deed of Trust, or any portion thereof or interest therein, is sold, transferred, mortgaged, assigned, encumbered or leased, whether voluntarily or involuntarily or by operation of law or otherwise, other than as expressly permitted by Lender in writing; THEN Lender may, at its sole option, declare all sums owing under this Note immediately due and payable; provided, however, that if any document related to this Note provides for automatic acceleration of payment of sums owing hereunder, all sums owing hereunder shall be automatically due and payable in accordance with the terms of that document. If any attorney is engaged by Lender to enforce or defend any provision of this Note or the Deed of Trust, or as a consequence of any Default, with or without the filing of any legal action or proceeding, then Borrower shall pay to Lender immediately upon demand all attorneys’ fees and all costs incurred by Lender in connection therewith, together with interest thereon from the date of such demand until paid at the rate of interest applicable to the principal balance owing hereunder as if such unpaid attorneys’ fees and costs had been added to the principal. No previous waiver and no failure or delay by Lender in acting with respect to the terms of this Note or the Deed of Trust shall constitute a waiver of any breach, default, or failure of condition under this Note, the Deed of Trust or the obligations secured thereby. A waiver of any term of this Note, the Deed of Trust or of any of the obligations secured thereby must be made in writing and shall be limited to the express written terms of such waiver. In the event of any inconsistencies between the terms of this Note and the terms of any other document related to the loan evidenced by this Note, the terms of this Note shall prevail.   -------------------------------------------------------------------------------- If this Note is executed by more than one person or entity as Borrower, the obligations of each such person or entity shall be joint and several. No person or entity shall be a mere accommodation maker, but each shall be primarily and directly liable hereunder. Except as otherwise provided in any agreement executed in connection with this Note, Borrower waives: presentment; demand; notice of dishonor; notice of default or delinquency; notice of acceleration; notice of protest and nonpayment; notice of costs, expenses or losses and interest thereon; notice of late charges; and diligence in taking any action to collect any sums owing under this Note or in proceeding against any of the rights or interests in or to properties securing payment of this Note. Time is of the essence with respect to every provision hereof. This Note shall be construed and enforced in accordance with the laws of the State of California, except to the extent that federal laws preempt the laws of the State of California, and all persons and entities in any manner obligated under this Note consent to the jurisdiction of any federal or state court within the State of California having proper venue and also consent to service of process by any means authorized by California or federal law. All notices or other communications required or permitted to be given pursuant to this Note shall be given to the Borrower or Lender at the address and in the manner provided for in the Loan Agreement. The Loan Documents contain or expressly incorporate by reference the entire agreement of the parties with respect to the matters contemplated therein and supersede all prior negotiations or agreements, written or oral. The Loan Documents shall not be modified except by written instrument executed by all parties. Any reference to the Loan Documents includes any amendments, renewals or extensions now or hereafter approved by Lender in writing. Exhibits A is attached hereto and incorporated herein by reference. “BORROWER”   REGAN HOLDING CORP, a California corporation   By: /s/ H. Lynn Stafford   Title: Chief Information Officer   -------------------------------------------------------------------------------- FIXED RATE AGREEMENT Exhibit A to Promissory Note Secured by Deed of Trust (“Note”), dated June 19, 2001, made by REGAN HOLDING CORP, a California corporation, as Borrower, to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION, as Lender. R E C I T A L S Borrower has requested and Lender has agreed to provide a fixed rate as a basis for calculating the effective rate of interest on amounts owing under this Note. Borrower acknowledges the following: (i) it understands the process of determining the fixed rates as provided herein; (ii) amounts owing under this Note may bear interest at different rates and for different time periods; and (iii) absent the terms and conditions hereof, it would be extremely difficult to calculate Lender’s additional costs, expenses, and damages in the event of a Default or prepayment by Borrower hereunder. Given the above, Borrower agrees that the provisions herein (including, without limitation, the Fixed Rate Price Adjustment defined below) provide for a reasonable and fair method for Lender to recover its additional costs, expenses and damages in the event of a Default or prepayment by Borrower. 1RATES AND TERMS DEFINED.Various rates and terms not otherwise defined herein are defined and described as follows: “Alternate Rate” is a rate of interest per annum five percent (5%) in excess of the applicable Effective Rate in effect from time to time. “Applicable LIBO Rate” is the rate of interest, rounded upward to the nearest whole multiple of one-hundredth of one percent (.01%), equal to the sum of: (a) Three and One-Half Percent (3.5000%) plus (b) the LIBO Rate, which rate is divided by one (1.00) minus the Reserve Percentage:           Applicable LIBO Rate = 3.5000% + LIBO Rate (1 - Reserve Percentage)   “Business Day(s)” means a day of the week (but not a Saturday, Sunday or holiday) on which the offices of Lender are open to the public for carrying on substantially all of Lender’s business functions.     “Fixed Rate” is the Applicable LIBO Rate as accepted by Borrower as an Effective Rate for a particular Fixed Rate Period and Fixed Rate Portion.     “Fixed Rate Commencement Date” means the date upon which the Fixed Rate Period commences.     “Fixed Rate Period” is the period beginning on and including the date on which Lender shall make the initial disbursement of Loan proceeds under the Loan Agreement in the amount sufficient to constitute a Fixed Rate Portion, and ending on the date which numerically corresponds to such date thirty (30) days thereafter, and each consecutive   --------------------------------------------------------------------------------   thirty (30) day period thereafter throughout the term of the Loan; provided that no Fixed Rate Period shall extend beyond the Maturity Date.     “Fixed Rate Portion” is the portion of the principal balance of this Note which is subject to a Fixed Rate, each of which is an amount: (a) equal to the unpaid principal balance of this Note; or (b) the current month’s principal disbursement which may constitute a separate Fixed Rate Portion until the maturity of the next maturing Fixed Rate Period applicable to the remaining outstanding principal hereunder.     “LIBO Rate” is the rate of interest, rounded upward to the nearest whole multiple of one-hundredth of one percent (.01%), quoted by Lender as the London Inter-Bank Offered Rate for deposits in U.S. Dollars at approximately 9:00 a.m. California time, for a Fixed Rate Commencement Date or a Price Adjustment Date, as appropriate, for purposes of calculating effective rates of interest for loans or obligations making reference thereto for an amount approximately equal to a Fixed Rate Portion and for a period of time approximately equal to a Fixed Rate Period or the time remaining in a Fixed Rate Period after a Price Adjustment Date, as appropriate, but in no event shall the LIBO Rate be less than four percent (4.00%).     “Loan Agreement” is that certain Loan Agreement dated as of June 19, 2001 between Borrower and Lender.     “Loan Documents” are the documents defined as such in the Loan Agreement.     “Prime Rate” is a base rate of interest which Lender establishes from time to time and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. Any change in an Effective Rate due to a change in the Prime Rate shall become effective on the day each such change is announced within Lender.     “Regulatory Costs” are, collectively, future, supplemental, emergency or other changes in Reserve Percentages, assessment rates imposed by the FDIC, or similar requirements or costs imposed by any domestic or foreign governmental authority and related in any manner to a Fixed Rate.     “Reserve Percentage” is at any time the percentage announced within Lender as the reserve percentage under Regulation D for loans and obligations making reference to an Applicable LIBO Rate for a Fixed Rate Period or time remaining in a Fixed Rate Period on a Price Adjustment Date, as appropriate. The Reserve Percentage shall be based on Regulation D or other regulations from time to time in effect concerning reserves for Eurocurrency Liabilities as defined in Regulation D from related institutions as though Lender were in a net borrowing position, as promulgated by the Board of Governors of the Federal Reserve System, or its successor.     “Taxes,” are, collectively, all 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 a Fixed Rate.   --------------------------------------------------------------------------------   “Variable Rate” is a floating rate of interest of Two Percent (2.00%) per annum in excess of the Prime Rate.     2EFFECTIVE RATE.The “Effective Rate” upon which interest shall be calculated for this Note shall be one or more of the following:     2.1 The Effective Rate shall be (a) the Fixed Rate set in accordance with the provisions hereof, provided, however, if any of the transactions necessary for the calculation of interest at any Fixed Rate should be or become prohibited or unavailable to Lender, or, if in Lender’s good faith judgment, it is not possible or practical for Lender to set a Fixed Rate for the Fixed Rate Portion and Fixed Rate Period, the Effective Rate for such Fixed Rate Portion shall remain at or revert to the Variable Rate, or (b) the Variable Rate, if, on or before 9:00 a.m. California time on the Fixed Rate Commencement Date, Borrower requests Lender to convert the Fixed Rate Portion to the Variable Rate in anticipation of a full or partial repayment of the Loan.     2.2 During such time as a Default, breach or failure of condition exists under the Loan Agreement or any of the Loan Documents; or from and after the date on which all sums owing under this Note become due and payable by acceleration or otherwise; or from and after the date on which the property encumbered by the Deed of Trust or any portion thereof or interest therein, is sold, transferred, mortgaged, assigned, or encumbered, whether voluntarily or involuntarily, or by operation of law or otherwise, without Lender’s prior written consent (whether or not the sums owing under this Note become due and payable by acceleration); or from and after the Maturity Date, then at the option of Lender, the interest rate applicable to the then outstanding principal balance of this Note shall be the Alternate Rate.     3 ESTABLISHMENT OF FIXED RATES.Lender shall automatically establish each Fixed Rate at the commencement of each Fixed Rate Period.     4 TAXES, REGULATORY COSTS AND RESERVE PERCENTAGES. Upon Lender’s demand, Borrower shall pay to Lender, in addition to all other amounts which may be, or become, due and payable under this Note and Loan Documents, any and all Taxes and Regulatory Costs, to the extent they are not internalized by calculation of a Fixed Rate. Further, at Lender’s option, the Fixed Rate shall be automatically adjusted by adjusting the Reserve Percentage, as determined by Lender in its prudent banking judgment, from the date of imposition (or subsequent date selected by Lender) of any such Regulatory Costs. Lender shall give Borrower notice of any Taxes and Regulatory Costs as soon as practicable after their occurrence, but Borrower shall be liable for any Taxes and Regulatory Costs regardless of whether or when notice is so given.     5FIXED RATE PRICE ADJUSTMENT. Borrower acknowledges that prepayment or acceleration of a Fixed Rate Portion during a Fixed Rate Period shall result in Lender’s incurring additional costs, expenses and/or liabilities and that it is extremely difficult and impractical to ascertain the extent of such costs, expenses and/or liabilities. Therefore, on the date a Fixed Rate Portion is prepaid or the date all sums payable hereunder become due and payable, by acceleration or otherwise (“Price Adjustment Date”), Borrower will pay Lender (in addition to all other sums then owing to Lender) an amount (“Fixed Rate   --------------------------------------------------------------------------------   Price Adjustment”) equal to the then present value of (a) the amount of interest that would have accrued on the Fixed Rate Portion for the remainder of the Fixed Rate Period at the Fixed Rate set on the Fixed Rate Commencement Date, less (b) the amount of interest that would accrue on the same Fixed Rate Portion for the same period if the Fixed Rate were set on the Price Adjustment Date at the Applicable LIBO Rate in effect on the Price Adjustment Date. The present value shall be calculated by using as a discount rate the LIBO Rate quoted on the Price Adjustment Date.   By initialing this provision where indicated below, Borrower confirms that Lender’s agreement to make the loan evidenced by this Note at the interest rates and on the other terms set forth herein and in the other Loan Documents constitutes adequate and valuable consideration, given individual weight by Borrower, for this agreement. BORROWER’S INITIALS: /s/ HLS   6PURCHASE, SALE AND MATCHING OF FUNDS.Borrower understands, agrees and acknowledges the following: (a) Lender has no obligation to purchase, sell and/or match funds in connection with the use of a LIBO Rate as a basis for calculating a Fixed Rate or Fixed Rate Price Adjustment; (b) a LIBO Rate is used merely as a reference in determining a Fixed Rate and Fixed Rate Price Adjustment; and (c) Borrower has accepted a LIBO Rate as a reasonable and fair basis for calculating a Fixed Rate and a Fixed Rate Price Adjustment. Borrower further agrees to pay the Fixed Rate Price Adjustment, Taxes and Regulatory Costs, if any, whether or not Lender elects to purchase, sell and/or match funds.     7MISCELLANEOUS.As used in this Exhibit, the plural shall mean the singular and the singular shall mean the plural as the context requires. Addresses for the Fixed Rate Notice shall be the same as those for notices under the Loan Agreement executed in connection with this Note. This Agreement is executed concurrently with and as part of this Note referred to and described first above.                   “BORROWER” REGAN HOLDING CORP, a California corporation By: /s/ H. Lynn Stafford Title: Chief Information Officer  

Exhibit 10.1 [New Century Letterhead] September 7, 2001 VIA FEDERAL EXPRESS Ocwen Federal Bank FSB The Forum, Suite 1002 1675 Palm Beach Lakes Blvd. West Palm Beach, FL 33401 Attn: Art Castner          Scott Conradson     Re:         "High Risk" First Payment Default Category Ladies and Gentlemen:     We refer to the Residential Flow Interim Servicing Rights Purchase Agreement (the "Agreement") dated as of March 1, 2001 by and between Ocwen Federal Bank FSB and New Century Mortgage Corporation, pursuant to which you service certain mortgage loans owned by us from time to time. Terms capitalized and used herein without being defined will have the meanings given to them in the Agreement.     In order to minimize first payment defaults on certain high-risk mortgage loans, you agree that, in addition to your servicing obligations pursuant to the Agreement, you will provide the following additional services for certain high-risk loans with a status code of "1P" (the "High-Risk Loans") when such loans are boarded upon your servicing platform:     1.  You will attempt to contact the borrower(s) or their designated contact person (the "right party contact") under such High-Risk Loans at least twice per week as part of a separate Welcome call campaign. During such call, you will update and verify all information with the right party contact, including, but not limited to, the date of first payment.     2.  If you are unable to contact the right party contact, the High Risk Loan will be referred to us to verify the information. If we cannot provide any additional information, the High Risk Loan will be forwarded to your Skiptrace department.     3.  If a High-Risk Loan for which you have not been able to contact a right party contact becomes 5 days delinquent with respect to its first payment, you will order a field chase through National Creditors or equivalent agency at a cost of $50 per field chase to be paid by us. In connection with such field chase, a minimum of three attempts will be made to contact the right party contact, at least one of which shall occur after 6 p.m. If contact is made, field chase agents will have the customer call your office to set up payment arrangements. National Creditors will also provide to you a weekly status report of all field chases in progress. You will provide us with notification of all High Risk Loans for which you are not able to contact for verification of information.     4.  If a High-Risk Loan becomes 5 days delinquent with respect to its first payment, you will send an Early Late letter to the borrower(s) reminding them that their payment was due. This letter will also include your payment address and specify methods of payment. This Early Late letter will be sent to all such borrower(s) regardless of whether a right party contact has been made.     5.  Based on your current payment logic, you will accept first payments up to the date of demand on your system. You will continue to have your agents stress urgent types of payments, such as quick collects, phone pays and overnights, when discussing payments with the borrower(s). --------------------------------------------------------------------------------     6.  You will provide a weekly report on all High-Risk Loans that are 15 or more days delinquent with respect to the first payment. With respect to each such High-Risk Loan, this report will contain (i) the number of contacts with the borrower(s), (ii) the outcome of the last contact with the borrower(s) and (iii) the reason for the delinquency, if known. Also, this report will contain a cure ratio on all High-Risk Loans greater than 30 days late with respect to the first payment. You will also make a representative available to us for a weekly meeting to discuss any issues or concerns that arise from this report.     7.  In consideration for the foregoing, we agree to pay an additional fee of $1 per High-Risk Loan per month for as long as such High-Risk Loan is being serviced in accordance with this letter agreement. Once, the first payment with respect to any High-Risk Loan is received, such loan shall no longer be serviced in accordance with this letter agreement.     Please indicate your agreement to the foregoing by acknowledging this letter in the space provided below.     Very Truly Yours,     NEW CENTURY MORTGAGE CORPORATION     By:   /s/ PATRICK FLANAGAN    --------------------------------------------------------------------------------     Name:   Patrick Flanagan     Title:   Executive Vice President Acknowledged and Agreed to this   day of September, 2001 OCWEN FEDERAL BANK FSB     By:   /s/ SCOTT CONRADSON    --------------------------------------------------------------------------------     Name:   Scott Conradson     Title:   Senior Vice President     --------------------------------------------------------------------------------

TRANSITIONAL POWER PURCHASE AGREEMENT   BY AND BETWEEN   SIERRA PACIFIC POWER COMPANY   AND   WPS NORTHERN NEVADA, LLC     DATED: OCTOBER 25, 2000 ASSET BUNDLE: TRACY/PINON   TABLE OF CONTENTS Section   Page 1. DEFINITIONS  1 2. TERM  8 3. SECURITY  9 4. SUPPLY SERVICE  10 5. NOTIFICATION  14 6. PRICING OF ENERGY AND ANCILLARY SERVICES  15 7. INVOICING AND PAYMENTS 16 8. REGULATORY APPROVALS  19 9. COMPLIANCE  20 10. INDEMNIFICATION  20 11. LIMITATION OF LIABILITY  22 12. FORCE MAJEURE  22 13. DISPUTES  24 14. NATURE OF OBLIGATIONS  27 15. SUCCESSORS AND ASSIGNS  27 16. REPRESENTATIONS  28 17. DEFAULT AND REMEDIES  29 18 FACILITY ADDITIONS AND MODIFICATIONS  30 19. COORDINATION  30 20. EMERGENCY AND NONEMERGENCY CONDITION RESPONSE  30 21. OUTAGE SCHEDULING  31 22. REPORTS  32 23. COMMUNICATIONS  32 24. NOTICES 33 25. MERGER  33 26. HEADINGS  34 27. COUNTERPARTS AND INTERPRETATION  34 28. SEVERABILITY  34 29. WAIVERS  34 30. AMENDMENTS  35 31. TIME IS OF THE ESSENCE  35 32. APPROVALS  35 33. PLR SERVICE  36 34. CONFIDENTIALITY 36 35. CHOICE OF LAW  37 Exhibits Page EXHIBIT A ASSET BUNDLE CAPACITIES AND OPERATING PARAMETERS  A-1 EXHIBIT B PRICE FLOOR OF ENERGY, PRICE CEILING OF ENERGY, AND PRICE    OF ANCILLARY SERVICES  B-1 EXHIBIT C SUPPLIER'S MONTHLY INVOICE  C-1 EXHIBIT D BUYER'S MONTHLY INVOICE - REPLACEMENT COSTS  D-1 EXHIBIT E YEAR END TRUE-UP INVOICE  E-1 EXHIBIT F NOTICES, BILLING AND PAYMENT INSTRUCTIONS  F-1 EXHIBIT G FORM OF AVAILABILITY NOTICE  G-1 EXHIBIT H FORM OF GUARANTEE  H-1 EXHIBIT I COMPANY OBSERVED HOLIDAYS  I-1 EXHIBIT J ADJUSTMENTS TO TPPA AMOUNT J-1 EXHIBIT K ADJUSTMENTS TO MINIMUM ANNUAL TAKE K-1 EXHIBIT L ENERGY APPLICABLE TO MINIMUM ANNUAL TAKE L-1 EXHIBIT M ASSET BUNDLE CONTRACTUAL AND OPERATIONAL CONSTRAINTS M-1 > > > >     TRANSITIONAL POWER PURCHASE AGREEMENT  This Agreement is made and entered into as of October 25, 2000 by and between Sierra Pacific Power Company, a Nevada corporation ("Buyer"), and WPS Northern Nevada, LLC, a Nevada limited liability company (the "Supplier"). Buyer and Supplier are referred to individually as a "Party" and collectively as the "Parties."  WITNESSETH:  WHEREAS, Buyer is selling its Tracy/Pinon generating station and other assets associated therewith to Supplier (the "Asset Sale");  WHEREAS, notwithstanding the Asset Sale, Buyer expects that it has been designated as the Provider of Last Resort ("PLR") for its Nevada retail electric customers who are unable to obtain electric service from an alternative seller or who fail to select an alternative seller. The load required to serve such customers, plus the customers under those wholesale sales agreements existing at the Effective Date, is referred to herein as Buyer's Transitional Resource Requirement; and  WHEREAS, as a result of the Asset Sale, Buyer will no longer have its interest in the Tracy/Pinon generating station as a source of supply for its Transitional Resource Requirement; and  WHEREAS, Supplier has or is willing to secure the necessary resources to provide a portion of Buyer's Transitional Resource Requirement; and  WHEREAS, Buyer desires to purchase from Supplier and Supplier desires to sell Energy and Ancillary Services under contract to Buyer; and  NOW, THEREFORE, in consideration of the mutual covenants, representations and agreements hereinafter set forth, and intending to be legally bound hereby, the Parties agree as follows:   1.    DEFINITIONS      1.1    Format.         1.1.1    References to Articles and Sections herein are cross-references to Articles and Sections, respectively, in this Agreement, unless otherwise stated.         1.1.2    Any parts of this Agreement which are incorporated by reference shall have the same meaning as if set forth in full text herein.     1.2    Definitions. As used in this Agreement, the following terms shall have the meanings set forth below:          1.2.1    "Agreement" means this Agreement together with the Exhibits attached hereto, as such may be amended from time to time.          1.2.2    "Adjusted Replacement Cost of Energy" means the Replacement Cost of Energy that will be due from Supplier after true-up in accordance with the provisions of Section 7.5. Example determinations of the Adjusted Replacement Cost of Energy are shown on Exhibit E.          1.2.3    "Ancillary Services" means those capacity-related services as listed in Exhibit B as well as the Energy component of such services. These services are defined in Buyer's OATT.          1.2.4    "Asset Bundle" means the Tracy/Pinon generating station(s) and other assets associated therewith pursuant to the terms of the Asset Sale Agreement.          1.2.5    "Asset Bundle Capacity" means, with respect to each unit listed in Exhibit A, the net generating capacity (in megawatts ("MW")) of such unit, as modified from time to time in accordance with Section 5.2, Section 20, and Section 21, and not to exceed at any time the net capacity for each unit listed in Exhibit A. Asset Bundle Capacity shall also mean, as the context requires, the Energy (in megawatt-hours ("MWh")) and the Ancillary Services which the units would be capable of producing if they operated at the capacity level described in the first sentence of this Section 1.2.6.          1.2.6    "Asset Sale" has the meaning set forth in the Recitals.          1.2.7    "Asset Sale Agreement" means the Asset Sale Agreement between Buyer and Supplier, dated as of October 25, 2000, to purchase Buyer's Asset Bundle.          1.2.8    "Asset Sale Closing" means the transfer of Buyer's ownership of the Asset Bundle through the consummation of the Asset Sale pursuant to the terms of the Asset Sale Agreement.          1.2.9    "Average Cost of Delivered Energy" means the total cost of Delivered Energy for the Contract Year after the application of the annual true-up mechanism from Section 7.5 divided by the total Delivered Energy for the Contract Year. Example determinations of Average Cost of Delivered Energy are shown on Exhibit E.         1.2.10    "Availability Notice" means a notice delivered from time to time by Supplier to Buyer pursuant to Section 5.2 notifying Buyer of changes in the availability of the Asset Bundle.          1.2.11    "Business Day" means any day other than Saturday, Sunday, and any day that is an observed holiday by Buyer as shown on Exhibit I.          1.2.12    "Buyer's OATT" means Buyer's then-effective Open Access Transmission Tariff, as it may be amended, which has been accepted for filing by the FERC.          1.2.13    "CALPX" means the California Power Exchange and any successor entity thereto.          1.2.14    "Confidential Information" has the meaning set forth in Section 34.          1.2.15    "Contract Year" means, with respect to the first Contract Year, the period beginning on the Effective Date and, with respect to each subsequent Contract Year, the period immediately following the end of the preceding Contract Year, and in each case ending on the earlier of the date which is twelve (12) months thereafter or the termination date of this Agreement, as provided in Section 2.1.          1.2.16    "Control Area" has the meaning set forth in Buyer's OATT.          1.2.17    "Control Area Operator" means an entity or organization, and its representatives, which is responsible for operating and maintaining the reliability of the electric power system(s) within the Buyer's Control Area. The Control Area Operator is also referred to as the transmission operator.          1.2.18    "Credit Amount" shall mean an amount initially equal to $200 million, as decreased on a periodic basis in accordance with Exhibit J.          1.2.19    "Delivered Amount" means, with respect to any Dispatch Hour, the Energy delivered by Supplier to Buyer at the designated Point(s) of Delivery during such Dispatch Hour, whether or not such Energy was generated by the Asset Bundle, plus any additional amounts pursuant to Section 4.1.2, Section 4.1.3 and the Ancillary Services provided by Supplier for Buyer during any Dispatch Hour pursuant to the terms of this Agreement.          1.2.20    "Derating" means a reduction to the Asset Bundle Capacity.          1.2.21    "Dispatch Hour" means the prescribed hour(s) when Energy is to be delivered by Supplier to Buyer at the designated Point(s) of Delivery and the prescribed hour(s) when Ancillary Services are to be provided to the ISA by Supplier on behalf of Buyer.          1.2.22    "EDU" means electric distribution utility, the organization with the responsibility for the distribution of energy over Buyer's distribution system to retail end-users.          1.2.23    "Effective Date" means the date that this Agreement becomes effective, which shall be the date on which the Closing Date, as defined in the Asset Sale Agreement, actually occurs; provided, however, that the Effective Date shall not occur until the FERC has accepted this Agreement or, if modifications to this Agreement are required pursuant to Section 2.2.2, the FERC has accepted the modified Agreement for filing.          1.2.24    "Emergency Condition" shall mean a public declaration by the ISA or Control Area Operator that the Control Area is in danger of imminent voltage collapse or uncontrollable cascading outages.          1.2.25    "Energy" means electricity (measured in MWh) and associated power-producing capacity to be provided by Supplier to Buyer pursuant to this Agreement. Also known as "firm energy and associated firm capacity".          1.2.26    "Event of Default" has the meaning set forth in Section 17 hereof.          1.2.27    "FERC" means the Federal Energy Regulatory Commission and any successor agency thereto.          1.2.28    "Force Majeure" has the meaning set forth in Section 12 hereof.          1.2.29    "GAAP" means Generally Accepted Accounting Principles for the United States.          1.2.30    "Good Utility Practice" means the applicable practices, methods, and acts: > > (i) required by applicable Laws, applicable permits, applicable reliability > > criteria, whether or not the Party whose conduct at issue is a member > > thereof, and > > > > (ii) otherwise engaged in or approved by a significant portion of the United > > States electric utility industry during the relevant time period, which, in > > the exercise of reasonable judgement in light of the facts known at the time > > the decision was made, could have been expected to accomplish the desired > > result at a reasonable cost consistent with applicable Laws, applicable > > permits, applicable reliability criteria, good business practices, safety, > > environmental protection, economy and expediency. Good Utility Practice is > > not intended to be limited to the optimum practice, method or act to the > > exclusion of all others, but rather to practices, methods or acts generally > > accepted by the United States electric utility industry.         1.2.31    "Governmental Authority" means any foreign, federal, state, local, tribal or other governmental, regulatory or administrative agency, court, commission, department, board, or other governmental subdivision, legislature, rulemaking board, tribunal, arbitrating body, or other governmental authority.          1.2.32    "Gross Replacement Costs of Energy" means Buyer's Replacement Cost of Energy prior to adjustment for the amount that Buyer would have paid for the Energy if Supplier had delivered the Energy to Buyer. Example determinations of Gross Replacement Costs of Energy are shown on Exhibit D.          1.2.33    "Guarantee" has the meaning set forth in Section 3.1.2 hereof.          1.2.34    "Guarantor" has the meaning set forth in Section 3.1.2 hereof.          1.2.35    "Invoiced Replacement Costs" means the Replacement Costs which have been billed to Supplier or subtracted from payments to Supplier in accordance with the provisions of Section 4.2 and Section 7.4.          1.2.36    "ISA" means the Mountain West Independent System Administrator, or the regional transmission organization authorized with the responsibility for the scheduling and administration of Energy and Ancillary Services over, through and within the Transmission System in coordination with other interconnected entities to provide transmission services.          1.2.37    "ISA's OATT" means the ISA's then-effective Open Access Transmission Tariff, as it may be amended, which has been accepted for filing by the FERC.          1.2.38    "Law" means any law, treaty, code, rule, regulation, order, determination, permit, certificate, authorization, or approval of an arbitrator, court or other Governmental Authority which is binding on a Party or any of its property.          1.2.39    "Limit on Excused Energy" means the amount of energy that can be excused under the provisions of Section 12.4 as shown on Exhibit A.          1.2.40    "Market Price of Energy" has the meaning set forth in Section 6.2.1.          1.2.41    "Minimum Annual Energy Take" has the meaning set forth in Section 4.1.2.          1.2.42    "Minimum Hourly Energy Take" has the meaning set forth in Section 4.1.3.          1.2.43    "Minimum Investment Grade Rating" of a Person means that such Person has a minimum credit rating on its senior unsecured debt securities of at least two of the following ratings: (i) BBB as determined by Standard & Poor's Corporation, (ii) Baa2 as determined by Moody's Investors Service, Inc., or (iii) a comparable rating by another nationally recognized rating service reasonably acceptable to Buyer.          1.2.44    "Minimum Tangible Net Worth" means the total book value of shareholder's equity less the balance of goodwill, as reported on the latest quarterly balance sheet prepared in accordance with Generally Accepted Accounting Principles (GAAP).          1.2.45    "Negotiated Service" has the meaning set forth in the wholesale generation tariff filed in FERC Docket No. ER00-2018.          1.2.46    "NERC" means the North American Electric Reliability Council and any successor entity thereto.          1.2.47    "Nonemergency Condition" shall mean the determination, direction or order by the ISA, or Control Area Operator to Supplier and/or Buyer to change the Supply Amount which is not a result of or due to an Emergency Condition. A Nonemergency Condition includes an insufficiency of Ancillary Services to securely operate the Control Area.          1.2.48    "Operating Representatives" means the persons designated by each Party to transmit and receive routine operating and emergency communications required under this Agreement.          1.2.49    "Party" has the meaning set forth in the preamble of this Agreement.          1.2.50    "Permitted Deratings" means those reductions to the Asset Bundle Capacity of which Supplier may notify Buyer from time to time in an Availability Notice pursuant to Section 5.2.          1.2.51    "Person" means any natural person, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization, or governmental entity or any department or agency thereof.          1.2.52    "Point of Delivery" means the point (s) which has (have) been specified as the Interconnection Point(s) in the Interconnection Agreement between Buyer and Supplier, dated October 25, 2000, as it may be amended from time to time, as well as any alternative locations agreed upon pursuant to Section 4.1.6.          1.2.53    "Price Ceiling of Energy" means the ceiling price of Energy as stated in Exhibit B.          1.2.54    "Price Floor of Energy" means the floor price of Energy as stated in Exhibit B.          1.2.55    "Provider of Last Resort (PLR)" has the meaning set forth in the Recitals.         1.2.56    "PUCN" means the Public Utilities Commission of Nevada and any successor entity thereto.          1.2.57    "Recourse Service" has the meaning set forth in the wholesale generation tariff filed in FERC Docket No. ER00-2018.          1.2.58    "Replacement Costs" means with respect to a period of time, the difference between (a) the actual costs, including without limitation related penalties and transmission costs, incurred by Buyer to replace any shortfall between (1) the Supply Amount and (2) the Delivered Amounts of Energy (or in the case of Ancillary Services the Supplier's schedule of Ancillary Services) during such period and (b) the payments the Supplier would have been entitled to in respect of such shortfall in delivery; provided that Replacement Costs shall also be subject to the annual true-up mechanism set forth in Section 7.5.          1.2.59    "Supply Amount" means, with respect to each Dispatch Hour, the amount of Energy and Ancillary Services, not to exceed the Asset Bundle Capacity for such Dispatch Hour, requested by Buyer to be delivered by Supplier during any Dispatch Hour. The Supply Amount for any Dispatch Hour shall be determined pursuant to Section 5.1.          1.2.60    "Total Amount of Energy Replaced" means the summation of Replacement Energy as shown on Exhibit E.          1.2.61    "TPPA Amount" means the amount paid by Buyer to Supplier in consideration of this Agreement as provided in Sections 3.1 and 4.2 of the Asset Sale Agreement.          1.2.62    "Transitional Resource Requirement" or "TRR" means the Energy and loss compensation necessary for Buyer to meet its obligations as a Provider of Last Resort (PLR) for Nevada and under those wholesale sales agreements existing at the Effective Date.          1.2.63    "Transmission System" means the facilities that are used to provide transmission service within Buyer's Control Area in accordance with Buyer's OATT or the ISA's OATT.          1.2.64    "WSCC" means the Western Systems Coordinating Council and any successor entity thereto.  2.    TERM      2.1    Term.          2.1.1    Subject to the provisions of Section 2.1.2, unless terminated earlier pursuant to the terms of this Agreement, the term of this Agreement shall commence on the Effective Date and continue until the earlier of the effective date of an order by a Governmental Authority terminating Buyer's PLR responsibility or at 11:59 p.m. (Pacific Time) on December 31, 2002. Supplier shall provide service under this Agreement commencing on the first hour on the day after the Effective Date.          2.1.2    Provided that this Agreement has not otherwise terminated as a result of an order by a Governmental Authority terminating Buyer's PLR responsibility, Buyer in its sole discretion may provide written notification to Supplier, at any point during October 2002, that it is exercising its unilateral right to take service under the terms and conditions of this Agreement for the period from January 1, 2003 until 11:59 p.m. (Pacific Time) February 28, 2003.      2.2    Termination.         2.2.1     Except pursuant to Sections 2.2.2 or 17.4, this Agreement may not be terminated without the explicit prior written approval of Buyer.          2.2.2    If, prior to the Asset Sale Closing, the FERC or any other Governmental Authority places conditions on or requires revisions of this Agreement which have a material adverse effect on Supplier or Buyer, the Parties agree to negotiate in good faith those amendments to the Agreement reasonably necessary to preserve the bargain between the Parties. If the Parties fail to negotiate mutually acceptable amendments to this Agreement within sixty (60) days of such action by the FERC or other Governmental Authority, either Party may terminate the Agreement after first notifying the other Party in writing at least ten (10) Business Days prior to the termination date; provided that neither Party may exercise a right of termination pursuant to this Section 2.2.2 after the Asset Sale Closing.          2.2.3    This Agreement may be terminated with the mutual agreement of the Parties.          2.2.4    Any termination of this Agreement pursuant to this Section 2 shall not take effect until FERC either authorizes the termination or accepts a written notice of termination.      2.3    Effect of Termination.          2.3.1    Adjustment of TPPA Amount. If the Effective Date of this Agreement is before June 1, 2001, the TPPA Amount shall be adjusted to equal (1) the TPPA Amount multiplied by (2) 100% plus the sum of the monthly adjustments from Exhibit J for each month or portion thereof between the Effective Date and June 1, 2001. An example calculation is shown on Exhibit J.  > If the Effective Date of this Agreement is after June 1, 2001, the TPPA Amount > shall be adjusted to equal (1) the TPPA Amount multiplied by (2) 100% minus > the sum of the monthly adjustments from Exhibit J for each month or portion > thereof between June 1, 2001 and the Effective Date. An example calculation is > shown on Exhibit J. > > If this Agreement is terminated on or before December 31, 2002 (or March 1, > 2003, if Buyer exercises its rights under Section 2.1.2 of this Agreement), > Supplier shall pay to Buyer an amount, in accordance with the provisions of > Section 7, equal to the TPPA Amount which existed before any adjustment in > accordance with the first or second paragraph of this Section 2.3.1, > multiplied by the sum of: (x) the total monthly adjustments for every month or > portion thereof between the date on which this Agreement is terminated and > December 31, 2002; and, (y) the total monthly adjustments for every month or > portion thereof between either (i) January 1, 2003 and March 1, 2003, or (ii) > if this Agreement is terminated after January 1, 2003, the termination date of > this Agreement and March 1, 2003. An example calculation is shown on Exhibit > J.         2.3.2    Any default or termination of this Agreement shall not release either Party from any applicable provisions of this Agreement with respect to:              2.3.2.1    The payment of liquidated damages pursuant to Sections 4.2, 12, 17, 18, or 21.              2.3.2.2    Indemnity obligations contained in Section 10, to the extent of the statute of limitations period applicable to any third party claim.              2.3.2.3    Limitation of liability provisions contained in Section 11.              2.3.2.4    Payment of any unpaid amounts in respect of obligations arising prior to or resulting from termination.              2.3.2.5    For a period of one (1) year after the termination date, the right to raise a payment dispute and the resolution thereof pursuant to Section 13.              2.3.2 6    The resolution of any dispute submitted pursuant to Section 13 prior to, or resulting from, termination.  3.    SECURITY      3.1    Supplier Certification; Guarantee. As a condition of Buyer's execution of, and continuing compliance with, this Agreement, Supplier shall at Supplier's option comply with the provisions of either Section 3.1.1 or Section 3.1.2.          3.1.1    Supplier Certification. Supplier shall (a) provide a certificate from a duly authorized corporate officer of Supplier certifying that, as of the Effective Date, Supplier has a credit rating equal to or higher than the Minimum Investment Grade Rating; or (b) post a letter of credit in a form reasonably acceptable to Buyer in the amount of the Credit Amount from a financial institution with each of: (i) a credit rating of A2 or better from Moody's Investors Service, Inc., (ii) a credit rating of A or better from Standard & Poor's Corporation, and (iii) a Minimum Tangible Net Worth ("MTNW") of one (1) billion dollars.          3.1.2    Guarantee. In the alternative to the provisions of Section 3.1.1, the Supplier may provide a corporate guarantee, in form and substance as set forth in Exhibit H, made by an entity (the "Guarantor") that:              3.1.2.1    has a credit rating equal to or higher than the Minimum Investment Grade Rating, together with a certificate from a duly authorized corporate officer of such Guarantor certifying that, as of the Effective Date, such Guarantor has a credit rating equal to or higher than the Minimum Investment Grade Rating; or              3.1.2.2    has a MTNW of no less than one (1) billion dollars, together with a certificate from a duly authorized corporate officer of such Guarantor certifying that, as of the Effective Date, such Guarantor has a MTNW of no less than one (1) billion dollars; or              3.1.2.3    posts a letter of credit in a form reasonably acceptable to Buyer in the amount of the Credit Amount from a financial institution with each of: (i) a credit rating of A2 or better from Moody's Investors Service, Inc., (ii) a credit rating of A or better from Standard & Poor's Corporation, and (iii) a Minimum Tangible Net Worth ("MTNW") of one (1) billion dollars.      3.2    Compliance.          3.2.1    Reporting. If at any time during the term of this Agreement, Standard & Poor's Corporation, Moody's Investors Service, Inc. or another nationally recognized firm downgrades the credit rating of Supplier, the Guarantor, or the financial institution that issued the letter of credit, as applicable, then Supplier shall provide Buyer with written notice of such change of circumstance within two (2) Business Days of any such change. In the event such a downgrade also constitutes an Event of Default pursuant to Section 17, the requirements of this Section 3.2.1 are in addition to, and not in lieu of, the requirements of Section 17.  4.    SUPPLY SERVICE      4.1    Obligations of the Parties.          4.1.1    Supply Amount. Supplier shall be required to provide the Supply Amount in any Dispatch Hour. As provided in Section 5.1, Buyer shall make reasonable efforts to ensure that the Supply Amount is no greater than necessary to satisfy Buyer's TRR.              4.1.1.1    With the Buyer's prior consent, not to be unreasonably withheld or delayed, Supplier shall be entitled to generate or otherwise procure the Supply Amount from sources other than the Asset Bundle.              4.1.1.2    Supplier shall deliver the Supply Amount to Buyer during the Dispatch Hour on a continuous basis at the Point(s) of Delivery and shall schedule the Supply Amount in accordance with the Buyer's OATT or the ISA's OATT, as applicable.              4.1.1.3    The Buyer at its sole discretion shall designate the allocation of the Supply Amount between Energy and Ancillary Services in accordance with the notification provisions of Section 5.  > > 4.1.1.3.1 The Parties recognize that operation of the Asset Bundle is > > subject to, and thus the Supply Amount at times may be limited by, the > > operational parameters of the Asset Bundle. The Parties further recognize > > that the consolidation of two or more generating units into an Asset Bundle > > precludes contractual provisions addressing such operational parameters in a > > matter normally applied to Energy purchases from specified generating units. > > Consequently, Supplier will have the right to raise concerns regarding the > > effect of such operational parameters upon Buyer's day-ahead requests, and > > Buyer will make good faith efforts to alleviate Supplier's concerns.  > > > > 4.1.1.3.2 The Parties further recognize that the Asset Bundle also is > > subject to the contractual and operating constraints set forth in Exhibit M.         4.1.2    Minimum Annual Energy Take. The Buyer shall accept a minimum annual energy take during each Contract Year. The Minimum Annual Energy Take shall be set forth on Exhibit A.              4.1.2.1    Buyer's Obligation to Take. If Buyer is unwilling to accept the Minimum Annual Energy Take for any Contract Year, as may be adjusted pursuant to Section 4.1.2.2, the difference (in MWh) between the Supply Amount of Energy (including consideration for Energy that would have been taken but was unavailable due to Permitted Deratings or Force Majeure, as well as the Total Amount of Energy Replaced) and the Minimum Annual Energy Take shall be billed at the Price Ceiling of Energy less the Price Floor of Energy. An example of the monthly determination of the amount of Energy to be credited against the Minimum Annual Energy Take is shown on Exhibit L.              4.1.2.2    Adjustments to Minimum Annual Energy Take. Buyer shall have the right to reduce the Minimum Annual Energy Take if the number of customers taking electric service from Buyer falls below the number of customers on December 31, 2000. Adjustments will be applicable, on a pro rata basis, on the first (1st) day of the month immediately following Supplier's receipt of Buyer's notice of adjustment. Buyer shall provide supporting data in reasonable detail to support its calculations. An example of the calculation of a revised Minimum Annual Energy Take is shown on Exhibit K.          4.1.3    Minimum Hourly Energy Take. The Buyer shall accept a Minimum Hourly Energy Take for any Dispatch Hour if the Supply Amount, or a portion thereof, is provided to Buyer from the Asset Bundle. The Minimum Hourly Energy Take is stated in Exhibit A.              4.1.3.1    Buyer's Obligation to Take. If Buyer is unwilling to accept the Minimum Hourly Energy Take, the difference (in Mwh) between the Supply Amount of Energy (including consideration for Energy that would have been taken but was unavailable due to Permitted Deratings or Force Majeure, as well as the Total Amount of Energy Replaced) and Minimum Hourly Energy Take shall be billed at the Price Ceiling of Energy less the Price Floor of Energy.          4.1.4    Supplier Rights to Output. Supplier may sell to others any portion of the Asset Bundle Capacity in excess of the Supply Amount.          4.1.5    Point(s) of Delivery. Supplier shall deliver, and Buyer shall take delivery of, the Supply Amount of Energy at the Point(s) of Delivery. Subject to Section 4.1.6.2, Supplier shall be responsible for all costs associated with delivery of the Supply Amount of Energy to the Point(s) of Delivery.          4.1.6    Alternative Points of Delivery. For any Dispatch Hour, either Party may designate one or more alternative Points of Delivery, subject to the other Party's prior approval and consistent with Buyer's OATT or the ISA's OATT, as applicable, such approval not to be unreasonably withheld or delayed.              4.1.6.1    If Supplier has designated an alternative Point of Delivery, Supplier shall be responsible for all costs of delivery to such alternative Point of Delivery.             4.1.6.2    If Buyer has designated an alternative Point of Delivery, Buyer shall be responsible for all costs of delivery to such alternative Point of Delivery.              4.1.7    Fuel. Buyer shall have no responsibility for any fuel procurement or fuel transportation costs or activities associated with the Asset Bundle during the term of this Agreement.              4.1.8    Resale. Except as provided in the next sentence, the Supply Amount may be resold by Buyer only as necessary to satisfy Buyer's TRR. If, after submitting the day-ahead request of the Supply Amount pursuant to Section 5.1, the Buyer determines that the scheduled Supply Amount, together with purchases scheduled on a day-ahead basis under Buyer's other Transitional Power Purchase Agreements, exceeds Buyer's most current projected TRR, then the Buyer also shall resell at wholesale that amount of Energy in excess of Buyer's actual TRR as necessary to balance its load and resources.              4.1.9    Right to Review. Buyer and Supplier each shall have the right to review during normal business hours the relevant books and records of the other Party to confirm the accuracy of such as it pertains to transactions under this Agreement. The review shall be consistent with standard business practices and shall follow reasonable notice to the other Party. Reasonable notice for a review of the previous month's records shall be at least a twenty-four (24) hour period from a Business Day to a subsequent Business Day. If a review is requested of other than the previous month's records, then notice of that request shall be provided with a minimum of seven (7) calendar days written notice by the requesting Party. The notice shall specify the period to be covered by the review. The Party providing records can make reasonable requests that the receiving Party keep the records confidential, and the receiving Party shall take reasonable steps to accommodate such requests.     4.2    Liquidated Damages.              4.2.1    If the Delivered Amount of Energy is less than the Supply Amount of Energy in any Dispatch Hour during a month, and Replacement Costs computed in respect of such month are greater than zero, then Supplier shall reimburse Buyer for such Replacement Costs. If Supplier's schedule of Ancillary Services is less than the Supply Amount of Ancillary Services in any Dispatch Hour during a month, Supplier shall reimburse Buyer for such Replacement Costs for the difference between Supplier's schedule and the Supply Amount of Ancillary Services. An example of the methodology used to calculate Replacement Costs is provided in Exhibit D.              4.2.2    Supplier also shall be responsible for any costs incurred by Buyer associated with a violation of reliability criteria (including but not limited to imbalance costs or penalties) due to a deviation between the Supply Amount and Delivered Amount.              4.2.3    The Parties recognize and agree that the payment of such amounts by Supplier pursuant to this Section 4.2 is an appropriate remedy in the event of such a failure and that any such payment does not constitute a forfeiture or penalty of any kind, but rather constitutes actual costs to Buyer under the terms of this Agreement.      4.3    Supplier Operating Representative. Supplier shall provide and maintain a twenty-four (24) hour seven (7) day per week communication link with Buyer's control center and with Buyer's schedulers. Supplier's Operating Representatives shall be available to address and make decisions on all operational matters under this Agreement on a twenty-four (24) hour seven (7) day per week basis.  5.    NOTIFICATION      5.1    Scheduling Notification. Buyer shall provide Supplier with a day-ahead request of the Supply Amount one (1) hour prior to when day-ahead bids are due to the CALPX. Buyer shall make reasonable efforts to ensure that the day-ahead request of the Supply Amount is no greater than that amount then projected to be necessary to satisfy Buyer's TRR. In addition, for each day-ahead request, the change in the Supply Amount from one (1) hour to the next hour shall be no greater than the ramping capability of the units within the Asset Bundle as shown in Exhibit A.      5.2    Availability Notification.          5.2.1    No later than 5:00 a.m. (Pacific Time) of each day, Supplier shall deliver to Buyer an Availability Notice in the form set forth in Exhibit G.          5.2.2    Availability Notices shall provide, for the ninety-six (96) hour period starting at 6:00 a.m. (Pacific Time) that day, Supplier's hourly projection of the unavailability or derating ("Derating") of the Asset Bundle compared to the Asset Bundle Capacity figures stated for each unit in Exhibit A. Each Availability Notice also shall contain, as applicable: > > (a) the units which are subject to a Derating; > > (b) the magnitude of the Derating; > > (c) the hours during which the Derating is expected to apply; > > (d) the cause of the Derating; > > (e) the extent, if any, to which the Derating is attributable to a Permitted > > Derating; and > > (f) the projected Asset Bundle Capacity for each unit during the period > > covered by the Availability Notice, pursuant to Section 5.2.4 below.             5.2.3    If and to the extent a Derating is the result of one or more of the following causes, it shall be a Permitted Derating: > > (a) approved planned outages pursuant to Section 21; > > (b) response to an Emergency Condition as described in Section 20; or > > (c) subject to the limitations expressed in Section 12.5, a Force Majeure > > event.             5.2.4    In respect of any Dispatch Hour, the Asset Bundle Capacity of each unit shall be the Asset Bundle Capacity figure stated in Exhibit A minus any Permitted Derating applicable during such hour.              5.2.5    Neither the Asset Bundle Capacity nor the Supply Amount shall be reduced by Deratings which are not Permitted Deratings. Supplier shall be responsible for all Replacement Costs, pursuant to Section 4.2.1, caused by Deratings that are not Permitted Deratings.  6.    PRICING OF ENERGY AND ANCILLARY SERVICES      6.1    Overview. The price of Energy paid by Buyer to Supplier shall be based upon a designated hourly market price, subject to monthly floor, monthly ceiling, and annual true-up provisions. The Price Floor of Energy will ensure that Supplier will receive an average price for Energy for each month which is not less than the price stated in Exhibit B. The Price Ceiling of Energy provision provides that the average price of Energy paid to Supplier each month and for each year shall not exceed the price stated in Exhibit B.      6.2    Price of Energy.          6.2.1    Market Price of Energy. In respect of any Dispatch Hour, the designated Market Price of Energy shall be the North of Path 15 ("NP 15") hourly market-clearing price in the day-ahead market from the CALPX as published at the following Web Site (or its successor web site) http://www.calpx.com/prices/index_prices_dayahead_trading.html. Should this hourly market in the day-ahead market not exist for the entire term, the Parties shall agree upon a similar market price index.         6.2.2    Price Floor of Energy. The Price Floor of Energy is stated in Exhibit B and shall not change during the term of this Agreement.          6.2.3    Price Ceiling of Energy. The Price Ceiling of Energy is stated in Exhibit B and shall not change during the term of this Agreement.      6.3    Pricing of Ancillary Services. The price of the capacity component of Ancillary Services is stated in Exhibit B. The price of Ancillary Services shall not change during the term of the Agreement. Supplier shall make available to Buyer and Buyer shall offer to pass through the Energy portion of Ancillary Services with respect to the Supply Amount to the ISA, or Control Area Operator, at the Price Ceiling of Energy (plus expected direct transaction costs). The net proceeds shall be credited to the Supplier pursuant to Section 7.      6.4    Price Revisions. The Parties waive any and all rights to seek to revise the provisions of this Agreement, including the prices stated, pursuant to Sections 205 and/or 206 of the Federal Power Act.      6.5    Recourse Service. Buyer agrees not to purchase Recourse Service during the term of the Agreement. However, Buyer is permitted to purchase Negotiated Service during the term of the Agreement.  7.    INVOICING AND PAYMENTS      7.1    Invoicing and Payment. On or before the tenth (10th) day of each month, Supplier shall send to Buyer an invoice setting forth the Supply Amount, Delivered Amount, the Market Price of Energy pursuant to Section 6.2.1 for each Dispatch Hour in the previous month, any amount due in accordance with Section 7.13 and the total due from Buyer. The invoice shall be calculated based upon data available to Supplier and shall be in accordance with this Section 7 and Exhibit C. Buyer shall promptly notify Supplier if Buyer in good faith disputes any portion of the invoice, stating in reasonable detail the reason for the dispute.      7.2    Monthly Invoice Calculation. On each monthly invoice, Supplier shall calculate the following amounts:          7.2.1    The Delivered Amount in respect of each Dispatch Hour multiplied by the corresponding Market Price of Energy pursuant to Section 6.2.1, summed over the billing period;          7.2.2    Sum of the Delivered Amounts in respect of all Dispatch Hours of the billing period multiplied by the Price Ceiling of Energy;          7.2.3    Sum of the Delivered Amounts in respect of all Dispatch Hours of the billing period multiplied by the Price Floor of Energy;          7.2.4    For each Dispatch Hour of the billing period, the shortfall, if any, between the Supply Amount and the Delivered Amount (and in the case of Ancillary Services the shortfall between the Supply Amount of Ancillary Services and Supplier's schedule of Ancillary Services);          7.2.5    The Supply Amount of Ancillary Services for each dispatch hour multiplied by the price of Ancillary Services as stated in Exhibit B; and          7.2.6    The Delivered Amount of Energy related to Ancillary Services for each dispatch hour multiplied by the Price Ceiling of Energy as stated in Exhibit B.          7.2.7    If applicable, any amount to be calculated in accordance with Section 7.13.      7.3    Supplier's Invoice. Supplier will invoice the lesser of the amounts calculated in Sections 7.2.1 and 7.2.2, provided that if the amount calculated in Section 7.2.1 is less than the amount calculated in Section 7.2.3, Supplier shall invoice Buyer the amount calculated in Section 7.2.3. Supplier shall also include in its invoice the amounts calculated in Sections 7.2.5, 7.2.6 and 7.2.7. If the Delivered Amount exceeds the Supply Amount, Buyer shall not be obligated to pay for the excess amount. Buyer shall pay Supplier for the amounts invoiced pursuant to Section 7.2.6 upon Buyer's receipt of payment from ISA or Control Area Operator. Examples of this monthly invoice calculation (and annual true-up process) are contained in Exhibit C.      7.4    Buyer's Invoice. In the event any shortfall occurs pursuant to Section 7.2.4 or payment is due to Buyer pursuant to Section 7.13, Buyer shall within ten (10) Business Days of receipt of Supplier's invoice deliver to Supplier a Buyer's invoice detailing any Replacement Costs or other payment due. Buyer shall provide supporting data in reasonable detail to support its calculations of Replacement Costs. Supplier shall promptly notify Buyer if Supplier in good faith disputes any portion of the invoice, stating in reasonable detail the reason for the dispute. If the Buyer's invoice results in an amount due from Supplier to Buyer, Buyer may offset such amount from its payment of Supplier's corresponding invoice.              Buyer shall have the right to adjust the invoices issued in accordance with this Section 7.4 if Buyer incurs Replacement Costs that were not known when earlier invoices were issued. Adjusted invoices shall be issued within thirty (30) days of the date on which the additional Replacement Costs become known. Buyer shall provide supporting data in reasonable detail to support its calculations of Replacement Costs. Supplier shall promptly notify Buyer if Supplier in good faith disputes any portion of the invoice, stating in reasonable detail the reason for the dispute. If the Buyer's adjusted invoice results in an amount due from Supplier to Buyer, Buyer may offset such amount from its payment of Supplier's corresponding invoice.     7.5    Annual True-Up Mechanism for Energy.          7.5.1    The annual true-up mechanism will provide adjustments among the Parties with respect to each Contract Year in the following scenarios:  > > (a) If (i) the Price Ceiling of Energy multiplied by the hourly Delivered > > Amount of Energy summed over the Contract Year is less than or equal to (ii) > > the Market Price of Energy for each hour pursuant to Section 6.2.1 > > multiplied by the Delivered Amount of Energy for each hour during the > > Contract Year, Supplier shall subtract (x) the amount invoiced by Supplier > > for Energy pursuant to Section 7.3 summed of over the Contract Year from (y) > > the Price Ceiling of Energy multiplied by the hourly Delivered Amount of > > Energy summed over the Contract Year. If the difference calculated in > > accordance with the preceding sentence is greater than or equal to zero, > > Buyer shall pay the difference to Supplier. If the difference is less than > > zero, Supplier shall refund the difference to Buyer. > > > > (b) If (i) the Price Ceiling of Energy multiplied by the hourly Delivered > > Amount of Energy summed over the Contract Year is greater than or equal to > > (ii) the Market Price of Energy for each hour pursuant to Section 6.2.1 > > multiplied by the Delivered Amount of Energy for each hour during the > > Contract Year, Supplier shall subtract (x) the amount invoiced by Supplier > > for Energy pursuant to Section 7.3 summed of over the Contract Year from (y) > > the Market Price of Energy multiplied by the hourly Delivered Amount of > > Energy summed over the Contract Year. If the difference calculated in > > accordance with the preceding sentence is greater than or equal to zero, > > Buyer shall pay the difference to Supplier. If the difference is less than > > zero, Supplier shall refund the difference to Buyer. > > (c) If Buyer incurred Replacement Costs for energy during the Contract Year, > > Supplier shall multiply the Total Amount of Energy Replaced during the > > Contract Year by the Average Cost of Delivered Energy after true-up as > > determined in accordance with Section 7.5.1 (a) or 7.5.1 (b). If the amount > > so obtained is greater than the sum of the monthly Gross Replacement Costs > > of Energy from Buyer's Invoices for the Contract Year, the Adjusted > > Replacement Cost of Energy for the Contract Year shall be zero. If the > > amount so obtained is less than the sum of the monthly Gross Replacement > > Costs of Energy from Buyer's Invoices for the Contract Year, the Adjusted > > Replacement Cost of Energy for the Contract Year shall be the sum of the > > monthly Gross Replacement Costs of Energy less the amount obtained in > > accordance with the first sentence of this Section 7.5.1(c). > > > > If the Adjusted Replacement Cost of Energy is greater than the sum of the > > monthly Invoiced Replacement Costs of Energy from Buyer's Invoices for the > > Contract Year, Supplier shall pay the difference to Buyer. If the sum of the > > monthly Invoiced Replacement costs of Energy is greater than the Adjusted > > Replacement Cost of Energy, Buyer shall pay the difference to Seller.         7.5.2    True-up adjustments will be calculated by Supplier within twenty (20) days after each Contract Year. Examples of the true-up calculations and invoice form are set forth in Exhibit E. Interest shall be calculated pursuant to 18 CFR Section 35.19a and shall be included in the true-up invoice. Invoices for true-up adjustments shall be submitted by Supplier within thirty (30) days after the end of the Contract Year. Payments for such invoices shall be due from Buyer thirty (30) days from receipt of the true-up invoice.      7.6    Invoice Disagreements. Should there be a good faith dispute over any invoice, the Parties shall promptly seek resolution pursuant to Section 13. Pending resolution of the invoice dispute, payment shall be made or offsets or credits taken, as applicable, based upon the undisputed portion of the invoice.      7.7    Adjustments. Upon resolution of the dispute, the prevailing Party shall be entitled to receive the disputed amount, as finally determined to be payable along with interest (calculated pursuant to 18 C.F.R. Section 35.19a through the date of payment. No invoice (or payment covered thereby) shall be subject to adjustment unless notice or request for adjustment is given within one (1) year of the date payment thereunder was due.      7.8    Method of Payment. Subject to Sections 7.3, 7.6 and 7.7, Buyer shall remit all amounts due by wire or electronic fund transfer, pursuant to Supplier's invoice instructions, no later than thirty (30) days after receipt of the invoice.      7.9    Overdue Payments. Overdue payments shall bear interest from and including, the due date to the date of payment on the unpaid portion calculated pursuant to 18 C.F.R. Section 35.19a.     7.10    Buyer Right to Offset. Buyer shall have the right to offset any amounts Supplier owes to Buyer, including Replacement Costs (except for such amounts disputed in good faith by Supplier), against the amounts owed by Buyer to Supplier.      7.11    Taxes. Each Party shall pay ad valorem and other taxes attributed to its facilities and services provided. Supplier shall not include any taxes of any kind in its invoices to Buyer. The prices of Energy and Ancillary Services shall not change during the term of this Agreement as a result of any changes in local, state or federal taxes, fees or levies.      7.12    Late Invoices. If either Party submits an invoice outside of the time deadlines set forth herein, that Party shall not forfeit its rights to collect the amounts due thereunder, provided that such invoice is no more than six (6) months late, and provided that changes to invoices remain subject to the deadline in Section 7.7.      7.13    Early Termination. Notwithstanding any other provision herein, in the event that this Agreement is terminated before December 31, 2002 (or March 1, 2003 if Buyer exercises its rights under Section 2.1.2), and as a result of such termination Buyer is entitled to a payment in accordance with Section 2.3.1, Supplier shall include an amount calculated in accordance with Section 2.3.1 and Exhibit J, to be paid by Supplier to Buyer in the next monthly invoice submitted to Buyer following such termination.  8.    REGULATORY APPROVALS      8.1    This Agreement will be filed with the FERC and any other appropriate regulatory agencies by the appropriate Party as may be required.  9.    COMPLIANCE      9.1    Each Party shall comply with all relevant Laws and shall, at its sole expense, maintain in full force and effect all relevant permits, authorizations, licenses, and other authorizations material to the maintenance of facilities and the performance of obligations under this Agreement.      9.2    Each Party and its representatives shall comply with all relevant requirements of any authorized Control Area Operator, ISA, and/or EDU to ensure the safety of its employees and the public, and to ensure electric system reliability and integrity, material to the performance of this Agreement.      9.3    Buyer and Supplier shall perform or cause to be performed, their obligations under this Agreement in all material respects in accordance with Good Utility Practices. 10.    INDEMNIFICATION      10.1    To the fullest extent permitted by law, a Party to this Agreement ("the Indemnifying Party") shall indemnify, defend and hold harmless the other Party, its parent, affiliates, and successors and agents (each an "Indemnified Party") from and against any and all claims, demands, suits, obligations, payments, liabilities, costs, judgments, damages, losses or expenses asserted by third parties against an Indemnified Party and arising out of, relating to, or resulting from the Indemnifying Party's breach of, or the negligent performance of its obligations under this Agreement.          10.1.1    Such indemnity shall also extend to actual courts costs, attorneys' fees, expenses and other liabilities incurred in the defense of any claim, action or proceeding, including negotiation, settlement, defense and appeals, to which this indemnification obligation applies. In furtherance of the foregoing indemnification and not by way of limitation thereof, the Indemnifying Party hereby waives any defense it otherwise might have against the Indemnified Party under applicable workers' compensation laws.          10.1.2    In claims against any Indemnified Party by an agent of the Indemnifying Party, or anyone directly or indirectly employed by them or anyone for whose acts they may be liable, the indemnification obligation under this Section 10 shall not be limited by a limitation on amount or type of damages, compensation or benefits payable by or for the Indemnifying Party or a subcontractor under workers' or workmen's compensation acts, disability benefit acts or other employee benefit acts.          10.1.3    Such indemnity shall also extend to all costs and expenses incurred by the Indemnified Party in any action or proceeding to enforce the provisions of this Agreement, but only if and to the extent the Indemnified Party prevails in such action or proceeding.      10.2    No Negation of Existing Indemnities; Survival. Each Party's indemnity obligations hereunder shall not be construed to negate, abridge or reduce other rights or obligations or indemnity which would otherwise exist at law or equity. The obligations contained herein shall survive any termination, cancellation, or suspension of this Agreement to the extent that any third party claim is commenced during the applicable statute of limitations period.      10.3    Indemnification Procedures.          10.3.1    Any Party seeking indemnification under this Agreement shall give the other Party notice of such claim promptly but in any event on or before thirty (30) days after the Party's actual knowledge of such claim or action. Such notice shall describe the claim in reasonable detail, and shall indicate the amount (estimated if necessary) of the claim that has been, or may be sustained by, said Party. To the extent that the other Party will have been actually and materially prejudiced as a result of the failure to provide such notice, such notice will be a condition precedent to any liability of the other Party under the provisions for indemnification contained in this Agreement.          10.3.2    In any action or proceeding brought against an Indemnified Party by reason of any claim indemnifiable hereunder, the Indemnifying Party may, at its sole option, elect to assume the defense at the Indemnifying Party's expense, and shall have the right to control the defense thereof and to determine the settlement or compromise of any such action or proceeding. Notwithstanding the foregoing, an Indemnified Party shall in all cases be entitled to control its defense in any action if it:  > (i) may result in injunctions or other equitable remedies in respect of the > Indemnified Party which would affect its business or operations in any > materially adverse manner; > > (ii) may result in material liabilities which may not be fully indemnified > hereunder; or > > (iii) may have a significant adverse impact on the business or the financial > condition of the Indemnified Party (including a material adverse effect on the > tax liabilities, earnings or ongoing business relationships of the Indemnified > Party) even if the Indemnifying Party pays all indemnification amounts in > full.         10.3.3    Subject to Section 10.3.2, neither Party may settle or compromise any claim for which indemnification is sought under this Agreement without the prior consent of the other Party; provided, however, said consent shall not be unreasonably withheld or delayed.  11.    LIMITATION OF LIABILITY      11.1    Responsibility for Damages: Except as otherwise provided herein or to the extent of the other Party's negligence or willful misconduct, each Party shall be responsible for all physical damage to or destruction of the property, equipment and/or facilities owned by it and its affiliates and any physical injury or death to natural Persons resulting therefrom, regardless of who brings the claim and regardless of who caused the damage, and shall not seek recovery or reimbursement from the other Party for such damage; provided, that in any such case the Parties will exercise Due Diligence to remove the cause of any disability at the earliest practicable time.      11.2    No Consequential Damages: To the fullest extent permitted by law and notwithstanding other provisions of this Agreement, in no event shall a Party, or any of its Agents, be liable to the other Party, whether in contract, warranty, tort, negligence, strict liability, or otherwise, for special, indirect, incidental, multiple, consequential (including but not limited to lost profits or revenues and lost business opportunities), or punitive damages related to or resulting from performance or nonperformance of this Agreement or any activity associated with or arising out of this Agreement. For purposes of clarification, Replacement Costs shall not be considered consequential or incidental damages under this Section 11.2. In addition, this limitation on liability shall not apply with respect to claims pursuant to Section 10 hereof.      11.3    Survival: The provisions of this Section 11 shall survive any termination, cancellation, or suspension of this Agreement.  12.    FORCE MAJEURE      12.1    An event of "Force Majeure" shall be defined as any interruption or failure of service or deficiency in the quality or quantity of service or any other failure by a Party to perform any of its obligations hereunder to the extent such failure occurs without fault or negligence on the part of that Party and is caused by factors beyond that Party's reasonable control, which by the exercise of reasonable diligence that Party is unable to prevent, avoid, mitigate or overcome, including:  > (i) acts of God or the public enemy, such as storms, flood, lightning, and > earthquakes, > > (ii) failure, threat of failure, or unscheduled withdrawal of facilities from > operation for maintenance or repair, and including unscheduled transmission > and distribution outages, > > (iii) sabotage of facilities and equipment, > > (iv) civil disturbance, > > (v) strike or labor dispute, > > (vi) action or inaction of a court or public authority, or > > (vii) any other cause of similar nature beyond the reasonable control of that > Party.     12.2    Economic hardship of either Party shall not constitute Force Majeure under this Agreement. Notwithstanding this, if Buyer suffers an event of Force Majeure it shall be relieved of its obligation to take delivery of, or otherwise pay for, Energy and Ancillary Services under this Agreement for the duration of the event of Force Majeure; provided, however, that Buyer shall not be relieved of its obligation to pay for any Energy or Ancillary Services provided by Supplier under this Agreement prior to the event of Force Majeure. In addition, if Buyer is unable to have Energy and Ancillary Services delivered from the Point(s) of Delivery to its service territory due to an outage on the Transmission System, that shall be considered a Force Majeure event and shall relieve Buyer of performance for the extent of the event.      12.3    In the event of a Force Majeure, neither Party shall be considered in default under this Agreement or responsible to the other Party in tort, strict liability, contract or other legal theory for damages of any description, and affected performance obligations shall be extended by a period equal to the term of the resultant delay, but in no event shall exceed the term of the Agreement, provided that the Party relying on a claim of Force Majeure:  > (i) provides prompt written notice of such Force Majeure event to the other > Party, giving an estimate of its expected duration and the probable impact on > the performance of its obligations hereunder; > > (ii) exercises all reasonable efforts to continue to perform its obligations > under this Agreement; > > (iii) expeditiously takes action to correct or cure the event or condition > excusing performance so that the suspension of performance is no greater in > scope and no longer in duration than is dictated by the problem; provided, > however, that settlement of strikes or other labor disputes will be completely > within the sole discretion of the Party affected by such strike or labor > dispute; > > (iv) exercises all reasonable efforts to mitigate or limit damages to the > other Party; and > > (v) provides prompt notice to the other Party of the cessation of the event or > condition giving rise to its excuse from performance.     12.4    Notwithstanding the above provisions, a Force Majeure event shall excuse Supplier from its obligation to deliver the Supply Amount pursuant to Section 4 of this Agreement only for the first twenty-four (24) hours of the Force Majeure event, provided that the total amount of energy excused in accordance with this Section 12.4 during any Contract Year shall not exceed the Limit on Excused Energy set forth in Exhibit A. After such twenty-four (24) hour period, Supplier must either deliver the Supply Amount at the Point(s) of Delivery or pay liquidated damages pursuant to Section 4.2 of this Agreement.      12.5    If Supplier has notified Buyer of an event of Force Majeure, and if Supplier so requests, Buyer will attempt to replace the Supply Amount that is not excused in accordance with Section 12.4 with Energy or Ancillary Services from another Asset Bundle. However, Buyer's inability to acquire such replacement Energy or Ancillary Services shall not excuse Supplier from Supplier's obligation to deliver the Supply Amount not otherwise excused in accordance with Section 12.4  13.    DISPUTES      13.1    Any action, claim or dispute which either Party may have against the other arising out of or relating to this Agreement or the transactions contemplated hereunder, or the breach, termination or validity thereof (any such claim or dispute, a "Dispute") shall be submitted in writing to the other Party. The written submission of any Dispute shall include a concise statement of the question or issue in dispute together with a statement listing the relevant facts and documentation that support the claim.      13.2    The Parties agree to cooperate in good faith to expedite the resolution of any Dispute. Pending resolution of a Dispute, the Parties shall proceed diligently with the performance of their obligations under this Agreement.      13.3    The Parties shall first attempt in good faith to resolve any Dispute through informal negotiations by the Contract Representatives. In the event that the Contract Representatives are unable to satisfactorily resolve the Dispute within thirty (30) days from the receipt of notice of the Dispute, either Party may by written notice to the other Party refer the Dispute to its respective senior management for resolution as promptly as practicable. If the Parties' senior management are unable to resolve the Dispute within forty-five (45) days from the date of such referral, thereafter the Parties may agree in writing to extend the time period of such senior management negotiations. In the event the Parties' senior management do not resolve the dispute within the prescribed or extended time period, either Party may initiate arbitration through the serving and filing of a demand for arbitration and the Parties expressly agree that arbitration in accordance with this Section 13 shall be the exclusive means to further resolve any Dispute and hereby irrevocably waive their right to a jury trial with respect to any Dispute, provided that at any time:          13.3.1    A request made by a Party for provisional remedies requesting preservation of the Parties' respective rights and obligations under the Agreement may be resolved by a court of law located in the County of the principal place of business of Buyer.          13.3.2    Nothing in this Agreement shall preclude, or be construed to preclude, any Party from filing a petition or complaint with the FERC or PUCN with respect to any arbitrable Dispute over which said agency has jurisdiction. In such case, the other Party may request the FERC or PUCN, as applicable, to reject or to waive jurisdiction. If jurisdiction is rejected or waived with respect to all or a portion of the Dispute, the portion of the Dispute not so accepted by the FERC or PUCN, as applicable, shall be resolved through arbitration in accordance with this Agreement. To the extent that the FERC or PUCN, as applicable, asserts or accepts jurisdiction over the Dispute, the decision, finding of fact or order of FERC shall be final and binding, subject to judicial review under the Federal Power Act or Nevada Revised Statutes and subject to the provisions of Section 2.2.2. Any arbitration proceedings that may have commenced with respect to the Dispute prior to the assertion or acceptance of jurisdiction by the FERC or PUCN, as applicable, shall be terminated to the extent the FERC or PUCN accepts or asserts jurisdiction over such Dispute.      13.4    Unless otherwise agreed by the Parties, any arbitration initiated under this Agreement shall be conducted in accordance with the following:          13.4.1    Arbitrations shall be held within the County of the principal place of business of Buyer.          13.4.2    Except as otherwise modified herein, the arbitration shall be conducted in accordance with the "Commercial Arbitration Rules" of the American Arbitration Association ("AAA") then in effect.          13.4.3    Arbitration shall be conducted by one neutral arbitrator who shall be selected pursuant to the AAA rules and the following:              13.4.3.1    The Parties agree that the list of potential arbitrators provided by the AAA shall, if available, contain twenty (20) candidates, and at least fifty percent (50%) of the candidates shall be members of the AAA National Energy Panel.              13.4.3.2    The Parties also agree that each shall be allowed to strike the names of five candidates before ranking the remaining candidates and returning the list to the AAA in accordance with the Commercial Arbitration Rules. If the Parties are unable to agree on an arbitrator, such arbitrator shall be appointed by the AAA.              13.4.3.3    The arbitrator shall not have any current or past substantial business, financial, or personal relationships with either Party (or their Affiliates) and shall not be a vendor, supplier, customer, employee, consultant, or competitor to either of the Parties or their Affiliates.              13.4.3.4    The arbitrator shall be authorized only to interpret and apply the provisions of this Agreement or any related agreements entered into under this Agreement and shall have no power to modify or change any provision of this Agreement. The arbitrator shall have no authority to award punitive or multiple damages or any damages inconsistent with this Agreement. The arbitrator shall within thirty (30) days of the conclusion of the hearing, unless such time is extended by agreement of the Parties, notify the Parties in writing of his or her decision, stating his or her reasons for such decision and separately listing his or her findings of fact and conclusions of law. Judgment on the award may be entered in any court having jurisdiction.      13.5    The Parties shall proceed with the arbitration expeditiously, and the arbitration shall be concluded within five (5) months of the filing of the demand for arbitration pursuant to this Section 13 in order that the decision may be rendered within six (6) months of such filing, unless the arbitrator extends such time at the request of a Party upon a showing of good cause or upon agreement of the Parties.      13.6    Any arbitration proceedings, decision or award rendered hereunder and the validity, effect and interpretation of any arbitration agreement shall be governed by the Federal Arbitration Act of the United States, 9 U.S.C. Section 1 et seq.      13.7    The decision of the arbitrator shall be final and binding on both Parties and may be enforced in any court having jurisdiction over the Party against which enforcement is sought.      13.8    The fees and expenses of the arbitrator shall be shared by the Parties equally, unless the decision of the arbitrator shall specify some other apportionment of such fees and expenses. All other expenses and costs of the arbitration shall be borne by the Party incurring the same. 14.    NATURE OF OBLIGATIONS      14.1    Except where specifically stated in this Agreement to be otherwise, the duties, obligations, and liabilities of the Parties shall be several, not joint or collective. The provisions of this Agreement shall not be construed to create an association, trust, partnership, or joint venture; to impose a trust or partnership duty, obligation, or liability or agency relationship on or with regard to either Party.      14.2    Nothing in this Agreement nor any action taken hereunder shall be construed to create any duty, liability, or standard of care to any person not a Party to this Agreement. Each Party shall be individually and severally liable for its own obligations under this Agreement.      14.3    By this Agreement, neither Party dedicates any part of its facilities or the service provided under this Agreement to the public.  15.    SUCCESSORS AND ASSIGNS      15.1    This Agreement may be assigned, without express written consent of the other Party, as follows:          15.1.1    Buyer may assign this Agreement or assign or delegate its rights and obligations under this Agreement, in whole or in part, if such assignment is made to an affiliate, parent, subsidiary, successor or any party, provided that such assignee operates all or a portion of the PLR or if such assignment is required by Law or applicable regulations.      15.2    Supplier may, without the consent of Buyer, assign, transfer, pledge or otherwise dispose of its rights and interests hereunder to a trustee, lending institution, or any Person for the purposes of financing or refinancing the Asset Bundle, including upon or pursuant to the exercise of remedies under such financing or refinancing, or by way of assignments, transfers, conveyances of dispositions in lieu thereof; provided, however, that no such assignment or disposition shall relieve or in any way discharge Supplier or such permitted assignee from the performance of its duties and obligations under this Agreement. Buyer agrees to execute and deliver such documents as may be reasonably necessary to accomplish any such assignment, transfer, conveyance, pledge or disposition of rights hereunder for purposes of the financing or refinancing of the Asset Bundle, so long as Buyer's rights under this Agreement are not thereby materially altered, amended, diminished or otherwise impaired.      15.3    Either Party may, without the consent of the other Party, assign this Agreement to a successor to all or substantially all of the assets of such Party by way of merger, consolidation, sale or otherwise, provided such successor assumes and becomes liable for all of such Party's duties and obligations hereunder including Section 3 hereof.      15.4    Except as stated above, neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned by either Party, including by operation of law, without the prior written consent of the other Party, said consent not to be unreasonably withheld. Any assignment of this Agreement in violation of the foregoing shall be, at the option of the non-assigning Party, void.      15.5    Except as set forth above, no assignment or transfer of rights or obligations under this Agreement by a Party shall relieve said Party from full liability and financial responsibility for the performance thereof after any such transfer or assignment unless and until the transferee or assignee shall agree in writing to assume the obligations and duties of said Party under this Agreement and the other Party has consented in writing to such assumption; said consent not to be unreasonably withheld.      15.6    This Agreement and all of the provisions hereof are binding upon, and inure to the benefit of, the Parties and their respective successors and permitted assigns.  16.    REPRESENTATIONS      16.1    Representations of the Parties. The Parties represent and warrant each to the other as follows:          16.1.1    Incorporation. Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Nevada. Supplier is a Nevada limited liability company duly organized, validly existing and in good standing under the laws of the State of Nevada. Both Buyer and Supplier have all requisite corporate or limited liability company power and authority to own, lease and operate their material assets and properties and to carry on their business as now being conducted.          16.1.2    Authority. The Party has full corporate or limited liability company power and authority to execute and deliver this Agreement and, subject to the procurement of applicable regulatory approvals, to carry out the actions required of it by this Agreement. The execution and delivery of this Agreement and the transactions contemplated hereby have been duly and validly authorized by all necessary corporate or limited liability company action required on the part of the Party. The Agreement has been duly and validly executed and delivered by the Party and, assuming that it is duly and validly executed and delivered by the other Party, constitutes a legal, valid and binding agreement of the Party.          16.1.3    Compliance With Law. The Party represents and warrants that it is not in violation of any applicable Law, or applicable regulation, which violation could reasonably be expected to materially adversely affect the other Party's performance of its obligations under this Agreement. The Party represents and warrants that it will comply with all Laws, and regulations applicable to its compliance with this Agreement, non-compliance with which would reasonably be expected to materially adversely affect either Party's performance of its obligations under this Agreement.          16.1.4    Representations of Both Parties. The representations in this Section 16 shall continue in full force and effect for the term of this Agreement.  17.    DEFAULT AND REMEDIES      17.1    An Event of Default hereunder shall be deemed to have occurred upon a Party's (Defaulting Party) failure to comply with any material obligation imposed upon it by this Agreement. Examples of an Event of Default include, but are not limited to the following:  > (i) Failure to make any payments due under this Agreement; > >  (ii) Failure to deliver the Supply Amount for a period of five (5) > consecutive days; > > (iii) Failure to follow the directions of a Control Area Operator, ISA, EDU, > WSCC, NERC, PUCN, FERC, or any successor thereto where following such > directions is required hereunder; > > (iv) Supplier not being in compliance with Section 3; and > > (v) Failure of the Guarantor to be in compliance with the terms of the > Guarantee delivered under Section 3.1.2.     17.2    An Event of Default shall be excused:          17.2.1    In the event such Event of Default was caused by Force Majeure provided that the Party claiming a Force Majeure complies with the requirements of Section 12; and          17.2.2    In the event such Event of Default was caused by transmission and distribution outages or disruptions.      17.3    Unless excused, in an Event of Default the Non-Defaulting Party shall be entitled to provide written notice (or oral notice in case of emergency followed by written notice) of the Event of Default to the Defaulting Party and to specify a cure period, which cure period shall be a minimum of thirty (30) days.      17.4    If an Event of Default is not cured by the Defaulting Party during the cure period specified by the Non-Defaulting Party, the Non-Defaulting Party shall be entitled to those remedies which are not inconsistent with the terms of this Agreement, including termination and the payment of liquidated damages. A Defaulting Party shall not be liable to the Non-Defaulting Party for any punitive, consequential or incidental damages. For purposes of clarification, Replacement Costs shall not be considered consequential or incidental damages under this Section 17.4.      17.5    Notwithstanding this Section 17, liquidated damages shall be paid to Buyer pursuant to Sections 4.2, 12, 18, and 21.  18.    FACILITY ADDITIONS AND MODIFICATIONS      18.1    Supplier shall be entitled to make additions and modifications to the Asset Bundle subject to the following:          18.1.1    To the extent additions and modifications interfere with the operation of the Asset Bundle in providing the Supply Amount to Buyer beyond the limits for planned outages set forth in Section 21, liquidated damages shall be paid to Buyer pursuant to Section 4.2.          18.1.2    Supplier shall use reasonable efforts to minimize any adverse impact on Buyer during the course of making such additions and modifications.          18.1.3    Such additions and modifications shall be conducted in accordance with Good Utility Practice, and all applicable Laws, regulations, reliability criteria and the Interconnection Agreement between Buyer and Supplier, dated October 25, 2000, as it may be amended from time to time.      18.2    Supplier shall seek Buyer's prior written approval for all Supplier's additions or modifications to the Asset Bundle which might reasonably be expected to have an adverse effect upon Buyer with respect to operations or performance under this Agreement.  19.    COORDINATION      19.1    Upon knowledge thereof, each Party shall promptly give notice to the other Party of any labor dispute which is delaying or threatens to delay the timely performance of this Agreement, which shall include a description of the general nature of the dispute.  20.    EMERGENCY AND NONEMERGENCY CONDITION RESPONSE      20.1    Buyer and Supplier shall comply with any applicable requirement of any Governmental Authority, NERC, WSCC, ISA, Control Area Operator, transmission operator, EDU or any successor of any of them, regarding the reduced or increased generation of the Asset Bundle in the event of an Emergency Condition or Nonemergency Condition.      20.2    Supplier shall not be obligated to deliver the Supply Amount and no liquidated damages shall become due, if the Supply Amount is reduced in the event of an Emergency Condition or a Nonemergency Condition.      20.3    Each Party shall provide prompt oral notice to the other Party of any Emergency Condition or Nonemergency Condition.      20.4    Either Party may take reasonable and necessary action to prevent, avoid or mitigate injury, danger, damage or loss to its own equipment and facilities, or to expedite restoration of service; provided, however, that the Party taking such action shall give the other Party prior notice if at all possible before taking any action. However, this Section 20.4 shall not be construed to supersede Sections 20.2 and 20.3. 21.    OUTAGE SCHEDULING      21.1    Supplier shall request Buyer's approval prior to any inspections, proposed planned outages or other non-forced outages (all hereinafter referred to as "planned outages") of the Asset Bundle so as to minimize the impact on the availability of the Asset Bundle. Under no circumstances shall Supplier conduct a planned outage without the express prior consent of Buyer pursuant to this Section 21.      21.2    Planned Outages.          21.2.1    Within sixty (60) days following the Effective Date of this Agreement and on or before October 1 of each Contract Year, Supplier shall provide Buyer with a schedule of proposed planned outages for the period beginning on the date of such proposed schedule for the following twelve (12) months. The proposed planned outage schedule will designate days for each unit in which the Asset Bundle Capacity will be reduced in part or total for each such unit. Each proposed schedule shall include all applicable information, including but not limited to the following: Month, day and time of requested outage; facilities impacted (such as Unit and description); duration of outage; purpose of outage; amount of capacity (in MWs) which is derated; other conditions and remarks; and name of contact and phone number.          21.2.2    Buyer shall promptly review Supplier's proposed schedule and shall, at Buyer's discretion, not to be unreasonably exercised, either require modifications or approve the proposed schedule. Supplier shall use its best efforts to accomplish all planned outages in accordance with the approved schedule. Supplier shall be responsible to Buyer for Replacement Costs (i) if any outage period exceeds its approved schedule, provided that changes to the approved schedule may be requested by either Party and each Party shall make reasonable efforts to accommodate such changes, provided further the Buyer shall have no obligation to agree to Supplier's revisions to the approved planned outage schedule; and (ii) if Supplier conducts a planned outage without the consent of Buyer as provided herein.  22.    REPORTS      22.1    Supplier shall promptly provide Buyer with copies of any orders, decrees, letters or other written communications to or from any Governmental Authority asserting or indicating that Supplier and/or its Asset Bundle is in violation of Laws which relate to Supplier, or operations or maintenance of the Asset Bundle and which may have an adverse effect on Buyer. Supplier shall use reasonable efforts to keep Buyer appraised of the status of any such matters.  23.    COMMUNICATIONS      23.1    Supplier's Operating Representatives shall be available twenty-four (24) hours per day for communications with the Control Area Operator and/or the ISA and Buyer to facilitate the operations contained in this Agreement.      23.2    Supplier shall, at its expense, maintain and install real-time communications equipment at the Asset Bundle to maintain communications between personnel on site at the Asset Bundle, Buyer and the Control Area Operator at all times. Supplier shall provide at its expense: > (i) Ringdown voice telephone lines, and > >  (ii) Equipment to transmit to and receive telecopies from Buyer and the > Control Area Operator.     23.3    Supplier shall immediately report to Buyer any "Abnormal Condition" that has or may occur, and provide all pertinent information, including but not limited to the following:  > (i) A description of the "Abnormal Condition" and the actions to be taken to > alleviate the "Abnormal Condition"; > > (ii) The expected duration including the beginning and ending time of the > "Abnormal Condition"; and > > (iii) The amount of any adjustment to the current (real time) level of Energy > and Ancillary Services.     23.4    Cause of the Condition.          23.4.1    An "Abnormal Condition" shall include without limitation any conditions that, to Supplier's knowledge, have or are reasonably likely to:  > (i) Adversely affect Supplier's ability to provide Energy and Ancillary > Services to Buyer; > > (ii) Cause an unplanned reduction in the amount of delivery of Energy and > Ancillary Services to Buyer; or > > (iii) Cause an unplanned isolation of the Asset Bundle from the transmission > system.     23.5    Supplier shall immediately notify Buyer after such "Abnormal Condition" has been alleviated.  24.    NOTICES      24.1    All notices hereunder shall, unless specified otherwise, be in writing and shall be addressed, except as otherwise stated herein, to the Parties as set forth in Exhibit F.      24.2    All written notices or submittals required by this Agreement shall be sent either by hand-delivery, regular first class U.S. mail, registered or certified U.S. mail postage paid return receipt requested, overnight courier delivery, electronic mail or facsimile transmission and will be effective and deemed to have been received on the date of receipt personally, on the date and time as documented by method of delivery if during normal business hours or on the next succeeding Business Day, or on the third (3rd) Business Day following deposit with the U.S. mail if sent regular first class U.S. mail.      24.3    Notices of an Event of Default pursuant to Section 17 and or Force Majeure pursuant to Section 12 may not be sent by regular first class U.S. mail.      24.4    Any payments required to be made under this Agreement shall be made to the Party as set forth in Exhibit F.      24.5    Each Party shall have the right to change, at any time upon written notice to the other Party, the name, address and telephone numbers of its representatives under this Agreement for purposes of notices and payments.  25.    MERGER      25.1    The Agreement contains the entire agreement and understanding between the Parties with respect to all of the subject matter contained herein, thereby merging and superseding all prior agreements and representations by the Parties with respect to such subject matter.      25.2    In the event of any conflict between this Agreement and the Asset Sale Agreement, the terms of the Asset Sale Agreement shall govern.  26.    HEADINGS      26.1    The headings or section titles contained in this Agreement are inserted solely for convenience and do not constitute a part of this Agreement between the Parties, nor should they be used to aid in any manner in the construction of this Agreement.  27.    COUNTERPARTS AND INTERPRETATION      27.1    This Agreement may be executed in any number of counterparts, each of which shall be deemed an original.      27.2    In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of authorship of any of the provisions of this Agreement.      27.3    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.      27.4    The word "including" in this Agreement shall mean "including without limitation".  28.    SEVERABILITY      28.1    If any term, provision or condition of this Agreement is held to be invalid, void or unenforceable by a court or Governmental Authority of competent jurisdiction and such holding is subject to no further appeal or judicial review, then such invalid, void, or unenforceable term, provision or condition shall be deemed severed from this Agreement and all remaining terms, provisions and conditions of this Agreement shall continue in full force and effect, unless, however, the effect of the severance would vitiate the intent of the Parties hereto, as determined by either Party in its reasonable discretion.      28.2    The Parties shall endeavor in good faith to replace such invalid, void, or unenforceable provisions with a valid and enforceable provision which achieves the purposes intended by the Parties to the greatest extent permitted by law.  29.    WAIVERS      29.1    No failure or delay on the part of a Party in exercising any of its rights under this Agreement or in insisting upon strict performance of provisions of this Agreement, no partial exercise by either Party of any of its rights under this Agreement, and no course of dealing between the Parties shall constitute a waiver of the rights of either Party under this Agreement. Any waiver shall be effective only by a written instrument signed by the Party granting such waiver, and such shall not operate as a waiver of, or estoppel with respect to, any subsequent failure to comply therewith. 30.    AMENDMENTS      30.1    The Parties shall negotiate in good faith to determine necessary amendments, if any, to this Agreement, provided that in negotiating such amendments the Parties shall attempt, in good faith, to reasonably preserve the bargain initially struck in this Agreement if any Governmental Authority, FERC, any state or the PUCN, implements a change in any Law or applicable regulation that materially affects or is reasonably expected to materially affect Buyer's PLR service under this Agreement.      30.2    The Parties shall meet to discuss the impact of any changes in Buyer's OATT or the ISA's OATT, as applicable, or any rule or practice of NERC, WSCC, or any other Governmental Authority on the terms of this Agreement upon request by either Party during the term of this Agreement.      30.3    In the event that it is deemed necessary to amend this Agreement, the Parties will attempt to agree upon such amendment and will submit such mutually agreed upon amendment(s) to the FERC for filing and acceptance.      30.4    Amendments to this Agreement shall be in writing and shall be executed by an authorized representative of each Party.  31.    TIME IS OF THE ESSENCE      31.1    Time is of the essence of this Agreement and in the performance of all of the covenants and conditions hereof.  32.    APPROVALS      32.1    Each Party's performance under this Agreement is subject to the condition that all requisite governmental and regulatory approvals for such performance are obtained in form and substance satisfactory to the other Party in its reasonable discretion. Each Party shall use best efforts to obtain all required approvals and shall exercise due diligence and shall act in good faith to cooperate and assist each other in acquiring any regulatory approval necessary to effectuate this Agreement. Further, the Parties agree to reasonably support the other Party in any associated regulatory proceedings, including by being a witness on behalf of the other Party.      32.2    Notwithstanding the provisions of Section 2.2.2 of this Agreement, if any Governmental Authority in its review of the Agreement places conditions on or requires revisions of the Agreement which do not have a material adverse effect on Supplier or Buyer, the Parties agree to execute an amendment to the Agreement reasonably acceptable to each Party incorporating such conditions or revisions.      32.3    This Agreement is made subject to present or future state or federal laws, regulations, or orders properly issued by state or federal bodies having jurisdiction.      32.4    The Parties hereto agree to execute and deliver promptly, at the expense of the Party requesting such action, any and all other and further instruments, documents and information which may reasonably be necessary or appropriate to give full force and effect to the terms and intent of this Agreement.  33.    PLR SERVICE      33.1    The Agreement is premised on Buyer providing PLR service. Notwithstanding anything to the contrary contained herein, if Nevada retail electricity restructuring (including implementation of retail customer choice of electricity suppliers) is delayed beyond the Effective Date of this Agreement, the Parties shall continue to perform this Agreement in all respects pursuant to the terms and conditions hereof as if Buyer was the PLR and Buyer's retail and wholesale customers shall be considered as the TRR.  34.    CONFIDENTIALITY      34.1    Confidential Information. Certain information provided by a Party (the "Disclosing Party") to the other Party (the "Receiving Party") in connection with the negotiation or performance of this Agreement may be considered confidential and/or proprietary (hereinafter referred to as "Confidential Information") by the Disclosing Party. To be considered Confidential Information hereunder, such information must be clearly labeled or designated by the Disclosing Party as "confidential" or "proprietary" or with words of like meaning. If disclosed orally, such information shall be clearly identified as confidential and such status shall be confirmed promptly thereafter in writing.      34.2    Treatment of Confidential Information. The Receiving Party shall treat any Confidential Information with at least the same degree of care regarding its secrecy and confidentiality as the Receiving Party's similar information is treated within the Receiving Party's organization. The Receiving Party shall not disclose the Confidential Information of the Disclosing Party to third parties (except as stated hereinafter) nor use it for any purpose other than the negotiation or performance of this Agreement, without the express prior written consent of the Disclosing Party. The Receiving Party further agrees that it shall restrict disclosure of Confidential Information as follows:         34.2.1    Disclosure shall be restricted solely to its agents as may be necessary to enforce the terms of this Agreement after advising those agents of their obligations under this Section 34.2.         34.2.2    In the event that the Receiving Party is requested, pursuant to or as required by applicable Law or by legal process, to disclose any Confidential Information, the Receiving Party shall provide the Disclosing Party with prompt notice of such request or requirement in order to enable Disclosing Party to seek an appropriate protective order or other remedy and to consult with Disclosing Party with respect to Disclosing Party taking steps to resist or narrow the scope of such request or legal process. The Receiving Party agrees not to oppose any action by the Disclosing Party to obtain a protective order or other appropriate remedy. In the absence of such protective order, and provided that the Receiving Party is advised by its counsel that it is compelled to disclose the Confidential Information, the Receiving Party shall:  > (i) furnish only that portion of the Confidential Information which the > Receiving Party is advised by counsel is legally required; and > >  (ii) use its commercially reasonable best efforts, at the expense of the > Disclosing Party, to ensure that all Confidential Information so disclosed > will be accorded confidential treatment.     34.3    Excluded Information. Confidential Information shall not be deemed to include the following:          34.3.1    information which is or becomes generally available to the public other than as a result of a disclosure by the Receiving Party;          34.3.2    information which was available to the Receiving Party on a non-confidential basis prior to its disclosures by the Disclosing Party; and         34.3.3    information which becomes available to the Receiving Party on a non-confidential basis from a person other than the Disclosing Party or its representative who is not otherwise bound by a confidentiality agreement with Disclosing Party or its agent or is otherwise not under any obligation to Disclosing party or its agent not to disclose the information to the Receiving Party.      34.4    Injunctive Relief Due to Breach. The Parties agree that remedies at law may be inadequate to protect each other in the event of a breach of this Section 34, and the Receiving Party hereby in advance agrees that the Disclosing Party shall be entitled to seek and obtain, without proof of actual damages, temporary, preliminary and permanent injunctive relief from any court or Governmental Authority of competent jurisdiction restraining the Receiving Party from committing or continuing any breach of this Section 34.  35.    CHOICE OF LAW      35.1    This Agreement and the rights and obligations of the Parties shall be construed and governed by the Laws of: (i) the State of Nevada as if executed and performed wholly within that state; and (ii) the Federal Power Act, to the extent the rights and obligations of the Parties are covered by such act.     IN WITNESS WHEREOF , the Parties hereto have caused this Agreement to be executed by their duly authorized representative on the date set forth below.   SIERRA PACIFIC POWER COMPANY WPS NORTHERN NEVADA, LLC By: WPS POWER DEVELOPMENT, INC. (Its Sole Member)   By: _______________________ William E. Peterson   By: _______________________ Gerald L. Mroczkowski Title: Senior Vice President, General Counsel, and Corporate Secretary Title: Vice President Date: October 25, 2000 Date: October 25, 2000

QuickLinks -- Click here to rapidly navigate through this document Executive Change-in-Control Severance Plan Chiron Corporation January 2001 TIER II -------------------------------------------------------------------------------- CONTENTS Article 1.   Establishment, Term, and Purpose   1 Article 2.   Definitions   1 Article 3.   Participation   5 Article 4.   Severance Benefits   5 Article 5.   Form and Timing of Severance Benefits   7 Article 6.   Excise Tax Equalization Payment   7 Article 7.   The Company's Payment Obligation   8 Article 8.   Arbitration   9 Article 9.   Successors and Assignment   9 Article 10.   Miscellaneous   9 -------------------------------------------------------------------------------- Chiron Corporation Executive Change-in-Control Severance Plan Article 1. Establishment, Term, and Purpose     1.1  Establishment of the Plan.  Chiron Corporation (hereinafter referred to as the "Company") hereby establishes a change-in-control severance plan to be known as the "Chiron Corporation Executive Change-in-Control Severance Plan" (the "Plan").     1.2  Term of the Plan.  This Plan will commence upon December 9, 2000 (the "Effective Date") and shall continue in effect for two (2) full calendar years. However, at the end of such two (2) year period and, if extended, at the end of each additional year thereafter, the term of this Plan shall be extended automatically for one (1) additional year, unless the Committee delivers written notice six (6) months prior to the end of such term, or extended term, to each Participant, that the Plan will not be extended. However, in the event a Change in Control occurs during the original or any extended term, this Plan will remain in effect, solely with respect to obligations relating to such Change in Control, for the longer of: (i) two (2) years beyond the month in which such Change in Control occurred; or (ii) until all obligations of the Company hereunder have been fulfilled, and until all benefits required hereunder have been paid to Participants.     1.3.  Purpose of the Plan.  The purpose of the Plan is to provide certain key employees of the Company with greater incentive to remain in the employ of the Company, particularly in the event of any possible change or threatened change in control of the Company. Article 2. Definitions     Whenever used in this Plan, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized.     2.1  "Base Salary"  as of any date means the annual rate of a Participant's base salary, excluding amounts received under incentive or other bonus plans, computed before any deferrals or pre-or post-tax payroll deductions.     2.2  "Beneficial Owner"  shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.     2.3  "Beneficiary"  means the persons or entities designated or deemed designated by the Participant pursuant to Section 9.2 herein.     2.4  "Board"  means the Board of Directors of the Company.     2.5  "Cause"  means: (a)The Participant's willful and continued failure to substantially perform his/her duties with the Company (other than any such failure resulting from Disability or occurring after issuance by the Participant of a Notice of Termination for Good Reason), after a written demand for substantial performance is delivered to the Participant that specifically identifies the manner in which the Company believes that the Participant has willfully failed to substantially perform his/her duties, and after the Participant has failed to resume substantial performance of his/her duties on a continuous basis within thirty (30) calendar days of receiving such demand; (b)The Participant's material act of dishonesty, fraud or embezzlement against the Company, unauthorized disclosure of confidential information or trade secrets of the Company or an affiliate (whether or not in violation of any confidentiality agreement) or other willful conduct (other than conduct covered under (a) above) that is demonstrably injurious to the Company, monetarily or otherwise; or (c)The Participant's having been convicted of a felony. -------------------------------------------------------------------------------- For purposes of this subparagraph, no act, or failure to act, on the Participant's part shall be deemed "willful" unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that the action or omission was in the best interests of the Company.     2.6  "Change in Control"  of the Company shall be deemed to have occurred as of the first day during the term of this Plan that any one or more of the following conditions is satisfied and regulatory approval has been granted if necessary: (a)The "beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of securities representing more than thirty percent (30%) of the combined voting power of all securities of the Company is acquired, directly or indirectly, by a Person (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or an affiliate thereof, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company); or (b)During any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board of Directors and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraph (a) or (b) of this section) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (c)The stockholders of the Company approve a definitive agreement to sell or otherwise dispose of all or substantially all of its assets, or adopt a plan for liquidation, provided that such sale or liquidation has not been abandoned.     Notwithstanding anything else contained herein to the contrary, in no event shall a Change in Control be deemed to have occurred by reason of a purchase, or series of purchases of Company stock by Novartis or its successor such that the acquiring entity remains subject to the terms of that certain Governance Agreement dated as of January 5, 1995, as amended through December 9, 2000, provided the acquiring entity's Company stock holdings, direct or indirect, in the aggregate, represent seventy-nine percent (79%) or less of the combined voting power of all outstanding Company securities.     However, in no event shall a Change in Control be deemed to have occurred, with respect to the Participant, if the Participant is part of a purchasing group that consummates the Change-in-Control transaction. The Participant shall be deemed "part of a purchasing group" for purposes of the preceding sentence if the Participant is an equity participant in the purchasing company or group (except for: (i) passive ownership of less than three percent (3%) of the stock or other equity of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group which is otherwise not significant, as determined prior to the Change in Control by a majority of the nonemployee continuing Directors).     2.7  "Code"  means the United States Internal Revenue Code of 1986, as amended, and any successors thereto.     2.8  "Committee"  means the Compensation Committee of the Board or any other committee appointed by the Board to perform the functions of the Compensation Committee for purposes of administering this Plan.     2.9  "Company"  means Chiron Corporation, a Delaware corporation, or any successor thereto as provided in Article 9 herein. 2 --------------------------------------------------------------------------------     2.10  "Disability"  means complete and permanent inability by reason of illness or accident to perform the duties of the occupation at which the Participant was employed when such disability commenced, where inability is expected to last one year or longer.     2.11  "Effective Date"  means the date of this Plan set forth above.     2.12  "Effective Date of Termination"  means the date on which a Qualifying Termination occurs which triggers the payment of Severance Benefits hereunder.     2.13  "Exchange Act"  means the United States Securities Exchange Act of 1934, as amended.     2.14  "Good Reason"  shall mean, without the Participant's express written consent, the occurrence of any one or more of the following: (a)The assignment of the Participant to duties materially inconsistent with the Participant's authorities, duties, responsibilities as an employee of the Company, or a material reduction in the nature or status of the Participant's authorities, duties, or responsibilities than those in effect immediately preceding the Change in Control; (b)The Company's requiring the Participant to be based at a location which is at least fifty (50) miles further from the Participant's current primary residence than is such residence from the Company's current headquarters, except for required travel on the Company's business to an extent substantially consistent with the Participant's business obligations as of the Effective Date; (c)A material reduction in the Participant's Base Salary or bonus opportunity as in effect on the Effective Date or as the same shall be increased from time to time; (d)A material reduction in the Participant's level of participation in any of the Company's short- and/or long-term incentive compensation plans, or employee benefit or retirement plans, policies, practices, or arrangements in which the Participant participates immediately preceding the Change in Control; provided, however, that reductions in the levels of participation in any such plans shall not be deemed to be "Good Reason" if the Participant's reduced level of participation in each such program remains substantially consistent with the average level of participation of other executives who have positions commensurate with the Participant's position.     For purposes of this Plan, long-term incentive plans shall mean the Chiron Executive Long-Term Incentive Plan, the 1991 Stock Option Plan, and any other similar plans instituted by the Company; (e)The failure of the Company to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform this Agreement, as contemplated in Article 10 herein; or (f)Any termination of Participant's employment by the Company that is not effected pursuant to a Notice of Termination.     The existence of Good Reason shall not be affected by the Participant's temporary incapacity due to physical or mental illness not constituting a Disability. However, the occurrence of an event set forth in (a) through(f) above shall not constitute Good Reason if the Company has cured such event within fifteen (15) days of receipt of written notice from the Participant that such event has occurred and constitutes Good Reason.     2.15  "Notice of Termination"  shall mean a written notice which shall indicate the specific termination provision in this Plan relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Participant's employment under the provision so indicated. 3 --------------------------------------------------------------------------------     2.16  "Participant"  means an employee of the Company who fulfills the eligibility and participation requirements, as provided in Article 3 herein.     2.16  "Person"  shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as provided in Section 13(d).     2.17  "Qualifying Termination"  means any of the events described in Section 4.2 herein.     2.18  "Severance Benefits"  means the payment of severance compensation as provided in Section 4.3 herein.     2.19  "Target Bonus"  shall mean the target bonus amount established under the Company's annual incentive plan. Article 3. Participation     3.1  Eligible Employees.  Individuals eligible to participate in the Plan shall include all key employees of the Company, as determined by the Committee in its sole discretion.     3.2  Participation.  Subject to the terms of the Plan, the Committee may, from time to time, select from all eligible employees those who shall participate in the Plan. Article 4. Severance Benefits     4.1  Right to Severance Benefits.  A Participant shall be entitled to receive from the Company Severance Benefits, as described in Section 4.3 herein, if (i) there has been a Change in Control of the Company, (ii) within twenty-four (24) calendar months following the Change in Control, a Qualifying Termination of the Participant has occurred, and (iii) Participant has executed a Release, as described in Section 4.8 herein. The benefits provided under this Plan shall be reduced to the extent similar benefits are provided under the Chiron Corporation Executive Officer Severance Plan or any other severance protection arrangements provided by the Company either as a plan or in the form of individual agreement or contract.     The Participant shall not be entitled to receive Severance Benefits if he/she is terminated for Cause, or if his/her employment with the Company ends due to death or Disability or due to a voluntary termination of employment by the Participant without Good Reason.     4.2  Qualifying Termination.  The term Qualifying Termination means any of the following events: (a)An involuntary termination of the Participant's employment by the Company for reasons other than Cause, death or Disability pursuant to a Notice of Termination delivered to the Participant by the Company; (b)A voluntary termination by the Participant for Good Reason pursuant to a Notice of Termination delivered to the Company by the Participant; provided that, if upon receiving such Notice of Termination, the Company requests that the Participant remain an employee for a period ending no later than six (6) months following the date of the Change in Control (the "Transition Employment Period") with compensation and benefits equal to or greater than the Participant's compensation and benefits immediately before the Qualifying Termination (or, if more favorable to the Participant, immediately before the Change in Control), the Participant will not be deemed to have a Qualifying Termination unless he or she remains employed throughout the Transition Employment Period or Executive's employment earlier terminates due to death, Disability or involuntary termination by the Company for reason other than Cause. 4 --------------------------------------------------------------------------------     4.3  Description of Severance Benefits.  In the event the Participant becomes entitled to receive Severance Benefits, as provided in Sections 4.1 and 4.2 herein, the Company shall pay to the Participant and provide him/her with the following: (a)An amount equal to two (2) times the highest rate of the Participant's annualized Base Salary in effect immediately preceding the Change in Control. (b)An amount equal to two (2) times the Participant's highest target bonus established for the year immediately preceding the Change in Control. (c)An amount equal to the Participant's unpaid Base Salary, any unpaid bonus earned before the year in which the termination occurs, a pro rata amount of the Participant's Target Bonus for the year in which the termination occurs, and accrued but unused paid time off in accordance with company policy through the Effective Date of Termination. (d)A continuation of the welfare benefits of life and accidental death and dismemberment, and disability insurance coverage for two (2) full years after the Effective Date of Termination. These benefits shall be provided to the Participant at the same premium cost, and at the same coverage level, as in effect as of the Participant's Effective Date of Termination. However, in the event the premium cost and/or level of coverage shall change for all employees of the Company, or for management employees with respect to supplemental benefits, the cost and/or coverage level, likewise, shall change for the Participant in a corresponding manner. The Company may satisfy its obligation to provide a continuation of health care benefits by paying that portion of the Participant's premiums required under Consolidated Omnibus Budget Reconciliation Act ("COBRA") that exceed the amount of premiums that the Participant would have been required to pay for continuing coverage had he or she continued in employment. If the Company is not reasonably able to continue these benefits under the Company's plans, the Company may provide similar coverage under other vehicles or may, in lieu thereof, pay the Participant an amount equal to the value of these benefits. The continuation of these welfare benefits shall be discontinued prior to the end of the two (2) year period in the event the Participant has available substantially similar benefits at a comparable cost from a subsequent employer, as determined by the Committee. (e)All long-term incentive awards will vest in accordance with the terms of the plan or program under which they were granted.     The aggregate vested benefits accrued by the Participant as of the Effective Date of Termination under all other savings and retirement plans sponsored by the Company shall be distributed pursuant to the terms of the applicable plans.     4.4  Termination for Disability.  Following a Change in Control of the Company, if a Participant's employment is terminated due to Disability, the Participant shall receive his/her Base Salary through the Effective Date of Termination, at which point in time the Participant's benefits shall be determined in accordance with the Company's disability, retirement, insurance, and other applicable plans and programs then in effect.     4.5  Termination for Death.  Following a Change in Control of the Company, if the Participant's employment is terminated by reason of his/her death, the Participant's benefits shall be determined in accordance with the Company's survivor's benefits, insurance, and other applicable programs of the Company then in effect.     4.6  Termination for Cause or Other Than for Good Reason.  Following a Change in Control of the Company, if the Participant's employment is terminated either: (a) by the Company for Cause; or (b) by the Participant (other than for Good Reason under circumstances giving rise to a Qualifying Termination described in Section 4.2(b) herein), the Company shall pay the Participant his/her full Base 5 -------------------------------------------------------------------------------- Salary and accrued but unused paid time off in accordance with company policy through the Effective Date of Termination, at the rate then in effect, plus all other amounts to which the Participant is entitled under any compensation plans of the Company, at the time such payments are due.     4.7  Notice of Termination.  Any termination of employment by the Company or by the Participant for Good Reason shall be communicated by a Notice of Termination.     4.8  Release.  The Severance Benefits are in consideration of Participant's release of all claims against the Company and its employees and agents, in the form provided by the Company and in substantially the form as attached hereto as Exhibit A (the "Release"). If Participant does not properly execute the Release or if the Participant effectively revokes it, he or she will not be entitled to any Severance Benefits. Article 5. Form and Timing of Severance Benefits     5.1  Form and Timing of Cash Severance Benefits.  The Severance Benefits described in Sections 4.3(a), 4.3(b), and 4.3(c) herein shall be paid in cash to the Participant in a single lump sum as soon as practicable following the latest of (i) the Effective Date of Termination or (ii) the date that the Participant executes the Release or (iii) the last day following Participant's execution of the Release that the Participant may, by its terms, revoke such Release, but in no event beyond thirty (30) days from such date.     5.2  Withholding of Taxes.  The Company shall be entitled to withhold from any amounts payable under this Plan all taxes as legally shall be required (including, without limitation, any United States federal taxes and any other state, city, or local taxes). Article 6. Excise Tax Equalization Payment     6.1  Excise Tax Equalization Payment.  In the event that the Participant becomes entitled to Severance Benefits or any other payment or benefit under this Plan, or under any other agreement with or plan of the Company (in the aggregate, the "Total Payments"), if all or any part of the Total Payments will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any similar tax that may hereafter be imposed), the Company shall pay to the Participant in cash an additional amount (the "Gross-Up Payment") such that the net amount retained by the Participant from the Total Payments and the Gross-Up Payment after deduction of any Excise Tax upon the Total Payments and any federal, state, and local income and employment tax, penalties, interest, and Excise Tax upon the Gross-Up Payment provided for by this Section 5.1 (including FICA), shall be equal to the Total Payments. Such payment shall be made by the Company to the Participant as soon as practicable following the latest of (i) the Effective Date of Termination or (ii) the date that the Participant executes the Release or (iii) the last day following Participant's execution of the Release that the Participant may, by its terms, revoke such Release, but in no event beyond thirty (30) days from such date.     6.2  Tax Computation.  For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amounts of such Excise Tax: (a)Any other payments or benefits in the nature of compensation received or to be received by the Participant in connection with a Change in Control of the Company or the Participant's termination of employment (whether pursuant to the terms of this Plan or any other plan, arrangement, or agreement with the Company or otherwise) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel as supported by the Company's independent auditors and acceptable to the Participant, such other payments or benefits (in whole or in part) do not 6 -------------------------------------------------------------------------------- constitute parachute payments, or unless such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax; (b)The amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of: (i) the total amount of the Total Payments; or (ii) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (a) above); and (c)The value of any noncash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.     For purposes of determining the amount of the Gross-Up Payment, the Participant shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation (including the effects of applicable phase-outs of deductions and other benefits) in the calendar year in which the Gross-Up Payment is to be made, and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Participant's residence on the Effective Date of Termination.     6.3  Subsequent Recalculation.  In the event the Participant ultimately owes more Excise Tax on the Total Payments and the Gross-Up Payments than computed by the Company under Section 6.1 herein, the Gross-Up Payment shall be recalculated based on the actual Excise Tax. Article 7. The Company's Payment Obligation     The Company's obligation to make the payments and the benefits provided for herein, to the extent that the Participant qualifies for such payments and benefits under the terms of this Plan, shall be absolute and unconditional, and shall not be affected by any circumstances, including, without limitation, any offset, counterclaim, recoupment, defense, or other right which the Company may have against the Participant or anyone else.     The Participant shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Plan, and the obtaining of any such other employment shall in no event effect any reduction of the Company's obligations to make the payments and arrangements required to be made under this Plan, except to the extent provided in Section 4.3(d) herein. Article 8. Arbitration     Any dispute or controversy arising under or in connection with this Plan shall be settled by arbitration, conducted before a panel of three (3) arbitrators sitting in a location selected by the Participant within fifty (50) miles from the location of his/her employment with the Company, in accordance with the rules of the American Arbitration Association then in effect.     Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel for the Participant, shall be borne by the Company. Article 9. Successors and Assignment     9.1  Successors to the Company.  The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) of all or substantially all of the business and/or assets of the Company or of any division or subsidiary thereof to expressly assume and agree to 7 -------------------------------------------------------------------------------- perform the Company's obligations under this Plan 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.     9.2  Assignment by the Participant.  This Plan shall inure to the benefit of and be enforceable by the Participant's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If the Participant dies while any amount would still be payable to him/her hereunder had he/she continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to the Participant's Beneficiary. If the Participant has not named a Beneficiary, then such amounts shall be paid to the Participant's devisee, legatee, or other designee, or if there is no such designee, to the Participant's estate. Article 10. Miscellaneous     10.1  Employment Status.  Except as may be provided under any other agreement between the Participant and the Company, the employment of the Participant by the Company is "at will," and may be terminated by either the Participant or the Company at any time and for any or no reason, subject to applicable law.     10.2  Beneficiaries.  The Participant may designate one or more persons or entities as the primary and/or contingent Beneficiaries of any Severance Benefits owing to the Participant under this Plan. Such designation must be in the form of a signed writing acceptable to the Committee. The Participant may make or change such designations at any time.     10.3  Severability.  In the event any provision of this Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. Further, the captions of this Plan are not part of the provisions hereof and shall have no force and effect.     10.4  Modification.  No provision of this Plan may be modified, waived, or discharged unless such modification, waiver, or discharge is agreed to in writing and signed by the Participant and by an authorized member of the Committee, or by the respective parties' legal representatives and successors.     10.5  Applicable Law.  To the extent not preempted by the laws of the United States, the substantive laws of the state of California, without regard to conflict of law principles, shall be the controlling law in all matters relating to this Plan. [End of Plan] 8 -------------------------------------------------------------------------------- QuickLinks Executive Change-in-Control Severance Plan CONTENTS Chiron Corporation Executive Change-in-Control Severance Plan

QuickLinks -- Click here to rapidly navigate through this document THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THE COBALT GROUP, INC. (A Washington Corporation) Note No.     Amount: $2,000,000   September 7, 2001 UNSECURED PROMISSORY NOTE     For value received The Cobalt Group, Inc., a Washington corporation ("Borrower"), unconditionally promises to pay to Warburg, Pincus Equity Partners, L.P., or its assigns, as agent (the "Agent"), for the Lenders (as defined in the Loan Agreement (as defined below)), the principal sum of Two Million Dollars ($2,000,000) with simple interest on the outstanding principal amount. The outstanding principal amount, together with all accrued and unpaid interest, shall be due and payable on September 7, 2003 (the "Maturity Date").     1.  Interest.  The outstanding principal amount on this Unsecured Promissory Note (this "Note") shall bear interest at the rate of eight percent (8%) per annum and shall commence with the date hereof and shall continue on the outstanding principal until this Note is paid in full, in accordance with the terms hereof. Notwithstanding the foregoing, any amount outstanding under this Note shall bear interest from and after the Maturity Date at the rate of ten (10%) per annum. Any interest on this Note accruing after the Maturity Date shall accrue and be compounded monthly until the obligation of Borrower with respect to the payment of such interest has been discharged (whether before or after judgment).     Payments.  Borrower may prepay all or any portion of this Note at any time without penalty. All payments shall be made to the Agent at its offices at 466 Lexington Avenue, New York, NY 10017, or at such other address as the Agent may specify in writing. All payments received from Borrower hereunder shall be applied first, to the payment of any expenses due to the Lenders pursuant to the terms of this Note, second, to the payment of interest accrued and unpaid on this Note, and third, to reduce the principal balance hereunder. Any payments of expenses, principal or interest shall be made in U.S. dollars.     2.  Loan Agreement.  This Note is issued pursuant to the Loan Agreement, dated of even date herewith, among Borrower and the Agent (the "Loan Agreement"), and is subject to the provisions thereof. If any dispute arises between the terms of the Loan Agreement and the terms of this Note, the terms of the Loan Agreement shall prevail.     3.  No Voting Rights.  This Note shall not entitle the Agent or the Lenders to any voting rights or other rights as a stockholder of Borrower.     4.  Transfers.  This Note may be transferred only in compliance with applicable federal and state securities laws and only upon surrender of the original Note for registration of transfer, duly endorsed, or accompanied by a duly executed written instrument of transfer in form satisfactory to Borrower. Thereupon, a new promissory note for like principal amount and interest will be issued to, and -------------------------------------------------------------------------------- registered in the name of, the transferee. Interest and principal are payable only to the registered holder of this Note. The Agent agrees to provide a form W-9 to Borrower on request.     5.  Amendment; Waiver.  Any amendment hereto or waiver of any provision hereof may be made only with the written consent of Borrower and the Agent. This Note shall inure to the benefit of and bind the successors, permitted assigns, heirs, executors, and administrators of Borrower and the Agent. Failure of the Agent to assert any right herein shall not be deemed to be a waiver thereof.     6.  Event of Default.  This Note shall become immediately due and payable upon the occurrence of an Event of Default (as defined below), whereupon (i) this Note and all such interest shall become and be immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by Borrower; and (ii) the Agent, at its option, may proceed to enforce all other rights and remedies available to the Agent or the Lenders under applicable law. For purposes hereof, the occurrence of any of the following shall constitute an "Event of Default" under this Note:     (a) the failure to make any payment of principal when due or any other amount payable hereunder within three business days of the date due under this Note or the breach of any other condition or obligation under this Note;     (b) the filing of a petition by Borrower, or the filing of a petition against Borrower that is not dismissed within 60 days, under any provision of applicable bankruptcy or similar law; or appointment of a receiver, trustee, custodian or liquidator of or for all or any part of the assets or property of Borrower; or the failure of Borrower to pay its debts generally as they become due; or the making of a general assignment for the benefit of creditors by Borrower; or     (c) the past or future making of any untrue representation or warranty by Borrower under or in connection with this Note, the Loan Agreement or any certificate, instrument or written statement delivered pursuant to the Loan Agreement.     7.  Usury Savings Clause.  Each of Borrower, the Agent and the Lenders intend to comply at all times with applicable usury laws. If at any time such laws would render usurious any amounts due under this Note under applicable law, then it is each of Borrower's, the Agent's and the Lenders' express intention that Borrower not be required to pay interest on this Note at a rate in excess of the maximum lawful rate, that the provisions of this Section 9 shall control over all other provisions of this Note which may be in apparent conflict hereunder, that such excess amount shall be immediately credited to the principal balance of this Note, and the provisions hereof shall immediately be reformed and the amounts thereafter decreased, so as to comply with the then applicable usury law, but so as to permit the recovery of the fullest amount otherwise due under this Note.     8.  Costs.  Borrower agrees to pay all reasonable costs of collection of any amounts due hereunder arising as a result of any default hereunder, including without limitation, attorneys' fees and expenses.     9.  Governing Law.  This Note is made in accordance with and shall be construed under the laws of the State of New York, other than the conflicts of law principles thereof.     10.  Waiver.  Borrower hereby expressly waives presentment, demand for payment, dishonor, notice of dishonor, protest, notice of protest and any other formality. --------------------------------------------------------------------------------     11.  Washington Statutory Notice.  ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.     THE COBALT GROUP, INC.                 /s/ JOHN W.P. HOLT    -------------------------------------------------------------------------------- By: John W.P. Holt Title: President and Chief Executive Officer -------------------------------------------------------------------------------- QuickLinks THE COBALT GROUP, INC. (A Washington Corporation) UNSECURED PROMISSORY NOTE

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.9.2 AMENDED AND RESTATED EMPLOYMENT AGREEMENT BETWEEN HCC INDUSTRIES, INC. and RICHARD FERRAID ORIGINAL DATE OF AGREEMENT: MARCH 31, 2000 DATE OF AMENDED AND RESTATED AGREEMENT: DECEMBER 31, 2000 -------------------------------------------------------------------------------- TABLE OF CONTENTS             Page No. -------------------------------------------------------------------------------- 1. Employment         1.1   Term   1     1.2   Title; Reporting; Policies   1         1.2.1 Title; Duties   1         1.2.2 Reporting   1         1.2.3 Policies   1     1.3   Place; Travel   1         1.3.1 Place of Employment   1         1.3.2 Travel   1     1.4   Exclusive; Outside Activities   1 2. Compensation and Benefits         2.1   Base Salary   2     2.2(a)   Performance Bonus FY 2001   2     2.2(b)   Performance Bonus FY 2002 and Subsequent Fiscal years   2     2.3   Employee's Stock Options   2         2.3.1 Option A   2         2.3.2 Option B   3         2.3.3 Option C   3         2.3.4 Option D   3         2.3.5. Effect of Termination of Employment on Employee's Stock Options   4                   2.3.5.1   4                   2.3.5.2   4         2.3.6 Method of Exercise   4         2.3.7 Change of Control   4     2.4   Benefit Programs   4     2.5   Expenses   5     2.6   Car   5     2.7   D&O Insurance   5     2.8   Vacation   5     2.9   Indemnity   5     2.10   Section 162(m) of the Code   5     2.11   Company's Call Rights   5         2.11.1 Relationship of this Agreement to Stockholders Agreement   5         2.11.2 Termination by Company Without Good Cause   6         2.11.3 Termination Upon Disability, Death or Retirement   6         2.11.4 Voluntary Termination   6                     2.11.4.1 Voluntary Termination Without Notice and                           Without Non-Competition Agreement   6                     2.11.4.2 Voluntary Termination With Notice and                           With Non-Competition Agreement   7         2.11.5 Termination for Good Cause   7         2.11.6 Construction Termination   7                     2.11.6.1 Constructive Termination Without Notice and                           Without Non-Competition Agreement   7                     2.11.6.2 Constructive Termination With Notice and                           With Non-Competition Agreement   8 i -------------------------------------------------------------------------------- 3. Term and Termination         3.1   Term   8     3.2   Termination By Company   8         3.2.1 Death   8         3.2.2 Unavailability   8         3.2.3 Good Cause   8         3.2.4 Without Cause   8     3.3   Termination By Employee   8     3.4   Notice of Termination   9     3.5   Effect of Termination   10         3.5.1 Termination By Company for Any Reason Other Than For           Good Cause   10         3.5.2 Termination By Company for Good Cause or Termination by Employee           Without Good Reason   10         3.5.3 Termination By Employee for Good Reason or Constructive           Termination   10         3.5.4 Contingent Bonus Plan Benefits   10         3.5.5 Waiver   10         3.5.6 Mitigation   11         3.5.7 Effect on Benefit Programs   11         3.5.8 Cooperation   11 4. Other Agreements         4.1   Confidential Information, etc.   11         4.1.1 Confidential Information   11         4.1.2 Clients; Employees   11         4.1.3 Publications   11         4.1.4 Documents   11         4.1.5 Property Rights and Confidentiality Arrangement   12     4.2   Work Product   12         4.2.1 Ownership of Work Product   12         4.2.2 Nonassignable Section 2870 Inventions   12         4.2.3 Employee Disclosure Obligation   12     4.3   Insurance   12     4.4   Assistance in Litigation   13     4.5   Withholding Taxes   13     4.6   Medical Examination   13 5. Dispute Resolution         5.1   Dispute Resolution   13     5.2   Rights and Remedies Upon Breach   13         5.2.1 Specific Performance   13         5.2.2 Accounting   14         5.2.3 Severability of Covenants   14         5.2.4 Blue-Penciling   14         5.2.5 Enforceability in Jurisdictions   14     5.3   Prevailing Party   14     5.4   Successor   14 6. General Provisions         6.1   Assignment   14 ii --------------------------------------------------------------------------------     6.2   Amendments; Waivers   15     6.3   Integration   15     6.4   Interpretation; Governing Law   15     6.5   Headings   15     6.6   Counterparts   15     6.7   Successors and Assigns   15     6.8   Expenses   15     6.9   Representation by Counsel; Interpretation   15     6.10   Time is of the Essence   15     6.11   Notices   15 Exhibit A   Defined Terms   A-1 Exhibit B   Employee-Owned Invention Notification   B-1 Exhibit C   FY 2001 Executive Bonus Plan EBITDA as a % of Target   C-1 Exhibit D   Property Rights and Confidentiality Agreement   D-1 iii -------------------------------------------------------------------------------- AMENDED AND RESTATED EMPLOYMENT AGREEMENT     This Amended and Restated Employment Agreement is entered into as of the 31st day of December, 2000 by and between HCC INDUSTRIES, INC., a Delaware corporation (the "Company") and RICHARD FERRAID ("Employee"). This Agreement amends, restates, supersedes, and replaces, but does not evidence satisfaction of, that certain Employment Agreement between the parties dated March 31, 2000. The parties agree as follows. The capitalized terms on Exhibit A have the meanings respectively assigned to them, which apply equally to the singular and plural forms of the terms. 1.  Employment     1.1 Term. The Company agrees to employ Employee for the Term, and Employee accepts such employment.     1.2 Title; Reporting; Policies.    1.2.1   Title; Duties. Employee will serve as President and Chief Executive Officer of the Company. Employee will faithfully perform the duties of Employee's office to the best of Employee's ability. Employee will have such duties and responsibilities as are generally consistent with such position in a company of comparable present and projected size. Employee will also serve without additional compensation in such executive capacities for one or more direct or indirect subsidiaries of the Company as the Board from time to time requests. Employee will also, subject to Employee's election as such, serve as a member of any committee of the Board to which Employee may be elected or appointed.     1.2.2  Reporting. Employee will report directly to the Board of Directors of the Company and will be subject to the direction of the Board and to such limits on Employee's authority as the Board from time to time imposes.     1.2.3  Policies. Employee will be subject to and comply with the policies, standards and procedures generally applicable to senior executives of the Company from time to time.     1.3 Place; Travel.     1.3.1  Place of Employment. The Company shall furnish Employee with proper offices, other facilities and equipment, and such support staff and services as are suitable for the performance of his duties and functions hereunder. Employee will be based at the Company's offices in Lakewood, New Jersey, or at offices in Rosemead or El Monte, California at the discretion of Employee. Employee shall not be transferred to another location outside of New Jersey without his prior, written consent.     1.3.2  Travel. Employee will be expected to engage in frequent travel as is required for the proper discharge of Employee's duties. Employee shall be entitled to reimbursement for his travel expenses and when flying between New Jersey and California, Employee shall be entitled to fly first class except on flights where business class is available. While traveling, Employee shall be entitled to stay in quality hotel accommodations.     1.4 Exclusive; Outside Activities. Employee will devote full and exclusive business time to the Company. The foregoing will not prohibit Employee from: (a) passive ownership of real or personal property; (b) owning less than 5% of any class of securities of a corporation that is publicly held; (c) owning any class of securities of or being a partner in any other corporation or business not competing directly or indirectly with the Company or providing goods or services to the Company if, in each case (x) interests are held for investment, (y) Employee does not become involved in active management of an operating business, and (z) such ownership or management does not materially interfere with the performance of Employee's duties. Employee may also hold directorships or similar positions with nonprofit, charitable, community or other similar organizations, so long as such activities do not 1 -------------------------------------------------------------------------------- materially interfere with the performance of Employee's duties. Any other directorships or similar positions must be approved by the Board, which approval will not be unreasonably withheld. 2.  Compensation and Benefits     2.1 Base Salary. Employee will be paid the Base Salary during the Term in accordance with the Company's policies.     2.2(a)  Performance Bonus—FY 2001. In addition to the Base Salary payable under Section 2.1, the Company shall pay Employee an annual Performance Bonus predicated upon the Company's achieving the EBITDA Target (the "EBITDA Target") established by the Company and identified on Exhibit C annexed hereto and made a part hereof, as determined by the Company's independent auditing firm based upon the Company's fiscal year-end audited financial statement. The amount of Employee's Performance Bonus is expressed as a percentage of his Base Salary and corresponds to a percentage of the EBITDA Target set forth in Exhibit C. As an example, in the event that the Company achieves 100% of the targeted EBITDA, the Employee's Performance Bonus shall equal 35% of his Base Salary. This Performance Bonus will decrease or increase as the Company falls short or exceeds the EBITDA Target as shown by the graph on Exhibit C.     Any changes in the EBITDA Target will be evidenced by a substituted Exhibit C to this Agreement which shall be initialed by the Chairman of the Board of Directors and Employee and attached to, and made a part of, this Agreement.     In the event that Employee is entitled to a Performance Bonus under this Section 2.2, such bonus shall be paid within thirty (30) days of the issuance of the Company's fiscal year-end audited financial statement.     In the event that this Agreement is terminated by the Company, unless such termination is pursuant to Section 3.2.3, Employee shall be entitled to a Performance Bonus for the fiscal year of the Company in which the termination occurs, equal to the greater of (i) the Target Bonus for such fiscal year, or (ii) Employee's actual Performance Bonus for the previous fiscal year.     2.2(b)  Performance Bonus—FY 2002 and Subsequent Fiscal Years. For fiscal years beginning April 1, 2001 and beyond, the employee shall be entitled to a target bonus of not less than 35% of Base Salary. Such target bonus shall be based upon a Bonus Plan developed for FY 2002 and subsequent years as approved by the Board of Directors. The provisions of such Bonus Plans are at the sole discretion of the Board except that such provisions must provide employee with a reasonable opportunity to earn 35% of Base Salary.     2.3 Employee's Stock Options. In consideration of Employee's execution of this Agreement, the Company shall grant Employee an option to purchase a total of 5,500 shares of the Company's common stock, pursuant to Option A, Option B, Option C, and Option D below (collectively, "Employee's Stock Options"). The terms of Employee's Stock Options shall be as follows:     2.3.1  Option A. Employee shall have the option to purchase up to one thousand (1,000) shares of the Company's common stock at an exercise price of $0.00 (zero). This option shall expire on, and shall not be exercisable on and after, April 1, 2010, subject to earlier expiration in accordance with Section 2.3.5 below. No portion of Option A shall be exercisable on Option A's 2 -------------------------------------------------------------------------------- date of grant, but a percentage of Option A shall vest and become exercisable on, and shall remain exercisable on and after, each of the dates set forth in the table below: Date --------------------------------------------------------------------------------   Percentage of Option A which is Exercisable and Remains Exercisable Until Option A Expires --------------------------------------------------------------------------------   April 1, 2001   33 % April 1, 2002   67 % April 1, 2003   100 %             2.3.2  Option B. Employee shall have the option to purchase up to one thousand five hundred (1,500) shares of the Company's common stock at an exercise price of $740.98 per share; provided, however, that such exercise price shall automatically be changed to $0.00 (zero) in the event that a Change of Control shall occur and Employee shall be an employee of the Company at the time of such occurrence. This option shall expire on, and shall not be exercisable on and after, the tenth (10th) anniversary of the Effective Date, i.e., January 1, 2011, subject to earlier expiration in accordance with Section 2.3.5 below. No portion of Option B shall be exercisable on Option B's date of grant, but a percentage of Option B shall vest and become exercisable on, and shall remain exercisable on and after, each of the dates set forth in the table below: Exercise Date --------------------------------------------------------------------------------   Percentage of Option B which is Exercisable and Remains Exercisable Until Option B Expires --------------------------------------------------------------------------------   December 31, 2001   33 % December 31, 2002   67 % December 31, 2003   100 %             2.3.3  Option C. Employee shall have the option to purchase up to one thousand (1,000) shares of the Company's common stock at an exercise price of $740.98 per share; provided, however, that such exercise price shall automatically be changed to $0.00 (zero) in the event that a Change of Control shall occur and Employee shall be an employee of the Company at the time of such occurrence. This option shall expire on, and shall not be exercisable on and after January 1, 2011, subject to earlier expiration in accordance with Section 2.3.5 below. No portion of Option C shall be exercisable on Option C's date of grant, but a percentage of Option C shall vest and become exercisable on, and shall remain exercisable on and after, each of the dates set forth in the table below: Exercise Date --------------------------------------------------------------------------------   Percentage of Option C which is Exercisable and Remains Exercisable Until Option C Expires --------------------------------------------------------------------------------   December 31, 2001   33 % December 31, 2002   67 % December 31, 2003   100 %     2.3.4  Option D. Employee shall have the option to purchase up to two thousand (2,000) shares of the Company's common stock at an exercise price of $1,111.47 per share. This option shall expire on, and shall not be exercisable on and after, January1, 2011, subject to earlier expiration in accordance with Section 2.3.5 below. No portion of Option D shall be exercisable on 3 -------------------------------------------------------------------------------- Option D's date of grant, but a percentage of Option D shall vest and become exercisable on, and shall remain exercisable on and after, each of the dates set forth in the table below: Exercise Date --------------------------------------------------------------------------------   Percentage of Option D which is Exercisable and Remains Exercisable Until Option D Expires --------------------------------------------------------------------------------   December 31, 2001   33 % December 31, 2002   67 % December 31, 2003   100 %             2.3.5  Effect of Termination of Employment on Employee's Stock Options.     2.3.5.1  In the event that the Employee's employment with the Company shall terminate for any reason other than account of Retirement, Disability or death of the Employee, (i) an Employee's Stock Option, to the extent that such Employee's Stock Option is exercisable at the time of such termination, shall remain exercisable until the date that is 120 days after such termination, on which date such Employee's Stock Option shall expire, and (ii) an Employee's Stock Option, to the extent that such Employee's Stock Option is not exercisable at the time of such termination, shall expire at the close of business on the date of such termination. The 120-day period described in this Section 2.3.4.1 shall be extended to one (1) year after the date of such termination in the event of the Employee's death during such 120-day period. Notwithstanding the foregoing, no Employee's Stock Option shall be exercisable after the expiration of its term. As used in this Section 2.3.5, the terms "Retirement" and "Disability" shall have the meanings ascribed to them in the Stockholders' Agreement referred to in Exhibit A of this Employment Agreement.     2.3.5.2  In the event that the Employee's employment with the Company shall terminate on account of Retirement, Disability or death of the Employee, (i) an Employee's Stock Option , to the extent that such Employee's Stock Option is exercisable at the time of such termination, shall remain exercisable until the date that is one (1) year after such termination, on which date such Employee's Stock Option shall expire, and (ii) an Employee's Stock Option, to the extent that such Employee's Stock Option is not exercisable at the time of such termination, shall expire at the close of business on the date of such termination. Notwithstanding the foregoing, no Employee's Stock Option shall be exercisable after the expiration of its term.     2.3.6  Method of Exercise. An Employee's Stock Option shall be exercised by delivering notice to the Company's principal office, to the attention of its Secretary. Such notice shall specify the number of shares of the Company's common stock with respect to which the Employee's Stock Option is being exercised and the effective date of the proposed exercise and shall be signed by the Employee. Payment for shares of the Company's common stock purchased upon the exercise of an Employee's Stock Option shall be made on the effective date of such exercise in cash (or cash equivalents acceptable to the Company).     2.3.7  The foregoing notwithstanding, in the event of a Change of Control, all Employee's Stock Options shall be deemed to have become fully (i.e., 100%) vested and exercisable and shall remain exercisable for a period of one (1) year thereafter regardless of whether Employee continues to be employed by the Company or, if longer, then for the period during which such Option would otherwise be exercisable under this Agreement.     2.4 Benefit Programs. During the Term, Employee will be entitled to participate in those Benefit Programs made generally available to the senior executives of the Company, which shall in any event provide no less benefit to Employee than those Benefit Programs in which Employee participates on the date hereof. 4 --------------------------------------------------------------------------------     2.5 Expenses. The Company will pay or reimburse Employee for all reasonable travel (see Section 1.3.2), entertainment or other expenses incurred by Employee in connection with the performance of his duties in accordance with Company policy existing at the time the expense was incurred. Any such expenses must be either specifically authorized by the Company or incurred in accordance with Company policies. Employee must furnish the Company with evidence relating to such expenses, as the Company reasonably requires, substantiating such expenses for tax and accounting purposes.     2.6 Car. The Company will either (a) provide Employee with the use of a car (luxury class) or reimburse Employee in the amount of $750.00 per month for car expenses and will provide maintenance and insurance in each case, in a manner consistent with present practice of the Company.     2.7 D&O Insurance. The Company will furnish Employee with the same Directors' and Officers' liability insurance furnished to other executive officers from time to time, and use reasonable efforts to name Employee as a named insured for four (4) years after the Term ends.     2.8 Vacation. Employee shall be entitled to four weeks paid vacation per year, taken at a time, at employee's discretion, in order to best meet employee's personal desires while minimizing any potential for disruption to the Company's business.     Employee is encouraged to take the vacation provided for here. The Company recognizes that it may be in the best interest of the Company for employee to defer some portion of his vacation. However, in no case can employee accrue vacation in excess of six weeks without prior written consent of the Board of Directors.     2.9 Indemnity. To the fullest extent permitted by applicable law, as from time to time in effect, the Company will indemnify Employee and hold Employee harmless for any acts or decision made in good faith in performing services for the Company. If Employee is a party to a definitive indemnification agreement with the Company, then the foregoing sentence will not be applicable.     2.10   Section 162(m) of the Code. Notwithstanding anything to the contrary in this Agreement, any remuneration under this Agreement or any other agreements to which the Company and Employee are parties in respect of employment that is not deductible for any taxable year of the Company because of Section 162(m) of the Code will be deferred until the first day that any excess remuneration becomes deductible under Section 162(m) or by virtue of its repeal or amendment. Any such deferred payment will bear interest at the short term federal rate determined under the Code beginning with the date such payment is first deferred. Notwithstanding any provision in this Agreement to the contrary, this Section 2.10 shall survive the termination of this Agreement.     2.11   Company's Call Rights.     2.11.1  Relationship of This Agreement to Stockholders Agreement. The purpose and intent of this Section 2.11 is to amend the provisions of Article VII of the Stockholders Agreement as it relates specifically to Employee. The parties hereto acknowledge that Article VII of the Stockholders Agreement generally governs the right of the Company to purchase Company Stock from a Management Stockholder upon the termination of such Management Stockholder's employment with the Company. Section 7.7 of the Stockholders Agreement expressly permits the Board of Directors of the Company to amend the provisions of Article VII of the Stockholders Agreement as it relates to any Stockholder who is an employee or director of the Company. This Section 2.11 evidences the determination of the Board of Directors to so amend Article VII of the Stockholder's Agreement as it relates to Employee. As between Employee and the Company, in the event of any inconsistency between the provisions of Article VII of the Stockholders Agreement and this Section 2.11, the provisions of this Section 2.11 shall prevail. Except to the extent specifically amended by this Section 2.11, the provisions of Article VII of the Stockholders Agreement, as applicable to Employee, shall remain in full force and effect. Italicized terms used but not specifically defined in this Section 2.11 shall have the meanings ascribed to them in the 5 -------------------------------------------------------------------------------- Stockholders Agreement (as such term is defined in Exhibit A to this Employment Agreement), unless a different meaning is clearly required by the context hereof. Capitalized (but not italicized) terms used but not specifically defined in this Section 2.11 shall have the meanings ascribed to them in Exhibit A to this Employment Agreement, unless a different meaning is clearly required by the context hereof.     2.11.2  Termination by Company Without Good Cause. Anything in Section 7.1(a) of the Stockholders Agreement to the contrary notwithstanding, if, prior to an IPO Event, Employee's employment with the Company and its subsidiaries is terminated by the Company for any reason other than Good Cause (as such term is defined in Exhibit A to this Employment Agreement) or other than in connection with the Retirement, Disability or death of Employee, then the Company (or its designee) shall have the right, for 120 days following the date of termination of Employee's employment and subject in each case to the provisions of Section 7.3 of the Stockholders Agreement, upon the approval of at least 75% of the members of the Board, to purchase from Employee and his Permitted Transferees, and Employee and his Permitted Transferees shall be required to sell on one occasion to the Company (or its designee), all Company Stock then held by such person(s) at a price equal to the greater of (x) 100% of the Fair Market Value, or (y) $370.00 per share; provided, however, that the Company may not exercise such right if payment for such shares must be made in Management Repurchase Notes in accordance with Section 7.4 of the Stockholders Agreement.     2.11.3  Termination Upon Disability, Death or Retirement. Anything in Section 7.1(b) of the Stockholders Agreement to the contrary notwithstanding, if, prior to an IPO Event, Employee's employment with the Company and its subsidiaries is terminated due to the Retirement, Disability or death of Employee, then the Company (or its designee) shall have the right, for 120 days following the date of termination of Employee's employment and subject in each case to the provisions of Section 7.3 of the Stockholders Agreement, upon the approval of at least 75% of the members of the Board, to purchase from Employee (or the personal representatives of Employee, as the case may be) and his Permitted Transferees, and Employee (or the personal representatives of Employee, as the case may be) and his Permitted Transferees shall be required to sell on one occasion to the Company (or its designee), all Company Stock then held by such person(s) at a price equal to the greater of (x) 100% of the Fair Market Value, or (y) $370.00 per share; provided, however, that in the event of such a "call" (a "Management Stockholder Call Event"), if prior to 180 days after the consummation of such Management Stockholder Call Event, a Change of Control (as such term is defined in Exhibit A to this Employment Agreement) shall have occurred, the Company will pay to Employee (or to his personal representative, as the case may be) upon the consummation of such Change of Control (i) the positive difference between (A) the price per share of the Company Stock paid to Stockholders in connection with the Change of Control (based on the value of cash or property (including the retained value of any security and the present value of any right to receive payment in the future) paid to such Stockholders in the Change of Control) and (B) the purchase price per share of Company Stock paid to the Employee (or his personal representatives, as the case may be) in any such Management Stockholder Call Event, multiplied by (ii) the number of shares of Company Stock sold in such Management Stockholder Call Event.     2.11.4  Voluntary Termination. Anything in Section 7.1(c) of the Stockholders Agreement to the contrary notwithstanding, the following provisions shall apply in the event of the Voluntary Termination of Employee's employment with the Company:     2.11.4.1  Voluntary Termination Without Notice and Without Non-Competition Agreement. Anything in Section 7.1(c) of the Stockholders Agreement to the contrary notwithstanding, if, (i) prior to an IPO Event, Employee's employment with the Company and its subsidiaries is terminated by reason of Voluntary Termination (other than Voluntary Termination as a result of Constructive Termination, as defined in this Employment Agreement) and (ii) Employee shall 6 -------------------------------------------------------------------------------- not have provided the Company with at least six (6) months prior written notice of such Voluntary Termination, and (iii) Employee and the Company have not executed an Employee Non-Competition Agreement (as such term is defined in Exhibit A to this Employment Agreement), then in such event the Company (or its designee) shall have the right, for 120 days following the date of termination of Employee's employment and subject in each case to the provisions of Section 7.3 of the Stockholders Agreement, upon the approval of at least 75% of the members of the Board, to purchase from Employee and his Permitted Transferees, and Employee and his Permitted Transferees shall be required to sell on one occasion to the Company (or its designee), all Company Stock then held by such person(s) at a price equal to the greater of (a) 50% of the Fair Market Value, or (b) $185.00 per share. The last sentence of Section 7.1(c) of the Stockholders Agreement shall not apply to Employee.     2.11.4.2  Voluntary Termination With Notice and With Non-Competition Agreement. Anything in Section 7.1(c) of the Stockholders Agreement to the contrary notwithstanding, if, (i) prior to an IPO Event, Employee's employment with the Company and its subsidiaries is terminated by reason of Voluntary Termination (other than Voluntary Termination as the result of Constructive Termination, as defined in this Employment Agreement) and (ii) Employee shall have provided the Company with not fewer than six (6) months prior written notice of such Voluntary Termination, and (iii) Employee and the Company shall have executed an Employee Non-Competition Agreement (as such term is defined in Exhibit A to this Employment Agreement), then in such event the Company (or its designee) shall have the right, for 120 days following the date of termination of Employee's employment and subject in each case to the provisions of Section 7.3 of the Stockholders Agreement, upon the approval of at least 75% of the members of the Board, to purchase from Employee and his Permitted Transferees, and Employee and his Permitted Transferees shall be required to sell on one occasion to the Company (or its designee), all Company Stock then held by such person(s) at a price equal to the greater of (a) 95% of the Fair Market Value, or (b) $277.87 per share. The last sentence of Section 7.1(c) of the Stockholders Agreement shall not apply to Employee.     2.11.5  Termination for Good Cause. Anything in Section 7.1(d) of the Stockholders Agreement to the contrary notwithstanding, if, prior to an IPO Event, (x) Employee's employment with the Company and its subsidiaries is terminated by the Company for Good Cause (as such term is defined in Exhibit A to this Employment Agreement) or (y) Employee voluntarily terminates his employment simultaneous with or following termination for Good Cause or an event which, if known to the Company at the time of such voluntary termination by Employee of his employment, would allow the Company and its subsidiaries to terminate Employee's employment for Good Cause, then the Company (or its designee) shall have the right, for 120 days following the date of termination of such employment and subject in each case to the provisions of Section 7.3 of the Stockholders Agreement, upon the approval of at least 75% of the members of the Board, to purchase from Employee and his Permitted Transferees, and Employee and his Permitted Transferees shall be required to sell on one occasion to the Company (or its designee), all shares of Company Stock then held by such person(s), at a price equal to the greater of (a) 10% of Fair Market Value, or (b) $37.00 per share.     2.11.6  Constructive Termination. Anything in Article VII of the Stockholders Agreement to the contrary notwithstanding, the following provisions shall apply in the event of the Constructive Termination (as such term is defined in Exhibit A to this Employment Agreement) of Employee's employment with the Company:     2.11.6.1  Constructive Termination Without Notice and Without Non-Competition Agreement. Anything in Article VII of the Stockholders Agreement to the contrary notwithstanding, if, (i) prior to an IPO Event, Employee's employment with the Company and its subsidiaries is terminated by reason of Constructive Termination, and (ii) Employee shall 7 -------------------------------------------------------------------------------- not have provided the Company with at least six (6) months prior written notice of such Constructive Termination, and (iii) Employee and the Company have not executed an Employee Non-Competition Agreement (as such term is defined in Exhibit A to this Employment Agreement), then in such event the Company (or its designee) shall have the right, for 120 days following the date of termination of Employee's employment and subject in each case to the provisions of Section 7.3 of the Stockholders Agreement, upon the approval of at least 75% of the members of the Board, to purchase from Employee and his Permitted Transferees, and Employee and his Permitted Transferees shall be required to sell on one occasion to the Company (or its designee), all Company Stock then held by such person(s) at a price equal to the greater of (a) 85% of the Fair Market Value, or (b) $314.50 per share.     2.11.6.2  Constructive Termination With Notice and With Non-Competition Agreement. Anything in Article VII of the Stockholders Agreement to the contrary notwithstanding, if, (i) prior to an IPO Event, Employee's employment with the Company and its subsidiaries is terminated by reason of Constructive Termination (other than Voluntary Termination as the result of Constructive Termination, as defined in this Employment Agreement) and (ii) Employee shall have provided the Company with not fewer than six (6) months prior written notice of such Constructive Termination, and (iii) Employee and the Company shall have executed an Employee Non-Competition Agreement (as such term is defined in Exhibit A to this Employment Agreement), then in such event the Company (or its designee) shall have the right, for 120 days following the date of termination of Employee's employment and subject in each case to the provisions of Section 7.3 of the Stockholders Agreement, upon the approval of at least 75% of the members of the Board, to purchase from Employee and his Permitted Transferees, and Employee and his Permitted Transferees shall be required to sell on one occasion to the Company (or its designee), all Company Stock then held by such person(s) at a price equal to the greater of (a) 100% of the Fair Market Value, or (b) $351.50 per share. 3.  Term and Termination.     3.1 Term. Unless terminated as provided in Subsection 3.2, the Term of this Agreement shall be two (2) years, commencing on April 1, 2000 and terminating on March 31, 2002; provided, however, that the Term of this Agreement shall automatically renew for a period of two (2) years on March 31st of each year (such date, the "Renewal Date"), unless the Board of Directors shall have elected to terminate this Agreement by delivering written notice of its election to terminate to Employee not fewer than thirty (30) days prior to the Renewal Date.     3.2 Termination By Company. The compensation and other benefits provided to Employee under this Agreement, and the employment of Employee by the Company, can be terminated prior to the expiration of the Term only as set forth in this Section 3.2.     3.2.1  Death. Employee's employment will terminate upon his death.     3.2.2  Unavailability. Employee's employment will terminate upon the date as of which Employee is Unavailable, without further action or notice by the Company.     3.2.3  Good Cause. Employee's employment will terminate upon a determination that there is Good Cause for such termination.     3.2.4  Without Cause. The Board has the right to terminate Employee's employment at any time, with or without Good Cause.     3.3 Termination By Employee. Employee can terminate employment under this Agreement for Constructive Termination or if Employee has established Good Reason under the terms of this Agreement. 8 --------------------------------------------------------------------------------     3.4 Notice of Termination. Any termination by the Company for Good Cause, or by Employee for Good Reason or Constructive Termination, will be communicated by Notice of Termination to the other party hereto. A "Notice of Termination" will (a) indicate the specific termination provision in this Agreement relied upon; (b) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee's employment under such provisions; and (c) if the Date of Termination is other than the date of receipt of such notice, specify the termination date (which date shall not be more than fifteen (15) days after the giving of such notice). The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Good Cause will not waive any right of Employee or the Company hereunder or preclude Employee or the Company from asserting such fact or circumstance in enforcing Employee's or the Company's rights hereunder. 9 --------------------------------------------------------------------------------     3.5  Effect of Termination.       3.5.1  Termination By Company for Any Reason Other than for Good Cause.  If, during the Term, Employee's employment is terminated by the Company for any reason other than for Good Cause, the Company will continue to pay to Employee the Base Salary and any Earned and Unpaid Performance Bonuses to which Employee would have been entitled for a period of twenty-four (24) months from the date of termination. Employee will also be entitled to continue to participate in any insurance programs that are part of the Benefit Programs, as though Employee remained an employee, for such period. Such amounts will be paid or provided to Employee at such times and in such manner as they would have been paid or provided if no such termination had occurred. If Employee becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, then the medical and other welfare benefits described herein will be secondary to those provided under such other plan during such applicable period of eligibility.     3.5.2  Termination By Company for Good Cause or Termination by Employee Without Good Reason.  If during the Term, Employee is terminated for Good Cause, or resigns without Good Reason, then the Company will pay to Employee the sum of Employee's Base Salary and Earned and Unpaid Performance Bonuses, to which Employee was entitled through the Date of Termination, and any other previously earned but unpaid compensation under this Agreement, in each case to the extent not previously paid (the "Accrued Obligations"). The Accrued Obligations will be paid in a lump sum in cash within thirty (30) days after the Date of Termination. All accruals or vesting of benefits will terminate as of the Date of Termination.     3.5.3  Termination By Employee for Good Reason or Constructive Termination.  If, during the Term, Employee's employment is terminated by Employee by Constructive Termination or for Good Reason, then the Company will continue to pay to Employee the Base Salary and any Earned and Unpaid Performance Bonuses to which Employee would have been entitled for a period of twenty-four (24) months from the date of termination. Employee will also be entitled to continue to participate in any insurance programs that are part of the Benefit Programs, as though Employee remained an employee, for such period. Such amounts will be paid or provided to Employee at such times and in such manner as they would have been paid or provided if no such termination had occurred. If Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, then the medical and other welfare benefits described herein will be secondary to those provided under such other plan during such applicable period of eligibility.     3.5.4  Contingent Bonus Plan Benefits.  Notwithstanding Section 6.3 of the Contingent Bonus Plan of the Company, if this Agreement is terminated by the Company under Sections 3.2.1, 3.2.2 or 3.2.4 or by the Employee under Section 3.3 the Employee's vested benefits, if any, under the Contingent Bonus Plan of the Company shall not terminate. Such benefits will be paid to the Employee in accordance with the payment provisions of the Contingent Bonus Plan of the Company.     3.5.5  Waiver.  If Employee elects to receive the payments, and accepts the payments, set forth in this Section 3.5, then Employee agrees that such payments will constitute Employee's sole and exclusive right and entitlement in connection with Employee's employment by the Company and the termination of such employment and any and all matters related to or arising in connection with such employment. Employee's acceptance of such amounts will release the Company and its affiliated entities (including all directors, officers, employees and agents) from any claims that Employee might otherwise have or assert in connection with such matters. In addition, the Company is entitled to condition such payment on Employee's 10 -------------------------------------------------------------------------------- execution of a release in customary form. If Employee desires to pursue or enforce any such rights, entitlements or remedies that would otherwise be waived and released, then Employee must refuse the payments provided for in Section 3.5 in their entirety. If Employee accepts such payments, then Employee will be deemed to have agreed to the foregoing exclusivity of rights and waiver of claims.     3.5.6  Mitigation.  Employee shall have no obligation to seek or accept employment elsewhere after any termination under this Agreement pursuant to Section 3.5.1 or 3.5.3. Additionally, if Employee accepts employment elsewhere after any termination under this Agreement pursuant to Section 3.5.3, then the Company will have no right to offset any amounts paid to Employee from such other employment during the remaining Term hereof, including any benefits to which Employee is entitled under the other company's benefit plans and programs.     3.5.7  Effect on Benefit Programs.  The termination of this Agreement will not affect any vested rights that Employee may have at the Date of Termination under any Benefit Program.     3.5.8  Cooperation.  Following termination of employment with the Company for any reason, Employee will cooperate with the Company, as reasonably requested by the Company, to effect a transition of Employee's responsibilities and to ensure that the Company is aware of all matters being handled by Employee. Employee will, upon reasonable notice, furnish such information and assistance to the Company as may reasonably be required by the Company in connection with any legal or quasi-legal, proceeding, including any external or internal investigation, involving the Company or any of its affiliates or in which any of them is, or may become, a party; provided, however, that the Company shall reimburse Employee for any reasonable expenses incurred by him in effecting such cooperation and assistance. 4.  Other Agreements     4.1  Confidential Information; etc.       4.1.1  Confidential Information.  Employee will hold all Confidential Information in a fiduciary capacity for the benefit of the Company. After termination of Employee's employment, Employee will not, without the prior written consent of the Company or as may otherwise be required by court order, communicate or divulge any such Confidential Information to anyone other than the Company and those designated by it.     4.1.2  Clients; Employees.  During the Term and afterwards for a period of one (1) year, Employee will not (a) solicit customers, suppliers or clients of the Company to reduce or discontinue their business with the Company or to engage in business with any competing entity or (b) attempt to induce any employee of the Company to leave such employment.     4.1.3  Publications.  During the Term and afterwards for a period of one (1) year, if Employee desires to publish the results of Employee's work for or experiences with the Company through literature, interviews or speeches, then Employee will submit requests for such interviews or such literature or speeches to the Board at least thirty (30) days before any anticipated dissemination of such information for a determination of whether such disclosure is in the best interest of the Company. Employee will not publish, disclose or otherwise disseminate such information without the prior written approval of the Company.     4.1.4  Documents.  On the Date of Termination, Employee shall deliver to the Company and not keep or deliver to anyone else any and all notes, notebooks, memoranda, documents, regardless of whether such materials are in hard copy form or on computer disks and, in 11 -------------------------------------------------------------------------------- general, any and all material, relating to the Company's business. Employee shall not retain any such materials without prior written approval by the Company.     4.1.5  Property Rights and Confidentiality Arrangement.  Employee shall execute a Property Rights and Confidentiality Agreement attached hereto as Exhibit D.     4.2  Work Product.       4.2.1  Ownership of Work Product.  If Employee conceives of, discovers, invents or creates inventions, improvements, new contributions, literary property, materials, ideas, and discoveries, whether patentable or copyrightable or not (all of the foregoing being collectively referred to herein as "Work Product"), or receives information about business opportunities for the Company, unless the Company otherwise agrees in writing, then all of the foregoing will be owned by and belong exclusively to Company and Employee will have no personal interest therein, if they are either related in any manner to the business (commercial or experimental) of Company, or are, in the case of Work Product, conceived or made on Company's time or with the use of Company's facilities or materials, or, in the case of business opportunities, are presented to Employee for the possible interest or participation of Company. Further, unless Company otherwise agrees in writing, Employee will (a) promptly disclose any such Work Product and business opportunities to Company; (b) assign to Company, upon request and without additional compensation, the entire rights to such Work Product and business opportunities; (c) sign all papers necessary to carry out the foregoing; and (d) give testimony in support of Employee's inventorship or creation in any appropriate case. Employee will not assert any rights to any Work Product or business opportunity as having been made or acquired by Employee prior to the date of this Agreement except for Work Product or business opportunities, if any, disclosed to and acknowledged by Company in writing prior to the date thereof.     4.2.2  Nonassignable Section 2870 Inventions.  In the event that Employee's employment is subject to the California Labor Code, except for Employee's obligations under Section 4.2.3. below, this Agreement does not apply to Work Product which qualifies as a nonassignable Work Product under Section 2870 of the California Labor Code ("Section 2870"). Employee acknowledges that Employee has reviewed the Employee-Owned Invention Notification attached hereto as Exhibit B and agrees that Employee's signature on that Notification acknowledges his or her receipt thereof.     4.2.3  Employee Disclosure Obligation.  Employee shall, during the employment and for six (6) months thereafter, promptly disclose to the Company—fully and in writing—all Work Product made, conceived or first reduced to practice by Employee, either alone or jointly with others, including, if Section 2870 applies to Employee, any Work Product that Employee believes fully qualifies for protection under Section 2870, together with all evidence, in writing, necessary to substantiate that belief. In addition, Employee will disclose to the Company all patent applications filed by Employee or on Employee's behalf within one (1) year after termination of the employment. The Company will maintain such information in confidence and will not use for any purpose or disclose to third parties any such information without Employee's consent except to the extent necessary to exploit and enforce any proprietary or intellectual property right the Company may have in such disclosed information.     4.3  Insurance.  The Company will have the right to take out life, health, accident, "Key-man" or other insurance covering Employee, in the name of the Company and at the Company's expense, in any amount deemed appropriate by the Company. Employee will assist the Company in obtaining such insurance, including, but not limited to, submitting to any reasonably required medical examination. The Company will be the owner and beneficiary of any and all policies for such insurance. 12 --------------------------------------------------------------------------------     4.4  Assistance in Litigation.  Employee will render assistance, advice, and counsel to the Company at its request regarding any matter, dispute or controversy with which the Company may become involved and of which Employee has or may have reason to have knowledge, information or expertise. Such services will be without additional compensation if Employee is then employed by the Company and for reasonable compensation and subject to Employee's reasonable availability if Employee is not. In any event, the Company will pay all of Employee's reasonable out-of-pocket expenses in connection therewith.     4.5  Withholding Taxes.  To the extent required by the law in effect at the time any amounts under this Agreement are paid, the Company will withhold from such payments the taxes and other amounts required to be withheld by applicable law. Whenever shares of the Company's common stock are to be delivered pursuant to the exercise of an Employee's Stock Option, the Company shall have the right to require the Employee to remit to the Company in cash an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto.     4.6  Medical Examination.  Employee will submit to and cooperate in, from time to time, such examinations as the Company reasonably requests to determine whether Employee is or continues to be able to perform the essential functions of his/her position. 5.  Dispute Resolution     5.1  Dispute Resolution.  Except as necessary for the Company to specifically enforce its rights under Sections 1.4, 4.1 and 4.2 of the Agreement or to obtain injunctive relief, the parties agree that any disputes that may rise in connection with, arising out of or relating to this Agreement, or any dispute that relates in any way, in whole or in part, to Employee's employment with the Company, the termination of that employment or any other dispute by and between the parties or their successors or assigns, will be submitted to binding arbitration in Los Angeles, California, according to the Employment Dispute Resolution rules and procedures of the American Arbitration Association and California Code of Civil Procedure Section 1283.05. Each party will pay one-half of the cost of the arbitration, excluding the cost of the parties' respective legal counsel. This arbitration obligation extends to any and all claims that may arise by and between the parties or their successors, assigns or affiliates, and expressly extends to, without limitation, claims or causes of action for wrongful termination, impairment of ability to compete in the open labor market, breach of an express or implied contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, fraud, misrepresentation, defamation, slander, infliction of emotional distress, disability, loss of future earnings, and claims under any State Constitution, the United States Constitution, and applicable state and federal fair employment laws, federal equal employment opportunity laws, and federal and state labor statutes and regulations, including, but not limited to, the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as amended, the Americans With Disabilities Act of 1990, the Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security Act of 1974, as amended, and the Age Discrimination in Employment Act of 1967.     5.2  Rights and Remedies Upon Breach.  If Employee breaches, or threatens to commit a breach of, any of the provision of Sections 1.4, , 4.1 and 4.2 of the Agreement (the "Restrictive Covenants"), then the Company and its subsidiaries, affiliates, successors or assigns shall have the following rights and remedies, each of which shall be independent of the others and severally enforceable, and each of which shall be in addition to, and not in lieu of, any other rights or remedies available to the Company or its subsidiaries, affiliates, successors or assigns at law or in equity:     5.2.1  Specific Performance.  The right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company 13 -------------------------------------------------------------------------------- or its subsidiaries, affiliates, successors or assigns and that money damages would not provide an adequate remedy to the Company or its subsidiaries, affiliates, successors or assigns;     5.2.2  Accounting.  The right and remedy to require Employee to account for and pay over to the Company or its subsidiaries, affiliates, successors or assigns, as the case may be, all compensation, profits, monies, accruals, increments or other benefits derived or received by Employee as a result of any transaction or activity constituting a breach of the Restrictive Covenants;     5.2.3  Severability of Covenants.  Employee acknowledges and agrees that the Restrictive Covenants are reasonable and valid in geographic and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect without regard to the invalid portions;     5.2.4  Blue-Penciling.  If any court determines that any of the Restrictive Covenants, or any part thereof, is unenforceable because of the duration or geographic scope of such provision, then such court shall have the power to reduce the duration or scope of such provision, as the case may be, and in its reduced form, such provision shall then be enforceable;     5.2.5  Enforceability in Jurisdiction.  Employee intends to and hereby confers jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographic scope of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants unenforceable by reason of the breadth of such scope or otherwise, then it is the intention of Employee that such determination not bar or in any way affect the Company's or its subsidiaries', affiliates', successors' or assigns' right to the relief provided above in the courts of any other jurisdiction within the geographic scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants.     5.3  Prevailing Party.  The prevailing party in any action relating to this Agreement will be entitled to recover, in addition to other appropriate relief, reasonable legal fees, costs and expenses incurred in such action.     5.4  Successor.  The Company will 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 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. 6.  General Provisions     6.1  Assignment.  This Agreement is a personal contract, and the rights, interests and obligations of Employee under this Agreement may not be sold, transferred, assigned, pledged or hypothecated by Employee, except that this Agreement may be assigned by the Company to any corporation or other business entity that succeeds to all or substantially all of the business of the Company or any division or sub-unit thereof through merger, consolidation, corporate reorganization or by acquisition of all of substantially all of the assets of the Company and that assumes the Company's obligations under this Agreement. The term and conditions of this Agreement will inure to the benefit of and be binding upon any successor to the business of the Company and Employee's heirs and legal representatives. 14 --------------------------------------------------------------------------------     6.2  Amendments; Waivers.  Amendments, waivers, demands, consents and approvals under this Agreement must be in writing and designated as such. No failure or delay in exercising any right will be deemed a waiver of such right.     6.3  Integration.  This Agreement is the entire agreement between the parties pertaining to its subject matter, and supersedes all prior agreements and understandings of the parties in connection with such subject matter.     6.4  Interpretation; Governing Law.  This Agreement is to be construed as a whole and in accordance with its fair meaning. This Agreement is to be interpreted in accordance with the laws of the State of New Jersey.     6.5  Headings.  Headings of Sections and subsections are for convenience only and are not a part of this Agreement.     6.6  Counterparts.  This Agreement may be executed in one or more counterparts, all of which constitute one agreement.     6.7  Successors and Assigns.  This Agreement is binding upon and inures to the benefit of each party and such party's respective heirs, personal representatives, successors and assigns. Nothing in this Agreement, express or implied, is intended to confer any rights or remedies upon any other person.     6.8  Expenses.  If the Employee seeks legal representation in connection with this Agreement, the Company shall reimburse the Employee for legal expenses in an amount not to exceed $1,500.00.     6.9  Representation by Counsel; Interpretation.  The Employee acknowledges that he/she has had the opportunity to be represented by counsel in connection with this Agreement. Any rule of law, including, but not limited to, Section 1654 of the California Civil Code, 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.     6.10  Time is of the Essence.  Time is of the essence in the performance of each and every term, provision and covenant in this Agreement.     6.11  Notices.  Any notice to be given hereunder must be in writing and delivered to the following addresses (or to another address as either shall designate in writing). Such notice will be effective (a) if given by telecopy or if confirmed by returned telecopy, (b) one Business Day after delivery through a generally recognized and reputable overnight courier or messenger for next day deliver, (c) if given by mail or any other means, when actually delivered to the address specified. If to the Company:   HCC Industries, Inc. 4232 Temple City Boulevard Rosemead, California 91770 Attention: Corporate Secretary If to Employee:   At Employee's most recent address on the books and records of the Company. 15 --------------------------------------------------------------------------------     The parties have signed this Agreement effective as of the date on page three.     HCC INDUSTRIES, INC.     By:             --------------------------------------------------------------------------------     Its:             --------------------------------------------------------------------------------     EMPLOYEE:           -------------------------------------------------------------------------------- Richard Ferraid 16 -------------------------------------------------------------------------------- EXHIBIT A DEFINED TERMS     "Earned and Unpaid Performance Bonuses" means with respect to any date, Performance Bonuses which have been earned by Employee as of the end of the Company's fiscal year preceding such date but not paid to Employee.     "Agreement" means this Employment Agreement, as amended from time to time.     "Base Salary" means the annual amount of $350,000.00. Employee's Base Salary shall be reviewed by the Board of Directors annually and may be increased from time to time at the sole discretion of the Board of Directors. In no event will Base Salary be reduced.     "Benefits Program" means programs such as group health, dental, life and disability, profit sharing, pension and similar programs (but excluding bonus plans) made generally available to the senior executives of the Company.     "Board" means the Company's Board of Directors as composed at the time, not including Employee.     "Business Day" means any day except a Saturday, Sunday or other day national banks in the State of California are authorized or required by law to close.     "Change of Control" means the occurrence of any of the following events:     (a) the sale, lease, transfer or other disposition of all or substantially all of the assets of the Company or its subsidiaries (taken as a whole) to any Person or related group of Persons other than the Stockholders; and/or     (b) the merger or consolidation of the Company with or into another corporation, or the merger of another corporation into the Company, with the effect that Persons other than the Stockholders and their Permitted Transferees (as such terms are defined in the Stockholders Agreement) or any "group" (as defined in the rules promulgated under Section 13(d) of the Securities Exchange Act of 1934, as amended) of which any Stockholder or Permitted Transferees is a member) hold more than 50% of the total voting power on a fully diluted basis entitled to vote in the election of directors, managers or trustees of the surviving corporation of such merger or the corporation resulting from such consolidation; and/or     (c) any other event which results in a Person or "group" other than the Stockholders (and their Permitted Transferees or any "group" of which any Stockholder or their Permitted Transferees is a member) holding, directly or indirectly, in the aggregate more than 50% of common stock to the issuance of all shares of common stock issuable (i) upon conversion of all convertible securities outstanding at such time and all convertible securities issuable upon the exercise of any warrants, options and other rights outstanding at such time, and (ii) upon exercise of all other warrants, options and other rights outstanding at such time; and/or     (d) when, during any period of twenty-four consecutive months after the Effective Date, the individuals who, at the beginning of such period, constitute the Board of Directors of the Company (the "Incumbent Directors") cease for any reason other than death to constitute at least a majority thereof, provided that a director who was not a director at the beginning of such twenty-four month period shall be deemed to have satisfied such twenty-four month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors.     "Change of Status" means any change in Employee's title, duties and responsibilities or place of employment.     "Code" means the Internal Revenue Code of 1986, as amended from time to time.     "Common Stock" means the Company's common stock, $0.10 par value. --------------------------------------------------------------------------------     "Company" means HCC Industries, Inc., a Delaware corporation, together with its subsidiaries.     "Confidential Information" means information not known by the trade generally or not reasonably available to a knowledgeable person in the trade, even though such information may have been disclosed to one or more third parties pursuant to consulting agreements, joint research agreements, or other agreements entered into by the Company and includes, without limitation, trade secrets, designs, plans, formulas, customer lists, lists of suppliers, and all other confidential and proprietary information.     "Constructive Termination" means that if there is a Change of Control in the Company, or a Change of Status of the Employee, Employee may terminate his employment with the same effect as if he were terminating for Good Reason. However, in event of a Change of Control, if employee is asked to remain as a division or subsidiary president, then there shall not be deemed to be a "constructive termination".     "Contingent Bonus Plan of the Company" means the contingent bonus plan that went into effect upon the Recapitalization with Windward Capital February 14, 1997.     "Date of Termination" means:     (a) the end of the Term, if Employee's employment has not terminated before then;     (b) if Employee's employment is terminated by the Company for Good Cause, or by Employee for Good Reason, then the date of receipt of the Notice of Termination or any later date specified therein, as the case may be;     (c) if Employee's employment is terminated by the Company other than for Good Cause, then 180 days after the date on which the Company notifies Employee of such termination; and     (d) if Employee's employment is terminated by reason of death or Unavailability, then the date of death of Employee or the effective date, of the Unavailability, as the case may be.     "Disability" means the Employee's inability to substantially render to the Company the services required under this Agreement for more than 60 days out of any consecutive 120 day period because of mental or physical illness or incapacity, as determined in good faith by the Board.     "EBITDA" means the combined earnings before interest, federal and state income taxes, and depreciation and amortization of the Company and its subsidiaries determined in good faith by the Company in accordance with generally accepted accounting principles.     "Effective Date" means January 1, 2001.     "Employee Non-Competition Agreement" means an agreement between Employee and the Company executed in connection with a Voluntary Termination (as such term is defined in the Stockholders Agreement) or a Constructive Termination, containing the terms outlined in Exhibit E.     "Good Cause" means a finding by the Board in good faith that Employee has     (a) been engaged in an act or acts of dishonesty that were intended to and did result directly or indirectly in gain or personal enrichment to Employee at the expense of the Company;     (b) failed to substantially perform Employee's duties hereunder (other than failure resulting from Employee's Unavailability due to Disability) persisting for a reasonable period following the delivery to Employee of written notice specifying the details of any alleged failure to perform, which failure has, at the sole but reasonable discretion of the Company, resulted in injury and damage to the Company;     (c) breached this Agreement in any material respect; or     (d) been convicted of any felony offense or misdemeanor offense involving fraud, theft or dishonesty at any time. An event specified in (b), (c) or (d) above will not constitute "Good Cause" until the Board provides Employee with written notice of such event setting forth in reasonable detail the specifics of such event -------------------------------------------------------------------------------- and such event has not been cured to the reasonable satisfaction of the Board, if such act or event can be cured, within thirty days of such notice (except upon the subsequent occurrence of a substantially similar event, in which case such second event will constitute "Good Cause" without any notice or cure period).     "Good Reason" means, other than an event also constituting Good Cause, the Company's material breach of this Agreement.     "Including" or "includes," when following any general provision, sentence, clause, statement, term or matter, will be deemed to be followed by, but not limited to, "and," but is not limited to," respectively.     "Stockholders Agreement" means the Amended and Restated Stockholders Agreement, dated February 14, 1997, and amended as of September 12, 2000, among the Company, Windward Capital Associates, L.P., Windward/Park HCC, L.L.C., Windward/Merchant, L.P., Windward/Merban, L.P., and the Management Stockholders as defined therein, as the same may be amended, restated or modified from time to time.     "Term" means the period from the Effective Date through 180 days after the Notice of Termination date in which the Employee is terminated for any reason other than Good Cause, Death, Unavailability or voluntary termination.     "Unavailability" means Employee being unable to fully perform Employee's duties by reason of illness, Disability or other incapacity, or by reason of any statute, law, ordinance, regulation, order, judgment, or decree, except for an instance that would constitute Good Cause. -------------------------------------------------------------------------------- EXHIBIT B EMPLOYEE-OWNED INVENTION NOTIFICATION     This Employee-Owned Invention Notification ("Notification") is to inform Employee in accordance with Section 2872 of the California Labor Code that the Agreement between Employee and the Company does not require Employee to assign or offer to assign to the Company any invention that Employee developed or develops entirely on his or her own time without using the Company's equipment, supplies, facilities or trade secret information except for those inventions that either: 1.Relate at the time of conception or reduction to practice of the invention to the Company's business, or actual or demonstrably anticipated research or development of the Company; or 2.Result from any work performed by Employee for the Company.     To the extent a provision in the Agreement purports to require Employee to assign an invention otherwise excluded from the preceding paragraph, the provision is against the public policy of the State of California and is unenforceable.     This Notification does not apply to any patent or invention covered by a contract between the Company and the United States or any of its agencies requiring full title to such patent or invention to be in the United States.     Employee acknowledges receipt of a copy of this Notification.         By:                 -------------------------------------------------------------------------------- Printed Name of Employee         Date:                 -------------------------------------------------------------------------------- Witnessed by:                       -------------------------------------------------------------------------------- Printed Name of Representative         Date:                 --------------------------------------------------------------------------------         -------------------------------------------------------------------------------- EXHIBIT C Chart depicting HCC Industries FY2001 Executive Bonus Plan (% of Base Pay / EBITDA as a % of Target) -------------------------------------------------------------------------------- EXHIBIT D PROPERTY RIGHTS AND CONFIDENTIALITY AGREEMENT     In consideration of my employment and the compensation paid me by HCC Industries Inc., or any of its subsidiary companies (hereinafter collectively referred to as the "Company"), I hereby agree as follows:     1.  Confidentiality.  I agree that for and during the entire term of my employment any of the following shall be considered and kept as the private and privileged records of the Company and will not be divulged to any person, firm, or institution except with the prior written authorization fo the President of HCC: a)Sales and marketing: customer lists and files, price lists, forecasts, reports, data, research, orders, RFQ'S, and related information; b)Financial: financial reports, budgets, forecasts, operating analyses; c)Other: engineering processes and designs, drawings, trade secrets, purchasing data, quality levels and yields, and personnel files. Further, upon termination of my employment for any reason, I agree that I will continue to treat as private and privileged such information and will not release any such information to any person, firm or institution without the prior written authorization of the President of HCC, and the Company shall be entitled to an injunction by any competent court to enjoin and restrain the authorized disclosure of such information.     2.  Ownership of Employee's Inventions.  All inventions, processes, procedures, systems, discoveries, designs, glass formulae, trade secrets and improvements conceived by me, alone or with others, during the term of my employment, 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 exclusive property of the Company. I agree to assist the Company, at its expense, to obtain patents on any such patentable ideas, inventions, and other developments, and I agree to execute all documents necessary to obtain such patents in the name of the Company.     3.  Return of Property.  Upon termination of my employment, regardless of how effected, I shall immediately turn over to the Company all of the Company's property, including all items used by me in rendering services to the Company that may be in my possession or under my control, including all notes, memoranda, notebooks, drawings, records, reports, files and other documents (and all copies or reproductions of such material). I acknowledge that this material is the sole property of the Company.     4.  Miscellaneous.   a)In the event I seek employment with any person, firm or other enterprise competitive with the Company, I will disclose this Agreement to them. b)I acknowledge that this Agreement is not in any way intended to create an Employment Contract, Either expressed or implied. -------------------------------------------------------------------------------- c)This Agreement is governed by and will be construed under the laws of the State of California.         EMPLOYEE: Dated:             --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Employee's Signature                   -------------------------------------------------------------------------------- Employee's Name         HCC INDUSTRIES INC.: Dated:       By:         --------------------------------------------------------------------------------       -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- QuickLinks EXHIBIT 10.9.2 AMENDED AND RESTATED EMPLOYMENT AGREEMENT BETWEEN HCC INDUSTRIES, INC. and RICHARD FERRAID ORIGINAL DATE OF AGREEMENT: MARCH 31, 2000 DATE OF AMENDED AND RESTATED AGREEMENT: DECEMBER 31, 2000 TABLE OF CONTENTS AMENDED AND RESTATED EMPLOYMENT AGREEMENT EXHIBIT A DEFINED TERMS EXHIBIT B EMPLOYEE-OWNED INVENTION NOTIFICATION EXHIBIT C EXHIBIT D PROPERTY RIGHTS AND CONFIDENTIALITY AGREEMENT

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.37 SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT     This Second Amendment to Stock Purchase Agreement (this "Second Amendment") is entered into as of June 7, 2001, between Univision Communications Inc., a Delaware corporation ("Buyer"), and USA Broadcasting, Inc., a Delaware corporation ("Seller"). R E C I T A L S     WHEREAS, Buyer and Seller entered into a Stock Purchase Agreement dated as of January 17, 2001 (the "Original Agreement"), as amended by that certain First Amendment to Stock Purchase Agreement dated as of May 9, 2001 (the "First Amendment" and together with the Original Agreement, the "Agreement"), for the purchase and sale of the stock of certain Subsidiaries of Seller;     WHEREAS, Buyer and Seller desire to amend certain provisions of the Agreement; and     WHEREAS, all capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such defined terms in the Agreement. A G R E E M E N T     In consideration of the mutual promises contained herein and in the Agreement and intending to be legally bound the parties agree as follows: 1.  AMENDMENTS TO ARTICLE I—PURCHASE AND SALE/CLOSING     1.1 Exhibit B of the Original Agreement is hereby amended in its entirety and replaced with Exhibit B attached to this Second Amendment.     1.2 Section 1.4 of the Agreement is hereby amended in its entirety to state as follows:     "1.4  The Closings.       (a)  Initial Closing.  The parties acknowledge and agree that the FCC issued an initial grant of an FCC Order for all of the Stations on May 21, 2001 (the "Initial FCC Order"). Subject to the satisfaction or waiver of the applicable conditions set forth in Article VI, the initial closing of the purchase and sale of Stock (the "Initial Closing") shall occur at the offices of O'Melveny & Myers LLP, 1999 Avenue of the Stars, Suite 700, Los Angeles, California, on the third (3rd) business day following the date of the initial grant of the last order of the FCC (or the Chief, Mass Media Bureau of the FCC, acting under delegated authority) with respect to the applications filed by Buyer on May 31, 2001, consenting (the "FCC 316 Consent") to the assignment of Buyer's right to take delivery of the Stock of the O&O Subsidiaries owning the Stations in Miami, Dallas and Atlanta to Univision Acquisition Corp., a Delaware corporation and Affiliated Assignee ("Newco"), or at such other time and place as the parties mutually agree in writing (the date on which the Initial Closing shall occur, the "Initial Closing Date"); provided, that the Initial Closing will not occur before June 12, 2001, and in the event the Initial Closing occurs after June 12, 2001, Buyer shall pay to Seller at the Initial Closing an amount equal to Fifty Thousand Dollars ($50,000) for each business day which has elapsed after June 12, 2001 until (and including) the Initial Closing Date (collectively, the "Extension Fee"). Notwithstanding anything to the contrary in this Agreement, in the event that the Initial Closing shall not have occurred on or prior to 5:00 p.m. (Eastern) on June 27, 2001, then Seller shall have the right, at its option, to cause the parties to consummate the Initial Closing, on at least two (2) business days written notice from Seller. At the Initial Closing, Seller shall sell, assign and transfer to Newco (or Buyer in the case of an Initial Closing prior to receipt of the FCC 316 Consent), and Buyer shall cause Newco to purchase from Seller (or Buyer shall purchase from Seller in the case of an Initial Closing prior to receipt of the FCC 316 Consent), (i) the shares of capital stock of the SW Subsidiary, (ii) the -------------------------------------------------------------------------------- shares of capital stock of the MI Subsidiaries, (iii) the shares of capital stock of the O&O Subsidiaries owning the Stations in Miami, Dallas and Atlanta and (iv) to the extent applicable, the general partnership interests required to be transferred pursuant to Section 1.4(c).     (b)  Subsequent Closings.  Subject to the satisfaction or waiver of the applicable conditions set forth in Article VI, the closing of the purchase and sale of the shares of capital stock of any O&O Subsidiary not transferred at the Initial Closing (each a "Subsequent Closing") shall occur at the offices of Buyer's counsel described in Section 1.4(a). A Subsequent Closing with respect to the O&O Subsidiary owning the Stations in New York shall occur on September 28, 2001 and a Subsequent Closing with respect to any remaining O&O Subsidiary owning Stations not previously transferred to Buyer shall occur on January 11, 2002 (the date on which each Subsequent Closing shall occur, a "Subsequent Closing Date"). Within five (5) business days after the applicable HSN Disengagement for the Stations owned by the Subsidiaries transferred at each Subsequent Closing, Seller shall pay to Buyer interest on the payment received at such Subsequent Closing in an amount equal to Buyer's costs of funds (as reasonably documented) from the time such payment is received by Seller through the time of the applicable HSN Disengagement for such Stations; provided, however, in no event shall Seller's payment for Buyer's costs of funds exceed a rate of seven and one-half percent (7.5%) per annum.     (c)  Transfer of Partnership Interests.  USA Station Group, Inc. ("USASGI"), one of the Subsidiaries, owns a one percent (1%) general partnership interest in each of the eleven (11) licensee general partnerships. Subject to the receipt of any necessary prior approval of the FCC, for each of the O&O Subsidiaries that has a general partnership that holds its FCC License or FCC Licenses, Seller shall cause such O&O Subsidiary to form a wholly-owned Delaware limited liability company subsidiary (a "Station GP Interest LLC") prior to the Closing for such O&O Subsidiary, and Seller shall cause USASGI to transfer the 1% general partnership interest in the applicable licensee general partnership to such Station GP Interest LLC prior to such Closing; provided, however, that if such FCC approval has not been received at least one (1) business day prior to the date that such Closing is otherwise scheduled to occur in accordance with the terms of this Agreement, then at such Closing, Seller shall cause USASGI to transfer to Buyer the 1% general partnership interest in the licensee general partnership that owns the FCC License or FCC Licenses of the Station or Stations owned by the Subsidiary or Subsidiaries being transferred at such Closing.     (d)  Outside Closing Date.  If Seller shall not have received, in cash, all amounts that would have been payable to Seller had all of the Closings on all of the Stock occurred on or prior to January 14, 2002 (the "Outside Closing Date") then, notwithstanding anything contained herein to the contrary (including the fact that one or more AT Notes may have been delivered to Seller pursuant to Section 1.5), Buyer shall pay to Seller on the Outside Closing Date, in cash, all such amounts less the amount of the Purchase Price previously paid in cash to Seller at any prior Closings and less the amount of all principal payments received by Seller under any AT Note (as defined in Section 1.5), except no such amounts shall be payable by Buyer on the Outside Closing Date if (i) Seller shall not have received in cash such amounts on or prior to the Outside Closing Date because of a breach by Seller of this Agreement that has caused the conditions precedent set forth in Section 6.2(a) or Section 6.2(b) not to be satisfied as of the Outside Closing Date (it being understood that such exception shall not be applicable for any conditions precedent with respect to any O&O Subsidiary for which there has been an AT Transfer Closing), or (ii) such breach has been the sole cause of the conditions set forth in Section 6.1 not being satisfied as of the Outside Closing Date. Upon the payment, in cash, of all amounts that would have been payable to Seller had all of the Closings on all of the Stock occurred on or prior to the Outside Closing Date, any amounts remaining outstanding under any AT Notes shall be deemed to have been paid in full. Buyer acknowledges and agrees that, notwithstanding anything to the contrary contained in this 2 -------------------------------------------------------------------------------- Agreement or otherwise, Buyer's obligation to pay, in cash, all amounts that would have been payable to Seller had all of the Closings on all of the Stock occurred on or prior to the Outside Closing Date pursuant to this Section 1.4(d) and the rights of Seller to receive such payment in cash shall be absolute and unconditional (subject to the qualification in the preceding sentence with respect to a breach by Seller and subject to a delay in such payment as provided for in Sections 4.15 and 7.1) and not be subject to any right of set off, deduction or counterclaim. Payment of the amounts pursuant to this Section 1.4(d) shall be final and non-refundable and Buyer shall not seek to recover all or any part of such payment from Seller for any reason whatsoever. All payments pursuant to this Section 1.4(d) shall be made by wire transfer of immediately available funds to an account specified by Seller. Subject to compliance with Section 9.5, upon receipt by Seller of all amounts payable to Seller pursuant to this Section 1.4(d), Seller shall, or shall cause, the Stock to be transferred in accordance with Buyer's written instructions; provided, that such transfer is in compliance with all applicable Laws.     (e)  Cleveland Subsidiary.        (i) If there has been an AT Transfer Closing with respect to USA Station Group of Ohio, Inc. (the "Cleveland Subsidiary"), upon Buyer's written request dated no earlier than December 5, 2001, Seller will consent to the release of the Stock of the Cleveland Subsidiary from the Pledge Agreement and the SPE's subsequent sale of the Stock of the Cleveland Subsidiary to a third party reasonably acceptable to Seller (a "Cleveland Transferee") on the fifth (5th) business day after such request, subject to prior FCC approval of such sale, so long as on the date of such release, the SPE pays Seller by wire transfer of immediately available funds to an account specified by Seller the portion of the Purchase Price for the Cleveland Subsidiary, plus all reimbursement payments expressly provided for herein in Sections 4.7 and 4.19 relating to the Cleveland Subsidiary or the Station owned by the Cleveland Subsidiary, less any principal payments received by Seller under the AT Note relating to the Cleveland Subsidiary. The parties agree that notwithstanding any such payment, HSN Disengagement for the Station owned by the Cleveland Subsidiary shall thereafter occur on January 14, 2001 in accordance with Section 4.9.     (ii) If there has not been an AT Transfer Closing with respect to the Cleveland Subsidiary, upon Buyer's written request dated no earlier than December 5, 2001 and subject to obtaining any necessary prior FCC approval, Seller will transfer the Stock of the Cleveland Subsidiary to Buyer on the fifth (5th) business day after such request so long as, on the date of such transfer, Buyer pays Seller by wire transfer of immediately available funds to an account specified by Seller the portion of the Purchase Price for the Cleveland Subsidiary, plus all reimbursement payments expressly provided for herein in Sections 4.7 and 4.19 relating to the Cleveland Subsidiary or the Station owned by the Cleveland Subsidiary, and so long as, on the date of such transfer, Buyer transfers the Stock of the Cleveland Subsidiary to a Cleveland Transferee, subject to prior FCC approval of such transfer, and, on the date of such transfer, HSN and the Cleveland Subsidiary enter into an AT Affiliation Agreement. The parties agree that, notwithstanding consummation of the transactions described in this clause (ii), HSN Disengagement for the Station owned by the Cleveland Subsidiary shall thereafter occur on January 14, 2001 in accordance with Section 4.9."     1.3 A new Section 1.5 of the Agreement is hereby added and states as follows:     "Section 1.5  Alternative Transfer Structure.       (a) Notwithstanding Section 1.4(b) and Section 1.4(c) (and in lieu of consummating the transactions set forth herein in accordance with such sections), Buyer acknowledges and agrees that Seller shall have the right to give written notice to Buyer (an "AT Notice"), provided that no such AT Notice shall be given prior to July 16, 2001, to cause the parties to consummate one or 3 -------------------------------------------------------------------------------- more transfers of the Stock of any O&O Subsidiary that is not transferred to Buyer at the Initial Closing pursuant to an alternative transfer structure ("Alternative Transfer") at one or more alternative transfer closings (each an "AT Transfer Closing") as follows:      (i) each AT Notice shall designate which O&O Subsidiary or O&O Subsidiaries shall be the subject of an Alternative Transfer (each an "AT Subsidiary"); the AT Transfer Closing for such O&O Subsidiary or O&O Subsidiaries shall take place on the later to occur of (A) the second (2nd) business day following the consent of the FCC received with respect to the application referred to below in Section 1.5(b), and (B) the second (2nd) business day after the date of the AT Notice.     (ii) all conditions to a Subsequent Closing with respect to such AT Subsidiary shall have been satisfied or waived except for the obligations of Seller (A) to cause the termination of the HSN affiliation agreement and the HSN programming (or any programming substituted therefore in accordance with the HSN affiliation agreement) for the Station owned by such AT Subsidiary by the date set forth in Section 4.9 and (B) set forth in the penultimate sentence of Section 4.14 with respect to programming liabilities which shall be satisfied as set forth in Section 1.5(e);     (iii) Buyer shall form a special-purpose, bankruptcy-remote entity reasonably acceptable to Seller (the "SPE") for the sole purpose of acquiring the Stock of all AT Subsidiaries acquired pursuant to Alternative Transfers (so long as the AT Notes are outstanding, in accordance with the Pledge Agreement, the only assets of the SPE shall be the Stock of such AT Subsidiaries and the SPE shall have no liabilities other than the AT Notes);     (iv) at any AT Transfer Closing:     (A) HSN and the applicable AT Subsidiary shall enter into an HSN affiliation agreement in the form attached hereto as Exhibit D with respect to any Station controlled by such AT Subsidiary (each an "AT Affiliation Agreement");     (B) the SPE shall execute and deliver to Seller a promissory note in the form attached hereto as Exhibit E (an "AT Note") in an aggregate amount equal to the portion of the Purchase Price allocable to the Stock of such AT Subsidiary as determined by reference to the value of the Station owned by such AT Subsidiary as set forth on Exhibit B hereto, plus any reimbursement payments expressly provided for herein in Sections 4.7 and 4.19 relating to such Stock or the Stations owned by such AT Subsidiary; and     (C) the SPE shall pledge and grant to Seller a first priority perfected security interest in the Stock of such AT Subsidiary and in any partnership interests owned by such AT Subsidiary or by any subsidiary of an AT Subsidiary to secure payment of the applicable AT Note, by execution and delivery to Seller of a pledge agreement in the form attached hereto as Exhibit F (the "Pledge Agreement") between the SPE, the AT Subsidiary, the Buyer, any subsidiary of the AT Subsidiary and Seller; and by delivery to Seller of all certificates or instruments representing or evidencing the pledged Stock (together with executed blank Stock powers attached) and other equity interests as required under the Pledge Agreement.     (b) As promptly as practicable and no later than three (3) business days following the date of any AT Notice, the parties shall electronically file with the FCC any short-form applications necessary to consummate any Alternative Transfer described in such AT Notice.     (c) Buyer and Seller acknowledge and agree that (i) the SPE shall be an Affiliated Assignee for all purposes of this Agreement; (ii) the delivery of any AT Note shall not satisfy, reduce or 4 -------------------------------------------------------------------------------- otherwise affect in any manner the obligation of Buyer to pay in cash the portion of the Purchase Price allocable to the Stock of the AT Subsidiary in connection with which such AT Note was delivered, but rather the Buyer's obligations to pay the full amount of the Purchase Price (including such portion of the Purchase Price) shall remain in full force and effect; (iii) it is the intention of the parties hereto that Buyer's obligation to pay in full the Purchase Price in cash, including each portion of the Purchase Price allocable to the Stock of such AT Subsidiary as determined by reference to the value of the Station owned by such AT Subsidiary as set forth on Exhibit B hereto, shall continue in the same manner and to the same extent as if an AT Transfer Closing had not occurred; (iv) Buyer's obligations under this Agreement are irrevocable and are independent of the obligations of the SPE, and Buyer's obligations under this Agreement shall not be subject to any right of set off, deduction or counterclaim, and shall not be impaired, modified, changed, released, discharged or limited in any manner whatsoever by any impairment, modification, change, release, discharge or limitation of the liability of the SPE or its estate in bankruptcy, resulting from the operation of any present or future provision of the bankruptcy laws or other similar statute, or from the decision of any court, or as the result of the invalidity of any AT Note or any agreement providing collateral security therefor, or resulting from the operation of any present or future provision of any laws or from any other cause or circumstance whatsoever; and (v) to take or cause to be taken any such further actions, and execute, deliver and file such further documents and instruments as may be reasonably requested by the other party in connection with the consummation of any Alternative Transfer.     (d) Following any AT Transfer Closing, the portion of the Purchase Price payable for the Stock of the applicable AT Subsidiary as determined by reference to the value of the Station owned by such AT Subsidiary, plus any reimbursement payments expressly provided for herein in Sections 4.7 and 4.19 relating to such Stock or the Stations owned by such AT Subsidiary, less any principal payments received by Seller under the AT Note relating to such AT Subsidiary, shall be paid by Buyer to Seller by wire transfer of immediately available funds to an account specified by Seller, on the business day prior to the date which HSN shall have terminated its affiliation agreement with such AT Subsidiary in accordance with Section 4.9 of this Agreement (each termination an "HSN Disengagement"); such payment to be made either by (i) Buyer making such payment itself directly to Seller or (ii) Buyer causing the SPE to pay in full all amounts outstanding under the AT Note relating to such AT Subsidiary. Upon the cash payment of the portion of the Purchase Price for the Stock of the applicable AT Subsidiary by Buyer, any amounts remaining outstanding under the AT Note relating to such AT Subsidiary shall be deemed to have been paid in full. Within five (5) business days after the applicable HSN Disengagement for the Stations owned by the AT Subsidiaries transferred at each AT Transfer, Seller shall pay to Buyer interest on the payment received by Seller pursuant to this Section 1.5(d) in an amount equal to Buyer's cost of funds (as reasonably documented) from the time such payment is received by Seller through the time of the applicable HSN Disengagement for such Stations; provided, however, in no event shall Seller's payment for Buyer's costs of funds exceed a rate of seven and one-half percent (7.5%) per annum.     (e) In the event of an Alternative Transfer, the parties acknowledge and agree that no programming assets or liabilities with respect to the Station or Stations owned by such AT Subsidiary shall be assets or liabilities of such AT Subsidiary until HSN Disengagement and any programming assets or liabilities with respect to the Station or Stations owned by such AT Subsidiary shall be distributed, assigned or transferred to Seller prior to any AT Transfer. During the period following any AT Transfer and prior to HSN Disengagement, Seller shall (i) retain all such programming assets, (ii) remain responsible and liable for all such programming liabilities with respect to such AT Subsidiary, (iii) continue to make all monetary payments with respect to such programming liabilities in a manner consistent with Seller's past practices, (iv) if a programmer declares in writing a default with respect to any programming liabilities, cure such 5 -------------------------------------------------------------------------------- default prior to HSN Disengagement, and (v) indemnify and hold Buyer harmless from any Losses incurred by Buyer resulting from the breach by Seller of any obligations with respect to such programming assets or programming liabilities. Notwithstanding any other provision herein, the parties acknowledge and agree that Seller's obligations set forth in the penultimate sentence of Section 4.14 with respect to programming liabilities of such AT Subsidiary shall not be satisfied as of the AT Transfer Date but shall instead be satisfied as of the date of the HSN Disengagement. Contemporaneous with HSN Disengagement, to the extent that Seller or any Affiliate of Seller holds or is responsible for any programming assets or liabilities with respect to the Stations owned by the applicable AT Subsidiary which are set forth on Schedule 2.4, Seller or Seller's Affiliates shall transfer such programming assets and liabilities to such AT Subsidiary, and such AT Subsidiary shall accept and assume such assets, rights, liabilities or obligations.     (f)  It is expressly understood and agreed by Buyer that Seller may exercise its rights under any AT Affiliation Agreement, AT Note or Pledge Agreement without exercising its rights or affecting its rights under this Agreement, and it is further understood and agreed by Buyer that upon a default under an AT Note, Seller may proceed against all or any portion or portions of any collateral pledged pursuant to any Pledge Agreement or otherwise in such order and at such time as Seller, in its sole discretion, sees fit; and Buyer hereby expressly waives any rights under the doctrine of marshalling of assets." 2.  AMENDMENTS TO ARTICLE IV—COVENANTS WITH RESPECT TO CONDUCT PRIOR TO CLOSING     2.1 Section 4.6 of the Agreement is hereby amended in its entirety to state as follows:     "4.6  Elimination of Intercompany and Affiliate Liabilities.  Prior to each Closing Date, Seller shall purchase, cause to be repaid or (with respect to guarantees) assume liability for any intercompany obligations or receivables (each an "Intercompany Liability") among Seller and its Affiliates on the one hand and the Subsidiaries to be transferred at such Closing on the other hand, except for any AT Affiliation Agreement. At such Closing Date, neither Buyer nor any of the Subsidiaries that have been transferred to Buyer on or prior to such Closing Date shall have any continuing commitment, obligation or liability of any kind with respect to such Intercompany Liability, except for any Intercompany Liability relating to any AT Affiliation Agreements. Seller agrees to indemnify Buyer and the Subsidiaries for any Losses with respect to any such Intercompany Liability not fully assumed or discharged as contemplated."     2.2 Section 4.8 of the Agreement is hereby amended in its entirety to state as follows:     "4.8.  Insurance.  At all times during the Interim Period with respect to a Station or Station Works, Seller shall maintain or cause to be maintained all insurance in effect on the date of this Agreement with respect to the assets, liabilities and operations of such Station and of Station Works. At all times following an AT Transfer Closing for any Station and until the date of the HSN Disengagement for such Station, Seller shall maintain or cause to be maintained all insurance in effect on the date of this Agreement with respect to the assets, liabilities and operations of such Station and Buyer shall be named as an additional insured with respect to all such insurance." 6 --------------------------------------------------------------------------------     2.3 Section 4.9 of the Agreement is hereby amended in its entirety to state as follows:     "4.9  Termination of HSN Agreement.  Seller shall, or shall cause HSN to, terminate the HSN affiliation agreement with the stations and the HSN programming or any programming substituted therefore in accordance with the terms of the HSN affiliation agreement on the Stations as of 12:01 a.m. local time on the following dates; provided, however, that such termination shall be subject to the consummation of the applicable Closing for each such Station one business day prior to the date of such termination, other than an AT Transfer Closing or, if an AT Transfer Closing shall have occurred for any such Station, then such termination shall be subject to payment in full of the applicable AT Note pursuant to Section 1.5(d) (or Section 1.4(e), with respect to the Cleveland Station): New York Stations (WHSE and WHSI)   October 1, 2001   Cleveland Station (WQHS)   January 14, 2002   Houston Station (KHSH)   January 14, 2002   Orlando Station (WBSF)   January 14, 2002   Philadelphia Station (WHSP)   January 14, 2002   Los Angeles Station (KHSC)   January 14, 2002   Tampa Station (WBHS)   January 14, 2002   Boston Station (WHUB)   January 14, 2002   Chicago Station (WEHS)   January 14, 2002 ."     2.4 Section 4.15 of the Agreement is redesignated as 4.15(a) and a new section 4.15(b) is added to read in its entirety as follows:     "(b) The risk of loss or damage by fire or other casualty or cause to the assets of any Station transferred at an AT Transfer Closing shall be upon Seller until the date of the HSN Disengagement for such Station. In the event of a Material Casualty Loss (that would have caused the condition set forth in Section 6.2(a) not to be satisfied if the Alternative Transfer had not occurred), Seller shall restore, replace or repair the damaged assets to their previous condition; provided, however, that if any such Material Casualty Loss shall not have been restored, replaced or repaired as of the date on which the HSN Disengagement for such Station was scheduled to occur, the SPE shall not be obligated to pay the AT Note issued with respect to such Station (and the Buyer shall not be obligated to pay the applicable Purchase Price) until such Material Casualty Loss has been restored, replaced or repaired and the HSN Disengagement shall not occur until such Material Casualty Loss has been restored, replaced or repaired. Seller shall provide Buyer with written notice of the completion of the restoration, replacement or repair of such Material Casualty Loss, and on the fifth (5th) business day following such notice, Seller shall terminate the HSN affiliation agreement for such Station, and the SPE shall pay in full the AT Note issued with respect to such Station; it being understood that if the SPE fails to make such payment, Buyer shall be responsible for the payment of the Purchase Price for such Station as described in Section 1.5(c)." 3.  AMENDMENTS TO ARTICLE 9—GENERAL     3.1 Section 9.18 of the Agreement is hereby amended in its entirety to state as follows:     "9.18  Specific Performance. Seller and Buyer each acknowledge that, in view of the uniqueness of the Business and the transactions contemplated by this Agreement, each party would not have an adequate remedy at Law for money damages if this Agreement were not performed in accordance with its terms and therefore agrees that the other party shall be entitled to injunctive relief and specific enforcement on an expedited basis of the terms hereof (including the obligations 7 -------------------------------------------------------------------------------- of the parties with respect to any Alternative Transfer as described in Section 1.5) in addition to any other remedy to which it may be entitled, at Law or in equity." 4.  AMENDMENTS TO ARTICLE X—DEFINITIONS     The following defined terms and definitions shall be added to Section 10.1(c) or amended in their entirety as indicated:     "Alternative Transfer" has the meaning set forth in Section 1.5(a).     "AT Affiliation Agreement" has the meaning set forth in Section 1.5(a)(iv)(A).     "AT Note" has the meaning set forth in Section 1.5(a)(iv)(B).     "AT Notice" has the meaning set forth in Section 1.5(a).     "AT Subsidiary" has the meaning set forth in Section 1.5(a)(i).     "AT Transfer Closing" has the meaning set forth in Section 1.5(a).     "AT Transfer Closing Date" means the date on which each AT Transfer Closing shall occur.     "Cleveland Subsidiary" has the meaning set forth in Section 1.4(e)(i).     "Cleveland Transferee" has the meaning set forth in Section 1.4(e)(i).     "Closing" means the Initial Closing, a Subsequent Closing or an AT Transfer Closing, as the context requires.     "Closing Date" means the Initial Closing Date, a Subsequent Closing Date or an AT Transfer Closing Date, as the context requires.     "Extension Fee" has the meaning set forth in Section 1.4(a).     "FCC 316 Consent" has the meaning set forth in Section 1.4(a).     "HSN Disengagement" has the meaning set forth in Section 1.5(d).     "Newco" has the meaning set forth in Section 1.4(a).     "Pledge Agreement" has the meaning set forth in Section 1.5(a)(iv)(C).     "Station GP Interest LLC" has the meaning set forth in Section 1.4(c).     "SPE" has the meaning set forth in Section 1.5(a)(iii). 5.  Except as expressly amended by this Second Amendment, all terms and conditions of the Agreement shall continue in full force and effect in accordance with their terms. 6.  Except as set forth herein with respect to approvals of the FCC, each party hereto represents and warrants to the other party hereto that the execution, delivery and performance of this Second Amendment does not (a) require such party to obtain any material consent from any Person, and (b) contravene, conflict with, or result in a material breach of any provision of, or give any Person the right to declare a default or exercise any remedy under, any material agreements with any Person. 7.  This Second Amendment may be executed in one or more counterparts and by different parties in separate counterparts. All of such counterparts shall constitute one and the same agreement and shall become effective when one or more counterparts have been signed by each party and delivered to the other party. 8 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, each of the parties hereto has caused this Second Amendment to Stock Purchase Agreement to be executed by its duly authorized officers as of the day and year first above written.     BUYER:     UNIVISION COMMUNICATIONS INC.     By:   /s/ ANDREW W. HOBSON    --------------------------------------------------------------------------------         Name:   Andrew W. Hobson         Title:   Executive Vice President     SELLER:     USA BROADCASTING, INC.     By:   /s/ CHARLES SOMMER    --------------------------------------------------------------------------------         Name:   Charles Sommer         Title:   GC & SVP 9 -------------------------------------------------------------------------------- EXHIBIT B Revised Purchase Price Payment Schedule DMA --------------------------------------------------------------------------------   Market --------------------------------------------------------------------------------   Market TV HH's (Nielsen 1/2000) --------------------------------------------------------------------------------   Interest Adjustment --------------------------------------------------------------------------------   Adjusted Market TV HH's --------------------------------------------------------------------------------   % Purchase Price --------------------------------------------------------------------------------   Purchase Price -------------------------------------------------------------------------------- 1   New York   6,874,990   100 % 6,874,990   19.53 % $ 214,835,695 1   New York                       2   Los Angeles   5,234,690   100 % 5,234,690   14.87 % $ 163,578,167 3   Chicago   3,204,710   100 % 3,204,710   9.10 % $ 100,143,578 4   Philadelphia   2,670,710   100 % 2,670,710   7.59 % $ 83,456,680 6   Boston   2,210,580   100 % 2,210,580   6.28 % $ 69,078,135 7   Dallas   2,018,120   100 % 2,018,120   5.73 % $ 63,063,977 10   Atlanta   1,774,720   100 % 1,774,720   5.04 % $ 55,458,001 11   Houston   1,712,060   100 % 1,712,060   4.86 % $ 53,499,947 13   Tampa   1,485,980   100 % 1,485,980   4.22 % $ 46,435,201 15   Cleveland   1,479,020   100 % 1,479,020   3.57 % $ 39,000,000 16   Miami   1,441,570   100 % 1,441,570   6.55 % $ 72,265,149 22   Orlando   1,101,920   100 % 1,101,920   3.13 % $ 34,433,759     Minority Interests                       5   San Francisco   2,423,120   49 % 1,187,329   3.37 % $ 37,102,688 8   Washington, DC   1,999,870   45 % 899,942   0.74 % $ 8,122,158 18   Denver   1,268,230   45 % 570,704   1.62 % $ 17,833,842 21   St. Louis   1,114,370   45 % 501,467   1.42 % $ 15,670,263         --------------------------------------------------------------------------------       --------------------------------------------------------------------------------   --------------------------------------------------------------------------------               38,014,660       34,368,510   97.63 %         Purchase Price payable upon transfer of Capital Stock of to be formed "Station Works" Subsidiary   2.37 % $ 26,022,760                     --------------------------------------------------------------------------------   --------------------------------------------------------------------------------     Aggregate Purchase Price   100.00 % $ 1,100,000,000                     --------------------------------------------------------------------------------   --------------------------------------------------------------------------------     Except as provided in Section 8.3 to the Agreement, this Purchase Price Payment Schedule is solely for purposes of determining the amount payable by Buyer to Seller at the Initial Closing (as defined in the Agreement), at each Subsequent Closing (as defined in the Agreement), and upon HSN Disengagement pursuant to Section 1.5(d) of the Agreement and shall not be considered binding on either Buyer or Seller with respect to any tax treatment or reporting requirements relating to the sale and transfer of the Stock pursuant to the Agreement. -------------------------------------------------------------------------------- EXHIBIT D AT Affiliation Agreement -------------------------------------------------------------------------------- FORM OF TELEVISION AFFILIATION AGREEMENT HOME SHOPPING     This Agreement is made as of the (DATE) between HSN LP, a Delaware limited partnership ("HSN"), and [UNIVISION OF       , INC.], a Delaware corporation and [UNIVISION PARTNERSHIP OF       ], a Delaware partnership and licensee of Television Station (CALL LETTERS / CHANNEL NUMBER / CITY OF LICENSE / STATE) (collectively the "STATION"), relating to the STATION's broadcast of HSN's television broadcast program service for the presentation and sale of products and services offered by HSN or its subsidiaries as such programming may be revised from time to time at the sole discretion of HSN (hereinafter the "PROGRAM SERVICE"). HSN AND STATION agree as follows: 1. FIRST CALL. STATION has determined that the public interest, convenience and necessity would be served by its broadcast of the PROGRAM SERVICE. Therefore, HSN will offer STATION the PROGRAM SERVICE to be broadcast on a network basis in the Nielsen Station Index Designated Market Area ("DMA") to which STATION is licensed by the Federal Communications Commission ("FCC"). HSN reserves the right to air portions or all of the PROGRAM SERVICE on other full power and low power television stations within STATION's service area (DMA). STATION understands and agrees that HSN may also authorize carriage of the PROGRAM SERVICE or any other programming services delivered by HSN by other means of transmission including, but not limited to, broadcast television, cable television, secondary transmissions, direct broadcast satellite service, KU-Band service, private or master antenna cable services and similar video or audio transmission services including those which serve communities located within STATION's service area (DMA). 2. ACCEPTANCE. STATION agrees that as of the date hereof STATION has accepted the offer contained herein by HSN relating to the broadcast of the PROGRAM SERVICE. STATION's acceptance of this offer shall constitute its agreement to broadcast the PROGRAM SERVICE in accordance with the terms of this Agreement. 3. COMMENCEMENT. STATION shall commence broadcasting the PROGRAM SERVICE on        , 2001 (the "Commencement Date"). The schedule for broadcasting the PROGRAM SERVICE is set forth in Schedule A, which can be amended by mutual written agreement of STATION and HSN from time to time. 4. TERM. This Agreement shall have a term beginning on the Commencement Date and shall terminate [insert Termination Date for STATION set forth on Attachment E] (the "Termination Date"), provided, however, that if on the Termination Date the Applicable AT Note (as defined below) has not been satisfied in full, or forgiven, in accordance with its terms, then this Agreement shall continue in full force and effect until such time as the Applicable AT Note has been satisfied in full, or forgiven, in accordance with its terms, unless HSN elects to terminate the Agreement prior to the satisfaction or forgiveness of the Applicable AT Note in accordance with its terms. For purposes of this Agreement the term "Applicable AT Note" means the AT Note (as defined in that certain Stock Purchase Agreement, by and between Univision Communications Inc. and USA Broadcasting, Inc. ("USAB"), dated as of January 17, 2001, as amended (the "Stock Purchase Agreement")) relating to the STATION and attached hereto at Schedule B. 2 -------------------------------------------------------------------------------- 5. BROADCAST IN ENTIRETY; PROPOSED CHANGE IN FORMAT OR NETWORK. (a) Except as provided in Sections 5(b) and (d)  and 15, STATION agrees to broadcast the PROGRAM SERVICE in its entirety without any editing, delay, addition, alteration or deletion, including, without limitation, all network identifications, all promotional material (except promotional material relating to portions of the PROGRAM SERVICE which STATION does not carry); all copyright notices; all credits and billings; and any other proprietary material of any kind or nature included therein. In the event that a programming format change should occur during the term of this Agreement, the parties agree that all references herein to PROGRAM SERVICE shall continue to apply to the revised programming service. HSN also reserves the right, upon ten (10) days written notice to switch the PROGRAM SERVICE or a successor programming service to one of HSN's affiliated services or the services of one of HSN's affiliates. (b) During the term of this Agreement and subject to Sections 5(d) and 15, STATION shall make available to HSN broadcast time on the STATION equal to one hundred sixty-eight (168) hours per week. HSN shall be responsible for providing programming selections for the STATION using LICENSEE PROGRAMMING in such manner as HSN shall select. Except as otherwise provided in this Agreement, STATION agrees to broadcast such programming in its entirety, including commercials at the times specified, on the facilities of the STATION without interruption, deletion, or addition of any kind. For purposes of this Agreement, the term "LICENSEE PROGRAMMING" means the PROGRAM SERVICE and the various syndication agreements authorizing the STATION to broadcast entertainment and news programming. (c) PROGRAM SERVICE. All advertising spots inserted into LICENSEE PROGRAMMING by HSN or its affiliates and the PROGRAM SERVICE shall comply with all applicable federal, state and local regulations and policies, provided, however, that HSN shall have 30 days to cure any breach of the foregoing after written notice of such breach is provided by STATION to HSN. All advertising spots inserted into LICENSEE PROGRAMMING by HSN or its affiliates shall comply with the written standards and practices of UVN a copy of which has been delivered to HSN, provided, however, that HSN shall have 10 days to cure any breach of the foregoing after written notice of such breach is provided by STATION to HSN, provided, further, that the foregoing obligations shall not be construed to apply to the PROGRAM SERVICE and any advertising spots included in the PROGRAM SERVICE, or any advertising spots inserted into LICENSEE PROGRAMMING by the syndicator or distributor of such LICENSEE PROGRAMMING. (d) HSN shall take such steps as may be necessary to cause episodes of the educational and informational programming for children ("Children's Programs") and public affairs programming ("Public Affairs Programs") presently carried by STATION, or equivalent programming mutually acceptable to HSN and STATION, to continue to be delivered to STATION. STATION may continue to broadcast such Children's Programs and Public Affairs Programs in the specific time periods during which they are presently being broadcast and may preempt the LICENSEE PROGRAMMING during such periods, but only such periods, for the purpose of broadcasting such programming. 6. STATION PROGRAM TIME. HSN will provide a minimum of two (2) minutes within each hour of the PROGRAM SERVICE, during HSN's regularly scheduled break time or such other time as determined by HSN in its sole discretion, for STATION to utilize as it may require for the broadcast of scheduled commercials, news, and public affairs programming. STATION shall not use such time for announcements that solicit a direct response in writing or by telephone. 7. PROGRAM DELIVERY. HSN will deliver the PROGRAM SERVICE at HSN's cost by means of one or more domestic communications satellites, for reception by STATION at STATION's satellite earth station. STATION shall be obligated to process and broadcast the PROGRAM SERVICE over STATION's facilities. HSN shall give STATION ninety (90) days' advance written notice of any proposed change of satellite transmission. 3 -------------------------------------------------------------------------------- 8. COMPENSATION. Provided STATION has commenced broadcasting the PROGRAM SERVICE an affiliation payment shall be made to the STATION as provided in Schedule D attached hereto, provided, however, that (a) Station has not committed a material breach of this Agreement which remains uncured for a period of ten (10) days after written notice of such material breach by HSN to STATION, provided, further, no such cure period shall apply to breaches of Section 5, and (b) that neither Univision nor any affiliate of Univision is in material breach of the Pledge Agreement (as defined in the Applicable AT Note). 9. SERVICE MARKS. STATION hereby acknowledges that HSN owns the rights to the following trademarks, service marks and trade names: HSN, HOME SHOPPING, THE HOME SHOPPING NETWORK, HOME SHOPPING CLUB, AMERICA'S STORE and SPENDABLE KA$H (collectively the "trademarks"). STATION hereby acknowledges that the trademarks are the property of HSN and that use of said trademarks by STATION and any trademarks hereinafter developed by HSN and used by STATION shall inure to the benefit of HSN. STATION shall have the right to develop and distribute promotional materials incorporating such trademarks, provided, however, that any such promotional material (other than material obtained from HSN pursuant to this Agreement) shall clearly identify the trademarks as the property of HSN through the symbol "SM" or its legal equivalent and language identifying HSN as the owner thereof; and if requested by HSN, any use of the trademarks in specimens shall be submitted in representative form for HSN's prior written approval. 10. FAILURE OF PERFORMANCE. Neither STATION nor HSN shall incur any liability hereunder because of HSN's failure to deliver or STATION's failure to broadcast the LICENSEE PROGRAMMING due to labor disputes, satellite transmission problems, or other causes beyond the control of HSN or STATION. 11. CHANGES IN STATION FACILITIES. STATION shall within five (5) days of the filing of any application with the Federal Communications Commission notify HSN in writing of any change in its transmitter location, power, community of license, or frequency and will notify HSN in writing five (5) days prior to any change in hours of operation. STATION shall notify HSN in writing within 24 hours of any change in STATION'S operating power, transmitter or antenna and any cessation of STATION'S broadcast operations, whether voluntary or involuntary. In the event that HSN determines that such changes lessen in any material respect STATION's value as a network outlet, HSN shall have the right to terminate this Agreement with respect to STATION upon fourteen (14) days written notice to such STATION. 12. TRANSFER AND ASSIGNMENT. STATION shall not transfer or assign any of its rights or privileges under this Agreement without HSN's prior written consent. STATION shall notify HSN in writing within five (5) days of the filing of any application with the FCC seeking the FCC's consent to the transfer of control of STATION or the assignment of STATION's license. Except for transfers of control and assignments of licenses governed by Section 73.3540(f) of the FCC's current Rules and Regulations, HSN may terminate this Agreement as of the effective date of a transfer of control or assignment upon written notice to the other party. If HSN does not terminate this Agreement, STATION agrees that prior to the effective date of any such transfer of control or assignment, it shall procure and deliver to HSN, in a form satisfactory to HSN, the written agreement of the transferee or assignee to assume and perform this Agreement in its entirety without limitation of any kind. 13. LIMITATION ON USE OF THE PROGRAM SERVICE. STATION shall not authorize, cause, permit or enable anything to be done whereby the PROGRAM SERVICE provided pursuant to this Agreement may be used for any purpose other than broadcasting by STATION in the community to which it is licensed, which broadcast is intended for free over-the-air reception by the general public. STATION agrees that it will not tape, record or otherwise duplicate the PROGRAM SERVICE for rebroadcast as promotional material without first securing HSN's prior written consent thereto. 4 -------------------------------------------------------------------------------- 14. LICENSES. STATION shall maintain such licenses and authorizations, including performing rights licenses as now are or hereafter may be in general use by television broadcasting stations and necessary for STATION's broadcast of the LICENSEE PROGRAMMING. HSN will clear at the source at no cost to STATION any music or other elements used on the PROGRAM SERVICE. 15. RIGHT OF PROGRAMMING REFUSAL. Nothing herein contained shall be construed to prevent or hinder STATION from rejecting or refusing such portions of the LICENSEE PROGRAMMING which STATION reasonably believes to be unsatisfactory or unsuitable or contrary to the public interest, or from substituting, or requiring HSN to substitute, a program which in STATION's opinion is of greater local or national importance. STATION shall provide HSN with written notice of each such refusal, rejection or substitution, and the justification therefore, at least seventy-two (72) hours in advance of the scheduled telecast, or as soon thereafter as possible. 16. RIGHT TO ENTER INTO AGREEMENT. HSN and STATION each represent and warrant to the other that they have the authority to enter into this Agreement and that there are no restrictions, agreements or limitations on their ability to perform all their respective obligations thereunder. 17. ENTIRE CONTRACT; WAIVERS. No inducements, representations or warranties except as specifically set forth herein have been made by HSN or STATION. This Agreement constitutes the entire contract between the parties and no provision hereof shall be changed or modified except by a written agreement signed by HSN and STATION. No provision hereof may be waived unless such waiver is in writing and signed by the party against whom the waiver is asserted. No such waiver shall be deemed to be a waiver of any preceding or succeeding breach of the same or of any other provision. 18. INDEMNIFICATION. HSN shall indemnify, defend and hold STATION and its partners, affiliates and successors and the officers, directors, employees agents and representatives of any of the foregoing entities harmless against and from all claims, damages, liabilities, costs and expenses (including, without limitation, reasonable attorney's fees and costs) arising out of the PROGRAM SERVICE or STATION's broadcast of the PROGRAM SERVICE in accordance with this Agreement, including, without limitation, any claims, charges, liabilities, costs and expenses (including, without limitation, reasonable attorney's fees and costs) relating to infringement or any violation of third party rights or any violation of the advertising standards and practices of the STATION, provided that STATION promptly notifies HSN of any claim or litigation to which this indemnity shall apply, and cooperates fully with HSN, at HSN's expense, in the defense or settlement of such claim or litigation, provided that failure to so promptly notify shall not adversely affect a person or entity's right to indemnification unless (and then only to the extent that such failure has) materially prejudiced HSN. STATION shall indemnify, defend and hold HSN harmless from all claims, damages, liabilities, costs and expenses arising out of any actions by STATION related to STATION programming operations for which STATION is responsible hereunder and any actions by STATION unrelated to this Agreement. 5 -------------------------------------------------------------------------------- 19. NOTICE. Any notice required to be given hereunder shall be in writing and sent via certified United States mail to the appropriate party at the following address, or such other address as may be given by notice hereunder, or by delivering to such party in person at such address: TO HSN:   HSN LP Attn: Affiliate Sales 1 HSN Drive St. Petersburg, FL 33729 With a copy (which shall not constitute notice) to:   Legal Department Home Shopping Network 1 HSN Drive St Petersburg, FL 33729 TO STATION:     With a copy (which shall not constitute notice) to:     Where notice is sent by United States mail under this Agreement, it shall be effective three days after the date of mailing, and, if delivered in person, such notice shall be effective when so delivered. 20. GOVERNING LAW. The obligations of STATION and HSN are subject to applicable federal, state, and local law, rules and regulations, including, but not limited to, the Communications Act of 1934, as amended, and the Rules and Regulations of the FCC; and this Agreement, its interpretation, performance or any breach thereof, shall be construed in accordance with and all questions with respect hereto shall be determined by, the laws of the State of Delaware. 21. TERMINATION OF AGREEMENT. Upon termination of this Agreement in accordance with the terms hereof, the consent granted to broadcast the PROGRAM SERVICE shall be deemed immediately withdrawn and STATION shall have no further rights of any nature whatsoever in such programs. 22. TERMINATION OF PRIOR AGREEMENT. Home Shopping Club, Inc. and STATION hereby agree that the Television Affiliation Agreement between STATION and Home Shopping Club, Inc. dated as of December 28, 1992, as amended (the "Prior Affiliation Agreement"), is hereby terminated as of the date of this Agreement and the terms of such Prior Affiliation Agreement are of no further force or effect as of such termination. 23. HEADINGS. The headings of the sections of this Agreement are for convenience only and shall not in any way affect the interpretation thereof. 6 -------------------------------------------------------------------------------- AGREED TO: UNIVISION OF             , INC.   HSN L.P., including as successor-in-interest to Home Shopping Club, Inc. for purposes of acknowledging and agreeing to Section 25 hereof     By: [            ], its General Partner By:  --------------------------------------------------------------------------------   By:  -------------------------------------------------------------------------------- Name:  --------------------------------------------------------------------------------   Name:  -------------------------------------------------------------------------------- Title:  --------------------------------------------------------------------------------   Title:  -------------------------------------------------------------------------------- UNIVISION PARTNERSHIP agreeing OF              HOME SHOPPING NETWORK, INC., solely for purposes of acknowledging and to Section 25 hereof By: USA STATION GROUP, INC. its general managing partner   By:  -------------------------------------------------------------------------------- Name:  -------------------------------------------------------------------------------- Title:  -------------------------------------------------------------------------------- By:  -------------------------------------------------------------------------------- Name:  -------------------------------------------------------------------------------- Title:  --------------------------------------------------------------------------------     7 -------------------------------------------------------------------------------- SCHEDULE A     STATION agrees to air the PROGRAM SERVICE up to 168 hours per week as determined by HSN. This schedule may be amended from time to time by mutual written agreement between HSN and STATION.     STATION agrees to air a minimum of ten promos per week to be supplied by HSN for every week STATION airs the PROGRAM SERVICE.     Initials                                Initials             -------------------------------------------------------------------------------- SCHEDULE B Applicable AT Note -------------------------------------------------------------------------------- SCHEDULE C Standards and Practices -------------------------------------------------------------------------------- SCHEDULE D COMPENSATION     Subject to the terms of the Agreement, including without limitation Section 8, STATION shall be reimbursed each month during the term of this Agreement in the amount of (a) either (i) $[insert amount for STATION as provided on Attachment E] per month (or applicable portion thereof), provided, however, that to the extent the Reimbursable Expenses (as defined below) for the STATION during the term of this Agreement exceed the amount of payments made by HSN to STATION in accordance with this Section (a)(i), then HSN shall reimburse STATION for any such amount promptly upon HSN's receipt of an itemized statement certified by the chief financial officer of STATION as being true and correct that sets forth all of the Reimbursable Expenses (excluding any expenses to which Buyer is entitled to be reimbursed pursuant to the Stock Purchase Agreement) incurred by STATION during the term, or (ii) at STATION'S election, the operating expenses of STATION for such month as are set forth on a monthly itemized statement certified by the chief financial officer of STATION as being true and correct that is provided to HSN by STATION to the extent such operating expenses constitute Reimbursable Expenses. "Reimbursable Expenses" shall mean operating expenses that are necessary to perform obligations hereunder and are incurred by STATION after the applicable AT Transfer Closing (as defined in the Stock Purchase Agreement) in the ordinary course of business consistent with past practices of USAB and in material compliance with all FCC Licenses (as defined in the Stock Purchase Agreement); and (b) all capital expenditures of STATION (other than capital expenditures permitted under Section 4.7 of the Stock Purchase Agreement) reasonably required to be incurred during the applicable time period in order to maintain the equipment of the STATION in working order (ordinary wear and tear excepted) as necessary to conduct the STATION in the ordinary course of business and in material compliance with all FCC Licenses for the STATION; provided, however, that HSN shall have the right to approve any such capital expenditures of STATION in excess of One Thousand Dollars ($1,000) per month, such consent not to be unreasonably withheld, conditioned or delayed.     STATION shall only be compensated for expenses incurred in connection with those days STATION is operated at full FCC authorized power, and broadcasts a picture and sound quality that complies with FCC and broadcast engineering standards, provided STATION shall be compensated to the extent that (a) any failure of picture and sound quality to comply with FCC and broadcast engineering standards results from a failure by HSN to provide a quality transmission feed or (b) any failure by STATION to operate at full FCC authorized power results from any labor disputes, satellite transmission problems, or other causes beyond the control of STATION.     Initials                                Initials             -------------------------------------------------------------------------------- ATTACHMENT E Station --------------------------------------------------------------------------------   Monthly Compensation Payment --------------------------------------------------------------------------------   Termination Date -------------------------------------------------------------------------------- Chicago   $ 71,264   January 14, 2002, 12:01 a.m. local time Houston   $ 64,301   January 14, 2002, 12:01 a.m. local time Boston   $ 56,681   January 14, 2002, 12:01 a.m. local time New York   $ 215,631   October 1, 2001, 12:01 a.m. local time Cleveland   $ 57,822   January 14, 2002, 12:01 a.m. local time Philadelphia   $ 76,728   January 14, 2002, 12:01 a.m. local time Los Angeles   $ 94,097   January 14, 2002, 12:01 a.m. local time Tampa   $ 67,609   January 14, 2002, 12:01 a.m. local time Orlando   $ 29,147   January 14, 2002, 12:01 a.m. local time -------------------------------------------------------------------------------- EXHIBIT E AT Note -------------------------------------------------------------------------------- PROMISSORY NOTE $                           , 2001     FOR VALUE RECEIVED, [SPE], a Delaware corporation whose principal office is located at 1999 Avenue of the Stars, Los Angeles, California 90067 (the "Maker"), promises to pay to the order of USA Broadcasting, Inc., a Delaware corporation (the "Holder"), at 152 West 57th Street, 42nd Floor, New York, New York 10019, or at such other place as the Holder of this Note may from time to time designate, on [September 28, 2001 / January 11, 2002] (the "Maturity Date"), the principal amount of              DOLLARS ($            ), without interest. All payments hereunder shall be made in lawful money of the United States of America, without offset. The unpaid principal amount of this Note may not be prepaid.     This Note evidences the obligation of the Maker to pay the Holder as described in Section 1.5(a)(iv)(B) of the Stock Purchase Agreement dated as of January 17, 2001, between Univision Communications Inc. ("Univision") and the Holder as amended by the First Amendment to Stock Purchase Agreement dated May 9, 2001 and by the Second Amendment to Stock Purchase Agreement dated June 7, 2001 (collectively, the "Purchase Agreement"). All capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Purchase Agreement.     Pursuant to the terms of a Pledge Agreement (the "Pledge Agreement") of even date herewith by and among the Maker, Univision, Univision Station Group of             , Inc., Univision Station Group Partnership of             , [Station GP Interest LLC] and the Holder, the Maker's obligations under this Note are secured by a first priority perfected security interest granted to the Holder in and to certain Pledged Collateral (as defined in the Pledge Agreement). None of the references to the Purchase Agreement or the Pledge Agreement nor any provision thereof (other than the second sentence of Section 1.4(d) and the penultimate sentence of Section 1.5(d) of the Purchase Agreement) shall affect or impair the absolute and unconditional obligation of the Maker to pay the principal amount hereof when due.     The occurrence of any "Event of Default" under the Pledge Agreement shall constitute an event of default ("Event of Default") hereunder. Upon the occurrence of any such Event of Default hereunder, the entire principal amount hereof shall be accelerated, and shall be immediately due and payable, at the option of the Holder, without demand or notice, and in addition thereto, and not in substitution therefor, the Holder shall be entitled to exercise any one or more of the rights and remedies provided for in the Pledge Agreement and/or by applicable law. Failure to exercise said option or to pursue such other remedies shall not constitute a waiver of such option or such other remedies or of the right to exercise any of the same in the event of any subsequent Event of Default hereunder.     In the event that the principal amount hereof or any other sum due hereunder is not paid when due and payable, the whole of the unpaid principal amount evidenced hereby shall, from the date when such payment was due and payable until the date of payment in full thereof, bear interest at the rate of thirteen percent (13%) per annum, which rate, if applicable, shall commence, without notice, immediately upon the date when said payment was due and payable.     The Maker promises to pay all costs and expenses (including without limitation reasonable attorneys' fees and disbursements) incurred in connection with the collection hereof or in the protection or realization of any collateral now or hereafter given as security for the repayment hereof (including without limitation the security provided under the Pledge Agreement).     Any payment on this Note coming due on a Saturday, a Sunday, or a day which is a legal holiday in the place at which a payment is to be made hereunder shall be made on the next succeeding day which is a business day in such place, and any such extension of the time of payment shall be included in the computation of interest hereunder.     The Maker hereby waives presentment, protest, demand, notice of dishonor, and all other notices, and all defenses and pleas on the grounds of any extension or extensions of the time of payments or -------------------------------------------------------------------------------- the due dates of this Note, in whole or in part, before or after maturity, with or without notice. No renewal or extension of this Note, no release or surrender of any collateral given as security for this Note, no release of the Maker, and no delay in enforcement of this Note or in exercising any right or power hereunder, shall affect the liability of the Maker. The pleading of any statute of limitations as a defense to any demand against the Maker is expressly waived.     No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder, or under any other agreement given as security for this Note or pertaining hereto, shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Note are cumulative to, and not exclusive of, any rights or remedies otherwise available.     In case any provision in or obligation under this Note shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.     This Note and all agreements between the Maker and the Holder relating hereto are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration or otherwise, shall the amount paid or agreed to be paid to the Holder for the use, forbearance or detention of money hereunder exceed the maximum amount permissible under applicable law. If from any circumstance whatsoever fulfillment of any provision hereof, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, and if from any such circumstance the Holder shall ever receive interest, or anything which might be deemed interest under applicable law, which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal amount owing on account of this Note and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal of this Note, such excess shall be promptly refunded to the Maker. All sums paid or agreed to be paid to the Holder for the use, forbearance or detention of the indebtedness of the Maker to the Holder shall, to the extent permitted by applicable law, be deemed to be amortized, prorated, allocated and spread throughout the full term of such indebtedness until payment in full so that the actual rate of interest on account of such indebtedness is uniform throughout the term thereof. The terms and provisions of this paragraph shall control and supersede every other provision of this Note and all other agreements between the Maker and the Holder.     Whenever used herein, the words "Maker" and "Holder" shall be deemed to include their respective successors and assigns.     THIS NOTE, THE RIGHTS AND OBLIGATIONS OF THE MAKER HEREUNDER, AND ALL MATTERS ARISING OUT OF OR RELATING TO THIS NOTE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.     ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE MAKER ARISING OUT OF OR RELATING TO THIS NOTE, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS NOTE, THE MAKER FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY 2 --------------------------------------------------------------------------------     (I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS;     (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;     (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE MAKER AT ITS ADDRESS SET FORTH ABOVE;     (IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE MAKER IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT;     (V) AGREES THAT THE HOLDER RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST THE MAKER IN THE COURTS OF ANY OTHER JURISDICTION; AND     (VI) AGREES THAT THE PROVISIONS OF THIS PARAGRAPH RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE.     THE MAKER HEREBY AGREES TO WAIVE ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE. 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 Note, including without limitation contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. The Maker acknowledges that this waiver is a material inducement to the Holder to enter into a business relationship, that the Holder already relied on this waiver in accepting this Note and that the Holder will continue to rely on this waiver in its related future dealings with the Maker. The Maker further warrants and represents that it has reviewed this waiver with its legal counsel, and that knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A WRITTEN WAIVER BY THE HOLDER SPECIFICALLY REFERRING TO THIS PARAGRAPH AND EXECUTED BY THE HOLDER), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE. In the event of litigation, this Note may be filed as a written consent to a trial by the court. 3 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the undersigned has duly executed this PROMISSORY NOTE, or has caused this PROMISSORY NOTE to be duly executed on its behalf, as of the day and year first hereinabove set forth.     [SPE]     By:  -------------------------------------------------------------------------------- Name: Title: 4 -------------------------------------------------------------------------------- EXHIBIT F Pledge Agreement -------------------------------------------------------------------------------- PLEDGE AGREEMENT     THIS PLEDGE AGREEMENT (this "Agreement") is dated as of             , 2001 and entered into by and among [SPE], a Delaware corporation ("Pledgor"), Univision Communications Inc., a Delaware corporation ("Univision"), Univision Station Group of             , Inc., a Delaware corporation (the "Company"), Univision Partnership of , a Delaware general partnership and licensee of Television Station (                                                             ) (the "Partnership"), [Station GP Interest LLC], a Delaware limited liability company (the "LLC") and USA Broadcasting, Inc., a Delaware corporation ("Secured Party"). All capitalized terms used herein and not otherwise defined shall be given the meanings ascribed such terms in the Stock Purchase Agreement by and between Univision and Secured Party dated as of January 17, 2001, as amended by that certain First Amendment to Stock Purchase Agreement dated as of May 9, 2001 and by that certain Second Amendment to Stock Purchase Agreement dated as of June 7, 2001 (and as it may hereafter be amended, restated, supplemented or otherwise modified from time to time, the "Stock Purchase Agreement"). PRELIMINARY STATEMENTS     A.  On the date of the AT Transfer Closing (the "Closing"), Pledgor (a wholly-owned subsidiary of Univision) is acquiring from Secured Party (or a direct or indirect wholly-owned subsidiary of Secured Party) all the issued and outstanding shares of capital stock of the Company which owns the following: (i) a one hundred percent (100%) membership interest in the LLC, which LLC owns a one percent (1%) general partner interest in the Partnership and (ii) a ninety-nine percent (99%) interest in the Partnership.     B.  Pursuant to Section 1.5 of the Stock Purchase Agreement, Pledgor has issued an AT Note in the principal amount of $             at the Closing (the "Secured Amount") which is due and payable upon the Maturity Date (as defined in the AT Note).     C.  It is a condition precedent to Secured Party's acceptance of the AT Notes that Pledgor, Univision, the Company, the Partnership and the LLC shall have granted the security interests and undertaken the obligations contemplated by this Agreement.     NOW, THEREFORE, in consideration of the premises and in order to induce Secured Party to defer the payment of the Secured Amount at Closing and to transfer the capital stock of the Company to Pledgor at Closing, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Pledgor, Univision, the Company, the Partnership and the LLC hereby agree with Secured Party as follows: SECTION 1.  DEFINITIONS.  For the purposes of this Agreement:     1.1 "Closing" has the meaning set forth in the preliminary statements.     1.2 "Company" has the meaning set forth in the first paragraph.     1.3 "Event of Default" means:     (a) Pledgor shall fail to pay, when due, the Secured Obligations, or the failure to pay, when due, any of the AT Notes;     (b) any of the representations or warranties made by Pledgor, Univision, the Company, the Partnership or the LLC in this Agreement or any Related Document shall prove to have been incorrect or misleading in any material respect on or as of each date made or deemed made;     (c) the failure of Pledgor, Univision, the Company, the Partnership or the LLC in any material respect to observe, satisfy or perform any of the terms, covenants or agreements contained in this Agreement or any Related Document;     (d) the failure of Pledgor, the Company, the Partnership or the LLC generally to pay its debts as such debts become due, the admission by Pledgor, the Company, the Partnership or -------------------------------------------------------------------------------- the LLC in writing of its inability to pay its debts as such debts become due, or the making by Pledgor, the Company, the Partnership or the LLC of any general assignment for the benefit of creditors;     (e) the commencement by Pledgor, the Company, the Partnership or the LLC of any case, proceeding, or other action seeking reorganization, arrangement, adjustment, liquidation, dissolution, or composition of it or its debts, under any law relating to bankruptcy, insolvency, or reorganization, or relief of debtors, or seeking appointment of a receiver, trustee, custodian, or other similar official for it or for all or any substantial part of its property;     (f)  the commencement of any case, proceeding, or other action against Pledgor, the Company, the Partnership or the LLC seeking to have any order for relief entered against any of them as debtor, or seeking reorganization, arrangement, adjustment, liquidation, dissolution, or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization, or relief of debtors, or seeking appointment of a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official for Pledgor, the Company, the Partnership or the LLC or for all or any substantial part of any of their property, and (i) Pledgor, the Company, the Partnership or the LLC shall, by any act or omission, indicate consent to, approval of, or acquiescence in such case, proceeding, or action, (ii) such case, proceeding, or action results in the entry of an order for relief which is not fully stayed within fifteen (15) days after the entry thereof, or (iii) such case, proceeding, or action remains undismissed for a period of thirty (30) days or more or is dismissed or suspended only pursuant to Section 305 of the United States Bankruptcy Code or any corresponding provision of any future United States bankruptcy law;     (g) any FCC License owned or held by the Company or the Partnership or any other FCC license required for the lawful ownership, lease, control, use, operation, management or maintenance of any broadcast station or other broadcasting property of the Company or the Partnership shall be cancelled, terminated, rescinded, revoked, suspended, impaired, otherwise finally denied renewal, or otherwise modified in any material adverse respect, or shall be renewed on terms that materially and adversely affect the economic or commercial value or usefulness thereof, the result of which would have a Material Adverse Effect; or any such FCC License, the loss of which would have a Material Adverse Effect, shall no longer be in full force and effect; or the grant of any such FCC License, the loss of which would have a Material Adverse Effect, or the grant of any FCC License shall have been stayed, vacated or reversed, or modified in any material adverse respect, by judicial or administrative proceedings; or any administrative law judge of the FCC shall have issued an initial decision in any non-comparative license renewal, license revocation or any comparative (multiple applicant) proceeding to the effect that any such FCC License, the loss of which would have a Material Adverse Effect, should be revoked or not be renewed; or any other proceeding shall have been instituted by or shall have been commenced before any court, the FCC or any other regulatory body that more likely than not will result in such cancellation, termination, rescission, revocation, impairment or suspension of any such FCC License or result in such modification of any such FCC License that would more likely than not have a Material Adverse Effect; or the FCC shall deny any ancillary application if the denial of such ancillary application would more likely than not have a Material Adverse Effect; or     (h) the unenforceability of Secured Party's security interest in the Pledged Collateral with the priority set forth herein for any reason whatsoever.     1.4 "Indebtedness", as applied to any Person, means, without duplication, (a) all indebtedness for borrowed money, (b) that portion of obligations with respect to capital leases that is properly classified as a liability on a balance sheet in conformity with GAAP, (c) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money, (d) any obligation owed for all or any part of the deferred purchase price of property or services (excluding any 2 -------------------------------------------------------------------------------- such obligations incurred under ERISA), which purchase price is (i) due more than three months from the date of incurrence of the obligation in respect thereof or (ii) evidenced by a note or similar written instrument, and (e) all indebtedness secured by any Encumbrance on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person.     1.5 "Investment" means (a) any direct or indirect purchase or other acquisition by the Company or the Partnership of, or of a beneficial interest in, any Securities of any other Person (including any subsidiary) and (b) any direct or indirect loan, advance (other than advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by the Company or the Partnership to any other Person, including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment.     1.6 "LLC" has the meaning set forth in the first paragraph.     1.7 "Material Adverse Effect" means a material adverse effect upon the business, operations, prospects, properties, assets or condition (financial or otherwise) of the Company, the Partnership or the LLC.     1.8 "Partnership" has the meaning set forth in the first paragraph.     1.9 "Pledged Collateral" means:     (a) all shares of stock owned by Pledgor in the Company, 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 Pledgor, including those owned on the date hereof and described in Schedule I, and the certificates or other instruments representing any of the foregoing and any interest of 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, options, rights, instruments, right to vote or manage the business of the Company 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;     (b) all partnership interests owned by the Company and the LLC in the Partnership, including all rights to purchase or otherwise acquire any such interests, now or hereafter owned by Pledgor, including those owned on the date hereof and disclosed in Schedule I (the "Pledged Partnership Interest"), and any instruments representing any of the foregoing, and all distributions, returns of capital, cash, rights, instruments, right to vote or manage the business of the Partnership pursuant to organizational documents governing the rights and obligations of the partners, 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 Partnership Interest;     (c) to the extent not covered by clause (a) or (b) above, all proceeds of any or all of the foregoing is Pledged Collateral. For purposes of this Agreement, the term "proceeds" includes whatever is receivable or received when Pledged Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes, without limitation, proceeds of any indemnity or guaranty payable to Pledgor or Secured Party from time to time with respect to any of the Pledged Collateral.     1.10  "Pledged Partnership Interest" has the meaning set forth in Section 1.9(b). 3 --------------------------------------------------------------------------------     1.11  "Pledged Shares" has the meaning set forth in Section 1.9(a).     1.12  "Pledgor" has the meaning set forth in the first paragraph.     1.13  "Related Document" means each of the Stock Purchase Agreement or any other document, instrument, agreement or certificate executed or delivered in connection with this Agreement or the Stock Purchase Agreement, including, but not limited to, any AT Affiliation Agreement, any AT Note, and any Pledge Agreement.     1.14  "Securities" means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.     1.15  "Secured Amount" has the meaning set forth in the preliminary statements.     1.16  "Secured Party" has the meaning set forth in the first paragraph.     1.17  "Secured Obligations" has the meaning set forth in Section 2.     1.18  "Securities Act" has the meaning set forth in Section 5.3.     1.19  "Stock Purchase Agreement" has the meaning set forth in the first paragraph.     1.20  "UCC" has the meaning set forth in Section 5.1.     1.21  "Univision" has the meaning set forth in the first paragraph. SECTION 2.  PLEDGE OF SECURITY.       As security for the due and punctual payment in full and performance by Pledgor of all its obligations and liabilities to pay the Secured Amount under the AT Note (all such obligations of Pledgor being the "Secured Obligations"), Pledgor, the Company and the LLC, as applicable, hereby pledge and assign to Secured Party, for the benefit of Secured Party, and hereby grant to Secured Party, for the benefit of Secured Party, a first priority security interest in the Pledged Collateral and the proceeds thereof. SECTION 3.  DELIVERY OF PLEDGED COLLATERAL.       Simultaneously with the execution of this Agreement, Pledgor is delivering all certificates or instruments representing or evidencing the Pledged Shares to be held by or on behalf of Secured Party pursuant hereto, in suitable form for transfer by delivery or, as applicable, accompanied by Pledgor's endorsement, where necessary, or duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Secured Party, together with any other documents necessary to cause Secured Party to have a good, valid and perfected first pledge of, lien on and security interest in the Pledged Shares, free and clear of all Encumbrances. Simultaneously with the execution of this Agreement, the Company and the LLC are delivering duly executed financing statements for the Pledged Partnership Interest, which when filed in the proper jurisdiction, shall cause Secured Party to have a good, valid and perfected pledge of, lien on and security interest in the Pledged Partnership Interest, free and clear of all Encumbrances. Upon the occurrence and during the continuation of an Event of Default, Secured Party shall have the right, without notice to Pledgor, to transfer to or to register in the name of Secured Party or any of its nominees any or all of the Pledged Shares or Pledged Partnership Interest. In addition, Secured Party shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Shares for certificates or instruments of smaller or larger denominations. Secured Party hereby confirms receipt of certificates representing the 4 -------------------------------------------------------------------------------- Pledged Shares and agrees to hold the Pledged Shares and Pledged Partnership Interest in accordance with the terms of this Agreement. SECTION 4.  VOTING RIGHTS.       4.1 So long as no Event of Default shall have occurred and be continuing, Pledgor, the Company and the LLC shall be entitled to exercise, any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement.     4.2 Upon the occurrence and during the continuation of an Event of Default, upon written notice from Secured Party to Pledgor, all rights of Pledgor, the Company and the LLC to exercise the voting and other consensual rights which they would otherwise be entitled to exercise pursuant to Section 4.1 shall cease, and all such rights shall thereupon become vested in Secured Party who shall thereupon have the sole right to exercise such voting and other consensual rights.     4.3 In order to permit Secured Party to exercise the voting and other consensual rights which it may be entitled to exercise pursuant to Section 4.2:     (a) Pledgor, the Company or the LLC shall promptly execute and deliver (or cause to be executed and delivered) to Secured Party all such proxies, and other instruments as Secured Party may from time to time reasonably request; and     (b) without limiting the effect of Section 4.3(a), (i) Pledgor hereby grants to Secured Party an irrevocable proxy to the extent permitted by law to vote the Pledged Shares and to exercise all other rights, powers, privileges and remedies to which a holder of the Pledged Shares would be entitled (including, without limitation, giving or withholding written consents of shareholders, calling special meetings of shareholders and voting at such meetings), which proxy shall be effective, automatically and without the necessity of any action (including any transfer of any Pledged Shares on the record books of the issuer thereof) by any other Person (including the issuer of the Pledged Shares or any officer or agent thereof), upon the occurrence of an Event of Default and which proxy shall only terminate upon the payment in full of the Secured Obligations and (ii) the Company and the LLC, as applicable, hereby grant to Secured Party an irrevocable proxy to the extent permitted by law to vote the Pledged Partnership Interest and to exercise all other rights, powers, privileges and remedies to which a holder of the Pledged Partnership Interest would be entitled (including, without limitation, giving or withholding written consents of partners, calling special meetings of partners and voting at such meetings), which proxy shall be effective, automatically and without the necessity of any action by any other Person, upon the occurrence of an Event of Default and which proxy shall only terminate upon the payment in full of the Secured Obligations. SECTION 5.  REMEDIES UPON DEFAULT.       5.1 If any Event of Default shall have occurred and be continuing:     (a) Secured Party may exercise in respect of the Pledged Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party upon default under the Uniform Commercial Code as adopted in the applicable jurisdiction (the "UCC") (whether or not the UCC applies to the affected Pledged Collateral),     (b) Secured Party may apply any cash held by the Secured Party hereunder in the manner provided in Section 12, and     (c) Secured Party may also in its sole discretion, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange or broker's board or at any of Secured Party's offices or elsewhere, for cash, on credit or 5 -------------------------------------------------------------------------------- for future delivery, at such time or times and at such price or prices and upon such other terms as Secured Party may deem commercially reasonable, irrespective of the impact of any such sales on the market price of the Pledged Collateral.     5.2 Secured Party may be the purchaser of any or all of the Pledged Collateral at any sale pursuant to Section 5.1(c) and thereafter may hold the same, absolutely, free from any right or claim of whatsoever kind. Secured Party shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Pledged Collateral sold at any such public sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price for any Pledged Collateral payable by Secured Party at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of Pledgor, and Pledgor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Pledgor agrees that, to the extent notice of sale shall be required by law, at least five days' notice to Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Secured Party shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. 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. Pledgor hereby waives any claims against Secured Party arising by reason of the fact that the price at which any Pledged Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if Secured Party accepts the first offer received and does not offer such Pledged Collateral to more than one offeree. If the proceeds of any sale or other disposition of the Pledged Collateral are insufficient to pay all the Secured Obligations, Pledgor shall be liable for the deficiency and the fees of any attorneys employed by Secured Party to collect such deficiency.     5.3 Pledgor recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities laws, Secured Party may be compelled, with respect to any sale of all or any part of the Pledged Collateral conducted without prior registration or qualification of such Pledged Collateral under the Securities Act and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acquire the Pledged Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Pledgor acknowledges that any such private sales may be at prices and on terms less favorable than those obtainable through a public sale without such restrictions (including, without limitation, a public offering made pursuant to a registration statement under the Securities Act) and, notwithstanding such circumstances, Pledgor agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that Secured Party shall have no obligation to engage in public sales and no obligation to delay the sale of any Pledged Collateral for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would, or should, agree to so register it.     5.4 If Secured Party determines to exercise its right to sell any or all of the Pledged Collateral, upon written request, Pledgor shall, and shall cause the Company and the LLC to, furnish to Secured Party all such information as Secured Party may request in order to determine the number of shares and other instruments included in the Pledged Collateral which may be sold by Secured Party in exempt transactions under the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder, as the same are from time to time in effect. Pledgor also hereby acknowledges that any private sale of the Pledged Collateral may be subject to compliance with federal and state securities laws. 6 --------------------------------------------------------------------------------     5.5 Secured Party, instead of exercising the power of sale herein conferred upon it, may proceed by a suit or suits at law or in equity to foreclose its lien or security interest arising from this Agreement and sell the Pledged Collateral, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction. On any sale of the Pledged Collateral, Secured Party is hereby authorized to comply with any limitation or restriction in connection with such sale that it may be advised by counsel is necessary in order to avoid any violation of applicable law or in order to obtain any required approval of the purchaser or purchasers by any governmental regulatory authority or officer of court.     5.6 Notwithstanding anything to the contrary set forth in this Agreement, Secured Party, agrees that to the extent prior FCC approval is required pursuant to the Communications Act (or the prior approval of any Governmental Entity is required under applicable law) for (a) the operation and effectiveness of any grant, right or remedy, or the loss of any voting or consent right, hereunder, or (b) taking any action that may be taken by Secured Party hereunder, such grant, right, remedy, loss of right, or action will be subject to such prior FCC approval or, to the extent applicable, Governmental Entity approval having been obtained by or in favor of Secured Party (and Pledgor and Univision will use, and will cause Pledgor, the Company, the Partnership or the LLC, to use, as applicable, their respective best efforts to obtain any such approval as promptly as possible). Pledgor and Univision each agrees that, upon and during the continuance of an Event of Default and at Secured Party's request, Pledgor and Univision will, and will cause Pledgor, the Company, the Partnership or the LLC, as applicable, to, immediately file, or cause to be filed, such applications for approval and shall take all other and further actions required by the Secured Party to obtain such governmental authorizations as are necessary to transfer ownership and control to Secured Party, or its successors or assigns, of the Pledged Collateral. To enforce the provisions of this Section 5.6, Secured Party is empowered to request the appointment of a receiver from any court of competent jurisdiction. Such receiver shall be instructed to seek from the FCC and, to the extent applicable, any Governmental Entity, an involuntary transfer of control of any of the Company's or the Partnership's FCC Licenses for the purpose of seeking a bona fide purchaser to whom control will ultimately be transferred. Pledgor and Univision each hereby agrees to authorize, and to cause Pledgor, the Company, the Partnership and the LLC, as applicable, to authorize, such an involuntary transfer of control upon the request of the receiver so appointed and, if Pledgor or Univision shall refuse to authorize or cause Pledgor, the Company, the Partnership and the LLC, as the case may be, so to authorize the transfer, its approval may be required by the court. Upon the occurrence and continuance of an Event of Default, Pledgor and Univision each shall further use their respective best efforts, and shall cause Pledgor, the Company, the Partnership and the LLC, as applicable, to use their respective best efforts, to assist in obtaining approval of the FCC, if required, or, to the extent applicable, any Governmental Entity, if required, for any action or transactions contemplated by this Agreement, including, without limitation, preparation, execution and filing with the FCC and, to the extent applicable, any Governmental Entity of the assignor's or transferor's portion of any application or applications for consent to the assignment of any of the Company's or the Partnership's FCC Licenses or transfer of control necessary or appropriate under the FCC's Rules or the rules and regulations of any applicable Governmental Entity for approval of the transfer or assignment of any portion of the Pledged Collateral, together with any of the Company's or the Partnership's FCC Licenses or other authorization. Pledgor and Univision each acknowledges that the assignment or transfer of any interest in the Company's and the Partnership's FCC Licenses acquired hereunder is integral to the Secured Party's realization of the value of the Pledged Collateral, that there is no adequate remedy at law for failure by Pledgor or Univision to comply with the provisions of this Section 5.6 and that such failure would not be adequately compensable in damages, and therefore agree that the agreements contained in this Section 5.6 may be specifically enforced.     Notwithstanding anything to the contrary contained in this Agreement or any Related Documents, Secured Party shall not, without first obtaining the approval of the FCC and, to the extent applicable, any Governmental Entity, take any action pursuant to this Agreement which would constitute or result 7 -------------------------------------------------------------------------------- in any acquisition or transfer of ownership of the Pledgor or Univision or their respective assets, assignment of any of the Company's or the Partnership's FCC Licenses or any change of control of Pledgor or Univision or any other Person if such assignment, acquisition, transfer or change in control would require, under then existing law (including FCC Rules), the prior approval of the FCC or any Governmental Entity.     Secured Party acknowledges that after the occurrence of an Event of Default, all requisite consents of the FCC and any applicable Governmental Entity must be obtained prior to the exercise by Secured Party and/or a purchaser, at a public or private sale, or any rights as an equity holder in the Pledged Collateral.     5.7 It is expressly understood and agreed by Pledgor that Secured Party may exercise its rights under the Stock Purchase Agreement or any Related Document providing security for the Secured Obligations or otherwise without exercising its rights or affecting the security provided hereunder, and it is further understood and agreed by Pledgor that Secured Party may proceed against all or any portion or portions of the Pledged Collateral and all other collateral securing the Secured Obligations in such order and at such time as Secured Party, in its sole discretion, sees fit; and Pledgor each hereby expressly waives any rights under the doctrine of marshalling of assets.     5.8 Compliance with the procedures in this Section 5 shall result in a sale or disposition of the Pledged Collateral pursuant to Section 5.1(c) being considered or deemed to have been made in a commercially reasonable manner. SECTION 6.  REPRESENTATIONS AND WARRANTIES OF PLEDGOR.       6.1 Pledgor represents and warrants as follows:     (a)  Organization and Powers.  Pledgor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Pledgor has all requisite corporate power and authority to own the Pledged Collateral and to execute, deliver and perform this Agreement and to carry out the transactions contemplated hereby.     (b)  No Conflict.  The execution, delivery and performance by Pledgor of this Agreement and the consummation of the transactions contemplated by this Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Pledgor, the certificate of incorporation or by-laws of Pledgor, as the case may be, or any order, judgment or decree of any court or other agency of government binding on Pledgor, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any contractual obligation of Pledgor or result in or require the acceleration of any of their respective indebtedness pursuant to any agreement, indenture or other instrument to which Pledgor is a party or by which Pledgor or any of their respective properties may be bound or affected, (iii) conflict with or violate any judgment, decree, order, law, statute, ordinance, license or other governmental rule or regulation applicable to Pledgor, (iv) result in or require the creation or imposition of any Encumbrance upon the Pledged Collateral (other than those created in favor of Secured Party hereunder), or (v) require any approval of stockholders or any approval or consent of any Person under any contractual obligation of Pledgor.     (c)  Due Authorization; Binding Obligation.  The execution, delivery and performance of this Agreement has been duly and validly authorized by all necessary actions on the part of Pledgor (none of which actions have been modified or rescinded and all of which actions are in full force and effect). This Agreement has been duly executed and delivered by Pledgor and is the legally valid and binding obligation of Pledgor enforceable against each of them in accordance with its respective terms. 8 --------------------------------------------------------------------------------     (d)  Office Locations.  The principal place of business and the chief executive office of Pledgor, and the office where Pledgor keeps its books and records, is, as of the date hereof, located at the location set forth on Schedule 6.1(d).     (e)  Financing Statements.  Pledgor has not signed any financing statement, security agreement or other Encumbrance instrument covering all or any part of the Pledged Collateral, except as may have been filed in favor of Secured Party pursuant to this Agreement.     (f)  Authorizations.  No authorization, approval or other action by, and no notice to or filing with, any Governmental Entity or regulatory body (except, to the extent applicable, the FCC) or any third party is required for either (i) the pledge by Pledgor of the Pledged Collateral pursuant to this Agreement and the grant by Pledgor of the security interest granted hereby, (ii) the execution, delivery or performance of this Agreement by Pledgor, (iii) the exercise by Secured Party of the voting or other rights, or the remedies in respect of the Pledged Collateral, provided for in this Agreement (except as may be required in connection with a disposition of Pledged Collateral by laws affecting the offering and sale of securities generally and except as required by the Communications Act), or (iv) the perfection and maintenance of the pledge and security interest created hereunder (including the first priority nature of such security interest), except for the filing of financing statements under the UCC with respect to the Pledged Partnership Interest, which financing statements have been duly filed and are in full force and effect, and the actions described in Section 3 with respect to Pledged Shares, which actions have been taken and are in full force and effect.     (g)  Perfection.  All filings and other actions necessary or desirable to perfect and protect the security interests in the Pledged Collateral created under this Agreement have been duly made or taken and are in full force and effect, and this Agreement creates in favor of Secured Party a valid and, together with such filings and other actions, perfected first priority security interest in the Pledged Collateral, securing the payment of the Secured Obligations.     (h)  Other Information.  All information hereafter supplied to Secured Party by or on behalf of Pledgor with respect to the Pledged Collateral is accurate and complete in all respects.     (i)  No Adverse Actions.  There is no action, claim, suit, proceeding or investigation pending, or to the knowledge of Pledgor, threatened or reasonably anticipated, against or affecting Pledgor, this Agreement, or the transactions contemplated hereby, before or by any court, arbitrator or Governmental Entity which might adversely affect Pledgor's ability to perform its obligations under this Agreement or might materially adversely affect the value of the Pledged Collateral.     (j)  Formation of Pledgor.  Pledgor has been formed for the sole purpose of acquiring the Stock. Other than the Stock, and the issued and outstanding shares of the capital stock of any other AT Subsidiary, Pledgor has no other assets, and other than the AT Notes. Pledgor has no other Indebtedness. Univision owns all of the issued and outstanding capital stock of Pledgor. SECTION 7.  AFFIRMATIVE COVENANTS OF PLEDGOR AND UNIVISION.       7.1 Each of Pledgor and Univision covenants and agrees that, so long as this Agreement shall remain in effect, and until payment in full of the Secured Obligations, Pledgor shall, and Univision shall cause Pledgor to:     (a) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other securities of the Company, and any and all additional interests of the Partnership;     (b) promptly deliver to Secured Party all written notices received by it with respect to the Pledged Collateral; 9 --------------------------------------------------------------------------------     (c) pay all debts and perform all obligations promptly and in accordance with the terms thereof, and pay and discharge promptly when due all taxes, assessments and governmental charges or levies imposed upon, and all claims against, the Pledged Collateral, except to the extent the validity thereof is being contested in good faith; provided that Pledgor shall in any event pay such taxes, assessments, charges, levies or claims not later than five (5) days prior to the date of any proposed sale under any judgment, writ or warrant of attachment entered or filed against Pledgor or any of the Pledged Collateral as a result of the failure to make such payment; provided, further, that Univision shall have no obligation or liability for the payment of any AT Note and shall not be deemed to be a direct or indirect obligor or guarantor of any such debts, obligations, taxes, assessments and governmental charges or levies, and claims against the Pledged Collateral as a result of this Section 7.1(c);     (d) preserve and maintain its existence in good standing;     (e) comply with the requirements of all applicable laws, rules, regulations and orders of all applicable governmental authorities, a breach of which might materially adversely affect the value of the Pledged Collateral; and     (f)  give reasonably prompt written notice to Secured Party after learning of: (i)any action, suit, or proceeding instituted or threatened against Pledgor, in any federal, state or foreign court or before or by any commission or other regulatory body (federal, state, or local, domestic or foreign), an adverse determination in which may reasonably be expected to lead to or to result in a material adverse effect upon the value of the Pledged Collateral; (ii)the filing, recording or assessment of any federal, state, local or foreign tax Encumbrance against Pledgor, an adverse determination in which may lead to or result in a material adverse effect upon the value of the Pledged Collateral; (iii)the occurrence of any Event of Default or event which, with the passage of time or giving of notice would constitute an Event of Default, hereunder; (iv)a default or assertion of a default under any other agreement, instrument or indenture to which Pledgor is a party or by which Pledgor or the Pledged Collateral may be bound or subject, or any other action, event or condition of any nature against or affecting Pledgor, which may reasonably be expected to lead to or result in a material adverse effect upon the value of the Pledged Collateral; (v)any Encumbrance that has attached to or been made or asserted against any of the Pledged Collateral; or (vi)any material change in any of the Pledged Collateral.     7.2 Each of Pledgor, Univision, the Company and the Partnership covenants and agrees that, so long as this Agreement shall remain in effect, and until payment in full of the Secured Obligations, the Company and Partnership shall, and Univision and Pledgor shall cause the Company, the Partnership and the LLC to:     (a) preserve and maintain their respective existences in good standing, and their respective licenses (including, without limitation, their FCC licenses), approvals, privileges and franchises in full force and effect as may be necessary to own, acquire or dispose of their respective properties, to conduct their respective businesses, or to comply with the construction, operating and reporting requirements of the FCC or any other Governmental Entity applicable to their respective businesses; 10 --------------------------------------------------------------------------------     (b) comply with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with the FCC Rules and environmental Laws;     (c) pay all taxes, assessments and other governmental charges imposed upon the Company, the Partnership or the LLC or any of their respective properties or assets or in respect of any of their income, businesses or franchises before any penalty accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become an Encumbrance upon any of their properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided that no such charge or claim need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as (i) such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor and (ii) in the case of a charge or claim which has or may become an Encumbrance against any of the properties or assets of the Company, the Partnership or the LLC, such proceedings conclusively operate to stay the sale of any portion of the properties or assets of the Company, the Partnership or the LLC to satisfy such charge or claim;     (d) maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear excepted, all material properties used or useful in the business (including all intellectual property) of the Company, the Partnership and the LLC and from time to time cause all appropriate repairs, renewals and replacements thereof to be made;     (e) so long as no Event of Default exists, promptly and diligently apply any net insurance or condemnation proceeds to pay or reimburse the costs of repairing, restoring or replacing the assets in respect of which such proceeds were received, and if an Event of Default exists, promptly and diligently apply any net insurance or condemnation proceeds to pay the Secured Obligations;     (f)  permit any authorized representatives designated by any Secured Party to visit and inspect any of the properties of the Company, the Partnership or the LLC, to inspect, copy and take extracts from its and their financial and accounting records, and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants (provided that the Company, the Partnership or the LLC may, if they so choose, be present at or participate in any such discussion), all upon reasonable notice and at such reasonable times during normal business hours and as often as may reasonably be requested;     (g) provide, with reasonable promptness, the following to Secured Party: (i)after any material contract of the Company, the Partnership or the LLC is terminated or amended in a manner that is materially adverse to the Company, the Partnership or the LLC, as the case may be, or any new material contract is entered into, a written statement describing such event with copies of such material amendments or new contracts, and an explanation of any actions being taken with respect thereto; and (ii)such other information and data with respect to the Company, the Partnership or the LLC as from time to time may be reasonably requested by Secured Party; and     (h) give reasonably prompt written notice to Secured Party after learning of: (i)any action, suit, or proceeding instituted or threatened against the Company, the Partnership or the LLC in any federal, state or foreign court or before or by any commission or other regulatory body (federal, state, or local, domestic or foreign), an adverse determination in which may reasonably be expected to lead to or to result in a Material Adverse Effect; 11 -------------------------------------------------------------------------------- (ii)the filing, recording or assessment of any federal, state, local or foreign tax Encumbrance against the Company, the Partnership or the LLC, an adverse determination in which may lead to or result in a Material Adverse Effect; (iii)a default or assertion of a default under any other agreement, instrument or indenture to which the Company, the Partnership or the LLC is a party or by which the Company, the Partnership or the LLC or any of their respective businesses, properties or assets may be bound or subject, or any other action, event or condition of any nature against or affecting the Company, the Partnership or the LLC, which may reasonably be expected to lead to or result in a Material Adverse Effect; (iv)any Encumbrance that has attached to or been made or asserted against any of their respective businesses, properties or assets; (v)any material change in any of their respective businesses, properties or assets; and (vi)any forfeiture, non-renewal, cancellation, termination, revocation, suspension, impairment or material adverse modification of any FCC Licenses held by the Company, the Partnership or the LLC, any notice of default or forfeiture with respect to any such FCC License, any refusal by any Governmental Entity (including the FCC) to renew or extend any such FCC License, any notice from the FCC that the FCC is initiating a reconsideration of the grant of any FCC consent, or any denial by the FCC of any FCC applications filed by the Company, the Partnership or the LLC to the extent such denial may have a reasonable possibility of having a Material Adverse Effect.     7.3 Each of Pledgor, the Company, the Partnership and the LLC agrees that from time to time, at their expense,     (a) Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Secured Party may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. Without limiting the generality of the foregoing, Pledgor will: (a) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as Secured Party may request, in order to perfect and preserve the security interests granted or purported to be granted hereby and (b) at Secured Party's request, appear in and defend any action or proceeding that may affect Pledgor's title to or Secured Party's security interest in all or any part of the Pledged Collateral. Pledgor hereby authorizes Secured Party to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Pledged Collateral without the signature of Pledgor. Pledgor agrees that a carbon, photographic or other reproduction of this Agreement or of a financing statement signed by Pledgor shall be sufficient as a financing statement and may be filed as a financing statement in any and all jurisdictions.     (b) Subject to Section 5.6, at the request of Secured Party, each of the Company, the Partnership and the LLC shall, and Pledgor shall cause the Company, the Partnership and the LLC to, grant a first priority perfected security interest and pledge all of the assets of the Company, the Partnership and the LLC to further secure the Secured Obligations provided, however, the Partnership shall not be required to grant a security interest in any FCC License so long as the grant of such a security interest would violate FCC Rules. Upon such request, each of Pledgor, the Company, the Partnership and the LLC will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Secured Party may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Secured Party to exercise and enforce its rights and 12 -------------------------------------------------------------------------------- remedies hereunder with respect to pledge all of the assets of the Company, the Partnership and the LLC to further secure the Secured Obligations. Without limiting the generality of the foregoing, the Company, the Partnership and the LLC will and Pledgor shall cause the Company, the Partnership and the LLC to: (a) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as Secured Party may request, in order to perfect and preserve the security interests granted or purported to be granted hereby and (b) at Secured Party's request, appear in and defend any action or proceeding that may affect the Company's and the Partnership's title to or Secured Party's security interest in all or any part of the assets of the Company, the Partnership and the LLC to further secure the Secured Obligations. The Company, the Partnership and the LLC hereby authorize Secured Party to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the assets of the Company, the Partnership and the LLC to further secure the Secured Obligations without the signature of either of them. The Company and the Partnership agree that a carbon, photographic or other reproduction of this Agreement or of a financing statement signed by either of them shall be sufficient as a financing statement and may be filed as a financing statement in any and all jurisdictions.     7.4 Pledgor further agrees that it will, upon obtaining any additional shares of stock or other securities required to be pledged hereunder as provided in Section 7.1(a), promptly (and in any event within five (5) business days) deliver to Secured Party a Pledge Amendment, duly executed by Pledgor, in substantially the form of Schedule II annexed hereto (a "Pledge Amendment"), in respect of the additional Pledged Shares to be pledged pursuant to this Agreement. Upon each delivery of a Pledge Amendment to Secured Party, the representations and warranties contained in Section 6 hereof shall be deemed to have been made by Pledgor as to the Pledged Collateral described in such Pledge Amendment. Pledgor hereby authorizes Secured Party to attach each Pledge Amendment to this Agreement and agrees that all Pledged Shares listed on any Pledge Amendment delivered to Secured Party shall for all purposes hereunder be considered Pledged Collateral; provided that the failure of Pledgor to execute a Pledge Amendment with respect to any additional Pledged Shares pledged pursuant to this Agreement shall not impair the security interest of Secured Party therein or otherwise adversely affect the rights and remedies of Secured Party hereunder with respect thereto. SECTION 8.  NEGATIVE COVENANTS OF PLEDGOR AND UNIVISION.       8.1 Each of Pledgor and Univision covenants and agrees that, so long as this Agreement shall remain in effect, and until payment in full of the Secured Obligations, Pledgor shall not and Univision shall not permit Pledgor to:     (a) merge, consolidate, admit new partners, dissolve or sell, transfer, assign or otherwise convey any of its respective rights or assets;     (b) directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness other than the AT Notes;     (c) except as provided in this Agreement or any Related Document, directly or indirectly, create, incur, assume or permit to exist any Encumbrance on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of Pledgor, whether now owned or hereafter acquired, or any income or profits therefrom, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any Encumbrance with respect to any such property, asset, income or profits under the UCC or under any similar recording or notice statute;     (d) directly or indirectly enter into any agreement, contract, plans, leases, instruments, arrangements, licenses or commitments; 13 --------------------------------------------------------------------------------     (e) directly or indirectly, make or own any Investment in any Person, including any joint venture, or acquire, by purchase or otherwise, all or substantially all the business, property or fixed assets of, or capital stock or other ownership interest of any Person, or any division or line of business of any Person, or enter into any time brokerage, local marketing or joint operating agreement except investments in cash or cash equivalents;     (f)  alter the corporate, capital or legal structure of Pledgor, create or acquire any subsidiary (other than an AT Subsidiary), or enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease or sub-lease (as lessor or sublessor), transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, property or assets, whether now owned or hereafter acquired;     (g) directly or indirectly, become or remain liable as lessee or as a guarantor or other surety with respect to any lease, whether an operating lease or a capital lease, of any property (whether real, personal or mixed), whether now owned or hereafter acquired;     (h) declare or pay any dividend or other distribution on any capital stock of Pledgor, or redeem or exchange any capital stock of Pledgor;     (i)  engage in any business other than holding the Stock of the Company and the Stock of any other AT Subsidiary;     (j)  change its name, identity or corporate structure in any manner that might make any financing statement filed in connection with this Agreement seriously misleading unless Pledgor shall have given Secured Party thirty (30) days prior written notice thereof and shall have taken all action deemed necessary or appropriate by Secured Party to protect its Encumbrances and the perfection and priority thereof; or     (k) change its principal place of business or chief executive office unless it shall have given Secured Party thirty (30) days prior written notice thereof and shall have taken all action deemed necessary or appropriate by Secured Party to cause its security interest in the Pledged Collateral to be perfected with the priority required by this Agreement.     8.2 Each of Pledgor, Univision, the Company, the Partnership and the LLC covenants and agrees that, so long as this Agreement shall remain in effect, and until payment in full of the Secured Obligations, each of the Company and the Partnership shall not, and Pledgor and Univision shall not permit the Company, the Partnership or the LLC to, and Pledgor and Univision shall affirmatively cause the Company, the Partnership and the LLC not to:     (a) merge, consolidate, admit new partners or members, dissolve or sell, transfer, assign or otherwise convey any of their respective rights or assets, including the Company's and the LLC's interest in the Partnership, and the Partnership's FCC Licenses;     (b) issue any stock or other securities in addition to or in substitution for the Pledged Shares issued by the Company, except to Pledgor;     (c) issue any partnership interests in addition to or in substitution for the Pledged Partnership Interest issued by the Partnership, except to Pledgor;     (d) issue any membership interests in addition to or in substitution for the membership interest issued by the LLC to the Company;     (e) directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness; 14 --------------------------------------------------------------------------------     (f)  except as provided in this Agreement or any Related Document, directly or indirectly, create, incur, assume or permit to exist any Encumbrance on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of the Company, the Partnership or the LLC, whether now owned or hereafter acquired, or any income or profits therefrom, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any Encumbrance with respect to any such property, asset, income or profits under the UCC or under any similar recording or notice statute;     (g) directly or indirectly enter into any agreement, contract, plans, leases, instruments, arrangements, licenses or commitments other than as are consistent with the AT Affiliation Agreements;     (h) directly or indirectly, make or own any Investment in any Person, including any joint venture, or acquire, by purchase or otherwise, all or substantially all the business, property or fixed assets of, or capital stock or other ownership interest of any Person, or any division or line of business of any Person, or enter into any time brokerage, local marketing or joint operating agreement except investments in cash or cash equivalents;     (i)  alter the corporate, capital or legal structure of the Company, the Partnership or the LLC, create or acquire any subsidiary, or enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease or sub-lease (as lessor or sublessor), transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, property or assets, whether now owned or hereafter acquired;     (j)  make or incur capital expenditures other than (i) such capital expenditures as are consistent with the AT Affiliation Agreements and (ii) such capital expenditures made to satisfy obligations assumed by Pledgor or Univision in accordance with the Stock Purchase Agreement;     (k) directly or indirectly, become or remain liable as lessee or as a guarantor or other surety with respect to any lease, whether an operating lease or a capital lease, of any property (whether real, personal or mixed), whether now owned or hereafter acquired, (i) that the Company, the Partnership or the LLC has sold or transferred or is to sell or transfer to any other Person (other than the Company, the Partnership or the LLC) or (ii) that the Company, the Partnership or the LLC intends to use for substantially the same purpose as any other property that has been or is to be sold or transferred by the Company, the Partnership or the LLC to any Person (other than the Company, the Partnership or the LLC) in connection with such lease;     (l)  declare or pay any dividend or other distribution on any of the Pledged Collateral, or redeem or exchange any of the Pledged Collateral;     (m) engage in any business other than (i) the businesses engaged in by the Company, the Partnership and the LLC on the date hereof and (ii) such other lines of business as may be consented to by Secured Party; or     (n) operate the businesses engaged in by the Company, the Partnership or the LLC in any manner other than the ordinary course of business, consistent with the past practices of the Company, the Partnership and the LLC (on the date hereof). SECTION 9.  SECURED PARTY APPOINTED AS ATTORNEY-IN-FACT.       9.1 Pledgor hereby irrevocably appoints Secured Party as Pledgor's attorney-in-fact, with full authority in the place and stead of Pledgor and in the name of Pledgor, Secured Party or otherwise, from time to time in Secured Party's discretion to take any action and to execute any instrument that 15 -------------------------------------------------------------------------------- Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including without limitation:     (a) to file one or more financing or continuation statements, or amendments thereto, relative to all or any part of the Pledged Collateral without the signature of Pledgor;     (b) upon the occurrence and during the continuance of an Event of Default, to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Pledged Collateral;     (c) upon the occurrence and during the continuance of an Event of Default, to receive, endorse and collect any instruments made payable to Pledgor representing any dividend, principal or interest payment or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same;     (d) upon the occurrence and during the continuance of an Event of Default, to file any claims or take any action or institute any proceedings that Secured Party may deem necessary or desirable for the collection of any of the Pledged Collateral or otherwise to enforce the rights of Secured Party with respect to any of the Pledged Collateral;     (e) to pay or discharge taxes or Encumbrances (other than Encumbrances permitted under this Agreement) levied or placed upon or threatened against the Pledged Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by Secured Party in its sole discretion, any such payments made by Secured Party to become obligations of Pledgor to Secured Party, due and payable immediately without demand; and     (f)  upon the occurrence and during the continuance of an Event of Default, generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Pledged Collateral as fully and completely as though Secured Party were the absolute owner thereof for all purposes, and to do, at Secured Party's option and Pledgor's expense, at any time or from time to time, all acts and things that Secured Party deems necessary to protect, preserve or realize upon the Pledged Collateral and Secured Party's security interest therein in order to effect the intent of this Agreement, all as fully and effectively as Pledgor might do. SECTION 10.  SECURED PARTY MAY PERFORM.       If Pledgor fails to perform any agreement contained herein, Secured Party may itself perform, or cause performance of, such agreement, and the expenses of Secured Party incurred in connection therewith shall be payable by Pledgor in accordance with Section 13.2. SECTION 11.  STANDARD OF CARE.       The powers conferred on Secured Party hereunder are solely to protect its interest in the Pledged Collateral and shall not impose any duty upon it to exercise any such powers. Except for the exercise of reasonable care in the custody of any Pledged Collateral in its possession and the accounting for moneys actually received by it hereunder, Secured Party shall have no duty as to any Pledged Collateral, it being understood that Secured Party shall have no responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Pledged Collateral, whether or not Secured Party has or is deemed to have knowledge of such matters, (b) taking any necessary steps (other than steps taken in accordance with the standard of care set forth above to maintain possession of the Pledged Collateral) to preserve rights against any prior parties or any other rights pertaining to any Pledged Collateral, (c) taking any necessary steps to collect or realize upon the Secured Obligations or any guarantee therefor, or any part thereof, or any of the Pledged Collateral, or (d) initiating any action to protect the Pledged Collateral against the possibility of a decline in market value. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of Pledged Collateral in its possession if such Pledged Collateral is accorded 16 -------------------------------------------------------------------------------- treatment substantially equal to that which Secured Party accords its own property consisting of negotiable securities. SECTION 12.  APPLICATION OF PROCEEDS.       Except as expressly provided elsewhere in this Agreement, all proceeds received by Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral shall be applied in the following order of priority:     FIRST:  To the payment of all costs and expenses of such sale, collection or other realization, including reasonable compensation to Secured Party and its agents and counsel, and all other expenses, liabilities and advances made or incurred by Secured Party in connection therewith, and all amounts for which Secured Party is entitled to indemnification hereunder and all advances made by Secured Party hereunder for the account of Pledgor, and to the payment of all costs and expenses paid or incurred by Secured Party in connection with the exercise of any right or remedy hereunder;     SECOND:  To the payment of all of the Secured Obligations; and     THIRD:  To the payment to or upon the order of Pledgor, or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. SECTION 13.  INDEMNITY AND EXPENSES.       13.1  Pledgor, Univision, the Company and the Partnership, jointly and severally, agree to indemnify Secured Party from and against any and all claims, losses and liabilities in any way relating to, growing out of or resulting from this Agreement and the transactions contemplated hereby (including, without limitation, enforcement of this Agreement), except to the extent such claims, losses or liabilities result solely from Secured Party's gross negligence or willful misconduct as finally determined by a court of competent jurisdiction; provided that Univision shall have no obligation or liability for the payment of any AT Note.     13.2  Pledgor, the Company and the Partnership jointly and severally, shall pay to Secured Party upon demand the amount of any and all costs and expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that Secured Party may incur in connection with (a) the sale of, collection from, or other realization upon, any of the Pledged Collateral, (b) the exercise or enforcement of any of the rights of Secured Party hereunder, or (c) the failure by Pledgor, Univision, the Company or the Partnership to perform or observe any of the provisions hereof.     13.3  The obligations of each of Pledgor, Univision, the Company and the Partnership in this Section 13 shall survive the termination of this Agreement and the discharge of Pledgor's other obligations under this Agreement. SECTION 14.  CONTINUING SECURITY INTEREST; TRANSFER OF SECURED OBLIGATIONS.       This Agreement shall create a continuing security interest in the Pledged Collateral and shall (a) remain in full force and effect until the payment in full of all Secured Obligations, (b) be binding upon Pledgor, its successors and assigns, and (c) inure, together with the rights and remedies of Secured Party hereunder, to the benefit of Secured Party and its successors, transferees and assigns. The Secured Party may not assign or otherwise transfer any Secured Obligations due to it to any Person other than an Affiliate of the Secured Party, in which case such Affiliate shall upon assignment or other transfer become vested with all the benefits in respect thereof granted to Secured Party herein or otherwise. Upon the payment in full of all Secured Obligations, the security interest granted hereby shall terminate and all rights to the Pledged Collateral shall revert to Pledgor. Upon any such termination Secured Party will, at Pledgor's expense, execute and deliver to Pledgor such documents as 17 -------------------------------------------------------------------------------- Pledgor shall reasonably request to evidence such termination and Pledgor shall be entitled to the return, upon its request and at its expense, against receipt and without recourse to Secured Party, of such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof. SECTION 15.  SURETYSHIP WAIVERS BY PLEDGOR, UNIVISION, ETC.       15.1  Pledgor, Univision, the Company, the Partnership and the LLC agree that their respective obligations hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any circumstance, which constitutes a legal or equitable discharge of a guarantor or surety other than payment in full of the Secured Obligations.     15.2  In furtherance of the foregoing and without limiting the generality thereof, Pledgor, Univision, the Company, the Partnership and the LLC agree as follows:     (a) Secured Party may from time to time, without notice or demand and without affecting the validity or enforceability of this Agreement or giving rise to any limitation, impairment or discharge of such Pledgor's or Univision's liability hereunder, (i)settle, compromise, release or discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Secured Obligations or any agreement relating thereto and/or subordinate the payment of the same to the payment of any other obligations, (ii)request and accept guaranties of the Secured Obligations and take and hold other security for the payment of the Secured Obligations, (iii)release, exchange, compromise, subordinate or modify, with or without consideration, any other security for payment of the Secured Obligations, any guaranties of the Secured Obligations, or any other obligation of any Person with respect to the Secured Obligations, (iv)enforce and apply any other security now or hereafter held by or for the benefit of Secured Party in respect of the Secured Obligations and direct the order or manner of sale thereof, or exercise any other right or remedy that Secured Party may have against any such security, as Secured Party in its discretion may determine consistent with the Stock Purchase Agreement and any applicable security agreement, including foreclosure on any such security pursuant to one or more judicial or non-judicial sales, whether or not every aspect of any such sale is commercially reasonable, and (v)exercise any other rights available to Secured Party under the Stock Purchase Agreement, at law or in equity; and     (b) this Agreement and the obligations of Pledgor, Univision, the Company, the Partnership and the LLC hereunder shall be valid and enforceable and shall not be subject to any limitation, impairment or discharge for any reason (other than payment in full of the Secured Obligations), including without limitation the occurrence of any of the following, whether or not Pledgor, Univision, the Company, the Partnership or the LLC shall have had notice or knowledge of any of them: (i)any failure to assert or enforce or agreement not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy with respect to the Secured Obligations or any agreement relating thereto, or with respect to any guaranty of or other security for the payment of the Secured Obligations, 18 -------------------------------------------------------------------------------- (ii)any waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including without limitation provisions relating to events of default) of the Stock Purchase Agreement or any agreement or instrument executed pursuant thereto, or of any guaranty or other security for the Secured Obligations, (iii)the Secured Obligations, or any agreement relating thereto, at any time being found to be illegal, invalid or unenforceable in any respect, (iv)the application of payments received from any source to the payment of indebtedness other than the Secured Obligations, even though Secured Party might have elected to apply such payment to any part or all of the Secured Obligations, (v)any failure to perfect or continue perfection of a security interest in any other collateral which secures any of the Secured Obligations, (vi)any defenses, set-offs or counterclaims which Pledgor or Univision may allege or assert against Secured Party in respect of the Secured Obligations, including but not limited to failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, accord and satisfaction and usury, and (vii)any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of Pledgor, Univision, the Company, the Partnership or the LLC as an obligor in respect of the Secured Obligations.     15.3 Each of Pledgor, Univision, the Company, the Partnership and the LLC hereby waives, for the benefit of Secured Party:     (a) any right to require Secured Party as a condition of payment or performance by Pledgor, Univision, the Company or the Partnership, to (i)proceed against any guarantor of the Secured Obligations or any other Person, (ii)proceed against or exhaust any other security held from any guarantor of the Secured Obligations or any other Person, (iii)proceed against or have resort to any balance of any deposit account or credit on the books of Secured Party in favor of any other Person, or (iv)pursue any other remedy in the power of Secured Party whatsoever;     (b) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of Pledgor, Univision, the Company, the Partnership or the LLC including, without limitation, any defense based on or arising out of the lack of validity or the unenforceability of the Secured Obligations or any agreement or instrument relating thereto or by reason of the cessation of the liability of Pledgor, Univision, the Company, the Partnership or the LLC from any cause other than payment in full of the Secured Obligations;     (c) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal;     (d) any defense based upon Secured Party's errors or omissions in the administration of the Secured Obligations, except behavior which amounts to gross negligence or willful misconduct;     (e) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms of this Agreement and any legal or equitable discharge of Pledgor's, Univision's the Company's, the Partnership's or the LLC's obligations hereunder; 19 --------------------------------------------------------------------------------     (f)  the benefit of any statute of limitations affecting Pledgor's, Univision's, the Company's, the Partnership's or the LLC's liability hereunder or the enforcement hereof;     (g) any rights to set-offs, recoupments and counterclaims;     (h) promptness, diligence and any requirement that Secured Party protect, secure, perfect or insure any other security interest or lien or any property subject thereto;     (i)  notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, notices of default under the Stock Purchase Agreement or any agreement or instrument related thereto, notices of any renewal, extension or modification of the Secured Obligations or any agreement related thereto, notices of any extension of credit to Pledgor or Univision and notices of any of the matters referred to in the preceding paragraph and any right to consent to any thereof; and     (j)  to the fullest extent permitted by law, any defenses or benefits that may be derived from or afforded by law which limit the liability of or exonerate guarantors or sureties, or which may conflict with the terms of this Agreement.     15.4 Until the Secured Obligations shall have been paid in full, each of Pledgor, Univision, the Company, the Partnership and the LLC shall withhold exercise of:     (a) any claim, right or remedy, direct or indirect, that each of them now has or may hereafter have against any of them or any of their respective assets in connection with this Agreement or the performance by Pledgor, Univision, the Company, the Partnership or the LLC of their respective obligations hereunder, in each case whether such claim, right or remedy arises in equity, under contract, by statute, under common law or otherwise and including without limitation: (i)any right of subrogation, reimbursement or indemnification that Pledgor, Univision, the Company, the Partnership or the LLC now has or may hereafter have against each other, (ii)any right to enforce, or to participate in, any claim, right or remedy that Secured Party now has or may hereafter have against the Pledgor, Univision, the Company, the Partnership or the LLC, and (iii)any benefit of, and any right to participate in, any other collateral or security now or hereafter held by Secured Party; and     (b) any right of contribution such Pledgor may have against any guarantor of the Secured Obligations.     15.5 Each of Pledgor, Univision, the Company, the Partnership and the LLC further agrees that, to the extent the waiver of its rights of subrogation, reimbursement, indemnification and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement or indemnification Pledgor, Univision, the Company, the Partnership and the LLC may have against any of them or against any other collateral or security, and any rights of contribution Pledgor, Univision, the Company, the Partnership and the LLC may have against any such guarantor, shall be junior and subordinate to any rights Secured Party may have against Pledgor, Univision, the Company, the Partnership or the LLC, to all right, title and interest Secured Party may have in any such other collateral or security, and to any right Secured Party may have against any such guarantor.     15.6 Secured Party shall have no obligation to disclose to or discuss with Pledgor or Univision its assessment of the financial condition of the Company, the Partnership or the LLC. Pledgor and Univision each has adequate means to obtain information from the Company, the Partnership and the LLC on a continuing basis concerning the financial condition of the Company and the Partnership, and each of Pledgor and Univision assumes the responsibility for being and keeping informed of the 20 -------------------------------------------------------------------------------- financial condition of the Company, the Partnership and the LLC, and of all circumstances bearing upon the risk of nonpayment of the Secured Obligations. Each of Pledgor and Univision hereby waives and relinquishes any duty on the part of Secured Party, to disclose any matter, fact or thing relating to the business, operations or condition of Pledgor, the Company, the Partnership or the LLC now known or hereafter known by Secured Party. SECTION 16.  AMENDMENT.       No amendment, modification, termination or waiver of any provision of this Agreement, and no consent to any departure by Pledgor, Univision the Company, the Partnership or the LLC therefrom, shall in any event be effective unless the same shall be in writing and signed by Secured Party and, in the case of any such amendment or modification, by Pledgor, Univision the Company, the Partnership or the LLC. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. SECTION 17.  NOTICES.       All notices and other communications given or made pursuant hereto shall be in writing and shall be effective (a) if given by telecommunication, when transmitted to the applicable telecopier number specified in (or pursuant to) this Section 17 and an appropriate answerback is received, (b) if given by mail, three days after such communication is deposited in the mails with first class postage prepaid, addressed to the applicable address specified below, or (c) if given by any other means, when actually delivered at the applicable address specified below: If to Pledgor, Univision, the Company, the Partnership or the LLC addressed to: c/o Univision Communications Inc. 1999 Avenue of the Stars, Suite 3050 Los Angeles, California 90067 Attention: C. Douglas Kranwinkle, Esq. Telecopier No.: (310) 556-3568 With a copy to: O'Melveny & Myers LLP 1999 Avenue of the Stars, Suite 700 Los Angeles, California 90067 Attention: Kendall R. Bishop, Esq. Telecopier No.: (310) 246-6779 If to Secured Party, addressed to: USA Broadcasting, Inc. 1230 Avenue of the Americas, 15th Floor New York, New York 10020 Attention: Charles A. Sommer, Esq. Telecopier No.: (212) 413-6721 and to: USA Networks, Inc. 152 West 57th Street, 47th Floor New York, New York 10019 Attention: Julius Genachowski, Esq. Telecopier No.: (212) 314-7329 21 -------------------------------------------------------------------------------- With a copy to: Hogan & Hartson L.L.P. 8300 Greensboro Drive, Suite 1100 McLean, Virginia 22102 Attention: Richard T. Horan, Jr., Esq. and Attention: Thomas E. Repke, Esq. Telecopier: (703) 610-6200 or to such other address or to such other person as either party shall have last designated by such notice to the other party. SECTION 18.  FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.       No failure or delay on the part of Secured Party in the exercise of any power, right or privilege hereunder shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. SECTION 19.  SEVERABILITY.       In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 20.  HEADINGS.       Section and Subsection 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 or be given any substantive effect. SECTION 21.  GOVERNING LAW; TERMS.       THIS AGREEMENT, THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER, AND ALL MATTERS ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE UCC PROVIDES THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein, terms used in Articles 8 and 9 of the Uniform Commercial Code in the State of New York are used herein as therein defined. SECTION 22.  CONSENT TO JURISDICTION AND SERVICE OF PROCESS.       ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST PLEDGOR, UNIVISION, THE COMPANY AND THE PARTNERSHIP ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, PLEDGOR, 22 -------------------------------------------------------------------------------- UNIVISION, THE COMPANY AND THE PARTNERSHIP FOR EACH OF THEM AND IN CONNECTION WITH THEIR RESPECTIVE PROPERTIES, IRREVOCABLY: (I)ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II)WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (III)AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO PLEDGOR, UNIVISION, THE COMPANY, THE PARTNERSHIP OR THE LLC AT THEIR RESPECTIVE ADDRESS AS PROVIDED IN ACCORDANCE WITH SECTION 17; (IV)AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER PLEDGOR AND UNIVISION IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V)AGREES THAT SECURED PARTY RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST PLEDGOR OR UNIVISION IN THE COURTS OF ANY OTHER JURISDICTION; AND (VI)AGREES THAT THE PROVISIONS OF THIS SECTION 22 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE. SECTION 23.  WAIVER OF JURY TRIAL.       EACH PARTY HERETO HEREBY AGREES TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. 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. Each party hereto acknowledges that this waiver is a material inducement for each of them to enter into a business relationship, that each of them has already relied on this waiver in entering into this Agreement and that each will continue to rely on this waiver in their related future dealings. Each of them 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, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 23 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. SECTION 24.  COUNTERPARTS.       This Agreement may be executed in one or more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. 23 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, Pledgor, Univision, the Company, the Partnership, the LLC and Secured Party have caused this Pledge Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.   [SPE], as Pledgor   By:   --------------------------------------------------------------------------------   Name:   --------------------------------------------------------------------------------   Title:   --------------------------------------------------------------------------------   UNIVISION COMMUNICATIONS INC., as Univision   By:   --------------------------------------------------------------------------------   Name:   --------------------------------------------------------------------------------   Title:   --------------------------------------------------------------------------------   UNIVISION STATION GROUP OF                                        , INC., as Company   By:   --------------------------------------------------------------------------------   Name:   --------------------------------------------------------------------------------   Title:   --------------------------------------------------------------------------------   UNIVISION PARTNERSHIP OF                                        , as Partnership   By:   --------------------------------------------------------------------------------   Name:   --------------------------------------------------------------------------------   Title:   --------------------------------------------------------------------------------   [Station GP Interest LLC], as LLC   By:   --------------------------------------------------------------------------------   Name:   --------------------------------------------------------------------------------   Title:   --------------------------------------------------------------------------------   USA BROADCASTING, INC., as Secured Party   By:   --------------------------------------------------------------------------------   Name:   --------------------------------------------------------------------------------   Title:   -------------------------------------------------------------------------------- 24 -------------------------------------------------------------------------------- SCHEDULE I     Attached to and forming a part of the Pledge Agreement dated as of                         , 2001 among [SPE], Univision Communications Inc., Univision Station Group of                             , Inc., Univision Partnership of                             , [Station GP Interest LLC], USA Broadcasting, Inc., as Secured Party, as amended or modified from time to time. Class of Stock or Equity Interest of the Company   Stock Certificate Nos.   Par Value   Number of Shares   Percentage of Outstanding Shares Partnership Interest of the Partnership   Percentage of Interest -------------------------------------------------------------------------------- SCHEDULE II PLEDGE AMENDMENT     This Pledge Amendment, dated             ,       , is delivered pursuant to Section 7.4 of the Pledge Agreement referred to below. The undersigned hereby agrees that this Pledge Amendment may be attached to the Pledge Agreement dated as of             , 2001, among [SPE], Univision Communications Inc., Univision Station Group of               , Inc., Univision Partnership of               , [Station GP Interest LLC], USA Broadcasting, Inc., as Secured Party, as amended or otherwise modified from time to time (the "Pledge Agreement," capitalized terms defined therein being used herein as therein defined), and that the Pledged Shares listed on this Pledge Amendment shall be deemed to be part of the Pledged Shares and shall become part of the Pledged Collateral and shall secure all Secured Obligations.   [SPE]   By:   --------------------------------------------------------------------------------   Name:   --------------------------------------------------------------------------------   Title:   --------------------------------------------------------------------------------   UNIVISION COMMUNICATIONS INC.   By:   --------------------------------------------------------------------------------   Name:   --------------------------------------------------------------------------------   Title:   --------------------------------------------------------------------------------   UNIVISION STATION GROUP OF                                        , INC., as Company   By:   --------------------------------------------------------------------------------   Name:   --------------------------------------------------------------------------------   Title:   --------------------------------------------------------------------------------   UNIVISION PARTNERSHIP OF               , as Partnership   By:   --------------------------------------------------------------------------------   Name:   --------------------------------------------------------------------------------   Title:   --------------------------------------------------------------------------------   [Station GP Interest LLC], as LLC   By:   --------------------------------------------------------------------------------   Name:   --------------------------------------------------------------------------------   Title:   -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Class of Stock or other equity interests of Company --------------------------------------------------------------------------------   Stock Cert. Numbers --------------------------------------------------------------------------------   Par Value --------------------------------------------------------------------------------   Number of Shares --------------------------------------------------------------------------------               -------------------------------------------------------------------------------- SCHEDULE 6.1(d) TO PLEDGE AGREEMENT Office Locations -------------------------------------------------------------------------------- SCHEDULE 6.1(e) TO PLEDGE AGREEMENT Names -------------------------------------------------------------------------------- QuickLinks EXHIBIT 10.37 SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT EXHIBIT B Revised Purchase Price Payment Schedule EXHIBIT D AT Affiliation Agreement FORM OF TELEVISION AFFILIATION AGREEMENT HOME SHOPPING SCHEDULE A SCHEDULE B Applicable AT Note SCHEDULE C Standards and Practices SCHEDULE D COMPENSATION ATTACHMENT E EXHIBIT E AT Note PROMISSORY NOTE EXHIBIT F Pledge Agreement PLEDGE AGREEMENT PRELIMINARY STATEMENTS SCHEDULE I SCHEDULE II PLEDGE AMENDMENT SCHEDULE 6.1(d) TO PLEDGE AGREEMENT SCHEDULE 6.1(e) TO PLEDGE AGREEMENT

-------------------------------------------------------------------------------- PUT/CALL AGREEMENT      This Put/Call Agreement (the “Agreement”) is dated July 1, 2001 between Chassis Holdings I LLC, a Delaware limited liability company (the “Company”) and the holders of Preferred Units of the Company listed on Schedule A attached hereto (each a “Holder”, and collectively the “Holders”). Capitalized terms not otherwise defined herein shall have meaning assigned to them in the Company’s Limited Liability Company Agreement dated as of July 1, 2001.      NOW, THEREFORE, in consideration of the premises and the covenants hereinafter set forth and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Company and the Holders hereby agree as follows:      SECTION 1. Put Right.      (a) Commencing on the third anniversary of the date hereof, each Holder, acting individually, shall have the right (the “Put Right”) to put all, but no less than all, of its Preferred Units to the Company. Upon the exercise of such Put Right by a Holder, the Company shall pay such Holder an amount in cash equal to the Net Investment of such Preferred Units plus any accrued but unpaid Priority Amount to the date of payment (the “Liquidation Preference”).      (b) A Holder may exercise any such Put Right by delivery of written notice to the Company, such notice to be received by or upon June 30thof any year in which the Holder wishes to exercise such right and the put shall be effective, and the sale of the Preferred Units shall be consummated, as of December 31stof such year.      (c) The Put Right shall expire at the end of the fifth year following the date hereof provided that the Company has made all the Option Payments described in Section 3, below. If the Company shall fail to make the Option Payments the Put Right shall be continuing until such Option Payments are made.      SECTION 2. Call Right.      (a) Commencing in the sixth year following issuance of the Preferred Units, and provided all the Option Payments described in Section 3 have been duly made, the Company will have the right (the “Call Right”) to call some or all of the Preferred Units. Upon the exercise of a Call Right, the Company will pay to the Holders an amount in cash (or an equivalent amount of Common Stock, par value $.001, of Interpool, Inc.) equal to the Liquidation Preference of such unit; provided, however, that if the Call Right is exercised at any time prior to the eleventh year following issuance, the payment for the preferred membership interests held by each Holder will be increased by a call premium equal to 18% of the Liquidation Preference for a Call Right exercised at the end of year six, declining by 2% annually to a call premium equal to 10% of the Liquidation Preference for a Call Right exercised at the end of year ten, and declining to 0% for a Call Right exercised at the end of year eleven or later. --------------------------------------------------------------------------------      (b) Any Call Right by the Company shall be (i) exercised by delivery of written notice to the Holders, such notice to be received by or upon June 30thof any year in which the Company wishes to exercise such right, (ii) effective, and the sale of the Preferred Units consummated, as of December 31stof such year, and (iii) exercised Pro Rata as to all the outstanding Preferred Units.      SECTION 3. Option Payment. The “Option Payment”shall mean the payment by the Company to each Holder at the end of each month commencing with the date hereof and ending on December 31, 2005, of an amount of cash equal to 2.50% of the Liquidation Preference of such Holder’s Preferred Units at the time of such payment.      SECTION 4. Exercise of Put/Call Rights. Upon the exercise of any Put Right or Call Right, each Holder will have the option (but not the obligation) to contribute an amount of cash (or, in the case of the exercise of the Call Right, an equivalent amount of Interpool common stock) to the Company sufficient to satisfy the obligations of the Company to purchase the Preferred Units subject to such put/call right. If and only if such amount of cash (or Interpool common stock) has not been contributed, the Company will be required to sell such number of chassis as will enable it to satisfy its put/call obligations.      SECTION 5. Entire Agreement. This Agreement contains the entire agreement between the parties relating to the subject matter hereof, and there are no other representations, endorsements, promises, agreements or understandings, oral, written or implied, between the parties relating to the subject matter hereof.      SECTION 6. Amendment; Waiver. This Agreement shall not be deemed or construed to be modified, amended, rescinded, canceled or waived, in whole or in part, except by a written instrument signed by the party to be charged. Failure of any party hereto to exercise any right or remedy hereunder in the event of a breach hereof by the other party shall not constitute a waiver of any such right or remedy with respect to any subsequent breach.      SECTION 7. Successors and Assigns. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the respective successors and permitted assigns of each of the parties. This Agreement may not be assigned by the Holders, except in connection with a transfer of Preferred Units.      SECTION 8. Severability. If any clause, provision or section hereof shall be ruled invalid or unenforceable by any court of competent jurisdiction, the invalidity or unenforceability of such clause, provision or section shall not affect any of the remaining clauses, provisions or sections hereof.      SECTION 9. Notices. All notices and other communications between parties shall be in writing and will be deemed effective, when mailed, five days after deposited in the mails, when telecopied, when a receipt of transmission is received by the sender thereof, and when delivered, upon actual receipt by the recipient thereof, to a party at its address set forth below, or to any other address as a party may designate in writing. --------------------------------------------------------------------------------   If to the Company:   Chassis Holdings I LLC 211 College Road East Princeton, New Jersey 08540   If to a Holder:   To the address for such Holder contained in the records of the Company      SECTION 10. Execution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.      SECTION 11. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to agreements made and to be performed in said state. [Signature pages follow] --------------------------------------------------------------------------------      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the date first above written. CHASSIS HOLDINGS I LLC By: -------------------------------------------------------------------------------- Name: Title: HOLDERS -------------------------------------------------------------------------------- Martin Tuchman -------------------------------------------------------------------------------- Raoul Witteveen -------------------------------------------------------------------------------- Thomas Birnie -------------------------------------------------------------------------------- Graham Owen PRINCETON INTERNATIONAL PROPERTIES By: -------------------------------------------------------------------------------- Name: Title: RADCLIFF GROUP, INC. By: -------------------------------------------------------------------------------- Name: Title: TRAC LEASE INC. By: -------------------------------------------------------------------------------- Name: Title:

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.27 LEASE (Multi-Tenant; Net; "AS IS") BETWEEN THE IRVINE COMPANY AND ALTRIS SOFTWARE, INC. -------------------------------------------------------------------------------- INDEX TO LEASE ARTICLE I. BASIC LEASE PROVISIONS   1 ARTICLE II. PREMISES   2   SECTION 2.1.   LEASED PREMISES   2   SECTION 2.2.   ACCEPTANCE OF PREMISES   2   SECTION 2.3.   BUILDING NAME AND ADDRESS   2 ARTICLE III. TERM   2   SECTION 3.1.   GENERAL   2 ARTICLE IV. RENT AND OPERATING EXPENSES   3   SECTION 4.1.   BASIC RENT   3   SECTION 4.2.   OPERATING EXPENSES   3   SECTION 4.3.   SECURITY DEPOSIT   5 ARTICLE V. USES   6   SECTION 5.1.   USE   6   SECTION 5.2.   SIGNS   6   SECTION 5.3.   HAZARDOUS MATERIALS   7 ARTICLE VI. COMMON AREAS; SERVICES   9   SECTION 6.1.   UTILITIES AND SERVICES   9   SECTION 6.2.   OPERATION AND MAINTENANCE OF COMMON AREAS   10   SECTION 6.3.   USE OF COMMON AREAS   10   SECTION 6.4.   PARKING   10   SECTION 6.5.   CHANGES AND ADDITIONS BY LANDLORD   11 ARTICLE VII. MAINTAINING THE PREMISES   11   SECTION 7.1.   TENANT'S MAINTENANCE AND REPAIR   11   SECTION 7.2.   LANDLORD'S MAINTENANCE AND REPAIR   12   SECTION 7.3.   ALTERATIONS   12   SECTION 7.4.   MECHANIC'S LIENS   13   SECTION 7.5.   ENTRY AND INSPECTION   14 ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY   14 ARTICLE IX. ASSIGNMENT AND SUBLETTING   14   SECTION 9.1.   RIGHTS OF PARTIES   14   SECTION 9.2.   EFFECT OF TRANSFER   16   SECTION 9.3.   SUBLEASE REQUIREMENTS   17   SECTION 9.4.   CERTAIN TRANSFERS   17 ARTICLE X. INSURANCE AND INDEMNITY   18   SECTION 10.1.   TENANT'S INSURANCE   18   SECTION 10.2.   LANDLORD'S INSURANCE   18   SECTION 10.3.   JOINT INDEMNITY   18   SECTION 10.4.   LANDLORD'S NONLIABILITY   19   SECTION 10.5.   WAIVER OF SUBROGATION   20 ARTICLE XI. DAMAGE OR DESTRUCTION   20   SECTION 11.1.   RESTORATION   20   SECTION 11.2.   LEASE GOVERNS   22 i -------------------------------------------------------------------------------- ARTICLE XII. EMINENT DOMAIN   22   SECTION 12.1.   TOTAL OR PARTIAL TAKING   22   SECTION 12.2.   TEMPORARY TAKING   22   SECTION 12.3.   TAKING OF PARKING AREA   22 ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS   23   SECTION 13.1.   SUBORDINATION   23   SECTION 13.2.   ESTOPPEL CERTIFICATE   23   SECTION 13.3.   FINANCIALS   23 ARTICLE XIV. EVENTS OF DEFAULT AND REMEDIES   24   SECTION 14.1.   TENANT'S DEFAULTS   24   SECTION 14.2.   LANDLORD'S REMEDIES   25   SECTION 14.3.   LATE PAYMENTS   27   SECTION 14.4.   RIGHT OF LANDLORD TO PERFORM   27   SECTION 14.5.   DEFAULT BY LANDLORD   28   SECTION 14.6.   EXPENSES AND LEGAL FEES   28   SECTION 14.7.   WAIVER OF JURY TRIAL   28   SECTION 14.8.   SATISFACTION OF JUDGMENT   28   SECTION 14.9.   LIMITATION OF ACTIONS AGAINST LANDLORD   28 ARTICLE XV. END OF TERM   29   SECTION 15.1.   HOLDING OVER   29   SECTION 15.2.   MERGER ON TERMINATION   29   SECTION 15.3.   SURRENDER OF PREMISES; REMOVAL OF PROPERTY   29 ARTICLE XVI. PAYMENTS AND NOTICES   30 ARTICLE XVII. RULES AND REGULATIONS   30 ARTICLE XVIII. NO BROKER'S COMMISSION   30 ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST   30 ARTICLE XX. INTERPRETATION   31   SECTION 20.1.   GENDER AND NUMBER   31   SECTION 20.2.   HEADINGS   31   SECTION 20.3.   JOINT AND SEVERAL LIABILITY   31   SECTION 20.4.   SUCCESSORS   31   SECTION 20.5.   TIME OF ESSENCE   31   SECTION 20.6.   CONTROLLING LAW/VENUE   31   SECTION 20.7.   SEVERABILITY   31   SECTION 20.8.   WAIVER AND CUMULATIVE REMEDIES   31   SECTION 20.9.   INABILITY TO PERFORM   31   SECTION 20.10.   ENTIRE AGREEMENT   32   SECTION 20.11.   QUIET ENJOYMENT   32   SECTION 20.12.   SURVIVAL   32   SECTION 20.13.   INTERPRETATION   32 ARTICLE XXI. EXECUTION AND RECORDING   32   SECTION 21.1.   COUNTERPARTS   32   SECTION 21.2.   CORPORATE, LIMITED LIABILITY COMPANY AND PARTNERSHIP AUTHORITY   32   SECTION 21.3.   EXECUTION OF LEASE; NO OPTION OR OFFER   32   SECTION 21.4.   RECORDING   32 ii --------------------------------------------------------------------------------   SECTION 21.5.   AMENDMENTS   32   SECTION 21.6.   EXECUTED COPY   32   SECTION 21.7.   ATTACHMENTS   33 ARTICLE XXII. MISCELLANEOUS   33   SECTION 22.1.   NONDISCLOSURE OF LEASE TERMS   33   SECTION 22.2.   GUARANTY   33   SECTION 22.3.   CHANGES REQUESTED BY LENDER   34   SECTION 22.4.   MORTGAGEE PROTECTION   34   SECTION 22.5.   COVENANTS AND CONDITIONS   34   SECTION 22.6.   SECURITY MEASURES   34   SECTION 22.7.   EXPIRATION OF EXISTING LEASE   34 EXHIBITS           Exhibit A   Description of Premises       Exhibit B   Environmental Questionnaire       Exhibit C   Landlord's Disclosures       Exhibit D   Insurance Requirements       Exhibit E   Rules and Regulations       Exhibit Y   Project Site Plan     iii -------------------------------------------------------------------------------- LEASE (Multi-Tenant Net; "AS IS")     THIS LEASE is made as of the 1st day of March, 2001, by and between THE IRVINE COMPANY, a Delaware corporation hereafter called "Landlord," and ALTRIS SOFTWARE, INC., a California corporation, hereinafter called "Tenant." ARTICLE I. BASIC LEASE PROVISIONS     Each reference in this Lease to the "Basic Lease Provisions" shall mean and refer to the following collective terms, the application of which shall be governed by the provisions in the remaining Articles of this Lease. 1.Premises: Suite No. A (the Premises are more particularly described in Section 2.1). Address of Building: 9339 Carroll Park Drive, San Diego, CA 2.Project Description (if applicable): Carroll Ridge Business Park Phase 1 3.Use of Premises: General office, warehouse/storage and light assembly. 4.Commencement Date: April 1, 2001 5.Expiration Date: May 31, 2003 6.Basic Rent: Thirty Five Thousand Six Hundred Sixty-Eight Dollars ($35,668.00) per month, based on $1.15 per rentable square foot. Basic Rent is subject to adjustment as follows: Commencing April 1, 2002, the Basic Rent shall be Thirty Seven Thousand Two Hundred Nineteen Dollars ($37,219.00) per month, based on $1.20 per rentable square foot. 7.Guarantor(s): None 8.Floor Area: Approximately 31,016 rentable square feet. 9.Security Deposit: $81,882.00 10.Broker(s): None 11.Additional Insureds: Insignia/ESG, Inc. 12.Address for Payments and Notices: LANDLORD   TENANT THE IRVINE COMPANY c/o Insignia/ESG, Inc. 43 Discovery, Suite 120 Irvine, CA 92618   ALTRIS SOFTWARE, INC. 9339 Carroll Park Drive, Suite A San Diego, CA 92121 with a copy of notices to:     THE IRVINE COMPANY dba Irvine Industrial Company P.O. Box 6370 Newport Beach, CA 92658-6370 Attn: Vice President, Industrial Operations     13.Tenant's Liability Insurance Requirement: $2,000,000.00 14.Vehicle Parking Spaces: Ninety-three (93) 1 -------------------------------------------------------------------------------- ARTICLE II. PREMISES     SECTION 2.1.  LEASED PREMISES.  Landlord leases to Tenant and Tenant leases from Landlord the premises shown in Exhibit A (the "Premises"), containing approximately the rentable square footage set forth as the "Floor Area" in Item 8 of the Basic Lease Provisions and known by the suite number identified in Item 1 of the Basic Lease Provisions. The Premises are located in the building identified in Item 1 of the Basic Lease Provisions (the Premises together with such building and the underlying real property, are called the "Building"), and is a portion of the project identified in Item 2 of the Basic Lease Provisions and shown in Exhibit Y, if any (the "Project"). If the Project is not already completed, Landlord makes no representation that the Project, if any, as shown on Exhibit Y, (a) will be completed or that it will be constructed as shown on Exhibit Y without change, or (b) to the extent the Project is constructed, it will not be changed from the Project as shown on Exhibit Y. All references to "Floor Area" in this Lease shall mean the rentable square footage set forth in Item 8 of the Basic Lease Provisions. The rentable square footage set forth in Item 8 may include or have been adjusted by various factors, including, without limitation, a load factor to allocate a proportionate share of any vertical penetrations, common lobby or common features or areas of the Building. Tenant agrees that the Floor Area set forth in Item 8 shall be binding on Landlord and Tenant for purposes of this Lease regardless of whether any future or differing measurements of the Premises or the Building are consistent or inconsistent with the Floor Area set forth in Item 8.     SECTION 2.2.  ACCEPTANCE OF PREMISES.  Tenant acknowledges that neither Landlord nor any representative of Landlord has made any representation or warranty with respect to the Premises, the Building or the Project or their respective suitability or fitness for any purpose, including without limitation any representations or warranties regarding zoning or other land use matters, and that neither Landlord nor any representative of Landlord has made any representations or warranties regarding (i) what other tenants or uses may be permitted or intended in the Building or the Project, (ii) any exclusivity of use by Tenant with respect to its permitted use of the Premises as set forth in Item 3 of the Basic Lease Provisions, or (iii) any construction of portions of the Project not yet completed. Tenant further acknowledges that neither Landlord nor any representative of Landlord has agreed to undertake any alterations or additions or construct any improvements to the Premises. Tenant is currently in possession of the Premises pursuant to the "Existing Lease" (as hereinafter defined), and Tenant's lease of the Premises shall be on an "as is" basis. As of the Commencement Date, Tenant shall be conclusively deemed to have accepted the Premises and those portions of the Building and Project in which Tenant has any rights under this Lease, which acceptance shall mean that it is conclusively established that the Premises and those portions of the Building and Project in which Tenant has any rights under this Lease were in satisfactory condition and in conformity with the provisions of this Lease.     SECTION 2.3.  BUILDING NAME AND ADDRESS.  Tenant shall not utilize any name selected by Landlord from time to time for the Building and/or the Project as any part of Tenant's corporate or trade name. Landlord shall have the right to change the name, address, number or designation of the Building or Project without liability to Tenant. ARTICLE III. TERM     SECTION 3.1.  GENERAL.  Subject to the provisions of Section 3.2 below, the term of this Lease ("Term") shall commence on the date set forth in Item 4 of the Basic Lease Provisions (the "Commencement Date"), and shall expire on the date set forth in Item 5 of the Basic Lease Provisions (the "Expiration Date"). 2 -------------------------------------------------------------------------------- ARTICLE IV. RENT AND OPERATING EXPENSES     SECTION 4.1.  BASIC RENT.  From and after the Commencement Date, Tenant shall pay to Landlord without deduction or offset, the rental amount for the Premises shown in Item 6 of the Basic Lease Provisions (the "Basic Rent"), including subsequent adjustments, if any. If adjustments to Basic Rent in Item 6 are to occur on the monthly anniversary of the Commencement Date, then such adjustments shall be deemed to occur on the specified monthly anniversary of the Commencement Date, whether or not the Commencement Date occurs at the end of a calendar month. The rent shall be due and payable in advance commencing on the Commencement Date (as prorated for any partial month) and continuing thereafter on the first day of each successive calendar month of the Term. No demand, notice or invoice shall be required for the payment of Basic Rent.     SECTION 4.2.  OPERATING EXPENSES.       (a) Tenant shall pay to Landlord, as additional rent, Tenant's Share of all Operating Expenses, as defined in Section 4.2(f), incurred by Landlord in the operation of the Building and the Project. The term "Tenant's Share" means that portion of any Operating Expenses determined by multiplying the cost of such item by a fraction, the numerator of which is the Floor Area and the denominator of which is the total rentable square footage, as determined from time to time by Landlord, of (i) the Building, for expenses determined by Landlord to benefit or relate substantially to the Building rather than the entire Project, (ii) all of the buildings in the Project, as determined by Landlord, for expenses determined by Landlord to benefit or relate substantially to the entire Project rather than any specific building or (iii) all or some of the buildings within the Project as well as all or a portion of other property owned by Landlord and/or its affiliates, for expenses which benefit or relate to such buildings within the Project and such other real property. In the event that Landlord determines in its sole and absolute discretion that any premises within the Building or any building within the Project or any portion of a building or project within a larger area incurs a non-proportional benefit from any expense, or is the non-proportional cause of any such expense, Landlord may, allocate a greater percentage of such Operating Expense to such premises, building or project, as applicable. The full amount of any management fee payable by Landlord for the management of Tenant's Premises that is calculated as a percentage of the rent payable by Tenant shall be paid in full by Tenant as additional rent.     (b) Prior to the start of each full Expense Recovery Period (as defined in this Section 4.2), Landlord shall give Tenant a written estimate of the amount of Tenant's Share of Operating Expenses for the applicable Expense Recovery Period. Failure to provide such estimate shall not relieve Tenant from its obligation to pay Tenant's Share of Operating Expenses or estimated amounts thereof, if and when Landlord provides such estimate or final payment amount. Tenant shall pay the estimated amounts to Landlord in equal monthly installments, in advance concurrently with payments of Basic Rent. If Landlord has not furnished its written estimate for any Expense Recovery Period by the time set forth above, Tenant shall continue to pay monthly the estimated Tenant's Share of Operating Expenses in effect during the prior Expense Recovery Period; provided that when the new estimate is delivered to Tenant, Tenant shall, at the next monthly payment date, pay any accrued estimated Tenant's Share of Operating Expenses based upon the new estimate. For purposes hereof, "Expense Recovery Period" shall mean every twelve month period during the Term (or portion thereof for the first and last lease years) commencing July 1 and ending June 30, provided that Landlord shall have the right to change the date on which an Expense Recovery Period commences in which event appropriate reasonable adjustments shall be made to Tenant's Share of Operating Expenses so that the amount payable by Tenant shall not materially vary as a result of such change. 3 --------------------------------------------------------------------------------     (c) Within one hundred twenty (120) days after the end of each Expense Recovery Period, Landlord shall furnish to Tenant a statement showing in reasonable detail the actual or prorated Tenant's Share of Operating Expenses incurred by Landlord during the period, and the parties shall within thirty (30) days thereafter make any payment or allowance necessary to adjust Tenant's estimated payments of Tenant's Share of Operating Expenses, if any, to the actual Tenant's Share of Operating Expenses as shown by the annual statement. Any delay or failure by Landlord in delivering any statement hereunder shall not constitute a waiver of Landlord's right to require Tenant to pay Tenant's Share of Operating Expenses pursuant hereto. Any amount due Tenant shall be credited against installments next coming due under this Section 4.2, and any deficiency shall be paid by Tenant together with the next installment. Should Tenant fail to object in writing to Landlord's determination of Tenant's Share of Operating Expenses within sixty (60) days following delivery of Landlord's expense statement, Landlord's determination of Tenant's Share of Operating Expenses for the applicable Expense Recovery Period shall be conclusive and binding on the parties for all purposes and any future claims to the contrary shall be barred.     (d) Even though this Lease has terminated and the Tenant has vacated the Premises, when the final determination is made of Tenant's Share of Operating Expenses for the Expense Recovery Period in which this Lease terminates, Tenant shall within thirty (30) days of written notice pay the entire increase over the estimated Tenant's Share of Operating Expenses already paid. Conversely, any overpayment by Tenant shall be rebated by Landlord to Tenant not later than thirty (30) days after such final determination.     (e) If, at any time during any Expense Recovery Period, any one or more of the Operating Expenses are increased to a rate(s) or amount(s) in excess of the rate(s) or amounts(s) used in calculating the estimated Tenant's Share of Operating Expenses for the year, then the estimate of Tenant's Share of Operating Expenses may be increased by written notice from Landlord for the month in which such rate(s) or amount(s) becomes effective and for all succeeding months by an amount equal to Tenant's Share of the increase. If Landlord gives Tenant written notice of the amount or estimated amount of the increase, the month in which the increase will or has become effective, then Tenant shall pay the increase to Landlord as a part of Tenant's monthly payments of the estimated Tenant's Share of Operating Expenses as provided in Section 4.2(b), commencing with the month following Tenant's receipt of Landlord's notice. In addition, Tenant shall pay upon written request any such increases which were incurred prior to the Tenant commencing to pay such monthly increase.     (f)  The term "Operating Expenses" shall mean and include all Project Costs, as defined in subsection (g), and Property Taxes, as defined in subsection (h).     (g) The term "Project Costs" shall include all expenses of operation, repair and maintenance of the Building and the Project, including without limitation all appurtenant Common Areas (as defined in Section 6.2), and shall include the following charges by way of illustration but not limitation: water and sewer charges; insurance premiums and deductibles and/or reasonable premium and deductible equivalents should Landlord elect to self-insure all or any portion of any risk that Landlord is authorized to insure hereunder; license, permit, and inspection fees; heat; light; power; janitorial services to any interior Common Areas; air conditioning; supplies; materials; equipment; tools; the cost of any environmental, insurance, tax or other consultant utilized by Landlord in connection with the Building and/or Project; establishment of reasonable reserves for replacements and/or repairs; costs incurred in connection with compliance with any laws or changes in laws applicable to the Building or the Project; the cost of any capital investments or replacements (other than tenant improvements for specific tenants) to the extent of the amortized amount thereof over the useful life of such capital investments or replacements calculated at a market cost of funds, all as determined by Landlord, for each such year of useful life during the Term; costs associated with the maintenance of an air conditioning, heating and ventilation service agreement, and maintenance of an intrabuilding network cable service agreement for any intrabuilding network cable telecommunications lines within the 4 -------------------------------------------------------------------------------- Project, and any other installation, maintenance, repair and replacement costs associated with such lines; capital costs associated with a requirement related to demands on utilities by Project Tenants, including without limitation the cost to obtain additional phone connections; labor; reasonably allocated wages and salaries, fringe benefits, and payroll taxes for administrative and other personnel directly applicable to the Building and/or Project, including both Landlord's personnel and outside personnel; any expense incurred pursuant to Sections 6.1, 6.2, 6.4, 7.2, and 10.2; and a reasonable overhead/management fee for the professional operation of the Project. It is understood and agreed that Project Costs may include competitive charges for direct services provided by any subsidiary, division or affiliate of Landlord.     (h) The term "Property Taxes" as used herein shall include any form of federal, state, county or local government or municipal taxes, fees, charges or other impositions of every kind (whether general, special, ordinary or extraordinary) related to the ownership, leasing or operation of the Premises, Building or Project, including without limitation, the following: (i) all real estate taxes or personal property taxes, as such property taxes may be reassessed from time to time; and (ii) other taxes, charges and assessments which are levied with respect to this Lease or to the Building and/or the Project, and any improvements, fixtures and equipment and other property of Landlord located in the Building and/or the Project, (iii) all assessments and fees for public improvements, services, and facilities and impacts thereon, including without limitation arising out of any Community Facilities Districts, "Mello Roos" districts, similar assessment districts, and any traffic impact mitigation assessments or fees; (iv) any tax, surcharge or assessment which shall be levied in addition to or in lieu of real estate or personal property taxes, other than taxes covered by Article VIII; and (v) taxes based on the receipt of rent (including gross receipts or sales taxes applicable to the receipt of rent), and (vi) costs and expenses incurred in contesting the amount or validity of any Property Tax by appropriate proceedings. Notwithstanding the foregoing, general net income or franchise taxes imposed against Landlord shall be excluded.     SECTION 4.3.  SECURITY DEPOSIT.  Concurrently with Tenant's delivery of this Lease, Tenant shall deposit with Landlord the sum, if any, stated in Item 9 of the Basic Lease Provisions, to be held by Landlord as security for the full and faithful performance of all of Tenant's obligations under this Lease (the "Security Deposit"). Landlord shall not be required to keep this Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on the Security Deposit. Subject to the last sentence of this Section, the Security Deposit shall be understood and agreed to be the property of Landlord upon Landlord's receipt thereof, and may be utilized by Landlord in its sole and absolute discretion towards the payment of all expenses by Landlord for which Tenant would be required to reimburse Landlord under this Lease, including without limitation brokerage commissions and Tenant Improvement costs. Upon any Event of Default by Tenant (as defined in Section 14.1), Landlord may, in its sole and absolute discretion, retain, use or apply the whole or any part of the Security Deposit to pay any sum which Tenant is obligated to pay under this Lease, sums that Landlord may expend or be required to expend by reason of the Event of Default by Tenant or any loss or damage that Landlord may suffer by reason of the Event of Default or costs incurred by Landlord in connection with the repair or restoration of the Premises pursuant to Section 15.3 of this Lease upon expiration or earlier termination of this Lease. In no event shall Landlord be obligated to apply the Security Deposit upon an Event of Default and Landlord's rights and remedies resulting from an Event of Default, including without limitation, Tenant's failure to pay Basic Rent, Tenant's Share of Operating Expenses or any other amount due to Landlord pursuant to this Lease, shall not be diminished or altered in any respect due to the fact that Landlord is holding the Security Deposit. If any portion of the Security Deposit is applied by Landlord as permitted by this Section, Tenant shall within five (5) days after written demand by Landlord deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount. If Tenant fully performs its obligations under this Lease, the Security Deposit shall be returned to Tenant (or, at Landlord's option, to the last assignee of Tenant's interest in this Lease) within thirty (30) days after the expiration of the Term, provided that 5 -------------------------------------------------------------------------------- Tenant agrees that Landlord may retain the Security Deposit to the extent and until such time as all amounts due from Tenant in accordance with this Lease have been determined and paid in full and Tenant agrees that Tenant shall have no claim against Landlord for Landlord's retaining such Security Deposit to the extent provided in this Section. The balance of the security deposit funded to Landlord under the "Existing Lease" (as defined in Section 22.7 of this Lease) remaining unapplied by Landlord against defaults by Tenant under the Existing Lease as of the expiration of the term of the Existing Lease, shall be credited by Landlord to offset the sums owing under this Section 4.3. Landlord confirms that, as of the date of the execution of this Lease, Landlord holds the unapplied amount of Eighteen Thousand Six Hundred Dollars and Nineteen Cents ($18,600.19) as the security deposit under the Existing Lease. ARTICLE V. USES     SECTION 5.1  USE.  Tenant shall use the Premises only for the purposes stated in Item 3 of the Basic Lease Provisions, all in accordance with applicable laws and restrictions and pursuant to approvals to be obtained by Tenant from all relevant and required governmental agencies and authorities. The parties agree that any contrary use shall be deemed to cause material and irreparable harm to Landlord and shall entitle Landlord to injunctive relief in addition to any other available remedy. Tenant, at its expense, shall procure, maintain and make available for Landlord's inspection throughout the Term, all governmental approvals, licenses and permits required for the proper and lawful conduct of Tenant's permitted use of the Premises. Tenant shall not do or permit anything to be done in or about the Premises which will in any way interfere with the rights of other occupants of the Building or the Project, or use or allow the Premises to be used for any unlawful purpose, nor shall Tenant permit any nuisance or commit any waste in the Premises or the Project. Tenant shall not perform any work or conduct any business whatsoever in the Project other than inside the Premises. Tenant shall not do or permit to be done anything which will invalidate or increase the cost of any insurance policy(ies) covering the Building, the Project and/or their contents, and shall comply with all applicable insurance underwriters rules. Tenant shall comply at its expense with all present and future laws, ordinances, restrictions, regulations, orders, rules and requirements of all governmental authorities that pertain to Tenant or its use of the Premises, including without limitation all federal and state occupational health and safety requirements, whether or not Tenant's compliance will necessitate expenditures or interfere with its use and enjoyment of the Premises. Tenant shall comply at its expense with all present and future covenants, conditions, easements or restrictions now or hereafter affecting or encumbering the Building and/or Project, and any amendments or modifications thereto, including without limitation the payment by Tenant of any periodic or special dues or assessments charged against the Premises or Tenant which may be allocated to the Premises or Tenant in accordance with the provisions thereof. Tenant shall promptly upon demand reimburse Landlord for any additional insurance premium charged by reason of Tenant's failure to comply with the provisions of this Section, and shall indemnify Landlord from any liability and/or expense resulting from Tenant's noncompliance.     SECTION 5.2  SIGNS.  Except for Tenant's existing exterior sign on the Building, or as otherwise approved in writing by Landlord in its sole and absolute discretion, Tenant shall have no right to maintain any other signs in any location in, on or about the Premises, the Building or the Project and shall not place or erect any signs that are visible from the exterior of the Building. The size, design, graphics, material, style, color and other physical aspects of any permitted sign shall be subject to Landlord's written determination, as determined solely by Landlord, prior to installation, that signage is in compliance with any covenants, conditions or restrictions encumbering the Premises and Landlord's signage program for the Project, as in effect from time to time and approved by the City in which the Premises are located ("Signage Criteria"). Prior to placing or erecting any such signs, Tenant shall obtain and deliver to Landlord a copy of any applicable municipal or other governmental permits and approvals and comply with any applicable insurance requirements for such signage. Tenant shall be 6 -------------------------------------------------------------------------------- responsible for the cost of any permitted sign, including the fabrication, installation, maintenance and removal thereof and the cost of any permits therefor. If Tenant fails to maintain its sign in good condition, or if Tenant fails to remove same upon termination of this Lease and repair and restore any damage caused by the sign or its removal, Landlord may do so at Tenant's expense. Landlord shall have the right to temporarily remove any signs in connection with any repairs or maintenance in or upon the Building. The term "sign" as used in this Section shall include all signs, designs, monuments, displays, advertising materials, logos, banners, projected images, pennants, decals, pictures, notices, lettering, numerals or graphics.     SECTION 5.3.  HAZARDOUS MATERIALS.       (a) For purposes of this Lease, the term "Hazardous Materials" includes (i) any "hazardous material" as defined in Section 25501(o) of the California Health and Safety Code, (ii) hydrocarbons, polychlorinated biphenyls or asbestos, (iii) any toxic or hazardous materials, substances, wastes or materials as defined pursuant to any other applicable state, federal or local law or regulation, and (iv) any other substance or matter which may result in liability to any person or entity as result of such person's possession, use, release or distribution of such substance or matter under any statutory or common law theory.     (b) Tenant shall not cause or permit any Hazardous Materials to be brought upon, stored, used, generated, released or disposed of on, under, from or about the Premises (including without limitation the soil and groundwater thereunder) without the prior written consent of Landlord, which consent may be given or withheld in Landlord's sole and absolute discretion. Notwithstanding the foregoing, Tenant shall have the right, without obtaining prior written consent of Landlord, to utilize within the Premises a reasonable quantity of standard office products that contain Hazardous Materials (such as photocopy toner, "White Out", and the like), provided however, that (i) Tenant shall maintain such products in their original retail packaging, shall follow all instructions on such packaging with respect to the storage, use and disposal of such products, and shall otherwise comply with all applicable laws with respect to such products, and (ii) all of the other terms and provisions of this Section 5.3 shall apply with respect to Tenant's storage, use and disposal of all products. Landlord may, in its sole and absolute discretion, place such conditions as Landlord deems appropriate with respect to Tenant's use of any such Hazardous Materials, and may further require that Tenant demonstrate that any such Hazardous Materials are necessary or useful to Tenant's business and will be generated, stored, used and disposed of in a manner that complies with all applicable laws and regulations pertaining thereto and with good business practices. Tenant understands that Landlord may utilize an environmental consultant to assist in determining conditions of approval in connection with the storage, generation, release, disposal or use of Hazardous Materials by Tenant on or about the Premises, and/or to conduct periodic inspections of the storage, generation, use, release and/or disposal of such Hazardous Materials by Tenant on and from the Premises, and Tenant agrees that any costs incurred by Landlord in connection therewith shall be reimbursed by Tenant to Landlord as additional rent hereunder upon demand.     (c) Prior to the execution of this Lease, Tenant shall complete, execute and deliver to Landlord an Environmental Questionnaire and Disclosure Statement (the "Environmental Questionnaire") in the form of Exhibit B attached hereto. The completed Environmental Questionnaire shall be deemed incorporated into this Lease for all purposes, and Landlord shall be entitled to rely fully on the information contained therein. On each anniversary of the Commencement Date until the expiration or sooner termination of this Lease, Tenant shall disclose to Landlord in writing the names and amounts of all Hazardous Materials which were stored, generated, used, released and/or disposed of on, under or about the Premises for the twelve-month period prior thereto, and which Tenant desires to store, generate, use, release and/or dispose of on, under or about the Premises for the succeeding twelve-month period. In addition, to the extent Tenant is permitted to utilize Hazardous Materials upon the Premises, Tenant shall promptly provide Landlord with complete and legible copies of all the following 7 -------------------------------------------------------------------------------- environmental documents relating thereto: reports filed pursuant to any self-reporting requirements; permit applications, permits, monitoring reports, emergency response or action plans, workplace exposure and community exposure warnings or notices and all other reports, disclosures, plans or documents (even those which may be characterized as confidential) relating to water discharges, air pollution, waste generation or disposal, and underground storage tanks for Hazardous Materials; orders, reports, notices, listings and correspondence (even those which may be considered confidential) of or concerning the release, investigation of, compliance, cleanup, remedial and corrective actions, and abatement of Hazardous Materials; and all complaints, pleadings and other legal documents filed by or against Tenant related to Tenant's use, handling, storage, release and/or disposal of Hazardous Materials.     (d) Landlord and its agents shall have the right, but not the obligation, to inspect, sample and/or monitor the Premises and/or the soil or groundwater thereunder at any time to determine whether Tenant is complying with the terms of this Section 5.3. and in connection therewith Tenant shall provide Landlord, after reasonable notice, with full access to all facilities, records and personnel related thereto. If Tenant is not in compliance with any of the provisions of this Section 5.3. or in the event of a release of any Hazardous Material on, under or about the Premises caused or permitted by Tenant, its agents, employees, contractors, licensees or invitees, Landlord and its agents shall have the right, but not the obligation, without limitation upon any of Landlord's other rights and remedies under this Lease, to immediately enter upon the Premises without notice and to discharge Tenant's obligations under this Section 5.3 at Tenant's expense, including, without limitation the taking of emergency or long-term remedial action. Landlord and its agents shall endeavor to minimize interference with Tenant's business in connection therewith, but shall not be liable for any such interference. In addition, Landlord, at Tenant's expense, shall have the right, but not the obligation, to join and participate in any legal proceedings or actions initiated in connection with any claims arising out of the storage, generation, use, release and/or disposal by Tenant or its agents, employees, contractors, licensees or invitees of Hazardous Materials on, under, from or about the Premises.     (e) If the presence of any Hazardous Materials on, under, from or about the Premises or the Project caused or permitted by Tenant or its agents, employees, contractors, licensees or invitees results in (i) injury to any person, (ii) injury to or any contamination of the Premises or the Project, or (iii) injury to or contamination of any real or personal property wherever situated, Tenant, at its expense, shall promptly take all actions necessary to return the Premises and the Project and any other affected real or personal property own by Landlord to the condition existing prior to the introduction of such Hazardous Materials and to remedy or repair any such injury or contamination, including without limitation, any cleanup, remediation, removal, disposal, neutralization or other treatment of any such Hazardous Materials. Notwithstanding the foregoing, Tenant shall not, without Landlord's prior written consent, which consent may be given or withheld in Landlord's sole and absolute discretion, take any remedial action in response to the presence of any Hazardous Materials on, from, under or about the Premises or the Project or any other affected real or personal property owned by Landlord or enter into any similar agreement, consent, decree or other compromise with any governmental agency with respect to any Hazardous Materials claims; provided however, Landlord's prior written consent shall not be necessary in the event that the presence of Hazardous Materials on, under, or about the Premises or the Project or any other affected real or personal property owned by Landlord (i) imposes an immediate threat to the health, safety or welfare of any individual and (ii) is of such a nature that an immediate remedial response is necessary and that it is not possible to obtain Landlord's consent before taking such action. To the fullest extent permitted by law, Tenant shall indemnify, hold harmless, protect and defend (with attorneys acceptable to Landlord) Landlord and any successors to all or any portion of Landlord's interest in the Premises and the Project and any other real or personal property owned by Landlord from and against any and all liabilities, losses, damages, diminution in value, judgments, fines, demands, claims, recoveries, deficiencies, costs and expenses (including without limitation attorneys' fees, court costs and other professional expenses), whether foreseeable or 8 -------------------------------------------------------------------------------- unforeseeable, arising directly or indirectly out of the use, generation, storage, treatment, release, on- or off-site disposal or transportation of Hazardous Materials (A) on, into, from, under or about the Premises during the Term regardless of the source of such Hazardous Materials unless caused solely by Landlord or (B) on, into, from, under or about the Premises, the Building or Project and any other real or personal property owned by Landlord caused or permitted by Tenant, its agents, employees, contractors, licensees or invitees. Such indemnity obligation shall specifically include, without limitation, the cost of any required or necessary repair, restoration, cleanup or detoxification of the Premises, the Building and the Project and any other real or personal property owned by Landlord, the preparation of any closure or other required plans, whether or not such action is required or necessary during the Term or after the expiration of this Lease and any loss of rental due to the inability to lease the Premises or any portion of the Building or Project as a result of such Hazardous Material or remediation thereof. If it is at any time discovered that Hazardous Materials have been released on, into, from, under or about the Premises during the Term, or that Tenant or its agents, employees, contractors, licensees or invitees may have caused or permitted the release of a Hazardous Material on, under, from or about the Premises, the Building or the Project or any other real or personal property owned by Landlord, Tenant shall, at Landlord's request, immediately prepare and submit to Landlord a comprehensive plan, subject to Landlord's approval, specifying the actions to be taken by Tenant to return the Premises, the Building or the Project or any other real or personal property owned by Landlord to the condition existing prior to the introduction of such Hazardous Materials. Upon Landlord's approval of such cleanup plan, Tenant shall, at its expense, and without limitation of any rights and remedies of Landlord under this Lease or at law or in equity, immediately implement such plan and proceed to cleanup such Hazardous Materials in accordance with all applicable laws and as required by such plan and this Lease. The provisions of this Section 5.3(e) shall expressly survive the expiration or sooner termination of this Lease.     (f)  Landlord hereby discloses to Tenant, and Tenant hereby acknowledges, certain facts relating to Hazardous Materials at the Project known by Landlord to exist as of the date of this Lease, as more particularly described in Exhibit C attached hereto. Tenant shall have no liability or responsibility with respect to the Hazardous Materials facts described in Exhibit C nor with respect to any Hazardous Materials which Tenant proves were neither released on the Premises during the Term nor caused or permitted by Tenant, its agents, employees, contractors, licensees or invitees. Notwithstanding the preceding two sentences, Tenant agrees to notify its agents, employees, contractors, licensees, and invitees of any exposure or potential exposure to Hazardous Materials at the Premises that Landlord brings to Tenant's attention. Tenant hereby acknowledges that this disclosure satisfies any obligation of Landlord to Tenant pursuant to California Health & Safety Code Section 25359.7, or any amendment or substitute thereto or any other disclosure obligations of Landlord. ARTICLE VI. COMMON AREAS; SERVICES     SECTION 6.1.  UTILITIES AND SERVICES.  Tenant shall be responsible for and shall pay promptly, directly to the appropriate supplier, all charges for water, gas, electricity, sewer, heat, light, power, telephone, telecommunications service, refuse pickup, janitorial service, interior landscape maintenance and all other utilities, materials and services furnished directly to Tenant or the Premises or used by Tenant in, on or about the Premises during the Term, together with any taxes thereon. If any utilities or services are not separately metered or assessed to Tenant, Landlord shall make a reasonable determination of Tenant's proportionate share of the cost of such utilities and services, including without limitation, after-hours HVAC usage, and Tenant shall pay such amount to Landlord, as an item of additional rent, within ten (10) days after receipt of Landlord's statement or invoice therefor. Alternatively, Landlord may elect to include such cost in the definition of Project Costs in which event Tenant shall pay Tenant's proportionate share of such cost in the manner set forth in Section 4.2. Landlord shall not be liable for damages or otherwise for any failure or interruption of any utility or other service furnished to the Premises, and no such failure or interruption shall be deemed 9 -------------------------------------------------------------------------------- an eviction or entitle Tenant to terminate this Lease or withhold or abate any rent due hereunder. Landlord shall at all reasonable times have free access to the Building and Premises to install, maintain, repair, replace or remove all electrical and mechanical installations of Landlord. Tenant acknowledges that the costs incurred by Landlord related to providing above-standard utilities to Tenant, including, without limitation, telephone lines, may be charged to Tenant.     SECTION 6.2.  OPERATION AND MAINTENANCE OF COMMON AREAS.  During the Term, Landlord shall operate all Common Areas within the Building and the Project. The term "Common Areas" shall mean all areas within the exterior boundaries of the Building and other buildings in the Project which are not held for exclusive use by persons entitled to occupy space, and all other appurtenant areas and improvements within the Project provided by Landlord for the common use of Landlord and tenants and their respective employees and invitees, including without limitation parking areas and structures, driveways, sidewalks, landscaped and planted areas, hallways and interior stairwells not located within the premises of any tenant, common electrical rooms and roof access entries, common entrances and lobbies, elevators, and restrooms not located within the premises of any tenant.     SECTION 6.3.  USE OF COMMON AREAS.  The occupancy by Tenant of the Premises shall include the use of the Common Areas in common with Landlord and all others for whose convenience and use the Common Areas may be provided by Landlord, subject, however, to compliance with all rules and regulations as are prescribed from time to time by Landlord. Landlord shall operate and maintain the Common Areas in the manner Landlord may determine to be appropriate. All costs incurred by Landlord for the maintenance and operation of the Common Areas shall be included in Project Costs except to the extent any particular cost incurred is related to or associated with a specific tenant and can be charged to such tenant of the Project. Landlord shall at all times during the Term have exclusive control of the Common Areas, and may restrain or permit any use or occupancy, except as authorized by Landlord's rules and regulations. Tenant shall keep the Common Areas clear of any obstruction or unauthorized use related to Tenant's operations or use of Premises, including without limitation, planters and furniture. Nothing in this Lease shall be deemed to impose liability upon Landlord for any damage to or loss of the property of, or for any injury to, Tenant, its invitees or employees. Landlord may temporarily close any portion of the Common Areas for repairs, remodeling and/or alterations, to prevent a public dedication or the accrual of prescriptive rights, or for any other reason deemed sufficient by Landlord, without liability to Landlord.     SECTION 6.4.  PARKING.  Tenant shall be entitled to the number of vehicle parking spaces set forth in Item 14 of the Basic Lease Provisions, which spaces shall be unreserved and unassigned, on those portions of the Common Areas designated by Landlord for parking. Tenant shall not use more parking spaces than such number. All parking spaces shall be used only for parking of vehicles no larger than full size passenger automobiles, sports utility vehicles or pickup trucks. Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant's employees, suppliers, shippers, customers or invitees to be loaded, unloaded or parked in areas other than those designated by Landlord for such activities. If Tenant permits or allows any of the prohibited activities described above, then Landlord shall have the right, without notice, in addition to such other rights and remedies that Landlord may have, to remove or tow away the vehicle involved and charge the costs to Tenant. Parking within the Common Areas shall be limited to striped parking stalls, and no parking shall be permitted in any driveways, access ways or in any area which would prohibit or impede the free flow of traffic within the Common Areas. There shall be no parking of any vehicles longer than forty-eight (48) hour period unless otherwise authorized by Landlord, and vehicles which have been abandoned or parked in violation of the terms hereof may be towed away at owner's expense. Nothing contained in this Lease shall be deemed to create liability upon Landlord for any damage to motor vehicles of visitors or employees, for any loss of property from within those motor vehicles, or for any injury to Tenant, its visitors or employees, except as expressly provided in Section 10.3 of this Lease. 10 -------------------------------------------------------------------------------- Landlord shall have the right to establish, and from time to time amend, and to enforce against all users all reasonable rules and regulations (including the designation of areas for employee parking) that Landlord may deem necessary and advisable for the proper and efficient operation and maintenance of parking within the Common Areas. Landlord shall have the right to construct, maintain and operate lighting facilities within the parking areas; to change the area, level, location and arrangement of the parking areas and improvements therein; to restrict parking by tenants, their officers, agents and employees to employee parking areas; to enforce parking charges (by operation of meters or otherwise); and to do and perform such other acts in and to the parking areas and improvements therein as, in the use of good business judgment, Landlord shall determine to be advisable. Any person using the parking area shall observe all directional signs and arrows and any posted speed limits. In no event shall Tenant interfere with the use and enjoyment of the parking area by other tenants of the Project or their employees or invitees. Parking areas shall be used only for parking vehicles. Washing, waxing, cleaning or servicing of vehicles, or the storage of vehicles for longer than 48-hours, is prohibited unless otherwise authorized by Landlord. Tenant shall be liable for any damage to the parking areas caused by Tenant or Tenant's employees, suppliers, shippers, customers or invitees, including without limitation damage from excess oil leakage. Tenant shall have no right to install any fixtures, equipment of personal property in the parking areas.     SECTION 6.5.  CHANGES AND ADDITIONS BY LANDLORD.  Landlord reserves the right to make alterations or additions to the Building or the Project, or to the attendant fixtures, equipment and Common Areas. Landlord may at any time relocate or remove any of the various buildings, parking areas, and other Common Areas, may add buildings and areas to the Project from time to time. No change shall entitle Tenant to any abatement of rent or other claim against Landlord, provided that the change does not deprive Tenant of reasonable access to or use of the Premises. ARTICLE VII. MAINTAINING THE PREMISES     SECTION 7.1.  TENANT'S MAINTENANCE AND REPAIR.  Tenant at its sole expense shall maintain and make all repairs and replacements necessary to keep the Premises in the condition as existed on the Commencement Date (or on any later date that the improvements may have been installed), excepting ordinary wear and tear, including without limitation all interior and exterior glass, windows, doors, door closures, hardware, fixtures, electrical, plumbing, fire extinguisher equipment and other equipment. Any damage or deterioration of the Premises shall not be deemed ordinary wear and tear if the same could have been prevented by good maintenance practices by Tenant. As part of its maintenance obligations hereunder, Tenant shall, at Landlord's request, provide Landlord with copies of all maintenance schedules, reports and notices prepared by, for or on behalf of Tenant. All repairs and replacements shall be at least equal in quality to the original work, shall be made only by a licensed contractor approved in writing in advance by Landlord and shall be made only at the time or times approved by Landlord. Any contractor utilized by Tenant shall be subject to Landlord's standard requirements for contractors, as modified from time to time. Landlord may impose reasonable restrictions and requirements with respect to repairs, as provided in Section 7.3, and the provisions of Section 7.4 shall apply to all repairs. Alternatively, Landlord may elect to perform any repair and maintenance of the electrical and mechanical systems and any air conditioning, ventilating or heating equipment serving the Premises and include the cost thereof as part of Tenant's Share of Operating Expenses. If Tenant fails to properly maintain and/or repair the Premises as herein provided following Landlord's notice and the expiration of the applicable cure period (or earlier if Landlord determines that such work must be performed prior to such time in order to avoid damage to the Premises or Building or other detriment), then Landlord may elect, but shall have no obligation, to perform any repair or maintenance required hereunder on behalf of Tenant and at Tenant's expense, and Tenant shall reimburse Landlord upon demand for all costs incurred upon submission of an invoice. 11 --------------------------------------------------------------------------------     SECTION 7.2.  LANDLORD'S MAINTENANCE AND REPAIR.  Subject to Section 7.1 and Article XI, Landlord shall provide service, maintenance and repair with respect to any air conditioning, ventilating or heating equipment which serves the Premises and shall maintain in good repair the roof, foundations, footings, the exterior surfaces of the exterior walls of the Building (excluding exterior glass), and the structural, electrical and mechanical systems, except that Tenant at its expense shall make all repairs which Landlord deems reasonably necessary as a result of the act or negligence of Tenant, its agents, employees, invitees, subtenants or contractors. Landlord shall have the right to employ or designate any reputable person or firm, including any employee or agent of Landlord or any of Landlord's affiliates or divisions, to perform any service, repair or maintenance function. Landlord need not make any other improvements or repairs except as specifically required under this Lease, and nothing contained in this Section shall limit Landlord's right to reimbursement from Tenant for maintenance, repair costs and replacement costs as provided elsewhere in this Lease. Tenant understands that it shall not make repairs at Landlord's expense or by rental offset. Tenant further understands that Landlord shall not be required to make any repairs to the roof, foundations, footings, the exterior surfaces of the exterior walls of the Building (excluding exterior glass), or structural, electrical or mechanical systems unless and until Tenant has notified Landlord in writing of the need for such repair and Landlord shall have a reasonable period of time thereafter to commence and complete said repair, if warranted. All costs of any maintenance, repairs and replacement on the part of Landlord provided hereunder shall be considered part of Project Costs. Tenant further agrees that if Tenant fails to report any such need for repair in writing within sixty (60) days of its discovery by Tenant, Tenant shall be responsible for any costs and expenses and other damages related to such repair which are in excess of those which would have resulted had such need for repair been reported to Landlord within such sixty (60) day period.     SECTION 7.3.  ALTERATIONS.  Except as otherwise provided in this Section, Tenant shall make no alterations, additions, fixtures or improvements ("Alterations") to the Premises or the Building without the prior written consent of Landlord, which consent may be granted withheld in Landlord's sole absolute discretion. In the event that any requested Alteration would result in a change from Landlord's building standard materials and specifications for the Project ("Standard Improvements"), Landlord may withhold consent to such Alteration in its sole and absolute discretion. In the event Landlord so consents to a change from the Standard Improvements (such change being referred to as a "Non-Standard Improvement"), Tenant shall be responsible of the cost of replacing such Non-Standard Improvement with the applicable Standard Improvement ("Replacements") which Replacements shall be completed prior to the Expiration Date or earlier termination of this Lease. Landlord shall not unreasonably withhold its consent to any Alterations which cost less then One Dollar ($1.00) per square foot of the improved portions of the Premises (excluding warehouse square footage) and do not (i) affect the exterior of the Building or outside areas (or be visible from adjoining sites), or (ii) affect or penetrate any of the structural portions of the Building, including but not limited to the roof, or (iii) require any change to the basic floor plan of the Premises or any change to any structural or mechanical systems of the Premises, or (iv) fail to comply with any applicable governmental requirements or require any governmental permit as a prerequisite to the construction thereof, or (v) result in the Premises requiring building services beyond the level normally provided to other tenants, or (vi) interfere in any manner with the proper functioning of, or Landlord's access to, any mechanical, electrical, plumbing or HVAC systems, facilities or equipment located in or serving the Building, or (vii) diminish the value of the Premises including, without limitation, using lesser quality materials than those existing in the Premises, or (viii) alter or replace Standard Improvements. Landlord may impose any condition to its consent, including but not limited to a requirement that the installation and/or removal of all Alterations and Replacements be covered by a lien and completion bond satisfactory to Landlord in its sole and absolute discretion and requirements as to the manner and time of performance of such work. Landlord shall in all events, whether or not Landlord's consent is required, have the right to approve the contractor performing the installation and removal of 12 -------------------------------------------------------------------------------- Alterations and Replacements and Tenant shall not permit any contractor not approved by Landlord to perform any work on the Premises or on the Building. Tenant shall obtain all required permits for the installation and removal of Alterations and Replacements and shall perform the installation and removal of Alterations and Replacements in compliance with all applicable laws, regulations and ordinances, including without limitation the Americans with Disabilities Act, all covenants, conditions and restrictions affecting the Project, and the Rules and Regulations as described in Article XVII. Tenant understands and agrees that Landlord shall be entitled to a supervision fee in the amount of five percent (5%) of the cost of the Alterations. Under no circumstances shall Tenant make any Alterations or Replacements which incorporate any Hazardous Materials, including without limitation asbestos-containing construction materials into the Premises, the Building or the Common Area. If any governmental entity requires, as a condition to any proposed Alterations by Tenant, that improvements be made to the Common Areas, and if Landlord consents to such improvements to the Common Areas (which consent may be withheld in the sole and absolute discretion of Landlord), then Tenant shall, at Tenant's sole expense, make such required improvements to the Common Areas in such manner, utilizing such materials, and with such contractors, architects and engineers as Landlord may require in its sole and absolute discretion. Any request for Landlord's consent to any proposed Alterations shall be made in writing and shall contain architectural plans describing the work in detail reasonably satisfactory to Landlord. Unless Landlord otherwise agrees in writing, all Alterations made or affixed to the Premises, the Building or to the Common Area either during the Term of this Lease or during the term of the Existing Lease (excluding moveable trade fixtures and furniture), shall become property of Landlord and shall be surrendered with the Premises at the end of the Term; except that Landlord may, by notice to Tenant given either prior to or following the expiration or termination of this Lease, require Tenant to remove by the Expiration Date, or sooner termination date of this Lease, or within ten (10) days following notice to Tenant that such removal is required if notice is given following the Expiration Date or sooner termination, all or any of the Alterations installed either by Tenant or by Landlord at Tenant's request either during the Term of this Lease or during the Term of the Existing Lease, and to repair any damage to the Premises, the Building or the Common Area arising from that removal and restore the Premises to their condition prior to making such Alterations.     SECTION 7.4.  MECHANIC'S LIENS.  Tenant shall keep the Premises free from any liens arising out of any work performed, materials furnished, or obligations incurred by or for Tenant. Upon request by Landlord, Tenant shall promptly (but in no event later than five (5) business days following such request) cause any such lien to be released by posting a bond in accordance with California Civil Code Section 3143 or any successor statute. In the event that Tenant shall not, within thirty (30) days following the imposition of any lien, cause the lien to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other available remedies, the right to cause the lien to be released by any means it deems proper, including payment of or defense against the claim giving rise to the lien. All expenses so incurred by Landlord, including Landlord's reasonable attorneys' fees, and any consequential or other damages incurred by Landlord arising out of such lien, shall be reimbursed by Tenant upon demand, together with interest from the date of payment by Landlord at the maximum rate permitted by law until paid. Tenant shall give Landlord no less than twenty (20) days' prior notice in writing before commencing construction of any kind on the Premises or Common Area and shall again notify Landlord that construction has commenced, such notice to be given on the actual date on which construction commences, so that Landlord may post and maintain notices of nonresponsibility on the Premises or Common Area, as applicable, which notices Landlord shall have the right to post and which Tenant agrees it shall not disturb. Tenant shall also provide Landlord notice in writing within ten (10) days following the date on which such work is substantially completed. 13 --------------------------------------------------------------------------------     SECTION 7.5.  ENTRY AND INSPECTION.  Landlord shall at all reasonable times, upon written or oral notice (except in emergencies, when no notice shall be required) have the right to enter the Premises to inspect them, to supply services in accordance with this Lease, to have access to install, repair, maintain, replace or remove all electrical and mechanical installations of Landlord and to protect the interests of Landlord in the Premises, and to submit the Premises to prospective or actual purchasers or encumbrance holders (or, during the last one hundred and eighty (180) days of the Term or when an uncured Tenant Event of Default exists, to prospective tenants), all without being deemed to have caused an eviction of Tenant and without abatement of rent except as provided elsewhere in this Lease. Landlord shall have the right, if desired, to retain a key which unlocks all of the doors in the Premises, excluding Tenant's vaults and safes, and Landlord shall have the right to use any and all means which Landlord may deem proper to open the doors in an emergency in order to obtain entry to the Premises, and any entry to the Premises obtained by Landlord shall not under any circumstances be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or any eviction of Tenant from the Premises. ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY     Tenant shall be liable for and shall pay, at least ten (10) days before delinquency, all taxes and assessments levied against all personal property of Tenant located in the Premises, and, if required by Landlord, against all Non-Standard Improvements to the Premises (as defined in Section 7.3) made by Landlord or Tenant, and against any Alterations (as defined in Section 7.3) made to the Premises or the Building by or on behalf of Tenant. If requested by Landlord, Tenant shall cause its personal property, Non-Standard Improvements and Alterations to be assessed and billed separately from the real property of which the Premises form a part. If any taxes required to be paid by Tenant on Tenant's personal property, Non-Standard Improvements and/or Alterations are levied against Landlord or Landlord's property and if Landlord pays the same, or if the assessed value of Landlord's property is increased by the inclusion of a value placed upon the personal property, Non-Standard Improvements and/or Alterations and if Landlord pays the taxes based upon the increased assessment, Landlord shall have the right to require that Tenant pay to Landlord the taxes so levied against Landlord or the proportion of the taxes resulting from the increase in the assessment. In calculating what portion of any tax bill which is assessed against Landlord separately, or Landlord and Tenant jointly, is attributable to Tenant's Non-Standard Improvements, Alterations and personal property, Landlord's reasonable determination shall be conclusive. ARTICLE IX. ASSIGNMENT AND SUBLETTING     SECTION 9.1.  RIGHTS OF PARTIES.       (a) Notwithstanding any provision of this Lease to the contrary, and except as to transfers expressly permitted without Landlord's consent pursuant to Section 9.4, Tenant will not, either voluntarily or by operation of law, assign, sublet, encumber, or otherwise transfer all or any part of Tenant's interest in this Lease or the Premises, or permit the Premises to be occupied by anyone other than Tenant, without Landlord's prior written consent, which consent shall not unreasonably be withheld in accordance with the provisions of Section 9.1(b). No assignment whether voluntary, involuntary or by operation of law) and no subletting shall be valid or effective without Landlord's prior written consent and, at Landlord's election, any such assignment or subletting shall be void and of no force and effect and any such attempted assignment or subletting shall constitute an Event of Default of this Lease. Landlord shall not be deemed to have given its consent to any assignment or subletting by any course of action, including its acceptance of any name for listing in the Building directory, other than written consent. To the extent not prohibited by provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et seq., (the Bankruptcy Code"), including Section 365(f)(1), Tenant on behalf of itself and its creditors, administrators and assigns waives the applicability of Section 365(e) of the Bankruptcy Code unless the proposed assignee of the Trustee for the estate of the bankrupt meets 14 -------------------------------------------------------------------------------- Landlord's standard for consent as set forth in Section 9.1(b) of this Lease. If this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, any and all monies or other considerations to be delivered in connection with the assignment shall be delivered to Landlord, shall be and remain the exclusive property of Landlord and shall not constitute property of Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed to have assumed all of the obligations arising under this Lease on and after the date of the assignment, and shall upon demand execute and deliver to Landlord an instrument confirming that assumption.     (b) If Tenant desires to transfer an interest in this Lease or the Premises, it shall first notify Landlord of its desire and shall submit in writing to Landlord: (i) the name and address of the proposed transferee; (ii) the nature of any proposed transferee's business to be carried on in the Premises; (iii) the terms and provisions of any proposed sublease, assignment or other transfer, including a copy of the proposed assignment, sublease or transfer form; (iv) evidence that the proposed assignee, subtenant or transferee will comply with the requirements of Exhibit D hereto; (v) a completed Environmental Questionnaire from the proposed assignee, subtenant or transferee; (vi) any other information requested by Landlord and reasonably related to the transfer and (vii) the fee described in Section 9.1(e). Except as provided in Section 9.1 (c), Landlord shall not unreasonably withhold its consent, provided that the parties agree that it shall be reasonable for Landlord to withhold its consent if: (1) the use of the Premises will not be consistent with the provisions of this Lease or with Landlord's commitment to other tenants of the Building and Project; (2) the proposed assignee or subtenant has been required by any prior landlord, lender or governmental authority to take remedial action in connection with Hazardous Materials contaminating a property arising out of the proposed assignee's or subtenant's actions or use of the property in question or is subject to any enforcement order issued by any governmental authority in connection with the use, disposal or storage of a Hazardous Material; (3) insurance requirements of the proposed assignee or subtenant may not be brought into conformity with Landlord's then current leasing practice; (4) a proposed subtenant or assignee has not demonstrated to the reasonable satisfaction of Landlord that it is financially responsible or has failed to submit to Landlord all reasonable information as requested by Landlord concerning the proposed subtenant or assignee, including, but not limited to, a certified balance sheet of the proposed subtenant or assignee as of a date within ninety (90) days of the request for Landlord's consent, statements of income or profit and loss of the proposed subtenant or assignee for the two-year period preceding the request for Landlord's consent, and/or a certification signed by the proposed subtenant or assignee that it has not been evicted or been in arrears in rent at any other leased premises for the 3-year period preceding the request for Landlord's consent; (5) any proposed subtenant or assignee has not demonstrated to Landlord's reasonable satisfaction a record of successful experience in business; (6) the proposed assignee or subtenant is an existing tenant of the Building or Project or a prospect with whom Landlord is negotiating to become a tenant at the Building or Project; or (7) the proposed transfer will impose additional burdens or adverse tax effects on Landlord. If Tenant has any exterior sign rights under this Lease, such rights are personal to Tenant and may not be assigned or transferred to any assignee of this Lease or subtenant of the Premises without Landlord's prior written consent, which may be withheld in Landlord's sole and absolute discretion.     If Landlord consents to the proposed transfer, Tenant may within ninety (90) days after the date of the consent effect the transfer upon the terms described in the information furnished to Landlord; provided that any material change in the terms shall be subject to Landlord's consent as set forth in this Section 9.1. Landlord shall approve or disapprove any requested transfer within thirty (30) days following receipt of Tenant's written request, the information set forth above, and the fee set forth below.     (c) Notwithstanding the provisions of Section 9.1(b) above, in lieu of consenting to a proposed assignment or subletting, Landlord may elect, within the thirty (30) day period permitted for Landlord 15 -------------------------------------------------------------------------------- to approve or disapprove a requested transfer, to (i) sublease the Premises ( or the portion proposed to be subleased), or take an assignment of Tenant's interest in this Lease, upon substantially the same terms as offered to the proposed subtenant or assignee (excluding terms relating to the purchase of personal property, the use of Tenant's name or the continuation of Tenant's business), or (ii) terminate this Lease as to the portion of the Premises proposed to be subleased or assigned with a proportionate abatement in the rent payable under this Lease, effective thirty (30) days' following written notice by Landlord of its election to so sublease or terminate. Landlord may thereafter, at its option, assign, sublet or re-let any space so sublet, obtained by assignment or obtained by termination to any third party, including without limitation the proposed transferee of Tenant.     (d) In the event that Landlord approves the requested assignment or subletting, Tenant agrees that fifty percent (50%) of any amounts paid by the assignee or subtenant, however described, in excess of (i) the Basic Rent payable by Tenant hereunder, or in the case of a sublease of a portion of the Premises, in excess of the Basic Rent reasonably allocable to such portion as determined by Landlord, plus (ii) Tenant's direct out-of-pocket costs which Tenant certifies to Landlord have been paid to provide occupancy related services to such assignee or subtenant of a nature commonly provided by landlords of similar space, shall be property of Landlord and such amounts shall be payable directly to Landlord by the assignee or subtenant or, at Landlord's option, by Tenant within ten (10) days of Tenant's receipt thereof. Landlord shall have the right to review or audit the books and records of Tenant, or have such books and records reviewed or audited by an outside accountant, to confirm any such direct out-of-pocket costs. In the event that such direct out-of-pocket costs claimed by Tenant are overstated by more than five percent (5%), Tenant shall reimburse assignment or obtained by Landlord's costs related to such review or audit. At Landlord's request, a written agreement shall be entered into by and among Tenant, Landlord and the proposed assignee or subtenant confirming the requirements of this Section 9.1(d).     (e) Tenant shall pay to Landlord a fee equal to the greater of (i) Landlord's actual costs related to such assignment, subletting or other transfer or (ii) Five Hundred Dollars ($500.00), to process any request by Tenant for assignment, subletting or other transfer under this Lease. Tenant shall pay Landlord the sum of Five Hundred Dollars ($500.00) concurrently with Tenant's request for consent to any assignment, subletting or other transfer, and Landlord shall have no obligation to consider such request unless accompanied by such payment. Tenant shall pay Landlord upon demand any costs in excess of such payment to the extent Landlord's actual costs related to such request exceeds $500.00. Such fee is hereby acknowledged as a reasonable amount to reimburse Landlord for its costs of review and evaluation of proposed transfer.     SECTION 9.2.  EFFECT OF TRANSFER.  No subletting or assignment, even with the consent of Landlord, shall relieve Tenant of its obligation to pay rent and to perform all its other obligations under this Lease. Moreover, Tenant shall indemnify and hold Landlord harmless, as provided in Section 10.3, for any act or omission by an assignee or subtenant. Each assignee, other than Landlord, shall assume all obligations of Tenant under this Lease and shall be liable jointly and severally with Tenant for the payment of all rent, and for the due performance of all of Tenant's obligations, under this Lease. No assignment or subletting shall be effective or binding on Landlord unless documentation in form and substance satisfactory to Landlord in its reasonable discretion evidencing the transfer, and in the case of an assignment, the assignee's assumption of the obligations of Tenant under this Lease, is delivered to Landlord and both the assignee/subtenant and Tenant deliver to Landlord an executed consent to transfer instrument prepared by Landlord and consistent with the requirements of this Article. The acceptance by Landlord of any payment due under this Lease from any other person shall not be deemed to be a waiver by Landlord of any provision of this Lease or to be a consent to any transfer. Consent by Landlord to one or more transfers shall not operate as a waiver or estoppel to the future enforcement by Landlord of its rights under this Lease or as a consent to any subsequent transfer. 16 --------------------------------------------------------------------------------     SECTION 9.3.  SUBLEASE REQUIREMENTS.  The following terms and conditions shall apply to any subletting by Tenant of all or any part of the Premises and shall be deemed included in each sublease:     (a) Each and every provision contained in this Lease (other than with respect to the payment of rent hereunder) is incorporated by reference into and made a part of such sublease, with "Landlord" hereunder meaning the sublandlord therein and "Tenant" hereunder meaning the subtenant therein.     (b) Tenant hereby irrevocably assigns to Landlord all of Tenant's interest in all rentals and income arising from any sublease of the Premises, and Landlord may collect such rent and income and apply same toward Tenant's obligations under this Lease; provided, however, that until there is an Event of Default by Tenant, Tenant shall have the right to receive and collect the sublease rentals. Landlord shall not, by reason of this assignment or the collection of sublease rentals, be deemed liable to the subtenant for the performance of any of Tenant's obligations under the sublease. Tenant hereby irrevocably authorizes and directs any subtenant, upon receipt of a written notice from Landlord stating that an uncured Event of Default exists in the performance of Tenant's obligations under this Lease, to pay to Landlord all sums then and thereafter due under the sublease. Tenant agrees that the subtenant may rely on that notice without any duty of further inquiry and notwithstanding any notice or claim by Tenant to the contrary. Tenant shall have no right or claim against the subtenant or Landlord for any rentals so paid to Landlord.     (c) In the event of the termination of this Lease for any reason, including without limitation as the result of an Event of Default by Tenant or by the mutual agreement of Landlord and Tenant, Landlord may, at its sole option, take over Tenant's entire interest in any sublease and, upon notice from Landlord, the subtenant shall attorn to Landlord. In no event, however, shall Landlord be liable for any previous act or omission by Tenant under the sublease or for the return of any advance rental payments or deposits under the sublease that have not been actually delivered to Landlord, nor shall Landlord be bound by any sublease modification executed without Landlord's consent or for any advance rental payment by the subtenant in excess of one month's rent. The general provisions of this Lease, including without limitation those pertaining to insurance and indemnification, shall be deemed incorporated by reference into the sublease despite the termination of this Lease. In the event Landlord does not elect to take over Tenant's interest in a sublease in the event of any such termination of this Lease, such sublease shall terminate concurrently with the termination of this Lease and such subtenant shall have no further rights under such sublease and Landlord shall have no obligations to such subtenant.     SECTION 9.4.  CERTAIN TRANSFERS.  The following shall be deemed to constitute an assignment of this Lease; (a) the sale of all or substantially all of Tenant's assets (other than bulk sales in the ordinary course of business), (b) if Tenant is a corporation, an unincorporated association, a limited liability company or a partnership, the transfer, assignment or hypothecation of any stock or interest in such corporation, association, limited liability company or partnership in the aggregate of twenty-five percent (25%) (except for publicly traded shares of stock constituting a transfer of twenty-five percent (25%) or more in the aggregate, so long as no change in the controlling interest of Tenant occurs as a result thereof), or (c) any other direct or indirect change of control of Tenant, including, without limitation, change of control of Tenant's parent company or a merger by Tenant or its parent company. Notwithstanding the foregoing, Landlord's consent shall not be required for the assignment of this Lease as a result of a merger by Tenant with or into another entity or a reorganization of Tenant, so long as (i) the net worth of the successor or reorganized entity after such merger is at least equal to the greater of the net worth of Tenant as of the execution of this Lease by Landlord or the net worth of Tenant immediately prior to the date of such merger or reorganization, evidence of which, satisfactory to Landlord, shall be presented to Landlord prior to such merger or reorganization, (ii) Tenant shall provide to Landlord, prior to such merger or reorganization, written notice of such merger 17 -------------------------------------------------------------------------------- or reorganization and such assignment documentation and other information as Landlord may require in connection therewith, and (iii) all of the other terms and requirements Section 9.2 and 9.3 shall apply with respect to such assignment. ARTICLE X. INSURANCE AND INDEMNITY     SECTION 10.1.  TENANT'S INSURANCE.  Tenant, at its sole cost and expense, shall provide and maintain in effect the insurance described in Exhibit D. Evidence of that insurance must be delivered to Landlord prior to the Commencement Date.     SECTION 10.2.  LANDLORD'S INSURANCE.  Landlord may, at its election, provide any or all of the following types of insurance, with or without deductible and in amounts and coverages as may be determined by Landlord in its sole and absolute discretion: "all risk" or similar property insurance, subject to standard exclusions, covering the Building and/or Project, and such other risks as Landlord or its mortgagees may from time to time deem appropriate, and commercial general liability coverage. Landlord shall not be required to carry insurance of any kind on Tenant's Alterations or on Tenant's other property, including, leasehold improvements, trade fixtures, furnishings, equipment, plate glass, signs and all other items of personal property, and shall not be obligated to repair or replace that property should damage occur. All proceeds of insurance maintained by Landlord upon the Building and/or Project shall be the property of Landlord, whether or not Landlord is obligated to or elects to make any repairs. At Landlord's option, Landlord may self-insure all or any portion of the risks for which Landlord elects to provide insurance hereunder.     SECTION 10.3.  JOINT INDEMNITY.       (a) To the fullest extent permitted by law, but subject to the express limitations on liability contained in Section 10.5 of this Lease, Tenant shall defend, indemnify, protect, save and hold harmless Landlord, its agents, and any and all affiliates of Landlord, including, without limitation, any corporations or other entities controlling, controlled by or under common control with Landlord, from and against any and all claims, liabilities, costs or expenses arising either before or after the Commencement Date from Tenant's use or occupancy of the Premises, the Building or the Common Areas, including without limitation, the use by Tenant, its agents, employees, invitees or licensees of any recreational facilities within the Common Areas, or from the conduct of its business, or from any activity, work, or thing done, permitted or suffered by Tenant or its agents, employees, invitees or licensees in or about the Premises, the Building or the Common Areas, or from any negligence or willful misconduct of Tenant or its agents, employees, visitors, patrons, guests, invitees or licensees. In cases of alleged negligence asserted by third parties against Landlord which arise out of, are occasioned by, or in any way attributable to Tenant's, its agents, employees, contractors, licensees or invitees use and occupancy of the Premises, the Building or the Common Areas, or from the conduct of its business or from any activity, work or thing done, permitted or suffered by Tenant or its agents, employees, invitees or licensees on Tenant's part to be performed under this Lease, or from any negligence or willful misconduct of Tenant, its agents, employees, licensees or invitees, Tenant shall accept any tender of defense for Landlord and shall, notwithstanding any allegation of negligence or willful misconduct on the part of the Landlord (but subject to the reimbursement provisions hereinafter provided), defend Landlord and protect and hold Landlord harmless and pay all costs, expenses and attorneys' fees incurred in connection with such litigation, provided that Tenant shall not be liable for any such injury or damage, and Landlord shall reimburse Tenant for the reasonable attorney's fees and costs for the attorney representing both parties, all to the extent and in the proportion that such injury or damage is ultimately determined by a court of competent jurisdiction (or in connection with any negotiated settlement agreed to by Landlord) to be attributable to the negligence or willful misconduct of Landlord. Upon Landlord's request, Tenant shall at Tenant's sole cost and expense, retain a separate attorney selected by Landlord and reasonably acceptable to Tenant to represent Landlord in any such suit if Landlord reasonably determines that the representation of both Tenant and Landlord by the 18 -------------------------------------------------------------------------------- same attorney would cause a conflict of interest; provided, however, that to the extent and in the proportion that the injury or damage which is the subject of the suit is ultimately determined by a court of competent jurisdiction (or in connection with any negotiated settlement agreed to by Landlord) to be attributable to the negligence or willful misconduct of Landlord, Landlord shall reimburse Tenant for the reasonable legal fees and costs of the separate attorney retained by Tenant. The provisions of this Subsection 10.3(a) shall expressly survive the expiration or sooner termination of this Lease.     (b) To the fullest extent permitted by law, but subject to the express limitations on liability contained in this Lease (including, without limitation, the provisions of Sections 10.4, 10.5 and 14.8 of this Lease), Landlord shall defend, indemnify, protect, save and hold harmless Tenant, its agents and any and all affiliates of Tenant, including, without limitation, any corporations, or other entities controlling, controlled by or under common control with Tenant, from and against any and all claims, liabilities, costs or expenses arising either before or after the Commencement Date from the operation, maintenance or repair of the Common Areas by Landlord or its employees or authorized agents. In cases of alleged negligence asserted by third parties against Tenant which arise out of, are occasioned by, or in any way attributable to the maintenance or repair of the Common Areas by Landlord or its authorized agents or employees, Landlord shall accept any tender of defense for Tenant and shall, notwithstanding any allegation of negligence or willful misconduct on the part of Tenant (but subject to the reimbursement provisions hereinafter provided), defend Tenant and protect and hold Tenant harmless and pay all cost, expense and attorneys' fees incurred in connection with such litigation, provided that Landlord shall not be liable for any such injury or damage, and Tenant shall reimburse Landlord for the reasonable attorney's fees and costs for the attorney representing both parties, all to the extent and in the proportion that such injury or damage is ultimately determined by a court of competent jurisdiction (or in connection with any negotiated settlement agreed to by Tenant) to be attributable to the negligence or willful misconduct of Tenant. Upon Tenant's request, Landlord shall at Landlord's sole cost and expense, retain a separate attorney selected by Tenant and reasonably acceptable to Landlord to represent Tenant in any such suit if Tenant reasonably determines that the representation of both Tenant and Landlord by the same attorney would cause conflict of interest; provided, however, that to the extent and the proportion that the injury or damage which is the subject of the suit is ultimately determined by a court of competent jurisdiction (or in connection with any negotiated settlement agreed to by Tenant) to be attributable to the negligence or willful misconduct of Tenant, Tenant shall reimburse Landlord for the reasonable legal fees and costs of the separate attorney retained by Landlord. The provisions of this Subsection 10.3(b) shall expressly survive the expiration or sooner termination of this Lease.     SECTION 10.4. LANDLORD'S NONLIABILITY.  Subject to the express indemnity obligations contained in Section 10.3(b) of this Lease, Landlord shall not be liable to Tenant, its employees, agents and invitees, and Tenant hereby waives all claims against Landlord for loss of or damage to any property or personal injury, or any other loss, cost, damage, injury or liability whatsoever resulting from fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak or flow from or into any part of the Premises or from the breakage, leakage, obstruction or other defects of the pipes, sprinklers, wires, appliances, plumbing, air conditioning, electrical works or other fixtures in the Building, whether the damage or injury results from conditions arising in the Premises or in other portions of the Building. It is understood that any such condition may require the temporary evacuation or closure of all or a portion of the Building. Notwithstanding any provision of this Lease to the contrary, including, without limitation, the provisions of Section 10.3(b) of this Lease, Landlord shall in no event be liable to Tenant, its employees, agents, and invitees, and Tenant hereby waives all claims against Landlord, for loss or interruption of Tenant's business or income (including, without limitation, any consequential damages and lost profit or opportunity costs), or any other loss, cost, damage, injury or liability resulting from, but not limited to, Acts of God (except with respect to restoration obligations pursuant to Article XI below), acts of civil disobedience or insurrection, acts or omissions (criminal or otherwise) of any third parties (other than Landlord's employees or authorized agents), 19 -------------------------------------------------------------------------------- including without limitation, any other tenants within the Project or their agents, employees, contractors, guests or invitees. Landlord shall have no liability (including without limitation consequential damages and lost profit or opportunity costs) and, except as provided in Sections 11.1 and 12.1 below, there shall be no abatement of rent, by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations or improvements to any portion of the Building, including repairs to the Premises, nor shall any related activity by Landlord constitute an actual or constructive eviction; provided, however, that in making repairs, alterations or improvements, Landlord shall interfere as little as reasonably practicable with the conduct of Tenant's business in the Premises. Neither Landlord nor its agents shall be liable for interference with light or other similar intangible interests. Tenant shall immediately notify Landlord in case of fire or accident in the Premises, the Building or the Project and of defects in any improvements or equipment.     SECTION 10.5.  WAIVER OF SUBROGATION.  Landlord and Tenant each hereby waives all rights of recovery against the other and the other's agents on account of loss and damage occasioned to the property of such waiving party to the extent only that such loss or damage is required to be insured against, or, if not required, is actually insured against, under any property insurance policies contemplated by this Article X; provided however, that (i) the foregoing waiver shall not apply to the extent of Tenant's obligations to pay deductibles under any such policies and this Lease and (ii) to the extent Tenant fails to maintain the insurance required to be maintained by Tenant pursuant to this Lease, Landlord shall not be deemed to have waived any right of recovery against Tenant. By this waiver it is the intent of the parties that neither Landlord nor Tenant shall be liable to any insurance company (by way of subrogation or otherwise) insuring the other party for any loss or damage insured against under any property insurance policies contemplated by this Lease, even though such loss or damage might be occasioned by the negligence of such party, its agents, employees, contractors, guests or invitees. ARTICLE XI. DAMAGE OR DESTRUCTION     SECTION 11.1.  RESTORATION.       (a) If the Premises or the Building or a part thereof are materially damaged by any fire, flood, earthquake or other casualty, Landlord shall have the right to terminate this Lease upon written notice to Tenant if: (i) Landlord reasonably determines that proceeds necessary to pay the full cost of repair are not available from Landlord's insurance, including without limitation earthquake insurance, plus such additional amounts Tenant elects, at its option, to contribute, excluding however the deductible (for which Tenant shall be responsible for Tenant's Share); (ii) Landlord reasonably determines that the Premises cannot, with reasonable diligence, be fully repaired by Landlord (or cannot be safely repaired because of the presence of hazardous factors, including without limitation Hazardous Materials, earthquake faults, and other similar dangers) within two hundred seventy (270) days after the date of damage; (iii) an uncured Event of Default by Tenant has occurred; or (iv) the material damage occurs during the final twelve (12) months of the Term. Landlord shall notify Tenant in writing ("Landlord's Notice") within sixty (60) days after the damage occurs as to (A) whether Landlord is terminating this Lease as a result of such material damage and (B) if Landlord is not terminating this Lease, the number of days within which Landlord has estimated that the Premises, with reasonable diligence, are likely to be fully repaired. In the event Landlord elects to terminate this Lease, this Lease shall terminate as of the date specified for termination by Landlord's Notice (which termination date shall in no event be later than sixty (60) days following the date of the damage, or, if no such date is specified, such termination shall be the date of the Landlord's Notice).     (b) If Landlord has the right to terminate this Lease pursuant to Section 11.1(a) and does not elect to so terminate this Lease, and provided that at the time of Landlord's Notice neither an Event of Default exists nor has Landlord delivered Tenant a notice of any failure by Tenant to fulfill an obligation under this Lease which, unless cured by Tenant within the applicable grace period, would 20 -------------------------------------------------------------------------------- constitute an Event of Default, then within ten (10) days following delivery of Landlord's Notice pursuant to Section 11.1(a), Tenant may elect to terminate this Lease by written notice to Landlord, but only if (i) Landlord's Notice specifies that Landlord has determined that the Premises cannot be repaired, with reasonable diligence, within two hundred seventy (270) days after the date of damage or (ii) the casualty has occurred within the final twelve (12) months of the Term and such material damage has a materially adverse impact on Tenant's continued use of the Premises. If Tenant fails to provide such termination notice within such ten (10) day period, Tenant shall be deemed to have waived any termination right under this Section 11.1(b) or any other applicable law.     (c) In the event that neither Landlord nor Tenant terminates this Lease pursuant to this Section 11.1 as a result of material damage to the Building or Premises resulting from a casualty, Landlord shall repair all material damage to the Premises or the Building as soon as reasonably possible and this Lease shall continue in effect for the remainder of the Term. Landlord shall have the right, but not the obligation, to repair or replace any other leasehold improvements made by Tenant or any Alterations (as defined in Section 7.3) constructed by Tenant. If Landlord elects to repair or replace such leasehold improvements and/or Alterations, all insurance proceeds available for such repair or replacement shall be made available to Landlord. Landlord shall have no liability to Tenant in the event that the Premises or the Building has not been fully repaired within the time period specified by Landlord in Landlord's Notice to Tenant as described in Section 11.1(a). Notwithstanding the foregoing, the repair of damage to the Premises to the extent such damage is not material shall be governed by Sections 7.1 and 7.2.     (d) Commencing on the date of such material damage to the Building, and ending on the sooner of the date the damage is repaired or the date this Lease is terminated, the rental to be paid under this Lease shall be abated in the same proportion that the Floor Area of the Premises that is rendered unusable by the damage from time to time bears to the total Floor Area of the Premises, as determined by Landlord, but only to the extent that any business interruption insurance proceeds are received by Landlord therefor from Tenant's insurance described in Exhibit D.     (e) Landlord shall not be required to repair or replace any improvements or fixtures that Tenant is obligated to repair or replace pursuant to Section 7.1 or any other provision of this Lease and Tenant shall continue to be obligated to so repair or replace any such improvements or fixtures, notwithstanding any provisions to the contrary in this Article XI. In addition, in the event the damage or destruction to the Premises or Building are due in substantial part to the fault or neglect of Tenant or its employees, subtenants, invitees or representatives, notwithstanding the provisions of Section 10.5, the costs of such repairs or replacement to the Premises or Building shall be borne by Tenant to the extent that insurance proceeds sufficient to complete such repair or replacement are not made available to Landlord and in addition, Tenant shall not be entitled to terminate this Lease as a result, notwithstanding the provisions of Section 11.1(b).     (f)  Tenant shall fully cooperate with Landlord in removing Tenant's personal property and any debris from the Premises to facilitate all inspections of the Premises and the making of any repairs. Notwithstanding anything to the contrary contained in this Lease, if Landlord in good faith believes there is a risk of injury to persons or damage to property from entry into the Building or Premises following any damage or destruction thereto, Landlord may restrict entry into the Building or the Premises by Tenant, its employees, agents and contractors in a non-discriminatory manner, without being deemed to have violated Tenant's rights of quiet enjoyment to, or made an unlawful detainer of, or evicted Tenant from, the Premises. Upon request, Landlord shall consult with Tenant to determine if there are safe methods of entry into the Building or the Premises solely in order to allow Tenant to retrieve files, data in computers, and necessary inventory, subject however to all indemnities and waivers of liability from Tenant to Landlord contained in this Lease and any additional indemnities and waivers of liability which Landlord may require. 21 --------------------------------------------------------------------------------     SECTION 11.2.  LEASE GOVERNS.  Tenant agrees that the provisions of this Lease, including without limitation Section 11.1, shall govern any damage or destruction and shall accordingly supersede any contrary statute or rule of law. ARTICLE XII. EMINENT DOMAIN     SECTION 12.1.  TOTAL OR PARTIAL TAKING.  If all or a material portion of the Premises is taken by any lawful authority by exercise of the right of eminent domain, or sold to prevent a taking, either Tenant or Landlord may terminate this Lease effective as of the date possession is required to be surrendered to the authority. In the event title to a portion of the Building or Project, whether or not including a portion of the Premises, is taken or sold in lieu of taking, and if Landlord elects to restore the Building in such a way as to alter the Premises materially, either party may terminate this Lease, by written notice to the other party, effective on the date of vesting of title. In the event neither party has elected to terminate this Lease as provided above, then Landlord shall promptly, after receipt of a sufficient condemnation award, proceed to restore the Premises to substantially their condition prior to the taking, and a proportionate allowance shall be made to Tenant for the rent corresponding to the time during which, and to the part of the Premises of which, Tenant is deprived on account of the taking and restoration. In the event of a taking, Landlord shall be entitled to the entire amount of the condemnation award without deduction for any estate or interest of Tenant; provided that nothing in this Section shall be deemed to give Landlord any interest in, or prevent Tenant from seeking any award against the taking authority for, the taking of personal property and fixtures belonging to Tenant or for relocation or business interruption expenses recoverable from the taking authority.     SECTION 12.2.  TEMPORARY TAKING.  No temporary taking of the Premises shall terminate this Lease or give Tenant any right to abatement of rent, and any award specifically attributable to a temporary taking of the Premises shall belong entirety to Tenant. A temporary taking shall be deemed to be a taking of the use or occupancy of the Premises for a period of not to exceed ninety (90) days.     SECTION 12.3.  TAKING OF PARKING AREA.  In the event there shall be a taking of the parking area such that Landlord can no longer provide sufficient parking to comply with this Lease, Landlord may substitute reasonably equivalent parking in a location reasonably close to the Building; provided that if Landlord fails to make that substitution within ninety (90) days following the taking and if the taking materially impairs Tenant's use and enjoyment of the Premises, Tenant may, at its option, terminate this Lease by written notice to Landlord. If this Lease is not so terminated by Tenant, there shall be no abatement of rent and this Lease shall continue in effect. 22 -------------------------------------------------------------------------------- ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS     SECTION 13.1.  SUBORDINATION.  At the option of Landlord or any lender of Landlord's that obtains a security interest in the Building, this Lease shall be either superior or subordinate to all ground or underlying leases, mortgages and deeds of trust, if any, which may hereafter affect the Building, and to all renewals, modifications, consolidations, replacements and extensions thereof; provided, that so long as no Event of Default exists under this Lease, Tenant's possession and quiet enjoyment of the Premises shall not be disturbed and this Lease shall not terminate in the event of termination of any such ground or underlying lease, or the foreclosure of any such mortgage or deed of trust, to which this Lease has been subordinated pursuant to this Section. Tenant shall execute and deliver any documents or agreements requested by Landlord or such lessor or lender which provide Tenant with the non-disturbance protections set forth in this Section. In the event of a termination or foreclosure, Tenant shall become a tenant of and attorn to the successor-in-interest to Landlord upon the same terms and conditions as are contained in this Lease, and shall execute any instrument reasonably required by Landlord's successor for that purpose. Tenant shall also, upon written request of Landlord, execute and deliver all instruments as may be required from time to time to subordinate the rights of Tenant under this Lease to any ground or underlying lease or to the lien of any mortgage or deed of trust (provided that such instruments include the nondisturbance and attornment provisions set forth above), or, if requested by Landlord, to subordinate, in whole or in part, any ground or underlying lease or the lien of any mortgage or deed of trust to this Lease. Tenant agrees that any purchaser at a foreclosure sale or lender taking title under a deed-in-lieu of foreclosure shall not be responsible for any act or omission of a prior landlord, shall not be subject to any offsets or defenses Tenant may have against a prior landlord, and shall not be liable for the return of the security deposit to the extent it is not actually received by such purchaser or bound by any rent paid for more than the current month in which the foreclosure occurred.     SECTION 13.2.  ESTOPPEL CERTIFICATE.       (a) Tenant shall, at any time upon not less than ten (10) days prior written notice from Landlord, execute, acknowledge and deliver to Landlord, in any form that Landlord may reasonably require, a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of the modification and certifying that this Lease, as modified, is in full force and effect) and the dates to which the rental, additional rent and other charges have been paid in advance, if any, and (ii) acknowledging that, to Tenant's knowledge, there are no uncured defaults on the part of Landlord, or specifying each default if any are claimed, and (iii) setting forth all further information that Landlord or any purchaser or encumbrancer may reasonably require. Tenant's statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the Building or Project.     (b) Notwithstanding any other rights and remedies of Landlord, Tenant's failure to deliver any estoppel statement within the provided time shall be conclusive upon Tenant that (i) this Lease is in full force and effect, without modification except as may be represented by Landlord, (ii) there are no uncured Events of Default in Landlord's performance, and (iii) not more than one month's rental has been paid in advance.     SECTION 13.3.  FINANCIALS.       (a) Tenant shall deliver to Landlord, prior to the execution of this Lease and thereafter at any time upon Landlord's request (but not more frequently than once in any calendar year, except in the event of a refinancing of the Project by Landlord), Tenant's current tax returns and financial statements, certified true, accurate and complete by the chief financial officer of Tenant, including a balance sheet and profit and loss statement for the most recent prior year, or, in the event Tenant is a publicly traded corporation as a nationally recognized stock exchange, Tenant's current financial reports filed with the Securities and Exchange Commission (collectively, the "Statements"), which Statements 23 -------------------------------------------------------------------------------- shall accurately and completely reflect the financial condition of Tenant. Landlord agrees that it will keep the Statements confidential, except that Landlord shall have the right to deliver the same to any proposed purchaser of the Building or Project, and to any encumbrancer of all or any portion of the Building or Project. Notwithstanding the foregoing, so long as Tenant is a publicly-traded corporation whose stock is traded on a nationally recognized exchange or on NASDAQ, the "Statements" shall consist of Tenant's most recently publicly disclosed financial statements.     (b) Tenant acknowledges that Landlord is relying on the Statements in its determination to enter into this Lease, and Tenant represents to Landlord, which representation shall be deemed made on the date of this Lease and again on the Commencement Date, that no material change in the financial condition of Tenant, as reflected in the Statements, has occurred since the date Tenant delivered the Statements to Landlord. The Statements are represented and warranted by Tenant to be correct and to accurately and fully reflect Tenant's true financial condition as of the date of submission by any Statements to Landlord. ARTICLE XIV. EVENTS OF DEFAULT AND REMEDIES     SECTION 14.1  TENANT'S DEFAULTS.  In addition to any other breaches of this Lease which are defined as Events of Default in this Lease, the occurrence of any one or more of the following events shall constitute an Event of Default by Tenant:     (a) The failure by Tenant to make any payment of Basic Rent or additional rent required to be made by Tenant, as and when due, where the failure continues for a period of three (3) days after written notice from Landlord to Tenant; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 and 1161(a) as amended. For purposes of these Events of Default and remedies provisions, the term "additional rent" shall be deemed to include all amounts of any type whatsoever other than Basic Rent to be paid by Tenant pursuant to the terms of this Lease.     (b) The assignment, sublease, encumbrance or other transfer of this Lease by Tenant, either voluntarily or by operation of law, whether by judgment, execution, transfer by intestacy or testacy, or other means, without the prior written consent of Landlord when consent is required by this Lease.     (c) The discovery by Landlord that any financial statement provided by Tenant, or by any affiliate, successor or guarantor of Tenant, was materially false.     (d) The failure of Tenant to timely and fully provide any subordination agreement, estoppel certificate or financial statements in accordance with the requirements of Article XIII.     (e) The abandonment of the Premises by Tenant.     (f)  The failure or inability by Tenant to observe or perform any of the express or implied covenants or provisions of this Lease to be observed or performed by Tenant, other than as specified in this Section 14.1, where the failure continues for a period of thirty (30) days after written notice from Landlord to Tenant or such shorter period as is specified in any other provision of this Lease; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 and 1161(a) as amended. However, if the nature of the failure is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be deemed to have committed an Event of Default if Tenant commences the cure within thirty (30) days, and thereafter diligently pursues the cure to completion.     (g) (i) The making by Tenant of any general assignment for the benefit of creditors; (ii) the filing by or against Tenant of a petition to have Tenant adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts discharged or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed 24 -------------------------------------------------------------------------------- within thirty (30) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, if possession is not restored to Tenant within thirty (30) days; (iv) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where the seizure is not discharged within thirty (30) days; (v) Tenant's convening of a meeting of its creditors for the purpose of effecting a moratorium upon or composition of its debts or (vi) the failure of Tenant to pay its material obligations to creditors as and when they become due and payable, other than as a result of a good faith dispute by Tenant as to the amount due to such creditors. Landlord shall not be deemed to have knowledge of any event described in this Section 14.1(g) unless notification in writing is received by Landlord, nor shall there be any presumption attributable to Landlord of Tenant's insolvency. In the event that any provision of this Section 14.1(g) in contrary to applicable law, the provision shall be of no force or effect.     SECTION 14.2  LANDLORD'S REMEDIES:       (a) If an Event of Default by Tenant occurs, then in addition to any other remedies available to Landlord, Landlord may exercise the following remedies:     (i)  Landlord may terminate Tenant's rights to possession of the Premises by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. Such termination shall not affect any accrued obligations of Tenant under this Lease. Upon termination, Landlord shall have the right to reenter the Premises and remove all persons and property. Landlord shall also be entitled to recover from Tenant:     (1) The worth at the time of award of the unpaid Basic Rent and additional rent which had been earned at the time of termination;     (2) The worth at the time of award of the amount by which the unpaid Basic Rent and additional rent which would have been earned after termination until the time of award exceeds the amount of such loss that Tenant proves could have been reasonably avoided;     (3) The worth at the time of award of the amount by which the unpaid Basic Rent and additional rent for the balance of the Term after the time of award exceeds the amount of such loss that Tenant proves could be reasonably avoided;     (4) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result from Tenant's Event of Default, including, but not limited to, the cost of recovering possession of the Premises, refurbishment of the Premises, marketing costs, commissions and other expenses of reletting, including necessary repair, the unamortized portion of any tenant improvements and brokerage commissions funded by Landlord in connection with this Lease, reasonable attorneys' fees, and any other reasonable costs; and     (5) At Landlord's election, all other amounts in addition to or in lieu of the foregoing as may be permitted by law. Any sum, other than Basic Rent, shall be computed on the basis of the average monthly amount accruing during the twenty-four (24) month period immediately prior to the Event of Default, except that if it becomes necessary to compute such rental before the twenty-four (24) month period has occurred, then the computation shall be on the basis of the average monthly amount during the shorter period. As used in Sections 14.2(a)(i) (1) and (2) above, the "worth at the time of award" shall be computed by allowing interest at the rate of ten percent (10%) per annum. As used in Section 14.2(a)(i)(3) above, the "worth at the time of award" shall be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). 25 --------------------------------------------------------------------------------     (ii) Landlord may elect not to terminate Tenant's right to possession of the Premises, in which event Landlord may continue to enforce all of its rights and remedies under this Lease, including the right to collect all rent as it becomes due. Efforts by the Landlord to maintain, preserve or relet the Premises, or the appointment of a receiver to protect the Landlord's interests under this Lease, shall not constitute a termination of the Tenant's right to possession of the Premises. In the event that Landlord elects to avail itself of the remedy provided by this Section 14.2(a)(ii), Landlord shall not unreasonably withhold its consent to an assignment or subletting of the Premises subject to the reasonable standards for Landlord's consent as are contained in this Lease.     (b) Landlord shall be under no obligation to observe or perform any covenant of this Lease on its part to be observed or performed which accrues after the date of any Event of Default by Tenant unless and until the Event of Default is cured by Tenant, it being understood and agreed that the performance by Landlord of its obligations under this Lease are expressly conditioned upon Tenant's full and timely performance of its obligations under this Lease. The various rights and remedies reserved to Landlord in this Lease or otherwise shall be cumulative and, except as otherwise provided by California law, Landlord may pursue any or all of its rights and remedies at the same time.     (c) No delay or omission of Landlord to exercise any right or remedy shall be construed as a waiver of the right or remedy or of any breach or Event of Default by Tenant. The acceptance by Landlord of rent shall not be a (i) waiver of any preceding breach or Event of Default by Tenant of any provision of this Lease, other than the failure of Tenant to pay the particular rent accepted, regardless of Landlord's knowledge of the preceding breach or Event of Default at the time of acceptance of rent, or (ii) a waiver of Landlord's right to exercise any remedy available to Landlord by virtue of the breach or Event of Default. The acceptance of any payment from a debtor in possession, a trustee, a receiver or any other person acting on behalf of Tenant or Tenant's estate shall not waive or cure a breach or Event of Default under Section 14.1. No payment by Tenant or receipt by Landlord of a lesser amount than the rent required by this Lease shall be deemed to be other than a partial payment on account of the earliest due stipulated rent, nor shall any endorsement or statement on any check or letter be deemed an accord and satisfaction and Landlord shall accept the check or payment without prejudice to Landlord's right to recover the balance of the rent or pursue any other remedy available to it. No act or thing done by Landlord or Landlord's agents during the Term shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept a surrender shall be valid unless in writing and signed by Landlord. No employee of Landlord or of Landlord's agents shall have any power to accept the keys to the Premises prior to the termination of this Lease, and the delivery of the keys to any employee shall not operate as a termination of this Lease or a surrender of the Premises.     (d) Any agreement for free or abated rent or other charges, or for the giving or paying by Landlord to or for Tenant of any cash or other bonus, inducement or consideration for Tenant's entering into this Lease ("Inducement Provisions") shall be deemed conditioned upon Tenant's full and faithful performance of the terms, covenants and conditions of this Lease. Upon an Event of Default under this Lease by Tenant, any such Inducement Provisions shall automatically be deemed deleted from this Lease and of no further force or effect and the amount of any rent reduction or abatement or other bonus or consideration already given by Landlord or received by Tenant as an Inducement shall be immediately due and payable by Tenant to Landlord, notwithstanding any subsequent cure of said Event of Default by Tenant. The acceptance by Landlord of rent or the cure of the Event of Default which initiated the operation of this Section 14.1 shall not be deemed a waiver by Landlord of the provisions of this Section 14.2(d). 26 -------------------------------------------------------------------------------- SECTION 14.3.  LATE PAYMENTS.     (a) Any payment due to Landlord under this Lease, including without limitation Basic Rent, Tenant's Share of Operating Expenses or any other payment due to Landlord under this Lease, that is not received by Landlord within five (5) days following the date due shall bear interest at the maximum rate permitted by law from the date due until fully paid. The payment of interest shall not cure any breach or Event of Default by Tenant under this Lease. In addition, Tenant acknowledges that the late payment by Tenant to Landlord of Basic Rent and Tenant's Share of Operating Expenses will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult and impracticable to ascertain. Those costs may include, but are not limited to, administrative, processing and accounting charges, and late charges which may be imposed on Landlord by the terms of any ground lease, mortgage or trust deed covering the Premises. Accordingly, if any Basic Rent or Tenant's Share of Operating Expenses due from Tenant shall not be received by Landlord or Landlord's designee within five (5) days following the date due, then Tenant shall pay to Landlord, in addition to the interest provided above, a late charge, which the Tenant agrees is reasonable, in a sum equal to the greater of five percent (5%) of the amount overdue or Two Hundred Fifty Dollars ($250.00) for each delinquent payment. Acceptance of a late charge by Landlord shall not constitute a waiver of Tenant's breach or Event of Default with respect to the overdue amount, nor shall it prevent Landlord from exercising any of its other rights and remedies.     (b) Following each second installment of Basic Rent and/or the payment of Tenant's Share of Operating Expenses within any twelve (12) month period that is not paid within five (5) days following the date due, Landlord shall have the option (i) to require that beginning with the first payment of Basic Rent next due, Basic Rent and the Tenant's Share of Operating Expenses shall no longer be paid in monthly installments but shall be payable quarterly three (3) months in advance and/or (ii) to require that Tenant increase the amount, if any, of the Security Deposit by one hundred percent (100%). Should Tenant deliver to Landlord, at any time during the Term, two (2) or more insufficient checks, the Landlord may require that all monies then and thereafter due from Tenant be paid to Landlord by cashier's check. If any check for any payment to Landlord hereunder is returned by the bank for any reason, such payment shall not be deemed to have been received by Landlord and Tenant shall be responsible for any applicable late charge, interest payment and the charge to Landlord by its bank for such returned check. Nothing in this Section shall be construed to compel Landlord to accept Basic Rent, Tenant's Share of Operating Expenses or any other payment from Tenant if there exists an Event of Default unless such payment fully cures any and all such Event of Default. Any acceptance of any such payment shall not be deemed to waive any other right of Landlord under this Lease. Any payment by Tenant to Landlord may be applied by Landlord, in its sole and absolute discretion, in any order determined by Landlord to any amounts then due to Landlord.     SECTION 14.4.  RIGHT OF LANDLORD TO PERFORM.  All covenants and agreements to be performed by Tenant under this Lease shall be performed at Tenant's sole cost and expense and without any abatement of rent or right of set-off. If Tenant fails to pay any sum of money, other than rent payable to Landlord, or fails to perform any other act on its part to be performed under this Lease, and the failure continues beyond any applicable grace period set forth in Section 14.1, then in addition to any other available remedies, Landlord may, at its election make the payment or perform the other act on Tenant's part and Tenant hereby grants Landlord the right to enter onto the Premises in order to carry out such performance. Landlord's election to make the payment or perform the act on Tenant's part shall not give rise to any responsibility of Landlord to continue making the same or similar payments or performing the same or similar acts nor shall Landlord be responsible to Tenant for any damage caused to Tenant as the result of such performance by Landlord. Tenant shall, promptly upon demand by Landlord, reimburse Landlord for all sums paid by Landlord and all necessary incidental costs, together with interest at the maximum rate permitted by law from the date of the payment by Landlord. 27 --------------------------------------------------------------------------------     SECTION 14.5.  DEFAULT BY LANDLORD.  Landlord shall not be deemed to be in default in the performance of any obligation under this Lease, and Tenant shall have no rights to take any action against Landlord, unless and until Landlord has failed to perform the obligation within thirty (30) days after written notice by Tenant to Landlord specifying in reasonable detail the nature and extent of the failure; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be deemed to be in default if it commences performance within the thirty (30) day period and thereafter diligently pursues the cure to completion. In the event of Landlord's default under this Lease, Tenant's sole remedies shall be to seek damages or specific performance from Landlord, provided that any damages shall be limited to Tenant's actual out-of-pocket expenses and shall in no event include any consequential damages, lost profits or opportunity costs.     SECTION 14.6.  EXPENSES AND LEGAL FEES.  All sums reasonably incurred by Landlord in connection with any Event of Default by Tenant under this Lease or holding over of possession by Tenant after the expiration or earlier termination of this Lease, or any action related to a filing for bankruptcy or reorganization by Tenant, including without limitation all costs, expenses and actual accountants, appraisers, attorneys and other professional fees, and any collection agency or other collection charges, shall be due and payable to Landlord on demand, and shall bear interest at the rate of ten percent (10%) per annum. Should either Landlord or Tenant bring any action in connection with this Lease, the prevailing party shall be entitled to recover as a part of the action its reasonable attorneys' fees, and all other costs. The prevailing party for the purpose of this Section shall be determined by the trier of the facts.     SECTION 14.7.  WAIVER OF JURY TRIAL.  LANDLORD AND TENANT EACH ACKNOWLEDGES THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER (AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR SUBSIDIARY OR AFFILIATED ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM OF INJURY OR DAMAGE. FURTHERMORE, THIS WAIVER AND RELEASE OF ALL RIGHTS TO A JURY TRIAL IS DEEMED TO BE INDEPENDENT OF EACH AND EVERY OTHER PROVISION, COVENANT, AND/OR CONDITION SET FORTH IN THIS LEASE.     SECTION 14.8.  SATISFACTION OF JUDGMENT.  The obligations of Landlord do not constitute the personal obligations of the individual partners, trustees, directors, officers or shareholders of Landlord or its constituent partners. Should Tenant recover a money judgment against Landlord, such judgment shall be satisfied only from the interest of Landlord in the Project and out of the rent or other income from such property receivable by Landlord or out of consideration received by Landlord from the sale or other disposition of all or any part of Landlord's right, title or interest in the Project and no action for any deficiency may be sought or obtained by Tenant.     SECTION 14.9.  LIMITATION OF ACTIONS AGAINST LANDLORD.  Any claim, demand or right of any kind by Tenant which is based upon or arises in connection with this Lease, including without limitation any arising under a tort or contract cause of action, shall be barred unless Tenant commences an action thereon within six (6) months after the date that the act, omission, event or default upon which the claim, demand or right arises, has occurred. 28 -------------------------------------------------------------------------------- ARTICLE XV. END OF TERM     SECTION 15.1.  HOLDING OVER.  This Lease shall terminate without further notice upon the expiration of the Term, and any holding over by Tenant after the expiration shall not constitute a renewal or extension of this Lease, or give Tenant any rights under this Lease, except when in writing signed by both parties. Any period of time following the Expiration Date or earlier termination of this Lease required for Tenant to remove its property or to place the Premises in the condition required pursuant to Section 15.3 (or for Landlord to do so if Tenant fails to do so) shall be deemed a holding over by Tenant. If Tenant holds over for any period after the Expiration Date (or earlier termination) of the Term without the prior written consent of Landlord, such possession shall constitute a tenancy at sufferance only and an Event of Default under this Lease; such holding over with the prior written consent of Landlord shall constitute a month-to-month tenancy commencing on the first (1st) day following the termination of this Lease and terminating thirty (30) days following delivery of written notice of termination by either Landlord or Tenant to the other. In either of such events, possession shall be subject to all of the terms of this Lease, except that the monthly Basic Rent shall be the greater of (a) one hundred fifty percent (150%) of the Basic Rent for the month immediately preceding the date of termination for the initial two (2) months of holdover and two hundred percent (200%) of the Basic Rent for the month immediately preceding the date of termination for each month of holdover thereafter, or (b) the then currently scheduled Basic Rent for comparable space in the Project. If Tenant fails to surrender the Premises upon the expiration of this Lease despite demand to do so by Landlord, Tenant shall indemnify and hold Landlord harmless from all loss or liability, including without limitation, any claims made by any succeeding tenant relating to such failure to surrender. Acceptance by Landlord of rent after the termination shall not constitute a consent to a holdover or result in a renewal of this Lease. The foregoing provisions of this Section are in addition to and do not affect Landlord's right of re-entry or any other rights of Landlord under this Lease or at law.     SECTION 15.2.  MERGER ON TERMINATION.  The voluntary or other surrender of this Lease by Tenant, or a mutual termination of this Lease, shall terminate any or all existing subleases unless Landlord, at his option, elects in writing to treat the surrender or termination as an assignment to it of any or all subleases affecting the Premises.     SECTION 15.3.  SURRENDER OF PREMISES; REMOVAL OF PROPERTY.  Subject to the provisions of 7.3 of this Lease, upon the Expiration Date or upon any earlier termination of this Lease, Tenant shall quit and surrender possession of the Premises to Landlord in as good order, condition and repair as when received or as hereafter may be improved by Landlord or Tenant, reasonable wear and tear and repairs which are Landlord's obligation excepted, and shall, without expense to Landlord, remove or cause to be removed from the Premises all personal property and debris, except for any items that Landlord may by written authorization allow to remain. Tenant shall repair all damage to the Premises resulting from the removal, which repair shall include the patching and filling of holes and repair of structural damage, provided that Landlord may instead elect to repair any structural damage at Tenant's expense. If Tenant shall fail to comply with the provisions of this Section, Landlord may effect the removal and/or make any repairs, and the cost to Landlord shall be additional rent payable by Tenant upon demand. If Tenant fails to remove Tenant's personal property from the Premises upon the expiration of the Term, Landlord may remove, store, dispose of and/or retain such personal property, at Landlord's option, in accordance with then applicable laws, all at the expense of Tenant. If requested by Landlord following the Expiration Date or any earlier termination of this Lease, Tenant shall execute, acknowledge and deliver to Landlord an instrument in writing releasing and quitclaiming to Landlord all right, title and interest of Tenant in the Premises. 29 -------------------------------------------------------------------------------- ARTICLE XVI. PAYMENTS AND NOTICES     All sums payable by Tenant to Landlord shall be deemed to be rent under this Lease and shall be paid, without deduction or offset, in lawful money of the United States to Landlord at its address set forth in Item 12 of the Basic Lease Provisions, or at any other place as Landlord may designate in writing. Unless this Lease expressly provides otherwise, as for example in the payment of Basic Rent and the Tenant's Share of Operating Costs pursuant to Sections 4.1 and 4.2, all payments shall be due and payable within five (5) days after demand. All payments requiring proration shall be prorated on the basis of a thirty (30) day month and a three hundred sixty (360) day year. Any notice, election, demand, consent, approval or other communication to be given or other document to be delivered by either party to the other may be delivered in person or by courier or overnight delivery service to the other party, or may be deposited in the United States mail, duly registered or certified, postage prepaid, return receipt requested, and addressed to the other party at the address set forth in Item 12 of the Basic Lease Provisions, or if to Tenant, at that address or, from and after the Commencement Date, at the Premises (whether or not Tenant has departed from, abandoned or vacated the Premises). Either party may, by written notice to the other, served in the manner provided in this Article, designate a different address. If any notice or other document is sent by mail, it shall be deemed served or delivered seventy-two (72) hours after mailing. If more than one person or entity is named as Tenant under this Lease, service of any notice upon any one of them shall be deemed as service upon all of them. ARTICLE XVII. RULES AND REGULATIONS     Tenant agrees to observe faithfully and comply strictly with the Rules and Regulations, attached as Exhibit E, and any reasonable and nondiscriminatory amendments, modifications and/or additions as may be adopted and published by written notice to tenants by Landlord for the safety, care, security, good order, or cleanliness of the Premises, Building, Project and Common Areas. Landlord shall not be liable to Tenant for any violation of the Rules and Regulations or the breach of any covenant or condition in any lease by any other tenant or such tenant's agents, employees, contractors, guests or invitees. One or more waivers by Landlord of any breach of the Rules and Regulations by Tenant or by any other tenant(s) shall not be a waiver of any subsequent breach of that rule or any other. Tenant's failure to keep and observe the Rules and Regulations shall constitute a breach of this Lease. In the case of any conflict between the Rules and Regulations and this Lease, this Lease shall be controlling. ARTICLE XVIII. NO BROKER'S COMMISSION     Tenant warrants that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, and Tenant agrees to indemnify and hold Landlord harmless from any cost, expense or liability (including reasonable attorneys' fees) for any compensation, commissions or charges claimed by any other real estate broker or agent employed or claiming to represent or to have been employed by Tenant in connection with the negotiation of this Lease. The foregoing agreement shall survive the termination of this Lease. ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST     In the event of any transfer of Landlord's interest in the Premises, the transferor shall be automatically relieved of all further obligations on the part of Landlord, and the transferor shall be relieved of any obligation to pay any funds in which Tenant has an interest to the extent that such funds have been turned over, subject to that interest, to the transferee and Tenant is notified of the transfer as required by law. No beneficiary of a deed of trust to which this Lease is or may be subordinate, and no landlord under a so-called sale-leaseback, shall be responsible in connection with the Security Deposit, unless the mortgage or beneficiary under the deed of trust or the landlord actually receives the Security Deposit. It is intended that the covenants and obligations contained in 30 -------------------------------------------------------------------------------- this Lease on the part of Landlord shall, subject to the foregoing, be binding on Landlord, its successors and assigns, only during and in respect to their respective successive periods of ownership. ARTICLE XX. INTERPRETATION     SECTION 20.1.  GENDER AND NUMBER.  Whenever the context of this Lease requires, the words "Landlord" and "Tenant" shall include the plural as well as the singular, and words used in neuter, masculine or feminine genders shall include the others.     SECTION 20.2.  HEADINGS.  The captions and headings of the articles and sections of this Lease are for convenience only, are not a part of this Lease and shall have no effect upon its construction or interpretation.     SECTION 20.3.  JOINT AND SEVERAL LIABILITY.  If more than one person or entity is named as Tenant, the obligations imposed upon each shall be joint and several and the act of or notice from, or notice or refund to, or the signature of, any one or more of them shall be binding on all of them with respect to the tenancy of this Lease, including, but not limited to, any renewal, extension, termination or modification of this Lease.     SECTION 20.4.  SUCCESSORS.  Subject to Articles IX and XIX, all rights and liabilities given to or imposed upon Landlord and Tenant shall extend to and bind their respective heirs, executors, administrators, successors and assigns. Nothing contained in this Section is intended, or shall be construed, to grant to any person other than Landlord and Tenant and their successors and assigns any rights or remedies under this Lease.     SECTION 20.5.  TIME OF ESSENCE.  Time is of the essence with respect to the performance of every provision of this Lease.     SECTION 20.6.  CONTROLLING LAW/VENUE.  This Lease shall be governed by and interpreted in accordance with the laws of the State of California. Any litigation commenced concerning any matters whatsoever arising out of or in any way connected to this Lease shall be initiated in the Superior Court of the county in which the Project is located.     SECTION 20.7.  SEVERABILITY.  If any term or provision of this Lease, the deletion of which would not adversely affect the receipt of any material benefit by either party or the deletion of which is consented to by the party adversely affected, shall be held invalid or unenforceable to any extent, the remainder of this Lease shall not be affected and each term and provision of this Lease shall be valid and enforceable to the fullest extent permitted by law.     SECTION 20.8.  WAIVER AND CUMULATIVE REMEDIES.  One or more waivers by Landlord or Tenant of any breach of any term, covenant or condition contained in this Lease shall not be a waiver of any subsequent breach of the same or any other term, covenant or condition. Consent to any act by one of the parties shall not be deemed to render unnecessary the obtaining of that party's consent to any subsequent act. No breach by Tenant of this Lease shall be deemed to have been waived by Landlord unless the waiver is in writing signed by Landlord. The rights and remedies of Landlord under this Lease shall be cumulative and in addition to any and all other rights and remedies which Landlord may have.     SECTION 20.9.  INABILITY TO PERFORM.  In the event that either party shall be delayed or hindered in or prevented from the performance of any work or in performing any act required under this Lease by reason of any cause beyond the reasonable control of that party, other than financial inability, then the performance of the work or the doing of the act shall be excused for the period of the delay and the time for performance shall be extended for a period equivalent to the period of the delay. The provisions of this Section shall not operate to excuse Tenant from the prompt payment of rent or from the timely performance of any other obligation under this Lease within Tenant's reasonable control. 31 --------------------------------------------------------------------------------     SECTION 20.10.  ENTIRE AGREEMENT.  This Lease and its exhibits and other attachments cover in full each and every agreement of every kind between the parties concerning the Premises, the Building, and the Project, and all preliminary negotiations, oral agreements, understandings and/or practices, except those contained in this Lease, are superseded and of no further effect. Tenant and Landlord each waive their respective rights to rely on any representations or promises made by the other party which are not contained in this Lease. No verbal agreement or implied covenant shall be held to modify the provisions of this Lease, any statute, law, or custom to the contrary notwithstanding.     SECTION 20.11.  QUIET ENJOYMENT.  Upon the observance and performance of all the covenants, terms and conditions on Tenant's part to be observed and performed, and subject to the other provisions of this Lease, Tenant shall have the right of quiet enjoyment and use of the Premises for the Term without hindrance or interruption by Landlord or any other person claiming by or through Landlord.     SECTION 20.12.  SURVIVAL.  All covenants of Landlord or Tenant which reasonably would be intended to survive the expiration or sooner termination of this Lease, including without limitation any warranty or indemnity hereunder, shall so survive and continue to be binding upon and more to the benefit of the respective parties and their successors and assigns.     SECTION 20.13.  INTERPRETATION.  This Lease shall not be construed in favor of or against either party, but shall be construed as if both parties prepared this Lease. ARTICLE XXI. EXECUTION AND RECORDING     SECTION 21.1.  COUNTERPARTS.  This Lease may be executed in one or more counterparts, each of which shall constitute an original and all of which shall be one and the same agreement.     SECTION 21.2.  CORPORATE, LIMITED LIABILITY COMPANY AND PARTNERSHIP AUTHORITY.  If Tenant is a corporation, limited liability company or partnership, each individual executing this Lease on behalf of the corporation, limited liability company or partnership represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of the corporation, limited liability company or partnership, and that this Lease is binding upon the corporation, limited liability company or partnership in accordance with its terms. Tenant shall, at Landlord's request, deliver a certified copy of its board of directors' resolution, operating agreement or partnership agreement or certificate authorizing or evidencing the execution of this Lease.     SECTION 21.3.  EXECUTION OF LEASE; NO OPTION OR OFFER.  The submission of this Lease to Tenant shall be for examination purposes only, and shall not constitute an offer to or option for Tenant to lease the Premises. Execution of this Lease by Tenant and its return to Landlord shall not be binding upon Landlord, notwithstanding any time interval, until Landlord has in fact executed and delivered this Lease to Tenant, it being intended that this Lease shall only become effective upon execution by Landlord and delivery of a fully executed counterpart to Tenant.     SECTION 21.4.  RECORDING.  Tenant shall not record this Lease without the prior written consent of Landlord. Tenant, upon the request of Landlord, shall execute and acknowledge a "short form" memorandum of this Lease for recording purposes.     SECTION 21.5.  AMENDMENTS.  No amendment or termination of this Lease shall be effective unless in writing signed by authorized signatories of Tenant and Landlord, or by their respective successors in interest. No actions, policies, oral or informal arrangements, business dealings or other course of conduct by or between the parties shall be deemed to modify this Lease in any respect.     SECTION 21.6.  EXECUTED COPY.  Any fully executed photocopy or similar reproduction of this Lease shall be deemed an original for all purposes. 32 --------------------------------------------------------------------------------     SECTION 21.7.  ATTACHMENTS.  All exhibits, amendments, riders and addenda attached to this Lease are hereby incorporated into and made a part of this Lease. ARTICLE XXII. MISCELLANEOUS     SECTION 22.1.  NONDISCLOSURE OF LEASE TERMS.  Tenant acknowledges and agrees that the terms of this Lease are confidential and constitute proprietary information of Landlord. Disclosure of the terms could adversely affect the ability of Landlord to negotiate other leases and impair Landlord's relationship with other tenants. Accordingly, Tenant agrees that it, and its partners, officers, directors, employees and attorneys, shall not intentionally and voluntarily disclose, by public filings or otherwise, the terms and conditions of this Lease ("Confidential Information") to any third party, either directly or indirectly, without the prior written consent of Landlord, which consent may be given or withheld in Landlord's sole and absolute discretion. The foregoing restriction shall not apply if either: (i) Tenant is required to disclose the Confidential Information in response to a subpoena or other regulatory, administrative or court order, (ii) Independent legal counsel to Tenant delivers a written opinion to Landlord that Tenant is required to disclose the Confidential Information to, or file a copy of this Lease with, any governmental agency or any stock exchange; provided however, that in such event, Tenant shall, before making any such disclosure (A) provide Landlord with prompt written notice of such required disclosure, (B) at Tenant's sole cost, take all reasonable legally available steps to resist or narrow such requirement including without limitation preparing and filing a request for confidential treatment of the Confidential Information and (C) if disclosure of the Confidential Information is required by subpoena or other regulatory, administrative or court order, Tenant shall provide Landlord with as much advance notice of the possibility of such disclosure as practical so that Landlord may attempt to stop such disclosure or obtain an order concerning such disclosure. The form and content of a request by Tenant for confidential treatment of the Confidential Information shall be provided to Landlord at least five (5) business days before its submission to the applicable governmental agency of stock exchange and is subject to the prior written approval of Landlord. In addition, Tenant may disclose the terms of this Lease to prospective assignees of this Lease and prospective subtenants under this Lease with whom Tenant is actively negotiating such an assignment or sublease.     SECTION 22.2.  GUARANTY.  As a condition to the execution of this Lease by Landlord, the obligations, covenants and performance of the Tenant as herein provided shall be guaranteed in writing by the Guarantor(s) listed in Item 7 of the Basic Lease Provisions ("Guarantor"), if any, on a form of guaranty provided by Landlord ("Guaranty"). Any default by a Guarantor under the Guaranty shall be deemed to be an Event of Default under the terms of this Lease. In addition, any filing by or against a Guarantor of a petition to have such Guarantor adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts discharged or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against such Guarantor, the same is dismissed within thirty (30) days), a Guarantor's convening of a meeting of its creditors for the purpose of effecting a moratorium upon or composition of its debts or the failure of a Guarantor to pay its material obligations to creditors as and when they become due and payable, other than as a result of a good faith dispute by such Guarantor, shall be deemed to be an Event of Default by Tenant. 33 --------------------------------------------------------------------------------     SECTION 22.3.  CHANGES REQUESTED BY LENDER.  If, in connection with obtaining financing for the Project, the lender shall request reasonable modifications in this Lease as a condition to the financing, Tenant will not unreasonably withhold or delay its consent, provided that the modifications do not materially increase the obligations of Tenant or materially and adversely affect the leasehold interest created by this Lease.     SECTION 22.4.  MORTGAGEE PROTECTION.  No act or failure to act on the part of Landlord which would otherwise entitle Tenant to be relieved of its obligations hereunder shall result in such a release or termination unless (a) Tenant has given notice by registered or certified mail to any beneficiary of a deed of trust or mortgage covering the Building whose address has been furnished to Tenant and (b) such beneficiary is afforded a reasonable opportunity to cure the default by Landlord (which in no event shall be less than sixty (60) days), including, if necessary to effect the cure, time to obtain possession of the Building by power of sale or judicial foreclosure provided that such foreclosure remedy is diligently pursued. Tenant agrees that each beneficiary of a deed of trust or mortgage covering the Building is an express third party beneficiary hereof, Tenant shall have no right or claim for the collection of any deposit from such beneficiary or from any purchaser at a foreclosure sale unless such beneficiary or purchaser shall have actually received and not refunded the deposit, and Tenant shall comply with any written directions by any beneficiary to pay rent due hereunder directly to such beneficiary without determining whether a default exists under such beneficiary's deed of trust.     SECTION 22.5.  COVENANTS AND CONDITIONS.  All of the provisions of this Lease shall be construed to be conditions as well as covenants as though the words specifically expressing or imparting covenants and conditions were used in each separate provision.     SECTION 22.6.  SECURITY MEASURES.  Tenant hereby acknowledges that Landlord shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises or the Project. Tenant assumes all responsibility for the protection of Tenant, its employees, agents, invitees and property from acts of third parties. Nothing herein contained shall prevent Landlord, at its sole option, from providing security protection for the Project or any part thereof, in which event the cost thereof shall be included within the definition of Project Costs.     SECTION 22.7.  EXPIRATION OF EXISTING LEASE.  It is understood that Tenant is presently leasing the Premises pursuant to a Lease Agreement dated April 1, 1994 executed by Landlord's predecessor-in-interest, Utah State Retirement Fund, a Common Trust Fund (the, "Existing Lease"). The parties agree that the Existing Lease shall expire in accordance with its terms as of the day preceding the Commencement Date of this Lease, provided that such termination shall not relieve Tenant of (a) any accrued obligation or liability under the Existing Lease as of said termination date, or (b) any obligation under the Existing Lease which was reasonably intended to survive the expiration or termination thereof.       LANDLORD:   TENANT: THE IRVINE COMPANY   ALTRIS SOFTWARE, INC., a California corporation       By: /s/ William R. Halford --------------------------------------------------------------------------------   By: /s/ Roger Erickson --------------------------------------------------------------------------------   William R. Halford   President, Office Properties     Name (Print): Roger Erickson   Title (Print): CEO             By: --------------------------------------------------------------------------------   By: /s/ John W. Loc --------------------------------------------------------------------------------   Nancy E. Trujillo   Assistant Secretary     Name: John W. Loc   Title: Chief Financial Officer & Secretary 34 -------------------------------------------------------------------------------- LOGO [g574231.jpg] EXHIBIT A -------------------------------------------------------------------------------- EXHIBIT B THE IRVINE COMPANY—INVESTMENT PROPERTIES GROUP HAZARDOUS MATERIAL SURVEY FORM     The purpose of this form is to obtain information regarding the use of hazardous substances on Investment Properties Group ("IPG") property. Prospective tenants and contractors should answer the questions in light of their proposed activities on the premises. Existing tenants and contractors should answer the questions as they relate to ongoing activities on the premises and should update any information previously submitted.     If additional space is needed to answer the questions, you may attach separate sheets of paper to this form. When completed, the form should be sent to the following address: INSIGNIA/ESG, INC. 43 Discovery, Suite 120 Irvine, CA 92618     Your cooperation in this matter is appreciated. If you have any questions, please call your property manager at (949) 753-4744 for assistance.     1.  GENERAL INFORMATION:                     Name of Responding Company:   Altris Software, Inc. -------------------------------------------------------------------------------- Check all that apply:   Tenant   /x/   Contractor   / /     Prospective   / /   Existing   /x/ Mailing Address:   9339 Carroll Park Dr. San Diego, CA 92121 -------------------------------------------------------------------------------- Contact person & Title:   John W. Low Chief Financial Officer -------------------------------------------------------------------------------- Telephone Number:   (858) 625-3000 -------------------------------------------------------------------------------- Current TIC Tenant(s):                 Address of Lease Premises:   9339 Carroll Park Dr. San Diego, CA 92121 -------------------------------------------------------------------------------- Length of Lease or Contract Term:   Expiration May 31, 2003 -------------------------------------------------------------------------------- Prospective TIC Tenant(s):                 Address of Leased Premises:         -------------------------------------------------------------------------------- Address of Current Operations:                     -------------------------------------------------------------------------------- Describe the proposed operations to take place on the property, including principal products manufactured or services to be conducted. Existing tenants and contractors should describe any proposed changes to ongoing operations. -------------------------------------------------------------------------------- Software development -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 1 --------------------------------------------------------------------------------     2.  HAZARDOUS MATERIALS.  For the purposes of this Survey Form, the term "hazardous material" means any material, product or agent considered hazardous under any state or federal law. The term does not include wastes which are intended to be discarded.                     2.1 Will any hazardous materials be used or stored on site?   Chemical Products   Yes   / /   No   /x/   Biological Hazards/Infectious Wastes   Yes   / /   No   /x/   Radioactive Materials   Yes   / /   No   /x/   Petroleum Products   Yes   / /   No   /x/ 2.2 List any hazardous materials to be used or stored, the quantities that will be onsite at any given time, and the location and method of storage (e.g., bottles in storage closet on the premises).   Hazardous Materials --------------------------------------------------------------------------------   Location and Method of Storage --------------------------------------------------------------------------------   Quantity --------------------------------------------------------------------------------   Toner   In storage closet   2 or 3 boxes for standard office use in printers & copiers   Standard Office Cleaning Supplies   In storage closet   Minimum for regular cleaning 2.3 Is any underground storage of hazardous materials proposed or currently conducted on the premises? Yes / /  No /x/   If yes, describe the materials to be stored, and the size and construction of the tank. Attach copies of any permits obtained for the underground storage of such substances.   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------     3.  HAZARDOUS WASTE.  For the purposes of this Survey Form, the term "hazardous waste" means any waste (including biological, infectious or radioactive waste) considered hazardous under any state or federal law, and which is intended to be discarded.                     3.1 List any hazardous waste generated or to be generated on the premises, and indicate the quantity generated on a monthly basis.   Hazardous Materials --------------------------------------------------------------------------------   Location and Method of Storage --------------------------------------------------------------------------------   Quantity --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- 2 --------------------------------------------------------------------------------                     3.2 Describe the method(s) of disposal (including recycling) for each waste. Indicate where and how often disposal will take place.   Hazardous Materials --------------------------------------------------------------------------------   Location and Method of Storage --------------------------------------------------------------------------------   Disposal Method --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- 3.3Is any treatment or processing of hazardous, infectious or radioactive wastes currently conducted or proposed to be conducted on the premise?  Yes  (  )  No  (X) If yes, please describe any existing or proposed treatment methods. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 3.4Attach copies of any hazardous waste permits or licenses issued to your company with respect to its operations on the premises. SPILLS 4.1During the past year, have any spills or releases of hazardous materials occurred on the premises?  Yes(  )  No  (X) If so, please describe the spill and attach the results of any testing conducted to determine the extent of such spills. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 4.2Were any agencies notified in connection with such spills?  Yes  (  )  No  (X) If so, attach copies of any spill reports or other correspondence with regulatory agencies. 4.3Were any clean-up actions undertaken in connection with the spills?  Yes  (  )  No  (X) If so, briefly describe the actions taken. Attach copies of any clearance letters obtained from any regulatory agencies involved and the results of any final soil or groundwater sampling done upon completion of the clean-up work. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- WASTEWATER TREATMENT/DISCHARGE 5.1Do you discharge industrial wastewater to:     storm drain?       sewer? --------------------------------------------------------------------------------       --------------------------------------------------------------------------------         surface water?   X   no industrial discharge --------------------------------------------------------------------------------       --------------------------------------------------------------------------------     3 -------------------------------------------------------------------------------- 5.2Is your industrial wastewater treated before discharge?  Yes  (  )  No  (  )  N/A If yes, describe the type of treatment conducted. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 5.3Attach copies of any wastewater discharge permits issued to your company with respect to its operations on the premises. AIR DISCHARGES. 6.1Do you have any air filtration systems or stacks that discharge into the air? Yes  (  )  No  (X) 6.2Do you operate any equipment that require air emissions permits? Yes  (  )  No  (X) 6.3Attach copies of any air discharge permits pertaining to these operations. HAZARDOUS MATERIALS DISCLOSURES. 7.1Does your company handle an aggregate of at least 500 pounds, 55 gallons or 200 cubic feet of hazardous material at any given time?  Yes  (  )  No  (X) 7.2Has your company repaired a Hazardous Materials Disclosure—Chemical Inventory and Business Emergency Plan or similar disclosure document pursuant to state or county requirements?  Yes  (  )  No  (X) If so, attach a copy. 7.3Are any of the chemicals used in your operations regulated under Proposition 65? If so, describe the procedures followed to comply with these requirements. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 7.4Is your company subject to OSHA Hazard Communication Standard Requirements?  Yes  (  )  No  (X) If so, describe the procedures followed to comply with these requirements. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- ANIMAL TESTING. 8.1Does your company bring or intend to bring live animals onto the premises for research or development purposes?  Yes  (  )  No  (X) If so, describe the activity. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 4 -------------------------------------------------------------------------------- 8.2Does your company bring or intend to bring animal body parts or bodily fluids onto the premises for research or development purposes?  Yes  (  )  No  (X) If so, describe the activity. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- ENFORCEMENT ACTIONS, COMPLAINTS. 9.1Has your company ever been subject to any agency enforcement actions, administrative orders, lawsuits, or consent orders/decrees regarding environmental compliance or health and safety?  Yes  (  )  No  (X) If so, describe the actions and any continuing obligations imposed as a result of these actions. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 9.2Has your company ever received any request for information, notice of violation or demand letter, complaint, or inquiry regarding environmental compliance or health and safety?  Yes  (  )  No  (X) 9.3Has an environmental audit ever been conducted which concerned operations or activities on premises occupied by you?  Yes  (  )  No  (X) 9.4If you answered "yes" to any questions in this section, describe the environmental action or complaint and any continuing compliance obligation imposed as a result of the same. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- --------------------------------------------------------------------------------     --------------------------------------------------------------------------------     --------------------------------------------------------------------------------     By:   /s/ JOHN W. LOW    --------------------------------------------------------------------------------         Name:   John W. Low             --------------------------------------------------------------------------------         Title:   Chief Financial Officer             --------------------------------------------------------------------------------         Date:   2/25/01             -------------------------------------------------------------------------------- 5 -------------------------------------------------------------------------------- EXHIBIT C LANDLORD'S DISCLOSURES      [INTENTIONALLY LEFT BLANK] 1 -------------------------------------------------------------------------------- EXHIBIT D TENANT'S INSURANCE     The following standards for Tenant's insurance shall be in effect at the Building. Landlord reserves the right to adopt reasonable nondiscriminatory modifications and additions to those standards. Tenant agrees to obtain and present evidence to Landlord that it has fully complied with the insurance requirements.     1.  Tenant shall, at its sole cost and expense, commencing on the date Tenant is given access to the Premises for any purpose and during the entire Term, procure, pay for and keep in full force and effect: (i) commercial general liability insurance with respect to the Premises and the operations of or on behalf of Tenant in, on or about the Premises, including but not limited to personal injury, owned and nonowned automobile, blanket contractual, independent contractors, broad form property damage (with an exception to any pollution exclusion with respect to damage arising out of heat, smoke or fumes from a hostile fire), fire and water legal liability, products liability (if a product is sold from the Premises), liquor law liability (if alcoholic beverages are sold, served or consumed within the Premises), and severability of interest, which policy(ies) shall be written on an "occurrence" basis and for not less than the amount set forth in Item 13 of the Basic Lease Provisions, with a combined single limit (with a $50,000 minimum limit on fire legal liability) per occurrence for bodily injury, death, and property damage liability, or the current limit of liability carried by Tenant, whichever is greater and subject to such increases in amounts as a Landlord may determine from time to time; (ii) workers' compensation insurance coverage as required by law, together with employers' liability insurance; (iii) with respect to improvements, alterations, and the like required or permitted to be made by Tenant under this Lease, builder's all-risk insurance, in an amount equal to the replacement cost of the work; (iv) insurance against fire, vandalism, malicious mischief and such other additional perils as may be included in a standard "all risk" form in general use in the county in which the Premises are situated, insuring Tenant's leasehold improvements, trade fixtures, furnishings, equipment and items of personal property of Tenant located in the Premises, in an amount equal to not less than ninety percent (90%) of their actual replacement cost (with replacement cost endorsement); and (v) business interruption insurance in amounts satisfactory to cover one (1) year of loss. In no event shall the limits of any policy be considered as limiting the liability of Tenant under this Lease.     2.  In the event Landlord consents to Tenant's use, generation or storage of Hazardous Materials on, under or about the Premises pursuant to Section 5.3 of this Lease, Landlord shall have the continuing right to require Tenant, at Tenant's sole cost and expense (provided the same is available for purchase upon commercially reasonable terms), to purchase insurance specified and approved by Landlord, with coverage not less than Five Million Dollars ($5,000,000.00), insuring (i) any Hazardous Materials shall be removed from the Premises, (ii) the Premises shall be restored to a clean, healthy, safe and sanitary condition, and (iii) any liability of Tenant, Landlord and Landlord's officers, directors, shareholders, agents, employees and representatives, arising from such Hazardous Materials.     3.  All policies of insurance required to be carried by Tenant pursuant to this Exhibit D containing a deductible exceeding Ten Thousand Dollars ($10,000.00) per occurrence must be approved in writing by Landlord prior to the issuance of such policy. Tenant shall be solely responsible for the payment of all deductibles.     4.  All policies of insurance required to be carried by Tenant pursuant to this Exhibit D shall be written by responsible insurance companies authorized to do business in the State of California and with a Best's rating of not less than "A" subject to final acceptance and approval by Landlord. Any insurance required of Tenant may be furnished by Tenant under any blanket policy carried by it or under a separate policy, so long as (i) the Premises are specifically covered (by rider, endorsement or otherwise), (ii) the limits of the policy are applicable on a "per location" basis to the Premises and provide for restoration of the aggregate limits, and (iii) the policy otherwise complies with the 1 -------------------------------------------------------------------------------- provisions of this Exhibit D. A true and exact copy of each paid up policy evidencing the insurance (appropriately authenticated by the insurer) or a certificate of insurance, certifying that the policy has been issued, provides the coverage required by this Exhibit D and contains the required provisions, shall be delivered to Landlord prior to the date Tenant is given the right of possession of the Premises. Proper evidence of the renewal of any insurance coverage shall also be delivered to Landlord not less than thirty (30) days prior to the expiration of the coverage. Landlord may at any time, and from time to time, inspect and/or copy any and all insurance policies required by this Lease.     5.  Each policy evidencing insurance required to be carried by Tenant pursuant to this Exhibit D shall contain the following provisions and/or clauses satisfactory to Landlord: (i) a provision that the policy and the coverage provided shall be primary and that any coverage carried by Landlord shall be noncontributory with respect to any policies carried by Tenant except as to workers' compensation insurance; (ii) a provision including Landlord, the Additional Insureds identified in Item 11 of the Basic Lease Provisions, and any other paries in interest designated by Landlord as an additional insured, except as to workers' compensation insurance; (iii) a waiver by the insurer of any right to subrogation against Landlord, its agents, employees, contractors and representatives which arises or might arise by reason of any payment under the policy or by reason of any act or omission of Landlord, its agents, employees, contractors or representatives, and (iv) a provision that the insurer will not cancel or change the coverage provided by the policy without first giving Landlord thirty (30) days prior written notice.     6.  In the event that Tenant fails to procure, maintain and/or pay for, at the times and for the durations specified in this Exhibit D, any insurance required by this Exhibit D, or fails to carry insurance required by any governmental authority, Landlord may at its election procure that insurance and pay the premiums, in which event Tenant shall repay Landlord all sums paid by Landlord, together with interest at the maximum rate permitted by law and any related costs or expenses incurred by Landlord, within ten (10) days following Landlord's written demand to Tenant. 2 -------------------------------------------------------------------------------- EXHIBIT E RULES AND REGULATIONS     This Exhibit sets forth the rules and regulations governing Tenant's use of the Premises leased to Tenant pursuant to the terms, covenants and conditions of the Lease to which this Exhibit is attached and therein made part thereof. In the event of any conflict or inconsistency between this Exhibit and the Lease, the Lease shall control.     1.  Tenant shall not place anything or allow anything to be placed near the glass of any window, door, partition or wall which may appear unsightly from outside the Premises.     2.  The walls, walkways, sidewalks, entrance passages, courts and vestibules shall not be obstructed or used for any purpose other than ingress and egress of pedestrian travel to and from the Premises, and shall not be used for loitering or gathering, or to display, store or place any merchandise, equipment or devices, or for any other purpose. The walkways, entrance passageways, courts, vestibules and roof are not for the use of the general public and Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence in the judgment of the Landlord shall be prejudicial to the safety, character, reputation and interests of the Building and its tenants, provided that nothing herein contained shall be construed to prevent such access to persons with whom Tenant normally deals in the ordinary course of Tenant's business unless such persons are engaged in illegal activities. No tenant or employee or invitee of any tenant shall be permitted upon the roof of the Building.     3.  No awnings or other projection shall be attached to the outside walls of the Building. No security bars or gates, curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises without the prior written consent of Landlord. Neither the interior nor exterior of any windows shall be coated or otherwise sunscreened without the express written consent of Landlord.     4.  Tenant shall not mark, nail, paint, drill into, or in any way deface any part of the Premises or the Building. Tenant shall not lay linoleum, tile, carpet or other similar floor covering so that the same shall be affixed to the floor of the Premises in any manner except as approved by Landlord in writing. The expense of repairing any damage resulting from a violation of this rule or removal of any floor covering shall be borne by Tenant.     5.  The toilet rooms, urinals, wash bowls and other plumbing apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or invitees, caused it.     6.  Landlord shall direct electricians as to the manner and location of any future telephone wiring. No boring or cutting for wires will be allowed without the prior consent of Landlord. The locations of the telephones, call boxes and other office equipment affixed to the Premises shall be subject to the prior written approval of Landlord.     7.  The Premises shall not be used for manufacturing or for the storage of merchandise except as such storage may be incidental to the permitted use of the Premises. No exterior storage shall be allowed at any time without the prior written approval of Landlord. The Premises shall not be used for cooking or washing clothes without the prior written consent of Landlord, or for lodging or sleeping or for any immoral or illegal purposes.     8.  Tenant shall not make, or permit to be made, any unseemly or disturbing noises or disturb or interfere with occupants of this or neighboring buildings or premises or those having business with them, whether by the use of any musical instrument, radio, phonograph, noise, or otherwise. Tenant shall not use, keep or permit to be used, or kept, any foul or obnoxious gas or substance in the 1 -------------------------------------------------------------------------------- Premises or permit or suffer the Premises to be used or occupied in any manner offensive or objectionable to Landlord or other occupants of this or neighboring buildings or premises by reason of any odors, fumes or gases.     9.  No animals shall be permitted at any time within the Premises.     10. Tenant shall not use the name of the Building or the Project in connection with or in promoting or advertising the business of Tenant, except as Tenant's address, without the written consent of Landlord. Landlord shall have the right to prohibit any advertising by any Tenant which, in Landlord's reasonable opinion, tends to impair the reputation of the Project or its desirability for its intended uses, and upon written notice from Landlord any Tenant shall refrain from or discontinue such advertising.     11. Canvassing, soliciting, peddling, parading, picketing, demonstrating or otherwise engaging in any conduct that unreasonably impairs the value or use of the Premises or the Project are prohibited and each Tenant shall cooperate to prevent the same.     12. No equipment of any type shall be placed on the Premises which in Landlord's opinion exceeds the load limits of the floor or otherwise threatens the soundness of the structure or improvements of the Building.     13. No air conditioning unit or other similar apparatus shall be installed or used by any Tenant without the prior written consent of Landlord.     14. The entire Premises, including vestibules, entrances, doors, fixtures, windows and plate glass, shall at all times be maintained in a safe, neat and clean condition by Tenant. All trash, refuse, and waste materials shall be regularly removed from the Premises by Tenant and placed in the containers at the locations designated by Landlord for refuse collection. All cardboard boxes must be "broken down" prior to being placed in the trash container. All styrofoam chips must be bagged or otherwise contained prior to placement in the trash container, so as not to constitute a nuisance. Pallets may not be disposed of in the trash container or enclosures. The burning of trash, refuse or waste materials is prohibited.     15. Tenant shall use at Tenant's cost such pest extermination contractor as Landlord may direct and at such intervals as Landlord may require.     16. All keys for the Premises shall be provided to Tenant by Landlord and Tenant shall return to Landlord any of such keys so provided upon the termination of the Lease. Tenant shall not change locks or install other locks on doors of the Premises, without the prior written consent of Landlord. In the event of loss of any keys furnished by Landlord for Tenant, Tenant shall pay to Landlord the costs thereof.     17. No person shall enter or remain within the Project while intoxicated or under the influence of liquor or drugs. Landlord shall have the right to exclude or expel from the Project any person who, in the absolute discretion of Landlord, is under the influence of liquor or drugs.     Landlord reserves the right to amend or supplement the foregoing Rules and Regulations and to adopt and promulgate additional rules and regulations applicable to the Premises. Notice of such rules and regulations and amendments and supplements thereto, if any, shall be given to the Tenant. 2 -------------------------------------------------------------------------------- Project Site Plan      LOGO [g563183.jpg] EXHIBIT Y -------------------------------------------------------------------------------- QuickLinks LEASE (Multi-Tenant; Net; "AS IS") BETWEEN THE IRVINE COMPANY AND ALTRIS SOFTWARE, INC. INDEX TO LEASE LEASE (Multi-Tenant Net; "AS IS") ARTICLE I. BASIC LEASE PROVISIONS ARTICLE II. PREMISES ARTICLE III. TERM ARTICLE IV. RENT AND OPERATING EXPENSES ARTICLE V. USES ARTICLE VI. COMMON AREAS; SERVICES ARTICLE VII. MAINTAINING THE PREMISES ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY ARTICLE IX. ASSIGNMENT AND SUBLETTING ARTICLE X. INSURANCE AND INDEMNITY ARTICLE XI. DAMAGE OR DESTRUCTION ARTICLE XII. EMINENT DOMAIN ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS ARTICLE XIV. EVENTS OF DEFAULT AND REMEDIES ARTICLE XV. END OF TERM ARTICLE XVI. PAYMENTS AND NOTICES ARTICLE XVII. RULES AND REGULATIONS ARTICLE XVIII. NO BROKER'S COMMISSION ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST ARTICLE XX. INTERPRETATION ARTICLE XXI. EXECUTION AND RECORDING ARTICLE XXII. MISCELLANEOUS EXHIBIT B THE IRVINE COMPANY—INVESTMENT PROPERTIES GROUP HAZARDOUS MATERIAL SURVEY FORM EXHIBIT C LANDLORD'S DISCLOSURES EXHIBIT D TENANT'S INSURANCE EXHIBIT E RULES AND REGULATIONS Project Site Plan

QuickLinks -- Click here to rapidly navigate through this document BUSINESS COLLABORATION AGREEMENT     This BUSINESS COLLABORATION AGREEMENT (the "Agreement") is made and entered into as of this 17th day of April, 2001, by and among MON ACQUISITION CORP., a Florida corporation ("Mon"), INTERDENT, INC., a Delaware corporation ("InterDent"), and GENTLE DENTAL SERVICE CORPORATION, a Washington corporation and wholly owned subsidiary of InterDent ("GDSC"). RECITALS     WHEREAS, Mon, InterDent and GDSC have entered into that certain Purchase Agreement dated as of April 17, 2001 (the "Purchase Agreement"), pursuant to which Mon has agreed to purchase the Assets and the Shares and has agreed to assume the Assumed Obligations.     WHEREAS, prior to the date hereof, certain functions (the "Collective Functions") related to the operation of DCA and GDSC have been and are conducted on a collective basis.     WHEREAS, after the Closing Date, the parties hereto wish to continue to conduct the Collective Functions on a collective basis pursuant to and in accordance with the terms of this Agreement.     NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows: AGREEMENTS     1.  Purpose of Agreement.  After the Closing Date, pursuant to the terms hereof, the parties hereto agree to continue to conduct the Collective Functions set forth in Section 5 hereof on a collective basis in order for each of the parties to benefit from conducting such functions on a national level.     2.  Purchase Agreement.  Nothing contained herein shall be construed to affect the rights and obligations of the parties under the Purchase Agreement. Notwithstanding anything contained herein to the contrary, Mon shall only assume the Assumed Obligations which are expressly set forth in the Purchase Agreement and the Schedules thereto.     3.  Definitions.  Unless otherwise defined herein, capitalized terms used in this Agreement shall have the meaning assigned to them in the Purchase Agreement.     4.  Term and Termination.  This Agreement shall commence after the close of business on the Closing Date and shall remain in full force and effect until terminated (the "Term"). Any party hereto may terminate this Agreement at any time by delivering 60 days' written notice of termination to the other parties.     5.  Collective Functions.      a. Collective Negotiations.  Prior to any party hereto undertaking any of the negotiations provided for with respect to such party (the "Obligated Party") in this Section 5(a) below, the Obligated Party shall first notify (for purposes of this Section 5(a) such notification may be by email or in writing to the person(s) employed by the other parties hereto responsible for such functions designated by such other parties in writing from time to time) the other parties hereto (each an "Other Party") of the anticipated negotiations and shall provide each of the Other Parties reasonable opportunity to elect to require the Obligated Party to perform such negotiations on such Other Party's behalf. In the event that an Other Party so elects to have the Obligated Party negotiate on its behalf, the Obligated Party shall consult with the Other Party regarding the terms and conditions being negotiated and shall inform such Other Party of the status of the negotiations at such times as reasonably requested by such Other Party or reasonably appropriate or necessary to keep such Other Party informed of all material developments regarding the negotiations. Each Obligated Party shall use all reasonable commercial efforts to ensure that any goods or services made available to the Obligated Party are also made available to the Other Party on the same terms and conditions as provided to the Obligated Party. In addition, if any party hereto (a "Requesting Party") requests that any other party hereto (each a "Requested Party") introduce the -------------------------------------------------------------------------------- Requesting Party to any third party providing any of the types of goods or services identified in this Section 5(a) below to the Requested Party, then the Requested Party shall introduce the Requesting Party to such third party within a reasonable time after the request was made and shall request that such third party provide any goods or services to the Requesting Party on the same terms as it is providing such goods or services to the Requested Party. Subject to the foregoing, the parties agree to negotiate as follows:       i. Telecommunications.  During the Term, InterDent shall negotiate on behalf of itself, GDSC and Mon, all telecommunications contracts, including sale, lease and service contracts for voice, data, network and wireless telecommunications.      ii. Laboratory Services.  During the Term, Mon shall employ or contract with a Director of Laboratory Services, who shall negotiate laboratory service contracts on behalf of InterDent, GDSC and Mon.      iii. Managed Care Providers.  During the Term, each of the parties hereto agrees that it shall negotiate on behalf of the other parties hereto any time it negotiates a contract or relationship with a managed care provider.      iv. Marketing.  During the Term, each of the parties hereto agrees that it shall negotiate on behalf of the other parties hereto anytime it negotiates a new national level marketing contract, including telephone directory advertising.      v. BriteSmile.  BriteSmile, Inc. ("BSI") has developed a teeth whitening procedure called "BriteSmile". GDSC has been negotiating a relationship with BSI to promote the BriteSmile procedure in selected dental practices in exchange for preferred pricing on BriteSmile. During the Term, GDSC and InterDent agree that they shall negotiate with BSI on behalf of Mon such that Mon shall be provided with the same preferred pricing by BSI as InterDent and GDSC receive.      vi. Casey Systems.  Casey Systems, Inc. ("Casey") has developed a patient information system called the "Casey System". GDSC has been negotiating a relationship with Casey to purchase the Casey System for use in selected dental practices in exchange for preferred pricing on the Casey System. During the Term, GDSC and InterDent agree that they shall negotiate with Casey on behalf of Mon such that Mon shall be provided with the same preferred pricing by Casey as InterDent and GDSC receive.     vii. Insurance.  During the Term, each party agrees that it shall negotiate on behalf of the other parties hereto anytime it negotiates with insurance companies for all types of coverage used by the parties hereto and the dental practices they manage.     viii. Employee Benefit Programs and Payroll Services.  During the Term, each party agrees that it shall negotiate on behalf of the other parties hereto with employee benefit, leasing and payroll companies, including Selective HR Solutions, Inc. for all types of human resource services, including employee benefits and payroll, used by the parties hereto.      ix. Direct Purchasing.  During the Term, each party hereto agrees that it shall negotiate on behalf of the other parties hereto anytime it negotiates a new purchase arrangement with a third party vendor of services or products related to the practice of dentistry or management of dental practices, which provides preferred pricing terms for the products or services being purchased.      b. Recruiting.  During the Term, InterDent shall employ a Director of Recruiting, who shall recruit personnel on behalf of InterDent, GDSC and Mon. The Director of Recruiting shall forward the resumes of potential personnel located in Florida, Georgia, Indiana, Maryland, Virginia, Pennsylvania and Michigan to Mon and the Director of Recruiting shall forward resumes of potential personnel located in all other states to GDSC, in accordance with the needs expressed by Mon and GDSC to the Director of Recruiting. In the event that Mon also begins independently -------------------------------------------------------------------------------- recruiting, Mon agrees to forward to InterDent the resumes of potential personnel desiring to be located in areas where InterDent has dental practices and Mon does not.     6.  Expenses.  Each party hereto shall bear all of its own expenses relating to the execution of this Agreement and the carrying out of its obligations pursuant hereto, unless such party agrees in writing to be responsible for any expenses incurred by another party.     7.  Staffing.  Notwithstanding anything contained in Section 5 hereof, each party hereto shall only be required to perform its obligations under Section 5 to the extent that it is performing such activities on its own behalf and shall not be required to employ additional personnel to perform its obligations under Section 5.     8.  Compensation.  No party shall be entitled to compensation for any actions taken or omitted pursuant to the terms of this Agreement.     9.  Authority and Exculpation.      a. Capacity.       i. Notwithstanding anything to the contrary contained herein, Mon shall not have the obligation, authority or right to enter into any agreements, contracts or commitments of any kind or nature for or on behalf of GDSC or InterDent.      ii. Notwithstanding anything to the contrary contained herein, neither GDSC or InterDent shall have the obligation, authority or right to enter into any agreements, contracts or commitments of any kind or nature for or on behalf of Mon.      b. Termination of Authority.  The authority granted pursuant to Section 5 hereof shall terminate upon the termination of this Agreement.      c. Exculpation.  Notwithstanding anything contained herein to the contrary, no party hereto shall be liable to any other party hereto for any actions taken by such party to carry out its obligations contained in Section 5 hereof. No party hereto makes any representations or warranties to any other party hereto regarding (i) any agreements such party negotiates, whether on its own behalf or on behalf of the other parties hereto, or (ii) any third party with which such party is doing business, and such party shall not be liable to any other party hereto for any breaches, damages, expenses, liabilities, lost profits or any other cost caused by any third party providing any goods or services pursuant to arrangements negotiated by any party hereto.     10. Miscellaneous.      a. Assignment.  No party hereto may assign this Agreement or its rights or obligations hereunder to any third party without the prior written consent of the other parties which shall not be unreasonably withheld.      b. Notices.  Any notice or other communication required or permitted to be given hereunder shall be provided in the same manner as required in the Purchase Agreement.      c. Binding Nature.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.      d. Captions; Headings.  The captions and paragraph headings included in this Agreement are for convenience of reference only and do not constitute a part of this Agreement.      e. Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be considered a duplicate original.       f. Modification.  No modification, supplement, amendment or waiver of this Agreement shall be binding unless executed in writing by each of the parties hereto. A waiver of any of the provisions of this Agreement shall not be deemed to or constitute a waiver of any other provision hereof, nor shall any such waiver constitute a continuing waiver unless otherwise expressly provided. --------------------------------------------------------------------------------      g. Governing Law.  This Agreement shall be governed by the laws of the State of Florida, and its validity, interpretation, performance and enforcement shall be governed by the laws of that state, applied without giving effect to any choice of law principals thereof.      h. Remedy for Breach.  The sole and exclusive remedy for breach of this Agreement shall be termination of this Agreement.     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the date first written above.     INTERDENT, INC.     By: /s/ MICHAEL T. FIORE -------------------------------------------------------------------------------- Name: Michael T. Fiore Title: CEO     GENTLE DENTAL SERVICE CORPORATION     By: /s/ MICHAEL T. FIORE -------------------------------------------------------------------------------- Name: Michael T. Fiore Title: President     MON ACQUISITION CORP.     By: /s/ STEVEN R. MATZKIN -------------------------------------------------------------------------------- Dr. Steven Matzkin President -------------------------------------------------------------------------------- QuickLinks BUSINESS COLLABORATION AGREEMENT

Exhibit 10.12 AGREEMENT OF SALE              THIS AGREEMENT OF SALE, made this 28th day of June, 2001 by and between ORLEANS HOMEBUILDERS, INC., a Delaware corporation authorized to do business in the State of New Jersey ("Buyer") and ROTTLUND HOMES OF NEW JERSEY, INC. T/A KEVIN SCARBOROUGH HOMES  a Minnesota corporation authorized to do business in the State of New Jersey (“Seller"). BACKGROUND              A.   Seller is the owner of approximately 88.07 acres of land located on New Jersey State Route #38 in the Township of Hainesport (“Township”), Burlington County, being more particularly described in Exhibit A attached hereto and made a part hereof (the "Entire Tract").              B.   Seller has sold and conveyed certain lands as more particularly described in Exhibit B attached hereto and made a part hereof to third party purchasers (“Settled Lots”).              C.  The Entire Tract excepting thereon and therefrom the Settled Lots shall be hereinafter referred to as the “Real Property.”  The Real Property consists, in part, of Vacant Lots (as hereinafter defined), Affordable Lots (as hereinafter defined) and WIP Lots (as hereinafter defined).   The Vacant Lots, Affordable Lots and WIP Lots are listed on Exhibit C attached hereto and made a part hereof and shall be collectively known as the “Lots.”              D.  Seller, at its sole cost and expense, has obtained all Governmental Approvals (as hereinafter defined) to permit the construction, development and sale of a single family detached  age-restricted dwelling on each of the Lots in accordance with the plans (“Plans”) as more particularly listed on Exhibit D attached hereto and made a part hereof ("Intended Use").  Notwithstanding Seller’s receipt of all Governmental Approvals, Seller has not caused the recordation of the Subdivision Plans for Section 8 (containing 27 Vacant Lots), Section 9 (containing 18 Vacant Lots), and Section 10 (containing 23 Vacant Lots).              For the purposes of this Agreement, a “Vacant  Lot” is defined as (i) a fee simple subdivided parcel sufficient to construct thereon a single family detached dwelling in width and size as depicted on the Plans (as hereinafter defined) and which has received all unappealable approvals, permits and licenses (except for building permits and the payment of water and sewer connection fees) necessary to construct, develop and market the dwelling, (ii) no construction of the home has commenced,  and (iii) for which no restriction or limitation on the sales price or occupants (other than an age restriction requiring one occupant to be at least 55 years of age or older) are placed or imposed by any governmental body, agency or court or pursuant to any court order or governmental implementation of any court order or settlement in furtherance of the Township of Hainesport’s, Burlington County's or New Jersey's obligations under the Mt. Laurel II decision of the New Jersey Supreme Court, or "Fair Housing Act" of the State of New Jersey or the New Jersey Council of Affordable Housing regulations nor shall Buyer, except as otherwise stated herein, be obligated to make any contribution in furtherance of the above.  For the purposes of this Agreement, a “WIP  Lot” is defined as (i) a fee simple subdivided  parcel sufficient to construct thereon a single family detached dwelling in width and size as depicted on the Plans (as hereinafter defined) with water and sewer connection fees already paid by Seller and which has received all unappealable approvals, permits and licenses (except for certificates of occupancy) necessary to construct, develop and market the dwelling with a partially completed single family detached home thereon,  and  for which no restriction or limitation on the sales price or occupants (other than an age restriction requiring one occupant to be at least 55 years of age or older) are placed or imposed by any governmental body, agency or court or pursuant to any court order or governmental implementation of any court order or settlement in furtherance of the Township of Hainesport’s, Burlington County's or New Jersey's obligations under the Mt. Laurel II decision of the New Jersey Supreme Court, or "Fair Housing Act" of the State of New Jersey or the New Jersey Council of Affordable Housing regulations nor shall Buyer, except as otherwise stated herein, be obligated to make any contribution in furtherance of the above.              For the purposes of this Agreement, a “Affordable  Lot” is defined as (i) a fee simple subdivided parcel sufficient to construct thereon a single family attached dwelling (townhouse) in width and size as depicted on the Plans (as hereinafter defined) and which has received all unappealable approvals, permits and licenses (except for building permits) necessary to construct, develop and market the townhouse, for which a restriction or limitation on the sales price or occupants are placed or imposed by any governmental body, agency or court or pursuant to any court order or governmental implementation of any court order or settlement in furtherance of the Township of Hainesport’s, Burlington County's or New Jersey's obligations under the Mt. Laurel II decision of the New Jersey Supreme Court, or "Fair Housing Act" of the State of New Jersey or the New Jersey Council of Affordable Housing regulations.              E.   Seller desires to sell and Buyer desires to purchase the Real Property subject to the terms and conditions set forth herein.              NOW THEREFORE, in consideration of the covenants and provisions contained herein, and intending to be legally bound hereby, the parties hereto agrees as follows: 1.          Agreement to Sell and Purchase.              Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller, subject to the terms and conditions of this Agreement, the Real Property, consisting of the following:              (a)         The lands more fully described on Exhibit E attached hereto, together with the buildings and other improvements situate thereon, and trees and shrubbery and appurtenances thereto including, without limitation, all easements, rights–of–way, privileges, licenses and other rights and benefits belonging to, running with or in any way relating to the Real Property; together with all right, title and interest of Seller in and to any land lying in the bed of any street, road or highway opened or proposed, in front of or abutting or adjoining the Real Property, and all right, title and interest of Seller in and to any unpaid award for the taking by eminent domain of any part of the Real Property or for damage to the Real Property by reason of future change of grade of any street, road or highway. 2.          Purchase Price.              The purchase price ("Purchase Price") for the Real Property shall be calculated at the rate of Fifty-Six Thousand Dollars ($56,000) per WIP Lot and Vacant Lot, with all of the Affordable Lots being conveyed to Buyer for One Dollar ($1.00).  At Closing, Buyer shall pay one-half of the Purchase Price in cash by wire transfer. The balance of the Purchase Price shall be payable in the following manner:              (a)   Buyer’s execution of a Purchase Money Note in the form attached hereto and made a part hereof as Exhibit F (“Note”).  The Note shall be secured by a Purchase Money Mortgage in the form attached hereto and made a part hereof as Exhibit G (“Mortgage’).  The Note shall be due and payable twelve (12) months from the date of Closing, with interest payable monthly calculated on a floating daily basis at the Prime Rate less one percent (1%) as published in the Wall Street Journal, calculated on the basis of a 360 day year.              In addition to the terms described above, the Note and Mortgage shall contain the following provisions:              (i)          Fifty percent of the Lots,  includingall of the WIP Lotsand associated open space shall be excluded from the lien of the Mortgage.              (ii)         From time to time, and any time, Buyer shall have the right to select and designate Vacant Lots and associated open space (relating to the Lots so released) to be released from the Mortgage, and in that event, Seller shall cause the holder of such mortgage to release the Vacant Lot(s) and open space so designated upon the payment of $ 56,000 per Vacant Lot.  The Vacant Lot(s) to be released must be in sections of the Real Property for which Buyer has replaced Seller’s Bond with the governmental authorities to assure completion of the improvements within such section.  The released Vacant Lots shall be comparable in quality to the Vacant Lots encumbered by the Mortgage, it being the intention of the parties that the Buyer shall not cherry pick the best Vacant Lots and release them from the Mortgage.  The parties shall agree on sequence of lots to be released from the lien of the Mortgage prior to Closing.              (iii)        If required by governmental authorities or for conveyance to the Association (as hereinafter defined), Seller shall, from time to time, release land required for open space or dedication of public improvements or conveyance to the Association from the Mortgage for One Dollar ($1.00).              (iv)       The release payments set forth in subparagraph 2(ii) above shall be applied to the principal repayments due under Note, and the Buyer shall only be required to pay the difference, if any, between said principal payment and the payment made on account of the releases.  Likewise, Buyer shall be entitled to release Lots for any principal payments made.              (v)        All mortgage releases shall be prepared at the sole cost and expense of Buyer.              (vi)       Buyer shall have the right at any time, and without cost or penalty, to prepay the Note in whole or in part.              (vii)      Buyer shall be permitted to place subordinate loans on portions of the Real Property encumbered by the Mortgage provided such loans shall be for acquisition, site development, and construction of the Real Property and improvements thereon.              (viii)     In the event that it shall become necessary to establish any easement(s) or right(s) of way over portions of the Real Property still subject to the lien of the Mortgage for sewer, water, gas, telephone, electric, drainage, cable television, road, driveway or other public improvements or public utilities, then Seller shall promptly cause the execution, acknowledgment and delivery of such documents, including subordinations, as may be necessary or required to establish such easement(s) or right(s) of way.  Buyer shall not be required to make any additional payments of any nature to secure such easements, rights of way or subordinations.              (ix)        Buyer shall not be permitted to release Affordable Lots from the lien of the Mortgage until the earlier of (i) conveyance of that Lot (improved with a townhouse) to a third party purchaser or (ii) payment of the entire amount of the Note.  Nevertheless, and despite the limitations set forth in Paragraph 2(g), Seller shall subordinate the lien of the Mortgage on the Affordable Lots for Buyer’s houseline construction loans for such Affordable Lots.  Subject to the satisfaction of the conditions herein, Seller shall release the lien of the Mortgage for One Dollar ($1.00) for each Affordable Lot. 3.          Deposit.              Buyer shall pay to Settlers Title Agency, Inc.  (the "Title Company") a deposit either in the form of cash or letter of credit substantially in the form attached hereto and made a part hereof as Exhibit H in the sum of Two Hundred and Twelve Thousand Eight Hundred Dollars ($212,800.00) ((the "Deposit") within three (3) business days of the complete execution of this Agreement.  The Deposit, if in cash, shall be held in escrow in an interest bearing money market account in a federally–insured banking institution in the State of New Jersey and any interest accruing thereon shall be part of the Deposit.  If the performance and maintenance bonds (“Bonds”) listed on Exhibit I attached hereto and made a part hereof have been returned to Seller or are being returned to Seller at Closing, the Deposit shall be credited against the cash portion of the Purchase Price due at Closing (as defined below).  Otherwise, the Deposit shall remain in escrow until all of the Bonds have been returned to Seller.  If Buyer terminates this Agreement pursuant to Paragraphs 5, 6, 10, 11, 26 or 27, the Deposit plus the accrued interest thereon, shall be immediately returned to Buyer.              Seller and Buyer acknowledge that the Title Company is acting solely as an escrow holder at their request and for their convenience and that the Title Company shall not be liable to either of the parties for any act or omission on its part unless taken or suffered in willful disregard of this Agreement or involving its gross negligence.  Seller and Buyer shall jointly and severally indemnify and hold Title Company harmless from and against any loss or liability arising from the performance of its duties as Title Company hereunder, unless Title Company has wilfully disregarded the terms of this Agreement or committed gross negligence.  The Title Company shall not be entitled to any fees for the performance of its services as escrow holder hereunder.              In the event there is any dispute between Seller and Buyer with respect to the performance of obligations hereunder or the disposition of the Deposit or in the event the Title Company shall otherwise believe in good faith at any time that a disagreement or dispute has arisen between the parties with respect to release of the Deposit (whether or not litigation has been instituted), Title Company shall have the right, at any time upon written notice to both Seller and Buyer (“Title Company Elections”), to (a) retain the Deposit in escrow pending resolution of the dispute or (b) place the Deposit with the Clerk of the Court in which any litigation is pending.              Prior to releasing the Deposit from escrow, Title Company shall give notice to the parties hereto of its disbursement intentions.  The parties shall be given ten (10) days from receipt of said notice to advise Title Company of a dispute with respect to the disposition of the Deposit.  In the event Title Company receives notice of any dispute from Seller or Buyer within said ten (10) days with respect to the performance of the parties’ obligations hereunder or the disposition of the Deposit and/or interest, Title Company shall select an alternative within the Title Company Elections.  If no notice of a dispute is received within said ten (10) days, Title Company shall be entitled and hereby directed to release the Deposit (to the extent the parties are entitled to same) in accordance with its disbursement notice and this Agreement of Sale. 4.          Closing.              Subject to the provisions of Paragraph 26 hereof, the Closing shall occur within fifteen (15) days after satisfaction of the Conditions Precedent set forth in Paragraph 5.  Presently, the Closing is estimated by the parties to occur on or about July 27, 2001.              Any closing hereunder shall take place at such location and at such time as Buyer shall designate by at least five (5) days notice to Seller. 5.          Conditions Precedent.              Buyer's obligations under this Agreement and to complete Closing hereunder is expressly contingent and conditioned upon the following:              (a)         Intentionally Deleted.              (b)        Intentionally Deleted.              (c)         Buyer shall have the right for a period of thirty (30) days after the date of this Agreement to (i) investigate the Entire Tract and surrounding area and perform whatever tests on the Real Property Buyer desires, in its sole discretion (such tests include, but are not limited to, environmental testing, preparation of environmental reports and investigation, soil samples, wetland studies, surveys, percolation tests and test bores), (ii) review the plans, documents, reports, correspondence and any other information relevant to the Real Property, (iii) review the estimated costs of construction and development of any on–site or off–site improvements, and (iv) review any other information deemed relevant to Buyer, in its sole discretion, to ascertain whether the Real Property is suitable for the Intended Use.  In the event Buyer determines, in its sole discretion, that the Real Property is not suitable for the Intended Use,  Buyer shall have the right within such thirty (30) days to terminate the Agreement by notice to Seller in which case the Deposit shall be immediately returned to Buyer whereupon this Agreement shall be null and void (except for the indemnity provisions set forth in Paragraph 9(a) which shall survive such termination), and neither party shall have any further rights or obligations hereunder.              (d)        Intentionally Deleted.              (e)         All easements, licenses or grants necessary to construct, develop and use the Real Property in accordance with the Intended Use shall have been granted to Seller at or prior to Closing.  If granted to Seller, at Buyer's request, such easements, licenses or grants shall be assigned to Buyer at Closing.              (f)         All representations and warranties by Seller set forth in this Agreement shall be true and correct at and as of date of Closing hereunder in all material respects as though such representations and warranties were made at and as of Closing hereunder ("Seller's Representations").              (g)        Seller obtaining, at its sole cost and expense, within thirty (30) days of the date after the date of this Agreement, confirmation from the New Jersey Department of Environmental Protection ("NJDEP") that the provisions of the Industrial Site Recovery Act are not applicable to the present transaction (or, if required, Seller, at its option, obtaining such authorization from NJDEP as required in order to permit the transaction to proceed).   Seller shall promptly furnish Buyer with a copy of said ISRA application, as well as copies of any correspondence received from NJDEP.              (h)        Each party shall diligently and, in good faith proceed to fulfill the Conditions Precedent for which it is responsible, and each party agrees, at no cost and expense to it to cooperate fully with the other party in fulfilling the Conditions Precedent and to execute any reasonably required applications and /or documents.   If either party, after good faith efforts, determines that it is unable to fulfill or comply with the Conditions Precedent for which it is responsible, that party shall give notice to the other in which case, Buyer shall either (i) terminate this Agreement by notice to Seller, whereupon the Deposit shall be promptly released to Buyer and this Agreement shall be null and void (except for the indemnity provisions set forth in Paragraph 9(a) which shall survive such termination) and neither party shall have any further rights or obligations hereunder, or (ii) waive the Condition Precedent by written notice to Seller. 6.          Title.              (a)         At Closing, Seller shall convey fee simple title to the Real Property to Buyer or its designee by delivery of the Deed (as hereinafter defined).  Title shall be good and marketable, and shall be insurable as such at regular rates by the Title Company, free of all liens, encumbrances, leases or other rights or occupancies and title company exceptions, except those liens and other encumbrances (the "Permitted Exceptions") to which Buyer has not objected in writing within thirty (30) days of the date of this Agreement.  Any monetary liens or encumbrances other than the Permitted Exceptions shall be removed by the Seller, at Seller’s expense, prior to Closing.  Subsequent to the execution of this Agreement, Seller shall not further encumber the Real Property in any fashion whatsoever without the written approval of Buyer.   Seller shall deliver to Buyer copies of any title reports, data or surveys in its possession related to the Real Property simultaneous with its execution  of this Agreement.  At Closing, Seller shall deliver exclusive possession and occupancy of the Real Property.              Buyer shall deliver to Seller within thirty (30) days from the date of this Agreement a copy of its title report together with a written list of all objections thereto.  Seller shall have a period of five (5) days from receipt of such objections to advise Buyer in writing whether Seller shall have the objections removed or cured prior to Closing.  Seller’s failure to notify Buyer within the stated time period shall be deemed Seller’s election not to cure. If Seller is unwilling to remove or cure the objections prior to Closing, Buyer shall have five (5) days thereafter to either: (a) terminate its obligation hereunder and receive the Deposit whereupon this Agreement shall be null and void (except for the indemnity provisions set forth in Paragraph 9(a) which shall survive such termination) and neither party shall have any further liability hereunder; or (b) agree to accept such title as Seller agrees to deliver at Closing.              At Closing, Seller shall deliver a Bargain and Sale Deed with Covenants Against Grantor's Acts, in proper recordable form, duly–executed and acknowledged by Seller (the "Deed"), an Affidavit of Title and such other documents (including, but not limited to, Assignment of Special Declarants Rights, Bill of Sale, Assignment of Plans (which shall include consents of the engineers and architects), Governmental Approvals and Outstanding Agreements (as hereinafter defined), and an Closing Agreement confirming and ratifying the representations and warranties set forth herein)) which shall be reasonably required by Buyer, its counsel, and/or the Title Company.              (b)        If Seller is unable to convey title to the Real Property in accordance with the requirements of paragraph 6(a) above, Buyer shall have the option (i) of taking such title to the Real Property as Seller can convey, with abatement of the Purchase Price to the extent of any liens and encumbrances of a fixed or ascertainable amount as set forth in the title report or  (ii) of  terminating Buyer’s obligations under this Agreement and being repaid the Deposit, together with  the amount of all charges incurred by Buyer for searching title, and upon payment of these amounts, this Agreement shall be null and void and neither party shall have any obligations hereunder (except for the indemnity provisions set forth in Paragraph 9(a) which shall survive such termination). 7.          Seller's Covenants, Representations, and Warranties.              Seller, to induce Buyer to enter into this Agreement and to complete Closing hereunder, makes the following covenants, representations and warranties to Buyer:              (a)         Seller warrants and represents that (i) to its actual knowledge (actual knowledge meaning the knowledge of John Sheridan and the officers and directors of Seller and the individuals responsible for construction of the improvements at the Entire Tract) and except as otherwise disclosed in  the Phase I Environmental Site Assessment dated November, 1996, prepared by T&M Associates for part of the Entire Tract and Freshwater Wetland Boundary Delineation Report, (collectively, the “Environmental Report”), no hazardous or toxic materials or substances or hazardous waste, residual waste or solid waste (as defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Resource Conservation and Recovery Act, and any other state or local environmental laws applicable thereto) are present on the Entire Tract (including, but not limited to, surface and ground water); (ii) Seller has not been identified in any litigation, administrative proceedings or investigation as a potentially responsible party for any liability under any applicable environmental, hazardous or solid waste laws with respect to the Entire Tract; (iii) except as otherwise disclosed in the Environmental Report, Seller does not have any knowledge of the use, discharge, storage, transfer, handling, disposal or processing over, in, on or under the Entire Tract of any substances in violation of such laws; (iv) with respect to the  Entire Tract, Seller has no actual knowledge of and has not received any notice from any governmental or quasi–governmental agency regarding any actual or potential violation of any applicable environmental, hazardous waste or solid waste laws.  Simultaneous with  its execution of this Agreement, Seller shall deliver a complete and accurate copy of the Environmental Report together with reliance letters from the consultant who prepared such report authorizing Buyer, its successors and assigns and Buyer’s lenders the right to use and rely upon such reports.  Seller has no actual knowledge of any other environmental reports, tests or audits regarding any portion of the Entire Tract existing elsewhere.  To its actual knowledge, no landfill has occurred on any portion of the Entire Tract and no debris has been buried or placed on any portion of the Entire Tract.              (b)        To its actual knowledge, there were and are no underground storage tanks on the Entire Tract.              (c)         Except for the Model Leases (as hereinafter defined), there are no other leases, tenancies, licenses or other rights of occupancy or use for all or any portion of the Real Property and possession of the Real Property shall be given to Buyer unoccupied and free and clear of any leases  (excepting the Model Leases) and claims to or rights of possession, occupancy or use.              (d)        Seller is under no restriction which would prohibit or prevent the conveyance of title as herein required and Seller will do nothing or suffer anything which would impair or hinder the Seller's so ability to convey.              (e)         Except for agreements of sale to third party purchasers, true and correct copies of which are listed in Exhibit K attached hereto and made a part hereof (“Outstanding Agreements”), there are no other agreements of sale, rights of first refusal, options to purchase, rights of reverter or rights of first offer relating to the Real Property or any portion thereof.              (f)         There is no claim, action, suit or proceeding, pending or threatened, against Seller or any portion of the Real Property, or relating to or arising out of the ownership, management or operation of the Entire Tract or sale of Settled Lots or Lots in any court or before or by any governmental or public department, commission, board, bureau or agency.  There is no claim, action, suit or proceeding, pending or threatened, against Seller relating to or arising out of Seller’s actions or inaction as Developer (as such term is defined in the Amended and Limited Public Offering Statement for The Glen at Masons Creek registered October 27, 1998 as amended by amendment dated June 23, 2000) (“POS”) or as Declarant (as such term is defined in the Declaration of Covenants, Easements, and Restrictions for The Glen at Masons Creek dated November 29, 1999 and recorded in Burlington County in Deed Book 5740, Page 234 (“Declaration”) in any court or before or by any governmental or public department, commission, board, bureau or agency.              (g)        No assessments for public improvements have been made against the Real Property which will remain unpaid as of Closing on the Real Property and all assessments for work ordered, commenced or completed prior to the date of Closing shall have been paid by Seller in full at or prior to Closing.  Buyer shall pay all assessments for work ordered or commenced after the date of Closing.  Seller has not received written notice from any governmental agency of any special or other assessments for public improvements affecting the Real Property or any portion thereof.              (h)        Seller has no notice nor actual knowledge of (i) pending annexation or condemnation proceedings affecting or which may affect, all or any portion of the Real Property or (ii) could result in the termination or reduction of the current access of the Real Property to existing public streets or of any reduction in/or to the sewer, water or other utility services presently serving or intended to serve the Real Property.              (i)          Seller is not a foreign person as defined by the Foreign Investment in Real Property Tax Act.  At Closing, Seller shall execute and deliver to Buyer a Non-Foreign Affidavit in form satisfactory to Buyer and Title Company.              (j)          There are no adverse parties in possession of the Real Property.              (k)         To Seller’s actual knowledge, no portion of the Real Property is (or there is no condition existing with respect to the Real Property)  in violation of any applicable law, ordinance, code, rule, order regulation or requirement of any governmental or quasi-governmental authority and there are no outstanding and uncured notices of such violations.              (l)          The Outstanding Agreements are full force and effect and are assignable to Buyer without the consent of any third party.              (m)        To its actual knowledge, there is no pending or anticipated reassessment or reclassification of any or all of the Real Property for state or local real property taxation purposes other than that caused by filing of the Subdivision Plans for Sections 8, 9 and 10 of the Real Property.              (n)        Seller has and shall continue to have at Closing the full power and authority to execute and deliver this Agreement and all other documents now of hereafter to be executed and delivered by Seller pursuant to this Agreement and to consummate the transactions contemplated thereby.              (o)        The authorization, execution and delivery of this Agreement by Seller and the consummation of the transactions described herein do not and will not, at Closing, with or without the giving of notice or passage of time or both, violate, conflict with or result in the breach of any terms or provisions of, or require any notice, filing, registration or further consent, approval, authorization under any instrument or agreement to which Seller may be bound and/or relating  to or affecting the Real Property or portions thereof.              (p)        Seller is a corporation duly organized and validly existing under the laws of the State of Minnesota, authorized to do business in the State of New Jersey and has the legal right, power and authority to enter into this Agreement and perform all of its obligations hereunder, and the execution of this Agreement by Buyer has been fully authorized by all requisite action.              (q)        Seller has duly registered the Entire Tract in accordance with the requirements of the New Jersey Planned Real Estate Development Full Disclosure Act (N.J.S.A. 45:22A-21 et seq.) and the regulations promulgated thereunder, and has complied with the terms and provisions of the same in its sale of any of the Lots or Settled Lots to third party purchasers.              (r)         To Seller’s actual knowledge, Seller, its employees and subcontractors, to the extent it has constructed, installed, replaced or repaired improvements on the Entire Tract or off-site (as required by the Governmental Approvals), has constructed , installed, replaced or repaired such improvements in accordance with the requirements of the Governmental Approvals and Warranties (as hereinafter defined) and in accordance with the governmental agencies or utility companies having jurisdiction over such improvements.              (s)         Other than those items listed on the Payables Schedule attached hereto as Exhibit R attached hereto and made a part hereof, which shall be updated as of the date of Closing, Seller has paid all professionals (including but not limited to attorneys, architects, engineers), subcontractors, suppliers, vendors for all work, equipment, materials, or supplies relating to the Entire Tract or improvements thereon.  No subcontractor, supplier or vendor has filed or threatened to, file a claim  under the New Jersey Construction Lien Law of any similar statute or took any other action seeking to be reimbursed for services, materials or supplies.              (t)         Seller represents and warrants that  true, correct and complete copies of the Model Lease dated June 30, 2000 (with Assignment with Notification dated June 30,2000 addressed to Firstar Bank of Iowa), Exclusive Sales Agreement (“ESA”), Motivation Agreement dated June 30, 2000 as amended by letter dated October 30, 2000 are attached hereto as part of Exhibit  L  and are collectively known as the “Lease Documents.”.    The Lease Documents are  in full force and effect, and Seller has no knowledge of or notice of any default  under the any of the Lease Documents.  Any defaults by Seller under any of the Lease Documents shall be cured by Seller, at its sole cost and expense, prior to Closing.              Seller shall provide Buyer with a copy of any notice regarding the Lease Documents within two (2) days after Seller’s receipt of same.  At Closing, Seller shall assign its rights under the Lease Documents to Buyer.   Seller shall pay all costs and expenses due under the Lease Documents up to the date of Closing.  Buyer shall pay all costs and expenses under the Lease Documents from the date of Closing.  At Closing, Seller shall deliver an Assignment of Lease Documents substantially in the form attached hereto and made a part hereof as Exhibit M and a Non-Disturbance Agreement reasonably acceptable to the parties.   The calculation of the Purchase Price does not include the Model Homes since the Model Homes are owned by Strategic Capital Resources, Inc. (“Strategic”). Furthermore, Seller shall assign at Closing with Strategic’s consent,  its rights and obligations under the Exclusive Sales Agreement dated June 30, 2000 and Motivation Agreement dated June 30, 2000, true and correct copies of which are also attached as part of Exhibit L.              (u)        As of the date of Closing, Seller has obtained and continued in effect, at its sole cost and expense, any and all governmental and quasi–governmental approvals, permits and licenses, (except for the payment of sewer and water connection fees for the Vacant Lots, building permits and filing fees necessary for the recording of the Plans for Sections 8, 9 and 10), including, but not limited to those approvals, permits and licenses listed in Exhibit J attached hereto and made a part hereof as are necessary or required to permit the construction, development and sale of the Real Property in accordance with the Intended Use ("Governmental Approvals").  All Governmental Approvals are valid and unappealable with all appeal periods having expired with no appeals pending.  Simultaneously with Seller’s execution of this Agreement, Seller shall provide Buyer with full and complete copies of the Governmental Approvals. 8.          Buyer's Covenants, Representations and Warranties.              Buyer, to induce Seller to enter into this Agreement and to complete Closing hereunder, makes the following covenants, representations and warranties to Seller:              (a)         Buyer is a corporation duly organized and validly existing under the laws of the State of Delaware authorized to do business in the State of New Jersey and has the legal right, power and authority to enter into this Agreement and perform all of its obligations hereunder, and the execution of this Agreement by Buyer has been fully authorized by all requisite action.              (b)        Buyer hereby agrees to and shall accept the Real Property in its “as is” and “where is” condition and except as otherwise provided in this Agreement, Seller makes no representation regarding the state of or condition of the Real Property. 9.          Operations Prior to Closing.              Between the date of this Agreement of Sale and Closing hereunder;              (a)         Buyer shall have the right to enter upon the Real Property to inspect, appraise and perform any tests necessary or desirable to determine the suitability and the adaptability of the Real Property for the Intended Use.  After the date of this Agreement of Sale, Seller shall afford Buyer full and complete access to all of Seller's records and files relating to the Real Property which shall remain Seller's property until Closing.  Buyer shall give at least verbal notice to Seller before entering the Real Property so Seller can accompany Buyer if it so desires.  If Buyer’s inspection activities reveal potential violations of law, Buyer shall promptly notify Seller.  The parties agree and acknowledge that Buyer shall not be responsible for any damage caused to any fields or crops as a result of the Buyer’s exercise of its rights hereunder but Buyer shall be responsible for, and shall indemnify Seller from and against  all other injuries to any person or damage to any personal property associated with Buyer’s testing activities at the Real Property.   At Seller’s request, Buyer shall provide Seller with copies of all reports, investigations and testing activities performed by Buyer.              Buyer shall carry liability insurance in an amount of Two Million ($2,000,000) Dollars with respect to such inspection and testing activities, naming Seller as an additional insured and shall deliver a certificate of insurance to Seller prior to undertaking any inspection or testing activities on any part of the Real Property.              (b)        Seller shall continue to improve the Real Property in accordance with the requirements of the Governmental Approvals.              (c)         Promptly after the receipt thereof by Seller, Seller shall deliver to Buyer a copy of any tax bill, notice or statement of value, notice of change in the tax rate affecting or relating to the Real Property, notice or claim of any violation from any governmental authority or notice of any taking, affecting or relating to the Real Property.              (d)        Seller shall continue to market the Lots upon the prices and terms existing as of the date of this Agreement, with  any changes to such prices or terms to be approved by Buyer              (e)         Seller shall not enter into a Agreement of Sale for any of the Model Lots without Buyer’s consent. 10.        Default.              (a)         Seller's Default.  If  Seller violates any terms of this Agreement or if Closing under this Agreement is not consummated on account of Seller's default hereunder, the Deposit and all monies paid to Seller or on its behalf by Buyer shall be returned immediately to Buyer and in addition thereto, Buyer may pursue the remedy of specific performance. If specific performance is unavailable due to Seller’s intentional acts (such as conveyance of the Real Property to a party other than Buyer), then Buyer may pursue any and all other remedies available to it in law or in equity.  Any default hereunder shall be also be a default under the terms and provisions of the Agreement of Sale between Buyer and Seller dated as of date of this Agreement for lands in Evesham Township, Burlington County, New Jersey (“Evesham Agreement”).  Notwithstanding anything to the contrary contained in this Agreement, Seller shall have ten (10) days after notice to cure any default hereunder before Buyer shall have the right to exercise any remedies hereunder.              (b)        Buyer's Default.  If Buyer violates any terms of this Agreement or if Closing under this Agreement is not consummated on account of Buyer's default hereunder, Seller shall be entitled to the Deposit and any interest accruing thereon.   In such event, the payment of the Deposit  shall be deemed to be and shall be fully liquidated damages for such default of Buyer, the parties hereto acknowledging that it is impossible to estimate more precisely the damages which might be suffered by Seller upon the Buyer's default.  Seller's receipt of the Deposit is not intended as a penalty, but as full liquidated damages and upon such retention, this Agreement shall terminate and become null and void, and neither party shall have any further rights or obligations hereunder.  The right to retain the Deposit as full liquidated damages is Seller's sole and exclusive remedy in the event of such default hereunder by Buyer and Seller hereby waives and releases any right to (and hereby covenants that it shall not) sue Buyer: (i) for specific performance of this Agreement; or (ii) to prove that Seller's actual damages exceed the total of the Deposit.  Any default hereunder shall be also be a default under the terms and provisions of the Evesham Agreement.  Notwithstanding anything to the contrary contained in this Agreement, Buyer shall have ten (10) days after notice to cure any default hereunder before Seller shall have the right to exercise any remedies hereunder. 11.        Condemnation.              If, after the date hereof and prior to Closing, all or any material portion of the Real Property (for the purposes of this paragraph material is defined as loss of more than Ten (10) Lots, loss of clubhouse or a material adverse change in access to the Real Property or portions thereof) is condemned or taken by eminent domain (or is the subject of pending or contemplated proceeding or taking by eminent domain), Seller shall promptly give Buyer a copy of the notice of such condemnation, taking or change, and Buyer shall have the option to terminate this Agreement by giving notice to Seller within ten (10) days after the receipt of such Seller's notice.  Upon the giving of such notice by Buyer, Buyer shall be entitled to the immediate return of the Deposit and upon such return to Buyer, this Agreement shall terminate and become null and void, and neither party shall have any further rights or obligations hereunder (except for the indemnity provisions set forth in Paragraph 9(a) which shall survive such termination). If Buyer shall not exercise its option to terminate this Agreement as hereinabove set forth, then this Agreement shall remain in full force and effect without a reduction in the Purchase Price and Buyer shall be entitled to, and at Closing, Seller shall assign to Buyer any and all claims that Seller may have to condemnation awards and/or any and all causes of action with respect to such condemnation or taking relating to the Real Property. Furthermore, at Closing, Seller shall pay to Buyer, by the plain check of the Title Company, an amount equal to all payments theretofore made with respect to such condemnation, taking or change. Any negotiations, agreements or contests, or offers or awards relating to such condemnation or taking of or change relating to the Real Property shall be subject to the participation and consent of Buyer provided Buyer has waived its termination right hereunder.  Buyer agrees to act with promptness and reasonableness in its participation in any such negotiations, agreements or contests or offers or awards. 12.        Assignability.              Buyer shall have the right to assign this Agreement and its rights hereunder to any person or entity provided such assignee is fifty–one percent  (51%) or more owned by, Buyer, or  Jeffrey P. Orleans, and, upon notice from Buyer, Seller shall convey the Real Property to any such assignee of Buyer.  Any permitted assignee of Buyer shall be entitled to all the rights and powers of Buyer hereunder provided however that Orleans Homebuilders, Inc. shall execute a guaranty guaranteeing the obligations under the Note. 13.        Notices.              (a)         Any notice required or permitted to be given by the terms and provisions of this Agreement shall be in writing and shall be deemed to have been served and given:                            (i)          three (3) business days following the date when deposited by postage prepaid, registered or certified mail, return receipt requested, in the United States' mail;                            (ii)         on the first business day following delivery thereof to a recognized overnight courier such as Federal Express;                            (iii)        on the date transmitted by a legible telecopier transmission; or                            (iv)       when personally delivered.                                         Business days shall mean Monday through Friday and excludes Saturday, Sunday and national holidays.  Notice given in any other manner shall be deemed to have been served and given when actually received by the party to which such notice was directed.  Either party may designate a different address for the purposes of notice hereunder by notice given herein prescribed.  Notice shall be given as follows:                            If intended for Seller:                                         Rottlund Homes of New Jersey, Inc.                                         3065 Centre Point Drive                                         Roseville, MN 55113                                         Fax #:651-638-0501                                         Attention: Steven A. Kahn, Chief Financial Officer                            with a copy to:                                         Gary L. Green, Esquire                                         Archer & Greiner                                         One Centennial Square                                         PO Box 3000                                         Haddonfield, NJ 08033-0968                                         Fax Number: 1-856-795-05754                            If intended for Buyer:                                         Orleans Homebuilders, Inc.                                         One Greenwood Square                                         3333 Street Road, Suite 101                                         Bensalem, PA  19020                                         Attention:  Benjamin D. Goldman, Vice-Chairman                                         Fax Number (215) 633-2351                            with a copy to:                                         Orleans Homebuilders, Inc.                                         One Greenwood Square                                         3333 Street Road, Suite 101                                         Bensalem, PA  19020                                         Attention:  Lawrence J.  Dugan, Esquire                                         Fax Number (215) 633-2352 14.        Brokerage.              Each party represents and warrants to the other that it or they have not made any agreement or taken any action which may cause anyone to become entitled to a commission, fee or other compensation as a result of the transactions contemplated by this Agreement except for Seller’s agreement to pay Cohen Schatz Associates, Inc., a licensed New Jersey real estate broker, pursuant to a separate agreement.  Seller represents and warrants that it shall pay the commission due Cohen Schatz, Inc. at  Closing. Each party agrees to indemnify, defend and hold harmless the other from and against any and all claims, actual or threatened, losses or expenses (including attorneys' fees and disbursements and court costs) resulting by reason of such party's breach (or alleged breach) of the foregoing representations, warranties and covenants. 15.        Survival.              Notwithstanding any presumption to the contrary, all covenants, conditions, representations, warranties and agreements of Buyer and Seller contained herein shall not be discharged upon, but shall survive for a period of one (1) year from the date of Closing 16.        Captions.              The captions in this Agreement are inserted for convenience of reference only and in no way define, describe or limit the scope or intent of this Agreement or any of the provisions hereof. 17.        Successors and Assigns.              This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns. 18.        No Recording.              Neither Seller nor Buyer shall cause or permit this Agreement to be filed of record in any office or place of public record and, if Buyer or Seller shall fail to comply with the terms hereof by recording or attempting to record to the same, such acts shall not operate to bind or cloud  title to the Real Property.  Filing of this Agreement in a recorder’s office by Buyer  shall constitute a default hereunder.  However, the filing of this Agreement or any suit or any proceeding in which this document is relevant or material shall not be deemed to be a violation of this subparagraph. 19.        Entire Agreement.              This Agreement constitutes and expresses the whole agreement of the parties hereto with reference to the subject matter hereof and to any of the matters or things herein provided for, or hereinbefore discussed or mentioned in reference to the subject matter hereof, all prior promises, undertakings, representations, agreements, understandings and arrangements relative thereto being merged herein. 20.        Construction.              This Agreement shall be governed by, and construed in accordance with, the laws of the State of New Jersey without giving any effect to any New Jersey law or other laws regarding conflicts of law or to any presumption, canon or rule of law requiring or permitting construction against the party who drafted this Agreement. 21.        Modification. This Agreement may be amended or modified only in a writing signed by the parties hereto. 22.        No Waiver.              No consent or waiver, express or implied, by Buyer to or of a breach of any representation, covenant, condition, agreement or warranty of Seller shall be construed as a consent to or waiver of any other breach of the same or any other representation, covenant, condition, agreement or warranty of Seller.              No consent or waiver, express or implied, by Seller to or of a breach of any representation, covenant, condition, agreement or warranty of Buyer shall be construed as a consent to or waiver of any other breach of the same or any other representation, covenant, condition, agreement or warranty of Buyer. 23.        Severability.              If any term or provision of this Agreement or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law. 24.        Background and Exhibits.              The Background and Exhibits attached hereto are hereby incorporated herein and made a part hereof. 25.        Adjustments or Incidental Costs.              (a)         Real estate taxes, water and sewer charges (on the basis of actual fiscal years for which such taxes and charges are assessed) shall be apportioned pro–rata between Buyer and Seller on a per diem basis as of Closing.  As of Closing, Seller will make any payment necessary to cause the Association’s year-to-date net income to be zero; provided, however, that Seller shall not be responsible for any payment to the extent resulting from delinquent homeowners’ payments for dues or special assessments.  Any charges, fees or assessments imposed by the Association or deficits in the Association’s accounts through the date of Closing shall be paid by Seller.  Prior to Closing, Seller, at Buyer’s request, shall obtain a certificate from the Association showing any unpaid dues, charges or assessments owed by the Seller to the Association through the date of Closing.              (b)        Any realty transfer taxes imposed in connection with this transaction shall be paid by Seller at Closing hereunder.              (c)         If the Real Property or any portion thereof have been or are assessed as agricultural or horticultural under the "Farmland Assessment Action of 1964" (N.J.S.A. 54:4 23.1) or other similar acts,  and the Real Property is subjected to a "rollback" tax as a result of the change in use, then, in that event, Seller shall be responsible for any and all accrued taxes, interest and penalty imposed upon the Real Property which may be eventually assessed against the Real Property.  At Closing, Seller shall deposit with the Title Company the amount estimated for the rollback taxes.  When the rollback tax bills are received, the bills shall be forwarded to the Title Company for processing of payment.  If the total liability is less than the estimated amount, the excess shall be released to Seller.  If the total liability exceeds the estimated amount, Seller shall pay promptly the deficit to the Title Company. 26.        Moratorium.              If prior to Closing, a water, sewer or building moratorium prevents Buyer from obtaining water, sewer or building permits or connections sufficient for its Intended Use, then the time within which Buyer shall be required to complete such Closing shall be extended to the extent of the moratorium plus thirty (30) days.  In the event a moratorium extends one year beyond the date originally set for Closing, either party shall have the right to terminate by notice to the other, whereupon this Agreement, subject to provisions of the last sentence in this paragraph,  shall terminate and become null and void, and neither party shall have any further rights or obligations hereunder (except for the indemnity provisions set forth in Paragraph 9(a) which shall survive such termination).  In the event Seller is the party giving such notice, Buyer shall have the right to nullify the effect thereof by closing within thirty (30) days after receipt of Seller’s notice. 27.        Fire or Other Casualty.              If, at any time prior to Closing, all or any material portion of the Real Property (for the purposes of this paragraph, material is defined as loss of more than ten (10) Lots, loss of clubhouse or a material adverse change in access to the Real Property or portions thereof) is destroyed or damaged as a result of fire or other casualty, Seller shall promptly give written notice thereof to Buyer, and Buyer shall have the option to terminate this Agreement by giving notice to Seller within ten (10) days after the receipt of such Seller's notice.  Upon the giving of such notice by Buyer, Buyer shall be entitled to the immediate return of the Deposit and upon such return to Buyer, this Agreement shall terminate and become null and void, and neither party shall have any further rights or obligations hereunder (except for the indemnity provisions set forth in Paragraph 9(a) which shall survive such termination). If Buyer shall not exercise its option to terminate this Agreement as hereinabove set forth, then this Agreement shall remain in full force and effect without a reduction in the Purchase Price and Buyer shall be entitled to, and at Closing, Seller shall assign to Buyer any and all claims that Seller may have to insurance and/or any and all causes of action with respect to such casualty or loss relating to the Real Property. Furthermore, at Closing, Seller shall pay to Buyer, by the plain check of the Title Company, an amount equal to all payments theretofore made with respect to such casualty or loss. Any negotiations, agreements or contests, or offers or awards relating to such casualty or loss shall be subject to the participation and consent of Buyer.  Buyer agrees to act with promptness and reasonableness in its participation in any such negotiations, agreements or contests or offers or awards. 28.        Affordable Lots.              As part of the Governmental Approvals, Seller is obligated to construct thirty-nine (39) Affordable Lots on the Entire Tract, and seventeen (17) Affordable Lots have been constructed and conveyed by Seller.  At Closing Buyer shall assume Seller’s obligation to construct and develop the Affordable Lots pursuant to the Governmental Approvals.  Has Seller conveyed any of the Affordable Lots? 29.        Models.              Seller has constructed four (4) models on the Entire Tract, being more specifically described in Exhibit L attached hereto and made a part hereof (“Models”).  Seller has conveyed the Models to Strategic Capital Resources, Inc. (“Strategic”) as part of a financing transaction.              The Model Furnishings being more specifically described in Exhibit N  attached hereto and made a part hereof are owned by Seller.  At Closing, Seller shall convey fee simple title to the Model Furnishings to Buyer or its designee by delivery of a Bill of Sale.  Title to the Model Furnishings shall be good and marketable  free of all liens, encumbrances, leases or other rights.  At Closing, Buyer shall pay Seller the sum of Seventy-Three Thousand Five Hundred Dollars ($73,500) in cash for the Model Furnishings, which amount is in addition to the Purchase Price. 30.        Warranty.              Seller has issued a ten year builder’s warranty (issued by Residential Warranty Corporation) for each of the Settled Lots and will issue such warranty, as its cost and expense, for each of Model Lots (when the Model Lot is conveyed to a third party purchaser) in accordance with the terms and provision of the New Home Warranty and Builder’s Registration Act (N.J.S.A. 46:3B-1 et seq.)(“Home Warranty”) and has further warranted the construction of certain improvements in accordance with the terms and provisions of the Planned Real Estate Development Full Disclosure Act (N.J.S.A. 45:22A-21 et seq.) (“PRED Warranties”).  The Home Warranty and PRED Warranties are collectively known as “ Warranties.”  Seller desires to engage Buyer to supervise any repair work required under the   Warranties.  Buyer’s agreement to supervise and coordinate the repair work under the Warranties shall not be construed as or obligate Buyer to assume the obligations under the Warranties.   Buyer shall engage, on Seller’s behalf, all subcontractors needed to perform the repair (endeavoring to use the Seller’s subcontractors if such subcontractor provided a warranty for the item to be repaired) work under the Warranties, and Seller shall pay all such subcontractors within thirty (30) days after receipt.  If Seller does not pay such subcontractors, Buyer shall have the right to pay such amounts and set-off those amounts against the amounts due under the Note. 31.        Seller’s Employees.              At Closing and in consideration for Seller keeping the sales offices open until the date of Closing and continuing to offer Lots for sale in the normal course of business,  Buyer shall reimburse to Seller one-half of the wages (excluding any employee benefits, such as medical premiums) of the sales staff (being the salesperson, hostess, and selection employee) incurred from the date of this Agreement until Closing.  The amount to be reimbursed to Seller for such wages shall in no event exceed One Thousand Five Hundred Dollars ($1500.00) per week.  In addition, at Closing, Buyer shall reimburse Seller one-half of advertising costs incurred by Seller for advertisements for the Real Property run from the date of this Agreement until Closing, such amount will not exceed the amounts set forth in Exhibit O attached hereto and made a part hereof. 32.        Performance Bonds.              Attached hereto and made a part hereof as Exhibit I is a true and correct list of all performance and maintenance bonds posted by Seller, at its sole cost and expense (“ Bonds”) and inspection escrows (“Inspection Escrows”).  The parties agree and acknowledge that the amount of the Inspection Escrows will change since Seller will continue to construct homes and improvements at the Real Property.   The parties shall make good faith efforts and work with each other and the governmental entities holding the Inspection Escrows to obtain a correct accounting of the Inspection Escrows as of the date of Closing.  Buyer, at its cost and expense, shall diligently and in good faith, replace such Bonds and Inspection Escrows as soon as reasonably possible but in no event earlier than the date of Closing.  Buyer shall tender the replacement Bonds by the date of Closing.  In addition, the parties acknowledge that Seller has not, nor does it have an obligation to, post the performance and/or maintenance bonds for Sections 8, 9 or 10 of the Real Property.  True and correct copies of the approved engineers estimate for the performance bonds to be posted for Sections 8, 9 and 10 are listed in Exhibit I.   Buyer shall be responsible for the posting of the performance and maintenance bonds for Sections 8, 9 and 10 as and when required by the governmental authorities having jurisdiction over such improvements. 33.        The Glen at Masons Creek Homeowners Association.              Seller has formed The Glen at Masons Creek Homeowners Association (“Association”) and has recorded the Declaration in accordance with the terms and provisions of the Amended and Limited Public Offering Statement for The Glen at Masons Creek registered October 27, 1998 as amended by Amendment registered June 23, 2000 (“POS”).  Seller has complied with the terms and provisions of the POS and Declaration.   Buyer acknowledges that it will need to amend the POS to reflect Buyer’s interest in the Lots.  Such amendment shall be subject to review and approval by the New Jersey Department of Community Affairs pursuant to the terms and provisions of Planned Real Estate Development Full Disclosure Act (N.J.S.A. 45:22A-21 et seq.) (“DCA Approval”).   Buyer’s receipt of the DCA Approval is not a condition precedent to Closing hereunder.  Nevertheless, Seller shall cooperate with Buyer and promptly shall provide Buyer with such documentation requested by Buyer in order to facilitate the DCA Approval.  At Closing, Seller shall cause its representatives to resign as directors of the Association to be replaced by Buyer’s representatives.  Immediately upon execution of this   Agreement, Seller shall provide Buyer with the latest financial statements of the Association together with a copy of the latest audit of Association’s funds. 34.        Sales Commissions.              After Closing, Buyer shall pay all  real estate commissions due and payable on Outstanding Agreements which settle after Closing.  In the event Seller has prepaid such commission or any portion thereof, Buyer shall reimburse Seller the amount of such prepayment at Closing. 35.        Construction Costs.              At Closing, in addition to the Purchase Price, Buyer shall reimburse Seller the Construction  Costs (as hereinafter defined) pursuant to the Combined Job Cost Activity Report (as agreed to by the parties) as of the date of Closing for the WIP Lots and Affordable Lots.  Seller shall prepare a Combined Job Cost Activity Report for each WIP Lot, which shall be agreed to by the parties.  A sample of the Combined Job Cost Activity Report is attached hereto as Exhibit P.              Buyer acknowledges that during the term of this Agreement, Seller will continue to construct homes on the WIP Lots and certain of the Affordable Lots.  Accordingly, the parties agree that the Construction Costs of each WIP Lot and Affordable Lot will need to be determined by the parties immediately prior to Closing and any work performed on the WIP Lots but not detailed on the Combined Job Cost Activity Report shall be paid by Buyer to the subcontractor (subject to Buyer’s verification of such work).  The term “Construction Costs” shall include the sums expended for wages of Seller’s construction personnel supervising the WIP Lots and such other amounts agreeable to parties as detailed in the Combined Job Cost Activity Report. 36.        Site Improvements.              The parties acknowledge that Seller has partially completed the site improvements for the Entire Tract.  After Closing, Buyer shall be responsible for completion of the remaining site  improvements.  Accordingly, Seller shall provide Buyer with a Site Credit (as hereinafter defined) equal to the amounts described in Exhibit Q. The Site Credit shall equal the costs to complete the  uncompleted site improvements, including , but not limited to, direct construction costs, bonding fees, inspection fees, dedication costs, installation and replacement of street trees and other landscaping required pursuant to the Governmental Approvals.  The Site Credit shall be allocated in the following manner: (i) if the site work is estimated  by the parties (using reasonable discretion) to be completed within twelve (12) months of the date of Closing, that portion of the Site Credit attributable to such work shall be reimbursed by Seller upon Buyer’s presentation of the invoice for such work, and (ii) if the site work is estimated by the parties (using reasonable discretion) to be completed more than twelve (12) months after the date of Closing, that portion of the Site Credit attributable to such work shall be credited against the principal amount of the Note.  In addition, any amounts needed to repair the existing site improvements (as noted on the Pre-Closing Inspection described in Paragraph 37 below) shall be added to the Site Credit, and allocated in the same manner as the Site Credit. 37.        Pre- Closing Inspection.              Prior to Closing, representatives of the parties shall inspect the Entire Tract excepting the Settled Lots to determine (i) the condition of the Site Improvements installed by Seller and note any repairs to be made thereto, (ii) stage of completion of the WIP Lots and Affordable Lots under construction so that the proper amount of Construction Costs can be allocated to such Unit and reimbursed to Seller at Closing, (iii) the stage of completion of the Site Improvements, and (iv) the general state of improvements constructed by Seller.  At such inspection, Buyer and Seller shall detail these items on a written inspection report, to be signed by Buyer and Seller. 38.        Indemnity.              Seller hereby agrees to indemnify, defend and hold Buyer, its officers, directors, shareholders, employees, representatives, agents, successors and assigns harmless from and against and to reimburse Buyer with respect to all losses, claims, demands, liabilities, obligations, causes of action, damages, costs, expenses, fines, or penalties (including, without limitation, reasonable attorneys’ fees and costs) (collectively, “Losses”) suffered by or asserted against Buyer arising from or relating to (i) Seller’s installation, construction, repair or replacement of any of the improvements (including, but not limited to, the improvements on Settled Lots) existing as of the date of Closing,  (ii) its actions or inaction as Declarant with respect to the Association, (iii) the sale, construction and settlement of any Settled Lots.  This indemnity shall survive for a period of two (2) years after the date of Closing.  Notwithstanding any other provisions of Paragraph 38, no claim for indemnification shall be asserted unless the aggregate of all Losses exceed $50,000, in which case, the indemnity shall cover all Losses and not just the amount in excess of $50,000.              Buyer hereby agrees to indemnify, defend and hold Seller, its officers, directors, shareholders, employees, representatives, agents, successors and assigns harmless from and against and to reimburse Seller with respect to all losses, claims, demands, liabilities, obligations, causes of action, damages, costs, expenses, fines, or penalties (including, without limitation, reasonable attorneys’ fees and costs) suffered by or asserted against Seller which individually or in the aggregate exceed $50,000 arising from or relating to (i) Buyer’s installation, construction, repair or replacement of any of the improvements,  (ii) its actions or inaction as Declarant with respect to the Association, and (iii) the sale, construction and settlement of any Vacant  Lots, WIP Lots or Affordable Lots.  This indemnity shall survive for a period of two (2) years after the date of Closing.  Notwithstanding any other provisions of paragraph 38, no claim for indemnification shall be asserted unless the aggregate of all Losses exceed $50,000, in which case, the indemnity shall cover all Losses and not just the amount in excess of $50,000. 39.        Counterparts.              This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be an original, but all such counterparts shall constitute one and the same instrument. 40.        Mutual Cooperation.              Buyer and Seller agree to mutually cooperate, as required or appropriate to carry out the intent and purposes of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written.     SELLER:           ROTTLUND HOMES OF NEW JERSEY, INC     --------------------------------------------------------------------------------       Attest           By:/s/ Steven A. Kahn           BUYER:           ORLEANS HOMEBUILDERS, INC.     By: /s/ Benjamin D. Goldman         ATTEST: [SEAL]     --------------------------------------------------------------------------------       Lawrence J. Dugan, Assistant Secretary  

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.13 [CompuCredit Corporation Letterhead] December 17, 2001 Rainbow Trust One   c/o Frank J. Hanna, III, as Trustee Rainbow Trust Two   c/o David G. Hanna, as Trustee 245 Perimeter Center Parkway Suite 610 Atlanta, Georgia 30346 Dear Trustees of Rainbow Trust One and Rainbow Trust Two:     This letter agreement is intended to confirm the terms of the purchase by Rainbow Trust One and Rainbow Trust Two (each, a "Trust" and, collectively, the "Trusts") of shares of Series B Preferred Stock in CompuCredit Corporation, a Georgia corporation (the "Company").     We have agreed as follows:     1.  Purchase.  At the Closing (as described below), each Trust will purchase 5,000 shares of Series B Preferred Stock of the Company (the "Securities") in exchange for $5,000,000 (the "Purchase Price").     2.  The Closing.  The closing (the "Closing") of the purchase and sale of the Securities hereunder will take place as soon as practicable, but in no event later than December 21, 2001, or at such other time as the Company and the Trusts shall agree. At the Closing, each Trust shall deliver to the Company, by wire transfer to an account designated by the Company, an amount, in immediately available funds, equal to the Purchase Price, and the Company shall deliver to each Trust, against payment of the Purchase Price to the Company, a duly executed certificate evidencing the Securities being purchased by such Trust.     3.  Articles of Amendment.  Prior to the Closing, the Company shall cause to be filed articles of amendment relating to the Series B Preferred Stock as required pursuant to the laws of the State of Georgia (the "Articles of Amendment").     4.  Reservation of Shares.  For as long as any of the Securities are outstanding, the Company shall keep reserved for issuance a sufficient number of shares of Common Stock of the Company to satisfy its conversion obligations under the Articles of Amendment.     5.  Documentary Stamp Taxes.  The Company shall pay any and all stamp, transfer and other similar taxes payable or determined to be payable in connection with the execution and delivery of this letter agreement, or the Shareholders Agreement, dated as of December 17, 2001, among the Company, J.P. Morgan Corsair II Capital Partners, L.P., the Trusts, and certain other investors listed on the signature pages thereof, or the issuance of the Securities.     6.  Amendments; Termination.  Any provision of this letter agreement may be amended or waived, if such amendment or waiver is in writing and is signed by the parties hereto. This letter agreement may be terminated at any time prior to the Closing by written agreement of the parties hereto.     7.  Governing Law.  This letter agreement shall be governed by and construed in accordance with the internal laws of the State of Georgia.     8.  Counterparts.  This letter agreement may be executed 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. --------------------------------------------------------------------------------     If the foregoing accurately reflects our agreement, please sign and return a copy of this letter to me. [Remainder of page left intentionally blank] --------------------------------------------------------------------------------   Sincerely yours,   Rohit H. Kirpalani General Counsel and Secretary CompuCredit Corporation Agreed to:   RAINBOW TRUST ONE   -------------------------------------------------------------------------------- Frank J. Hanna, III, as Trustee   RAINBOW TRUST TWO   -------------------------------------------------------------------------------- David G. Hanna, as Trustee   -------------------------------------------------------------------------------- QuickLinks Exhibit 10.13

AMENDMENT NO. 4 TO CREDIT AGREEMENT                AMENDMENT NO. 4 TO CREDIT AGREEMENT (this “Amendment”) is entered into as of March 31, 2001, by and among HAUSER, INC., a Delaware corporation (the “Company”), HAUSER TECHNICAL SERVICES, INC., a Delaware corporation (“Technical”), BOTANICALS INTERNATIONAL EXTRACTS, INC., a Delaware corporation, ZETAPHARM, INC., a New York corporation, and WILCOX NATURAL PRODUCTS, INC., a Delaware corporation (collectively, the “Borrowers”), and WELLS FARGO BANK, N.A. (the “Lender”). RECITALS                            WHEREAS, the Borrowers are currently indebted to the Lender pursuant to the terms and conditions of that certain Credit Agreement dated as of June 11, 1999, as heretofore amended (the “Current Agreement”; and as amended hereby, the “Agreement”); and                            WHEREAS, the aggregate amount of Revolving Loans presently outstanding under the Current Agreement exceeds the aggregate Borrowing Base thereunder;                            WHEREAS, the Lender and the Borrowers have agreed to certain changes in the terms and conditions set forth in the Agreement and have agreed to amend the Agreement to reflect said changes.                            NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Agreement shall be amended as follows:              A.         Amendments.                            1.          Section 1.01 of the Agreement, the defined term “Borrowing Base” is amended by replacing the period at the end of the definition with a semicolon and adding the following:  “provided, however, that the Lender in its sole and absolute discretion may allow over advances not to exceed $4,000,000 in the aggregate at any time outstanding, it being acknowledged by the Borrowers, without limiting the Lender’s discretion as aforesaid, that the Lender does not intend to allow any such over advances to exist after August 15, 2001.”                            2.          Section 1.01 of the Agreement is further amended by deleting entirely the defined term “Commitment,” and replacing it with the following new definition:                            “‘Commitment’ means the Lender’s ‘Revolving Credit Commitment,’ as such commitment may be reduced from time to time pursuant to Section 2.07.  The initial amount of the Lender’s Revolving Credit Commitment is $24,500,000, which amount shall be reduced to $21,000,000 effective October 30, 2000, $19,000,000 effective March 31, 2001 and $17,000,000 effective August 15, 2001.”                            3.          Section 6.07(b) of the Agreement is amended by deleting entirely the provisions thereof and replacing them with the following:                            "The Borrowers shall not permit the Consolidated Tangible Net Worth at the end of any fiscal quarter of the Company to be less than $4,000,000."                            4.          Section 6.07(c) of the Agreement is amended by deleting entirely the provisions thereof and replacing them with the following:                            "The Borrowers will not permit the Consolidated Operating Cash Flow to be less than negative $1,220,000 at the end of the fiscal quarter of the Company ending June 30, 2001; negative $2,040,000 at the end of the fiscal quarter of the Company ending September 30, 2001; positive $1,400,000 at the end of the fiscal quarter of the Company ending December 31, 2001; and positive $430,000 at the end of the fiscal quarter of the Company ending March 31, 2002."              B.          Amendment Fee.  The Borrowers agree, jointly and severally, to pay to the Lender, simultaneously with the execution and delivery of this Amendment, an amendment fee of $10,000.              C.          Conditions.  This Amendment shall not become effective until the date on which pursuant to the provisions of Section 8.03 of the Agreement, the Borrowers shall have paid, or reimbursed the Lender for, all of the Lender’s costs and expenses (including the fees and disbursements of outside counsel and allocated in-house counsel) in connection with, or related to, the negotiating and execution and effectiveness of this Agreement.              D.         Covenants.  The Company agrees that upon the sale by the Company of certain assets relating to the Company’s Hauser Technical Services Division, which Division performs analytical testing, chemical synthesis, process development, custom chemical manufacturing, product testing and design of pharmaceutical, dietary supplement, plastic pipe and medical device products, the Company will apply the net proceeds (i.e. the gross proceeds of the sale, less closing costs and other costs of sale actually paid) it receives from such asset sale to payment of the outstanding Base Rate Revolving Loans.              E.          General.  Except as specifically provided herein, all terms and conditions of the Agreement remain in full force and effect, without waiver or modification.  All terms defined in the Agreement shall have the same meaning when used in this Amendment.  This Amendment shall be effective upon delivery by the Lender to the Company of an executed counterpart original or facsimile copy.              The Borrowers hereby remake all representations and warranties contained in the Agreement and reaffirm all covenants set forth therein.  The Borrowers further certify that as of the date of this Amendment, giving effect to the provisions hereof, there exists no Event of Default as defined in the Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default. [INTENTIONALLY LEFT BLANK]                IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date and year first written above. HAUSER, INC. By: /S/ KENNETH CLEVELAND -------------------------------------------------------------------------------- Name:  Kenneth Cleveland Title:    Chief Executive Officer WELLS FARGO BANK, N.A. By:  /S/ ART BROKX -------------------------------------------------------------------------------- Name:  Art Brokx Title:    Vice President     BOTANICALS INTERNATIONAL EXTRACTS, INC. By: /S/ KENNETH CLEVELAND -------------------------------------------------------------------------------- Name:  Kenneth Cleveland Title:    Chief Executive Officer ZETAPHARM, INC. By:  /S/ KENNETH CLEVELAND -------------------------------------------------------------------------------- Name:  Kenneth Cleveland Title:    Chief Executive Officer     WILCOX NATURAL PRODUCTS, INC. By:  /S/ KENNETH CLEVELAND -------------------------------------------------------------------------------- Name:  Kenneth Cleveland Title:    Chief Executive Officer HAUSER TECHNICAL SERVICES, INC. By: /S/ KENNETH CLEVELAND -------------------------------------------------------------------------------- Name:  Kenneth Cleveland Title:    Chief Executive Officer  

QuickLinks -- Click here to rapidly navigate through this document [Letterhead] COMMERCIAL & INVESTMENT REAL ESTATE PURCHASE & SALE AGREEMENT This has been prepared for submission to your attorney for review and approval prior to signing. No representation is made by licensee as to its sufficiency or tax consequences. CBA Text Disclaimer: Text deleted by licensee indicated by strike. New text inserted by licensee indicated by small capital letters. Date: August 2, 2001 The undersigned Buyer, Parker, Smith & Feek, Inc., a Washington corporation, agrees to buy and Aris Corporation, as Seller, agrees to sell, on the following terms, the commercial real estate and all improvements thereon (collectively, the "Property") commonly known as Lakeland Office Building at 2229 112th Avenue N.E. in the City of Bellevue, King County, Washington, legally described on attached Exhibit A. (Buyer and Seller authorize the Listing Agent or Selling Licensee to insert and/or correct, over their signatures, the legal description of the Property.) 1.PURCHASE PRICE. The total purchase price is Six Million Three Hundred Eighty-Five Thousand and 00/100 Dollars ($6,385,000.00), including the earnest money, payable as follows (check only one): /x/  All cash at closing, including the earnest money, with no financing contingency. / /  All cash at closing, including the earnest money, contingent on new financing under Section 4a below. / /  $     /    % of the purchase price in cash at closing, including the earnest money, with the balance of the purchase price paid as follows (check one or both, as applicable):  / / Buyer's assumption of any underlying note and deed of trust, or real estate contract, under Section 4b below;  / / Buyer's delivery at closing of a promissory note for the balance of the purchase price, secured by a deed of trust encumbering the Property, as described in Section 4c below. / /  Other: 2.EARNEST MONEY. Buyer agrees to deliver the earnest money $100,000.00 in the form of /x/ Cash  / / Personal check  / / Promissory note  / / Other: Earnest Money shall become non-refundable upon Buyer's removal of all contingencies, except in the event of Seller default, in which case the entire Earnest Money amount shall be refunded to Buyer. If the earnest money is in the form of a promissory note, it shall be due no later than: / /      days after mutual acceptance. / /  Upon removal of the inspection contingencies in Section 5 below. / /  Other: The earnest money shall be held by  / / Selling Licensee  /x/ Closing Agent. Buyer shall deliver the earnest money no later than: /x/  Three (3) business days after mutual acceptance. / /  Upon removal of the inspection contingencies in Section 5 below. / /  Other: Selling Licensee may, however, transfer the earnest money to Closing Agent. The Earnest Money shall be deposited to:  /x/  A separate interest bearing trust account in Closing Agent's name. The interest, if any, shall be credited at closing to Buyer whose Social Security or taxpayer ID Number is:         . If this sale fails to close, whoever is entitled to the earnest money is entitled to interest. Buyer agrees to pay financing and purchase costs incurred by Buyer. If all or part of the earnest money is to be returned to Buyer and any such costs remain unpaid, Closing Agent may deduct and pay them therefrom. Unless otherwise provided in this Agreement, the earnest money shall be applicable to the purchase price. 3.EXHIBITS AND ADDENDA. The following Exhibits and Addenda are made a part of this Agreement: Exhibit A - Legal Description / /  Earnest Money Promissory Note, CBA Form EMN / /  Promissory Note, LPB Form No. 28A/CBA Form N1-A / /  Short Form Deed of Trust, LPB Form No. 20 / /  Deed of Trust Rider, CBA Form DTR / /  Utility Charges Addendum, CBA Form UA / /  FIRPTA Certification, CBA Form 22E / /  Assignment and Assumption, CBA Form PS-AS / /  Addendum/Amendment, CBA Form PSA / /  Back-Up Addendum, CBA Form BU-A / /  Vacant Land Addendum, CBA Form VLA /x/  Other Addendum 4.FINANCING. 5.INSPECTION CONTINGENCY. This Agreement shall terminate and Buyer shall receive a refund of the earnest money unless Buyer gives written notice to Seller the earlier of September 15, 2001 or 30 days after Seller has delivered to buyer a fully executed copy of the Lease for Noetix and Sublease for Aris Corporation stating that Buyer is satisfied, in Buyer's reasonable discretion, concerning all aspects of the Property, including without limitation, its physical condition; the presence of or absence of any hazardous substances; the contracts and leases affecting the property; the potential financial performance of the Property; the availability of government permits and approvals; and the feasibility of the Property for Buyer's intended purpose. If such notice is timely given, the inspection contingencies stated in this Section 5 shall be deemed to be satisfied. a.  Books, Records, Leases, Agreements. Seller shall make available for inspection by Buyer and its agents as soon as possible but no later than five (5) days after mutual acceptance of this Agreement the following documents in Seller's possession relating to the ownership, operation, renovation or development of the Property, statements for real estate taxes, assessments, and utilities; property management agreements, service contracts, and agreements with professionals or consultants entered into by the Seller or any predecessor in title to the Seller; leases of personal property or fixtures; leases or other agreements relating to occupancy of all or a portion of the Property and a schedule of tenants, rents, and deposits; plans, specifications, permits, applications, drawings, surveys, studies and maintenance records; information establishing the financial condition and credit worthiness of tenants(s), copies of covenants, conditions and restrictions, by-laws, and such other items as buyer deems reasonably necessary. Buyer shall determine within the contingency period stated in the preceding introductory paragraph whether it wishes and is able to assume, as of closing, all of the foregoing leases, contracts, and agreements which have terms extending beyond closing, except as provided in the attached Addendum. Buyer shall be solely responsible for obtaining any required consents to such assumption. Seller shall transfer the leases, contracts and agreements as provided in Section 17 of this Agreement. b.  Access. Seller shall permit Buyer and its agents, at Buyer's sole expense and risk to enter the Property at reasonable times after legal notice to tenants, to conduct inspections concerning the Property and improvements, including without limitation, the structural condition of improvements, hazardous materials (limited to a Phase I audit only), pest infestation, soils conditions, sensitive areas, wetlands, or other matters affecting the feasibility of the Property for Buyer's intended use. Buyer shall schedule any entry onto the Property with Seller in advance. Buyer shall not perform any invasive testing or contact the tenants without obtaining the Seller's prior written consent, which shall not be unreasonably withheld. Buyer shall restore the Property and improvements to the same condition they were in prior to inspection. Buyer agrees to indemnify and defend Seller from all liens, costs, claims, and expenses, including attorneys' and experts' fees, arising from or relating to entry onto or inspection of the Property by Buyer and its agents. This agreement to indemnify and defined Seller shall survive closing. Buyer may continue to enter the Property and interview tenants in accordance with the foregoing terms and conditions after removal or satisfaction of the inspection contingency only for the purpose of re-sale, leasing or to satisfy conditions of financing. 6.TITLE INSURANCE. a.  Title Report. Seller authorizes Lender and Listing Agent, Selling Licensee or Closing Agent, at Seller's expense, to apply for and deliver to Buyer a  / / standard  /x/ extended (standard, if not completed) coverage owner's policy of title insurance. If an extended coverage owner's policy is specified, Buyer shall pay the increased costs associated with that policy including the excess premium over that charged for a standard coverage policy, and the cost of any survey required by the title insurer. The title report shall be issued by First American Title Insurance Company. b.  Permitted Exceptions. Buyer shall notify Seller of any objectionable matters in the title commitment or any supplemental report within ten (10) days after receipt of such commitment or supplement. This Agreement shall terminate and Buyer shall receive a refund of the earnest money, less any costs advanced or committed for Buyer, unless (a) within ten (10) days of Buyer's notice of such objections, Seller agrees to remove all objectionable provisions, or (b) within fifteen (15) days after Buyer's notice of such objections, Buyer notifies Seller in writing that it waives any objections which Seller does not agree to remove. The closing date shall be extended to the extent necessary to permit time for these notices. Those provisions not objected to or for which Buyer waived its objections shall be referred to collectively as the "Permitted Exceptions." The title policy shall contain no exceptions other than the General Exclusions and Exceptions common to such form of policy and the Permitted Exceptions. 7.CLOSING OF SALE. This sale shall be closed on or before sixty (60) calendar days from the date of notice to Seller of removal of contingencies as provided in Section 5 above, but no later than November 1, 2001,     ("closing") by First American Title Insurance Company ("Closing Agent"). Buyer and Seller will, immediately on demand, deposit with Closing Agent all instruments and monies required to complete the purchase in accordance with this Agreement. "Closing" shall be deemed to have occurred when all documents are recorded and the sale proceeds are available to Seller. Time is of the essence in the performance of this Agreement. 8.CLOSING COSTS. Seller shall pay the excise tax and premium for the owner's standard coverage title policy. Seller and Buyer shall each pay one-half of the escrow fees. Real and personal property taxes and assessments payable in the year of closing; rents on any existing tenancies; interest; mortgage reserves; utilities; and other operating expenses shall be pro-rated as of closing. Buyer shall pay all costs of financing including the premium for the lender's title policy. Security, cleaning, and any other unearned deposits on tenancies, and remaining mortgage or other reserves shall be assigned to Buyer at closing. The real estate commission is due on closing or upon Seller's default under this Agreement, whichever occurs first, and neither the amount nor due date thereof can be changed without Listing Agent's written consent. a.  Unpaid Utility Charges. Buyer and Seller  /x/ WAIVE  / / DO NOT WAIVE the right to have the Closing Agent disburse closing funds necessary to satisfy unpaid utility charges affecting the Property pursuant to RCW 60.80. If "do not waive" is checked, then attach CBA Form UA ("Utility Charges" Addendum). If neither box is checked, then the "do not waive" option applies. 9.POST-CLOSING ADJUSTMENTS, COLLECTIONS, AND PAYMENTS. After closing, Buyer and Seller shall reconcile the actual amount of revenues or liabilities upon receipt or payment thereof to the extent those items were prorated or credited at closing based upon estimates. Any bills or invoices received by Buyer after closing which relate to services rendered or goods delivered to the Seller or the Property prior to closing shall be paid by Seller upon presentation of such bill or invoice. At Buyer's option, Buyer may pay such bill or invoice, at the Seller's direction, and be reimbursed the amount paid plus interest at the rate of 12% per annum beginning fifteen (15) days from the date of Buyer's written demand to Seller for reimbursement until such reimbursement is made. Rents collected from each tenant after closing shall be applied first to rentals due most recently from such tenant for the period after closing, and the balance shall be applied for the benefit of Seller for delinquent rentals owed for a period prior to closing. The amounts applied for the benefit of Seller shall be turned over by Buyer to Seller promptly after receipt. 10.OPERATIONS PRIOR TO CLOSING. Prior to closing, Seller shall continue to operate the Property in the ordinary course of its business and maintain the Property in the same or better condition than as existing on the date of mutual acceptance of this Agreement, but shall not be required to repair material damage from casualty except as otherwise provide in this Agreement. Seller shall not enter into or modify existing rental agreements or leases (except that Seller may modify or terminate residential rental agreements or leases in the ordinary course of its business), service contracts, or other agreements affecting the Property which have terms extending beyond closing without first obtaining Buyer's consent, which shall not be unreasonably withheld. 11.POSSESSION. Buyer shall be entitled to possession, subject to existing tenancies (if any), /x/ on closing  / /     (on closing, if not completed). 12.SELLER'S REPRESENTATIONS AND WARRANTIES. Seller represents and warrants to Buyer that, to Seller's actual knowledge, each of the following is true as of the date hereof and shall be true as of closing: (a) Seller is authorized to enter into the Agreement, to sell the Property, and to perform its obligations under the Agreement; (b) All books, records, leases, agreements and other items delivered to Buyer pursuant to this Agreement are accurate and complete; (c) The Property and the business conducted thereon comply with all applicable laws, regulations, codes and ordinances; (d) Seller has all certificates of occupancy, permits, and other governmental consents necessary to own and operate the Property for its current use; (e) There is no pending or threatened litigation which would adversely affect the Property or Buyer's ownership thereof after closing; (f) There are no covenants, conditions, restrictions, or contractual obligations of Seller which will adversely affect the current operation of the Property after closing or prevent Seller from performing its obligations under the Agreement, except as disclosed in the preliminary commitment for title insurance or as otherwise disclosed to Buyer in writing prior to the end of the inspecting contingency stated in Section 5 above; (g) There is no pending or threatened condemnation or similar proceedings affecting the Property, and except as otherwise disclosed in the preliminary commitment for title insurance as or otherwise disclosed to Buyer in writing prior to closing, the Property is not within the boundaries of any planned or authorized local improvement district; (h) Seller has paid (except to the extent prorated at closing) all local, state and federal taxes (other than real and personal property taxes and assessments described in Section 8 above) attributable to the period prior to closing which, if not paid, could constitute a lien on Property (including any personal property), or for which Buyer may be held liable after closing; and (i) Seller warrants that there are no pending or threatened notices of violation of building, zoning, or land use codes applicable to the Property; and (j) Seller is not aware of any concealed material defects in the Property except: Seller makes no representations or warranties regarding the Property other than those specified in this Agreement, Buyer otherwise takes the Property "AS IS," and Buyer shall otherwise rely on its own pre-closing inspections and investigations. 13.HAZARDOUS SUBSTANCES. Except as disclosed to or known by Buyer prior to the satisfaction or waiver of the inspection contingency stated in Section 5 above, Seller represents and warrants to Buyer that, to its actual knowledge: (i) there are no Hazardous Substances (as defined below) currently located in, on, or under the Property in a manner or quantity that presently violates any Environmental Law (as defined below); (ii) there are no underground storage tanks located on the Property; and (iii) there is no pending or threatened investigation or remedial action by any governmental agency regarding the release of Hazardous Substances or the violation of Environmental Law at the Property. As used herein, the term "Hazardous Substances" shall mean any substance or material now or hereafter defined or regulated as a hazardous substance, hazardous waste, toxic substance, pollutant, or contaminant under any federal, state, or local law, regulation, or ordinance governing any substance that could cause actual or suspected harm to human health or the environment ("Environmental Law"). The term "Hazardous Substances" specifically includes, but is not limited to, petroleum, petroleum by-products, and asbestos. 14.PERSONAL PROPERTY. a.  This sale includes all right, title and interest of Seller to the following tangible personal property:  /x/ None  / / That portion of the personal property located on and used in connection with the Property, which Seller will itemize in an Addendum to be attached to this agreement within ten (10) days of mutual acceptance (None, if not completed). The value assigned to the personal property shall be the amount agreed upon by the parties and, if they cannot agree, the County-assessed value if available, and if not available, the fair market value determined by an appraiser selected by the Listing Agent and Selling Licensee. Seller warrants title to, but not the condition of, the personal property and shall convey it by bill of sale. Buyer shall pay any sales or use tax arising from the transfer of the personal property. b.  In addition to the leases, contracts and agreements assumed by Buyer pursuant to Section 5a above, this sale includes all right, title and interest of Seller, if any, to the following intangible property now or hereafter existing with respect to the Property including without limitation: all rights-of-way, rights of ingress or egress or other interests in, on, or to, any land, highway, street, road, or avenue, open or proposed, in, on, or across, in front of, abutting or adjoining the Property; all rights to utilities serving the Property; all drawings, plans, specifications and other architectural or engineering work product; all governmental permits, certificates, licenses, authorizations and approvals; all utility, security and other deposits and reserve accounts made as security for the fulfillment of any of Seller's obligations; any name of or telephone numbers for the Property and related trademarks, service marks or trade dress; and guaranties, warranties or other assurances of true performance received. 15.CONDEMNATION AND CASUALTY. Buyer may terminate this Agreement and obtain a refund of the earnest money, less any costs advanced or committed for Buyer, if improvements on the Property are destroyed or materially damaged by casualty before closing, or if condemnation proceedings are commenced against all or a portion of the Property before closing. 16.FIRPTA - TAX WITHHOLDING AT CLOSING. Closing Agent is instructed to prepare a certification (CBA or NWMLS Form 22E, or equivalent) that Seller is not a "foreign person" within the meaning of the Foreign Investment in Real Property Tax Act. Seller agrees to sign this certification. If Seller is a foreign person, and this transaction is not otherwise exempt from FIRPTA, Closing Agent is instructed to withhold and pay the required amount to the Internal Revenue Service. 17.CONVEYANCE. Title shall be conveyed by a Statutory Warranty Deed subject only to the Permitted Exceptions. If this Agreement is for conveyance of Seller's vendee's interest in a Real Estate Contract, the Statutory Warranty Deed shall include a contract vendee's assignment sufficient to convey after acquired title. At closing, Seller and Buyer shall execute and deliver to Closing Agent an Assignment and Assumption Agreement transferring all leases, contracts and agreements assumed by Buyer pursuant to Section 5a and all intangible property transferred pursuant to Section 14b, and releasing Seller from any continuing obligations thereunder. 18.SEATTLE REQUIREMENTS. If the Property is in the City of Seattle, Seller shall deliver to Buyer a Certificate of Land Use and Local Assessments (not applicable to single family dwellings not represented to be a lawful site for more than one dwelling unit). 19.NOTICES AND COMPUTATION OF TIME. Unless otherwise specified, any notice required or permitted in or related to, this Agreement (including revocations of offers and counteroffers) must be in writing. Notices to Seller must be signed by at least one Buyer and must be delivered to Seller and Listing Agent. A notice to Seller shall be deemed delivered only when received by Seller, Listing Agent, or the licensed office of Listing Agent. Notices to Buyer must be signed by at least one Seller and must be delivered to Buyer and Selling Licensee. A notice to Buyer shall be deemed delivered only when received by Buyer, Selling Licensee, or the licensed office of Selling Licensee. Selling Licensee and Listing Agent have no responsibility to advise of receipt of a notice beyond either phoning the party or causing a copy of the notice to be delivered to the party's address on this Agreement. Buyer and Seller must keep Selling Licensee and Listing Agent advised of their whereabouts to receive prompt notification of receipt of a notice. Unless otherwise specified in this Agreement, any period of time in this Agreement shall begin the day after the event starting the period and shall expire at 5:00 p.m. Pacific time of the last calendar day of the specified period of time, unless the last day is a Saturday, Sunday or legal holiday as defined in RCW 1.16.050, in which case the specified period of time shall expire on the next day that is not a Saturday, Sunday or legal holiday. Any specified period of five (5) days or less shall not include Saturdays, Sundays or legal holidays. 20.AGENCY DISCLOSURE. At the signing of this Agreement, Selling Licensee Ann Bishop and Robert Wallace of Wallace Properties, Inc. (Broker) (Insert names of Licensee and the Company name as licensed) represented Parker, Smith & Feek, Inc. (Buyer) (Insert Seller, Buyer, both Seller and Buyer or Neither Seller nor Buyer) and the Listing Agent Richard Peterson and Scott Rice of Puget Sound Properties Commercial Real Estate Services, L.L.C. (Insert names of Licensee and the Company name as licensed) represented Aris Corporation (Seller) (Insert Seller, Buyer, both Seller and Buyer or Neither Seller nor Buyer) If Selling Licensee and Listing Agent are different salespersons affiliated with the same Broker, then Seller and Buyer confirm their consent to Broker acting as a dual agent. If Selling Licensee and Listing Agent are the same person representing both parties, then Seller and Buyer confirm their consent to that person and his/her Broker acting as dual agents. If Selling Licensee, Listing Agent, or their Broker are dual agents, then Seller and Buyer consent to Selling Licensee, Listing Agent and their Broker being compensated based on a percentage of the purchase price or as otherwise disclosed on an attached addendum. Buyer and Seller confirm receipt of the pamphlet entitled "The Law of Real Estate Agency." 21.ASSIGNMENT. Buyer  /x/ may  / / may not (may not, if not completed) assign this Agreement, or Buyer's rights hereunder, without Seller's prior written consent, unless provided otherwise herein. 22.DEFAULT AND ATTORNEY'S FEE. In the event Buyer fails to complete the purchase of the Property following removal of contingencies as provided in Section 5 for any reason other than Seller's default, then (check one): /x/  that portion of the earnest money which does not exceed five percent (5%) of the purchase price shall be kept by Seller as liquidated damages (subject to Seller's obligation to pay certain costs) as the sole and exclusive remedy available to Seller for such failure; or / /  Seller may, at its option, (a) keep as liquidated damages all of the earnest money (subject to Seller's obligation to pay certain costs or a commission, if any) as the sole and exclusive remedy available to Seller for such failure, (b) bring suite against Buyer for Seller's actual damages, (c) bring suit to specifically enforce this Agreement and recover any incidental damages, or (d) pursue any other rights or remedies available at law or equity. If Buyer or Seller institutes suit concerning this Agreement, the prevailing party is entitled to reasonable attorneys' fees and expenses. In the event of trial, the amount of the attorney's fee shall be fixed by the court. The venue of any suit shall be the county in which the Property is located, and this Agreement shall be governed by the laws of the state where the Property is located. 23.MISCELLANEOUS PROVISIONS. a.  Complete Agreement. The Agreement and any addenda and exhibits to it state the entire understanding of Buyer and Seller regarding the sale of the Property. There are no verbal or written agreements which modify or affect the Agreement. b.  No Merger. The terms of the Agreement shall not merge in the deed or other conveyance instrument transferring the Property to Buyer at closing. The terms of this Agreement shall survive closing. c.  Counterpart Signatures. The Agreement may be signed in counterpart, each signed counterpart shall be deemed an original, and all counterparts together shall constitute one and the same agreement. d.  Facsimile Transmission. Facsimile transmission of any signed original document, and retransmission of any signed facsimile transmission, shall be the same as delivery of an original. At the request of either party, or the Closing Agent, the parties will confirm facsimile transmitted signatures by signing an original document. 24. 25.INFORMATION TRANSFER. In the event this Agreement is terminated, Buyer agrees to deliver to Seller within ten (10) days of Seller's written request all copies of all materials received from Seller. INITIALS:   Buyer /s/ VEP   Date 8/8/01   Seller /s/ KK   Date August 13, 2001     Buyer    Date    Seller    Date  26.CONFIDENTIALITY.  Until and unless closing has been consummated, Buyer will treat all information obtained in connection with the negotiation and performance of this Agreement as confidential (except for any information that Buyer is required by law to disclose and then only after giving Seller written notice at least three (3) days prior to the disclosure) and will not use or knowingly permit the use of any confidential information in any manner detrimental to Seller. 27.SELLER'S ACCEPTANCE AND BROKERAGE AGREEMENT.  Seller agrees to sell the Property on the terms and conditions herein, and further agrees to pay a commission in a total amount computed in accordance with the listing agreement. If there is no written listing agreement, Seller agrees to pay a commission of 2% of the sales price or $      . The commission shall be apportioned equally between Listing Agent and Selling Licensee as specified in the listing agreement or any co-brokerage agreement. 28.LISTING AGENT AND SELLING LICENSEE DISCLOSURE.  EXCEPT AS OTHERWISE DISCLOSED IN WRITING TO BUYER OR SELLER, THE SELLING LICENSEE, LISTING AGENT, AND BROKERS HAVE NOT MADE ANY REPRESENTATIONS OR WARRANTIES CONCERNING THE LEGAL EFFECT OF THIS AGREEMENT, BUYER'S OR SELLER'S FINANCIAL STRENGTH, OR THE PROPERTY, INCLUDING WITHOUT LIMITATION, THE PROPERTY'S ZONING, COMPLIANCE WITH APPLICABLE LAWS (INCLUDING LAWS REGARDING ACCESSIBILITY FOR DISABLED PERSONS), OR HAZARDOUS MATERIALS. SELLER AND BUYER ARE EACH ADVISED TO SEEK INDEPENDENT LEGAL AND TAX ADVICE ON THESE AND OTHER MATTERS RELATED TO THIS AGREEMENT. Buyer   /s/ Victor E. Parker --------------------------------------------------------------------------------   Date   August 8 -------------------------------------------------------------------------------- ,   2001 --------------------------------------------------------------------------------     its President --------------------------------------------------------------------------------   Date     -------------------------------------------------------------------------------- ,     -------------------------------------------------------------------------------- Office Phone   (425) 709-3600 --------------------------------------------------------------------------------   Fax No.     --------------------------------------------------------------------------------   Home Phone     -------------------------------------------------------------------------------- ,     -------------------------------------------------------------------------------- Print Buyer's Name   Parker, Smith & Feek, Inc. -------------------------------------------------------------------------------- Buyer's Address     -------------------------------------------------------------------------------- Selling Office   Wallace Properties, Inc. -------------------------------------------------------------------------------- Office Phone   (425) 455-9976 --------------------------------------------------------------------------------   Other Phone     --------------------------------------------------------------------------------   Fax No.   (425) 646-3374 -------------------------------------------------------------------------------- Address   330 112th Avenue NE, Suite 200, Bellevue, WA 98004 --------------------------------------------------------------------------------   MLS Office No.   970100 -------------------------------------------------------------------------------- By   /s/ Kendall W. Kunz --------------------------------------------------------------------------------   Print Name   Ann Bishop and Robert Wallace -------------------------------------------------------------------------------- Seller   Kendall Kunz --------------------------------------------------------------------------------   Date     -------------------------------------------------------------------------------- ,     -------------------------------------------------------------------------------- Seller   President & CEO --------------------------------------------------------------------------------   Date     -------------------------------------------------------------------------------- ,     -------------------------------------------------------------------------------- Home Phone     --------------------------------------------------------------------------------   Office Phone     --------------------------------------------------------------------------------   Fax No.     -------------------------------------------------------------------------------- ,     -------------------------------------------------------------------------------- Print Seller's Name   Aris Corporation -------------------------------------------------------------------------------- Seller's Address     -------------------------------------------------------------------------------- Listing Office   Puget Sound Properties Commercial Real Estate Services, L.L.C. -------------------------------------------------------------------------------- Office Phone No.   (425) 454-9543 --------------------------------------------------------------------------------   Other Phone   (425) 586-5614 --------------------------------------------------------------------------------   Fax No.   (425) 455-9138 -------------------------------------------------------------------------------- Address   10655 NE 4th Street, Suite 201, Bellevue, WA 98004 --------------------------------------------------------------------------------   MLS Office No.   918800 -------------------------------------------------------------------------------- 29.BUYER'S RECEIPT. Buyer acknowledges receipt of a Seller signed copy of this Agreement on 8/14/01. /s/ Victor E. Parker -------------------------------------------------------------------------------- ,   8/14/01 --------------------------------------------------------------------------------             BUYER   /s/ Victor E. Parker --------------------------------------------------------------------------------   BUYER      -------------------------------------------------------------------------------- EXHIBIT A TO PURCHASE AND SALE AGREEMENT Legal Description     Lot 2, City of Bellevue Short Plat Number CSPS-92-5300, recorded under Recording Number 9212229017, said short plat being a portion of that portion of Stanley Park, according to the plat thereof recorded in Volume 57 of Plats, pages 39 and 40, in King County, Washington, vacated by City of Bellevue Ordinance Number 2322;     TOGETHER WITH an easement as delineated on said short plat for ingress, egress and utilities over, under and across the southerly 12.5 feet of Lot 1 of said short plat. ADDENDUM TO COMMERCIAL & INVESTMENTS REAL ESTATE PURCHASE AND SALE AGREEMENT, Dated August 13, 2001 This Addendum is attached to and made a part of that certain Commercial & Investments Real Estate Purchase and Sale Agreement dated July 30, 2001 between Parker, Smith & Feek, Inc., a Washington corporation, as Buyer, and Aris Corporation, a Washington corporation, as Seller. Seller and Buyer hereby agree to the following additional terms and conditions of the Purchase and Sale Agreement: 29)Lease Contingencies: In addition to the contingencies set forth in Section 5 of the attached Purchase and Sale Agreement, the Buyer's obligation to purchase the Property shall be contingent on the full execution of a Lease between Seller and Noetix Corporation ("Noetix") in substantially the form attached hereto as Exhibit B (the "Noetix Lease"), prior to the end of the contingency period set forth in Section 5 above. 30)Buyer acknowledges that Noetix intends to sublease one-half (1/2) of the third floor of the Property to Seller through February 28, 2002 (or such other date as Noetix and Seller mutually agree), at a lease rate of $29.00 per rentable square foot gross and such other terms acceptable to Seller and Noetix. The execution and delivery to Seller by Noetix of a sublease consistent with the foregoing, prior to the effective date of the Noetix Lease, is a condition precedent to Seller's obligation to perform its obligations under the Purchase and Sale Agreement. Seller shall provide Buyer with estoppel certificate for Noetix Lease within 30 days hereof. 31)Seller represents that it has received all necessary approval from Ciber, Inc., to execute the Purchase and Sale Agreement and the Noetix Lease, and that it has also obtained all requisite corporation authorization and that evidence thereof shall be provided upon request by either Buyer or Closing Agent prior to the close of escrow. 32)Buyer represents that it has obtained all requisite corporate authorization to enter into the transactions set forth herein, and that evidence thereof shall be provided upon request by either Seller or Closing Agent prior to the close of escrow. 33)Buyer and Seller shall proceed in good faith to execute such escrow instructions to Closing Agent as Buyer and Seller shall deem necessary and appropriate to consummate this transaction. Such escrow instructions will provide for the delivery by the parties to Closing Agent prior to the closing of the following documents:     (a) Seller's documents:  (i) the Warranty Deed in accordance with Section 17; (ii) the FIRPTA certification in accordance with Section 16; (iii) the Assignment of Lease in accordance with Section 17; (iv) certificates of corporate authority if required as noted above; (v) appropriate excise tax affidavits; and (vi) such other documents or items that are reasonably requested by the Closing Agent as administrative requirements, or are required under applicable law, to consummate the transactions contemplated by this Agreement.     (b) Buyer's documents:  (i) the Assignment of Lease in accordance with Section 17; (ii) certificates of corporate authority if required as noted above; and (iii) appropriate excise tax affidavits; and (iv) such other documents or items that are reasonably requested by the Closing Agent as administrative requirements, or are required under applicable law, to consummate the transactions contemplated by this Agreement. 34)As to any reports or other materials provided to Buyer that were prepared by third parties, Seller is not warranting and will not be liable or responsible for the accuracy, fitness or usability of such reports or materials or any recommendations or conclusions stated therein. All representations and warranties of Seller in this Agreement are made to the knowledge of Seller, without independent investigation or examination. As used in this Agreement, the terms "known" or "knowledge" mean actual (not constructive) knowledge by the employees and officers of Seller that have been involved in the negotiation of this Agreement or who are regularly engaged in the management of Seller's real estate operations that include the Property. 35)Except with respect to the representations, warranties and covenants of Seller set forth in this Agreement and any documents delivered by Seller pursuant to this Agreement, from and after the closing of the sale of the Property as provided herein, Seller has not made, and Buyer has not relied on, any representations or warranties of Seller or its agents in connection with the transaction contemplated hereby, and Buyer hereby waives, releases, and forever discharges Seller and its agents, employees, successors and assigns of and from any and all suits, causes of action, legal or administrative proceedings, claims, demands, damages, losses, costs or expenses of whatever kind or nature, known or unknown, which Buyer ever had, now has or hereafter can, shall or may have or acquire or possess, arising out of the condition, status, quality, nature or productivity of the Property. Buyer further agrees to indemnify Seller and hold it harmless from any claims, loss, cost or damage incurred as a result of any acts, omissions or conditions occurring subsequent to the transfer of the Property to Buyer. 36)Each party represents and warrants to the other party that it has not contracted or entered into any agreement with any real estate broker, finder, agent or any other party in connection with this transaction, other than Seller's agreement to pay a commission at closing to Puget Sound Properties, Inc. in the amount of 2% of the purchase price under the terms of a listing agreement and a related co-brokerage agreement whereby one-half of such commission is payable to Wallace Properties, Inc., as agent for the Buyer. Each party hereby indemnifies and agrees to hold the other party harmless from any loss, liability, damage, cost or expense (including reasonable attorney's fees) resulting to the other party from a breach of the representation and warranty made in this Section 36. To the extent the terms of this Addendum are inconsistent with the terms of the Purchase and Sale Agreement to which it is attached, the terms of this Addendum shall control. "Seller"   "Buyer" ARIS CORPORATION   PARKER, SMITH & FEEK, INC. By:   /s/ Kendall W. Kunz --------------------------------------------------------------------------------   By:   /s/ Victor E. Parker -------------------------------------------------------------------------------- Its:   President & CEO --------------------------------------------------------------------------------   Its:   President -------------------------------------------------------------------------------- Date:   August 13, 2001 --------------------------------------------------------------------------------   Date:   August 8, 2001 -------------------------------------------------------------------------------- [WALLACE PROPERTIES LOGO] AMENDMENT TO PURCHASE AND SALE AGREEMENT Reference is made to that certain Agreement for Purchase and Sale Agreement dated August 2, 2001 and executed August 14, 2001 ("Agreement") between Parker, Smith & Feek, Inc. ("Buyer") and Aris Corporation ("Seller"). TERMS AND CONDITIONS (Contd): Whereas the Agreement is subject to Purchaser's analysis of the feasibility of the project and waiver of contingencies to purchase by September 13, 2001; Whereas Buyer has received appraisals, studies and inspections (which Buyer will use best efforts to deliver to Seller if this transaction does not close) to its satisfaction (except for some minor construction defects set forth in the inspection), and has assembled the equity and debt financing for the contemplated closing; Whereas, because the devastating impact of this week's World Trade Center bombings on the insurance industry world-wide have left the Buyer, a major insurance brokerage, unable to currently assess the impact on its own business, the parties have agreed to extend the feasibility analysis period referenced in Paragraph 5 of the Purchase and Sale Agreement for an additional thirty (30) days to October 13, 2001, and all related dates shall be adjusted accordingly, EXCEPT for Closing Date which shall remain unchanged. NOW, THEREFORE, the parties do hereby agree as follows: 1.The period for Purchaser's inspection and analysis of the feasibility of the Lakeland Building as referenced in Paragraph 5 of the Purchase and Sale Agreement of August 2, 2001 is hereby extended to October 13, 2001 and all other related dates Except Closing Date in the agreement shall likewise be extended for an additional thirty days; 2.Seller will take steps to have its contractor repair damage from improperly installed flashing as identified in the Inspection Report (see Exhibit A attached hereto) and to ensure such repairs are completed prior to closing; 3.All other terms and conditions not specifically modified in this Amendment to Purchase and Sale Agreement shall remain in full force and effect. PURCHASER:   SELLER: PARKER, SMITH & FEEK, INC.   ARIS CORPORATION By:   /s/ G. Collins --------------------------------------------------------------------------------   9/13/01 -------------------------------------------------------------------------------- Date   By:   /s/ Kendall W. Kunz --------------------------------------------------------------------------------   9/13/01 -------------------------------------------------------------------------------- Date Second Amendment to Purchase and Sale Agreement This is an Amendment to that certain Real Estate Purchase and Sale Agreement dated August 2, 2001 and executed August 14, 2001 ("Agreement") by and between Parker, Smith & Feek, Inc. ("Buyer") and Aris Corporation ("Seller"). This Agreement was amended under an Amendment dated September 13, 2001. The above Purchase and Sale Agreement and Amendment shall be amended as follows: 1.Purchase Price. The purchase price is revised to a total of $6,060,000.00, which shall be paid in cash upon closing, including and receipted for earnest money. 2.Waiver of Contingencies. Buyer hereby waives and removes its inspection contingencies as referenced in Paragraph 5 of the above-referenced Purchase and Sale Agreement and elects to proceed with the closing without delay. Buyer, in removing its contingencies, hereby makes the $100,000 earnest money deposit non-refundable per the terms and conditions of the above-referenced Purchase and Sale Agreement. 3.Acceptance of Property. Buyer agrees to accept the property "as is" and Seller is not required to make any repairs to the flashing referenced in the First Amendment. 4.Closing Date. Buyer agrees to close the sale of the property as soon as possible, but in no event later than November 1, 2001. 5.Ownership Change. Notice is hereby given to Buyer that Aris Corporation has completed the sale of its company to Ciber, Incorporated, a Delaware corporation. All future correspondence to Seller shall be directed to the following: David G. Durham Ciber, Inc. 5251 DTC Parkway, Suite 1400 Greenwood Village, CO 80111 Phone No. (303) 220-0100 Fax No. (303) 267-3899. All other terms and conditions of the Purchase and Sale Agreement and First Amendment shall remain unchanged, except as herein modified. This document may be signed in counterpart. ACKNOWLEDGED & AGREED BUYER—PARKER, SMITH & FEEK, INC.   ACKNOWLEDGED & AGREED SELLER—CIBER, INC. By:   /s/ Victor E. Parker --------------------------------------------------------------------------------   By:   /s/ David G. Durham -------------------------------------------------------------------------------- Its:   President --------------------------------------------------------------------------------   Its:   Senior Vice President -------------------------------------------------------------------------------- Date:   October 1, 2001 --------------------------------------------------------------------------------   Date:   October 1, 2001 -------------------------------------------------------------------------------- QuickLinks COMMERCIAL & INVESTMENT REAL ESTATE PURCHASE & SALE AGREEMENT EXHIBIT A TO PURCHASE AND SALE AGREEMENT ADDENDUM TO COMMERCIAL & INVESTMENTS REAL ESTATE PURCHASE AND SALE AGREEMENT, Dated August 13, 2001 AMENDMENT TO PURCHASE AND SALE AGREEMENT Second Amendment to Purchase and Sale Agreement

Exhibit 10.1 (am)     SAUER–DANFOSS RACINE EMPLOYEES' SAVINGS PLAN     ADOPTION AGREEMENT  # 005 NONSTANDARDIZED CODE §401(k) PROFIT SHARING PLAN                   The undersigned, Sauer-Danfoss ("Employer") by executing this Adoption Agreement, elects to become a participating Employer in the INVESCO Trust Company Defined Contribution Master Plan (basic plan document # 01 ) by adopting the accompanying Plan and Trust in full as if the Employer were a signatory to that Agreement.  The Employer makes the following elections granted under the provisions of the Master Plan.   ARTICLE I DEFINITIONS                   1.02         TRUSTEE. The Trustee executing this Adoption Agreement is: (Choose (a) or (b))   o            (a)           A discretionary Trustee.  See Section 10.03 [A] of the Plan.   ý            (b)           A nondiscretionary Trustee. See Section 10.03 [B] of the Plan.  [Note: The Employer may not elect Option (b) if a Custodian executes the Adoption Agreement.]                   1.03 PLAN. The name of the Plan as adopted by the Employer is Sauer-Danfoss Racine Employees' Savings Plan.                   1.07 EMPLOYEE. The following Employees are not eligible to participate in the Plan. (Choose (a) or at least one of (b) through (g))   o            (a)          No exclusions.   o            (b)           Collective bargaining employees (as defined in Section 1.07 of the Plan). [Note: If the Employer excludes union employees from the Plan, the Employer must be able to provide evidence that retirement benefits were the subject of good faith bargaining.]   o            (c)          Nonresident aliens who do not receive any earned income (as defined in Code §911(d)(2)) from the Employer which constitutes United States source income (as defined in Code §861(a)(3)).   o            (d)          Commission Salesmen.   ý            (e)           Any Employee compensated on a salaried basis.   o            (f)           Any Employee compensated on an hourly basis.   o            (g)          (Specify) ___.   Leased Employees. Any Leased Employee treated as an Employee under Section 1.31 of the Plan, is: (Choose (h) or (i))   o            (h)          Not eligible to participate in the Plan.   ý            (i)            Eligible to participate in the Plan, unless excluded by reason of an exclusion classification elected under this Adoption Agreement Section 1.07.     Related Employers. If any member of the Employer's related group (as defined in Section 1.30 of the Plan) executes a Participation Agreement to this Adoption Agreement, such member's Employees are eligible to participate in this Plan, unless excluded by reason of an exclusion classification elected under this Adoption Agreement Section 1.07.  In addition:  (Choose (j) or (k))   ý            (j)            No other related group member's Employees are eligible to participate in the Plan.   o            (k)           The following nonparticipating related group member's Employees are eligible to participate in the Plan unless excluded by reason of an exclusion classification elected under this Adoption Agreement Section 1.07:___.                   1.12         COMPENSATION.   Treatment of elective contributions. (Choose (a) or (b))   ý            (a)           "Compensation" includes elective contributions made by the Employer on the Employee's behalf.   o            (b)           ''Compensation'' does not include elective contributions.   Modifications to Compensation definition. (Choose (c) or at least one of (d) through (j))   o            (c)          No modifications other than as elected under Options (a) or (b).   o            (d)          The Plan excludes Compensation in excess of $___.   ý            (e)           In lieu of the definition in Section 1.12 of the Plan, Compensation means any earnings reportable as W–2 wages for Federal income tax withholding purposes, subject to any other election under this Adoption Agreement Section 1.12.   o            (f)           The Plan excludes bonuses.   o            (g)          The Plan excludes overtime.   o            (h)          The Plan excludes Commissions.   o            (i)            Compensation will not include Compensation from a related employer (as  defined in Section 1.30 of the Plan) that has not executed a Participation Agreement in this Plan  unless, pursuant to Adoption Agreement Section 1.07, the Employees of that related employer are eligible to participate in this Plan.   ý            (j)            (Specify)  Exclude severance pay; allowances for auto, office and relocation expenses; taxable portion of fringe benefits such as Country Club expenses, life insurance, clothing and safety glasses, and disability and sick pay, and tuition reimbursement.   If, for any Plan Year, the Plan uses permitted disparity in the contribution or allocation formula elected under Article III, any election of Options (f), (g), (h) or (j) is ineffective for such Plan Year with respect to any Nonhighly Compensated Employee.   Special definition for matching contributions. "Compensation" for purposes of any matching contribution formula under Article III means:  (Choose (k) or (l) only if applicable)   ý            (k)           Compensation as defined in this Adoption Agreement Section 1.12.   o            (l)            (Specify) ________.     Special definition for salary reduction contributions.  An Employee's salary reduction agreement applies to his Compensation determined prior to the reduction authorized by that salary reduction agreement, with the following exceptions: (Choose (m) or at least one of (n) or (o), if applicable)   ý            (m)          No exceptions.   o            (n)           If the Employee makes elective contributions to another plan maintained by the Employer, the Advisory Committee will determine the amount of the Employee's salary reduction contribution for the withholding period: (Choose (1) or (2))                   o            (1)       After the reduction for such period of elective contributions to the other plan(s).                   o            (2)       Prior to the reduction for such period of elective contributions to the other plan(s).   o            (o)           (Specify) ___.                   1.17        PLAN YEAR/LIMITATION YEAR.   Plan Year.  Plan Year means: (Choose (a) or (b))   ý            (a)           The 12 consecutive month period ending every December 31.   o            (b)           (Specify)  ___.   Limitation Year. The Limitation Year is: (Choose (c) or (d))   ý            (c)           The Plan Year.   o            (d)          The 12 consecutive month period ending every ___.                   1.18        EFFECTIVE DATE.   New Plan. The "Effective Date" of the Plan is December 1, 2000.   Restated Plan. The restated Effective Date is ___. This Plan is a substitution and amendment of an existing retirement plan(s) originally established ___. [Note:  See the Effective Date Addendum.]                   1.27        HOUR OF SERVICE. The crediting method for Hours of Service is: (Choose (a) or (b))   ý            (a)           The actual method.   o            (b)          The ___ equivalency method, except:                   o           (1)     No exceptions.                   o           (2)     The actual method applies for purposes of: (Choose at least one)                                   o            (a)           Participation under Article II.                                   o            (b)           Vesting under Article V.                                   o            (c)           Accrual of benefits under Section 3.06.   [Note: On the blank line, insert "daily," "weekly," "semi-monthly payroll periods" or "monthly"]                   1.29         SERVICE FOR PREDECESSOR EMPLOYER. In addition to the predecessor service the Plan must credit by reason of Section 1.29 of the Plan, the Plan credits Service with the following predecessor employer(s): ___.  Service with the designated predecessor employer(s) applies: (Choose at least one of (a) or (b); (c) is available only in addition to (a) or (b))   o            (a)          For purposes of participation under Article II.   o            (b)          For purposes of vesting under Article V.   o            (c)           Except the following Service:___.   [Note: If the Plan does not credit any predecessor service under this provision, insert "N/A " in the first blank line. The Employer may attach a schedule to this Adoption Agreement, in the same format as this Section 1.29, designating additional predecessor employers and the applicable service crediting elections.]                   1.31         LEASED EMPLOYEES. If a Leased Employee is a Participant in the Plan and also participates in a plan maintained by the leasing organization: (Choose (a) or (b))   ý            (a)           The Advisory Committee will determine the Leased Employee's allocation of Employer contributions under Article III without taking into account the Leased Employee's allocation, if any, under the leasing organization's plan.   o            (b)           The Advisory Committee will reduce the Leased Employee's allocation of Employer nonelective contributions (other than designated qualified nonelective contributions) under this Plan by the Leased Employee's allocation under the leasing organization's plan, but only to the extent that allocation is attributable to the Leased Employee's service provided to the Employer. The leasing organization's plan:                   o            (1)           Must be a money purchase plan which would satisfy the definition under Section 1.31 of a safe harbor plan, irrespective of whether the safe harbor exception applies.                   o            (2)           Must satisfy the features and, if a defined benefit plan, the method of reduction described in an addendum to this Adoption Agreement, numbered 1.31.     ARTICLE II EMPLOYEE PARTICIPANTS                   2.01         ELIGIBILITY.   Eligibility conditions. To become a Participant in the Plan, an Employee must satisfy the following eligibility conditions: (Choose (a) or (b) or both; (c) is optional as an additional election)   ý            (a)           Attainment of age 18 (specify age, not exceeding 21).   ý            (b)           Service requirement. (Choose one of (1) through (3))                   o            (1)           One Year of Service.                   ý            (2)           1 months (not exceeding 12) following the Employee's Employment Commencement Date.                   o            (3)           One Hour of Service.   ý            (c)           Special requirements for non-401(k) portion of plan. (Make elections under (1) and under (2))                   (1)           The requirements of this Option (c) apply to participation in: (Choose at least one of (a) through (c))                   ý            (a)           The allocation of Employer nonelective contributions and Participant forfeitures.                   ý            (b)           The allocation of Employer matching contributions (including forfeitures allocated as matching        contributions).                   ý            (c)           The allocation of Employer qualified nonelective contributions.                   (2)           For participation in the allocations described in (1), the eligibility conditions are:  (Choose at least one of (a)                 through (d))                   o            (a)           ___ (one or two) Year(s) of Service, without an intervening Break in Service (as described in Section 2.03 (A) of the Plan) if the requirement is two Years of Service.                   ý            (b)           6 months (not exceeding 24) following the Employee's Employment Commencement Date.                   o            (c)           One Hour of Service.                   ý            (d)           Attainment of age 18 (Specify age, not exceeding 21).   Plan Entry Date.  "Plan Entry Date" means the Effective Date and:  (Choose (d), (e) or (f))   o            (d)           Semi-annual Entry Dates.  The first day of the Plan Year and the first day of the seventh month  of the Plan Year.   o            (e)           The first day of the Plan Year.   ý            (f)            (Specify entry dates) the first day of the month.   Time of Participation. An Employee will become a Participant (and, if applicable, will participate in the allocations described in Option (c)(1)), unless excluded under Adoption Agreement Section 1.07, on the Plan Entry Date (if employed on that date):  (Choose (g), (h) or (i))   ý            (g)           immediately following   o            (h)           immediately preceding   o            (i)            nearest   the date the Employee completes the eligibility conditions described in Options (a) and (b) (or in Option (c)(2) if applicable) of this Adoption Agreement Section 2.01.  [Note:  The Employer must coordinate the selection of (g), (h) or (i) with the "Plan Entry Date" selection in (d), (e) or (f).  Unless otherwise excluded under Section 1.07, the Employee must  become a Participant by the earlier of: (1) the first day of the Plan Year beginning after the date the Employee completes the age and service requirements of Code §410(a); or (2) 6 months after the date the Employee completes those requirements.]   Dual eligibility.  The eligibility conditions of this Section 2.01 apply to: (Choose (j) or (k))   ý            (j)            All Employees of the Employer, except:  (Choose (1) or (2))                   ý            (1)           No exceptions.                   o            (2)           Employees who are Participants in the Plan as of the Effective Date.   o            (k)           Solely to an Employee employed by the Employer after ___.  If the Employee was employed by the Employer on or before the specified date, the Employee will become a Participant: (Choose (1), (2) or (3))                   o            (1)           On the latest of the Effective Date, his Employment Commencement Date or the date he attains age ___ (not to exceed 21).                   o            (2)           Under the eligibility conditions in effect under the Plan prior to the restated Effective Date.  If the restated Plan required more than one Year of Service to participate, the eligibility condition under this Option (2) for participation in the Code §401(k) arrangement under this Plan is one Year of Service for Plan Years beginning after December 31, 1988.  [For restated plans only]                   o            (3)           (Specify) ___.                   2.02  YEAR OF SERVICE - PARTICIPATION.   Hours of Service.  An Employee must complete:  (Choose (a) or (b))   o            (a)           1,000 Hours of Service   ý            (b)           n/a Hours of Service   during an eligibility computation period to receive credit for a Year of Service. [Note: The Hours of Service requirement may not exceed 1,000.]   Eligibility computation period.  After the initial eligibility computation period described in Section 2.02 of the Plan, the Plan measures the eligibility computation period as:  (Choose (c) or (d))   o            (c)           The 12 consecutive month period beginning with each anniversary of an Employee's Employment Commencement Date.   ý            (d)           The Plan Year, beginning with the Plan Year which includes the first anniversary of the Employee's Employment Commencement Date.                     2.03         BREAK IN SERVICE - PARTICIPATION.  The Break in Service rule described in Section 2.03 (B) of  the Plan:  (Choose (a) or (b))   ý            (a)           Does not apply to the Employer's Plan.   o            (b)           Applies to the Employer's Plan.                   2.06         ELECTION NOT TO PARTICIPATE.  The Plan:  (Choose (a) or (b))   ý            (a)           Does not permit an eligible Employee or a Participant to elect not to participate.   o            (b)           Does permit an eligible Employee or a Participant to elect not to participate in accordance with Section 2.06 and with the following rules:  (Complete (1), (2), (3) and (4))                   (1)           An election is effective for a Plan Year if filed no later than ___.                   (2)           An election not to participate must be effective for at least ___ Plan Year(s).                   (3)           Following a re-election to participate, the Employee or Participant:                   o            (a)           May not again elect not to participate, for any subsequent Plan Year.                   o            (b)           May again elect not to participate, but not earlier than the ___ Plan Year following the Plan Year in which the re-election first was effective.                   (4)           (Specify) ___ [Insert "N/A" if no other rules apply].     ARTICLE III EMPLOYER CONTRIBUTIONS AND FORFEITURES                   3.01 AMOUNT.   Part I. [Options (a ) through (g)] Amount of Employer's contribution.  The Employer's annual contribution to the Trust will equal the total amount of deferral contributions, matching contributions, qualified nonelective contributions and nonelective contributions, as determined under this Section 3.01. (Choose any combination of  (a), (b), (c) and (d), or choose (e))   ý            (a)           Deferral contributions (Code §401(k) arrangement).  (Choose (1) or (2) or both)                   ý            (1)           Salary reduction arrangement.  The Employer must contribute the amount by which the Participants have reduced their Compensation for the Plan Year, pursuant to their salary reduction agreements on file with the Advisory Committee.  A reference in the Plan to salary reduction contributions is a reference to these amounts.                   o            (2)           Cash or deferred arrangement.  The Employer will contribute on behalf of each Participant the portion of the Participant's proportionate share of the cash or deferred contribution which he has not elected to receive in cash.  See Section 14.02 of the Plan.  The Employer's cash or deferred contribution is the amount the Employer may from time to time deem advisable which the Employer designates as a cash or deferred contribution prior to making that contribution to the Trust.   ý            (b)           Matching contributions.  The Employer will make matching contributions in accordance with the formula(s) elected in Part II of this Adoption Agreement Section 3.01.   ý            (c)           Designated qualified nonelective contributions.  The Employer, in its sole discretion, may contribute an amount which it designates as a qualified nonelective contribution. ý            (d)           Nonelective contributions.  (Choose any combination of (1) through (4))                   ý            (1)           Discretionary contribution.  The amount (or additional amount) the Employer may from time to time deem advisable.                   o            (2)           The amount (or additional amount) the Employer may from time to time deem advisable, separately determined for each of the following classifications of Participants:  (Choose (a) or (b))                                   o            (a)           Nonhighly Compensated Employees and Highly Compensated Employees.                                   o            (b)           (Specify classifications)___.                                                   Under this Option (2), the Advisory Committee will allocate the amount contributed for each Participant classification in accordance with Part II of Adoption Agreement Section 3.04, as if the Participants in that classification were the only Participants in the Plan.                   o            (3)           __% of the Compensation of all Participants under the Plan, determined for the Employer's taxable year for which it makes the contribution [Note:  The percentage selected may not exceed 15%.]                   o            (4)           __% of Net Profits but not more than $___.   o            (e)           Frozen Plan.  This Plan is a frozen Plan effective ___.  The Employer will not contribute to the Plan with respect to any period following the stated date.   Net Profits.  The Employer (Choose (f) or (g))   ý            (f)            Need not have Net Profits to make its annual contribution under this Plan.   o            (g)           Must have current or accumulated Net Profits exceeding $___ to make the following contributions: (Choose at least one)                   o            (1)           Cash or deferred contributions described in Option (a)(2).                   o            (2)           Matching contributions described in Option (b), except:  ___.                   o            (3)           Qualified nonelective contributions described in Option (c).                   o            (4)           Nonelective contributions described in Option (d).   The term "Net Profits" means the Employer's net income or profits for any taxable year determined by the Employer upon the basis of its books of account in accordance with generally accepted accounting practices consistently applied without any deductions for Federal and state taxes upon income or for contributions made by the Employer under this Plan or under any other employee benefit plan the Employer maintains.  The term "Net Profits" specifically excludes.  [Note:  Enter "N/A" if no exclusions apply.]   If the Employer requires Net Profits for matching contributions and the Employer does not have sufficient Net Profits under Option (g), it will reduce the matching contribution under a fixed formula on a prorata basis for all Participants.  A Participant's share of the reduced contribution will bear the same ratio as the matching contribution the Participant would have received if Net Profits were sufficient bears to the total matching contribution all Participants would have received if Net Profits were sufficient.  If more than one member of a related group (as defined in Section 1.30) execute this Adoption Agreement, each participating member will determine Net Profits separately but will not apply this reduction unless, after combining the separately determined Net Profits, the aggregate Net Profits are insufficient to satisfy the matching contribution liability.  "Net Profits" includes both current and accumulated Net Profits.  Part II.  [Options (h) through (j)] Matching contribution formula.  [Note:  If the Employer elected Option (b), complete Options (h), (i) and (j).]   ý            (h)           Amount of matching contributions.  For each Plan Year, the Employer's matching contribution is:  (Choose any combination of (1), (2), (3), (4) and (5))                   o            (1)           An amount equal to __% of each Participant's eligible contributions for the Plan Year.                   o            (2)           An amount equal to __% of each Participant's first tier of eligible contributions for the Plan Year, plus the following matching percentage(s) for the following subsequent tiers of eligible contributions for the Plan Year: ___.                   ý            (3)           Discretionary formula.                                   ý            (a)           An amount (or additional amount) equal to a matching percentage the Employer from time to time may deem advisable of the Participant's eligible contributions for the Plan Year.                                   o            (b)           An amount (or additional amount) equal to a matching percentage the Employer from time to time may deem advisable of each tier of the Participant's eligible contributions for the Plan Year.                   o            (4)           An amount equal to the following percentage of each Participant's eligible contributions for the Plan Year, based on the Participant's Years of Service:   Number of Years of Service   Matching Percentage                                                                             The Advisory Committee will apply this formula by determining Years of Service as follows: ___.                   o            (5)           A Participant's matching contributions may not:  (Choose (a) or (b))                                   o            (a)           Exceed ___.                                   o            (b)           Be less than ___.                   Related Employers.  If two or more related employers (as defined in Section 1.30) contribute to this Plan, the related employers may elect different matching contribution formulas by attaching to the Adoption Agreement a separately completed copy of this Part II.  Note:  Separate matching contribution formulas create separate current benefit structures that must satisfy the minimum participation test of Code §401(a)(26).]   ý            (i)            Definition of eligible contributions.  Subject to the requirements of Option (j), the term "eligible contributions" means: (Choose any combination of (1) through (3))                   ý            (1)           Salary reduction contributions.                   o            (2)           Cash or deferred contributions (including any part of the Participant's proportionate share of the cash or deferred contribution which the Employer defers with the Participant's election).                     o            (3)           Participant mandatory contributions, as designated in Adoption Agreement Section 4.01.  See Section 14.04 of the Plan.   ý            (j)            Amount of eligible contributions taken into account.  When determining a Participant's eligible contributions taken into account under the matching contributions formula(s), the following rules apply:  (Choose any combination of (1) through (4))                   ý            (1)           The Advisory Committee will take into account all eligible contributions credited for the Plan Year.                   o            (2)           The Advisory Committee will disregard eligible contributions exceeding ___.                   o            (3)           The Advisory Committee will treat as the first tier of eligible contributions, an amount not exceeding:  ___.                 The subsequent tiers of eligible contributions are:  ___.                   o            (4)           (Specify) ___.   Part III.  [Options (k) and (l)].  Special rules for Code §401(k) Arrangement.  (Choose (k) or (l), or both, as applicable)   ý            (k)           Salary Reduction Agreements.  The following rules and restrictions apply to an Employee's salary reduction agreement:  (Make a selection under (1), (2), (3) and (4))                   (l)            Limitation on amount.  The Employee's salary reduction contributions:  (Choose (a) or at least one of (b) or (c))                   o            (a)           No maximum limitation other than as provided in the Plan.                   ý            (b)           May not exceed 15% of Compensation for the Plan Year, subject to the annual additions limitation described in Part 2 of Article III and the 402(g) limitation described in Section 14.07 of the Plan.                   o            (c)           Based on percentages of Compensation must equal at least ___.                   (2)           An Employee may revoke, on a prospective basis, a salary reduction agreement:  (Choose (a), (b), (c) or (d))                   o            (a)           Once during any Plan Year but not later than ___ of the Plan Year.                   o            (b)           As of any Plan Entry Date.                   ý            (c)           As of the first day of any month.                   o            (d)           (Specify, but must be at least once per Plan Year) ___.                   (3)           An Employee who revokes his salary reduction agreement may file a new salary reduction agreement with an effective date:  (Choose (a), (b), (c) or (d))                   o            (a)           No earlier than the first day of the next Plan Year.                   o            (b)           As of any subsequent Plan Entry Date.                   ý            (c)           As of the first day of any month subsequent to the month in which he revoked an Agreement.                   o            (d)           (Specify, but must be at least once per Plan Year following the Plan Year of revocation) ___.                     (4)           A Participant may increase or may decrease, on a prospective basis, his salary reduction percentage or dollar amount:  (Choose (a), (b), (c) or (d))                   o            (a)           As of the beginning of each payroll period.                   ý            (b)           As of the first day of each month.                   o            (c)           As of any Plan Entry Date.                   o            (d)           (Specify, but must permit an increase or a decrease at least once per Plan Year) ___.   o            (l)            Cash or deferred contributions.  For each Plan Year for which the Employer makes a designated cash or deferred contribution, a Participant may elect to receive directly in cash not more than the following portion (or, if less, the 402(g) limitation described in Section 14.07 of the Plan) of his proportionate share of that cash or deferred contribution:  (Choose (1) or (2))                   o            (1)           All or any portion.                   o            (2)           __%.                   3.04         CONTRIBUTION ALLOCATION.  The Advisory Committee will allocate deferral contributions, matching contributions, qualified nonelective contributions and nonelective contributions in accordance with Section 14.06 and the elections under this Adoption Agreement Section 3.04.   Part I.  [Options (a) through (d)].  Special Accounting Elections.  (Choose whichever elections are applicable to the Employer's Plan)   ý            (a)           Matching Contributions Account.  The Advisory will allocate matching contributions to a Participant's:  (Choose (1) or (2); (3) is available only in addition to (1))                   ý            (1)           Regular Matching Contributions Account.                   o            (2)           Qualified Matching Contributions Account.                   o            (3)           Except, matching contributions under Option(s) ___ of Adoption Agreement Section 3.01 are allocable to the Qualified Matching Contributions Account.   ý            (b)           Special Allocation Dates for Salary Reduction Contributions.  The Advisory Committee will allocate salary reduction contributions as of the Accounting Date and as of the following additional allocation dates:  any business day on which the U.S. financial markets are open.   ý            (c)           Special Allocation Dates for Matching Contributions.  The Advisory Committee will allocate matching contributions as of the Accounting Date and as of the following additional allocation dates:  any business day on which the U.S. financial markets are open.   ý            (d)           Designated Qualified Nonelective Contributions - Definition of Participant.  For purposes of allocating the designated qualified nonelective contribution, "Participant" means:  (Choose (1) or (2))                   o            (1)           All Participants.                   ý            (2)           Participants who are Nonhighly Compensated Employees for the Plan Year.                   o            (3)           (Specify) ___.     Part II.  Method of Allocation - Nonelective Contribution.  Subject to any restoration allocation required under Section 5.04, the Advisory Committee will allocate and credit each annual nonelective contribution (and Participant forfeitures created as nonelective contributions) to the Employer Contributions Account of each Participant who satisfies the conditions of Section 3.06, in accordance with the allocation method selected under this Section 3.04.  If the Employer elects Option (e)(2), Option (g)(2) or Option (h), for the first 3% of Compensation allocated to all Participants, "Compensation" does not include any exclusions elected under Adoption Agreement Section 1.12 (other than the exclusion of elective contributions), and the Advisory Committee must take into account the Participant's Compensation for the entire Plan Year.  (Choose an allocation method under (e), (f), (g) or (h); (i) is mandatory if the Employer elects (f), (g) or (h); (j) is optional in addition to any other election.)   ý            (e)           Nonintegrated Allocation Formula.  (Choose (1) or (2))                   ý            (1)           The Advisory Committee will allocate the annual nonelective contributions in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year.                   o            (2)           The Advisory Committee will allocate the annual nonelective contributions in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year.  For purposes of this Option (2), "Participant" means, in addition to a Participant who satisfies the requirements of Section 3.06 for the Plan Year, any other Participant entitled to a top heavy minimum allocation under Section 3.04(B), but such Participant's allocation will not exceed 3% of his Compensation for the Plan Year.   o            (f)            Two-Tiered Integrated Allocation Formula - Maximum Disparity.  First, the Advisory Committee will allocate the annual Employer nonelective contributions in the same ratio that each Participant's Compensation plus Excess Compensation for the Plan Year bears to the total Compensation plus Excess Compensation of all Participants for the Plan Year.  The allocation under this paragraph, as a percentage of each Participant's Compensation plus Excess Compensation, must not exceed the applicable percentage (5.7%, 5.4% or 4.3%) listed under the Maximum Disparity Table following Option (i).                   The Advisory Committee then will allocate any remaining nonelective contributions in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year.   o            (g)           Three-Tiered Integrated Allocation Formula.  First, the Advisory Committee will allocate the annual Employer nonelective contributions in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year.  The allocation under this paragraph, as a percentage of each Participant's Compensation may not exceed the applicable percentage (5.7%, 5.4% or 4.3%) listed under the Maximum Disparity Table following Option (i).  Solely for purposes of the allocation in this first paragraph, "Participant" means, in addition to a Participant who satisfies the requirements of Section 3.06 for the Plan Year.  (Choose (1) or (2))                   o            (1)           No other Participant.                   o            (2)           Any other Participant entitled to a top heavy minimum allocation under Section 3.04(B), but such Participant's allocation under this Option (g) will not exceed 3% of his Compensation for the Plan Year.                   As a second tier allocation, the Advisory Committee will allocate the nonelective contributions in the same ratio that each Participant's Excess Compensation for the Plan Year bears to the total Excess Compensation of all Participants for the Plan Year.  The allocation under this paragraph, as a percentage of each Participant's Excess Compensation, may not exceed the allocation percentage in the first paragraph.     Finally, the Advisory Committee will allocate any remaining nonelective contributions in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year.   o            (h)           Four-Tiered Integrated Allocation Formula.  First, the Advisory Committee will allocate the annual Employer nonelective contributions in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year, but not exceeding 3% of each Participant's Compensation.  Solely for purposes of this first tier allocation, a "Participant" means, in addition to any Participant who satisfies the requirements of Section 3.06 for the Plan Year, any other Participant entitled to a top heavy minimum allocation under Section 3.04(B) of the Plan.   As a second tier allocation, the Advisory Committee will allocate the nonelective contributions in the same ratio that each Participant's Excess Compensation for the Plan Year bears to the total Excess Compensation of all Participants for the Plan Year, but not exceeding 3% of each Participant's Excess Compensation.   As a third tier allocation, the Advisory Committee will allocate the annual Employer contributions in the same ratio that each Participant's Compensation plus Excess Compensation for the Plan Year bears to the total Compensation plus Excess Compensation of all Participants for the Plan Year. The allocation under this paragraph, as a percentage of each Participant's Compensation plus Excess Compensation, must not exceed the applicable percentage (2.7%, 2.4% or 1.3%) listed under the Maximum Disparity Table following Option (i).   The Advisory Committee then will allocate any remaining nonelective contributions in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year.   o            (i)            Excess Compensation.  For purposes of Option (f), (g) or (h), "Excess Compensation" means Compensation in                                              excess of the following Integration Level: (Choose (1) or (2))                   o            (1)           __% (not exceeding 100%) of the taxable wage base, as determined under Section 230 of the Social Security Act, in effect on the first day of the Plan Year: Choose any combination of (a) and (b) or choose (c))                                   o            (a)           Rounded to __ (but not exceeding the taxable wage base).                                   o            (b)           But not greater than $__.                                   o            (c)           Without any further adjustment or limitation.                   o            (2)           $__ [Note: Not exceeding the taxable wage base for the Plan Year in which this Adoption Agreement first is                                              effective.]     Maximum Disparity Table. For purposes of Options (f), (g) and (h), the applicable percentage is:   Integration Level (as percentage of taxable wage base)   Applicable Percentages for Option (f) or Option (g)   Applicable Percentages for Option (h)   100%   5.7%   2.7%   More than 80% but less than 100%   5.4%   2.4%   More than 20% (but not less than $10,001) and not more than 80%   4.3%   1.3%   20% (or $10,000, if greater) or less   5.7%   2.7%     o            (j)            Allocation offset.  The Advisory Committee will reduce a Participant's allocation otherwise made under Part II of this Section 3.04 by the Participant's allocation under the following qualified plan(s) maintained by the Employer:__.                   The Advisory Committee will determine this allocation reduction: (Choose (1) or (2))   o            (1)           By treating the term "nonelective contribution" as including all amounts paid or accrued by the Employer during the Plan Year to the qualified plan(s) referenced under this Option (j). If a Participant under this Plan also participates in that other plan, the Advisory Committee will treat the amount the Employer contributes for or during a Plan Year on behalf of a particular Participant under such other plan as an amount allocated under this Plan to that Participant's Account for that Plan Year. The Advisory Committee will make the computation of allocation required under the immediately preceding sentence before making any allocation of nonelective contributions under this Section 3.04.                   o            (2)           In accordance with the formula provided in an addendum to this Adoption Agreement, numbered 3.04(j).   Top Heavy Minimum Allocation - Method of Compliance.  If a Participant's allocation under this Section 3.04 is less than the top heavy minimum allocation to which he is entitled under Section 3.04(B): (Choose (k) or (l))   ý            (k)           The Employer will make any necessary additional contribution to the Participant's Account, as described in Section    3.04(B)(7)(a) of the Plan.   o            (l)            The Employer will satisfy the top heavy minimum allocation under the following plan(s) it maintains: __. However, the Employer will make any necessary additional contribution to satisfy the top heavy minimum allocation for an Employee covered only under this Plan and not under the other plan(s) designated in this Option (l). See Section 3.04(B)(7)(b) of the Plan.   If the Employer maintains another plan, the Employer may provide in an addendum to this Adoption Agreement, numbered Section 3.04, any modifications to the Plan necessary to satisfy the top heavy requirements under Code §416.   Related employers.  If two or more related employers (as defined in Section 1.30) contribute to this Plan, the Advisory Committee must allocate all Employer nonelective contributions (and forfeitures treated as nonelective contributions) to each Participant in the Plan, in accordance with the elections in this Adoption Agreement Section 3.04: (Choose (m) or (n))   o            (m)          Without regard to which contributing related group member employs the Participant.     ý            (n)           Only to the Participants directly employed by the contributing Employer. If a Participant receives Compensation from more than one contributing Employer, the Advisory Committee will determine the allocations under this Adoption Agreement Section 3.04 by prorating among the participating Employers the Participant's Compensation and, if applicable, the Participant's Integration Level under Option (i).                   3.05         FORFEITURE ALLOCATION.  Subject to any restoration allocation required under Sections 5.04 or 9.14, the Advisory Committee will allocate a Participant forfeiture in accordance with Section 3.04: (Choose (a) or (b); (c) and (d) are optional in addition to (a) or (b))   o            (a)           As an Employer nonelective contribution for the Plan Year in which the forfeiture occurs, as if the Participant forfeiture were an additional nonelective contribution for that Plan Year.   ý            (b)           To reduce the Employer matching contributions and nonelective contributions for the Plan Year:                 (Choose (1) or (2))                   o            (1)           in which the forfeiture occurs.                   ý            (2)           immediately following the Plan Year in which the forfeiture occurs.   ý            (c)           To the extent attributable to matching contributions: (Choose (1), (2) or (3))                   o            (1)           In the manner elected under Options (a) or (b).                   ý            (2)           First to reduce Employer matching contributions for the Plan Year: (Choose (a) or (b))                                   o            (a)           in which the forfeiture occurs,                                   ý            (b)           immediately following the Plan Year in which the forfeiture occurs, then as elected in Options (a) or (b).                   o            (3)           As a discretionary matching contribution for the Plan Year in which the forfeiture occurs, in lieu of the manner elected under Options (a) or (b).   o            (d)           First to reduce the Plan's ordinary and necessary administrative expenses for the Plan Year and then will allocate any remaining forfeitures in the manner described in Options (a), (b) or (c), whichever applies. If the Employer elects Option (c), the forfeitures used to reduce Plan expenses: (Choose (1) or (2))                   o            (1)           relate proportionately to forfeitures described in Option (c) and to forfeitures described in Options (a) or (b).                   o            (2)           relate first to forfeitures described in Option __.   Allocation of forfeited excess aggregate contributions.  The Advisory Committee will allocate any forfeited excess aggregate contributions (as described in Section 14.09): (Choose (e), (f) or (g))                   ý            (e)           To reduce Employer matching contributions for the Plan Year: (Choose (1) or (2))                   o            (1)           in which the forfeiture occurs.                   ý            (2)           immediately following the Plan Year in which the forfeiture occurs.   o            (f)            As Employer discretionary matching contributions for the Plan Year in which forfeited, except the Advisory Committee will not allocate these forfeitures to the Highly Compensated Employees who incurred the forfeitures.     o            (g)           In accordance with Options (a) through (d), whichever applies, except the Advisory Committee will not allocate these forfeitures under Option (a) or under Option (c)(3) to the Highly Compensated Employees who incurred the forfeitures.                   3.06         ACCRUAL OF BENEFIT.   Compensation taken into account.  For the Plan Year in which the Employee first becomes a Participant, the Advisory Committee will determine the allocation of any cash or deferred contribution, designated qualified nonelective contribution by taking into account: (Choose (a) or (b))   o            (a)           The Employee's Compensation for the entire Plan Year.   ý            (b)           The Employee's Compensation for the portion of the Plan Year in which the Employee actually is a Participant in the Plan.   Accrual Requirements.  Subject to the suspension of accrual requirements of Section 3.06(E) of the Plan, to receive an allocation of cash or deferred contributions, matching contributions, designated qualified nonelective contributions, nonelective contributions and Participant forfeitures, if any, for the Plan Year, a Participant must satisfy the conditions described in the following elections: (Choose (c), or at least one of (d) through (f))   ý            (c)           Safe harbor rule.  If the Participant is employed by the Employer on the last day of the Plan Year, the Participant must complete at least one Hour of Service for that Plan Year. If the Participant is not employed by the Employer on the last day of the Plan Year, the Participant must complete at least 501 Hours of Service during the Plan Year.   o            (d)           Hours of Service condition. The Participant must complete the following minimum number of Hours of Service during the Plan Year: (Choose at least one of (1) through (5))                   o            (1)           1,000 Hours of Service.                   o            (2)           (Specify, but the number of Hours of Service may not exceed 1,000) __.                   o            (3)           No Hour of Service requirement if the Participant terminates employment during the Plan Year on account of: (Choose (a), (b) or (c))                                   o            (a)           Death.                                   o            (b)           Disability.                                   o            (c)           Attainment of Normal Retirement Age in the current Plan Year or in a prior Plan Year.                   o            (4)           __ Hours of Service (not exceeding 1,000) if the Participant terminates employment with the Employer during the Plan Year, subject to any election in Option (3).                   o            (5)           No Hour of Service requirement for an allocation of the following contributions: __.   o            (e)           Employment condition.  The Participant must be employed by the Employer on the last day of the Plan Year, irrespective of whether he satisfies any Hours of Service condition under Option (d), with the following exceptions: (Choose (1) or at least one of (2) through (5))                   o            (1)           No exceptions.                   o            (2)           Termination of employment because of death.                     o            (3)           Termination of employment because of disability.                 o            (4)           Termination of employment following attainment of Normal Retirement Age.                 o            (5)           No employment condition for the following contributions: _____. o            (f)            (Specify other conditions, if applicable): _____. Suspension Accrual Requirements. The suspension of accrual requirements of Section 3.06(E) of the Plan: (Choose (g), (h) or (i)) ý            (g)           Applies to the Employer's Plan. o            (h)           Does not apply to the Employer's Plan. o            (i)            Applies in modified form to the Employer's Plan, as described in an addendum to this Adoption Agreement, numbered Section 3.06(E). Special accrual requirements for matching contributions. If the Plan allocates matching contributions on two or more allocation dates for a Plan Year, the Advisory Committee, unless otherwise specified in Option (1), will apply any Hours of Service condition by dividing the required Hours of Service on a prorata basis to the allocation periods included in that Plan Year. Furthermore, a Participant who satisfies the conditions described in this Adoption Agreement Section 3.06 will receive an allocation of matching contributions (and forfeitures treated as matching contributions) only if the Participant satisfies the following additional condition(s): (Choose (j) or at least one of (k) or (l)). ý            (j)            No additional conditions. o            (k)           The Participant is not a Highly Compensated Employee for the Plan Year. This Option (k) applies to: (Choose (1) or (2))                 o            (1)           All matching contributions.                 o            (2)           Matching contributions described in Option(s) __ of Adoption Agreement Section 3.01. o            (l)            (Specify) ___.                 3.15         MORE THAN ONE PLAN LIMITATION.  If the provisions of Section 3.15 apply, the Excess Amount attributed to this Plan equals: (Choose (a), (b) or (c)) o            (a)           The product of:                                 (1)           the total Excess Amount allocated as of such date (including any amount which the Advisory Committee would have allocated but for the limitations of Code §415), times                                 (2)           the ratio of (1) the amount allocated to the Participant as of such date under this Plan divided by (2) the total amount allocated as of such date under all qualified defined contribution plans (determined without regard to the limitations of Code §415). ý            (b)           The total Excess Amount. o            (c)           None of the Excess Amount.                     3.18         DEFINED BENEFIT PLAN LIMITATION. Application of limitation. The limitation under Section 3.18 of the Plan: (Choose (a) or (b)) ý            (a)           Does not apply to the Employer's Plan because the Employer does not maintain and never has maintained a defined benefit plan covering any Participant in this Plan. o            (b)           Applies to the Employer's Plan. To the extent necessary to satisfy the limitation under Section 3.18, the Employer will reduce: (Choose (1) or (2))                 o            (1)           The Participant's projected annual benefit under the defined benefit plan under which the Participant participates.                 o            (2)           Its contribution or allocation on behalf of the Participant to the defined contribution plan under which the Participant participates and then, if necessary, the Participant's projected annual benefit under the defined benefit plan under which the Participant participates. [Note: If the Employer selects (a), the remaining options in this Section 3.18 do not apply to the Employer's Plan.] Coordination with top heavy minimum allocation.  The Advisory Committee will apply the top heavy minimum allocation provisions of Section 3.04(B) of the Plan with the following modifications:  (Choose (c) or at least one of (d) or (e)) o            (c)           No modifications. o            (d)           For Non-Key Employees participating only in this Plan, the top heavy minimum allocation is the minimum allocation described in Section 3.04(B) determined by substituting __% (not less than 4%) for "3%," except:  (Choose (1) or (2))                 o            (1)           No exceptions.                 o            (2)           Plan Years in which the top heavy ratio exceeds 90%. o            (e)           For Non-Key Employees also participating in the defined benefit plan, the top heavy minimum is:  (Choose (1) or (2))                 o            (1)           5% of Compensation (as determined under Section 3.04(B) of the Plan) irrespective of the contribution rate of any Key Employee, except:  (Choose (i) or (ii))                                 o            (a)           No exceptions.                                 o            (b)           Substituting "7½%" for "5%" if the top heavy ratio does not exceed 90%.                 o            (2)           0%. [Note:  The Employer may not select this Option (2) unless the defined benefit plan satisfies the top heavy minimum benefit requirements of Code §416 for these Non-Key Employees.] Actuarial Assumptions for Top Heavy Calculation.  To determine the top heavy ratio, the Advisory Committee will use the following interest rate and mortality assumptions to value accrued benefits under a defined benefit plan: _____. If the elections under this Section 3.18 are not appropriate to satisfy the limitations of Section 3.18, or the top heavy requirements under Code §416, the Employer must provide the appropriate provisions in an addendum to this Adoption Agreement.     ARTICLE IV PARTICIPANT CONTRIBUTIONS                 4.01         PARTICIPANT NONDEDUCTIBLE CONTRIBUTIONS. The Plan: (Choose (a) or (b); (c) is available only with (b)) ý            (a)           Does not permit Participant nondeductible contributions. o            (b)           Permits Participant nondeductible contributions, pursuant to Section 14.04 of the Plan. o            (c)           The following portion of the Participant's nondeductible contributions for the Plan Year are mandatory contributions under Option (i)(3) of Adoption Agreement Section 3.01: (Choose (1) or (2))                 o            (1)           The amount which is not less than: ____.                 o            (2)           The amount which is not greater than: ____. Allocation dates. The Advisory Committee will allocate nondeductible contributions for each Plan Year as of the Accounting Date and the following additional allocation dates: (Choose (d) or (e)) o            (d)           No other allocation dates. o            (e)           (Specify) ___. As of an allocation date, the Advisory Committee will allocate nondeductible contributions made for the relevant allocation period. Unless otherwise specified in (e), a nondeductible contribution relates to an allocation period only if actually made to the Trust no later than 30 days after that allocation period ends.                 4.05         PARTICIPANT CONTRIBUTION - WITHDRAWAL/DISTRIBUTION.  Subject to the restrictions of Article VI, the following distribution options apply to a Participant's Mandatory Contributions Account, if any, prior to his Separation from Service: (Choose (a) or at least one of (b) through (d)) o            (a)           No distribution options prior to Separation from Service. o            (b)           The same distribution options applicable to the Deferral Contributions Account prior to the Participant's Separation from Service, as elected in Adoption Agreement Section 6.03. o            (c)           Until he retires, the Participant has a continuing election to receive all or any portion of his Mandatory Contributions Account if: (Choose (1) or at least one of (2) through (4))                 o            (1)           No conditions.                 o            (2)           The mandatory contributions have accumulated for at least ___ Plan Years since the Plan Year for which contributed.                 o            (3)           The Participant suspends making nondeductible contributions for a period of ___ months.                 o            (4)           (Specify) ___. o            (d)           (Specify) ___.     ARTICLE V TERMINATION OF SERVICE - PARTICIPANT VESTING                 5.01         NORMAL RETIREMENT.  Normal Retirement Age under the Plan is: (Choose (a) or (b)) ý            (a)           65; early retirement age of 55 and completion of 10 Years of Service [State age, but may not exceed age 65]. o            (b)           The later of the date the Participant attains ___ years of age or the __ anniversary of the first day of the Plan Year in which the Participant commenced participation in the Plan. [The age selected may not exceed age 65 and the anniversary selected may not exceed the 5th.]                 5.02         PARTICIPANT DEATH OR DISABILITY. The 100% vesting rule under Section 5.02 of the Plan: (Choose (a) choose one or both of (b) and (c)) o            (a)           Does not apply. ý            (b)           Applies to death. ý            (c)           Applies to disability.                 5.03         VESTING SCHEDULE. Deferral Contributions Account/Qualified Matching Contributions Account/Qualified Nonelective Contributions Account/Mandatory Contributions Account. A Participant has a 100% Nonforfeitable interest at all times in his Deferral Contributions Account, his Qualified Matching Contributions Account, his Qualified Nonelective Contributions Account and in his Mandatory Contributions Account. Regular Matching Contributions Account/Employer Contribution Account. With respect to a Participant's Regular Matching Contributions Account and Employer Contributions Account, the Employer elects the following vesting schedule: (Choose (a) or (b); (c) and (d) are available only as additional options) o            (a)           Immediate vesting. 100% Nonforfeitable at all times. [Note: The Employer must elect Option (a) if the eligibility conditions under Adoption Agreement Section 2.01(c) require 2 years of service or more than 12 months of employment.] ý            (b)           Graduated Vesting Schedules.   Top Heavy Schedule (Mandatory)   Non Top Heavy Schedule (Optional)   Years of   Nonforfeitable   Years of   Nonforfeitable   Service   Percentage   Service   Percentage   Less than 1   0 % Less than 1   __ % 1   20 % 1   __ % 2   40 % 2   __ % 3   60 % 3   __ % 4   80 % 4   __ % 5   100 % 5   __ % 6 or more   100 % 6   __ %         7 or more   100 %     o            (c)           Special vesting election for Regular Matching Contributions Account.  In lieu of the election under Options (a) or (b), the Employer elects the following vesting schedule for a Participant’s Regular Matching Contributions Account: (Choose (1) or (2))   o            (1)           100% Nonforfeitable at all times.   o            (2)           In accordance with the vesting schedule described in the addendum to this Adoption Agreement, numbered 5.03(c). [Note: If the Employer elects this Option (c )(2), the addendum must designate the applicable vesting schedule(s) using the same format as used in Option (b).]   [Note: Under Options (b) and (c )(2), the Employer must complete a Top Heavy Schedule which satisfies Code §416.  The Employer, at its option, may complete a Non Top Heavy Schedule.  The Non Top Heavy Schedule must satisfy Code §411(a)(2).  Also see Section 7.05 of the Plan.]   o            (d)           The Top Heavy Schedule under Option (b) (and, if applicable, under Option (c)(2)) applies: (Choose (1) or (2))                   o            (1)           Only in a Plan Year for which the Plan is top heavy.   o            (2)           In the Plan Year for which the Plan first is top heavy and then in all subsequent Plan Years. [Note: The Employer may not elect Option (d) unless it has completed a Non Top Heavy Schedule.]   Minimum vesting.  (Choose (e) or (f))   ý            (e)           The Plan does not apply a minimum vesting rule.   o            (f)            A Participant’s Nonforfeitable Accrued Benefit will never be less than the lesser of $____ or his entire Accrued Benefit, even if the application of a graduated vesting schedule under Options (b) or (c) would result in a smaller Nonforfeitable Accrued Benefit.   Life Insurance Investments.  The Participant’s Accrued Benefit attributable to insurance contracts purchased on his behalf under Article XI is: (Choose (g) or (h))   o            (g)           Subject to the vesting election under Options (a), (b) or (c).   ý            (h)           100% Nonforfeitable at all times, irrespective of the vesting election under Options (b) or (c)(2).                   5.04         CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS/RESTORATION OF FORFEITED ACCRUED BENEFIT.  The deemed cash-out rule described in Section 5.04(C) of the Plan: (Choose (a) or (b))   o            (a)           Does not apply.   ý            (b)           Will apply to determine the timing of forfeitures for 0% vested Participants.  A Participant is not a 0% vested Participant if he has a Deferral Contributions Account.                     5.06         YEAR OF SERVICE-VESTING.   Vesting computation period.  The Plan measures a Year of Service on the basis of the following 12 consecutive month periods:  (Choose (a) or (b))   ý            (a)           Plan Years.   o            (b)           Employment Years.  An Employment Year is the 12 consecutive month period measured from the Employee’s Employment Commencement Date and each successive 12 consecutive month period measured from each anniversary of that Employment Commencement Date.   Hours of Service.  The minimum number of Hours of Service an Employee must complete during a vesting computation period to receive credit for a Year of Service is:  (Choose (c) or (d))   ý            (c)           1,000 Hours of Service.   o            (d)           ___ Hours of Service. [Note:  The Hours of Service requirement may not exceed 1,000.]                   5.08         INCLUDED YEARS OF SERVICE-VESTING.  The Employer specifically excludes the following Years of Service:  (Choose (a) or at least one of (b) through (e))   ý            (a)           None other than as specified in Section 5.08(a) of the Plan.   o            (b)           Any Year of Service before the Participant attained the age of ___. [Note:  The age selected may not exceed age 18.]   o            (c)           Any Year of Service during the period the Employer did not maintain this Plan or a predecessor plan.   o            (d)           Any Year of Service before a Break in Service if the number of consecutive Breaks in Service equals or exceeds the greater of 5 or the aggregate number of the Years of Service prior to the Break.  This exception applies only if the Participant is 0% vested in his Accrued Benefit derived from Employer contributions at the time he has a Break in Service.  Furthermore, the aggregate number of Years of Service before a Break in Service do not include any Years of Service not required to be taken into account under this exception by reason of any prior Break in Service.   o            (e)           Any Year of Service earned prior to the effective date of ERISA if the Plan would have disregarded that Year of Service on account of an Employee’s Separation from Service under a Plan provision in effect and adopted before January 1, 1974.   ARTICLE VI TIME AND METHOD OF PAYMENTS OF BENEFITS   Code §411(d)(6) Protected Benefits.  The elections under this Article VI may not eliminate Code §411(d)(6) protected benefits.  To the extent the elections would eliminate a Code §411(d)(6) protected benefit, see Section 13.02 of the Plan.  Furthermore, if the elections liberalize the optional forms of benefit under the Plan, the more liberal options apply on the later of the adoption date or the Effective Date of this Adoption Agreement.   6.01         TIME OF PAYMENT OF ACCRUED BENEFIT.   Distribution date.  A distribution date under the Plan means any business day on which the U.S financial markets are open. [Note:  The Employer must specify the appropriate date(s).  The specified distribution dates primarily establish annuity starting dates and the notice and consent periods prescribed by the Plan.  The Plan allows the Trustee an administratively practicable period of time to make the actual distribution relating to a particular distribution date.]     Nonforfeitable Accrued Benefit Not Exceeding $3,500.  Subject to the limitations of Section 6.01(A)(1), the distribution date for distribution of a Nonforfeitable Accrued Benefit not exceeding $3,500 is:  (Choose (a), (b), (c), (d) or (e))   o            (a)           ___ of the ___ Plan Year beginning after the Participant’s Separation from Service.   ý            (b)           as soon as administratively feasible following the Participant’s Separation from Service.   o            (c)           ___ of the Plan Year after the Participant incurs ___ Break(s) in Service (as defined in Article V).   o            (d)           ___ following the Participant’s attainment of Normal Retirement Age, but not earlier than ___ days following his Separation from Service.   o            (e)           (Specify) ___.   Nonforfeitable Accrued Benefits Exceeds $3,500.  See the elections under Section 6.03.   Disability.  The distribution date, subject to Section 6.01(A)(3), is: (Choose (f), (g) or (h))   o            (f)            ___  after the Participant terminates employment because of disability.   ý            (g)           The same as if the Participant had terminated employment without disability.   o            (h)           (Specify) ___.   Hardship.  (Choose (i) or (j))   ý            (i)            The Plan does not permit a hardship distribution to a Participant who has separated from Service.   o            (j)            The Plan permits a hardship distribution to a Participant who has separated from Service in accordance with the hardship distribution policy stated in:  (Choose (1), (2) or (3))                   o            (1)           Section 6.01(A)(4) of the Plan.                   o            (2)           Section 14.11 of the Plan.                   o            (3)           The addendum to this Adoption Agreement, numbered Section 6.01.   Default on a Loan.  If a Participant or Beneficiary defaults on a loan made pursuant to a loan policy adopted by the Advisory Committee pursuant to Section 9.04, the Plan:  (Choose (k), (l) or (m))   ý            (k)           Treats the default as a distributable event.  The Trustee, at the time of the default, will reduce the Participant’s Nonforfeitable Accrued Benefit by the lesser of the amount in default (plus accrued interest) or the Plan’s security interest in that Nonforfeitable Accrued Benefit.  To the extend the loan is attributable to the Participant’s Deferral Contributions Account, Qualified Matching Contributions Account or Qualified Nonelective Contributions Account, the Trustee will not reduce the Participant’s Nonforfeitable Accrued Benefit unless the Participant has separated from Service or unless the Participant has attained age 59 1/2.   o            (l)            Does not treat the default as a distributable event.  When an otherwise distributable event first occurs pursuant to Section 6.01 or Section 6.03 of the Plan, the Trustee will reduce the Participant’s Nonforfeitable Accrued Benefit by the lesser of the amount in default (plus accrued interest) or the Plan’s security interest in that Nonforfeitable Accrued Benefit.   o            (m)          (Specify) ___.                     6.02         METHOD OF PAYMENT OF ACCRUED BENEFIT.  The Advisory Committee will apply Section 6.02 of the Plan with the following modifications:  (Choose (a) or at least one of  (b), (c), (d) and (e))   ý            (a)           No modifications.   o            (b)           Except as required under Section 6.01 of the Plan, a lump sum distribution is not available:  ___.   o            (c)           An installment distribution:  (Choose (1) or at least one of (2) or (3))                   o            (1)           Is not available under the Plan.                   o            (2)           May not exceed the lesser of ___ years or the maximum period permitted under Section 6.02.                   o            (3)           (Specify) ___.   o            (d)           The Plan permits the following annuity options: ___.                   Any Participant who elects a life annuity option is subject to the requirements of Sections 6.04(A), (B), (C) and (D) of the Plan.  See Section 6.04(E). [Note:  The Employer may specify additional annuity options in an addendum to this Adoption Agreement, numbered 6.02(d).]   o            (e)           If the Plan invests in qualifying Employer securities, as described in Section 10.03(F), a Participant eligible to elect distribution under Section 6.03 may elect to receive that distribution in Employer securities only in accordance with the provisions of the addendum to this Adoption Agreement, numbered 6.02(e).   6.03         BENEFIT PAYMENT ELECTIONS.   Participant Elections After Separation from Service.  A Participant who is eligible to make distribution elections under Section 6.03 of the Plan may elect to commence distribution of his Nonforfeitable Accrued Benefit:  (Choose at least one of (a) through (c))   o            (a)           As of any distribution date, but not earlier than __ of the __ Plan Year beginning after the Participant’s Separation from Service.   ý            (b)           As of the following date(s):  (Choose at least one of Options (1) through (6))   o            (1)           Any distribution date after the close of the Plan Year in which the Participant attains Normal Retirement Age.   ý            (2)           Any distribution date following his Separation from Service with the Employer.   o            (3)           Any distribution date in the __ Plan Year(s) beginning after his Separation from Service.   o            (4)           Any distribution date in the Plan Year after the Participant incurs __ Break(s) in Service (as defined in Article V)   ý            (5)           Any distribution date following attainment of age 55 and completion of at least 10 Years of Service (as defined in Article V)   o            (6)           (Specify) ___.   o            (c)           (Specify) ___.                     The distribution events described in the election(s) made under Options (a), (b) or (c) apply equally to all Accounts maintained for the Participant unless otherwise specified in Option (c).   Participant Elections Prior to Separation from Service – Regular Matching Contributions Account and Employer Contributions Account.  Subject to the restrictions of Article VI, the following distribution options apply to a Participant’s Regular Matching Contributions Account and Employer Contributions Account prior to his Separation from Service.  (Choose (d) or at least one of (e) through (h))   o            (d)           No distribution options prior to Separation from Service.   ý            (e)           Attainment of Specified Age.  Until he retires, the Participant has a continuing election to receive all or any portion of his Nonforfeitable interest in these Accounts after he attains:  (Choose (1) or (2))                   o            (1)           Normal Retirement Age.                   ý            (2)           59 1/2 years of age and is at least 100% vested in these Accounts. [Note:  If the percentage is less than 100%, see the special vesting formula in Section 5.03.]   o            (f)            After a Participant has participated in the Plan for a period of not less than __ years and is 100% vested in these Accounts, until he retires, the Participant has a continuing election to receive all or any portion of the Accounts. [Note:  The number in the blank space may not be less than 5.]   o            (g)           Hardship.  A Participant may elect a hardship distribution prior to his Separation from Service in accordance with the hardship distribution policy:  (Choose (1), (2) or (3); (4) is available only as an additional option)                   o            (1)           Under Section 6.01(A)(4) of the Plan.                   o            (2)           Under Section 14.11 of the Plan.                   o            (3)           Provided in the addendum to this Adoption Agreement, numbered Section 6.03.                   o            (4)           In no event may a Participant receive a hardship distribution before he is at least __% vested in these Accounts. [Note:  If the percentage in the blank is less than 100%, see the special vesting formula in Section 5.03.]   o            (h)           (Specify) __.   [Note:  The Employer may use an addendum, numbered 6.03, to provide additional language authorized by Options (b)(6), (c), (g)(3) or (h) of this Adoption Agreement Section 6.03.]   Participant Elections Prior to Separation from Service – Deferral Contributions Account, Qualified Matching Contributions Account and Qualified Nonelective Contributions Account.  Subject to the restrictions of Article VI, the following distribution options apply to a Participant’s Deferral Contributions Account, Qualified Matching Contributions Account and Qualified Nonelective Contributions Account prior to his Separation from Service.  (Choose (i) or at least one of (j) through (l))   o            (i)            No distribution options prior to Separation from Service.   ý            (j)            Until he retires, the Participant has a continuing election to receive all or any portion of these Accounts after he attains:  (Choose (1) or (2))                   o            (1)           The later of Normal Retirement Age or age 59 1/2.                     ý            (2)           Age 59 1/2 (at least 59 1/2)   o            (k)           Hardship. A Participant, prior to this Separation from Service, may elect a hardship distribution from his Deferral Contributions Account in accordance with the hardship distribution policy under Section 14.11 of the Plan.   o            (l)            (Specify) ____.  [Note: Option (l) may not permit in service distributions prior to age 59 ½ (other than hardship) and may not modify the hardship policy described in Section 14.11.]   Sale of trade or business/subsidiary. If the Employer sells substantially all of the assets (within the meaning of Code §409(d)(2)) used in a trade or business or sells a subsidiary (within the meaning of Code §409(d)(3)), a Participant who continues employment with the acquiring corporation is eligible for distribution from his Deferral Contributions Account, Qualified Matching Contributions Account and Qualified Nonelective Contributions Account: (Choose (m) or (n))   o            (m)          Only as described in this Adoption Agreement Section 6.03 for distributions prior to Separation from Service.   ý            (n)           As if he has a Separation from Service. After March 31, 1988, a distribution authorized solely by reason of this Option (n) must constitute a lump sum distribution, determined in a manner consistent with Code §401(k)(10) and the applicable Treasury regulations.                   6.04         ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES. The annuity distribution requirements of Section 6.04: (Choose (a) or (b))   ý            (a)           Apply only to a Participant described in Section 6.04(E) of the Plan (relating to the profit sharing exception to the joint and survivor requirements).   o            (b)           Apply to all Participants.   ARTICLE IX ADVISORY COMMITTEE – DUTIES WITH RESPECT TO PARTICIPANTS’ ACCOUNTS                   9.10         VALUE OF PARTICIPANT'S ACCRUED BENEFIT.  If a distribution (other than a distribution from a segregated Account and other than a corrective distribution described in Sections 14.07, 14.08, 14.09 or 14.10 of the Plan) occurs more than 90 days after the most recent valuation date, the distribution will include interest at: (Choose (a), (b) or (c))   ý            (a)           0% per annum. [Note: The percentage may equal 0%.]   o            (b)           The 90 day Treasury bill rate in effect at the beginning of the current valuation period.   o            (c)           (Specify) ____.                   9.11         ALLOCATION AND DISTRIBUTION OF NET INCOME GAIN OR LOSS.  Pursuant to Section 14.12, to determine the allocation of net income, gain or loss: (Complete only those items, if any, which are applicable to the Employer's Plan)   ý            (a)           For salary reduction contributions, the Advisory Committee will: (Choose (1), (2), (3), (4) or (5))                   ý            (1)           Apply Section 9.11 without modification.                   o            (2)           Use the segregated account approach described in Section 14.12.                   o            (3)           Use the weighted average method described in Section 14.12, based on a        weighting period.                   o           (4)               Treat as part of the relevant Account at the beginning of the valuation period        % of the salary reduction contributions: (Choose (a) or (b))                                   o            (a)           made during that valuation period.                                   o            (b)           made by the following specified time: ____.                   o            (5)           Apply the allocation method described in the addendum to this Adoption Agreement numbered 9.11(a).   ý            (b)           For matching contributions, the Advisory Committee will: (Choose (1), (2) (3) or (4))                   ý            (1)           Apply Section 9.11 without modification.                   o            (2)           Use the weighted average method described in Section 14.12, based on a        weighting period.                   o           (3)               Treat as part of the relevant Account at the beginning of the valuation period        % of the matching contributions allocated during the valuation period.                   o            (4)           Apply the allocation method described in the addendum to this Adoption Agreement numbered 9.11(b).   o            (c)           For Participant nondeductible contributions, the Advisory Committee will: (Choose (1), (2), (3) or (4))                   o            (1)           Apply Section 9.11 without modification.                   o            (2)           Use the segregated account approach described in Section 14.12.                   o            (3)           Use the weighted average method described in Section 14.12, based on a        weighting period.                   o           (4)               Treat as part of the relevant Account at the beginning of the valuation period        % of the Participant nondeductible contributions: (Choose (a) or (b))                                   o            (a)           made during that valuation period.                                   o            (b)           made by the following specified time:         .                   o            (5)           Apply the allocation method described in the addendum to this Adoption Agreement numbered 9.11(c).   ARTICLE X TRUSTEE AND CUSTODIAN, POWERS AND DUTIES                   10.03       INVESTMENT POWERS.  Pursuant to Section 10.03[F] of the Plan, the aggregate investments in qualifying Employer securities and in qualifying Employer real property: (Choose (a) or (b))   o            (a)           May not exceed 10% of Plan assets.   ý            (b)           May not exceed 0% of Plan assets. [Note: The percentage may not exceed 100%.]                   10.14       VALUATION OF TRUST.  In addition to each Accounting Date, the Trustee must value the Trust Fund on the following valuation date(s): (Choose (a) or (b))   o            (a)           No other mandatory valuation dates.   ý            (b)           (Specify) any business day on which the U. S. financial markets are open.     EFFECTIVE DATE ADDENDUM (Restated Plans Only)                   The Employer must complete this addendum only if the restated Effective Date specified in Adoption Agreement Section 1.18 is different than the restated effective date for at least one of the provisions listed in this addendum. In lieu of the restated Effective Date in Adoption Agreement Section 1.18, the following special effective dates apply: (Choose whichever elections apply)   o            (a)           Compensation definition.  The Compensation definition of Section 1.12 (other than the $200,000 limitation) is effective for Plan Years beginning after        . [Note: May not be effective later than the first day of the first Plan Year beginning after the Employer executes this Adoption Agreement to restate the Plan for the Tax Reform Act of 1986, if applicable.]   o            (b)           Eligibility conditions.  The eligibility conditions specified in Adoption Agreement Section 2.01 are effective for Plan Years beginning after        .   o            (c)           Suspension of Years of Service.  The suspension of Years of Service rule elected under Adoption Agreement Section 2.03 is effective for Plan Years beginning after        .   o            (d)           Contribution/allocation formula.  The contribution formula elected under Adoption Agreement Section 3.01 and the method of allocation elected under Adoption Agreement Section 3.04 is effective for Plan Years beginning after        .   o            (e)           Accrual requirements.  The accrual requirements of Section 3.06 are effective for Plan Years beginning after        .   o            (f)            Employment condition.  The employment condition of Section 3.06 is effective for Plan Years beginning after        .   o            (g)           Elimination of Net Profits.  The requirement for the Employer not to have net profits to contribute to this Plan is effective for Plan Years beginning after        . [Note: The date specified may not be earlier than December 31, 1985.]   o            (h)           Vesting Schedule.  The vesting schedule elected under Adoption Agreement Section 5.03 is effective for Plan Years beginning after        .   o            (i)            Allocation of Earnings.  The special allocation provisions elected under Adoption Agreement Section 9.11 are effective for Plan Years beginning after        .   o            (j)            (Specify)        .                   For Plan Years prior to the special Effective Date, the terms of the Plan prior to its restatement under this Adoption Agreement will control for purposes of the designated provisions. A special Effective Date may not result in the delay of a Plan provision beyond the permissible Effective Date under any applicable law requirements.   Execution Page                   The Trustee (and Custodian, if applicable), by executing this Adoption Agreement, accepts its position and agrees to all of the obligations, responsibilities and duties imposed upon the Trustee (or Custodian) under the Master Plan and Trust. The Employer hereby agrees to the provisions of this Plan and Trust, and in witness of its agreement, the Employer by its duly authorized officers, has executed this Adoption Agreement, and the Trustee (and Custodian, if applicable) signified its acceptance, on this 14th day of  December, 2000.   Name and EIN of Employer: Sauer-Danfoss 42-1345015     Signed: /s/ Richard Jarboe       Name(s) of Trustee: Institutional Trust Company (formerly INVESCO Trust Company)   Signed:     Plan Number.  The 3-digit plan number the Employer assigns to this Plan for ERISA reporting purposes (Form 5500 Series) is:  001.   Use of Adoption Agreement:  Failure to complete properly the elections in this Adoption Agreement may result in disqualification of the Employer's Plan. The 3-digit number assigned to this Adoption Agreement (see page 1) is solely for the Master Plan Sponsor's recordkeeping purposes and does not necessarily correspond to the plan number the Employer designated in the prior paragraph.   Master Plan Sponsor.  The Master Plan Sponsor identified on the first page of the basic plan document will notify all adopting employers of any amendment of this Master Plan or of any abandonment or discontinuance by the Master Plan Sponsor of its maintenance of this Master Plan. For inquiries regarding the adoption of the Master Plan, the Master Plan Sponsor's intended meaning of any plan provisions or the effect of the opinion letter issued to the Master Plan Sponsor, please contact the Master Plan Sponsor at the following address and telephone number:  7800 East Union Ave., Denver, CO 80237  303 930 6400.   Reliance on Opinion Letter.  The Employer may not rely on the Master Plan Sponsor's opinion letter covering this Adoption Agreement. For reliance on the Plan's qualification, the Employer must obtain a determination letter from the applicable IRS Key District office.  

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.10 BASE CONTRACT FOR SHORT-TERM SALE AND PURCHASE OF NATURAL GAS This Base Contract is entered into as of the following date:  8/1/99 The parties to this Base Contract are the following: KIMBALL ENERGY CORPORATION   and   CASCADE NATURAL GAS CORPORATION 2201 N. Collins Ave., Suite #185       222 Fairview Avenue North Arlington, TX 76011       Seattle, WA 98109-5312 Duns # 15-156-1370       Duns # Contract # GI-0167       Contract # Attn: CONTRACT ADMINISTRATION       Attn: CONTRACT ADMINISTRATION Phone: (817)860-9100 Fax: (817) 274-4724       Phone: (206) 624-3900 Fax: (206) 624-7215 Federal Tax ID Number: 75-1918038       Federal Tax ID Number:           Invoices and Payments:         see Attachment #1       see Attachment #1           Wire Transfer or ACH Nos. (if applicable)       Wire Transfer or ACH Nos. (if applicable) see attachment #1       see Attachment #1 This Base Contract incorporates by reference for all purposes the General Terms and Conditions for Short-Term Sale and Purchase of Natural Gas published by the Gas Industry Standards Board. The parties hereby agree to the following provisions offered in said General Terms and Conditions (select only one from each box, but see "Note" relating to Section 2.24.): Section 1.2 Transaction Procedure   /x/ / /   Oral Written   Section 6. Taxes   /x/   Buyer Pays At and After Delivery Point                 / /   Seller Pays Before and At Delivery Point Section 2.4 Confirm Deadline   /x/   2 Business Days after receipt (default)   Section 7.2 Payment Date       25th date of Month following Month of     / /   Business Days after receipt           delivery Section 2.5   / /   Seller   Section 7.2   /x/   Wire Transfer (WT) Confirming Party   / / /x/   Buyer Both or Either   Method of Payment   / /   Automated Clearinghouse (ACH)                 / /   Check Section 3.2   / /   Cover Standard             Performance Obl.   /x/   Spot Price Standard                                   Note: The following Spot Price Publication applies to both of the immediately preceding Standards and must be filled in after a Standard is selected.   Section 13.5 CHOICE OF LAW: Texas Section 2.24 Spot Price Publication: Gas Daily /x/  Special Provisions: Number of sheets attached:  1 Page  1 of 13 Pages -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have executed this Base Contract in duplicate. KIMBALL ENERGY CORPORATION -------------------------------------------------------------------------------- (Party Name)   CASCADE NATURAL GAS CORPORATION -------------------------------------------------------------------------------- (Party Name)               By   /s/ K.T. Smith    --------------------------------------------------------------------------------   By   /s/ King Oberg    -------------------------------------------------------------------------------- Name/Title   Kimball T. Smith, President   Name/Title         --------------------------------------------------------------------------------       -------------------------------------------------------------------------------- Date:   8/20/99   Date         --------------------------------------------------------------------------------       -------------------------------------------------------------------------------- DISCLAIMER:  The purposes of this Contract are to facilitate trade, avoid misunderstandings and make more definite the terms of contracts of purchase and sale of natural gas. This Contract is intended for Interruptible transactions or Firm transactions of one month or less and may not be suitable for Firm transactions of longer than one month. Further, GISB does not mandate the use of this Contract by any party. GISB DISCLAIMS AND EXCLUDES, AND ANY USER OF THIS CONTRACT ACKNOWLEDGES AND AGREES TO GISB'S DISCLAIMER OF, ANY AND ALL WARRANTIES, CONDITIONS OR REPRESENTATIONS, EXPRESS OR IMPLIED, ORAL OR WRITTEN, WITH RESPECT TO THIS CONTRACT OR ANY PART THEREOF, INCLUDING ANY AND ALL IMPLIED WARRANTIES OR CONDITIONS OF TITLE, NON-INFRINGEMENT, MERCHANTABILITY, OR FITNESS OR SUITABILITY FOR ANY PARTICULAR PURPOSE (WHETHER OR NOT GISB KNOWS, HAS REASON TO KNOW, HAS BEEN ADVISED, OR IS OTHERWISE IN FACT AWARE OF ANY SUCH PURPOSE), WHETHER ALLEGED TO ARISE BY LAW, BY REASON OF CUSTOM OR USAGE IN THE TRADE, OR BY COURSE OF DEALING. EACH USER OF THIS CONTRACT ALSO AGREES THAT UNDER NO CIRCUMSTANCES WILL GISB BE LIABLE FOR ANY DIRECT, SPECIAL, INCIDENTAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES ARISING OUT OF ANY USE OF THIS CONTRACT. Page  2 of 13 Pages -------------------------------------------------------------------------------- GENERAL TERMS AND CONDITIONS BASE CONTRACT FOR SHORT-TERM SALE AND PURCHASE OF NATURAL GAS SECTION 1. PURPOSE AND PROCEDURES 1.1.These General Terms and Conditions are intended to facilitate purchase and sale transactions of Gas on a Firm or Interruptible basis. "Buyer" refers to the party receiving Gas and "Seller" refers to the party delivering Gas. The parties have selected either the "Oral" version or the "Written" version of transaction procedures as indicated on the Base Contract. Oral Transaction Procedure:     1.2 The parties will use the following Transaction Confirmation procedure. Any Gas purchase and sale transaction may be effectuated in an EDI transmission or telephone conversation with the offer and acceptance constituting the agreement of the parties. The parties shall be legally bound from the time they so agree to transaction terms and may each rely thereon. Any such transaction shall be considered a "writing" and to have been "signed". Notwithstanding the foregoing sentence, the parties agree that Confirming Party shall, and the other party may, confirm a telephonic transaction by sending the other party a Transaction Confirmation by facsimile. EDI or mutually agreeable electronic means. Confirming Party adopts its confirming letterhead, or the like, as its signature on any Transaction Confirmation as the identification and authentication of Confirming Party. Written Transaction Procedure:     1.2 The parties will use the following Transaction Confirmation procedure. Should the parties come to an agreement regarding a Gas purchase and sale transaction for a particular Delivery Period, the Confirming Party shall, and the other party may, record that agreement on a Transaction Confirmation and communicate such Transaction Confirmation by facsimile, EDI or mutually agreeable electronic means, to the other party by the close of the Business Day following the date of agreement. The parties acknowledge that their agreement will not be binding until the exchange of non-conflicting Transaction Confirmation or the passage of the Confirm Deadline without objection from the receiving party, as provided in Section 1.3.     1.3. If a sending party's Transaction Confirmation is materially different from the receiving party's understanding of the agreement referred to in Section 1.2., such receiving party shall notify the sending party via facsimile by the Confirm Deadline, unless such receiving party has previously sent a Transaction Confirmation to the sending party. The failure of the receiving party to so notify the sending party in writing by the Confirm Deadline constitutes the receiving party's agreement to the terms of the transaction described in the sending party's Transaction Confirmation. If there are any material differences between timely sent Transaction Confirmations governing the same transaction, then neither Transaction Confirmation shall be binding until or unless such differences are resolved including the use of any evidence that clearly resolves the differences in the Transaction Confirmations. The entire agreement between the parties shall be those provisions contained in both the Base Contract and any effective Transaction Confirmation. In the event of a conflict among the terms of (i) a Transaction Confirmation, (ii) the Base Contract, and (iii) these General Terms and Conditions, the terms of the documents shall govern in the priority listed in this sentence. SECTION 2 DEFINITIONS     2.1. "Base Contract" shall mean a contract executed by the parties that incorporates these General Terms and Conditions by reference; that specifies the agreed selections of provisions contained herein; and that sets forth other information required herein. Page  3 of 13 Pages --------------------------------------------------------------------------------     2.2. "British thermal unit" or "Btu" shall have the meaning ascribed to it by the Receiving Transporter.     2.3. "Business Day" shall mean any day except Saturday, Sunday or Federal Reserve Bank holidays.     2.4. "Confirm Deadline" shall mean 5:00 p.m. in the receiving party's time zone on the second Business Day following the Day a Transaction Confirmation is received, or if applicable, on the Business Day agreed to by the parties in the Base Contract; provided, if the Transaction Confirmation is time stamped after 5:00 p.m. in the receiving party's time zone, it shall be deemed received at the opening of the next Business Day.     2.5. "Confirming Party" shall mean the party designated in the Base Contract to prepare and forward Transaction Confirmations to the other party.     2.6. "Contract" shall mean the legally-binding relationship established by (i) the Base Contract and (ii) the provisions contained in any effective Transaction Confirmation.     2.7. "Contract Price" shall mean the amount expressed in U.S. Dollars per MMBtu, as evidenced by the Contract Price on the Transaction Confirmation.     2.8. "Contract Quantity" shall mean the quantity of Gas to be delivered and taken as set forth in the Transaction Confirmation.     2.9. "Cover Standard", if applicable, shall mean that if there is an unexcused failure to take or deliver any quantity of Gas pursuant to this Contract, then the non-defaulting party shall use commercially reasonable efforts to obtain Gas or alternate fuels, or sell Gas, at a price reasonable for the delivery or production area, as applicable, consistent with: the amount of notice provided by the defaulting party; the immediacy of the Buyer's Gas consumption needs or Seller's Gas sales requirements, as applicable; the quantities involved; and the anticipated length of failure by the defaulting party.     2.10.  "Day" shall mean a period of 24 consecutive hours, coextensive with a "day" as defined by the Receiving Transporter in a particular transaction.     2.11.  "Delivery Period" shall be the period during which deliveries are to be made as set forth in the Transaction Confirmation.     2.12.  "Delivery Point(s)" shall mean such point(s) as are mutually agreed upon between Seller and Buyer as set forth in the Transaction Confirmation.     2.13.  "EDI" shall mean an electronic data interchange pursuant to an agreement entered into by the parties, specifically relating to the communication of Transaction Confirmations under this Contract.     2.14.  "EFP" shall mean the purchase, sale or exchange of natural Gas as the "physical" side of an exchange for physical transaction involving gas futures contracts. EFP shall incorporate the meaning and remedies of "Firm".     2.15.  "Firm" shall mean that either party may interrupt its performance without liability only to the extent that such performance is prevented for reasons of Force Majeure; provided, however, that during Force Majeure interruptions, the party invoking Force Majeure may be responsible for any Imbalance Charges as set forth in Section 4.3. related to its interruption after the nomination is made to the Transporter and until the change in deliveries and/or receipts is confirmed by the Transporter.     2.16.  "Gas" shall mean any mixture of hydrocarbons and non-combustible gases in a gaseous state consisting primarily of methane. Page  4 of 13 Pages --------------------------------------------------------------------------------     2.17.  "Imbalance Charges" shall mean any fees, penalties, costs or charges (in cash or in kind) assessed by a Transporter for failure to satisfy the Transporter's balance and/or nomination requirements.     2.18.  "Interruptible" shall mean that either party may interrupt its performance at any time for any reason, whether or not caused by an event of Force Majeure, with no liability, except such interrupting party may be responsible for any Imbalance Charges as set forth in Section 4.3. related to its interruption after the nomination is made to the Transporter and until the change in deliveries and/or receipts is confirmed by Transporter.     2.19.  "MMBtu" shall mean one million British thermal units which is equivalent to one dekatherm.     2.20.  "Month" shall mean the period beginning on the first Day of the calendar month and ending immediately prior to the commencement of the first Day of the next calendar month.     2.21.  "Payment Date" shall mean a date, selected by the parties in the Base Contract, on or before which payment is due Seller for Gas received by Buyer in the previous Month.     2.22.  "Receiving Transporter" shall mean the Transporter receiving Gas at a Delivery Point, or absent such receiving Transporter, the Transporter delivering Gas at a Delivery Point.     2.23.  "Scheduled Gas" shall mean the quantity of Gas confirmed by Transporter(s) for movement, transportation or management.     2.24   "Spot Price" as referred in Section 3.2 shall mean the price listed in the publication specified by the parties in the Base Contract, under the listing applicable to the geographic location closest in proximity to the Delivery Point(s) for the relevant Day; provided, if there is no single price published for such location for such Day, but there is published a range of prices, then the Spot Price shall be the average of such high and low prices. If no price or range of prices is published for such Day, then the Spot Price shall be the average of the following: (i) the price (determined as stated above) for the first Day for which a price or range of prices is published that next precedes the relevant Day; and (ii) the price (determined as stated above) for the first Day for which a price or range of prices is published that next follows the relevant Day.     2.25.  "Transaction Confirmation" shall mean the document, substantially in the form of Exhibit A, setting forth the terms of a purchase and sale transaction formed pursuant to Section 1. for a particular Delivery Period.     2.26.  "Transporter(s)" shall mean all Gas gathering or pipeline companies, or local distribution companies, acting in the capacity of a transporter, transporting Gas for Seller or Buyer upstream or downstream, respectively, of the Delivery Point pursuant to a particular Transaction Confirmation. SECTION 3 PERFORMANCE OBLIGATION     3.1. Seller agrees to sell and deliver, and Buyer agrees to receive and purchase, the Contract Quantity for a particular transaction in accordance with the terms of the Contract. Sales and purchases will be on a Firm or Interruptible basis, as specified in the Transaction Confirmation. The parties have selected the "Cover Standard" version or the "Spot Price Standard" version as indicated on the Base Contract. Cover Standard:     3.2 In addition to any liability for Imbalance Charges, which shall not be recovered twice by the following remedy, the exclusive and sole remedy of the parties in the event of a breach of a Firm obligation shall be recovery of the following: (i) in the event of a breach by Seller on any Day(s), Page  5 of 13 Pages -------------------------------------------------------------------------------- payment by Seller to Buyer in an amount equal to the positive difference, if any, between the purchase price paid by Buyer utilizing the Cover Standard for replacement Gas or alternative fuels and the Contract Price, adjusted for commercially reasonable differences in transportation costs to or from the Delivery Point(s), multiplied by the difference between the Contract Quantity and the quantity actually delivered by Seller for such Day(s); or (ii) in the event of a breach by Buyer on any Day(s), payment by Buyer to Seller in the amount equal to the positive difference, if any, between the Contract Price and the price received by Seller utilizing the Cover Standard for the resale of such Gas, adjusted for commercially reasonable differences in transportation costs to or from the Delivery Point(s), multiplied by the difference between the Contract Quantity and the quantity actually taken by Buyer for such Day(s); or (iii) in the event that Buyer has used commercially reasonable efforts to replace the Gas or Seller has used commercially reasonable efforts to sell the Gas to a third party, and no such replacement or sale is available, then the exclusive and sole remedy of the non-breaching party shall be any unfavorable difference between the Contract Price and the Spot Price, adjusted for such transportation to the applicable Delivery Point, multiplied by the difference between the Contract Quantity and the quantity actually delivered by Seller and received by Buyer for such Day(s). Spot Price Standard:     3.2 In addition to any liability for Imbalance Charges, which shall not be recovered twice by the following remedy, the exclusive and sole remedy of the parties in the event of a breach of a Firm obligation shall be recovery of the following: (i) in the event of a breach by Seller on any Day(s), payment by Seller to Buyer in an amount equal to the difference between the Contract Quantity and the actual quantity delivered by Seller and received by Buyer for such Day(s), multiplied by the positive difference, if any, obtained by subtracting the Contract Price from the Spot Price; (ii) in the event of a breach by Buyer on any Day(s), payment by Buyer to Seller in an amount equal to the difference between the Contract Quantity and the actual quantity delivered by Seller and received by Buyer for such Day(s), multiplied by the positive difference, if any, obtained by subtracting the applicable Spot Price from the Contract Price.     EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED HEREIN, IN NO EVENT WILL EITHER PARTY BE LIABLE UNDER THIS CONTRACT, WHETHER IN CONTRACT, IN TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY), OR OTHERWISE, FOR INCIDENTAL, CONSEQUENTIAL, SPECIAL, OR PUNITIVE DAMAGES. SECTION 4. TRANSPORTATION, NOMINATIONS AND IMBALANCES     4.1. Seller shall have the sole responsibility for transporting the Gas to the Delivery Point(s) and for delivering such Gas at a pressure sufficient to effect such delivery but not to exceed the maximum operating pressure of the Receiving Transporter. Buyer shall have the sole responsibility for transporting the Gas from the Delivery Point(s).     4.2. The parties shall coordinate their nomination activities, giving sufficient time to meet the deadlines of the affected Transporter(s). Each party shall give the other party timely prior notice, sufficient to meet the requirements of all Transporter(s) involved in the transaction, of the quantities of Gas to be delivered and purchased each Day. Should either party become aware that actual deliveries at the Delivery Point(s) are greater or lesser than the Scheduled Gas, such party shall promptly notify the other party.     4.3. The parties shall use commercially reasonable efforts to avoid imposition of any Imbalance Charges. If Buyer or Seller receives an invoice from a Transporter that includes Imbalance Charges, the parties shall determine the validity as well as the cause of such Imbalance Charges. If the Imbalance Charges were incurred as a result of Buyer's actions or inactions (which shall include, but shall not be limited to, Buyer's failure to accept quantities of Gas equal to the Scheduled Gas), then Buyer shall Page  6 of 13 Pages -------------------------------------------------------------------------------- pay for such Imbalance Charges, or reimburse Seller for such Imbalance Charges paid by Seller to the Transporter. If the Imbalance Charges were incurred as a result of Seller's actions or inactions (which shall include, but shall not be limited to, Seller's failure to deliver quantities of Gas equal to the Scheduled Gas), then Seller shall pay for such Imbalance Charges, or reimburse Buyer for such Imbalance Charges paid by Buyer to the Transporter. SECTION 5. QUALITY AND MEASUREMENT All Gas delivered by Seller shall meet the quality and heat content requirements of the Receiving Transporter. The unit of quantity measurement for purposes of this Contract shall be one MMBtu dry. Measurement of Gas quantities hereunder shall be in accordance with the established procedures of the Receiving Transporter. SECTION 6. TAXES The parties have selected either the "Buyer Pays At and After Delivery Point" version or the "Seller Pays Before and At Delivery Point" version as indicated on the Base Contract. Buyer Pays At and After Delivery Point: Seller shall pay or cause to be paid all taxes, fees, levies, penalties, licenses or charges imposed by any government authority ("Taxes") on or with respect to the Gas prior to the Delivery Point(s). Buyer shall pay or cause to be paid all Taxes on or with respect to the Gas at the Delivery Point(s) and all Taxes after the Delivery Point(s). If a party is required to remit or pay Taxes that are the other party's responsibility hereunder, the party responsible for such Taxes shall promptly reimburse the other party for such Taxes. Any party entitled to an exemption from any such Taxes or charges shall furnish the other party any necessary documentation thereof. Seller Pays Before and At Delivery Point: Seller shall pay or cause to be paid all taxes, fees, levies, penalties, licenses or charges imposed by any government authority ("Taxes") on or with respect to he Gas prior to the Delivery Point(s) and all Taxes at the Delivery Point(s). Buyer shall pay or cause to be paid all Taxes on or with respect to the Gas after the Delivery Point(s). If a party is required to remit or pay Taxes which are the other party's responsibility hereunder, the party responsible for such Taxes shall promptly reimburse the other party for such Taxes. Any party entitled to an exemption from any such Taxes or charges shall furnish the other party any necessary documentation thereof. SECTION 7. BILLING, PAYMENT AND AUDIT     7.1. Seller shall invoice Buyer for Gas delivered and received in the preceding Month and for any other applicable charges, providing supporting documentation acceptable in industry practice to support the amount charged. If the actual quantity delivered is not known by the billing date, billing will be prepared based on the quantity of Scheduled Gas. The invoiced quantity will then be adjusted to the actual quantity on the following Month's billing or as soon thereafter as actual delivery information is available.     7.2. Buyer shall remit the amount due in the manner specified in the Base Contract, in immediately available funds, on or before the later of the Payment Date or 10 days after receipt of the invoice by Buyer; provided that if the Payment Date is not a Business Day, payment is due on the next Business Day following that date. If Buyer fails to remit the full amount payable by it when due, interest on the unpaid portion shall accrue at a rate equal to the lower of (i) the then-effective prime rate of interest published under "Money Rates" by The Wall Street Journal, plus two percent per Page  7 of 13 Pages -------------------------------------------------------------------------------- annum from the date due until the date of payment; or (ii) the maximum applicable lawful interest rate. If Buyer, in good faith, disputes the amount of any such statement or any part thereof, Buyer will pay to Seller such amount as it concedes to be correct; provided, however, if Buyer disputes the amount due, Buyer must provide supporting documentation acceptable in industry practice to support the amount paid or disputed.     7.3. In the event any payments are due Buyer hereunder, payment to Buyer shall be made in accordance with Section 7.2. above.     7.4. A party shall have the right, at its own expense, upon reasonable notice and at reasonable times, to examine the books and records of the other party only to the extent reasonably necessary to verify the accuracy of any statement, charge, payment, or computation made under the Contract. This examination right shall not be available with respect to proprietary information not directly relevant to transactions under this Contract. All invoices and billings shall be conclusively presumed final and accurate unless objected to in writing, with adequate explanation and/or documentation, within two years after the Month of Gas delivery. All retroactive adjustments under Section 7. shall be paid in full by the party owing payment within 30 days of notice and substantiation of such inaccuracy. SECTION 8. TITLE, WARRANTY AND INDEMNITY     8.1. Unless otherwise specifically agreed, title to the Gas shall pass from Seller to Buyer at the Delivery Point(s). Seller shall have responsibility for and assume any liability with respect to the Gas prior to its delivery to Buyer at the specified Delivery Point(s). Buyer shall have responsibility for and assume any liability with respect to said Gas after its delivery to Buyer at the Delivery Point(s).     8.2. Seller warrants that it will have the right to convey and will transfer good and merchantable title to all Gas sold hereunder and delivered by it to Buyer, free and clear of all liens, encumbrances, and claims.     8.3. Seller agrees to indemnify Buyer and save it harmless from all losses, liabilities or claims including attorneys' fees and costs of court ("Claims"), from any and all persons, arising from or out of claims of title, personal injury or property damage from said Gas or other charges thereon which attach before title passes to Buyer. Buyer agrees to indemnify Seller and save it harmless from all Claims, from any and all persons, arising from or out of claims regarding payment, personal injury or property damage from said Gas or other charges thereon which attach after title passes to Buyer.     8.4. Notwithstanding the other provisions of this Section 8., as between Seller and Buyer, Seller will be liable for all Claims to the extent that such arise from the failure of Gas delivered by Seller to meet the quality requirements of Section 5. SECTION 9. NOTICES     9.1. All Transaction Confirmations, invoices, payments and other communications made pursuant to the Base Contract ("Notices") shall be made to the addresses specified in writing by the respective parties from time to time.     9.2. All Notices required hereunder may be sent by facsimile or mutually acceptable electronic means, a nationally recognized overnight courier service, first class mail or hand delivered.     9.3. Notice shall be given when received on a Business Day by the addressee. In the absence of proof of the actual receipt date, the following presumptions will apply. Notices sent by facsimile shall be deemed to have been received upon the sending party's receipt of its facsimile machine's confirmation of successful transmission, if the day on which such facsimile is received is not a Business Day or is after five p.m. on a Business Day, then such facsimile shall be deemed to have been received on the next following Business Day. Notice by overnight mail or courier shall be deemed to have been Page  8 of 13 Pages -------------------------------------------------------------------------------- received on the next Business Day after it was sent or such earlier time as is confirmed by the receiving party. Notice via first class mail shall be considered delivered two Business Days after mailing. SECTION 10. FINANCIAL RESPONSIBILITY     10.1.  When reasonable grounds for insecurity of payment or title to the Gas arise, either party may demand adequate assurance of performance. Adequate assurance shall mean sufficient security in the form and for the term reasonably specified by the party demanding assurance, including, but not limited to, a standby irrevocable letter of credit, a prepayment, a security interest in an asset acceptable to the demanding party or a performance bond or guarantee by a creditworthy entity. In the event either party shall (i) make an assignment or any general arrangement for the benefit of creditors; (ii) default in the payment obligation to the other party; (iii) file a petition or otherwise commence, authorize, or acquiesce in the commencement of a proceeding or cause under any bankruptcy or similar law for the protection of creditors or have such petition filed or proceeding commenced against it; (iv) otherwise become bankrupt or insolvent (however evidenced); or (v) be unable to pay its debts as they fall due; then the other party shall have the right to either withhold and/or suspend deliveries or payment, or terminate the Contract without prior notice, in addition to any and all other remedies available hereunder. Seller may immediately suspend deliveries to Buyer hereunder in the event Buyer has not paid any amount due Seller hereunder on or before the second day following the date such payment is due.     10.2.  Each party reserves to itself all rights, set-offs, counterclaims, and other defenses which it is or may be entitled to arising from the Contract. SECTION 11. FORCE MAJEURE     11.1.  Except with regard to a party's obligation to make payment due under Section 7. and Imbalance Charges under Section 4, neither party shall be liable to the other for failure to perform a Firm obligation, to the extent such failure was caused by Force Majeure. The term "Force Majeure" as employed herein means any cause not reasonably within the control of the party claiming suspension, as further defined in Section 11.2.     11.2.  Force Majeure shall include but not be limited to the following: (i) physical events such as acts of God, landslides, lightning, earthquakes, fires, storms or storm warnings, such as hurricanes, which result in evacuation of the affected area, floods, washouts, explosions, breakage or accident or necessity of repairs to machinery or equipment or lines of pipe; (ii) weather related events affecting an entire geographic region, such as low temperatures which cause freezing or failure of wells or lines of pipe; (iii) interruption of firm transportation and/or storage by Transporters; (iv) acts of others such as strikes, lockouts or other industrial disturbances, riots, sabotage, insurrections or wars; and (v) governmental actions such as necessity for compliance with any court order, law, statute, ordinance, or regulation promulgated by a governmental authority having jurisdiction. Seller and Buyer shall make reasonable efforts to avoid the adverse impacts of a Force Majeure and to resolve the event or occurrence once it has occurred in order to resume performance.     11.3.  Neither party shall be entitled to the benefit of the provisions of Force Majeure to the extent performance is affected by any or all of the following circumstances: (i) the curtailment of interruptible or secondary firm transportation unless primary, in-path, firm transportation is also curtailed; (ii) the party claiming excuse failed to remedy the condition and to resume the performance of such covenants or obligations with reasonable dispatch; or (iii) economic hardship. The party claiming Force Majeure shall not be excused from its responsibility for Imbalance Charges.     11.4.  Notwithstanding anything to the contrary herein, the parties agree that the settlement of strikes, lockouts or other industrial disturbances shall be entirely within the sole discretion of the party experiencing such disturbance. Page  9 of 13 Pages --------------------------------------------------------------------------------     11.5.  The party whose performance is prevented by Force Majeure must provide notice to the other party. Initial notice may be given orally; however, written notification with reasonably full particulars of the event or occurrence is required as soon as reasonably possible. Upon providing written notification of Force Majeure to the other party, the affected party will be relieved of its obligation to make or accept delivery of Gas as applicable to the extent and for the duration of Force Majeure, and neither party shall be deemed to have failed in such obligations to the other during such occurrence or event. SECTION 12. TERM This Contract may be terminated on 30 days' written notice, but shall remain in effect until the expiration of the latest Delivery Period of any Transaction Confirmation(s). The rights of either party pursuant to Section 7.4., the obligations to make payment hereunder, and the obligation of either party to indemnify the other, pursuant hereto shall survive the termination of the Base Contract or any Transaction Confirmation. SECTION 13. MISCELLANEOUS     13.1.  This Contract shall be binding upon and inure to the benefit of the successors, assigns, personal representatives, and heirs of the respective parties hereto, and the covenants, conditions, rights and obligations of this Contract shall run for the full term of this Contract. No assignment of this Contract, in whole or in part, will be made without the prior written consent of the non-assigning party, which consent will not be unreasonably withheld or delayed; provided, either party may transfer its interest to any parent or affiliate by assignment, merger or otherwise without the prior approval of the other party. Upon any transfer and assumption, the transferor shall not be relieved of or discharged from any obligations hereunder.     13.2.  If any provision in this Contract is determined to be invalid, void or unenforceable by any court having jurisdiction, such determination shall not invalidate, void, or make unenforceable any other provision, agreement or covenant of this Contract.     13.3.  No waiver of any breach of this Contract shall be held to be a waiver of any other or subsequent breach.     13.4.  This Contract sets forth all understandings between the parties respecting each transaction subject hereto, and any prior contracts, understandings and representations, whether oral or written, relating to such transactions are merged into and superseded by this Contract and any effective Transaction Confirmation(s). This Contract may be amended only by a writing executed by both parties.     13.5.  The interpretation and performance of this Contract shall be governed by the laws of the state specified by the parties in the Base Contract, excluding, however, any conflict of laws rule which would apply the law of another jurisdiction.     13.6.  This Contract and all provisions herein will be subject to all applicable and valid statutes, rules, orders and regulations of any Federal, State, or local governmental authority having jurisdiction over the parties, their facilities, or Gas supply, this Contract or Transaction Confirmation or any provisions thereof.     13.7.  There is no third party beneficiary to this Contract.     13.8.  Each party to this Contract represents and warrants that it has full and complete authority to enter into and perform this Contract. Each person who executes this Contract on behalf of either party represents and warrants that it has full and complete authority to do so and that such party will be bound thereby. Page  10 of 13 Pages -------------------------------------------------------------------------------- EXHIBIT A TRANSACTION CONFIRMATION FOR IMMEDIATE DELIVERY Letterhead/Logo   Date:  , 199 Transaction Confirmation #:           This Transaction Confirmation is subject to the Base Contract between Seller and Buyer dated      . The terms of this Transaction Confirmation are binding unless disputed in writing within 2 Business Days of receipt unless otherwise specified in the Base Contract. SELLER:   BUYER:       Kimball Energy Corporation     --------------------------------------------------------------------------------   --------------------------------------------------------------------------------       --------------------------------------------------------------------------------   --------------------------------------------------------------------------------       --------------------------------------------------------------------------------   --------------------------------------------------------------------------------       Attn:   Attn: Phone:   Phone: Fax:   Fax: Base Contract No.   Base Contract No. Transporter:   Transporter: Transporter Contract Number:   Transporter Contract Number: Contract Price: $         /MMBtu or Delivery Period: Begin:            , 199         End:            , 199  Performance Obligation and Contract Quantity: (Select One) Firm (Fixed Quantity):   Firm (Variable Quantity):   Interruptible:       MMBtus/day         MMBtus/day Minimum   Up to      MMBtus/day / / EFP         MMBtus/day Maximum subject to Section 4.2. at election of / / Buyer or / / Seller     Delivery Point(s): (If a pooling point is used, list a specific geographic and pipeline location): Page  11 of 13 Pages -------------------------------------------------------------------------------- Special Conditions:                             Seller:       Buyer:         --------------------------------------------------------------------------------       -------------------------------------------------------------------------------- By:       By:         --------------------------------------------------------------------------------       -------------------------------------------------------------------------------- Title:       Title:         --------------------------------------------------------------------------------       -------------------------------------------------------------------------------- Date:       Date:         --------------------------------------------------------------------------------       -------------------------------------------------------------------------------- Page  12 of 13 Pages -------------------------------------------------------------------------------- KEC CONTRACT # GI-0167 DATED: 8/1/99 ATTACHMENT #1 GISB GAS SALES AND PURCHASE CONTRACT NOTICES Notice to: KIMBALL ENERGY CORPORATION   Notice to: CASCADE NATURAL GAS CORPORATION       Kimball Energy Corporation   Cascade Natural Gas Corporation 2201 N. Collins Ave., Suite 185   222 Fairview Avenue North Arlington, TX 76011   Seattle, WA 98109-5312 Attn: Contract Administrator   Attn: Contract Administration Fax No.: (817) 274-4724   Fax No.: (206) 624-7215 Phone No.: (817) 860-9100   Phone No.: (206) 624-3900       Payments to Kimball Energy:   Payments to: CASCADE NATURAL GAS       Bank of America, NT&SA   -------------------------------------------------------------------------------- ABA # 121000358   ABA #: Concord, CA 94520   Acct. #: Account #: 12331-31528 for further credit to: Kimball Energy Corporation           Billing and Accounting Matters to   Billing and Accounting Matters to: Kimball Energy Corporation:   CASCADE NATURAL GAS CORPORATION       Kimball Energy Corporation   Cascade Natural Gas Corporation 2201 N. Collins Ave., Suite 185   222 Fairview Avenue North Arlington, TX 76011   Seattle, WA 98109-5312 Attn: Accounts Payable   Attn: Accounts Payable Phone No.: (817) 860-9100   Phone No.: (206) 624-3900 Fax No.: (817) 274-4724   Fax No.: (206) 624-7215 Page  13 of 13 Pages -------------------------------------------------------------------------------- QuickLinks Exhibit 10.10 BASE CONTRACT FOR SHORT-TERM SALE AND PURCHASE OF NATURAL GAS GENERAL TERMS AND CONDITIONS BASE CONTRACT FOR SHORT-TERM SALE AND PURCHASE OF NATURAL GAS EXHIBIT A TRANSACTION CONFIRMATION FOR IMMEDIATE DELIVERY ATTACHMENT #1 GISB GAS SALES AND PURCHASE CONTRACT NOTICES

EXHIBIT 10.21   RELEASE AND SEVERANCE COMPENSATION AGREEMENT   THIS RELEASE AND SEVERANCE COMPENSATION AGREEMENT (the “Agreement”) is between ProAssurance Corporation, a Delaware corporation (“ProAssurance”), MEEMIC Insurance Company, a Michigan insurance company (“MEEMIC Insurance”), MEEMIC Holdings, Inc., a Michigan corporation (“MEEMIC Holdings”) and Christine C. Schmitt, an individual (the “Executive”).  ProAssurance, MEEMIC Insurance, and MEEMIC Holdings and their respective majority-owned subsidiaries are hereinafter collectively referred to as the “Companies.”   RECITALS:   The Executive is currently rendering valuable services to MEEMIC Insurance, which is a wholly-owned subsidiary of MEEMIC Holdings.  ProAssurance has acquired, or will acquire, control of MEEMIC Holdings and MEEMIC Insurance in a transaction (the “Consolidation”) that will result in a “change of control” (the “Change of Control”) under the terms and conditions of the Change of Control Agreement among MEEMIC Insurance, MEEMIC Holdings and the Executive effective as of July 1, 2000 (the “Change of Control Agreement”).  The Companies have offered to employ the Executive in an at will employment relationship after the Consolidation and to expand protection to the Executive in the form of severance benefits payable on termination of employment under certain circumstances after the Consolidation on the condition that the Executive releases the Companies from any past or future liability under the Change of Control Agreement.  The Executive desires to continue employment with the Companies under such terms and conditions, and with the protection afforded to the Executive by this Agreement.   AGREEMENT   NOW, THEREFORE, These Premises Considered, and in consideration of the mutual covenants and promises in this Agreement, the sufficiency of which is hereby acknowledged, the parties agree as follows:   1.                Term of Agreement.  This Agreement is subject to, and conditioned upon, the closing (the “Closing”) of the transactions (the “Consolidation”) contemplated by the Agreement to Consolidate by and between Medical Assurance, Inc. and Professionals Group, Inc. dated June 22, 2000, as amended November 1, 2000.  This Agreement is effective on the date of Closing which is scheduled to occur on June 27, 2001, and shall continue in effect for a period of two years from the date of Closing (the “Initial Term”).  Thereafter, this Agreement shall automatically be extended for successive terms of one year (a “Renewal Term”), except this Agreement may be terminated after the first Renewal Term upon delivery of written notice of the termination of this Agreement by any of the Companies at least six months prior to the expiration of any Renewal Term.  If the Executive’s employment is terminated during the term of the Agreement, the date on which the Executive’s employment terminates shall be referred to as the “Date of Termination.”   2.                Severance Benefits.  If during the term of this Agreement the Executive leaves the employment of the Company for Good Reason, as explained in Section 4 of this Agreement, and the Executive signs the release (the “Release”) that is attached to and incorporated in this Agreement, the Executive shall receive the following benefits (the “Severance Benefits”):   (a)             An amount equal to either of whichever the following is applicable: (i) if the Date of Termination occurs during the Initial Term, two (2) times the Executive’s annual base salary; or (ii) if the Date of Termination occurs during a Renewal Term, one (1) times the Executive’s annual base salary.  The “annual base salary” of the Executive shall be defined as the Executive’s base rate of compensation in effect as of the Date of Termination, but in no event less than the Executive’s base rate of compensation in effect as of the end of the last calendar quarter preceding the Date of Termination;   (b)            An amount equal to either of whichever of the following is applicable: (i) if the Date of Termination occurs during the Initial Term, two (2) times the average total annual incentive award(s) or bonus(es); or (ii) if the Date of Termination occurs during a Renewal Term, one (1) times the average total annual incentive award(s) or bonus(es).  The “average total annual incentive award(s) or bonus(es)” shall mean the average of the sum of (i) cash awards or bonuses earned with the Companies by the Executive, plus (ii) the value of stock awarded to the Executive by the Companies for each complete fiscal year during the last three years (whether or not deferred) or, if shorter, over the Executive’s entire period of employment with the Companies.  The value of stock awarded to the Executive shall be calculated based on the value of the stock as of the date the stock was awarded to the Executive as annual incentive compensation.  Notwithstanding the foregoing, the Executive’s actual total annual incentive awards or bonuses shall be calculated excluding the value of options to purchase stock which may have been awarded to the Executive;   (c)             Payment of the Executive’s monthly COBRA premiums for continued health and dental insurance coverage for the shorter of the following:  (i) 18 months if the Date of Termination occurs in the Initial Term; (ii) 12 months if the Date of Termination occurs in the Renewal Term; (iii) until the Executive no longer has coverage under COBRA; or (iv) until the Executive becomes eligible for substantially similar coverage under a subsequent employer’s group health plan; and   (d)                Outplacement services that are customary to Executive’s position.   The cash severance benefits described in subparagraphs (a) and (b) above shall be paid in equal monthly installments during the period that the covenants set forth in Section 7 shall be in effect commencing upon the Date of Termination; provided that the obligation of the Companies to pay such cash severance benefits to the Executive shall be subject to termination under the provisions of Section 7 hereof in the event the Executive should violate the covenants set forth therein; and provided further that the payment of such cash severance benefits shall be accelerated and payable in lump sum by the Companies upon a breach of this Agreement as a result of the failure of a successor (herein defined) to assume this Agreement as required in Section 10 of this Agreement.  The Companies shall withhold from any amounts payable under this Agreement all federal, state, city or other income and employment axes that shall be required.   The Companies shall fund the obligation to pay cash Severance Benefits by depositing in escrow an amount equal to the sum of the amounts payable to the Executive under subparagraphs (a) and (b) hereof (the “Escrow Funds”) with SouthTrust Bank (or another financial institution with total assets of more than $1,000,000,000) as escrow agent (the “Escrow Agent”).  The Escrow Funds shall be held, invested and distributed by Escrow Agent in accordance with the following provisions.  At the time of delivery of the Escrow Funds, the Escrow Agent shall acknowledge receipt of the Escrow Funds and agree to be bound by the provisions of this Agreement in a separate written document.  The Escrow Agent shall invest the Escrow Funds in a money market account.  Unless and until the Escrow Agent receives notice from ProAssurance that the Executive has breached this Agreement, the Escrow Agent shall distribute the Escrow Funds to the Executive in the same number of equal monthly installments as the number of whole calendar months in the Restricted Period (as defined in Section 7 hereof).  The monthly installments shall be distributed to the Executive on the first day of each calendar month in the Restricted Period together with accrued and undistributed earnings on the Escrow Funds.  If the Company delivers written notice to the Escrow Agent and Executive that the cash Severance Benefits payable to Executive are subject to termination under Section 7 of this Agreement, the Escrow Agent shall distribute the balance of the Escrow Funds and accrued and undistributed earnings thereon to ProAssurance unless the Escrow Agent receives a written notice of objection from the Executive within 15 days after delivery of ProAssurance’s notice.  If Executive provides a timely notice of objection, the Escrow Agent shall hold the Escrow Funds until it receives a written notice of distribution from the arbitrator appointed pursuant to Section 13 hereof or a joint written notice of distribution from the Executive and ProAssurance.  The failure of the Executive or the Company to deliver notice to the Escrow Agent as herein provided shall not be a waiver of any of their respective rights under this Agreement.   The Executive shall be entitled to the following in addition to and not in limitation of the Severance Benefits:  (i) accrued and unpaid base salary as of the Date of Termination; (ii) accrued vacation and sick leave, if any, on Date of Termination in accordance with the then current policy of the Companies with respect to terminated employees generally; and (iii) vested benefits under the Companies’ employee benefit plans in which the Executive was a participant on Date of Termination, which vested benefits shall be paid or provided for in accordance with the terms of said employee benefit plans.  If the Executive has regular use of a vehicle provided by the Companies for business and personal use on Date of Termination, the Companies shall offer for sale to the Executive the vehicle at a purchase price equal to either of the following: (x) if owned by any of the Companies, the then current book value of the vehicle (cost less accumulated depreciation), or (y) if leased by any of the Companies, the purchase price upon the exercise of the purchase option, if any, under the lease.   The Executive shall not be entitled to receive Severance Benefits if employment with the Companies is terminated by reason of death of Executive, retirement of Executive pursuant to the Company’s retirement plan as then in effect, the Executive having reached the age of mandatory retirement (if such requirement then exists for bona fide executives) or Disability of Executive (herein defined); or by reason of termination of employment by the Executive without Good Reason (herein defined); or by reason of termination of employment by the Companies with Cause (herein defined).   The Executive shall be under no duty or obligation to seek or accept other employment and shall not be required to mitigate the amount of the Severance Benefits provided under the Agreement by seeking employment or otherwise; provided, however, that the Executive shall be required to notify the Companies if the Executive becomes covered by a health or dental care program providing substantially similar coverage, at which time health or dental care continuation coverage provided under this Agreement shall cease.   3.                Parachute Payments.  Subject to Section 280G of the Internal Revenue Code of 1986, as amended (“Code”), if the board of directors of ProAssurance determines that an excise tax under Section 4999 (“Excise Tax”) would be due, the Executive’s Severance Benefits under this Agreement shall be limited to the amount necessary to avoid the Excise Tax only if applying such a limit results in a greater net benefit to the Executive than would have resulted had the benefits not been limited and an Excise Tax paid.  For purposes of making such computation:   (a)             Any other payments or benefits received or to be received by the Executive in connection with the Change of Control or the Executive’s termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement, or agreement with the Companies, or with any person whose actions result in the Change of Control) shall be treated as “parachute payments” within the meaning of Section 280G(b)(2) of the Code, and all “excess parachute payments” within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless, in the opinion of tax counsel selected by ProAssurance’s independent auditors, such other payments or benefits (in whole or in part) do not constitute parachute payments, or such other payments or benefits (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or such other payments or benefits (in whole or in part) are otherwise not subject to the Excise Tax.  In the event an Excise Tax is due, because of payments made under this Agreement, the Executive shall be responsible for paying said Excise Tax.   (b)            The amount of the Severance Benefits that will be treated as subject to the Excise Tax shall be equal to the lesser of: (i) the total amount of the Severance Benefits; or (ii) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying subparagraph (a) above).   (c)             The value of any noncash benefits or any deferred payment or benefit shall be determined by ProAssurance’s independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.   (d)            The Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in a calendar year in which the Severance Benefits are to be paid, and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive’s residence on the Date of Termination, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes.   In the event the Internal Revenue Service adjusts the computation in subparagraphs (a) through (d) above, so that the Executive did not receive the greatest net benefit, the Companies shall reimburse the Executive for the amount necessary to make the payment of Severance Benefits to the Executive to the extent permitted hereunder, plus a market rate of interest as determined by the Board of Directors of ProAssurance.   4.                Good Reason for Termination.  In the event that the Executive’s employment relationship with the Companies is terminated for any of the reasons described in this Section 4, the Executive shall be entitled to Severance Benefits, subject to and described in Section 2 of this Agreement.  “Good Reason” shall constitute any of the following circumstances if they occur without the Executive’s express written consent during the term of this Agreement:   (a)             The Executive no longer holds an executive level position with executive level responsibilities with the Companies consistent with the Executive’s training and experience;   (b)            The Companies require that the Executive’s primary location of employment be more than 50 miles from the location of the Executive’s primary location of employment on June 27, 2001;   (c)             The failure of the Companies to provide the Executive, at a level commensurate with the Executive’s position, the incentive compensation opportunities and employee benefits that are provided to other executives of comparable rank with the Companies;   (d)                                A breach by the Companies of any provision of this Agreement. including without limitation, the failure of a successor to assume this Agreement as required in Section 10 hereof;   (e)                                The termination of the Executive’s employment by the Companies for a reason other than: (i) death; (ii) retirement pursuant to the Companies’ retirement plan as then in effect; (iii) Disability as explained in Section 5 of this Agreement; (iv) the Executive has reached the age of mandatory retirement (if such requirement then exists for bona fide executives); (v) for Cause, as explained in Section 6 of this Agreement;   (f)             A reduction by the Companies in the Executive’s base salary in effect as of the date of this Agreement; or   (g)            The termination or non-renewal of this Agreement by the Companies.   The Executive must provide the Companies with written notice no later than 45 calendar days after the Executive knows or should have known that Good Reason has occurred.  Following the Executive’s Notice, the Companies shall have 45 calendar days to rectify the circumstances causing the Good Reason.  If the Company fails to rectify the event(s) causing the Good Reason within the 45 day period after the Executive’s Notice, or if any of the Companies delivers to the Executive written notice stating that the circumstances cannot or shall not be rectified, the Executive shall be entitled to assert Good Reason and terminate employment on or before 90 days after the delivery of the Executive’s Notice.  Should Executive fail to provide the required Notice in a timely manner, Good Reason shall not be deemed to have occurred as a result of that event.  The Initial Term or a Renewal Term shall not be deemed to have expired during the Notice period, however, as long as the Executive has provided Notice within the Term.   5.                Disability.  For purposes of this Agreement, Disability means a serious injury or illness that requires the Executive to be under the regular care of a licensed medical physician and renders the Executive incapable of performing the essential functions of the Executive’s position for 12 months as determined by the Board of Directors of the Companies in good faith and upon receipt of and in reliance on competent medical advice from one or more individuals selected by the Board of Directors, who are qualified to give professional medical advice.   6.                Cause.  If the Executive’s employment is terminated for Cause, as described below in this Section, the Executive shall not be eligible for severance benefits and all rights of the Executive and obligations of the Companies under this Agreement shall expire.  Cause means:   (a)             The Executive has been convicted in a federal or state court of a crime classified as a felony;   (b)            Action or inaction by the Executive (i) that constitutes embezzlement, theft, misappropriation or conversion of assets of the Companies which alone or together with related actions or inactions involve assets of more than a de minimis amount, or that constitutes fraud, gross malfeasance of duty, or conduct grossly inappropriate to Executive’s office; and (ii) such action or inaction has adversely affected or is likely to adversely affect the business of the Companies or has resulted or is intended to result in direct or indirect gain or personal enrichment of the Executive to the detriment of the Companies;   (c)             The Executive has been grossly inattentive to, or in a grossly negligent manner failed to competently perform, Executive’s job duties and the failure was not cured within 45 days after written notice from the Companies.   Any termination of the Executive’s employment by the Companies for Cause shall be communicated by a notice of termination (the “Notice of Termination”) to the Executive.  The Notice of Termination shall be a written notice indicating the specific termination provision of this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under this provision.   7.                Non-Competition.   (a)             In the event the Date of Termination occurs during the Initial Term, the Executive (i) will be bound by and subject to any covenant not to compete or noncompetition agreement with the Companies (or any of them) to which the Executive was subject as of the Date of Termination (other than the noncompetition agreement set forth in Section 7(b) hereof), or (ii) in the alternative if the Executive is not subject to a covenant not to compete or noncompetition agreement with the Companies (or any of them) as of the Date of Termination (other than a covenant not to compete or noncompetition agreement contained in an employee handbook or otherwise applicable to employees generally), the Executive will be bound by and subject to the noncompetition agreement set forth in subparagraph 7(b) of this Agreement.  Upon the expiration of the Initial Term, any and all covenants not to compete or noncompetition agreements between the Executive and the Companies (or any of them) then in effect shall be superseded by the noncompetition agreement set forth in Section 7(b) hereof and the Executive and the Companies shall not be bound by the provisions of any covenant not to compete or noncompetition agreement other than the provisions of Section 7(b) hereof unless specifically agreed to in a written document executed by the Executive and the Companies (or any of them) after the Closing.   (b)            In the event that either (i) the Date of Termination occurs during the Initial Term and the provisions of Section 7(a)(ii) hereof are binding on the Executive, or (ii) the Date of Termination occurs during a Renewal Term, the Executive will not during the Restricted Period (herein defined):   (i)                become employed by a competitor company that is underwriting, selling or marketing insurance products that target educators in MEEMIC’s primary market area; or   (ii)                assist a competitor company to develop insurance products that target educators and that will be marketed or sold in MEEMIC’s primary area; or   (iii)                solicit or induce any other employees of the Companies to leave such employment or accept employment with any other person or entity, or solicit or induce any insurance agent of the Companies to offer, sell or market insurance products that target educators in MEEMIC’s primary market area, other than on behalf of MEEMIC.   “Competitor company” means an insurance company, insurance agency, business, for profit or not for profit organization (other than the Companies) which is engaged directly or indirectly in underwriting, selling or marketing any insurance product that targets educators.   “Educators” means teachers, administrators and other employees of public and private school systems (including colleges and universities).   “Primary market area” means the state of Michigan and any other state in which MEEMIC Insurance derived more than $5 million in direct written premiums from the sale of personal auto and homeowners insurance in the most recent complete fiscal year prior to the Date of Termination.   “Restricted Period” means as applicable either (i) if the Date of Termination occurs within the Initial Term, a period of 24 months from such Date of Termination; or (ii) if the Date of Termination occurs within a Renewal Term, a period of 12 months from such Date of Termination.   “Employed” includes activities as an owner, proprietor, employee, agent, solicitor, partner, member, manager, principal, shareholder (owning more than 1% of the outstanding stock), consultant, officer, director or independent contractor.   “Companies” means any company that is a subsidiary of ProAssurance, now or in the future, and any other company that has succeeded to the business of any of the Companies.   If the Executive is deemed to have materially breached the non-competition covenants set forth in Section 7 of this Agreement, the Companies may, in addition to seeking an injunction or any other remedy they may have, withhold or cancel any remaining payments or benefits due to the Executive pursuant to Section 2 of this Agreement.  The Companies shall give prior or contemporaneous written notice of such withholding or cancellation of payments in accordance with Section 2 hereof.  If the Executive violates any of these restrictions, the Companies shall be further entitled to an immediate preliminary and permanent injunctive relief, without bond, in addition to any other remedy which may be available to the Companies.   Both parties agree that the restrictions in this Agreement are fair and reasonable in all respects, including the geographic and temporal restrictions, and that the benefits described in this Agreement, to the extent any separate or special consideration is necessary, are fully sufficient consideration for the Executive’s obligations under this Agreement.   8.                Confidentiality.  Executive will remain obligated under any confidentiality or nondisclosure agreement with the Companies (or any of them) that is currently in effect or to which the Executive may in the future be bound.  In the event that the Executive is at any time not the subject of a separate confidentiality or nondisclosure agreement with the Companies (or any of them), Executive expressly agrees that Executive shall not use for the Executive’s personal benefit, or disclose, communicate or divulge to, or use for the direct or indirect benefit of any person, firm, association or company any confidential or competitive material or information of the Companies or their subsidiaries, including without limitation, any information regarding insureds or other customers, actual or prospective, and the contents of their files; marketing, underwriting or financial plans or analyses which is not a matter of public record; claims practices or analyses which are not matters of public record; pending or past litigation in which the Companies have been involved and which is not a matter of public record; and all other strategic plans, analyses of operations, computer programs, personnel information and other proprietary information with respect to the Companies which are not matters of public record.  Executive shall return to the Companies promptly, and in no event later than the Date of Termination, all items, documents, lists and other materials belonging to the Companies or their subsidiaries, including but not limited to, credit, debit or service cards, all documents, computer tapes, or other business records or information, keys and all other items in the Executive’s possession or control.   9.                Release of Change of Control Agreement.  In consideration of the continued employment of the Executive by the Companies after the Change of Control and the obligation of the Companies to pay the Executive Severance Benefits as herein provided, the Executive hereby waives, releases and forever discharges the Companies and each of their direct or indirect parents, subsidiaries, affiliates and related entities, and all present or former employees, officers, agents, directors or representatives of any of them, from any and all claims, charges, suits, causes of action, demands, expenses and compensation whatsoever, known or unknown, direct or indirect, on account of or growing out of the Executive’s Change of Control Agreement, including, without limitation, the payment of severance benefits as provided thereunder.  Executive hereby further agrees that he will not institute any suit or action at law, in equity or otherwise against the Companies or any of their direct or indirect parents, subsidiaries, affiliates and related entities, or the present or former employees, officers, agents, directors, or representatives of any of them and their respective successors and assigns, nor will the Executive ever institute, prosecute, or in any way aid in the institutional prosecution of any claim, demand, action or cause of action for damages, costs, expenses, penalties, fines, compensation or equitable relief, for or on account of any damage, loss or injury to either person or property or both, whether developed or undeveloped, resulting or to result, known or unknown, which Executive ever had, now has, or which Executive or his successors and assigns may in the future have against any of said persons in connection with the Change of Control Agreement of the Executive.   The Executive acknowledges and agrees that Executive has been advised in writing by this Agreement, and otherwise, to CONSULT WITH AN ATTORNEY before Executive enters into this Agreement.  The Executive agrees that the Executive received and read a copy of this Agreement prior to executing the same.   10.                Successors of ProAssurance.  ProAssurance will require any successor (herein defined) to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Companies would be required to perform this Agreement if no such succession had taken place.  Failure of ProAssurance to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to terminate employment for Good Reason and receive Severance Benefits as provided in Section 2 hereof.  Reference to the Companies in this Agreement shall include any successor which assumes and agrees to perform this Agreement by operation of law or otherwise.   The term “successor” means any Person, as defined by Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) other than a Person in control of the Companies immediately after completion of the Change of Control transaction, that either (i) becomes the Beneficial Owner, as defined by Rule 13d-3 of the General Rules and Regulations under the Exchange Act, directly or indirectly, of the securities of ProAssurance representing more than 50.1% of the combined voting power of the then outstanding securities of ProAssurance; (ii) purchases or otherwise acquires substantially all of the assets of the Companies such that the Companies cease to function on a going forward basis as an insurance holding company system that provides medical professional liability insurance; or (iii) survives a merger, consolidation or reorganization that results in less than 50.1% of the combined voting power of ProAssurance or such surviving entity being owned by stockholders of ProAssurance immediately preceding such merger, consolidation or reorganization.   11.                Notice.  For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand or commercial courier or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses as set forth below or to such other address as one party may have furnished to the other in writing in accordance herewith.     Notice to the Executive:   Christine C. Schmitt MEEMIC Insurance Company 691 Squirrel Road Suite 200 Auburn Hills, MI  48326   Notice to the Companies:   ProAssurance Corporation Mailing Address: P. O. Box 590009 Birmingham, Alabama 35259-0009 Street Address: 100 Brookwood Place Birmingham, Alabama 35209 Attention: Chairman of the Board   12.                Claims Procedure.   (a)             The administrator for purposes of this Agreement shall be ProAssurance (“Administrator”), whose address is 100 Brookwood Place, Birmingham, Alabama 35209; Telephone: (205) 877-4400.  The “Named Fiduciary” as defined in Section 402(a)(2) or ERISA, also shall be ProAssurance.  ProAssurance shall have the right to designate one or more employees of the Companies as the Administrator and the Named Fiduciary at any time, and to change the address and telephone number of the same.  ProAssurance shall give the Executive written notice of any change in the Administrator and Named Fiduciary, or in the address or telephone number of the same.   (b)            The Administrator shall make all determinations as to the right of any person to receive benefits under the Agreement.  Any denial by the Administrator of a claim for benefits by the Executive (“the claimant”) shall be stated in writing by the Administrator and delivered or mailed to the claimant within ten (10) days after receipt of the claim, unless special circumstances require an extension of time for processing the claim.  If such an extension is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 10-day period.  In no event shall such extension exceed a period of ten (10) days from the end of the initial period.  Any notice of denial shall set forth the specific reasons for the denial, specific reference to pertinent provisions of this Agreement upon which the denial is based, a description of any additional material or information necessary for the claimant to perfect the claim, with an explanation of why such material or information is necessary, and any explanation of claim review procedures, written to the best of the Administrator’s ability in a manner that may be understood without legal or actuarial counsel.   (c)             A claimant whose claim for benefits has been wholly or partially denied by the Administrator may request, within ten (10) days following the receipt of such denial, in a writing addressed to the Administrator, a review of such denial.  The claimant shall be entitled to submit such issues or comments in writing or otherwise, as the claimant shall consider relevant to a determination of the claim, and the claimant may include a request for a hearing in person before the Administrator.  Prior to submitting the request, the claimant shall be entitled to review such documents as the Administrator shall agree are pertinent to the claim.  The claimant may, at all stages of review, be represented by counsel, legal or otherwise, of the claimant’s choice.  All requests for review shall be promptly resolved.  The Administrator’s decision with respect to any such review shall be set forth in writing and shall be mailed to the claimant not later than ten (10) days following receipt by the Administrator of the claimant’s request unless special circumstances, such as the need to hold a hearing, require an extension of time for processing, in which case the Administrator’s decision shall be so mailed not later than twenty (20) days after receipt of such request.   13.                Arbitration.  The parties to this Agreement agree that final and binding arbitration shall be the sole recourse to settle any claim or controversy arising out of or relating to a breach or the interpretation of this Agreement, except as either party may be seeking injunctive relief.  Either party may file for arbitration.  A claimant seeking relief on a claim for benefits, however, must first follow the procedure in Section 12 hereof and may file for arbitration within sixty (60) days following claimant’s receipt of the Administrator’s written decision on review under Section 12(c) hereof, or if the Administrator fails to provide any written decision under Section 12 hereof, within 60 days of the date on which such written decision was required to be delivered to the claimant as therein provided.  The arbitration shall be held at a mutually agreeable location, and shall be subject to and in accordance with the arbitration rules then in effect of the American Arbitration Association; provided that if the location cannot be agreed upon the arbitration shall be held in either Atlanta, Georgia, or Chicago, Illinois, whichever location is closer to the principal office where the Executive was employed on Date of Termination.  The arbitrator may award any and all remedies allowable by the cause of action subject to the arbitration, but the arbitrator’s sole authority shall be to interpret and apply the provisions of this Agreement.  In reaching its decision the arbitrator shall have no authority to change or modify any provision of this Agreement or other written agreement between the parties.  The arbitrator shall have the power to compel the attendance of witnesses at the hearing.  Any court having jurisdiction may enter a judgment based upon such arbitration.  All decisions of the arbitrator shall be final and binding on the parties without appeal to any court.  Upon execution of this Agreement, the Executive shall be deemed to have waived any right to commence litigation proceedings regarding this Agreement outside of arbitration or injunctive relief without the express consent of ProAssurance.  The Companies shall pay all arbitration fees and the arbitrator’s compensation.  If the Executive prevails in the arbitration proceeding, the Companies shall reimburse to the Executive the reasonable fees and expenses of Executive’s personal counsel for his or her professional services rendered to the Executive in connection with the enforcement of this Agreement.   14.                Miscellaneous.   (a)             Except insofar as this provision may be contrary to applicable law, no sale, transfer, alienation, assignment, pledge, collateralization or attachment of any benefits under this Agreement shall be valid or recognized by the Companies.   (b)            This Agreement is an unfunded deferred compensation arrangement for a member of a select group of the Companies’ management and any exemptions under ERISA, as applicable to such arrangement, shall be applicable to this Agreement.  Nothing in this Agreement shall require or be deemed to require the Companies or any of them to segregate, earmark or otherwise set aside any funds or other assets to provide for any payments made or required to be made hereunder.   (c)             Nothing in this Agreement shall be deemed to create an employment agreement between the Executive and the Companies or any of them providing for Executive’s employment for any fixed duration, nor shall it be deemed to modify or undercut the Executive’s at will employment status with the Companies.   (d)            Neither the provisions of this Agreement nor the severance benefits provided hereunder shall reduce any amounts otherwise payable, or in any way diminish the Executive’s rights as an employee of the Companies, whether existing now or hereafter, under any benefit, incentive, retirement, stock option, stock bonus or stock purchase plan, or any employment agreement or other plan or arrangement.   (e)             This Agreement sets forth the entire agreement between the parties with respect to the matters set forth herein.  This Agreement may not be modified or amended except by written agreement intended as such and signed by all parties.   (f)             This Agreement shall benefit and be binding upon the parties and their respective directors, officers, employees, representatives, agents, heirs, successors, assigns, devisees, and legal or personal representatives.   (g)            The Companies, from time to time, shall provide government agencies with such reports concerning this Agreement as may be required by law, and shall provide Executive with such disclosure concerning this Agreement as may be required by law or as the Companies may deem appropriate.   (h)                Executive and the Companies respectively acknowledge that each of them has read and understand this Agreement, that they have each had adequate time to consider this Agreement and discuss it with each of their attorneys and advisors, that each of them understands the consequences of entering into this Agreement, that each of them is knowingly and voluntarily entering into this Agreement, and that they are each competent to enter into this Agreement.   (i)              If any provision of this Agreement is determined to be unenforceable, at the discretion of ProAssurance the remainder of this Agreement shall not be affected but each remaining provision shall continue to be valid and effective and shall be modified so that it is enforceable to the fullest extent permitted by law.  Moreover, in the event this Agreement is determined to be unenforceable against any of the Companies, it shall continue to be valid and enforceable against the other Companies.   (j)              This Agreement will be interpreted as a whole according to its fair terms.  It will not be construed strictly for or against either party.   (k)             Except to the extent that federal law controls, this Agreement is to be construed according to Michigan law.   IN WITNESS WHEREOF, the parties have duly executed this Agreement as of this 15th day of June, 2001.   EXECUTIVE:   /s/ Christine C. Schmitt   Christine C. Schmitt   PROASSURANCE CORPORATION     By: /s/ Victor T. Adamo   Its: President     MEEMIC INSURANCE COMPANY     By: /s/ R. Kevin Clinton   Its: President     MEEMIC HOLDINGS, INC.     By: /s/ R. Kevin Clinton   Its: President   RELEASE IN CONJUNCTION WITH SEVERANCE COMPENSATION   This Release of Claims (“Release”) is between ProAssurance Corporation (“ProAssurance”), MEEMIC Insurance Company, MEEMIC Holdings, Inc., and any successor company that has assumed the Agreement to which this Release was an attachment (all such organizations being referred to in this Release as the "Companies") and Christine C. Schmitt ("Executive”).   The Companies and Executive have agreed to terminate their employment relationship. To effect an orderly termination, the Executive, and the Companies are entering into this Release.   1.     For the purposes of this Release, “Date of Termination” is the effective date of Executive’s termination of employment from Companies.  Executive hereby waives any and all rights Executive may otherwise have to continued employment with or re-employment by the Companies or any parent, subsidiary or affiliate of Companies.   2.                Effective with the Date of Termination, Executive is relieved of all duties and obligations to the Companies, except as provided in this Release or any applicable provisions of the Release and Severance Compensation Agreement between Companies and Executive, effective as of June 27, 2001 (the “Severance Agreement”), which survive termination of the employment relationship.   3.                Executive agrees that this Release and its terms are confidential and shall not be disclosed or published directly or indirectly to third persons, except as necessary to enforce its terms, by Executive or to Executive’s immediate family upon their agreement not to disclose the fact or terms of this Release, or to Executive’s attorney, financial consultant or accountant, except that Executive may disclose, as necessary, the fact that Executive has terminated Executive’s employment with the Companies.   4.     Any fringe benefits that Executive has received or currently is receiving from the Companies or its affiliates shall cease effective with the Date of Termination, except as otherwise provided for in this Release, in the Severance Agreement or by law.   5.     The parties agree that the terms contained and payments provided for in the Severance Agreement are compensation for and in full consideration of Employee's release of claims under this Release, and Executive’s confidentiality, non-compete, non-solicitation and non-disclosure agreements contained in the Severance Agreement.   6.     The Executive shall be under no duty or obligation to seek or accept other employment and shall not be required to mitigate the amount of the Severance Benefits (as defined and provided under the Severance Agreement) by seeking employment or otherwise, provided, however, that the Executive shall be required to notify the Companies if the Executive becomes covered by a health or dental care program providing substantially similar coverage, at which time health or dental care continuation coverage provided under the Agreement shall cease.   7.                Except for claims arising under the Severance Agreement, Executive waives, releases, and forever discharges the Companies and each of their direct or indirect parents, subsidiaries, affiliates, and any partnerships, joint ventures or other entities involving or related to any of the Companies, their parents, subsidiaries or affiliates, and all present or former employees, officers, agents, directors, successors, assigns and attorneys of any of these corporations, persons or entities (all collectively referred to in this Release as the "Released") from any and all claims, charges, suits, causes of action, demands, expenses and compensation whatsoever, known or unknown, direct or indirect, on account of or growing out of Executive’s employment with and termination from the Companies, or relationship or termination of such relationship with any of the Released, or arising out of related events occurring through the date on which this Release is executed. This includes, but is not limited to, claims for breach of any employment contract; handbook or manual; any express or implied contract; any tort; continued employment; loss of wages or benefits; attorney fees; employment discrimination arising under any federal, state, or local civil rights or anti-discrimination statute, including specifically any claims Executive may have under the federal Age Discrimination in Employment Act, as amended, 29 USC §§ 621, et seq.; emotional distress; harassment; defamation; slander; and all other types of claims or causes of action whatsoever arising under any other state or federal statute or common law of the United States.   8.     The Executive does not waive or release any rights or claims that may arise under the federal Age Discrimination in Employment Act, as amended, after the date on which this Release is executed by the Executive.   9.     The Executive acknowledges and agrees that Executive has been advised in writing by this Release, and otherwise, to CONSULT WITH AN ATTORNEY before Executive executes this Release.   10.   The Executive agrees that Executive received a copy of this Release prior to executing the Agreement, that this Release incorporates the Companies’ FINAL OFFER; that Executive has been given a period of at least twenty-two (22) calendar days within which to consider this Release and its terms and to consult with an attorney should Executive so elect.   11.   The Executive shall have seven (7) calendar days following Executive’s execution of this Release to revoke this Release. Any revocation of this Release shall be made in writing by the Executive and shall be received on or before the time of close of business on the seventh calendar day following the date of the Employee's execution of this Release at ProAssurance’s address at 100 Brookwood Place, P. O. Box 590009, Birmingham, Alabama 35259-0009, Attention: Chairman, or such other place as the Companies may notify Executive in writing. This Release shall not become effective or enforceable until the eighth (8th) calendar day following the Executive’s execution of this Release.   12.                Executive and the Companies acknowledge that they have read and understand this Release, that they have had adequate time to consider this Release and discuss it with their attorneys and advisors, that they understand the consequences of entering into this Release, that they are knowingly and voluntarily entering into this Release, and that they are competent to enter into this Release.   13.   This Release shall benefit and be binding upon the parties and their respective directors, officers, employees, agents, heirs, successors, assigns, devisees and legal or personal representatives.   14.   This Release, along with the attached Severance Agreement, sets forth the entire agreement between the parties at the time and date these documents are executed, and fully supersedes any and all prior agreements or understandings between them pertaining to the subject matter in this Release. This Release may not be modified or amended except by a written agreement intended as such, and signed by all parties.   15.                Except to the extent that federal law controls, this Release is to be construed according to the law of the state of Michigan.   16.   If any provision of this Release is determined to be unenforceable, at the discretion of ProAssurance the remainder of this Release shall not be affected but each remaining provision or portion shall continue to be valid and effective and shall be modified so that it is enforceable to the fullest extent permitted by law.   17.   To signify their agreement to the terms of this Release, the parties have executed it on the date set forth opposite their signatures, or those of their authorized agents, which follow.       EXECUTIVE           Dated:                 Christine C. Schmitt               PROASSURANCE CORPORATION           Dated:       By:           Its:                           MEEMIC HOLDINGS, INC.           Dated:       By:           Its:                           MEEMIC INSURANCE COMPANY           Dated:       By:           Its:                

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.11 THIRD MODIFICATION OF SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND LOAN DOCUMENTS     THIS THIRD MODIFICATION OF SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND LOAN DOCUMENTS (this "Agreement") is made this 19th day of December, 2000, by and among (i) THE ROTTLUND COMPANY, INC., a Minnesota corporation ("Borrower"), (ii) FLEET NATIONAL BANK, as Agent (the "Agent") for itself and the other lending institutions which are or may become parties to the Credit Agreement (as hereinafter defined), (iii) FLEET NATIONAL BANK, as a lender under the Credit Agreement ("Fleet"), and (iv) BANK UNITED (Bank United and Fleet being hereinafter collectively referred to as the "Banks"). W I T N E S S E T H:     WHEREAS, Borrower, Agent, and the Banks entered into that certain Second Amended and Restated Credit Agreement, dated November 30, 1999, as amended by that certain First Modification of Second Amended and Restated Credit Agreement and Loan Documents, dated April 21, 2000, and as further amended by that certain Second Modification of Second Amended and Restated Credit Agreement and Loan Documents, dated June 30, 2000 (as may hereafter be amended or modified from time to time, the "Credit Agreement"); and     WHEREAS, the parties to the Credit Agreement wish to further amend and modify the Credit Agreement and the Loan Documents (as defined in the Credit Agreement);     NOW THEREFORE, IN CONSIDERATION of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:     1.  Definitions.  All capitalized terms not otherwise defined herein shall have the meaning ascribed thereto in the Credit Agreement.     2.  Amendments.  The Credit Agreement is hereby modified as follows:     (a) The definition of "Conversion Date" is hereby deleted.     (b) The definition of "Commitment Amount" is hereby deleted, and the following inserted in lieu thereof: "Commitment Amount.  The sum of the commitments for the Loan by the Banks in an amount not to exceed $50,000,000."     (d) The definition of "Existing Senior Indebtedness Repurchase Cost" is hereby deleted.     (e) The definition of "Maximum Revolver Amount" is hereby deleted and the following is inserted in lieu thereof: "Maximum Revolver Amount.  The Maximum Revolver Amount shall be equal to the lesser of (i) the Borrowing Base minus Permitted Third Party Letters of Credit and (ii) the sum of the several Commitments of the Banks as shown on Schedule 1 hereto, such sum not to exceed $50,000,000."     (f)  The definition of "Repurchase Premium" is hereby deleted.     (g) The text of § 2.1 is hereby deleted and the following inserted in lieu thereof: "Commitment to Lend and Borrower's Promise to Pay.  The Banks hereby commit to extend credit in the amount of $50,000,000; provided, however, that the Senior Indebtedness at any one time outstanding (calculated in the manner set forth at §7.5) shall not exceed the -------------------------------------------------------------------------------- Borrowing Base. Subject to the terms and conditions set forth in this Agreement, each of the Banks severally agrees to lend to the Borrower and the Borrower may borrow, repay, and reborrow from time to time between the Effective Date and the Maturity Date (as defined below), upon notice to the Agent given in accordance with § 2.5 hereof, such amounts as may be requested by the Borrower; provided, however, that the maximum aggregate principal amount of the Revolving Credit Loan (after giving effect to the amounts requested) shall not at any one time exceed an amount equal to the Maximum Revolver Amount minus the amount of Letters of Credit issued pursuant to §2.9 hereof. The Advances with respect to the Revolving Credit Loan shall be made pro rata in accordance with each Banks' Commitment Percentage. Each request for Advance hereunder shall constitute a representation by the Borrower that the applicable conditions set forth in §§6 and 7 hereof have been satisfied on the date of such request. On the Maturity Date, the Revolving Credit Commitment shall terminate and the Revolving Credit Loan shall mature and become due and payable, and the Borrower hereby promises to pay on such date all amounts then outstanding hereunder. As used herein, the term "Maturity Date" shall mean December 31, 2003 or such earlier date on which the Borrower terminates the Banks' Commitments hereunder or on which the maturity thereof is accelerated pursuant to the provisions of §11.1 hereof."     (h) The text of §2.4(b) is hereby deleted.     (i)  The text of §2.4(c), including the text inserted by that certain Second Modification of Second Amended and Restated Credit Agreement and Loan Documents, dated June 30, 2000, is hereby deleted.     (j)  The text of §2.5 is amended by deleting the reference to "Kevin Hake" and inserting in lieu thereof the name "Andrew D. Stickney."     (k) The text of §2.10 is hereby deleted.     (l)  The text of §2.11 is hereby deleted and the following inserted in lieu thereof: "Repurchase of Existing Senior Indebtedness.  The Borrower agrees and represents that the Existing Senior Indebtedness has been repurchased by the Borrower ("Senior Repurchase"), that no further obligations are owed by the Borrower with respect to the Existing Senior Indebtedness, and that nothing in this §2.11 shall hereafter be construed to require that the Commitment Amount exceed $50,000,000."     (m) Section 11.1 is hereby amended by adding the following text as item (l) thereto: "(l) if there is a Change of Control."     (n) Schedule 1, including the amendments thereto pursuant to that certain First Modification of Second Amended and Restated Credit Agreement and Loan Documents, dated April 21, 2000, is hereby deleted and the Schedule 1 attached hereto is inserted in lieu thereof.     3.  Revolving Credit Notes.  Contemporaneously with the execution of this Agreement, Borrower is executing replacement promissory notes to evidence the extended Maturity Date and the other modifications made hereby, which replacement promissory notes shall constitute Revolving Credit Notes or Notes under the Credit Agreement.     4.  Ratification.  Except as modified hereby, the terms and conditions of the Credit Agreement and the other Loan Documents shall remain in full force and effect, and Borrower hereby ratifies the terms and conditions thereof. 2 --------------------------------------------------------------------------------     5.  No Default or Event of Default.  Borrower reaffirms, as of the date hereof, all of the representations, warranties, and indemnities contained in the Loan Documents. Borrower further warrants and represents, as of the date hereof, the following:     a)  The Loan Documents are binding and enforceable.     b)  There does not exist a Default, Event of Default, or event or circumstance that with the passage of time or giving of notice would constitute a Default or Event of Default under any of the Loan Documents.     c)  Borrower has no claim, defense, rights to setoff, or counterclaim against the indebtedness evidenced or secured by any of the Loan Documents or against the Agent or the Banks.     6.  Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of Borrower, Agent, the Banks, and their respective successors and assigns.     7.  Cross Reference.  All references in the Loan Documents to the Credit Agreement shall hereafter include the modifications to the Credit Agreement set forth herein.     8.  Time of the Essence.  Time is of the essence of this Agreement.     9.  Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which when taken together shall constitute one and the same instrument.     10.  Facility Fee.  Borrower has paid to the Agent for the benefit of the Banks the sum of $250,000.00 as a fully earned fee in connection with this Agreement.     11.  Effective Date.  The Effective Date of this Agreement shall be December 31, 2000. [SIGNATURES ON FOLLOWING PAGE] 3 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed by their duly authorized representatives as of the date first above written.     THE ROTTLUND COMPANY, INC., a Minnesota corporation     By:   /s/ STEVEN A. KAHN    --------------------------------------------------------------------------------     Name:   Steven A. Kahn --------------------------------------------------------------------------------     Its:   Chief Financial Officer --------------------------------------------------------------------------------     FLEET NATIONAL BANK, AS AGENT     By:   /s/ ANDREW D. STICKNEY    --------------------------------------------------------------------------------     Name:   Andrew D. Stickney --------------------------------------------------------------------------------     Its:   Vice President --------------------------------------------------------------------------------     FLEET NATIONAL BANK     By:   /s/ ANDREW D. STICKNEY    --------------------------------------------------------------------------------     Name:   Andrew D. Stickney --------------------------------------------------------------------------------     Its:   Vice President --------------------------------------------------------------------------------     BANK UNITED     By:   /s/ PAUL GARLAND    --------------------------------------------------------------------------------     Name:   Paul Garland     Its:   Regional Director 4 --------------------------------------------------------------------------------     The undersigned guarantors hereby agree to all modifications of the Credit Agreement contained in this Agreement and hereby ratify and reaffirm their respective Amended and Restated Subsidiary Guaranty dated as of November 30, 1999.     NORTHCOAST MORTGAGE, INC.     By:   /s/ STEVEN A. KAHN    --------------------------------------------------------------------------------     Name:   Steven A. Kahn --------------------------------------------------------------------------------     Its:   Chief Financial Officer --------------------------------------------------------------------------------     ROTTLUND HOMES OF FLORIDA, INC.     By:   /s/ STEVEN A. KAHN    --------------------------------------------------------------------------------     Name:   Steven A. Kahn --------------------------------------------------------------------------------     Its:   Chief Financial Officer --------------------------------------------------------------------------------     ROTTLUND HOMES OF INDIANA LIMITED PARTNERSHIP     By:   Rottlund Homes of Indiana, Inc., Its General Partner     By:   /s/ STEVEN A. KAHN    --------------------------------------------------------------------------------     Name:   Steven A. Kahn --------------------------------------------------------------------------------     Its:   Chief Financial Officer --------------------------------------------------------------------------------     ROTTLUND HOMES OF IOWA, INC.     By:   /s/ STEVEN A. KAHN    --------------------------------------------------------------------------------     Name:   Steven A. Kahn --------------------------------------------------------------------------------     Its:   Chief Financial Officer --------------------------------------------------------------------------------     ROTTLUND HOMES OF NEW JERSEY     By:   /s/ STEVEN A. KAHN    --------------------------------------------------------------------------------     Name:   Steven A. Kahn --------------------------------------------------------------------------------     Its:   Chief Financial Officer -------------------------------------------------------------------------------- 5 -------------------------------------------------------------------------------- SCHEDULE 1 Commitments Bank --------------------------------------------------------------------------------   Commitment --------------------------------------------------------------------------------   Commitment Percentage --------------------------------------------------------------------------------   Fleet National Bank   $ 25,000,000   50 % 111 Westminster Street             Providence, RI 02903             Bank United   $ 25,000,000   50 % 222 S. Westmonte Drive             Suite 200             Altmonte Spring, FL 32714             -------------------------------------------------------------------------------- AMENDED AND RESTATED REVOLVING CREDIT NOTE $25,000,000.00   December 19, 2000     FOR VALUE RECEIVED, the undersigned, THE ROTTLUND COMPANY, INC., a corporation organized and existing under the laws of Minnesota, having its principal place of business at 3065 Center Pointe Drive, Roseville, Minnesota 55113 (the "Borrower"), promises to pay, on or before December 31, 2003 (the "Maturity Date"), to the order of FLEET NATIONAL BANK, a national banking association (hereinafter, together with its successors in title and assigns, called the "Bank") at the head office of Fleet National Bank (the "Agent"), at 111 Westminster Street, Providence, Rhode Island 02903, the principal sum of TWENTY FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00) or, if less, the aggregate unpaid principal amount of all Revolving Credit Loans made by the Bank to the Borrower pursuant to that certain Second Amended and Restated Credit Agreement dated as of November 30, 1999, as modified by that certain First Modification of Second Amended and Restated Credit Agreement and Loan Documents dated as of April 21, 2000, as modified by that certain Second Modification of Second Amended and Restated Credit Agreement and Loan Documents dated as of June 30, 2000, and as further modified by that certain Third Modification of Second Amended and Restated Credit Agreement and Loan Documents dated as of even date herewith (as amended, the "Credit Agreement") among the Bank, the Borrower, the other financial institutions named therein and the Agent (this "Note"). Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement. Unless otherwise provided herein, the rules of interpretation set forth in §1 of the Credit Agreement shall be applicable to this Note.     The Borrower also promises to pay (a) principal from time to time at the times provided in the Credit Agreement and (b) interest from the date hereof on the principal amount from time to time unpaid at the rates and times set forth in the Credit Agreement and in all cases in accordance with the terms of the Credit Agreement. The Agent may endorse the record relating to this Note with appropriate notations evidencing advances and payments of principal hereunder as contemplated by the Credit Agreement.     This Note is issued pursuant to, is entitled to the benefits of, and is subject to the provisions of the Credit Agreement. The principal of this Note is subject to prepayment in whole or in part in the manner and to the extent specified in the Credit Agreement.     This Note is one of two notes (the "Notes") which evidence a debt obligation in the maximum principal amount of $50,000,000.00 made pursuant to the terms of the Credit Agreement.     In case an Event of Default shall occur and be continuing, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Credit Agreement.     The Borrower and all endorsers hereby waive presentment, demand, protest and notice of any kind in connection with the delivery, acceptance, performance and enforcement of this Note, and also hereby assent to extensions of time of payment or forbearance or other indulgences without notice.     THIS NOTE AND THE OBLIGATIONS OF THE BORROWER HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED AND DETERMINED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). [Signatures on following page] --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in its corporate name as an instrument under seal by its duly authorized officer on the date and in the year first above written.     THE ROTTLUND COMPANY, INC.     By:   /s/ STEVEN A. KAHN    --------------------------------------------------------------------------------     Name   Steven A. Kahn --------------------------------------------------------------------------------     Its:   Chief Financial Officer --------------------------------------------------------------------------------     Attest:   /s/ DAVID H. ROTTER    --------------------------------------------------------------------------------     Name:   David H. Rotter --------------------------------------------------------------------------------     Its:   President -------------------------------------------------------------------------------- [CORPORATE SEAL] -------------------------------------------------------------------------------- ADVANCES AND REPAYMENTS OF PRINCIPAL     Advances and payments of principal of this Note were made on the dates and in the amounts specified below: Date --------------------------------------------------------------------------------   Amount of Loan --------------------------------------------------------------------------------   Amount of Principal Prepaid or Repaid --------------------------------------------------------------------------------   Balance of Principal Unpaid --------------------------------------------------------------------------------   Notation Made By: -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- AMENDED AND RESTATED REVOLVING CREDIT NOTE $25,000,000.00   December 19, 2000     FOR VALUE RECEIVED, the undersigned, THE ROTTLUND COMPANY, INC., a corporation organized and existing under the laws of Minnesota, having its principal place of business at 3065 Center Pointe Drive, Roseville, Minnesota 55113 (the "Borrower"), promises to pay, on or before December 31, 2003 (the "Maturity Date"), to the order of BANK UNITED, a national banking association (hereinafter, together with its successors in title and assigns, called the "Bank") at the head office of Fleet National Bank (the "Agent"), at 111 Westminister Street, Providence, Rhode Island 02903, the principal sum of TWENTY FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00) or, if less, the aggregate unpaid principal amount of all Revolving Credit Loans made by the Bank to the Borrower pursuant to that certain Second Amended and Restated Credit Agreement dated as of November 30, 1999, as modified by that certain First Modification of Second Amended and Restated Credit Agreement and Loan Documents dated as of April 21, 2000, as modified by that certain Second Modification of Second Amended and Restated Credit Agreement and Loan Documents dated as of June 30, 2000, and as further modified by that certain Third Modification of Second Amended and Restated Credit Agreement and Loan Documents dated as of even date herewith (as amended, the "Credit Agreement") among the Bank, the Borrower, the other financial institutions named therein, and the Agent (this "Note"). Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement. Unless otherwise provided herein, the rules of interpretation set forth in §1 of the Credit Agreement shall be applicable to this Note.     The Borrower also promises to pay (a) principal from time to time at the times provided in the Credit Agreement and (b) interest from the date hereof on the principal amount from time to time unpaid at the rates and times set forth in the Credit Agreement and in all cases in accordance with the terms of the Credit Agreement. The Agent may endorse the record relating to this Note with appropriate notations evidencing advances and payments of principal hereunder as contemplated by the Credit Agreement.     This Note is issued pursuant to, is entitled to the benefits of, and is subject to the provisions of the Credit Agreement. The principal of this Note is subject to prepayment in whole or in part in the manner and to the extent specified in the Credit Agreement.     This Note is one of two notes (the "Notes") which evidence a debt obligation in the maximum principal amount of $50,000,000.00 made pursuant to the terms of the Credit Agreement.     In case an Event of Default shall occur and be continuing, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Credit Agreement.     The Borrower and all endorsers hereby waive presentment, demand, protest and notice of any kind in connection with the delivery, acceptance, performance and enforcement of this Note, and also hereby assent to extensions of time of payment or forbearance or other indulgences without notice.     THIS NOTE AND THE OBLIGATIONS OF THE BORROWER HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED AND DETERMINED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). [Signatures on following page] 2 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in its corporate name as an instrument under seal by its duly authorized officer on the date and in the year first above written.     THE ROTTLUND COMPANY, INC.     By:   /s/ STEVEN A. KAHN    --------------------------------------------------------------------------------     Name:   Steven A. Kahn --------------------------------------------------------------------------------     Its:   Chief Financial Officer --------------------------------------------------------------------------------     Attest:   /s/ DAVID H. ROTTER    --------------------------------------------------------------------------------     Name:   David H. Rotter --------------------------------------------------------------------------------     Its:   President -------------------------------------------------------------------------------- [CORPORATE SEAL] 3 -------------------------------------------------------------------------------- ADVANCES AND REPAYMENTS OF PRINCIPAL     Advances and payments of principal of this Note were made on the dates and in the amounts specified below: Date --------------------------------------------------------------------------------   Amount of Loan --------------------------------------------------------------------------------   Amount of Principal Prepaid or Repaid --------------------------------------------------------------------------------   Balance of Principal Unpaid --------------------------------------------------------------------------------   Notation Made By: -------------------------------------------------------------------------------- 4 -------------------------------------------------------------------------------- QuickLinks THIRD MODIFICATION OF SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND LOAN DOCUMENTS SCHEDULE 1 Commitments AMENDED AND RESTATED REVOLVING CREDIT NOTE ADVANCES AND REPAYMENTS OF PRINCIPAL AMENDED AND RESTATED REVOLVING CREDIT NOTE ADVANCES AND REPAYMENTS OF PRINCIPAL

    Exhibit 10(a)   NASD SUBORDINATED LOAN AGREEMENT FOR EQUITY CAPITAL SL-5 AGREEMENT BETWEEN:             Lender    SunAmerica Inc.                                                                                              (Name)          1 SunAmerica Center                                                                                1999 Avenue of the Stars, 38th Floor                                                                                    (Street Address)   Los Angeles                         California                              90067- 6002    (City)                                    (State)                                      (Zip) AND              Broker-Dealer      Royal Alliance Associates, Inc                                                                    (Name)             733 Third Avenue                                                                                                               (Street Address)     New York                                   New York                              10017    (City)                                      (State)                                 (Zip)   NASD ID No:  023131                                            Date Filed:  August 18, 1999                   NASD NASD FORM SL-5 1 -------------------------------------------------------------------------------- SUBORDINATED LOAN AGREEMENT FOR EQUITY CAPITAL                   AGREEMENT dated August 4, 1999 to be effective August 23, 1999 between SunAmerica Inc. (the "Lender")and Royal Alliance Associates, Inc. (the "Broker-Dealer").                 In consideration of the sum of $                4,500,000.00 and subject to the terms and conditions hereinafter set forth, the Broker-Dealer promises to pay to the Lender or assigns on Sept. 23, 2002 (the "Scheduled Maturity Date") (the last day of the month at least three years from the effective date of this Agreement) at the principal office of the Broker-Dealer the aforedescribed sum and Interest theron payable at the rate of 8.0*    % per annum from the effective date of this Agreement, which date shall be the date so agreed upon by the Lender and the Broker-Dealer unless otherwise determined by the National Association of Securities Dealers, Inc. (the "NASD").  This Agreement shall not be considered a satisfactory subordination agreement pursuant to the provisions of 17 CFR 240.15c3-d unless and until the NASD has found the Agreement acceptable and such Agreement has become effective in the form found acceptable.                 The cash proceeds covered by this Agreement shall be used and dealt with by the Broker-Dealer as part of its capital and shall be subject to the risks of the business. The Broker-Dealer shall have the right to deposit any cash proceeds of the Subordinated Loan Agreement in an account or accounts in its own name in any bank or trust company.                 The Lender irrevocably agrees that the obligations of the Broker-Dealer under this Agreement with respect to the payment of principal and interest shall be and are subordinate in right of payment and subject to the prior payment or provision for payment in full of all claims of all other present and future creditors of the Broker-Dealer arising out of any matter occurring prior to the date on which the related Payment Obligation (as defined herein) matures consistent with the provisions of 17 CFR 240.15c3-1 and 240.15c3-d, except for claims which are the subject of subordination agreements which rank on the same priority as or are junior to the claim of the Lender under such subordination agreements. I.                PERMISSIVE PREPAYMENTS (OPTIONAL)                                At the option of the Broker-Dealer, but not at the option of the Lender, payment of all or any part of the "Payment Obligation" amount hereof prior to the maturity date   NASD FORM SL-5 *Interest to be paid quarterly from and after the effective date of this Agreement.   2 -------------------------------------------------------------------------------- may be made by the Broker-Dealer only upon receipt of the prior written approval of the NASD, but in no event may any prepayment be made before the expiration of one year from the date this Agreement became effective.  No prepayment shall be made if, after given effect thereto (and to all payments of Payment Obligations under any other subordination agreements than outstanding, the maturity of which are scheduled to fall due either within six months after the date such prepayment is to occur or on or prior to the date on which the Payment Obligation hereof is scheduled to mature, whichever date is earlier), without reference to any projected profit or loss of the Broker-Dealer, either aggregate indebtedness of the Broker-Dealer would exceed 1000 percent of its net capital or such lesser percent as may be made applicable to the Broker-Dealer from time to time by the NASD, or a governmental agency or self-regulatory body having time to time by the NASD, or a governmental agency or self-regulatory body having appropriate authority, or if the Broker-Dealer is operating pursuant to paragraph (a)(1)(ii)of 17 CFR 240.15c3-1, its net capital would be less than five percent of aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or if registered as a futures commission merchant, 7 percent of the funds required to be segregated pursuant to the Commodity Exchange Act and the regulations thereunder, (less the market value of commodity options purchased by option customers on or subject to the rules of a contract market, provided, however, the deduction for each option customer shall be limited to the amount of customer funds in such option customer's account,) if greater, or its net capital would be less than 120 percent of the minimum dollar amount required by 17 CFR 15c3-1 including paragraph (a)(1)(ii), if applicable, or such greater dollar amount as may be made applicable to the Broker-Dealer by the NASD, or a governmental agency or self-regulatory body having appropriate authority. II.                SUSPENDED REPAYMENTS                 (a)                The Payment Obligation of the Broker-Dealer shall be suspended and shall not mature if after giving effect to such payment (together with the payment of any Payment Obligation of the Broker-Dealer under any other subordination agreement scheduled to mature on or before such Payment Obligation) the aggregate indebtedness of the Broker-Dealer would exceed 1200 percent of its net capital or such lesser percent as may be made applicable to the Broker-Dealer from time to time by the NASD, or a governmental agency or self-regulatory body having appropriate authority, or if the Broker-Dealer is operating pursuant to paragraph (a)(1)(ii) of 17 CFR 240.15c3-1, its net capital would be less than 5 percent of aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or if registered as a futures commission merchant, 6 percent of the funds required to be segregated pursuant to the Commodity Exchange Act and the regulations thereunder, (less the market value of commodity options purchased by option customers on or subject to the rules of a contract market, provided, however, the deduction for each option customer shall be limited to the amount of customer funds in such option customer's account), if greater, or its net capital would be less than 120 percent of the minimum dollar amount required by 17 CFR 240.15c3-1 including paragraph (a)(1)(ii), if applicable, or such greater dollar amount as may be made applicable to the Broke-Dealer by the NASD, or a governmental agency or self-regulatory body having appropriate authority. NASD FORM SL-5   3 -------------------------------------------------------------------------------- III.           NOTICE OF MATURITY                 The Broker-Dealer shall immediately notify the NASD if, after giving affect to all payments of Payment Obligations under subordination agreements then outstanding which are then due or mature within six months without reference to any projected profit or loss of the Broker-Dealer, either the aggregate indebtedness of the Broker-Dealer would exceed 1200 percent of its net capital, or in the case of a Broker-Dealer operating pursuant to paragraph (a)(1)(ii) of 17 CFR 240.15c3-1, its net capital would be less than 5 percent of aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or if registered as a futures commission merchant, 6 percent of the funds required to be segregated pursuant to the Commodity Exchange Act and the regulations thereunder, (less the market value of commodity options purchased by option customers on or subject to the rules of a contract market, provided, however, the deduction for each option customer shall be limited to the amount of customer funds in such option customer' s account, if greater, and in either case, if its net capital would be less than 120 percent of the minimum dollar amount required by 17 CFR 240.15c3-1 including paragraph (a)(1)(ii), if applicable, or such greater dollar amount as may be made applicable to the Broker-Dealer by the NASD, or a governmental agency or self-regulatory body having appropriate authority. IV.                BROKER DEALERS CARRYING THE ACCOUNTS OF SPECIALISTS AND MARKET MAKERS IN LISTED OPTIONS                 A Broker-Dealer who guarantees, endorses, carries or clears specialist or market-maker transactions in options listed on a national securities exchange or facility of a national securities association shall not permit a reduction, prepayment, or repayment of the unpaid principal amount if the effect would cause the equity required in such specialist or market-maker accounts to exceed 1000 percent of the Broker-Dealer's net capital or such percent as may be made applicable to the Broker-Dealer from time to time by the NASD or a governmental agency or self-regulatory body having appropriate authority. NASD FORM SL-5 4 -------------------------------------------------------------------------------- V.                LIMITATION ON WITHDRAWAL OF EQUITY CAPITAL                 The proceeds covered by this Agreement shall in all respects be subject to the provisions of paragraph (a) of 17 CFR. 15c3-1.  Pursuant thereto no equity capital of the Broker-Dealer or a subsidiary or affiliate consolidated pursuant to 17 CFR 240.15c3-1, whether in the form of capital contributions by partners, par or stated value of capital stock, paid-in capital in excess of par, retained earnings or other capital accounts, may be withdrawn by action of a stockholder or partner, or by redemption or repurchase of shares of stock by any of the consolidated entities or through the payment of dividends or any similar distribution, nor may any unsecured advance or loan be made to a stockholder, partner, sole proprietor, or employee if, after giving effect thereto and to any other such withdrawals, advances or loans and any payments of Payment Obligations under withdrawal, advances or loan, either aggregate indebtedness of any of the consolidated satisfactory subordination agreements which are scheduled to occur within six months following such withdrawal, advances or loan, either aggregate indebtedness of any of the consolidated entities exceed 1000 percent of its net capital, or in the case of a Broker-Dealer operating pursuant to paragraph (a)(1)(ii) of 17 CFR 240.15c3-1, its net capital would be less than 5 percent of aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or if registered as a futures commission merchant, 7 percent of the funds required to be segregated pursuant to the Commodity Exchange Act, and the regulations thereunder, (less the market value of commodity options purchased by option customers on or subject to the rules of a contract market, provided, however, the deduction for each option customer shall be limited to the amount of customer funds in such option customer's account,) if greater, and in either case, if is net capital would be less than 120 percent of the minimum dollar amount required by 17 CFR 240.15c3-1 including paragraph (a)(1)(ii), if applicable, or such greater dollar amount as may be made applicable to the Broker-Dealer by the NASD, or a governmental agency or self-regulatory body having appropriate authority; or should the Broker-Dealer be included within such consolidation, if the total outstanding principal amounts of satisfactory subordination agreements of the Broker-Dealer (other than such agreements which qualify as equity under paragraph (a) of 17 CFR 240.15c3-1) would exceed 70 percent of its debt/equity total, as this term is defined in paragraph (d) of 17 CFR 240.15c3-1, for a period in excess of 90 days, or for such longer period which the Commission may upon application of the Broker-Dealer grant in the public interest or for the protection of investors. VI.                BROKER DEALERS REGISTERED WITH CFTC                 If the Broker-Dealer is a futures commission merchant or introductory broker as that term is defined in the Commodity Exchange Act, the Organization agrees, consistent with the requirements of Section 1.17(h) of the regulations of the CFTC (17 CFR 1.17(h)), that NASD FORM SL-5   5 --------------------------------------------------------------------------------   (a)                Whenever prior written notice by the Broker-Dealer to the NASD is required pursuant to the provisions of this Agreement, the same prior written notice shall be given by the Broker-Dealer to (i) the CFTC at its principal office in Washington, D.C. attention Chief Account of Division of Trading and Markets, and/or (ii) the commodity exchange of which the Organization is a member and which is then designated by the CFTC as the Organization's designated self-regulatory organization (the DSRO); (b)                Whenever prior written consent, permission or approval of the NASD is required pursuant to the provisions of this Agreement, the Broker-Dealer shall also obtain the prior written consent, permission or approval of the CFTC and/or of the DSRO; and, (c)                Whenever the Broker-Dealer receives written notice of acceleration of maturity pursuant to the provisions of this Agreement, the Broker-Dealer shall promptly give written notice thereof to the CFTC at the address above stated and/or to the DSRO. VIII.                GENERAL                 In the event of the appointment of a receiver or trustee of the Broker-Dealer or in the event of its insolvency, liquidation pursuant to the Securities Investor Protection Act of 1970 or otherwise, bankruptcy, assignment for the benefit of creditors, reorganizations whether or not pursuant to bankruptcy laws, or any other marshaling of the assets and liabilities of the Broker-Dealer, the Payment Obligation of the Broker-Dealer shall mature, and the holder hereof shall not be entitled to participate or share, ratably or otherwise in the distribution of the assets of the Broker-Dealer until all claims of all other present and future creditors of the Broker-Dealer, whose claims are senior hereto, have been fully satisfied.                 This Agreement shall not be subject to cancellation by either the Lender of the Broker-Dealer, and no payment shall be made, nor the Agreement terminated, rescinded or modified by mutual consent or otherwise if the effect thereof would be insistent with the requirements of 17 CFR 240.15c3-1 and 240.15c3-d. NASD FORM SL-5   6 --------------------------------------------------------------------------------                  This Agreement may not be transferred, sold, assigned, pledged, or otherwise encumbered or otherwise disposed of, and no lien, charge or other encumbrance may be created or permitted to be created thereof without the prior written consent of the NASD.                 The Lender irrevocably agrees that the loan evidenced hereby is not being made in reliance upon the standing of the Broker-Dealer as a member organization of the NASD or upon the NASD surveillance of the Broker-Dealer's financial position or its compliance with the By-laws, rules and practices of the NASD.  The Lender has made such investigation of the Broker-Dealer and its partners, officers, directors, and stockholders as the Lender deems necessary and appropriate under the circumstances.                 The Lender is not relying upon the NASD to provide any information concerning or relating to the Broker-Dealer and agrees that the NASD has no responsibility to disclose to the Lender any information concerning or relating to the Broker-Dealer which it may now, or at any future time, have.                 The term "Broker-Dealer", as used in this Agreement, shall include the broker-dealer, its heirs, executors, administrators, successors and assigns.                 The term "Payment Obligation" shall mean the obligation of the Broker-Dealer to repay cash loaned to it pursuant to this Subordinated Loan Agreement.                 The provisions of this Agreement shall be binding upon the Broker-Dealer and the Lender, and their respective heirs, executors, administrators, successors, and assigns.                 Any controversy arising out of or relating to this Agreement may be submitted to and settled by arbitration pursuant to the By-Laws and rules of the NASD.  The Broker-Dealer and the Lender shall be conclusively bound by such arbitration.                 This instrument embodies the entire agreement between the Broker-Dealer and the Lender and no other evidence of such agreement has been or will be executed without prior written consent of the NASD.                 This Agreement shall be deemed to have been made under, and shall be governed by, the laws of the State of California in all respects. NASD FORM SL-5   7 --------------------------------------------------------------------------------                   IN WITNESS WHEREOF the parties have set their hands and seal this 4th day of August 1999                                                                                                   Royal Alliance Associates, Inc.                                                                                                                                                     (Name or Broker-Dealer)                                                                                                   By        Bettyann Sullivan         8/4/99              L.S.                                                                                                                            (Authorized Person)                                                                                                                          Chief Financial Officer                                                                                                   SunAmerica, Inc.                                                  L.S.                                                                                                                                         (Lender)                                                                                                   By ___James R. Belardi                                      L.S.                                                                                                                             Executive Vice President                                                                                                   FOR NASD USE ONLY                                                                                                                                 ACCEPTED BY:  Gerald Dougherty                                                                                                                                                                               (Name)                                                                                                                                                      Assistant Director                                                                                                                                                        (Title)                                                                                                   EFFECTIVE DATE:  8/23/99                                                                                                 LOAN NUMBER:  10-E-SLA-11033 NASD FORM SL-5   8 --------------------------------------------------------------------------------   SUBORDINATED LOAN AGREEMENT LENDER'S ATTESTATION                     It is recommended that you discuss the merits of this investment with an attorney, accountant or some other person who has knowledge and experience in financial and business matters prior to executing this Agreement.   1.  I have received and reviewed NASD Form SLD, which is a reprint of   Appendix D of 17 CFR 240.15c3-1, and am familiar with its provisions.   2. I am aware that the funds or securities subject to this Agreement are not  covered by the Securities Investor Protection Act of 1970.   3. I understand that I will be furnished financial statements pursuant to SEC Rule 17a-5(c).   4. On the date this Agreement was entered into, the broker-dealer carried funds  or securities for my account. (State Yes or No) ____No__________.   5. Lender's business relationship to the broker-dealer is:  Lender is an                   intermediate holding company of Broker-Dealer and continuously monitors fiscal status and reports of Broker-Dealer.   6. If the partner or stockholder is not actively engaged in the business of the broker-dealer, acknowledge receipt of the following:     a. Certified audit and accountant's certificate dated ___________     b.  Disclosure of financial and/or operational problems since the last  certified audit which required reporting pursuant to SEC Rule 17a-11.  ( If no such reporting was required, state "none") _______________________     c. Balance sheet and statement of ownership equity dated _____________     d.  Most recent computation of net capital and aggregate indebtedness or                                   aggregate debit items dated ______________ reflecting a net capital of                                                $___________ and a ratio of ___________.     e.  Debt/equity ratio as of _____________ of ____________.     f.  Other disclosures:  ______________________           Dated:  August 4, 1999                                      James R. Belardi                                                       L.S.                                                                               (Lender) NASD FORM SL-5   9 --------------------------------------------------------------------------------   SUNAMERICA INC.  CERTIFICATE OF SECRETARY              I, Susan L. Harris, the duly appointed, qualified and acting Secretary of SunAmerica Inc., a Delaware corporation (the "Corporation"), do hereby certify that the following is a true and correct copy of the resolutions duly adopted by the Executive Committee of the Board of Directors of the Corporation, effective as of March 10, 1999, and that such resolutions are in full force and effect as of the date hereof:  WHEREAS, this Corporation, from time to time, reviews the net capital infusion needs of its wholly-owned broker-dealer subsidiaries, registered with the Securities and Exchange Commission and members of the National Association of Securities Dealers, Inc., which include, but not limited to, SunAmerica Capital Services, Inc., Advantage Capital Corporation, SunAmerica Securities, Inc., Royal Alliance Associates, Inc., Sentra Securities Corporation, Spelman & Co., Inc. and FSC Securities Corporation, and in conjunction with such review intends to provide subordinated loans to such subsidiaries pursuant to Subordinated Loan Agreements for Equity Capital; WHEREAS, it is in the best interests of this Corporation to provide blanket authorization fur such subordinated loan transactions; NOW, THEREFORE, BE IT RESOLVED that the Chairman, any Vice Chairman, any Executive Vice President, or the Treasurer (the "Designated Officers"), acting alone, be, and each hereby is authorized to effect subordinated loans to the wholly-owned broker-dealer subsidiaries of the Corporation, in an aggregate principal amount not to exceed Fifty Million Dollars ($50,000,000), and to make, execute and deliver such loan agreements and other documents evidencing such loans, including any Subordinated Loan Agreement for Equity Capital, as deemed necessary or appropriate; RESOLVED FURTHER that each of the Designated Officers are hereby authorized to make such changes in the terms and conditions of such Subordinated Loan Agreements as may be necessary to conform to the requirements of Title 17 CFR §240.15c 3-ld and the rules of the National Association of Securities Dealers; and   --------------------------------------------------------------------------------   RESOLVED FURTHER that the Executive Committee hereby ratifies any and all action that may have been taken by the officers of this Corporation in connection with the foregoing resolutions and authorizes the officers of this Corporation to take any and all such further actions as may be deemed appropriate to reflect these resolutions and to carry out their tenor, effect and intent. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the Corporation this 12th day of August 1999.                                                                                                  /s/ Susan L. Harris                                                                                                                                      Secretary   (SEAL)   --------------------------------------------------------------------------------   OFFICER'S CERTIFICATE  I, James Belardi, Executive Vice President of SunAmerica Inc., a Delaware corporation (this "Corporation"), do hereby certify that the execution of the Subordinated Loan Agreement for Equity Capital entered into by and between this Corporation and its broker-dealer subsidiary Royal Alliance Associates, Inc., dated August 4, 1999, does not cause the aggregate principal amount of all outstanding loans made by this Corporation to its broker-dealer subsidiaries to exceed $50 million.                                                                                                     /s/ James Belardi                                                                                                                                       James Belardi, Executive Vice President    

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.2 AMENDED AND RESTATED EMPLOYMENT AGREEMENT     THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement"), effective as of June 3, 2001, is made by and between NANOGEN, INC., a Delaware corporation (hereinafter the "Company"), and HOWARD C. BIRNDORF, (hereinafter "Executive"). RECITALS     WHEREAS, the Company and Executive entered into an Employment Agreement, dated as of October 29, 1999, as amended by the First Amendment to Employment Agreement, dated as of July 28, 2000 (collectively, the "Previous Employment Agreements");     WHEREAS, the Company and Executive wish to amend and restate the Previous Employment Agreements.     NOW, THEREFORE, the Company and Executive, in consideration of the Executive's continued employment with the Company, agree as follows: ARTICLE I. TERM OF AGREEMENT     A.  Commencement Date.  The terms of this Agreement shall govern Executive's employment with the Company from June 3, 2001 and this Agreement shall expire on October 29, 2002, which is a period of three (3) years from October 29, 1999, the original commencement date of the October 29, 1999 Employment Agreement between Executive and the Company, unless terminated earlier pursuant to Article 6.     B.  Renewal.  The term of this Agreement shall be automatically renewed for successive, additional three (3) year terms unless either party delivers written notice to the other at least ninety (90) days prior to the expiration date of this Agreement of an intention to terminate this Agreement or to renew it for a term of less than three (3) years but not less than (1) year. If the term of this Agreement is renewed for a term of less than three (3) years, then thereafter the term of this Agreement shall be automatically renewed for successive, additional identical terms unless either party delivers a written notice to the other at least ninety (90) days prior to a termination date of this Agreement of an intention to terminate this Agreement or to renew it for a different term of not less than one (1) year. Any renewal bonus will be negotiated as mutually agreed to at the time of any renewal of this Agreement.     If this Agreement is not renewed at the end of any term hereof by the Company for any reason except death, disability or retirement of Executive, notwithstanding anything herein elsewhere contained, Executive shall be paid his salary, as provided for in Section 3.A hereof, and receive the other benefits applicable under Article 4 hereof, for an additional eighteen (18) months after the termination date hereof. ARTICLE II. EMPLOYMENT DUTIES     A.  Title/Responsibilities.  Executive hereby accepts employment with the Company pursuant to the terms and conditions hereof. Executive agrees to serve the Company in the position of Executive Chairman and Chairman of the Board. Executive shall report to the Board of Directors of the Company (the "Board"). Executive shall have the powers and duties commensurate with such position, 1 -------------------------------------------------------------------------------- including but not limited to, hiring personnel necessary (in the judgment of the Board) to carry out the responsibilities for such position.     B.  Full Time Attention.  Executive shall devote his best efforts and his full business time and attention to the performance of the services customarily incident to such office and to such other services as the Board may reasonably request, provided that Executive may (i) continue to serve as a member of the Board of Directors of Graviton, Inc., provided that such service does not interfere with Executive's ability to render services hereunder, and (ii) may also serve on the Boards of Directors of a limited number of other companies with the prior written consent of the Board.     C.  Other Activities.  Except upon the prior written consent of the Board of Directors, Executive shall not during the period of employment engage, directly or indirectly, in any other business activity (whether or not pursued for pecuniary advantage) that is or may be competitive with, or that might place him in a competing position to that of the Company or any other corporation or entity that directly or indirectly controls, is controlled by, or is under common control with the Company (an "Affiliated Company"), provided that Executive may own less than two percent of the outstanding securities of any such publicly traded competing corporation.     D.  Directorships.  Executive will be nominated for reelection to the Company's Board of Directors if the By-Laws so require it. At the pleasure of the Company's stockholders. Executive agrees to serve as a Director on the Company's Board of Directors at no additional compensation. ARTICLE III. COMPENSATION     A.  Base Salary.  Executive shall receive a Base Salary at an annual rate of three hundred sixty-five thousand dollars ($365,000), payable in accordance with the Company's customary payroll practices. The Company's Board of Directors shall provide Executive with annual performance reviews, and, thereafter, Executive shall be entitled to such Base Salary as the Board of Directors may from time to time establish in its sole discretion.     B.  Incentive Bonuses.  Executive shall receive a Basic Bonus of one hundred thousand dollars ($100,000) per year, payable in equal installments not less often than quarterly.     C.  Achievement Bonus.  The Company shall pay Executive an Achievement Bonus of up to 60% of Executive's Base Salary annually based upon achievement by the Company of its corporate goals as established and determined by the Board of Directors annually and for other achievements by the Company or the Executive during the year as approved by the Compensation Committee. The Board of Directors or Compensation Committee, as applicable, shall, in their respective sole discretion, determine whether such corporate or other goals have been attained or other achievements have occurred.     D.  Transaction Bonus.  In addition, in the event of a transaction involving a Change in Control approved by the Company's Board of Directors, which transaction results in the receipt by the Company's stockholders of consideration with a value representing, in the sole judgment of the Board of Directors, a significant premium over the average of the closing prices per share of the Company's common stock as quoted on the Nasdaq National Market for 20 trading days ending one day prior to the public announcement of such transaction (a "Change in Control Transaction"), Executive shall be paid a Transaction Bonus at the closing of such a transaction in the amount equal to three (3) times 60% of Executive's Base Salary in effect immediately preceding the closing of such a transaction. Executive shall also be paid said Transaction Bonus if the Company enters into a transaction approved by the Board of Directors which is not a Change in Control Transaction, but which, nonetheless, involves a significant change in the ownership of the Company or the composition of the Board of Directors of the Company, and which results in significant additional value for the Company's 2 -------------------------------------------------------------------------------- stockholders, as determined by the Board of Directors in its sole discretion and as specifically designated a significant event by the Board of Directors (a "Significant Event"). In the event Executive receives a Transaction Bonus, no Achievement Bonus will be paid to Executive in the year in which such Transaction Bonus is paid.     If the Company enters into a transaction which is a Change in Control Transaction, then all of the Executive's stock options received before the effective date of the transaction shall become exercisable in full and all of the shares of the common stock of the Company awarded to Executive under the Company's 1997 Stock Incentive Plan and the 1993 Stock Option/Stock Issuance Plan received before the effective date of the transaction shall become fully vested. If the Company enters into a transaction which is not a Change in Control Transaction but which is a Significant Event, then the Board of Directors may, in its sole discretion, determine that all, or a portion, of the Executive's stock options received before the effective date of the transaction shall become exercisable in full and all, or a portion, of the shares of the common stock of the Company awarded to Executive under the Company's 1997 Stock Incentive Plan and the 1993 Stock Option/Stock Issuance Plan received before the effective date of the transaction shall become fully vested.     E.  Withholdings.  All compensation and benefits to Executive hereunder shall be subject to all federal, state, local and other withholdings and similar taxes and payments required by applicable law. ARTICLE IV. EXPENSE ALLOWANCES AND FRINGE BENEFITS     A.  Vacation.  Executive shall be entitled to three (3) weeks, plus one (1) additional day for each completed year of employment with the Company, of annual paid vacation during the term of this Agreement.     B.  Benefits.  During the term of this Agreement, the Company shall also provide Executive with the usual health insurance benefits it generally provides to its other senior management employees, other than life insurance (which shall be paid directly by Executive). As Executive becomes eligible in accordance with criteria to be adopted by the Company, the Company shall provide Executive with the right to participate in and to receive benefits from accident, disability, medical, pension, bonus, stock, profit-sharing and savings plans and similar benefits made available generally to employees of the Company as such plans and benefits may be adopted by the Company, provided that Executive shall during the term of this Agreement be entitled to receive at a minimum standard medical and dental benefits similar to those typically afforded to Chief Executive Officers in similar sized biotechnology companies, excluding life insurance. The amount and extent of benefits to which Executive is entitled shall be governed by the specific benefit plan as it may be amended from time to time.     C.  Company Loans.  Upon the closing of a transaction approved by the Company's Board of Directors involving a Change of Control or a Significant Event, all amounts outstanding with respect to the Loans made by Company to Executive and listed on Schedule A hereto, shall be forgiven on a pro rata basis over a four (4) year period commencing on the Executive's original date of employment by the Company (including any accrued and unpaid interest).     D.  Business Expense Reimbursement.  During the term of this Agreement, Executive shall be entitled to receive proper reimbursement for all reasonable out-of-pocket expenses incurred by him (in accordance with the policies and procedures established by the Company for its senior executive officers) in performing services hereunder, provided Executive properly accounts therefor. 3 -------------------------------------------------------------------------------- ARTICLE V. CONFIDENTIALITY     A.  Proprietary Information.  Executive represents and warrants that he has executed and delivered to the Company the Company's standard Proprietary Information, Inventions and Dispute Resolution Agreement in form acceptable to the Company's counsel.     B.  Return of Property.  All documents, records, apparatus, equipment and other physical property which is furnished to or obtained by Executive in the course of his employment with the Company shall be and remain the sole property of the Company. Executive agrees that, upon the termination of his employment, he shall return all such property (whether or not it pertains to Proprietary Information as defined in the Proprietary Information, Inventions and Dispute Resolution Agreement), and agrees not to make or retain copies, reproductions or summaries of any such property. ARTICLE VI. TERMINATION     A.  By Death.  The period of employment shall terminate automatically upon the death of Executive. In such event, the Company shall pay to Executive's beneficiaries or his estate, as the case may be, any accrued Base Salary, any bonus compensation to the extent earned, any vested deferred compensation (other than pension plan or profit-sharing plan benefits which will be paid in accordance with the applicable plan), any benefits under any plans of the Company in which Executive is a participant to the full extent of Executive's rights under such plans, any accrued vacation pay and any appropriate business expenses incurred by Executive in connection with his duties hereunder, all to the date of termination (collectively "Accrued Compensation"), but no other compensation or reimbursement of any kind, including, without limitation, severance compensation, and thereafter, the Company's obligations hereunder shall terminate.     B.  By Disability.  If Executive is prevented from properly performing his duties hereunder by reason of any physical or mental incapacity for a period of more than 90 days in the aggregate in any 365-day period, then, to the extent permitted by law, the Company may terminate the employment on the 90th day of such incapacity. In such event, the Company shall pay to Executive all Accrued Compensation, and shall continue to pay to Executive the Base Salary until such time (but not more than 90 days following termination), as Executive shall become entitled to receive disability insurance payments under the disability insurance policy maintained by the Company, which disability policy shall provide for full payment of Executive's Base Salary during the period of disability, but no other compensation or reimbursement of any kind, including without limitation, severance compensation, and thereafter the Company's obligations hereunder shall terminate. Nothing in this Section shall affect Executive's rights under any disability plan in which he is a participant.     C.  By Company for Cause.  The Company may terminate Executive's employment for Cause (as defined below) without liability at any time with or without advance notice to Executive. The Company shall pay Executive all Accrued Compensation, but no other compensation or reimbursement of any kind, including without limitation, severance compensation, and thereafter the Company's obligations hereunder shall terminate. Termination shall be for "Cause" in the event of the occurrence of any of the following: (a) any intentional action or intentional failure to act by Executive which was performed in bad faith and to the material detriment of the Company; (b) Executive intentionally refuses or intentionally fails to act in accordance with any lawful and proper direction or order of the Board; (c) gross negligence by Executive in carrying out the duties of employment; or (d) Executive is convicted of a felony crime involving moral turpitude, provided that in the event that any of the foregoing events is capable of being cured, the Company shall provide written notice to Executive describing the nature of such event and Executive shall thereafter have five (5) business days to cure such event. 4 --------------------------------------------------------------------------------     D.  At Will.  At any time, the Company may terminate Executive's employment without liability other than as set forth below, for any reason not specified in Section 6.C above, by giving thirty (30) days advance written notice to Executive. If the Company elects to terminate Executive pursuant to this Section 6.D prior to a Change in Control, the Company shall pay to Executive all Accrued Compensation and shall continue to pay to Executive as provided herein Executive's Salary for six (6) months from the date of such termination as severance compensation. If the Company or its successor elects to terminate Executive pursuant to this Section after a Change in Control, the Company (or its successor) shall continue to pay to Executive as provided herein Executive's Salary for eighteen (18) months from the date of such termination as severance compensation. In addition, upon any termination under this Section 6.D., all of the Executive's stock options granted prior to or on January 26, 2001 shall become exercisable in full and all the shares of the common stock of the Company awarded to Executive under the Company's 1997 Stock Incentive Plan and the 1993 Stock Option/Stock Issuance Plan prior to or on January 26, 2001 shall become fully vested. Upon payment of the severance benefits described herein, all obligations of the Company (or its successor) shall terminate.     During the period when such severance compensation is being paid to Executive, Executive shall not (i) engage, directly or indirectly, in any other business activity that is competitive with, or that places him in a competing position to that of the Company or any Affiliated Company (provided that Executive may own less than two percent (2%) of the outstanding securities of any publicly traded corporation), or (ii) hire, solicit, or attempt to hire on behalf of himself or any other party any employee or exclusive consultant of the Company. If the Company terminates this Agreement or the employment of Executive with the Company other than pursuant to Section 6.A, 6.B or 6.C, then this Section 6.D shall apply.     E.  Constructive Termination.  In the event that the Company shall materially reduce the powers and duties of employment of Executive resulting in a material decrease in the responsibilities of Executive which are inconsistent with Executive acting as President of the Company, such action shall be deemed to be a termination of employment of Executive without cause pursuant to Section 6.D. In the event of a Change in Control of the Company in which the Company shall become a division or subsidiary of a larger organization, references to the President of the Company shall be deemed to mean the President of such division or subsidiary for purposes of this Section 6.E.     1.  Change in Control.  For purposes of this Agreement, a "Change in Control" shall have occurred if at any time during the term of Executive's employment hereunder, any of the following events shall occur: a.The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity's securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization; b.A change in the composition of the Board, as a result of which fewer than one-half of the incumbent directors are directors who either (1) had been directors of the Company 24 months prior to such change; or (2) were elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the directors who had been directors of the Company 24 months prior to such change and who were still in office at the time of the election or nomination; or c.Any "person" (as such term is used in Section 13(d) and Section 14 of the Exchange Act) by the acquisition of securities is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of 5 -------------------------------------------------------------------------------- the Company's then outstanding securities ordinarily (and apart from rights accruing under special circumstances) having the right to vote at elections of directors (the "Base Capital Stock") except that any change in the relative beneficial ownership of the Company's securities resulting solely from a reduction in the aggregate number of outstanding shares of Base Capital Stock, and any decrease thereafter in such person's ownership of securities shall be disregarded until such person increases in any manner, directly or indirectly, such person's beneficial ownership of any securities of the Company. Thus, for example, any person who owns less than 50% of the Company's outstanding shares, shall cause a Change in Control to occur as of any subsequent date if such person then acquires an additional interest in the Company which, when added to the person's previous holdings, causes the person to hold more than 50% of the Company's outstanding shares.     The term "Change in Control" shall not include a transaction, the sole purpose of which is to change the state of the Company's incorporation. ARTICLE VII. GENERAL PROVISIONS     A.  Governing Law.  The validity, interpretation, construction and performance of this Agreement and the rights of the parties thereunder shall be interpreted and enforced under California law without reference to principles of conflicts of laws. The parties expressly agree that inasmuch as the Company's headquarters and principal place of business are located in California, it is appropriate that California law govern this Agreement.     B.  Assignment; Successors; Binding Agreement.       1.  Executive may not assign, pledge or encumber his interest in this Agreement or any part thereof.     2.  The Company will 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, operation of law or by agreement in form and substance reasonably satisfactory to Executive, 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.     3.  This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributee, devisees and legatees. If Executive should die while any amount is at such time payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legates or other designee or, if there be no such designee, to his estate.     C.  No Waiver of Breach.  The waiver by any party of the breach of any provision of this Agreement shall not be deemed to be a waiver of any subsequent breach.     D.  Notice.  For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or 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 6 -------------------------------------------------------------------------------- other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.   To the Company:   Nanogen, Inc. 10398 Pacific Center Court San Diego, CA 92121 Attn: Chief Executive Officer   To Executive:   Howard C. Birndorf c/o Nanogen, Inc. 10398 Pacific Center Court San Diego, CA 92121     E.  Modification; Waiver; Entire Agreement.  No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by Executive and such officer as may be specifically designated by the Board of the Company. No waiver by either party hereto at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement.     F.  Validity.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.     G.  Controlling Document.  This Agreement supersedes any and all prior employment agreements between the Company and Executive, but does not supersede any other agreements between Company and Executive, including but not limited to, the Nanogen Inc. Restricted Stock Purchase Agreement, any stock option agreements or common stock purchase agreements entered into pursuant to the Company's 1997 Stock Incentive Plan, the 1993 Stock Option/Stock Issuance Plan and the Nanogen Employees' Handbook and Policies, except as expressly provided herein. In case of conflict between any of the terms and conditions of this Agreement and the documents herein referred to, the terms and conditions of this Agreement shall control.     H.  Executive Acknowledgment.  Executive acknowledges (a) that he has consulted with or has had the opportunity to consult with independent counsel of his own choice concerning this Agreement, and has been advised to do so by the Company, and (b) that he has read and understands the Agreement, is fully aware of its legal effect, and has entered into it freely based on his own judgment.     I.  Remedies.       1.  Injunctive Relief.  The parties agree that the services to be rendered by Executive hereunder are of a unique nature and that in the event of any breach or threatened breach of any of the covenants contained herein, the damage or imminent damage to the value and the goodwill of the Company's business will be irreparable and extremely difficult to estimate, making any remedy at law or in damages inadequate. Accordingly, the parties agree that the Company shall be entitled to injunctive relief against Executive in the event of any breach or threatened breach of any such provisions by Executive, in addition to any other relief (including damages) available to the Company under this Agreement or under law.     2.  Exclusive.  Both parties agree that the remedy specified in Section 7.I.1 above is not exclusive of any other remedy for the breach by Executive of the terms hereof.     J.  Counterparts.  This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement. 7 --------------------------------------------------------------------------------     Executed by the parties as of the day and year first above written.     NANOGEN, INC.     By: /s/ V. RANDY WHITE    -------------------------------------------------------------------------------- V. Randy White Chief Executive Officer     EXECUTIVE:     By: /s/ HOWARD C. BIRNDORF    -------------------------------------------------------------------------------- Howard C. Birndorf 8 -------------------------------------------------------------------------------- QuickLinks Exhibit 10.2 AMENDED AND RESTATED EMPLOYMENT AGREEMENT ARTICLE I. TERM OF AGREEMENT ARTICLE II. EMPLOYMENT DUTIES ARTICLE III. COMPENSATION ARTICLE IV. EXPENSE ALLOWANCES AND FRINGE BENEFITS ARTICLE V. CONFIDENTIALITY ARTICLE VI. TERMINATION ARTICLE VII. GENERAL PROVISIONS

EXHIBIT 10.1   AMENDMENT NO. 2 TO ALLIANCE AGREEMENT   BETWEEN   COVANCE INC. AND VARIAGENICS, INC.       This Amendment No. 2, effective August 1, 2001, is an Amendment to the Alliance Agreement between Covance Inc., a Delaware corporation (“Covance”), and Variagenics, Inc., a Delaware corporation (“Variagenics”), dated August 2, 1999, as amended effective September 1, 2000 (the “Agreement”).  Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Agreement.                   WHEREAS, Variagenics and Covance wish to allocate additional personnel to support the Alliance;                   WHEREAS, to accomplish the foregoing, Variagenics and Covance desire to amend the Agreement as reflected herein;                   NOW, THEREFORE, in consideration of the mutual promises contained herein, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:   1. That Section 3 of the Agreement be further amended by adding a new paragraph after the first paragraph of Section 3(a) which shall read as follows:       Effective January 1, 2001, Covance will also fund [_____] percent ([__]%) of one (1) sales and marketing employee at a rate of $[_____] per year, which employee will be an employee of Variagenics.  A payment of $[_____] for such employee will be made upon execution of this Amendment and payments of $[_____] shall be made quarterly commencing on August 1, 2001.  The employee will be under the control of Variagenics and shall dedicate [_____] of his or her time to supporting sales and marketing activities in furtherance of the Alliance. Variagenics shall promptly provide to Covance the name of such employee.  If such employee ceases to dedicate [_____] of his or her time to supporting the Alliance for any reason, Variagenics shall promptly notify Covance of such event and use its commercially reasonable efforts to replace such employee as soon as possible, including the reassignment of other Variagenics employees.  Covance’s obligation to fund the sales and marketing position pursuant to this paragraph shall renew annually on August 1st of each year unless Covance gives Variagenics written notice of its intent to terminate its obligations pursuant to this paragraph ninety (90) days prior to the expiration of the then-current period.   All other terms and conditions set forth in the Agreement shall remain in full force and effect.   IN WITNESS WHEREOF, the parties have duly executed this Amendment effective the day and year first above written.     COVANCE INC.   VARIAGENICS, INC.                         /s/ John Riley   /s/ Richard P. Shea     Name: John Riley   Name: Richard P. Shea     Title: VP, Finance   Title: Chief Financial Officer       Covance CLS, Inc.     Variagenics, Inc.    

        CAPITAL CORP OF THE WEST   1992 Stock Option Plan     Table of Contents   ARTICLE 1.0 INTRODUCTION       ARTICLE 2.0 ADMINISTRATION   2.1 The Committee   2.2 Disinterested Directors   2.3 Committee Responsibilities       ARTICLE 3.0 LIMITATION ON AWARDS       ARTICLE 4.0 ELIGIBILITY   4.1 General Rule   4.2 Non-employee Directors   4.3 Ten-Percent Shareholders   4.4 Attribution Rules   4.5 Outstanding Stock       ARTICLE 5.0 TERMS OF OPTIONS   5.1 Stock Option Agreement   5.2 Options Non-transferable   5.3 Number of Shares; Tax Status   5.4 Exercise Price   5.5 Exercisability and Term   5.6 Modification, Extension and Assumption of Options       ARTICLE 6.0 PAYMENT FOR OPTION SHARES   6.1 General Rule   6.2 Surrender by Stock   6.3 Exercise / Sale   6.4 Other Forms of Payment       ARTICLE 7.0 PROTECTION AGAINST DILUTION         7.1 General   7.2 Reorganization   7.3 Reservation of Rights       ARTICLE 8.0 LIMITATION OF RIGHTS   8.1 Employment Rights   8.2 Shareholder’s rights   8.3 Government Regulations       ARTICLE 9.0 WITHHOLDING TAXES   9.1 General   9.2 Shares Withholding       ARTICLE 10.0 FUTURE OF THE PLAN   10.1 Term of the Plan   10.2 Amendment or Termination       ARTICLE 11.0 DEFINITION       ARTICLE 12.0 EXECUTION     CAPITAL CORP OF THE WEST 1992 STOCK OPTION PLAN   ARTICLE 1.  INTRODUCTION                   The Plan was adopted by the Board on march 26, 1992 subject to approval by the Company’s shareholders at the 1992 annual meeting of shareholders.  The purpose of the Plan is to promote the long-term success of the Company in the creation of shareholder value by (a) encouraging Nonemployee Directors and Key Employees to focus on critical long-range objectives, (b) encouraging the attraction and retention of Non-employee Directors and Key Employees with exceptional qualifications and (c) linking Nonemployee Directors and Key Employees directly to shareholder interest through increased stock ownership.  The Plan seeks to achieve this purpose by providing for awards in the form of Options, which may constitute incentive stock options or non-statutory stock options.                   The Plan shall be governed by, and construed in accordance with, the laws of the State of California.     ARTICLE 2.  ADMINISTRATION.   2.1           The Committee.  The Plan shall be administered by the Committee.  The Committee shall consist only of two or more disinterested directors of the Company, who shall be appointed by the Board.   2.2           Disinterested Directors.  A person shall be deemed to be “disinterested” even if he or she, during the twelve months before serving on the Committee, has been granted or awarded equity securities under this Plan or under any other plan of the Company or an affiliate of the Company.   2.3           Committee Responsibilities.  The Committee shall select the Non-employee Directors and Key Employees who are to receive Option under the Plan, determine the number, vesting requirements and other conditions of such Options, interpret the Plan, and make all other decisions related to the operation of the Plan.  The committee may adopt such rules or guidelines as it deems appropriate to implement the Plan.  The Committee’s determinations under the Plan shall be binding on all persons.     ARTICLE 3.  LIMITATION ON AWARDS.     The aggregate number of Options awarded under the Plan shall not exceed 597,002.  If any Options are forfeited, lapse, or terminate for any reason before being exercised, then such Options shall again become available for award under the Plan.  The limitation of this Article 3 shall be subject to adjustment pursuant to Article 7.   ARTICLE 4. ELIGIBILITY.   4.1           General Rule.  Only Non-employee Directors and Key Employees shall be eligible for designation as Optionees by the Committee.  In addition, only Key Employees shall be eligible for the grant of ISOs.   4.2           Nonemployee Directors.  Any other provision of the Plan notwithstanding, the participation of Non-employee Directors in the Plan shall be subject to the following restrictions provided, however, that the Company may vary any of the following restrictions, either at the time at Option is granted or subsequently, on a case-by-case basis, as the Committee deems appropriate in its discretion:   (a)           Nonemployee Directors shall receive no grants other than NSOs described in this Section 4.2. (b) (i) Each Nonemployee Director shall receive an NSO covering 7,000 Common Shares on May 12, 1992, if he or she is serving as a member of the Board on that date;   (ii) each Nonemployee Director who first joins the Board after May 12, 1992, shall receive an NSO covering 3,000 Common Shares on the first business day after his or her initial election or appointment to the Board and shall receive an NSO covering an additional 3,000 Common Shares on the first business day after the fifth anniversary of his or her initial election or appointment to the Board; and   (iii) each Nonemployee Director shall receive an annual NSO grant covering 3,000 Common Shares each year beginning in January 2001 and until such time as the Board shall alter the Board Compensation Plan   (The number of Common Shares included in an NSO granted under this Subsection (b) shall be subject to adjustment under Artivle 7.) (c)           Fifty percent of each NSO granted under Subsection (b)  above shall become exercisable immediately upon the date of grant and the remaining fifty percent shall become exercisable in equal annual installments on the first and second anniversaries of the date of grant. (d)           All NSOs granted to a Nonemployee Director under this Section 4.2 shall also become exercisable in full in the event of (i) the termination of such Nonemployee Director’s service because of death, total and permanent disability or retirement at or after age 70 or (ii) a Change in Control with respect to the Company. (e)           The Exercise Price under all NSOs granted to all Nonemployee Directors under this Section 4.2 shall be equal to 100 percent of the Fair Market Value of a Common Share on the date of grant, payable in cash or in one of the forms described in Sections 6.2 or 6.3. (f)            All NSOs granted to a Nonemployee Director under this Section 4.2 shall terminate on the earliest of (i) the 10th anniversary of the date of grant, (ii) the date three months after the termination of such Nonemployee Director’s service for any reason other that death or total and permanent disability or (iii) the date 12 months after the termination of such Nonemployee Director’s service because of death or total and permanent disability.   4.3           Ten-Percent Shareholders.  A Key Employee who owns more than 10 percent of the total combined voting power of all classes of outstanding stock of the Company or any of its Subsidiaries shall not be eligible for the grant of an ISO unless (a) the Exercise Price under such ISO is at least 110 percent of the Fair Market Value of a Common Share on the date of grant and (b) such ISO by its terms is not exercisable after the expiration of five years from the date of grant.   4.4           Arbitration Rules.  For purposes of Section 4.3, in determining stock ownership, a Key Employee shall be deemed to own the stock (directly or indirectly) by or for his or her brothers, sisters, a spouse, ancestors and lineal descendents.  Stock owned (directly or indirectly) by or for a corporation, partnership, estate or trust shall be deemed to be owned proportionately by or for its shareholders, partners or beneficiaries.  Stock with respect to which Key Employee holds an option shall not be counted.   4.5           Outstanding Stock.  For purposes of Section 4.3, “outstanding stock” shall include all stock actually issued and outstanding immediately after the grant of the ISO to the Key Employee.  “Outstanding stock” shall not include shares authorized for issuance under outstanding options held by the Key Employee or by any other person.   ARTICLE 5.  TERMS OF OPTIONS.   5.1           Stock Option Agreement.  Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company.  Such Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Committee deems appropriate for inclusion in a Stock Option Agreement.  The Provisions of the various Stock Option Agreements entered into under the Plan need not be identical.  If the Optionee is a Key employee, the Committee may designate all or any part of the Option as an ISO.   5.2           Options Non-transferable.  No Option granted under the Plan shall be transferable by the Optionee other than by will, by a beneficiary designation executed by the Optionee and delivered to the Company or by the laws of descent and distribution.  An Option may be exercised during the lifetime of the Optionee only by him or her or by his or her legal representative.  No Option or interest therein may be transferred, assigned, pledged or hypothecated by the Optionee during his or her lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process.   5.3           Number of Shares; Tax Status.  Each Stock Option Agreement shall specify the number of Shares subject to the Option and shall provide for the adjustment of such number in accordance with Article 7.  The Stock Option Agreement shall also specify whether the Option is an ISO or an NSO.                   5.4           Exercise Price.  Each Stock Option Agreement shall specify the Exercise Price.  The Exercise Price under an ISO shall not be less than 100 percent of the Fair Market Value of a Common Share on the date of grant, except as otherwise provided in Section 4.3.  The Exercise Price under an NSO shall not be less than 100 percent of the Fair Market Value of a Common Share on the date of grant.  Subject to the preceding two sentences, the Exercise Price under any Option shall be determined by the Committee.  The Exercise Price shall be payable in accordance with Article 6.   5.5           Exercisablility and Term.  Each Stock Option Agreement shall specify the date when all or any installments of the Option is to become exercisable and shall provide for immediate exercisability of the entire Option in the event of any Change in Control with respect to the Company.  The Stock Option Agreement shall also specify the term of the Option.  The term of an Option shall in no event exceed 10 years from the date of grant, and Section 4.3 may require a shorter term for an ISO.  Subject to this Section 5.5, the Committee shall determine when all or any part of an Option is to become exercisable and when such Option is to expire.  A Stock Option Agreement may provide for accelerated exercisability upon the Optionee’s death, disability or retirement or other events and may provide for expiration prior to the end of its term in the event of termination of the Optionee’s service.                   5.6           Modification, Extension and Assumption of Options.  Within the limitations of the Plan, the Committee may modify, extend or assume outstanding options or may accept the cancellation of outstanding options (whether granted by the Company or by another issuer) in return for the grant of new options for the same or a different number of shares and at the same or different exercise price.  The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter or impair his or her rights or obligations under such Option.   ARTICLE 6.  PAYMENT FOR SHARES.                   6.1           General Rule.  The entire Exercise Price of Common Shares issued upon exercise of Options shall be payable in cash at the time when such Common Shares are purchased, except as follows:                                   (a)           In the case of an ISO, granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Stock Option Agreement.  However, the Committee may specify in the Stock Option Agreement that payment may be made pursuant to Section 6.2, 6.3 or 6.4.   (b)           In the case of an NSO, the Committee may at any time accept payment pursuant to Section 6.2, 6.3 or 6.4.                   6.2           Surrender of Stock.  To the extent that this Section 6.2 if applicable, payment for all or any part of the Exercise Price may be made with Common Shares which have already been owned by the Optionee for more than six months and which are surrendered to the Company.  Such Common Shares shall be valued at  Fair Market Value on the date when the new Common Shares are purchased under the Plan.                   6.3           Exercise/Sale.  To the extent that this Section 6.3 is applicable, payment may be made by the delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker approved by the Company to sell Common Shares and to deliver all or part of the sales proceeds to the Company in payment for all or part of the Exercise Price and any withholding taxes.                   6.4           Other Forms of Payment.  To the extent that this Section 6.4 is applicable, payment may be made in any other form approved by the Committee, consistent with applicable laws, regulations and rules.   ARTICLE 7.  PROTECTION AGAINST DILUTION.   7.1           General.    In the event of a subdivision of the outstanding Common Shares, the declaration of a dividend payable in Common Shares, the declaration of a dividend payable in a form other than Common Shares in an amount that has a material effect on the price of the Common Shares, a combination or consolidation of the outstanding Common Shares (by reclassification or otherwise) into a lesser number of Common Shares, the recapitalization, a spinoff or a similar occurrence, the Committee shall make appropriate adjustments in one or more of (a) the number of Options available for future awards under Article 3, (b) the number of Options included in awards to Non-employee Directors under Section 4.2, (c) the number of Common Shares covered by each outstanding Option or, (d) the Exercise Price under each outstanding Option.                   7.2           Reorganizations.  In the event that the Company is a party to a merger or other reorganization, outstanding Options shall be subject to the agreement of merger or reorganization.  Such agreement may provide, without limitation, for the assumption of the outstanding Options by the surviving corporation or its parent, for their continuation by the Company (if the Company is a surviving corporation), for accelerated vesting or for settlement in cash.   7.3           Reservation of Rights.  Except as provided in this Article 7, a Participant shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class.  Any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Common Shares subject to an Option.  The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.   ARTICLE 8.  LIMITATION OF RIGHTS.                   8.1           Employment Rights.  Neither the Plan nor any Option granted under the Plan shall be deemed to give any individual a right to remain an employee or director of the Company or a Subsidiary.  The Company and its Subsidiaries reserve the right to terminate the service of any employee or director at any time, with or without cause, subject only to a written employment agreement (if any).   8.2           Shareholders’ Rights.  An Optionee shall have no dividend rights, voting rights or other rights as a shareholder with respect to any Common Shares covered by his or her Option prior to the issuance of a stock certificate for such Common Shares.  No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date when such certificate is issued, except as expressly provided in Article 7.   8.3           Government Regulations.   Any other provision of the Plan notwithstanding, the   obligations of the Company with respect to Common Shares to be issued pursuant to the Plan shall be subject to all applicable laws, rules and regulations and such approvals by any governmental agencies or stock exchanges as may be required.  The Company reserves the right to restrict, in whole or in part, the delivery of Common Shares pursuant to any Option until such time as any legal requirements or regulations have been met relating to the issuance of such Common Shares, to their registration or qualification (or exemption from registration or qualification) under the Securities Act, 1933, as amended, or any applicable state securities laws, or to their listing on any stock exchange.   ARTICLE 9.  WITHHOLDING TAXES.                   9.1           General.  To the extent required by applicable federal, state, local or foreign law, an Optionee shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise by reason of an Option.  The Company shall not be required to issue any Common Shares under the Plan until such obligations are satisfied.                   9.2           Shares Withholding.    The Committee may permit an Optionee to satisfy all or part of his or her withholding tax obligations by having the Company withhold a portion of any Common Shares that otherwise would be issued to him or her by surrendering a portion of any Common Shares that previously were issued to him or her.  Such Common Shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash.  The payment of withholding taxes by assigning Common Shares to the Company, if permitted by the Committee, shall be subject to such restrictions as the Committee may impose.   ARTICLE 10.  FUTURE OF THE PLAN.                   10.1         Term of the Plan.  The Plan, as set forth herein, shall become effective on March 26, 1992, subject to the approval of the Company’s shareholders.  In the event that the shareholders failed to approve the Plan at the 1992 annual meeting, or any adjournment thereof, any Options granted prior to such meeting shall be null and void, and no additional Options shall be granted after such meeting.  Any other provision of the Plan notwithstanding, no Option shall be exercisable prior to such meeting.  The Plan shall remain in effect until it is terminated under Section 10.2, except that no new Options shall be granted after March 25, 2002.   10.2         Amendment or Termination.   The Board may, at any time and for any reason, amend or terminate the Plan, except that the provisions of Section 4.2 relating to the amount, Price and timing of Option grants to Non-employee Directors shall not be amended more than once in any six-month period. An amendment of the Plan shall be subject to the approval of the Company’s shareholders only to the extent required by applicable laws, regulations or rules.                   10.3         Effect of Amendment or Termination.  No Options shall be granted under the Plan after the termination thereof.  The termination of the Plan, or any amendment thereof, shall not affect any Option previously granted under the Plan.   ARTICLE 11.  DEFINITIONS.                   11.1         “Board” means the Company’s Board of Directors, as constituted from time to time.                   11.2         "Change in Control” means the occurrence of either of the following events:   (a)           A change in the composition of the Board, as a result of which fewer than  one- half of the incumbent directors are directors who either:     (i) Had been directors of the Company twenty-four months prior to the change; or   (ii) Were elected, or nominated for election, to the Board with the affirmative  votes of at least a majority of the directors who had been directors of the Company 24 months prior to such change and who were still in office at the time of the election or nominations; or   (b)           Any “person” (as such term is used in Section 13 (d) and 14 (d) of the  Securities Exchange Act of 1934, as amended) by the acquisition or aggregation of securities is or become the beneficial owner, directly or indirectly, of securities of the Company representing 20 percent or more of the combined voting power of the Company’s then outstanding securities ordinarily (and apart from rights accruing under special circumstances) having the right to vote at elections of directors (the “Base Capital Stock”); except that any change in the relative beneficial ownership of the Company’s securities by any person resulting solely from a reduction in the aggregate number of outstanding shares of Base Capital Stock, and any decrease thereafter in such person’s ownership of securities, shall be disregarded until such person increases in any manner, directly or indirectly, such person’s beneficial ownership of any securities of the Company.                   11.3         “Code” means the Internal Revenue Code of 1986, as amended.                   11.4         “Committee” means a committee of the Board, as described in Article 2.                   11.5         “Common Share” means one share of the common stock of the Company.                   11.6         “Company” means Capital Corp of the West/County Bank a California banking corporation.                   11.7         “ Exercise in Price” means the amount for which one Common Share may be purchased upon exercise of an Option, as specified by the Committee in the applicable Stock Option Agreement.                   11.8         “Fair Market Value” shall mean the fair market value of a Common Share, as determined by the Committee in good faith.                   11.9         “ISO” means an incentive stock option described in Section 422 (b) of the Code.                   11.10       “Key Employee” means a key common-law employee of the Company or of a Subsidiary, as determined by the Committee.                   11.11       “Non-employee Director” means a member of the Board who is not a common-law employee of the Company or of a Subsidiary.                   11.12       “NSO” means an employee stock option not described in Section 422 or 423 of the Code.                   11.13       “Option” means an ISO or NSO granted under the Plan and entitling the holder to purchase one Common Share.                   11.14       “Optionee” means an individual or estate who holds an Option.                   11.15       “Plan” means this Capital Corp of the West/County Bank 1992 Stock Option Plan, as it may be amended from time to time.                   11.16       “Stock Option Agreement” means the agreement between the Company and an Optionee which contains the terms, conditions and restrictions pertaining to his or her Option.                   11.17       “Subsidiary” means any corporation, if the Company and/or one or more other Subsidiaries own not less than 50 percent of the total combined voting power of all classes of outstanding stock of such corporation.  A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.   ARTICLE 12.  EXECUTION.                    To record the adoption of the Plan by the Board, the Company has caused its duly authorized officer to affix the corporate name and seal hereto.       CAPITAL CORP OF THE WEST/ COUNTY BANK     By     As its Corporate Secretary  

Exhibit 10.01   SETTLEMENT AGREEMENT AND MUTUAL RELEASE   This Settlement Agreement and Mutual Release (the “Settlement Agreement”) is entered into by and among Lifescape, LLC (“Lifescape”), ValueOptions, Inc. (“ValueOptions”), FHC Health Systems, Inc. (“FHC”), and Zamba Solutions (“Zamba”), as of the 1st day of October, 2001, (the “Effective Date”).   WHEREAS, Zamba has provided to Lifescape consulting services which have contributed to the creation of various computer software applications and related intellectual property (the “Zamba Assets”); and   WHEREAS, Lifescape has been and is currently unable to pay Zamba for the services rendered in connection with the creation of the Zamba Assets and Zamba has demanded that the Zamba Assets be returned to it  until  full payment has been made; and   WHEREAS, Zamba has provided to ValueOptions various consulting services; and   WHEREAS, ValueOptions desires to acquire the Zamba Assets.   NOW, THEREFORE,   in consideration of the covenants contained herein, the parties hereto agree as set forth below:   1.             Transfer of Zamba Assets to ValueOptions.  Zamba hereby directs  Lifescape to transfer to ValueOptions the Zamba Assets.   2.             Consideration.  In consideration of the transfer of the Zamba Assets to ValueOptions, FHC and ValueOptions jointly and severally agree to pay to Zamba the sum of  $ 1, 680,000 as follows: $ 280,000 on the Effective Date, and $ 280,000 on the first business day of each of the next five (5) months.   3.             Default.  If any payment required to be made under Section 2 of the Settlement Agreement is not made within five (5) days of the delivery of a written notice that a required payment has not been made, via facsimile to the chief financial officer of FHC at ******: (i) the aggregate payment due under the Settlement Agreement shall be increased to $ 2,080,000 and the entire unpaid balance shall be due immediately and (ii) all right, title and interest in the Zamba Assets shall be returned to Zamba until the payment described in subsection (i) hereof has been paid in full.   4.             Mutual Releases. (a)           Release of Lifescape, FHC and ValueOptions.  In consideration of and upon the receipt of all amounts due under this Settlement Agreement, Zamba, for itself and on behalf of its officers, directors, members, subsidiaries, affiliates, parent companies, successors, assigns, agents, underwriters, attorneys, sureties, insurers and representatives, does and shall irrevocably and unconditionally remise, release and forever discharge Lifescape,  FHC, ValueOptions, their officers, directors, members, subsidiaries, affiliates, parent companies, successors, assigns, agents, underwriters, attorneys, sureties, insurers and representatives from any and all claims, demands and causes of actions of any nature whatsoever arising out of or related to the Zamba Assets. (b)           Release of Zamba.  In consideration of and upon the receipt of the Zamba Assets, each of Lifescape, FHC and ValueOptions, for itself and on behalf of its officers, directors, members, subsidiaries, affiliates, parent companies, successors, assigns, agents, underwriters, attorneys, sureties, insurers and representatives, does and shall irrevocably and unconditionally remise, release and forever discharge Zamba, its officers, directors, members, subsidiaries, affiliates, parent companies, successors, assigns, agents, underwriters, attorneys, sureties, insurers and representatives from any and all claims, demands and causes of actions of any nature whatsoever arising out of or related to the Zamba Assets.   5              Nonadmission of Liability.  The parties fully understand and agree that this Settlement Agreement represents the compromise of disputed claims and is not an admission of liability or concession of any legal position taken by any party.   6.             Advice of Counsel.  The parties to this Settlement Agreement acknowledge that they have been fully advised by counsel of their own choosing with respect to the terms of this Settlement Agreement.   7.             Venue and Choice of Law.  Any dispute, claim, or cause of action arising out of or related to the interpretation of or any default under this Agreement shall be governed by the laws of the State of Minnesota, and the parties to this Agreement hereby agree that venue for such action shall lie solely in the State of Minnesota.  If any part, term or provision of this Settlement Agreement is held by a court or administrative body to be illegal or in conflict with any law, or by statute becomes illegal or in conflict with any law, the validity of the remaining provision shall not be affected and the rights and obligations of the parties shall be construed and enforced as if this Settlement Agreement did not contain the particular, invalid part, term or provision. The parties agree to submit to personal jurisdiction of the courts of the State of Minnesota.   8.             Costs of Collection.  In the event either party commences litigation arising out of or related to this Settlement Agreement, the prevailing party shall be entitled to its fees and costs including reasonable attorney’s fees. and any fees and costs associated with alternative dispute resolution, including reasonable attorney’s fees.   9.             Entire Agreement.  This Settlement Agreement and the attached Exhibits constitutes and contains the entire agreement and understanding between the parties concerning the subject matters addressed in this Settlement Agreement between the parties, and supersedes and replaces all prior settlement negotiations and all settlement agreements proposed or otherwise, whether written or oral, concerning the subject matter of this Settlement Agreement.  Any statements, promises or inducements made among the parties that are not contained in this Settlement Agreement shall be invalid and nonbinding.  No waiver of any breach of any term or provision of this Settlement Agreement shall be construed to be, nor shall be, a waiver of any other breach of any term or provision of the Settlement Agreement.  No waiver shall be binding unless in writing and signed by the party waiving the breach.   10.           Cooperation.  The parties agree to cooperate fully and execute any and all supplementary documents and take all additional actions which may be necessary and appropriate to give full force and effect to the basic terms and intent of this Settlement Agreement.   11.           Counterparts.  This Agreement may be executed in multiple counterparts, each of which shall constitute an original agreement, but all such counterparts taken together shall constitute one and the same agreement.     IN WITNESS WHEREOF, the parties have the caused this Settlement Agreement and Mutual Release to be executed by them or on their behalf by their respective representatives as of the Effective Date.     Lifescape, LLC         By: /s/ Ronald Dozoretz     Ronald I. Dozoretz, Manager of FHC Internet Services, L.C.,     the managing member of Lifescape, LLC         ValueOptions, Inc.         By: /s/ Elliot Gerson     Elliot F. Gerson         Its President           FHC Health Systems, Inc.   By: /s/ Elliot Gerson     Elliot Gerson,         Its  President           Zamba Solutions           By: /s/ Mike Carrel           Its CFO    

EXHIBIT 10.25 [HEARME LETTERHEAD] September 10, 2001 Joyce Keshmiry HearMe Dear Joyce,     This letter documents a decision made by the HearMe Board of Directors with regard to your compensation during this challenging period of shutting down the Company. The goal of the Board of Directors is two-fold: 1) to retain you as the best person for the job of financially shutting down the Company in the hopes of providing the best possible return to the shareholders, and 2) to provide you an incentive to maximize the return to shareholders.     You will be entitles to an additional cash bonus (which will be subject to applicable taxes and withholding) to be paid from the total cash in excess of $1.5 Million available for distribution to stockholders in connection with the liquidation of HearMe pursuant to Plan of Liquidation and Dissolution approved by the HearMe Board on August 10, 2001 (the "Liquidation"), after all obligations of the Company are met (the "Distributable Excess Assets"). Your bonus will equal to 1% of the Distributable Excess Assets and payment of this bonus (or proportionate amounts of this bonus) will be made to you at the same time distributions from the Distributable Excess Assets are made to the stockholders. If your employment terminates prior to any distribution date related to the Liquidation under any circumstances other than the Company's terminating your employment without Cause, you will forfeit any portion of this bonus relating to distributions following the final date of your employment. If the Company terminates your employment without Cause (including, but not limited to, in connection with the retention of a liquidation management company or the transfer of the Company's assets to a liquidating trust), you will continue to be entitled to the proportionate amount of this bonus on each distribution date related to the Liquidation. To the extent it is necessary to make any determination as to the amount of the Distributable Excess Assets, the Board of Directors or its Compensation Committee will make such determination in good faith and such determination will be binding upon you.     By way of example, pursuant to the foregoing paragraph, if an aggregate of $5,000,000 were available for distribution to stockholders pursuant to the Liquidation, then (i) the stockholders would receive the initial $1,500,000, (ii) the Distributable Excess Assets would equal $3,500,000, (iii) you would receive a bonus (less applicable withholding) of $35,000 and (iv) the stockholders would receive the remaining Distributable Excess Assets after payment of all similar bonus payments.     You understand that your employment continues at all times to be on an at-will basis. --------------------------------------------------------------------------------     Joyce, I personally want to thank you for your commitment and dedication in your tasks. Throughout your time with HearMe you have consistently demonstrated that you have an eye for detail and an ability to find creative solutions that suites you well for the challenges ahead. Sincerely,         /s/ JAMES SCHMIDT            James Schmidt CEO         AGREED TO AND ACCEPTED:         /s/ JOYCE KESHMIRY    -------------------------------------------------------------------------------- Joyce Keshmiry   9/10/01 -------------------------------------------------------------------------------- Date     --------------------------------------------------------------------------------

THIRD AMENDMENT TO THE 2000 STOCK OPTION PLAN OF COUNTRYWIDE CREDIT INDUSTRIES, INC.       WHEREAS, Countrywide Credit Industries, Inc. (the "Company") established the Countrywide Credit Industries, Inc. 2000 Stock Option Plan (the "Plan") effective July 12, 2000; and       WHEREAS, the Company desires to amend the Plan to provide for the grant of stock options to non-employee directors of affiliated companies of the Company;       NOW THEREFORE, the Plan shall be amended as follows effective June 19, 2001: 1. Section 4, entitled “Persons Eligible Under Plan,” shall have the first sentence of the paragraph deleted in its entirety and a new first sentence inserted in its place to read as follows: “Any employee of the Company or a Subsidiary, or any nonemployee director of an affiliated company (“Nonemployee Affiliate Director”), designated by the Committee as eligible to receive Options subject to the conditions set forth herein shall be eligible to receive a grant of an Option under this Plan (an “Eligible Person”).” 2. Section 6.5, entitled “Termination of Employment or Service” shall have the introductory language to this Section deleted in its entirety and new introductory language inserted in its place as follows: “Unless otherwise provided in an Option Document, an Option shall terminate upon or following an Optionee’s termination of employment with the Company and its Subsidiaries, service as an Nonemployee Affiliate Director, and service as a Nonemployee director of the Company and its Subsidiaries as follows:" 3. Section 6.5 is further amended with respect to subparagraphs (a), (b), (c), (d) and (e) by inserting the language “or Nonemployee Affiliate Director” immediately following the term “Nonemployee Director” in every case.       IN WITNESS WHEREOF, the Company has caused this Second Amendment to be executed by its duly authorized officer this 19th day of June 2001.                                                                                                             Countrywide Credit Industries, Inc.                                                                                                                  By:                                                                                                                                Anne McCallion                                                                       Managing Director,                                                                       Chief Administrative Officer         Attest:                                                              Jordan Dorchuck Assistant Secretary

Page 20 Exhibit 10(i)A(1) THIRD AMENDMENT TO 364 DAY CREDIT AGREEMENT THIS THIRD AMENDMENT TO 364 DAY CREDIT AGREEMENT (this "Third Amendment") is dated as of June 27, 2001 among NATIONAL SERVICE INDUSTRIES, INC. (the "Parent"), NSI LEASING, INC., and NSI ENTERPRISES, INC. (collectively, with the Parent, the "Borrowers "), the BANKS parties hereto, BANK ONE, NA (as successor to The First National Bank of Chicago), as Administrative Agent (the "Administrative Agent"), WACHOVIA BANK, N.A., as Syndication Agent (the "Syndication Agent"), and SUNTRUST BANK (formerly SunTrust Bank, Atlanta) as Documentation Agent (the "Documentation Agent") (the Administrative Agent, Syndication Agent and the Documentation Agent are collectively referred to as the "Agents"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Borrowers, the Agents and the Banks parties thereto executed and delivered that certain Credit Agreement dated as of July 15, 1999, as amended by First Amendment to Credit Agreement dated as of July 14, 2000, and as further amendment by Second Amendment to Credit Agreement dated as of April 18, 2001 (as so amended, the "364 Day Credit Agreement"); WHEREAS, each of ABN Amro, N.V. ("ABN"), Commerzbank AG, New York Branch ("Commerzbank") and Morgan Guaranty Trust Company of New York ("Morgan") collectively, has elected not to extended the Termination Date pursuant to Section 2.05(b) of the 364 Day Credit Agreement and is therefore deemed a Terminating Bank under the 364 Day Credit Agreement whose Commitment shall terminate as of the date hereof; and WHEREAS, the Banks other than the Resigning Banks (the "Remaining Banks") desire to appoint Bank One, NA as the Administrative Agent, Wachovia Bank, N.A. as Syndication Agent and SunTrust Bank as Documentation Agent, and the Borrowers, the Agents and the Remaining Banks have agreed to certain amendments to the 364 Day Credit Agreement, as set forth herein and subject to the terms and conditions hereof; NOW, THEREFORE, for and in consideration of the above premises and other good and valuable consideration, the receipt and sufficiency of which hereby is acknowledged by the parties hereto, the Borrowers, the Administrative Agent and the Banks hereby covenant and agree as follows: 1. Definitions. Unless otherwise specifically defined herein, each term used herein which is defined in the 364 Day Credit Agreement shall have the meaning assigned to such term in the 364 Day Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the 364 Day Credit Agreement shall from and after the date hereof refer to the 364 Day Credit Agreement as amended hereby. 2. Resignation of Commerzbank and ABN as Co-Agents and Wachovia as Co-Arranger; Appointment of Bank One, NA as Administrative Agent, Wachovia Bank as Syndication Agent and SunTrust Bank as Documentation Agent. Each of Commerzbank and ABN hereby submits its resignation as Co-Agent, (ii) Wachovia Bank hereby submits its resignation as Co-Arranger; Page 21 Exhibit 10(i)A(1) (iii) the Remaining Banks hereby appoint Bank One, NA as Administrative Agent, Wachovia Bank as Syndication Agent and SunTrust Bank as Documentation Agent, (iv) Bank One, NA accepts such appointment as Administrative Agent, Wachovia Bank accepts such appointment as Syndication Agent and SunTrust Bank accepts such appointment as Documentation Agent and (v) the Borrowers consent to such appointments of Bank One, NA as Administrative Agent, Wachovia Bank as Syndication Agent and SunTrust Bank as Documentation Agent. 3. Withdrawal of Commerzbank, ABN and Morgan as Banks; Amendment to Commitment Amounts. (a) Each of Commerzbank, ABN and Morgan hereby withdraws as a Bank, its Commitment is terminated entirely, and it shall have no further obligation under the 364 Day Credit Agreement or the other Loan Documents; provided, that as soon as reasonably practical, each of Commerzbank, ABN and Morgan shall submit its respective Notes to the Borrowers for cancellation. (b) The signature pages of the 364 Day Credit Agreement hereby are amended to provide that the following Remaining Banks have the following Commitments: Commitments Bank ----------- ---- $65,000,000 Bank One, NA $60,000,000 Wachovia Bank, N.A. $40,000,000 SunTrust Bank $35,000,000 Mellon Bank, N.A. $25,000,000 Bank of America, N.A. $25,000,000 The Bank of New York ------------- Total Commitments: $250,000,000 (c) Hereinafter, for all purposes under the 364 Credit Agreement, the term "Banks" shall refer to the Remaining Banks. The amendments to the 364 Day Credit Agreement set below are agreed to by the Borrowers, the Agents and the Remaining Banks. 4. Amendment to Section 1.01. Section 1.01 of the Credit Agreement hereby is amended by deleting the definitions of "Administrative Agent," "Administrative Agent's Letter Agreement," "Prime Rate," "Syndication Agent's Letter Agreement," "Termination Date," by amending and restating each of the following definitions previously contained therein and by adding thereto the following definitions which have not previously been contained therein. "Administrative Agent's Letter Agreement" means that certain letter agreement, dated as of June 4, 2001, among the Borrowers, the Administrative Agent and the Lead Arranger, relating to certain fees from time to time payable by the Borrowers to the Administrative Agent and the Lead Arranger, together with all amendments and supplements thereto. "Documentation Agent" means SunTrust Bank. Page 22 Exhibit 10(i)A(1) "Prime Rate" refers to that interest rate so denominated and set by Bank One, NA from time to time as an interest rate basis for borrowings. The Prime Rate is but one of several interest rate bases used by Bank One, NA. Bank One, NA lends at interest rates above and below the Prime Rate. "Termination Date" means the earlier of (i) June 26, 2002, or such later date to which it is extended by the Banks pursuant to Section 2.05(b), in their sole and absolute discretion, (ii) the date the Commitments are terminated pursuant to Section 6.01 following the occurrence of an Event of Default, or (iii) the date the Borrowers terminate the Commitments entirely pursuant to Section 2.08. 5. Global Amendments. (a) Wherever in the 364 Day Credit Agreement or any Exhibits to the 364 Credit Agreement or in any Loan Documents (including, without limitation, the Notes and the Compliance Certificates) (i) there is a reference to the Administrative Agent, such reference shall be changed and shall be deemed to refer to Bank One, NA as Administrative Agent, rather than to Wachovia Bank, N.A., and (ii) there is set forth an address for the Administrative Agent, such address shall be changed and shall be deemed to refer to Bank One, NA's address at: - Bank One, NA One Bank One Plaza Suite IL1-0429, 8th Floor Chicago, Illinois 60670 Attention: Matthew Bittner Telecopier number: (312) 732-6894 Confirmation number: (312) 732-6726 (b) Wherever in the 364 Day Credit Agreement or any Exhibits to the 364 Credit Agreement or in any Loan Documents (including, without limitation, the Notes and the Compliance Certificates) (i) there is a reference to the Syndication Agent, such reference shall be changed and shall be deemed to refer to Wachovia Bank, N.A. as Syndication Agent, rather than to Bank One, NA, and (ii) there is set forth an address for the Syndication Agent, such address shall be changed and shall be deemed to refer to Wachovia Bank, N.A.'s address at: Wachovia Bank, N.A. 191 Peachtree Street, N.E. 29th Floor Atlanta, Georgia 30303 Attention: Karin Reel Telecopier number: (404) 332-4058 Confirmation number: (404) 332-5187 6. Amendment to Section 2.03(c)(i). Section 2.03(c)(i) of the 364 Day Credit Agreement hereby is deleted and the following is substituted therefor: (c) (i) Each Bank may, but shall have no obligation to, submit a response containing an offer to make a Money Market Loan substantially in the form of Exhibit J hereto (a "Money Market Quote") in response to any Money Market Quote Request; provided that, if the Borrower's request under Section 2.03(b) specified more than 1 Stated Maturity Date, such Bank may, but shall have no obligation to, Page 23 Exhibit 10(i)A(1) make a single submission containing a separate offer for each such Stated Maturity Date and each such separate offer shall be deemed to be a separate Money Market Quote. Each Money Market Quote must be submitted to the Administrative Agent not later than 10:00 A.M. (Atlanta, Georgia time) on the Money Market Borrowing Date; provided that any Money Market Quote submitted by Bank One, NA may be submitted, and may only be submitted, if Bank One, NA notifies the Borrower of the terms of the offer contained therein not later than 9:45 A.M. (Atlanta, Georgia time) on the Money Market Borrowing Date (or 15 minutes prior to the time that the other Banks are required to have submitted their respective Money Market Quotes). Subject to Section 6.01, any Money Market Quote so made shall be irrevocable except with the written consent of the Administrative Agent given on the instructions of the Borrower. 7. Amendment to Section 2.03(f). Section 2.03(f) of the 364 Day Credit Agreement hereby is deleted and the following is substituted therefor: (f) Any Bank whose offer to make any Money Market Loan has been accepted shall, not later than 1:00 P.M. (Atlanta, Georgia time) on the Money Market Borrowing Date, make the amount of such Money Market Loan allocated to it available to the Administrative Agent at its address referred to in Section 9.01 in immediately available funds. The amount so received by the Administrative Agent shall, subject to the terms and conditions of this Agreement, be made available to the Borrower on such date by depositing the same, in immediately available funds, not later than 4:00 P.M. (Atlanta, Georgia time), in an account of such Borrower maintained with Bank One, NA. 8. Amendment to Section 7.04. Section 7.04 of the 364 Day Credit Agreement hereby is deleted and the following is substituted therefor: SECTION 7.04. Rights of Administrative Agent as a Bank and its Affiliates. With respect to the Loans made by the Administrative Agent and any Affiliate of the Administrative Agent, the Administrative Agent in its capacity as a Bank hereunder and any Affiliate of the Administrative Agent or such Affiliate, Bank One, NA in its capacity as a Bank hereunder shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not acting as the Administrative Agent, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include Bank One, NA in its individual capacity and any Affiliate of the Administrative Agent in its individual capacity. The Administrative Agent and any Affiliate of the Administrative Agent may (without having to account therefor to any Bank) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with any of the Borrowers (and any of the Borrowers' Affiliates) as if the Bank were not acting as the Administrative Agent, and the Administrative Agent and any Affiliate of the Administrative Agent may accept fees and other consideration from the Borrowers (in addition to any agency fees and arrangement fees heretofore agreed to between the Borrowers and the Administrative Agent) for services in connection with this Agreement or any other Loan Document or otherwise without having to account for the same to the Banks. 9. Amendment to Section 9.03. Section 9.03 of the 364 Day Credit Agreement hereby is deleted and the following is substituted therefor: Page 24 Exhibit 10(i)A(1) SECTION 9.03. Expenses; Documentary Taxes. The Borrowers shall pay (i) all reasonable out-of-pocket expenses of the Administrative Agent, the Syndication Agent, the Documentation Agent, Banc One Capital Markets, Inc., as Lead Arranger, including reasonable actual fees and disbursements of special counsel for the Banks, the Administrative Agent, the Syndication Agent, the Documentation Agent, Banc One Capital Markets, Inc., as Lead Arranger, in connection with the preparation of this Agreement and the other Loan Documents, any waiver or consent hereunder or thereunder or any amendment hereof or thereof or any Default or alleged Default hereunder or thereunder and (ii) if a Default occurs, all reasonable out-of-pocket expenses incurred by the Administrative Agent and the Banks, including reasonable actual fees and disbursements of counsel (including allocated costs of in-house counsel), in connection with such Default and collection and other enforcement proceedings resulting therefrom, including reasonable out-of-pocket expenses incurred in enforcing this Agreement and the other Loan Documents. The Borrowers shall indemnify the Administrative Agent and each Bank against any transfer taxes, documentary taxes, and other similar taxes, assessments or charges made by any Authority by reason of the execution and delivery of this Agreement or the other Loan Documents. 10. Amendment to Schedule 4.08. Schedule 4.08 to the 364 Day Credit Agreement hereby is deleted and Schedule 4.08 attached hereto is substituted therefor. 11. Restatement of Representations and Warranties. The Borrowers hereby restate and renew each and every representation and warranty heretofore made by each of them in the 364 Day Credit Agreement and the other Loan Documents as fully as if made on the date hereof and with specific reference to this Third Amendment and all other loan documents executed and/or delivered in connection herewith. 12. Effect of Third Amendment. Except as set forth expressly hereinabove, all terms of the 364 Day Credit Agreement and the other Loan Documents shall be and remain in full force and effect, and shall constitute the legal, valid, binding and enforceable obligations of the Borrowers. 13. Ratification. The Borrowers hereby restate, ratify and reaffirm each and every term, covenant and condition set forth in the 364 Day Credit Agreement and the other Loan Documents effective as of the date hereof. 14. Counterparts. This Third Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts and transmitted by facsimile to the other parties, each of which when so executed and delivered by facsimile shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument. 15. Section References. Section titles and references used in this Third Amendment shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreements among the parties hereto evidenced hereby. 16. No Default. To induce the Agents and the Remaining Banks to enter into this Third Amendment and to continue to make advances pursuant to the 364 Day Credit Agreement, each Borrower hereby acknowledges and agrees that, as of the date hereof, and after giving effect to the terms hereof, there exists (i) no Default or Event of Default and (ii) no right of offset, Page 25 Exhibit 10(i)A(1) defense, counterclaim, claim or objection in favor of the Borrowers arising out of or with respect to any of the Loans or other obligations of the Borrowers owed to the Agents or the Remaining Banks under the 364 Day Credit Agreement. 17. Further Assurances. Each Borrower agrees to take such further actions as the Administrative Agent shall reasonably request in connection herewith to evidence the amendments herein contained. 18. Governing Law. This Third Amendment shall be governed by and construed and interpreted in accordance with, the laws of the State of Georgia. 19. Conditions Precedent. This Third Amendment shall become effective only upon: (i) execution and delivery (which may be by facsimile) of this Third Amendment by the Borrowers, the Agents and the Remaining Banks; (ii) receipt by the Remaining Banks from each Borrower of a replacement Syndicated Loan Note in favor of each Remaining Bank, each in substantially the form attached to the Credit Agreement as Exhibit A-1, and each reflecting the respective increased amounts of the Commitments; (iii) payment to the Administrative Agent, for the ratable account of the Remaining Banks, of an up-front fee in an amount equal to 0.03% of the aggregate Commitments, (iv) payment to the Administrative Agent, for its account, the initial fees of the Administrative Agent and the fees and expenses of special counsel to the Administrative Agent in connection with the negotiation and preparation of this Third Amendment, and (v) the execution and delivery of the Consent and Reaffirmation of Guarantor at the end hereof by the Parent. [SIGNATURES CONTAINED ON NEXT PAGE] Page 26 Exhibit 10(i)A(1) IN WITNESS WHEREOF, the Borrowers, the Agents and each of the Remaining Banks has caused this Third Amendment to be duly executed, under seal, by its duly authorized officer as of the day and year first above written. NATIONAL SERVICE INDUSTRIES, INC. NSI LEASING, INC. By: (SEAL) By: (SEAL) ---------------------------------------------- --------------------------------------------- Name: Brock Hattox Name: Brock Hattox Title: Executive Vice President & CFO Title: Executive Vice President & CFO NSI ENTERPRISES, INC. BANK ONE, NA (as successor to The First National Bank of Chicago), as Administrative Agent and as a Bank By: (SEAL) ---------------------------------------------- Name: Brock Hattox By: (SEAL) Title: Executive Vice President & CFO --------------------------------------------- Name: Title: WACHOVIA BANK, N.A., as Syndication SUNTRUST BANK (formerly Sun Agent and as a Bank Trust Bank, Atlanta), as Documentation Agent and as a Bank By: (SEAL) By: (SEAL) ---------------------------------------------- --------------------------------------------- Name: Name: Title: Title: By: --------------------------------------------- Name: Title: THE BANK OF NEW YORK, MELLON BANK, N.A., as a Bank as a Bank By: (SEAL) By: (SEAL) ---------------------------------------------- --------------------------------------------- Name: Name: Title: Title: BANK OF AMERICA, N.A. as a Bank By: (SEAL) ---------------------------------------------- Name: Title: Page 27 Exhibit 10(i)A(1) CONSENT, REAFFIRMATION AND AGREEMENT OF GUARANTOR The undersigned (i) acknowledges receipt of the foregoing Third Amendment To 364 Day Credit Agreement (the "Third Amendment"), (ii) consents to the execution and delivery of the Third Amendment by the parties thereto, and (iii) reaffirms all of its obligations and covenants under the Guaranty Agreement dated as of July 15, 1999 executed by it, and agrees that none of such obligations and covenants shall be affected by the execution and delivery of the Third Amendment. NATIONAL SERVICE INDUSTRIES, INC. By: (SEAL) ---------------------------------------------- Name: Brock Hattox Title: Executive Vice President & CFO Page 28 Exhibit 10(i)A(1) Schedule 4.08 ------------- SUBSIDIARIES (DOMESTIC & FOREIGN) Name Date State/Country Tax ID ------- ------------------------------------------- ---------------------- --------------------- -------------------- 1. The Austphane Trust August 3, 1995 Australia 2. C&G Carandini S.A. Spain 3. Castlight de Mexico, S.A. de C.V. Mexico 4. Graham International B.V. August 14, 1979 The Netherlands VAT-NL008871280B02; COC-24131864 5. Holophane Alumbrado Iberica SRL Spain 6. Holophane Australia Corp. Pty. Ltd. Australia 7. Holophane Canada, Inc. June 20, 1989 Canada 8. Holophane Europe Ltd. March 29, 1989 United Kingdom 3702370015907 9. Holophane Holdings Company December 9, 1998 Ohio 31-1627476 10. Holophane Lichttechnik G.m.b.H. January 5, 1996 Germany HRB 32909 11. Holophane Lighting Ltd. (Inactive) United Kingdom 12. Holophane Market Development Corp. November 12, 1998 Cayman Islands 13. Holophane S.A. de C.V. Mexico 14. HSA Acquisition Corporation May 29, 1998 Ohio 31-1600314 15. ID Limited March 11, 1980 Isle of Man 16. KEM Europe B.V. October 13, 1986 The Netherlands VAT-NL008871280B05; COC-20052512 17. KEPLIME B.V. April 23, 1987 The Netherlands VAT-0071163502B; COC-24164785 18. KEPLIME Ltd. (Inactive) May 9, 1977 United Kingdom 1313202 19. Lithonia Lighting de Mexico S.A. de C.V. October 20, 1994 Mexico LLM9410208W4 20. Lithonia Lighting do Brasil Ltda March 23, 1999 Brazil 21. Lithonia Lighting Servicios S.A. de C.V. October 20, 1994 Mexico NIM941020A90 22. Luxfab Limited February 28, 1989 United Kingdom 3704370016439 23. National Service Industries Canada L.P. Canada 24. National Service Industries, Inc. (DE) August 20, 1928 Delaware 58-0364900 25. National Service Industries, Inc. (GA) March 27, 1996 Georgia 58-2227507 26. National Service Industries, Inc. Chili July 19, 2000 Chili Ltda 27. NSI Enterprises, Inc. September 25, 1992 California 77-0319365 28. NSI Export Ltd. August 26, 1998 Barbados Co. # 15825 29. NSI Funding, Inc. April 24, 2001 Delaware 58-2616706 Page 29 Exhibit 10(i)A(1) Name Date State/Country Tax ID ------- ------------------------------------------- ---------------------- --------------------- -------------------- 30. NSI Holdings, Inc. January 1, 1990 Quebec 31. NSI Insurance Ltd. February 14, 1990 Bermuda 98-0230326 32. NSI International Pty. Ltd. (sold 5/31/01) June 17, 1998 Australia 33. NSI Leasing, Inc. October 26, 1994 Delaware 58-2136874 34. NSI Ventures, Inc. (Inactive) Delaware 58-2227629 35. Productos Lithonia Lighting de Mexico, October 20, 1994 Mexico S.A. de C.V. 36. Produits de Maintenance et de Proprete France Industrielle (PMPI) 37. Selig Company of Puerto Rico, Inc. January 31, 1964 Puerto Rico 66-0256538 38. Unique Lighting Solutions Pty. Ltd. March 8, 1995 Australia 2843456 39. ZEP Belgium S.A. September 27, 1992 Belgium 40. ZEP Europe B.V. August 26, 1992 The Netherlands 41. ZEP France SARL France 42. ZEP Industries B.V. November 18, 1995 The Netherlands 43. ZEP Industries S.A. December 16, 1975 Switzerland 44. ZEP Industries SAS France 45. ZEP International Pty. Ltd. (sold 5/31/01) June 17, 1998 Australia 46. ZEP Italia S.R.L. September 19, 1992 Italy 47. ZEP KEM Italia S.R.L. September 19, 1992 Italy 48. ZEP Manufacturing B.V. October 13, 1986 The Netherlands

PMA CAPITAL CORPORATION EXECUTIVE DEFERRED COMPENSATION PLAN (As Amended and Restated Effective January 1, 1999) MARCH 2001 -------------------------------------------------------------------------------- TABLE OF CONTENTS PAGE         PREAMBLE 1   ARTICLE I - DEFINITIONS 1 1.1 Administrator 1 1.2 Affiliated Employer 1 1.3 Annual Distribution Period 2 1.4 Beneficiary 2 1.5 Board of Directors 2 1.6 Change of Control 2 1.7 Code 2 1.8 Compensation 2 1.10 Deferral Agreement 2 1.11 Deferred Benefit Account 2 1.12 Determination Date 3 1.13 Education Account 3 1.14 Eligible Dependent 3 1.15 Eligible Employee 3 1.16 Employment Termination Date 3 1.17 Enrollment Period 3 1.18 ERISA 3 1.19 Executive Deferral Contribution 3 1.20 Fixed Period Benefit Account 3 1.21 Investment Fund or Fund 3 1.22 Matching Contribution 3 1.23 Participant 3 1.24 Participating Company 3 1.25 Plan 3 1.26 Plan Sponsor 3 1.27 Plan Year 3 1.28 Restatement Effective Date 3 1.29 Retirement Account 3 1.30 Unforeseen Financial Emergency 4 1.31 Vested 4   ARTICLE II - PARTICIPATION 4 2.1 Commencement of Participation 4 2.2 Procedure For and Effect of Admission 4   ARTICLE III - PLAN CONTRIBUTIONS 4 3.1 Executive Deferral Contribution 4 3.2 Rules Governing Executive Deferral Contributions 4 3.3 No Matching Contribution 5   ARTICLE IV - PARTICIPANTS' ACCOUNTS 5 4.1 Establishment of Accounts 5 4.2 Executive Benefit Allocation 5 4.3 Irrevocable Allocation 5 4.4 Allocation Among Investment Funds 5 4.5 Administration of Investments 6 -i- --------------------------------------------------------------------------------         4.6 Valuation of Deferred Benefit Accounts 6 4.7 Suballocation Within Deferred Benefit Accounts 6 4.8 Investment Obligation of the Plan Sponsor 6   ARTICLE V - VESTING 6 5.1 Vesting Schedule 6   ARTICLE VI - BENEFITS 7 6.1 Normal Payment of Benefits 7 6.2 Special Payment of Benefits 8 6.3 Reduction of Amount of Benefit Payment in Certain Cases 9   ARTICLE VII - ADMINISTRATION OF THE PLAN 10 7.1 Administrator 10 7.2 Committee Action 10 7.3 Powers and Duties of the Administrator 11 7.4 Decisions of Administrator 12 7.5 Expenses 12 7.6 Eligibility to Participate 12 7.7 Insurance and Indemnification for Liability 12 7.8 Agent for Service of Legal Process 12 7.9 Delegation of Responsibility 12 7.10 Claims Procedure 12   ARTICLE VIII - AMENDMENT AND TERMINATION 14 8.1 Amendment or Termination 14   ARTICLE IX - MISCELLANEOUS 14 9.1 Funding 14 9.2 Status of Employment 14 9.3 Payments to Minors and Incompetents 14 9.4 Inalienability of Benefits 14 9.5 Governing Law 15 9.6 Severability 15 9.7 Required Information to Administrator 15 9.8 Income and Payroll Tax Withholding 15 9.9 Application of Plan 15 9.10 No Effect on Other Benefits 15 9.11 Inurement 16 9.12 Notice 16 9.13 Captions 16 9.14 Acceleration of Payments 16 9.15 Reporting and Disclosure Requirements 16 9.16 Gender and Number 16   ARTICLE X - ADOPTION BY AFFILIATED EMPLOYERS 17 10.1 Adoption of Plan 17 10.2 Withdrawal from Plan 17 10.3 Application of Withdrawal Provisions 17 10.4 Plan Sponsor Appointed Agent of Participating Companies 17   APPENDIX A - LIST OF PARTICIPATING COMPANIES 18 -ii- --------------------------------------------------------------------------------           PLAN EXHIBIT A - PLAN ADOPTION AGREEMENT 19   PLAN ADOPTION AGREEMENT - PENNSYLVANIA MANUFACTURERS'             ASSOCIATION INSURANCE COMPANY 20   PLAN ADOPTION AGREEMENT - PMA CAPITAL INSURANCE COMPANY             (FORMERLY PMA REINSURANCE CORPORATION) 21   PLAN ADOPTION AGREEMENT - CALIBER ONE INDEMNITY COMPANY 22   PLAN ADOPTION AGREEMENT - CALIBER ONE MANAGEMENT COMPANY, INC. 23   PLAN ADOPTION AGREEMENT - PMA MANAGEMENT CORPORATION 24   PLAN ADOPTION AGREEMENT - PMA RE MANAGEMENT COMPANY 25 -iii- -------------------------------------------------------------------------------- PMA CAPITAL CORPORATION EXECUTIVE DEFERRED COMPENSATION PLAN (As Amended and Restated Effective January 1, 1999) PREAMBLE         WHEREAS, PMA CAPITAL CORPORATION, a Pennsylvania corporation (the “Plan Sponsor”) (then known as the Pennsylvania Manufacturers Corporation) and certain of its affiliated employers adopted the PMA CAPITAL CORPORATION EXECUTIVE DEFERRED COMPENSATION PLAN (the “Plan”) (then known as the PMC Executive Deferred Compensation Plan) originally effective February 1, 1988, to permit their eligible executives to defer receipt of a portion of their annual compensation, provided such executives are members of a select group of management and highly compensated employees within the meaning of Section 201(2) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”); and         WHEREAS, the Plan Sponsor’s Board of Directors has reserved the right, in Article VIII of the Plan, to amend the Plan, provided that no amendment may reduce a participant’s benefit accrued as of the date of the amendment and further provided that written notice of such amendment is given to each participant and the beneficiary of any deceased participant; and         WHEREAS, the Plan has been amended and restated several times, most recently in 1998; and         WHEREAS, the Plan Sponsor desires to permit participants to defer receipt of compensation on an annual basis as well as during the annual enrollment period, to request the distribution of benefits in the event of unexpected hardship, to freeze employer matching contributions and to provide for immediate distribution of benefits under certain circumstances in the event of a change of control of the Plan Sponsor, effective January 1, 1999; and         WHEREAS, the Plan Sponsor desires to have the rights to benefits, if any, of an eligible employee who neither renders personal services to the Plan Sponsor or one of its affiliated employers after December 31, 1998, nor has a balance credited to any account under the Plan as of December 31, 1998, to be determined in accordance with the provisions of the Plan in effect on the date that the employee’s personal services ceased;         NOW THEREFORE, the Plan Sponsor hereby amends and restates the Plan, effective January 1, 1999, as follows: ARTICLE I —DEFINITIONS         The following words and phrases shall have the following meanings unless a different meaning is clearly required by the context:         1.1 Administrator means the committee (hereinafter referred to as “Committee”) appointed by the President of the Plan Sponsor to serve as the Administrator of the Plan. If no such committee is appointed, the Plan Sponsor shall be the Administrator of the Plan.         1.2 Affiliated Employer means a member of a group of employers, of which the Plan Sponsor is a member and which group constitutes:        (a) A controlled group of corporations (as defined in Section 414(b) of the Code);        (b) Trades or businesses (whether or not incorporated) which are under common control (as defined in Section 414(c) of the Code);        (c) Trades or businesses (whether or not incorporated) which constitute an affiliated service group (as defined in Section 414(m) of the Code); or -1- --------------------------------------------------------------------------------        (d) Any other entity required to be aggregated with the Plan Sponsor pursuant to Section 414(o) of the Code and the Treasury regulations thereunder.         1.3 Annual Distribution Period means the first 60 days of a Plan Year.         1.4 Beneficiary means the individual, trust or other entity, designated in writing by a Participant, on a form filed with the Administrator, to receive payments in the event of the Participant’s death. In the event there is no designated beneficiary under the Plan, the beneficiary shall be (a) the Participant’s surviving spouse, or (b) if there is no surviving spouse, the Participant’s beneficiary under the Plan Sponsor’s group term life insurance program, or (c) if neither (a) nor (b) is applicable, the executors and/or administrators of the Participant’s estate.         1.5 Board of Directors means the Board of Directors of the Plan Sponsor, as from time to time constituted, or any committee thereof which is authorized to act on behalf of the Board of Directors.         1.6 Change of Control means a change of control of the Plan Sponsor of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or Item 1(a) of a Current Report on Form 8-K or any successor rule, whether or not the Plan Sponsor is then subject to such reporting requirements; provided that, without limitation, such a Change of Control shall be deemed to have occurred if:        (a) Any “person”(as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or first becomes the “beneficial owner”(as determined for purposes of Regulation 13D-G under the Exchange Act as currently in effect), directly or indirectly, in a transaction or series of transactions, of securities of the Plan Sponsor representing more than 50% of the voting power of the Plan Sponsor’s voting capital stock (the “Voting Stock”); or        (b) The consummation of a merger, or other business combination after which the holders of the Voting Stock do not collectively own 50% or more of the voting capital stock of the entity surviving such merger or other business combination, or the sale, lease, exchange or other transfer in a transaction or series of transactions of all or substantially all of the assets of the Plan Sponsor; or        (c) At any time individuals who were either nominated for election by the Plan Sponsor’s Board of Directors or were elected by the Plan Sponsor’s Board of Directors cease for any reason to constitute at least a majority of the Plan Sponsor’s Board of Directors.         1.7 Code means the Internal Revenue Code of 1986, as amended. Reference to a specific Section of the Code shall include such Section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such Section.         1.8 Compensation means a Participant’s salary and any incentive pay, before reduction for employee contributions under this or any other nonqualified savings plan, a savings plan qualified under Section 401(k) of the Code or a cafeteria plan qualified under Section 125 of the Code and before reduction for qualified transportation fringes described in Prop. Treas. Reg. § 1.132-9, Q and A-11 et seq.         1.9 Credit means additions to a Deferred Benefit Account.         1.10 Deferral Agreement means a written agreement between a Participant and the Participating Company that employs him/her, whereby the Participant agrees to defer a portion of his/her Compensation and the Participating Company agrees to provide benefits under the Plan.         1.11 Deferred Benefit Account means a bookkeeping account that is credited with a Participant’s Executive Deferral Contributions and, for Plan Years before January 1, 1999, Matching Contributions. -2- --------------------------------------------------------------------------------         1.12 Determination Date means March 31, June 30, September 30 and December 31 of each Plan Year.         1.13 Education Account means a Deferred Benefit Account established for an Eligible Dependent of a Participant pursuant to Section 4.1.         1.14 Eligible Dependent means a dependent of a Participant for federal income tax purposes who is less than 16 years old at the time that an Education Account is first established for him/her hereunder. An Eligible Dependent for whom an Education Account is established shall remain an Eligible Dependent until he/she attains age 18.         1.15 Eligible Employee means an officer of a Participating Company, provided such officer is a member of a select group of management and highly compensated employees within the meaning of Section 201(2) of ERISA.         1.16 Employment Termination Date means the date on which the Participant’s status as an employee of any Participating Company terminates.         1.17 Enrollment Period means, for a calendar year, the 60 day period ending on the December 14th immediately preceding such calendar year.         1.18 ERISA means the Employee Retirement Income Security Act of 1974, as amended. Reference to a specific Section of ERISA shall include such Section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such Section..         1.19 Executive Deferral Contribution means the Plan contribution described in Section 3.1.         1.20 Fixed Period Benefit Account means a Deferred Benefit Account established pursuant to Section 4.1.         1.21 Investment Fund or Fund means any of the mutual funds which comprise The Vanguard Group of Investment Companies, other than a fund offered only to participants in tax-qualified retirement plans or a tax-advantaged fund except as otherwise restricted by the Administrator.         1.22 Matching Contribution means a Participating Company’s contribution to the Plan for a Plan Year before 1999.         1.23 Participant means an Eligible Employee who has met the conditions for participation contained in Article II. An individual who ceases to be an Eligible Employee shall nonetheless remain a Participant for purposes of benefit payments only, until all amounts due him/her under the Plan have been paid.         1.24 Participating Company means the Plan Sponsor and each of its Affiliated Employers which, upon the approval of the Board of Directors, has agreed to participate in this Plan in accordance with the provisions of Article X. Each Participating Company is listed on Appendix A.         1.25 Plan means the PMA CAPITAL CORPORATION EXECUTIVE DEFERRED COMPENSATION PLAN, as set forth in this document and as it may be amended from time to time.         1.26 Plan Sponsor means PMA Capital Corporation, a Pennsylvania corporation.         1.27 Plan Year means the calendar year.         1.28 Restatement Effective Date means January 1, 1999. The original effective date of the Plan was February 1, 1988.         1.29 Retirement Account means a Deferred Benefit Account established pursuant to Section 4.1. -3- --------------------------------------------------------------------------------         1.30 Unforeseen Financial Emergency means a Participant’s severe financial hardship due to an unforeseeable emergency resulting from a sudden and unexpected illness or accident of the Participant, or, a sudden and unexpected illness or accident of a dependent (as defined by Section 152(a) of the Code) of the Participant, or loss of the Participant’s property due to casualty, or other similar and extraordinary unforeseeable circumstances arising as a result of events beyond the control of the Participant. A need to send the Participant’s child to college or a desire to purchase a home is not an unforeseeable emergency. No Unforeseen Financial Emergency shall be deemed to exist to the extent that the financial hardship is or may be relieved (a) through reimbursement or compensation by insurance or otherwise, (b) by borrowing from commercial sources on reasonable commercial terms to the extent that this borrowing would not itself cause a severe financial hardship, (c) by cessation of deferrals under the Plan, or (d) by liquidation of the Participant’s other assets (including assets of the Participant’s spouse and minor children that are reasonably available to the Participant) to the extent that this liquidation would not itself cause severe financial hardship. For the purposes of the preceding sentence, the Participant’s resources shall be deemed to include those assets of his or her spouse and minor children that are reasonably available to the Participant; however, property held for the Participant’s child under an irrevocable trust or under a Uniform Gifts to Minors Act custodianship or Uniform Transfers to Minors Act custodianship shall not be treated as a resource of the Participant. The Administrator shall determine whether the circumstances of the Participant constitute an unforeseeable emergency and thus an Unforeseen Financial Emergency within the meaning of this Section. Following a uniform procedure, the Administrator’s determination shall consider any facts or conditions deemed necessary or advisable by the Administrator, and the Participant shall be required to submit any evidence of the Participant’s circumstances that the Administrator requires. The determination as to whether the Participant’s circumstances are a case of an Unforeseen Financial Emergency shall be based on the facts of each case; provided however, that all determinations as to an Unforeseen Financial Emergency shall be uniformly and consistently made according to the provisions of this Section for all Participants in similar circumstances.         1.31 Vested means the balance in a Participant’s Deferred Benefit Accounts to which the Participant has a nonforfeitable right, as determined under Section 5.1. ARTICLE II —PARTICIPATION         2.1 Commencement of Participation. Each employee who is a Participant in the Plan on January 1, 1999, shall remain a Participant. Each other employee shall become eligible to participate in the Plan when he/she becomes an Eligible Employee.         2.2 Procedure For and Effect of Admission. An Eligible Employee shall become a Participant once he/she has completed such forms and provided such data as are reasonably required by the Administrator. By becoming a Participant, an Eligible Employee shall for all purposes be deemed conclusively to have assented to the provisions of this Plan and all amendments hereto. ARTICLE III —PLAN CONTRIBUTIONS         3.1 Executive Deferral Contribution. Subject to the provisions of Section 3.2, a Participant may authorize the Participating Company that employs him/her to reduce his/her Compensation by any fixed dollar amount and to have a corresponding amount credited to his/her Deferred Benefit Accounts, in accordance with Section 4.2. Such deferral election shall be made prior to the date on which the Participant performs services with respect to which the Compensation is earned. A Participant may make a separate election to reduce the amount of incentive pay paid to him/her by any percent of such incentive pay awarded.         3.2 Rules Governing Executive Deferral Contributions        (a) The minimum amount that a Participant may elect to defer for a Plan Year is $1,000.        (b) A Participant may elect any Annual Distribution Period with respect to a Fixed Period Benefit Account which is at least twenty-four months after the Enrollment Period in which the Annual Distribution -4- --------------------------------------------------------------------------------   Period is elected. Notwithstanding the prior sentence, an individual who first becomes a Participant after the first day of a Plan Year may make an election under Section 3.1 effective as of the payroll period coincident with or next following the date such election is received by the Administrator and may further elect any Annual Distribution Period that is at least the second Annual Distribution Period following the date on which the individual became a Participant.        (c) The amount of Compensation that a Participant elects to defer shall be credited to the Participant’s Deferred Benefit Accounts on or about the date on which the Participant is paid the nondeferred portion of the Compensation which is the source of the deferral.        (d) A Participant’s election to defer Compensation is irrevocable once the Enrollment Period ends and shall remain in effect until the earlier of the Participant’s Employment Termination Date, or the end of the Plan Year for which the deferral is effective; provided, however, that once during the Plan Year the Participant may modify his/her election to change the amount of Compensation he/she elects to defer for the remainder of the Plan Year, such change to be effective for the pay period which is at least two months after the date it is received by the Plan Administrator.        (e) Notwithstanding any provision to the contrary, once payments commence to be made pursuant to Section 6.1(b), a Participant may not allocate credits to the Education Account with respect to which such payments are made.         3.3 No Matching Contribution. No Participating Company shall make a Matching Contribution to the Plan for any Plan Year beginning after 1998. ARTICLE IV —PARTICIPANTS’ACCOUNTS         4.1 Establishment of Accounts. One or more of the following Deferred Benefit Accounts shall be established with respect to each Participant:        (a) Retirement Account;        (b) Education Account; and        (c) Fixed Period Benefit Account.         All contributions on behalf of a Participant shall be credited to the appropriate Deferred Benefit Accounts, in accordance with Section 4.2.         4.2 Executive Benefit Allocation. A Participant's Deferral Agreement shall contain a written statement specifying the allocation of his/her anticipated Credits.         4.3 Irrevocable Allocation. A Participant’s election to allocate anticipated Credits shall remain in effect until the earlier of his/her Employment Termination Date or the end of the Plan Year for which the election is effective; provided, however, that a Participant may modify his/her election to allocate Credits at any time he/she would be permitted to change the amount of Compensation he/she elects to defer for subsequent calendar quarters pursuant to Section 3.2(d) and subject to the limitations provided in Section 3.2(d).         4.4 Allocation Among Investment Funds.        (a) General. Except as provided in Section 4.4(b), a Participant may direct that the Credits be valued, in accordance with Section 4.6, as if the balance credited to the account were invested in one or more Investment Funds. The Participant may select up to six (or such greater number as the Administrator may -5- --------------------------------------------------------------------------------   determine). A Participant may make a separate selection with respect to each of his/her Deferred Benefit Accounts, but overall the Participant may not have investments in more than six (or such greater number as the Administrator may determine) Investment Funds.        (b) Deferred Incentive Pay. A Participant's election regarding the allocation among investment options for valuation purposes in connection with a deferral of incentive pay under the PMA Capital Corporation Annual Incentive Plan shall be irrevocable, shall remain in effect until payment of the deferred incentive pay and may not at any time be modified. This provision shall be administered in accordance with Section 162(m) of the Code and Treas. Reg.ss. 1.162-27(e)(2)(iii)(B).         4.5 Administration of Investments. The investment gain or loss with respect to Credits on behalf of a Participant shall continue to be determined in the manner selected by the Participant pursuant to Section 4.4. If any Participant fails to file a designation, under either Section 4.4(a) or 4.4(b), he/she shall be deemed to have elected to continue to follow the investment designation, if any, in effect for the immediately preceding Plan Year as to all amounts deferred under this Plan. A designation filed by a Participant changing his/her Investment Funds, to the extent permitted under Section 4.4(a), shall apply to either future contributions, amounts already accumulated in his/her Deferred Benefit Accounts, or both. A Participant may change his/her investment selection under Section 4.4(a) no more than once each calendar quarter.         4.6 Valuation of Deferred Benefit Accounts. The Deferred Benefit Accounts of each Participant shall be valued daily based upon the performance of the Investment Fund or Funds selected by the Participant. Such valuation shall reflect the net asset value expressed per share of each designated Investment Fund. The fair market value of an Investment Fund shall be determined by the Administrator. Each Deferred Benefit Account shall be valued separately. A valuation summary shall be prepared on each Determination Date.         4.7 Suballocation Within Deferred Benefit Accounts.        (a) In the event a Participant allocates a portion of his/her anticipated Credits to an Education Account, the Participant may further allocate among subaccounts on behalf of any Eligible Dependent. In the absence of such suballocation, all Credits to the Participant’s Education Account shall be equally allocated among the Participant’s Eligible Dependents.        (b) In the event a Participant allocates a portion of his/her anticipated Credits to a Fixed Period Benefit Account, the Participant may further allocate among subaccounts differentiated by benefit distribution dates.        (c) Notwithstanding the foregoing, at any point in time a Participant may not have more than a total of five Accounts and subaccounts.         4.8 Investment Obligation of the Plan Sponsor. Benefits are payable as they become due irrespective of any actual investments the Plan Sponsor may make to meet its obligations. Neither the Plan Sponsor, nor any trustee (in the event the Plan Sponsor elects to use a grantor trust to accumulate funds) shall be obligated to purchase or maintain any asset, and any reference to investments or Investment Funds is solely for the purpose of computing the value of benefits. To the extent a Participant or any person acquires a right to receive payments from the Plan Sponsor under this Plan, such right shall be no greater than the right of any unsecured creditor of the Plan Sponsor. Neither this Plan nor any action taken pursuant to the terms of this Plan shall be considered to create a fiduciary relationship between the Plan Sponsor and the Participants or any other persons or to establish a trust in which the assets are beyond the claims of any unsecured creditor of the Plan Sponsor. ARTICLE V —VESTING         5.1 Vesting Schedule. A Participant shall, subject to Section 6.2(b), at all times have a fully Vested -6- -------------------------------------------------------------------------------- interest with respect to the Executive Deferral Contributions to his/her Deferred Benefit Accounts. A Participant shall also have shall, subject to Section 6.2(b), a fully Vested interest in the Matching Contributions previously made to his/her Deferred Benefit Accounts as of January 1, 1999. ARTICLE VI —BENEFITS         6.1 Normal Payment of Benefits. Except as provided in Section 6.2, a Participant's benefits shall be paid as follows:        (a) Retirement Account. If a Participant remains continuously employed by a Participating Company until he/she satisfies the age and service requirements for retirement under the PMA Capital Corporation Pension Plan, the Plan Sponsor shall pay the Participant a benefit either:        (1) In an amount equal to the balance in the Participant's Retirement Account in two installments:        (i) The first installment, in an amount equal to 50% of the balance in the Retirement Account, shall be paid within 60 days following his/her Employment Termination Date; and        (ii) The second installment, in an amount equal to the remaining balance in the Retirement Account, shall be paid during the first Annual Distribution Period following the date on which the first installment was paid; or        (2) If the Participant makes an irrevocable election at least 90 days prior to the Plan Year in which he/she retires, in the following five annual installments:        (i) During the first Annual Distribution Period following the Participant’s Employment Termination Date, an amount equal to 20% of the balance in the Participant’s Retirement Account;        (ii) During the second Annual Distribution Period following the Participant’s Employment Termination Date, an amount equal to 25% of the then balance in the Participant’s Retirement Account;        (iii) During the third Annual Distribution Period following the Participant’s Employment Termination Date, an amount equal to 33% of the then balance in the Participant’s Retirement Account;        (iv) During the fourth Annual Distribution Period following the Participant’s Employment Termination Date, an amount equal to 50% of the then balance in the Participant’s Retirement Account; and        (v) During the fifth Annual Distribution Period following the Participant’s Employment Termination Date, an amount equal to the then remaining balance in the Participant’s Retirement Account.        (b) Education Account. If a Participant who has established a subaccount in his/her Education Account for an Eligible Dependent remains continuously employed by a Participating Company until January 1st of the year in which the Eligible Dependent reaches an age set forth below, the Plan Sponsor shall pay to the Participant during the Annual Distribution Period for that year a benefit determined as follows: -7- -------------------------------------------------------------------------------- Age Eligible Dependent Will Attain During Year Percent of Eligible Dependent's Subaccount     18  25 % 19  33 % 20  50 % 21  remainder        In the event an Eligible Dependent, with respect to whom an Education Account is maintained, dies prior to the payment of the balance to the credit of such Education Account, then the Plan Sponsor shall pay an amount equal to the remaining balance to the credit of such Education Account to the Participant within a reasonable time following receipt of proof of such death.        (c) Fixed Period Benefit Account. As long as the Participant remains continuously employed by the Participating Company, the Plan Sponsor shall pay to the Participant an amount equal to the balance in the Participant’s Fixed Period Benefit Account in accordance with the pre-existing distribution schedule applicable thereto.        (d) Benefit Upon Termination of Employment or Following Death.        (1) Benefit Upon Termination of Employment. Upon a Participant’s Employment Termination Date, the Plan Sponsor shall pay to the Participant an amount equal to the balance in the Participant’s Deferred Benefit Accounts in two installments:        (i) The first installment, in an amount equal to 50% of the balance in the Deferred Benefit Accounts, shall be paid within 60 days following his/her Employment Termination Date; and        (ii) The second installment, in an amount equal to the then remaining balance in the Deferred Benefit Accounts, shall be paid during the first Annual Distribution Period following the date on which the first installment was paid.        For purposes of this Section 6.1(d)(1), a Participant who has been out of work for twenty-six weeks due to short-term disability shall be deemed to have terminated his or her employment on the last day of the twenty-six week period and such last day shall be deemed to be such Participant’s Employment Termination Date.        (2) Benefit Following Death. Upon a Participant’s date of death, the Administrator shall reduce the balance in the Participant’s Retirement Account by the amount that the Participant has previously received or shall receive pursuant to Section 6.1(a). Thereafter, the Plan Sponsor shall pay to the Participant’s Beneficiary a single sum payment, in cash, equal to the remaining balance in the Participant’s Deferred Benefit Accounts. Payment under this Section 6.1(d)(2) shall be made as soon as practicable following the receipt by the Plan Sponsor of acceptable proof of the Participant’s death.        (e) Earnings where Installment Payments Are Made.Where any benefit is paid in annual installments, the undistributed balance credited to the Account during the period of the installment payments and ending on the date of the last installment payment shall be credited with investment earnings or debited with investment losses in accordance with Section 4.6.         6.2 Special Payment of Benefits.        (a) Payment in Event of Unforeseen Financial Emergency. A Participant may request an accelerated -8- --------------------------------------------------------------------------------   payment of some or all of his/her benefit under the Plan to meet an Unforeseen Financial Emergency.        (1) The request must be made in writing and filed with the Administrator and must be supported by evidence of the Unforeseen Financial Emergency. It must also specify the Deferred Benefit Accounts from which the benefit is to be paid.        (2) The Administrator shall have sole and absolute discretion to grant or deny the Participant’s request. If the request is granted, the accelerated payment shall not be more than the amount deemed necessary by the Administrator to meet the Unforeseen Financial Emergency.        (3) Payments under this Section 6.2(a) shall reduce the remaining benefits to, or related to, the Participant under this Plan.        (b) Reduced Benefit Upon Request. A Participant may elect in writing at any time to receive an immediate distribution of a reduced benefit under the Plan. The Participant shall specify in his/her election the Deferred Benefit Accounts from which the benefit shall be paid.        (1) Except as otherwise provided in Section 6.2(b)(2), the amount of the benefit shall equal the amount requested by the Participant, reduced by the lesser of 10% of the amount the Participant requested or $50,000.        (2) If the Participant’s election under this Section 6.2(b) is made within 60 days following a Change of Control, the amount of the benefit shall equal the amount requested by the Participant, reduced by the lesser of 5% of the amount the Participant requested or $25,000.        (3) Upon receipt of a Participant’s election, the Administrator shall (i) reduce the balance of the Participant’s Deferred Benefit Accounts by the full amount that the Participant has requested, and (ii) direct the Plan Sponsor to pay the Participant the reduced benefit. The amount by which the benefit is reduced shall be automatically forfeited without any further action or consent of the Participant.        (c) Change of Control where Installment Payments Being Made. In the event installment payments are being made to a Participant under Section 6.1 and a Change of Control of the Plan Sponsor occurs prior to the Participant’s receiving all installment payments under Section 6.1, any undistributed balance credited to the Participant’s Deferred Benefit Accounts shall be paid by the Plan Sponsor in a single sum payment, in cash, to the Participant as soon as practicable following the Change of Control.         6.3 Reduction of Amount of Benefit Payment in Certain Cases.        (a) Reduction of Benefit Payments. Notwithstanding any provision of the Plan to the contrary, the Administrator shall cause any payment under this Plan to a Participant who is a “Covered Employee,”as defined below, to be reduced to the extent that such Participant’s scheduled distribution under the Plan, when added to such Participant’s estimated “Applicable Employee Remuneration,”as defined below, from the Plan Sponsor and any other Participating Company for the taxable year would exceed the “Code Section 162(m) Deduction Limitation,”as defined below. The amount of any scheduled distribution which is not paid to the Participant under this Section 6.3(a) shall be transferred to the Participant’s Retirement Account and distributed in accordance with Section 6.1(a).        (b) Definitions. -9- --------------------------------------------------------------------------------        (1) Covered Employee. The term “Covered Employee”means an executive officer of the Plan Sponsor or other Participating Company designated by the Plan Administrator to be a “Covered Employee”.        (2) Code Section 162(m) Deduction Limitation. The term “Code Section 162(m) Deduction Limitation”means the Applicable Employee Remuneration of any Covered Employee for the taxable year that exceeds $1,000,000 or any comparable limit specified in any future legislation amending, supplementing or superseding Code Section 162(m).        (3) Applicable Employee Remuneration. The term “Applicable Employee Remuneration,”except as otherwise provided below, means, with respect to any Covered Employee for any taxable year, the aggregate amount allowable as a deduction under Chapter 1 of Subtitle A of the Code for such taxable year (determined without regard to section 162(m) of the Code) for “Remuneration,”as defined below, for services performed by such Covered Employee (whether or not during the taxable year). The term “Applicable Employee Remuneration”shall not include:        (i) Any Remuneration payable on a commission basis solely on account of income generated directly by the individual performance of the individual to whom such Remuneration is payable.        (ii) Any Remuneration that is “qualified performance based compensation”under Code Section 162(m).        (iii) Any Remuneration payable under a written binding contract which was in effect on February 17, 1993, and which was not modified thereafter in any material respect before such Remuneration is paid.        (4) Remuneration. The term "Remuneration" includes any remuneration (including benefits) in any medium other than cash, but shall not include -        (i) Any payment referred to in so much of Code section 3121(a)(5) as precedes subparagraph (E) thereof , and        (ii) Any benefit provided to or on behalf of an employee if at the time such benefit is provided it is reasonable to believe that the employee will be able to exclude such benefit from gross income under Chapter 1 of Subtitle A of the Code.   For purposes of (i) above, Code section 3121(a)(5) shall be applied without regard to Code section 3121(v)(1). ARTICLE VII —ADMINISTRATION OF THE PLAN         7.1 Administrator. The Committee appointed by the President of the Plan Sponsor is hereby designated as the administrator of the Plan. If no Committee is appointed by the Plan Sponsor as the Administrator, the Plan Sponsor shall be the Administrator of the Plan. The Administrator shall have the authority to control and manage the operation and administration of the Plan. The President of the Plan Sponsor may appoint another person to be the Administrator at any time. The President of the Plan Sponsor may also remove an Administrator and fill any vacancy which may arise.         7.2 Committee Action. If a Committee is appointed as Administrator, the following rules apply:        (a) On all matters within the jurisdiction of the Committee, the decision of a majority of the members of the Committee shall govern and control. The Committee may take action either at a meeting or in   writing without a meeting, provided that in the latter instance all members of the Committee shall have been advised of the action contemplated and that the written instrument evidencing the action shall be signed by a majority of the members. -10- --------------------------------------------------------------------------------        (b) The President of the Plan Sponsor shall appoint the Chair of the Committee. The Committee may appoint, either from among its members or otherwise, a secretary who shall keep a record of all meetings and actions taken by the Committee. Either the Chair of the Committee or any member of the Committee designated by the Chair shall execute any certificate, instrument or other written direction on behalf of the Committee. Any action taken on matters within the discretion of the Committee shall be final and conclusive as to the parties thereto and as to all Participants or Beneficiaries claiming any right under the Plan.         7.3 Powers and Duties of the Administrator. The Administrator shall have all powers necessary to supervise the administration of the Plan and to control its operation in accordance with its terms, including, without limiting the generality of the foregoing, the power to:        (a) Appoint, retain, and terminate such persons as it deems necessary or advisable to assist in the administration of the Plan or to render advice with respect to the responsibilities of the Administrator under the Plan, including accountants, attorneys and physicians;        (b) Make use of the services of the employees of the Participating Company in administrative matters;        (c) Obtain and act on the basis of all valuations, certificates, opinions and reports furnished by the persons described in (a) or (b) above;        (d) Review the manner in which benefit claims and other aspects of the Plan administration have been handled by the employees of the Participating Company;        (e) Determine all benefits and resolve all questions pertaining to the administration and interpretation of the Plan provisions, either by rules of general applicability or by particular decisions; to the maximum extent permitted by law, all interpretations of the Plan and other decisions of the Administrator shall be conclusive and binding on all parties;        (f) Adopt such forms, rules and regulations as it shall deem necessary or appropriate for the administration of the Plan and the conduct of its affairs, provided that any such forms, rules and regulations shall not be inconsistent with the provisions of the Plan;        (g) Remedy any inequity from incorrect information received or communicated or from administrative error;        (h) Commence or defend any litigation arising from the operation of the Plan in any legal or administrative proceeding;        (i) To determine all considerations affecting the eligibility of any Eligible Employee to become a Participant or remain a Participant in the Plan;        (j) To determine the status and rights of Participants and their Eligible Dependents and Beneficiaries:        (k) Direct the Plan Sponsor to pay benefits under the Plan, and to give such other directions and instructions as may be necessary for the proper administration of the Plan; and        (l) Be responsible for the preparation, filing and disclosure on behalf of the Plan of such documents and reports as are required by any applicable federal or state law. -11- --------------------------------------------------------------------------------         7.4 Decisions of Administrator. All decisions of the Administrator, and any action taken by it in respect of the Plan shall be conclusive and binding on all persons, subject to the claims and appeal procedure described in Section 7.10 hereof.         7.5 Expenses. All expenses incident to the operation and administration of the Plan reasonably incurred, including, without limitation by way of specification, the fees and expenses of attorneys and advisors, and for such other professional, technical and clerical assistance as may be required, shall be paid by the Plan Sponsor.         7.6 Eligibility to Participate. No member of the Administrator who is also an officer shall be precluded from participating in the Plan if otherwise eligible, but he or she shall not be entitled, as a member of the Administrator, to act or pass upon any matters pertaining specifically to his or her own benefit under the Plan.         7.7 Insurance and Indemnification for Liability. The rules relating to the insurance and indemnification for liability are as follows:        (a) Insurance.The Plan Sponsor may, in its discretion, obtain, pay for, and keep current a policy or policies of insurance, insuring members of the Administrator and other employees to whom any responsibility with respect to administration of the Plan has been delegated against any and all liabilities, costs and expenses incurred by such persons as a result of any act, or omission to act, in connection with the performance of their duties, responsibilities and obligations under the Plan and any applicable Federal or state law.        (b) Indemnity.If the Plan Sponsor does not obtain, pay for, and keep current the type of insurance policy or policies referred to in Section 7.7(a) above, or if such insurance is provided but any of the members of the Administrator or other employees referred to in Section 7.7(a) above incur any costs or expenses which are not covered under such policies, then, in either event, the Plan Sponsor shall, to the extent permitted by law, indemnify and hold harmless such parties against any and all costs, expenses and liabilities incurred by such parties in performing their duties and responsibilities under this Plan, provided such party or parties were acting in good faith within what was reasonably believed to have been in the best interests of the Plan and its Participants.         7.8 Agent for Service of Legal Process. The name and address of the person designated as the agent for service of legal process are: Plan Administrator PMA Capital Corporation 1735 Market Street, 27th Floor Philadelphia, PA 19103         7.9 Delegation of Responsibility. The Administrator may designate a committee of one or more persons to carry out any of the responsibilities or functions assigned or allocated to the Administrator under the Plan. Each reference to the Administrator in this Plan shall include the Administrator as well as any person to whom the Administrator may have delegated the performance of a particular function or responsibility under this Section 7.9.         7.10 Claims Procedure.        (a) Claim for Benefits.All claims for benefits under the Plan shall be made in writing and shall be signed by the applicant. Claims shall be submitted to a representative designated by the Administrator and hereinafter referred to as the “Claims Coordinator”.        Each claim hereunder shall be acted on and approved or disapproved by the Claims Coordinator within 60 days following the receipt by the Claims Coordinator of the information necessary to process the claim. -12- --------------------------------------------------------------------------------        In the event the Claims Coordinator denies a claim for benefits, in whole or in part, the Claims Coordinator shall notify the applicant in writing of the denial of the claim and notify such applicant of his or her right to a review of the Claims Coordinator’s decision by the Administrator. Such notice by the Claims Coordinator shall also set forth, in a manner calculated to be understood by the applicant, the specific reason for such denial, the specific Plan provisions on which the denial is based, a description of any additional material or information necessary to perfect the claim, with an explanation of why such material or information is necessary, and an explanation of the Plan’s claims review procedure as set forth in this Section 7.10.        If no action is taken by the Claims Coordinator on an applicant’s claim within 60 days after receipt by the Claim Coordinator, such application shall be deemed to be denied for purposes of the following appeals procedure.        (b) Appeals Procedure.Any applicant whose claim for benefits is denied in whole or in part (“Claimant”) may appeal from such denial to the Administrator for a review of the decision by the Administrator. Such appeal must be made within six months after the Claimant has received written notice of the denial as provided above in Section 7.10(a). An appeal must be submitted in writing within such period and must:        (1) Request a review by the Administrator of the claim for benefits under the Plan;        (2) Set forth all of the grounds upon which the Claimant's request for review is based and any facts in support thereof; and        (3) Set forth any issues or comments which the Claimant deems pertinent to the appeal.        The Administrator shall regularly review appeals by Claimants. The Administrator shall act upon each appeal within 60 days after receipt thereof unless special circumstances require an extension of the time for processing the Claimant’s request for review. If such an extension of time for processing is required, written notice of the extension shall be forwarded to the Claimant prior to the commencement of the extension. In no event shall such extension exceed a period of 120 days after the request for review is received by the Administrator.        The Administrator shall make a full and fair review of each appeal and any written materials submitted by the Claimant and/or the Participating Company in connection therewith. The Administrator may require the Claimant and/or the Participating Company to submit such additional facts, documents or other evidence as the Administrator in its discretion deems necessary or advisable in making its review. The Claimant shall be given the opportunity to review pertinent documents or materials upon submission of a written request to the Administrator, provided the Administrator finds the requested documents or materials are pertinent to the appeal.        On the basis of its review, the Administrator shall make an independent determination of the Claimant’s eligibility for benefits under the Plan. The decision of the Administrator on any claim for benefits shall be final and conclusive upon all parties thereto.        In the event the Administrator denies an appeal, in whole or in part, the Administrator shall give written notice of the decision to the Claimant, which notice shall set forth, in a manner calculated to be understood by the Claimant, the specific reasons for such denial and which shall make specific reference to the pertinent Plan provisions on which the Administrator’s decision was based.        (c) Compliance with Regulations.It is intended that the claims procedure of this Plan be administered in accordance with the claims procedure regulations of the Department of Labor set forth in 29 CFR § 2560.503-1. -13- -------------------------------------------------------------------------------- ARTICLE VIII —AMENDMENT AND TERMINATION         8.1 Amendment or Termination.        (a) The Board of Directors shall have the right to alter, amend, modify, restate or terminate the Plan, or any part thereof, through the adoption of a written resolution when in its absolute discretion, it determines such action to be advisable; provided, however, that no such action by the Board of Directors shall reduce the amount credited to any Account at the time of the adoption of the amendment, modification or restatement and no such amendment, modification or restatement or termination may occur as a result of a Change of Control, within two years after a Change of Control, or as part of any plan to effect a Change of Control. Each amendment shall be set forth in a written instrument.        (b) In the event of termination, the Plan Sponsor, at its option, may pay each Participant an amount equal to the total amount credited to the Participant’s Accounts in a single sum payment of cash or, in the alternative, pay such amount in accordance with the provisions of Article VI. Termination of the Plan shall not serve to reduce the amount credited to a Participant’s Accounts on the date of termination. Moreover, no such termination may occur as a result of a Change of Control, within two years after a Change of Control, or as part of any plan to effect a Change of Control. ARTICLE IX —MISCELLANEOUS         9.1 Funding. Nothing contained in this Plan and no action taken pursuant to this Plan will create or be construed to create or require a funded arrangement or any kind of fiduciary duty between the Plan Sponsor and/or the Administrator and a Participant. Benefits payable under this Plan to a Participant or Beneficiary, if applicable, shall be paid directly by each Plan Sponsor from a grantor trust (the “Trust”) within the meaning of Section 671 of the Code, to the extent that such benefits are not paid from the general assets of the Plan Sponsor. The Trust must be an irrevocable grantor trust, the assets of which are subject to the claims of the general creditors of the Plan Sponsor in the event of its insolvency, defined for the purposes of this provision as the Plan Sponsor’s inability to pay its debts as they become due or that the Plan Sponsor is subject to a pending proceeding under the United States Bankruptcy Code. Except as to any amounts paid or payable to the Trust, the Plan Sponsor shall not be obligated to set aside, earmark or escrow any funds or other assets to satisfy its obligations under this Plan, and the Participant and his or her Beneficiary shall not have any property interest in any specific assets of the Plan Sponsor other than an unsecured right to receive payments from the Plan Sponsor as provided herein. To the extent any person acquires a right hereunder, such right(s) shall be no greater than those of a general, unsecured creditor of the Plan Sponsor. In the event that the amounts accumulated in the Trust are not sufficient to pay the benefits payable under this Plan, such benefits shall be paid directly from the general assets of the Plan Sponsor.         9.2 Status of Employment. Neither the establishment or maintenance of the Plan, nor any action of the Plan Sponsor or any Participating Company or the Administrator shall be held or construed to confer upon any individual any right to be continued as an officer or other employee nor, upon dismissal, any right or interest in any assets of the Plan Sponsor or a Participating Company nor to affect any Participant’s right to terminate his/her employment at any time.         9.3 Payments to Minors and Incompetents. If a Participant or Beneficiary or Eligible Dependent entitled to receive any benefits hereunder is a minor or is deemed by the Administrator or is adjudged to be legally incapable of giving a valid receipt and discharge for such benefits, they will be paid to the duly appointed guardian of such minor or incompetent or to such other legally appointed person as the Administrator may designate. Such payment shall, to the extent made, be deemed a complete discharge of any liability for such payment under the Plan.         9.4 Inalienability of Benefits.        (a) Benefits payable under the Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, -14- --------------------------------------------------------------------------------   whether voluntary or involuntary. Any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits under the Plan shall be void. Neither the Plan Sponsor nor any other Participating Company shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person entitled to benefits under the Plan.        (b) Notwithstanding Section 9.4(a), if a Participant is indebted to the Plan Sponsor or any other Participating Company at any time when payments are to be made by the Plan Sponsor to the Participant under the provisions of the Plan, the Plan Sponsor shall have the right to reduce the amount of payment to be made to the Participant (or the Participant’s Beneficiary or Eligible Dependent) to the extent of such indebtedness. Any election by the Plan Sponsor not to reduce such payment shall not constitute a waiver of its claim for such indebtedness.         9.5 Governing Law. Except to the extent preempted by Federal law, the Plan shall be governed by and construed in accordance with the internal laws of the Commonwealth of Pennsylvania.         9.6 Severability. In case any provision of this Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if such illegal and invalid provisions had never been set forth.         9.7 Required Information to Administrator. Each Participant will furnish to the Administrator such information as the Administrator considers necessary or desirable for purposes of administering the Plan, and the provisions of the Plan respecting any payments thereunder are conditional upon the Participant’s furnishing promptly such true, full and complete information as the Administrator may request. The Administrator, in its sole discretion, may request a Participant to submit proof of his/her age. The Administrator will, if such proof of age is not submitted when requested, use as conclusive evidence thereof such information as is deemed by it to be reliable, regardless of the lack of proof. Any notice or information which, according to the terms of the Plan or the rules of the Administrator, must be filed with the Administrator, shall be deemed so filed if addressed and either delivered in person or mailed to and received by the Administrator at the following address: Plan Administrator PMA Capital Corporation 1735 Market Street, 27th Floor Philadelphia, PA 19103 Failure on the part of the Participant or Beneficiary or Eligible Dependent to comply with any such request within a reasonable period of time shall be sufficient grounds for delay in the payment of benefits under the Plan until such information or proof is received by the Administrator.         9.8 Income and Payroll Tax Withholding. To the extent required by the laws in effect at the time payments are made under this Plan, the Plan Sponsor shall withhold from such deferred compensation payments any taxes required to be withheld for federal, state or local tax purposes.         9.9 Application of Plan. The Plan, as set forth herein, shall apply to any Participant terminating employment on or after the Restatement Effective Date.         9.10 No Effect on Other Benefits. No amount credited under this Plan shall be deemed part of the total compensation for the purpose of computing benefits to which a Participant may be entitled under any pension plan or other supplemental compensation arrangement, unless such plan or arrangement specifically provides to the contrary. The amounts payable to the Participant hereunder will be in addition to any benefits paid or payable to the Participant under any other pension, disability, annuity or retirement plan or policy whatsoever. Nothing herein contained will in any manner modify, impair or affect any existing or future rights of the Participant to participate in any other employee benefits plan or receive benefits in accordance with such plan or to participate in any current or future pension plan -15- -------------------------------------------------------------------------------- of a Participating Company or any supplemental arrangement which constitutes a part of the Participating Company’s regular compensation structure.         9.11 Inurement. The Plan shall be binding upon, and shall inure to, the benefit of the Participating Company and its successors and assigns, and the Participant and the Participant’s Beneficiaries, Eligible Dependents, successors, heirs, executors and administrators.         9.12 Notice. Any notices or elections required or permitted to be given or made under this Plan will be sufficient if in writing and if sent by first class, postage paid mail to the Participant’s last known address as shown on the Participating Company’s personnel records or to the principal office of the Participating Company, as the case may be. The date of such mailing shall be deemed the date of notice, consent or demand. Either party may change the address to which notice is to be sent by giving notice of the change of address in the manner aforesaid.         9.13 Captions. The captions contained in and the table of contents prefixed to the Plan are inserted only as a matter of convenience and for ease of reference in no way define, limit, enlarge or describe the scope or intent of this Plan or in any way affect the Plan or the construction of any provision thereof.         9.14 Acceleration of Payments. Notwithstanding any other provision of the Plan, if the Administrator determines, based on a change in the tax or revenue laws of the United States of America, a published ruling or similar announcement issued by the Internal Revenue Service, a regulation issued by the Secretary of the Treasury or his/her delegate, a decision by a court of competent jurisdiction involving a Participant, or a closing agreement involving a Participant made under Section 7121 of the Code that is approved by the Commissioner, that such Participant or Beneficiary or Eligible Dependent has recognized or will recognize income for federal income tax purposes with respect to benefits that are or will be payable to the Participant under the Plan before they otherwise would be paid to the Participant or the Beneficiary or Eligible Dependent (as applicable), upon the request of the Participant or Beneficiary or Eligible Dependent, the Administrator shall immediately make distribution to the Participant or Beneficiary or Eligible Dependent of the amount so taxable.         9.15 Reporting and Disclosure Requirements. In order to comply with the requirements of Title I of ERISA, the Administrator shall:        (a) File a statement with the Secretary of Labor that includes the name and address of the employer, the employer identification number assigned by the Internal Revenue Service, a declaration that the employer maintains the Plan primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and a statement of the number of such plans and the number of employees in each; and        (b) Provide plan documents, if any, to the Secretary of Labor upon request as required by Section 104(a)(1) of ERISA. It is intended that this provision comply with the requirements of 29 CFR §2520.104-23.         This method of compliance is available to the Plan only so long as the Plan is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and for which benefits are paid as needed solely from the general assets of the employer or are provided exclusively through insurance contracts or policies, the premiums for which are paid directly by the employer from its general assets, issued by an insurance company or similar organization which is qualified to do business in any State, or both.         9.16 Gender and Number. Whenever any words are used herein in any specific gender, they shall be construed as though they were used in any other applicable gender. The singular form, whenever used herein, shall mean or include the plural form where applicable and vice versa. -16- -------------------------------------------------------------------------------- ARTICLE X —ADOPTION BY AFFILIATED EMPLOYERS         10.1 Adoption of Plan. The following rules shall apply with respect to the adoption of the Plan:        (a) Adoption by Affiliated Employers. The terms of this Plan may be adopted by any Affiliated Employer, provided:        (1) The Board of Directors consents to such adoption by an appropriate written resolution;        (2) The board of directors of the Affiliated Employer adopts this Plan by an appropriate written resolution which defines the Eligible Employees;        (3) The Affiliated Employer executes a Plan Adoption Agreement in the form attached hereto as Plan Exhibit A, applicable to the Eligible Employees of such Affiliated Employer. The Affiliated Employer may elect in such Adoption Agreement to have special provisions apply with respect to the Eligible Employees of the Affiliated Employer which differ from the provisions of the Plan applicable to other Eligible Employees; and        (4) The Affiliated Employer executes such other documents as may be required to make such Affiliated Employer a party to the Plan as a Participating Company.        (b) Effect of Adoption. An Affiliated Employer which adopts the Plan and the Trust Agreement is thereafter a Participating Company with respect to its Eligible Employees.         10.2 Withdrawal from Plan. Any Participating Company may at any time withdraw from the Plan upon giving the Board of Directors at least 30 days prior written notice of its intention to withdraw.         10.3 Application of Withdrawal Provisions. The withdrawal provisions contained in Section 10.2 shall be applicable only if the withdrawing Participating Company continues to cover its Participants under a plan similar to this Plan. Otherwise the termination provisions of the Plan shall apply.         10.4 Plan Sponsor Appointed Agent of Participating Companies. As a condition precedent to the adoption of the Plan, each Affiliated Employer must appoint the Board of Directors as its agent to exercise on its behalf all of the power and authority conferred upon the Plan Sponsor by the Plan, including, without limitation, the power to amend or to terminate the Plan.         TO RECORD the adoption of this amendment and restatement of the Plan, the Plan Sponsor has caused this document to be executed by its duly authorized officers as of the 29th day of March, 2001. ATTEST: PMA CAPITAL CORPORATION       /s/ Robert L. Pratter -------------------------------------------------------------------------------- By: /s/ Francis W. McDonnell -------------------------------------------------------------------------------- Robert L. Pratter, Secretary         Francis W. McDonnell, Senior Vice President,         Treasurer & Chief Financial Officer -17- -------------------------------------------------------------------------------- APPENDIX A —LIST OF PARTICIPATING COMPANIES (a)    PMA Capital Corporation (b)    Pennsylvania Manufacturers’Association Insurance Company (c)    PMA Capital Insurance Company (formerly PMA Reinsurance Corporation) (d)    Caliber One Indemnity Company (e)    Caliber One Management Company, Inc. (f)    PMA Management Corporation (g)    PMA Re Management Company -18- -------------------------------------------------------------------------------- PLAN EXHIBIT A —PLAN ADOPTION AGREEMENT [INSERT NAME OF ADOPTING AFFILIATED EMPLOYER] PMA CAPITAL CORPORATION EXECUTIVE DEFERRED COMPENSATION PLAN [NOTE: Plan Exhibit A is not to be completed or executed. If an Affiliated Employer adopts the Plan, a separate instrument following the form of this Plan Exhibit A shall be completed and filed with the Administrator.] By executing this Adoption Agreement, [ NAME OF ADOPTING AFFILIATED EMPLOYER], on this ________ day of __________, ___________ hereby adopts the PMA CAPITAL CORPORATION EXECUTIVE DEFERRED COMPENSATION PLAN (“Plan”), the terms of which Plan are incorporated herein by reference, and by adopting said Plan hereby becomes a Participating Company in said Plan effective __________, ____.         1. The Effective Date of the Plan hereby created or continued is __________, ____.         2. The Board of Directors of PMA CAPITAL CORPORATION consented to the adoption of the Plan by the Affiliated Employer named herein on __________, ____.         3. The Board of Directors of [NAME OF ADOPTING AFFILIATED EMPLOYER] adopted the Plan on __________, ___. Attest: Name of Participating Company       [SEAL]       -------------------------------------------------------------------------------- By -------------------------------------------------------------------------------- Secretary President       Attest: ADOPTION CONSENTED TO BY: PMA CAPITAL CORPORATION       [SEAL]       -------------------------------------------------------------------------------- By -------------------------------------------------------------------------------- Secretary President -19- --------------------------------------------------------------------------------

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.3 AMENDMENT NO. 2 TO REAL ESTATE PURCHASE AND SALE AGREEMENT     THIS AMENDMENT NO. 2 TO REAL ESTATE PURCHASE AND SALE AGREEMENT (this "Amendment") dated as of February 14, 2001, is made by and between Pope Resources, a Delaware limited partnership, its wholly owned subsidiary Olympic Property Group LLC, a Washington limited liability company, and its wholly owned subsidiaries Olympic Real Estate Development LLC, a Washington limited liability company, Olympic Real Estate Management, Inc., a Washington corporation, and Olympic Resorts LLC, a Washington limited liability company (collectively "Seller"), and HCV Pacific Partners LLC, a California limited liability company (or its assigns as permitted herein) ("Buyer"), regarding that certain Real Estate Purchase and Sale Agreement dated January 12, 2001, between Buyer and Seller, as amended by Amendment No. 1 dated February 8,2001 (as amended, the "Agreement"), for the purchase and sale of certain property located in Jefferson and Pierce Counties, Washington, described therein (the "Property").     I.  EFFECT OF AMENDMENT.  This Amendment amends and modifies the Agreement. In the event of any conflict between the Agreement and this Amendment, this Amendment shall control. Except as contained within the Agreement and this Amendment, there are no other agreements or understandings between Buyer and Seller relating to the Property. Capitalized terms not otherwise defined herein shall have the meanings given them under the Agreement.     II.  INSPECTION PERIOD.  Section 4.1 of the Agreement is amended to provide as follows: The period beginning on January 12, 2001, and ending on February 27, 2001, shall be the "Inspection Period."     III.  CONDITIONS PRECEDENT TO CLOSING.  All conditions precedent to Buyer's obligation to complete the purchase of the Property under the Agreement except those described at Sections 5.1, 5.3, 5.4, 5.5, 5.7, and 5.11 of the Agreement shall be deemed satisfied or waived by Buyer unless Buyer shall deliver to Seller written notice otherwise on or before March 27, 2001. Notwithstanding the foregoing, Buyer's conditions precedent described at Sections 5.2 and 5.6 of the Agreement shall be satisfied or waived by Buyer on or before February 27, 2001.     IV.  CLOSING DATE.  Section 7.1 of the Agreement is amended to provide as follows: The Closing hereunder (the "Closing" or the "Closing Date") shall be held at the offices of the Title Company in Seattle, Washington, on April 9, 2001.     V.  SCHEDULES.  Section 16.9 of the Agreement is amended to provide as follows: The parties acknowledge and agree that, as of the date this Agreement has been executed, some schedules and exhibits have not been completed and agreed upon and the parties have also not agreed upon a final allocation of the Purchase Price among the Real Property, the Personal Property, and the Olympic Water and Sewer, Inc. stock. The parties agree to review and negotiate such matters diligently and in good faith, and upon completion and mutual approval of all such schedules, exhibits and other matters, they shall promptly execute an amendment to this Agreement memorializing such agreements. If all schedules hereto are not approved by the parties in an amendment to this Agreement mutually executed and delivered on or before February 27, 2001, then this Agreement shall terminate, the Earnest Money shall be returned to Buyer, and the parties shall have no further obligations hereunder except under those provisions intended to survive the termination of this Agreement.. --------------------------------------------------------------------------------     Except as expressly amended by this Amendment, the Agreement is hereby ratified and confirmed and shall remain in full force and effect. BUYER:   HCV PACIFIC PARTNERS LLC, a California limited liability company     By:   /s/ RANDALL J. VERRUE    --------------------------------------------------------------------------------     Print Name:   Randall J. Verrue --------------------------------------------------------------------------------     Its:   President & CEO --------------------------------------------------------------------------------     Date:   2/15/01 -------------------------------------------------------------------------------- SELLER:   POPE RESOURCES L.P., a Delaware limited partnership, by POPE MGP, Inc., a Delaware corporation, its managing general partner     By:   /s/ GREGORY M. MCCARRY    --------------------------------------------------------------------------------     Print Name:   Gregory M. McCarry --------------------------------------------------------------------------------     Its:   V.P. Real Estate --------------------------------------------------------------------------------     Date:   2/15/01 -------------------------------------------------------------------------------- 2 --------------------------------------------------------------------------------     OLYMPIC PROPERTY GROUP LLC, a Washington limited liability company     By:   /s/ GREGORY M. MCCARRY    --------------------------------------------------------------------------------     Print Name:   Gregory M. McCarry --------------------------------------------------------------------------------     Its:   C.O.O. --------------------------------------------------------------------------------     Date:   2/15/01 --------------------------------------------------------------------------------     OLYMPIC REAL ESTATE DEVELOPMENT LLC, a Washington limited liability company     By:   /s/ GREGORY M. MCCARRY    --------------------------------------------------------------------------------     Print Name:   Gregory M. McCarry --------------------------------------------------------------------------------     Its:   C.O.O. --------------------------------------------------------------------------------     Date:   2/15/01 --------------------------------------------------------------------------------     OLYMPIC REAL ESTATE MANAGEMENT, INC., a Washington corporation     By:   /s/ TOM GRIFFIN    --------------------------------------------------------------------------------     Print Name:   Tom Griffin --------------------------------------------------------------------------------     Its:   Vice President --------------------------------------------------------------------------------     Date:   2/15/01 --------------------------------------------------------------------------------     OLYMPIC RESORTS LLC, a Washington limited liability company     By:   /s/ GREGORY M. MCCARRY    --------------------------------------------------------------------------------     Print Name:   Gregory M. McCarry --------------------------------------------------------------------------------     Its:   C.O.O. --------------------------------------------------------------------------------     Date:   2/15/01 -------------------------------------------------------------------------------- 3 -------------------------------------------------------------------------------- QuickLinks Exhibit 10.3 AMENDMENT NO. 2 TO REAL ESTATE PURCHASE AND SALE AGREEMENT

Exhibit 10.22   CHANGE IN CONTROL AGREEMENT   This Change in Control Agreement is made this 1st day of July, 2000, by and between PACIFIC NORTHWEST BANCORP and PACIFIC NORTHWEST BANK (hereinafter jointly referred to as the “Bank”) and BETTE J. FLORAY (hereinafter referred to as the “Executive”), who agree as follows:   1.    Pacific Northwest Bank.  Pacific Northwest Bank is a wholly-owned subsidiary of Pacific Northwest Bancorp, a Washington corporation.   2.    Purpose.  The purpose of this Agreement is to provide certain assurances to Executive that in the event of a Change in Control or a substantial change in ownership of the Bank, Executive shall either have continued employment or, in the event of termination, severance pay.  The Bank is willing to make such assurances to Executive to encourage Executive to maintain continued employment with the Bank.   3.    Definition.  “Change in Control” as provided herein shall include the following:   (a)  Merger of the Bank into another financial institution or entity, with such other entity being the surviving entity;   (b)  Acquisition of the Bank by another institution or entity;   (c)  Sale of all or substantially all of the assets of the Bank;   (d)  The acquisition of 25 percent or more of the beneficial ownership of stock of the Bank by one or more related entities or persons, except a Bank-approved ESOP; and   (e)  If during any period of two (2) years, individuals who at the beginning of such period constitute the Board of Directors of the Bank (the “Continuing Directors”) cease for any reason to constitute at least a majority of the Board of Directors of the Bank unless the election of each Director who is not a Continuing Director was approved by a vote of at least two-thirds (2/3) of the Continuing Directors in office at the time of the election of each such new Director.   Any one of the foregoing items may constitute a Change in Control activating Executive’s Employment Contract and Severance Pay provisions set forth below.  To prevent an unanticipated activation of the Employment Contract and/or Severance Pay provisions, either Executive or the Bank must give written notice to the other of the Change in Control thereby activating the Employment Contract and Severance Pay provisions set forth below.   4.    Upon a Change in Control, Executive shall be entitled to receive a four-year employment contract (“Employment Contract”) with the successor entity that provides:   (a)  Executive a position with duties and responsibilities commensurate with those customarily performed by a person with the status of Executive Vice President in the finance area;   (b)  That Executive’s services shall be performed in the same geographical location where Executive is employed at the time of the Change in Control;   (c)  That Executive’s salary and benefits are comparable to those received by Executive over the twelve (12) months prior to the Change in Control;   (d)  That the successor entity may terminate Executive’s employment at any time prior to the expiration of the four-year contract term by paying Executive an amount equal to the Total Compensation paid to Executive for the prior two calendar years.  For purposes of this Agreement, “Total Compensation” shall be defined as an amount equal to Executive’s W-2 income before salary deferrals.   (e)  Notwithstanding the foregoing, the successor entity may provide in the Employment Contract that Executive may be terminated for chronic alcoholism or controlled substance abuse, as determined by a doctor mutually acceptable to the Bank and Executive, and continuing failure by Executive to commence and pursue with due diligence appropriate treatment for same in accordance with such doctor’s recommendations; dishonesty; insubordination or willful failure to discharge assigned duties; harassment of fellow employees or customers of the Bank; violation of the conflict of interest policy of the Bank or its subsidiaries; theft; possession of unauthorized weapons or firearms (loaded or unloaded) on the premises of the Bank or its subsidiaries; or conviction of a criminal offense constituting a felony.  If Executive is terminated under this provision, Executive shall not be entitled to receive any payments under this Agreement.   5.    Executive Termination Window.  If Executive is employed by the successor entity following a Change in Control in accordance with Section 4, above, during the period commencing with the 25th month following a Change in Control through the 30th month following a Change in Control, Executive may terminate her Employment Agreement by delivering written notice to the successor entity.  If Executive does so regardless of whether Executive had good reason to terminate this Agreement, the successor entity will pay Executive a single cash payment in an amount equal to Executive’s Total Compensation for the prior twelve (12) months period.  If Executive elects to terminate her employment under this paragraph, her termination of employment shall be deemed voluntary and Executive shall not therefore be entitled to any additional benefit under the Severance Pay Agreement.   6.    Other Benefits.  Payments under this Agreement shall be in addition to any payments to which Executive may be entitled to receive under the terms of a separate Severance Pay Agreement.   PACIFIC NORTHWEST BANK   EXECUTIVE                               By: /s/  Patrick M. Fahey   By: /s/  Bette J. Floray   Patrick M. Fahey, President/CEO     Bette J. Floray, Executive Vice         President/Chief Financial Officer  

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.1 HPL TECHNOLOGIES, INC. 2001 FOREIGN SUBSIDIARY EMPLOYEE STOCK PURCHASE PLAN (AS ADOPTED ON MAY 22, 2001 AND AMENDED ON AUGUST 24, 2001) 1.Purpose. This HPL Technologies, Inc. Foreign Subsidiary Employee Stock Purchase Plan (the "Plan") is designed to encourage and assist employees of any Participating Subsidiary of HPL Technologies, Inc. ("HPL"), as defined in Section 4, to acquire an equity interest in HPL through the purchase of shares of HPL common stock (the "Common Stock"). HPL and all of the Participating Subsidiaries shall be collectively referred to herein as the "Company". The Plan is intended to satisfy the coverage and participation requirements of Sections 423(b)(3) and 423(b)(5) of the Internal Revenue Code of 1986, as amended (the "Code") in order to allow for the grant of options under the Plan to be exempted from Section 16(b) of the Securities Exchange Act of 1934, but is not intended to qualified under Section 423 of the Code. 2.Administration. The Plan shall be administered by the Board of Directors of HPL (or a committee thereof designated by the Board of Directors, which in either case is referred to as the "Board"). The Board may from time to time select a committee or persons (the "Administrator") to be responsible for any matters in implementing the Plan. If no such committee or persons are selected, the Board shall be the Administrator. Subject to the express provisions of the Plan, to the overall supervision of the Board, the Administrator may administer and interpret the Plan in any manner it believes to be desirable, and any such interpretation shall be conclusive and binding on the Company and all persons, and the Administrator shall have all powers necessary to accomplish the purposes of the Plan and discharge its duties hereunder. 3.Number Of Shares. (a)Share Limit. The total number of shares of Common Stock initially reserved and available for issuance pursuant to this Plan shall be 510,000 (the "Share Limit"). Notwithstanding the foregoing and subject to Section 3(b), the Share Limit shall automatically increase on March 1, 2002 and March 1 of each year thereafter until and including March 1, 2011 (unless the Plan is terminated earlier in accordance with the provisions hereof) by the "Annual Increase" which shall consist of a number of shares equal to the least of (i) 150,000, (ii) one percent (1.00%) of the number of shares of all classes of common stock of the Company outstanding on that date or (iii) a lesser number determined by the Administrator prior to such March 1; provided that the total number of shares available for issuance under the Plan shall not exceed the initial Share Limit plus the maximum potential cumulative Annual Increase. The Share Limit shall be reduced by the number of shares issued under the HPL Technologies Employee Stock Purchase Plan ("Domestic Plan"). Such shares may consist, in whole or in part, of authorized and unissued shares or treasury shares reacquired in private transactions or open market purchases, but all shares issued under this Plan and the Domestic Plan shall be counted against the Share Limit. (b)Adjustments. In the event of any reorganization, recapitalization, stock split, reverse stock split, stock dividend, combination of shares, offering of rights, or other similar change in the capital structure of HPL, the Board may make such adjustment, if any, as it deems appropriate in the number, kind, and purchase price of the shares available for purchase under the Plan and in the maximum number of shares subject to any option under the Plan. Such adjustment shall be made by the Administrator, whose determination shall be final, binding, and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by -------------------------------------------------------------------------------- reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option under the Plan. 4.Eligibility Requirements. (a)Eligible Employees. Each employee of each Participating Subsidiary, except those described in the next paragraph, shall become eligible to participate in the Plan in accordance with Section 5 on the first Enrollment Date on or following commencement of his or her employment by the Company or the Participating Subsidiary or following such period of employment, not to exceed two years, as is designated by the Board from time to time. Participation in the Plan is entirely voluntary. (b)Non-Eligible Employees. The following employees are not eligible to participate in the Plan: (i)employees who would, immediately upon enrollment or re-enrollment in the Plan, own directly or indirectly five percent or more of the total combined voting power or value of all classes of stock of HPL or any "subsidiary" or "parent" of HPL (as defined in Section 424 of the Code); (ii)employees who are customarily employed by the Company less than 20 hours per week or less than five months in any calendar year; and (iii)employees who are prohibited by applicable law from participating in the Plan. For purposes of the determination in clause (i) above, (a) the employee shall be deemed to own stock attributed to him or her under the attribution rules of Section 424(d) of the Code; (b) the employee shall be considered to own any stock that the employee could purchase through the exercise of any option or right to acquire stock held by the employee (including the option granted to the employee upon an Enrollment Date); and (c) the option granted to an employee on an Enrollment Date shall be deemed to be an option to acquire a number of shares of Common Stock of the Company equal to (x) the maximum number of shares that may be purchased on any 2 Purchase Date set forth in Section 6(b)(vii) hereof multiplied by (y) the number of Purchase Dates in the option period for such option. (c)Definition Of Employee. "Employee" shall mean any individual who is an employee of a Participating Subsidiary, other than individuals excluded from participation by local law or whose participation would require HPL or any Participating Subsidiary to make qualification or take actions that are, in the opinion of the Administrator, burdensome. Whether an individual qualifies as an Employee shall be determined by the Administrator, in its sole discretion. The Administrator shall be guided by the provisions of Treasury Regulation Section 1.421-7 and Section 3401(c) of the Code and the Treasury Regulations thereunder, with the intent that the Plan cover all "employees" within the meaning of those provisions other than those who are not eligible to participate in the Plan; provided, however, that any determinations regarding whether an individual is an "employee" shall be prospective only, unless otherwise determined by the Administrator. Unless the Administrator makes a contrary determination, the Employees of the Company shall, for all purposes of this Plan, be those individuals who are carried as employees of a Participating Subsidiary for regular payroll purposes or are on a leave of absence for not more than 90 days. Any inquiries regarding eligibility to participate in the Plan shall be directed to the Administrator, whose decision will be final. (d)Definition Of Subsidiary. "Subsidiary" shall mean any corporation that is a "subsidiary" of the Company as defined in Section 424(f) of the Code. "Participating Subsidiary" shall mean a subsidiary which has been designated by the Administrator as covered by the Plan; provided, 2 -------------------------------------------------------------------------------- however, that no subsidiary participating in the Domestic Plan may be designated for participation in the Plan. 5.Enrollment. Any eligible employee may enroll or re-enroll in the Plan each year as of the first trading day of (i) September 2001, (ii) March 2002, and (iii) each September and March thereafter, or such other days as may be established by the Board from time to time (the "Enrollment Dates"). In order to enroll, an eligible employee must complete and submit to the Company the enrollment form approved by the Administrator. Any enrollment form received by the designee of the Administrator by (a) the September 2001 Enrollment Date, (b) with respect to each Enrollment Date thereafter, the 25th day of the month preceding such Enrollment Date (or the Enrollment Date in the case of employees hired after such 25th day), or (c) such other date established by the Administrator from time to time, will be effective on that Enrollment Date. For purposes of the Plan, a "trading day" is any day on which regular trading occurs on any established stock exchange or market system on which the Common Stock is traded. Any employee who has enrolled in the Plan and has not withdrawn shall be automatically re-enrolled in the Plan on the Enrollment Date next following the expiration of the employee's option at the same level of payroll deduction as during the preceding option period. An employee wishing to change the level of payroll deduction must submit a new enrollment form on or before the due dates for such forms described above. 6.Grant Of Option On Enrollment. (a)Grant of Option. Enrollment or re-enrollment by a participant in the Plan on an Enrollment Date will constitute the grant by the Company to the participant of an option to purchase shares of Common Stock from the Company under the Plan. (b)Terms of Options. Each option granted under the Plan shall have the following terms: (i)each option granted under the Plan will have a term of not more than 24 months or such shorter option period as may be established by the Board from time to time; notwithstanding the foregoing, however, whether or not all shares have been purchased thereunder, the option will expire on the earlier to occur of (A) the completion of the purchase of shares on the last Purchase Date occurring within 24 months after the Enrollment Date for such option, or such shorter option period as may be established by the Board before an Enrollment Date for all options to be granted on such date or (B) the date on which the employee's participation in the Plan terminates for any reason; (ii)payment for shares purchased under the option will be made only through payroll withholding in accordance with Section 7; (iii)purchase of shares upon exercise of the option will be effected only on the Purchase Dates established in accordance with Section 8; (iv)the price per share under the option will be determined as provided in Section 8; (v)the number of shares available for purchase under an option will be determined by dividing (i) such participant's payroll deductions accumulated on or prior to such Purchase Date and retained in such participant's account as of the Purchase Date; by (ii) the applicable Purchase Price determined in accordance with Section 8; (vi)the option (taken together with all other options then outstanding under this and all other similar stock purchase plans of HPL and any subsidiary of HPL, collectively "Options") will in no event give the participant the right to purchase shares at a rate per calendar year which accrues in excess of $25,000 of fair market value of such shares, determined at the applicable Enrollment Date; 3 -------------------------------------------------------------------------------- (vii)the option will in no event give the right to purchase more than 1500 shares on any Purchase Date; and (viii)the option will in all respects be subject to the terms and conditions of the Plan, as interpreted by the Administrator, in its sole discretion, from time to time. 7.Payroll And Tax Withholding; Use By Company. (a)Payroll Deductions. Each participant shall elect to have amounts withheld from his or her compensation paid by the Company during the option period, at a rate equal to any whole percentage up to 30 percent, or such other maximum percentage as the Board may establish from time to time before an Enrollment Date. Compensation includes regular salary payments, bonuses, overtime pay and any other compensation as may be determined from time to time by the Board of Directors, but excludes all other payments including, without limitation, long-term disability or workers compensation payments, car allowances, employee referral bonuses, relocation payments, expense reimbursements (including but not limited to travel, entertainment, and moving expenses), salary gross-up payments, and non-cash recognition awards. The participant shall designate a rate of withholding in his or her enrollment form and may elect to increase or decrease the rate of contribution effective as of any Enrollment Date, by delivery to HPL or the Employee's Participating Subsidiary, not later than the 25th day of the month preceding such Enrollment Date, of a written notice indicating the revised withholding rate. The first payroll deduction will commence with the first payment of compensation on or after the Enrollment Date. (b)Use Of Withholdings. Payroll withholdings shall be credited to an account maintained for purposes of the Plan in local currency on behalf of each participant, as soon as administratively feasible after the withholding occurs. The Company shall be entitled to use the withholdings for any corporate purpose, shall have no obligation to pay interest on withholdings to any participant, and shall not be obligated to segregate withholdings. (c)Tax Withholdings. Upon acquisition or disposition of shares acquired by exercise of an option, the participant shall pay, or make provision adequate to the Company for payment of, all federal, state, and other tax (and similar) withholdings that the Company determines, in its discretion, are required due to the disposition, including any such withholding that the Company determines in its discretion is necessary to allow the Company to claim tax deductions or other benefits in connection with the disposition. A participant shall make such similar provisions for payment that the Company determines, in its discretion, are required due to the exercise of an option, including such provisions as are necessary to allow the Company to claim tax deductions or other benefits in connection with the exercise of the option. 8.Purchase Of Shares. (a)Purchase Date. On the last trading day of each month immediately preceding a month containing an Enrollment Date, or on such other days as may be established by the Board from time to time prior to an Enrollment Date for all options to be granted on an Enrollment Date (each a "Purchase Date"), the Company shall convert each participant's account balance, including amounts carried forward to U.S. Dollars, determined as of the Purchase Date, and shall apply the funds then credited to each participant's payroll withholdings account to the purchase of whole shares of Common Stock. (b)Purchase Price. The cost to the participant for the shares purchased under any option shall be not less than 85 percent of the lower of: (i) the fair market value of the Common Stock on the Enrollment Date for such option; or (ii) the fair market value of the Common Stock on that Purchase Date. The "fair market value" of the Common Stock on a date shall be the 4 -------------------------------------------------------------------------------- closing price of the Common Stock on the Nasdaq National Market (or, if determined by the Administrator to be the primary market on which the Common Stock is traded, a stock exchange or other market system on which the Common Stock is traded), or the fair market value on such date as determined by the Administrator if no such price is reported. (c)Funds Remaining After Purchase. Any funds in an amount less than the cost of one share of Common Stock left in a participant's payroll withholdings account on a Purchase Date shall be carried forward in such account for application on the next Purchase Date. (d)Insufficient Shares Available. If at any Purchase Date, the shares available under the Plan are less than the number all participants would otherwise be entitled to purchase on such date, purchases (including purchases under the Domestic Plan) shall be reduced proportionately to eliminate the deficit. Any funds that cannot be applied to the purchase of shares due to such a reduction shall be refunded to participants as soon as administratively feasible, unless the Administrator, in its sole discretion, determines that such excess funds shall be carried over to the next Purchase Date under this Plan. 9.Withdrawal From The Plan. A participant may withdraw from the Plan in full (but not in part) at any time, effective after written notice thereof is received by the Company. All funds credited to a participant's payroll withholdings account shall be distributed to him or her without interest within 60 days after notice of withdrawal is received by the Company. Any eligible employee who has withdrawn from the Plan may enroll in the Plan again on any subsequent Enrollment Date in accordance with the provisions of Section 5. If a participant fails to remain employed for at least 20 hours per week during an Offering Period, the participant will be deemed to have withdrawn from this Plan, the payroll deductions credited to the participant's account will be promptly refunded, and the participant's option under the Plan shall terminate. 10.Termination Of Employment. Participation in the Plan terminates immediately when a participant ceases to be employed by the Company for any reason whatsoever (including death or disability) or otherwise becomes ineligible to participate in the Plan. As soon as administratively feasible after termination, the Company shall pay to the participant or his or her beneficiary or legal representative, all amounts credited to the participant's payroll withholdings account; provided, however, that if a participant ceases to be employed by the Company because of the commencement of employment with a Subsidiary of the Company that is not a Participating Subsidiary, funds then credited to such participant's payroll withholdings account shall be applied to the purchase of whole shares of Common Stock at the next Purchase Date, and any funds remaining after such purchase shall be paid to the participant. 11.Beneficiaries. (a)Designation Of Beneficiary. Each participant may designate one or more beneficiaries in the event of death and may, in his or her sole discretion, change such designation at any time. Any such designation shall be effective upon receipt in written form by the Company and shall control over any disposition by will or otherwise. (b)Payment To Beneficiary. As soon as administratively feasible after the death of a participant, amounts credited to his or her account shall be paid in cash to the designated beneficiaries or, in the absence of a designation, to the executor, administrator, or other legal representative of the participant's estate. Such payment shall relieve the Company of further liability with respect to the Plan on account of the deceased participant. If more than one beneficiary is designated, each beneficiary shall receive an equal portion of the account unless the participant has given express contrary written instructions. 12.Assignment. 5 -------------------------------------------------------------------------------- (a)Assignment Prohibited. Except as provided in Section 11, the rights of a participant under the Plan shall not be assignable by such participant, by operation of law or otherwise. No participant may create a lien on any funds, securities, rights, or other property held by the Company for the account of the participant under the Plan, except to the extent that there has been a designation of beneficiaries in accordance with the Plan, and except to the extent permitted by the laws of descent and distribution if beneficiaries have not been designated. (b)Rights Exercisable Only By Participant. A participant's right to purchase shares under the Plan shall be exercisable only during the participant's lifetime and only by him or her, except that a participant may direct the Company in the enrollment form to issue share certificates to the participant and his or her spouse in community property, to the participant jointly with one or more other persons with right of survivorship, or to certain forms of trusts approved by the Administrator; provided, that such direction may not be terminated, except at the beginning of a new enrollment period or pursuant to a "qualified domestic relations order" as defined under the Code. 13.Administrative Assistance. If the Administrator in its discretion so elects, it may engage a brokerage firm, bank, or other financial institution to assist in the purchase of shares, delivery of reports, or other administrative aspects of the Plan. If the Administrator so elects, each participant shall be deemed upon enrollment in the Plan to have authorized the establishment of an account on his or her behalf at such institution. Shares purchased by a participant under the Plan shall be held in the account in the name in which the share certificate would otherwise be issued. 14.Costs. All costs and expenses incurred in administering the Plan shall be paid by the Company, except that any stamp duties or transfer taxes applicable to participation in the Plan may be charged to the account of such participant by the Company. Any brokerage fees for the purchase of shares by a participant shall be paid by the Company, but brokerage fees for the resale of shares by a participant shall be borne by the participant. 15.Equal Rights And Privileges. All eligible employees shall have substantially equal rights and privileges under the Plan. 16.Governing Law. The Plan and options granted hereunder shall be governed by the substantive laws (excluding the conflict of laws rules) of the State of Delaware. 17.Modification And Termination. (a)Modification And Termination Of Plan. The Board may modify, amend, alter, or terminate the Plan at any time, including amendments to outstanding options. No amendment to increase the number of shares reserved for purchase under the Plan shall be effective unless within 12 months after it is adopted by the Board, it is approved by the stockholders of HPL. (b)Termination Of Options. In the event the Plan is terminated, the Board may elect to terminate all outstanding options either immediately or upon completion of the purchase of shares on the next Purchase Date, or may elect to permit options to expire in accordance with their terms (and participation to continue through such expiration dates). If the options are terminated prior to expiration, all funds contributed to the Plan that have not been used to purchase shares shall be returned to the participants as soon as administratively feasible. (c)Asset Sale, Merger, Etc. In the event of the sale of all or substantially all of the assets of HPL, or the merger or consolidation of HPL with or into another corporation, or the dissolution or liquidation of HPL, the Board shall provide for the assumption or substitution of each option under the Plan by the successor or surviving corporation, or a parent or subsidiary thereof, unless the Board decides to take such other action as it deems appropriate, including, without 6 -------------------------------------------------------------------------------- limitation, providing for the termination of the Plan and providing for a Purchase Date to occur on the trading day immediately preceding the date of such termination. 18.Rights As An Employee. Nothing in the Plan shall be construed to give any person the right to remain in the employ of the Company or any Subsidiary or to affect the Company's or any Subsidiary's right to terminate the employment of any person at any time with or without cause. 19.Rights As A Shareholder; Delivery Of Certificates. Participants shall be treated as the owners of their shares effective as of the Purchase Date. Certificates evidencing shares purchased on any Purchase Date shall be delivered to participants as soon as administratively feasible, unless the Administrator determines that HPL instead of delivery of share certificates (i) deliver a certificate (or equivalent) to a broker for crediting to the participant's account, or (ii) make a notation in the participant's favor of non-certificated shares on the Company's stock records. 20.Additional Restrictions Of Rule 16b-3. The terms and conditions of options granted hereunder to, and the purchase of shares by, persons subject to Section 16 of the Securities Exchange Act of 1934 shall comply with the applicable provisions of Rule 16b-3 of such Act. This Plan shall be deemed to contain, and such options shall contain, and the shares issued upon exercise thereof shall be subject to, such additional conditions and restrictions as may be required by Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Securities Exchange Act of 1934 with respect to Plan transactions. 7 -------------------------------------------------------------------------------- QuickLinks EXHIBIT 10.1 HPL TECHNOLOGIES, INC. 2001 FOREIGN SUBSIDIARY EMPLOYEE STOCK PURCHASE PLAN (AS ADOPTED ON MAY 22, 2001 AND AMENDED ON AUGUST 24, 2001)

December 20, 2000 Maury Austin 380 Pennsylvania Ave Los Gatos, CA 95030 Dear Maury:     It is a distinct pleasure to offer you the position of Senior Vice President and Chief Financial Officer for Vicinity Corporation (the "Company"). In this capacity you will report to Emerick Woods, President and CEO of the Company. Your start date is to be determined and will be the date mutually agreed between you and the Company.     In accordance with current federal law, you will be asked to provide documentation proving your eligibility to work in the United States. Please review the enclosed notice regarding the Immigration Reform and Control Act and bring proper documentation with you on your first day.     Upon commencement of your regular employment by the Company, you will be eligible for the comprehensive benefits package that we offer to our full time employees. Additionally, you will accrue PTO (paid time off) at a rate of 13.32 hours per month (4 weeks per year). Details of this package will be reviewed with you in your orientation on your first day of regular employment.     Your starting annualized base salary will be $225,000, which represents $9,375 semi-monthly. Pay periods end on the 15th day and the last day of each month. In addition to your base salary, you will be eligible to earn an annual performance bonus of up to 50 per cent of your base salary. One-half of this amount, up to $56,250, will be paid quarterly (up to $14,062.50 per quarter) based upon your achievement of mutually agreed upon individual performance objectives. The remaining amount, up to $56,250, will be paid in September of each year, following the close of the Company's fiscal year on July 31, 2001, based upon the Company's achievement of corporate objectives set by the Board of Directors and the CEO of the Company, which objectives will be communicated to you in a timely fashion. All bonus amounts will be pro-rated from your start date through the end of the Company's next fiscal quarter or fiscal year, as appropriate.     In addition to the above compensation you will be granted an option to purchase 250,000 shares of the Company's common stock under the Company's 2000 Equity Participation Plan. The options will vest over four (4) years beginning on your date of hire with the first 25% vesting on the twelve month anniversary of your date of hire and 2.0833% of the remaining shares vesting on each of the next 36 monthly anniversary dates. You will receive the grant on the day you start with the company and the exercise price will be the Nasdaq closing price the day before the grant. Other details of the 2000 Equity will be reviewed with you in your orientation on your first day of regular employment. Special Terms Termination without Cause     Except as provided below upon a Change of Control Event, in the event your employment is terminated by the Company without Cause (as defined below), you will be eligible to receive as severance the following: •continuance for a period of six (6) months beyond the date of termination of your (x) then current base salary (payable on and as per the Company's normal pay periods) and (y) medical benefits (or, if such continuation is not permitted by the Company's insurers, periodic cash payment equal to the amount the Company had paid to obtain health insurance for you and your family); •accelerated vesting of all options that would otherwise have normally vested during the six (6) month period following the date of termination.     As a condition to the receipt of the payments and other benefits described above and any other post-termination benefits, you will be required to execute a release, in a form reasonably acceptable to -------------------------------------------------------------------------------- you and your counsel, of all claims arising out of his employment with the Company or the termination thereof, including, but not limited to, any claim of discrimination under state or federal law.     For purposes of this offer letter, "Cause" means: 1.your failure or refusal to carry out any proper direction by an officer or director of the Company with respect to services to be rendered by you, which failure remains uncured for a period of 10 days following delivery of notice to you by the CEO of the Company or the Board of Directors of the Company specifically identifying the basis of such failure or refusal; 2.your neglect or your duties on a general basis (other than as a result of illness or disability), notwithstanding written notice of objection from the CEO of the Company and the expiration of a ten (10) day cure period; 3.your committing any act involving willful misconduct or gross negligence in the performance of your duties to the Company; 4.your commission of any act of fraud, embezzlement, theft or criminal dishonesty or your conviction of any felony or any crime involving moral turpitude. Change of Control Event     In the event the Company enters into a transaction or series of related transactions in which (i) the Company consolidates or merges with any other corporation or business entity, after which the holders of the Company's outstanding shares immediately before such consolidation or merger do not, immediately after such consolidation or merger, retain stock or other equity interests representing a majority of the voting power of the surviving corporation or business entity or (ii) all or substantially all of the assets or capital stock of the Company are sold (each a "Change of Control Event"), then that number of shares remaining under all option grants that would be subject to vesting during the twelve (12) month period following any such Change of Control Event shall immediately vest ("Accelerated Vesting") upon the first to occur of (x) the six (6) month anniversary of Change of Control Event; provided you are still employed by the Company, or (y) such earlier date as you are terminated without Cause. Such Accelerated Vesting shall be in addition to any other shares normally vesting under the option during the period of your employment by the Company; provided however, that in no event shall the options subject to Accelerated Vesting due to a Change of Control Event be aggregated with any other accelerated vesting (such as upon your termination without Cause). In the event such Accelerated Vesting affects pooling or affects the Company's ability to enter into a transaction described in (i) or (ii) above, then the options subject to Accelerated Vesting shall not vest.     In addition, in the event that you are terminated without Cause following a Change of Control Event, your salary and benefits will be continued for a period of six (6) months in the manner described above under the caption "Termination without Cause".     This letter does not constitute a guarantee of employment or a contract, and either you or the Company may terminate your employment with Vicinity Corporation at any time and for any reason. This offer supersedes all prior offers, both verbal and written.     Maury, we are very pleased to offer you this position, and we are sure that you will play a key role in the future of Vicinity Corporation. Please confirm your acceptance of this position by signing one copy of this letter, which will indicate your acceptance of our offer and return it to me. Cordially, /s/ EMERICK M. WOODS    Emerick M. Woods President and Chief Executive Officer -------------------------------------------------------------------------------- I have read and accept the above offer: /s/ MAURY AUSTIN        --------------------------------------------------------------------------------     Maury Austin     cc:Human Resources Accounting --------------------------------------------------------------------------------

Exhibit 10.2 AMENDMENTS TO EXISTING EMPLOYEES REPLACEMENT STOCK PLAN ADDING NEW CHANGE OF CONTROL SECTION 1.Section 4(c)(viii) is amended to read as follows: (viii)  to impose such additional conditions, restrictions, and limitations upon the grant, exercise or retention of Awards as the Committee may, before or concurrently with the grant thereof, deem appropriate, including, without limitation, requiring simultaneous exercise of related identified Awards, and subject to Article 24, limiting the percentage of Awards which may from time to time be exercised by a Grantee. 2.The first sentence of section 8(a) is amended to read as follows: Subject to Articles 4, 6 and 24, (i) each Replacement Option shall be exercisable in one or more installments commencing not earlier than the first anniversary of the grant date of the Sears Option it replaces, (ii) options shall not be exercisable for twelve months following a hardship distribution that is subject to Treasury Regulation § 1.401(k)-1(d)(2)(iv)(B)(4), (iii) each option shall be exercised by delivery to the Company of written notice of intent to purchase a specific number of shares of Stock subject to the option, (iv) the Option Price on any shares of Stock as to which an option shall be exercised shall be paid in full at the time of the exercise, and (v) payment may be made in either one or any combination of the following, as provided in the Award Agreement: (I) cash, or (II) Stock that has been held for at least six months, valued at the Fair Market Value on the date of exercise. 3.A new Article 24 is added, to read as follows: 24.  Effect of Change of Control on Replacement Options     (a)  Certain Definitions.  As used only in this Article 24, the terms set forth below shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):      (i) "Allstate Incumbent Directors" means, determined as of any date by reference to any baseline date:     (A) the members of the Board on the date of such determination who have been members of the Board since such baseline date, and     (B) the members of the Board on the date of such determination who were appointed or elected after such baseline date and whose election, or nomination for election by stockholders of the Company or the -------------------------------------------------------------------------------- Surviving Corporation, as applicable, was approved by a vote or written consent of two-thirds (100% for purposes of paragraph (A) of the definition of "Merger of Equals") of the directors comprising the Allstate Incumbent Directors on the date of such vote or written consent, but excluding each such member whose initial assumption of office was in connection with (1) an actual or threatened election contest, including a consent solicitation, relating to the election or removal of one or more members of the Board, (2) a "tender offer" (as such terms is used in Section 14(d) of the Exchange Act), (3) a proposed Reorganization Transaction, or (4) a request, nomination or suggestion of any Beneficial Owner of Voting Securities representing 15% or more of the aggregate voting power of the Voting Securities of the Company or the Surviving Corporation, as applicable.     (ii) "Approved Passive Holder" means, as of any date, any Person that satisfies all of the following conditions:     (A) as of such date, such Person is a 20% Owner, but is the Beneficial Owner of less than 30% of the then-outstanding Common Stock and of Voting Securities representing less than 30% of the combined voting power of all then-outstanding Voting Securities of the Company;     (B) prior to becoming a 20% Owner, such Person has filed, and as of such date has not withdrawn, or made any subsequent filing or public statement inconsistent with, a statement with the SEC pursuant to Section 13(g) of the Exchange Act that includes a certification by such person to the effect that such beneficial ownership does not have the purpose or effect of changing or influencing the control of the Company; and     (C) prior to such Person's becoming a 20% Owner, at least two-thirds of the Allstate Incumbent Directors (such Allstate Incumbent Directors to be determined as of March 3, 1999 as the baseline date) shall have voted in favor of a resolution adopted by the Board to the effect that:     (1) the terms and conditions of such Person's investment in the Company will not have the effect of changing or influencing the control of the Company, and     (2) notwithstanding clause (A) of the definition of "Change of Control," such Person's becoming a 20% Owner shall be treated as though it were a Merger of Equals for purposes of the Plan.     (iii) "Beneficial Owner" means such term as defined in Rule 13d-3 of the SEC under the Exchange Act. --------------------------------------------------------------------------------     (iv) "Cause" means any of the events or conditions which constitute cause for immediate termination of employment of the Grantee as provided from time to time in the applicable Human Resources Policy of the Company or one of its Subsidiaries.     (v) "Change of Control" means, except as provided at the end of this Section, the occurrence of any one or more of the following:     (A) any person (as such term is used in Rule 13d-5 of the SEC under the Securities Exchange Act of 1934, as amended ("Exchange Act")) or group (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Exchange Act), other than a Controlled Affiliate of the Company or any employee benefit plan (or any related trust) of the Company or any of its Controlled Affiliates, becomes the Beneficial Owner of 20% or more of the common stock of the Company or of Voting Securities representing 20% or more of the combined voting power of all Voting Securities of the Company (such a person or group that is not a Similarly Owned Company (as defined below), a "20% Owner"), except that no Change of Control shall be deemed to have occurred solely by reason of such beneficial ownership by a corporation (a "Similarly Owned Company") with respect to which both more than 70% of the common stock of such corporation and Voting Securities representing more than 70% of the combined voting power of the Voting Securities of such corporation are then owned, directly or indirectly, by the persons who were the direct or indirect owners of the common stock and Voting Securities of the Company immediately before such acquisition, in substantially the same proportions as their ownership, immediately before such acquisition, of the common stock and Voting Securities of the Company, as the case may be; or     (B) Allstate Incumbent Directors (as determined using March 3, 1999 as the baseline date) cease for any reason to constitute at least two-thirds of the directors of the Company then serving (provided, however, that this clause (B) shall be inapplicable during a Post-Merger of Equals Period); or     (C) Approval by the stockholders of the Company of a merger, reorganization, consolidation, or similar transaction, or a plan or agreement for the sale or other disposition of all or substantially all of the consolidated assets of the Company or a plan of liquidation of the Company (any of the foregoing, a "Reorganization Transaction") that, based on information included in the proxy and other written materials distributed to the Company's stockholders in connection with the solicitation by the Company of such stockholder approval, is not expected to qualify as an Exempt Reorganization Transaction; provided, however, that if (1) the merger or other agreement between the parties to a Reorganization -------------------------------------------------------------------------------- Transaction expires or is terminated after the date of such stockholder approval but prior to the consummation of such Reorganization Transaction (a "Reorganization Transaction Termination") or (2) immediately after the consummation of the Reorganization Transaction, such Reorganization Transaction does qualify as an Exempt Reorganization Transaction notwithstanding the fact that it was not expected to so qualify as of the date of such stockholder approval, then such stockholder approval shall not be deemed a Change of Control for purposes of any Termination of Employment as to which the Termination Date occurs on or after the date of the Reorganization Transaction Termination or the date of the consummation of the Exempt Reorganization Transaction, as applicable; or     (D) The consummation by the Company of a Reorganization Transaction that for any reason fails to qualify as an Exempt Reorganization Transaction as of the date of such consummation, notwithstanding the fact that such Reorganization Transaction was expected to so qualify as of the date of such stockholder approval; or     (E) A 20% Owner who had qualified as an Approved Passive Holder ceases to qualify as such for any reason other than ceasing to be a 20% Owner (such cessation of Approved Passive Holder status to be considered for all purposes of this Employees Replacement Stock Plan (including the definition of "Change of Control Effective Date") a Change of Control distinct from and in addition to the Change of Control specified in clause (A) above). Notwithstanding the occurrence of any of the foregoing events, a Change of Control shall not occur with respect to a Grantee if, in advance of such event, such Grantee agrees in writing that such event shall not constitute a Change of Control.     (vi) "Change of Control Effective Date" means the date on which a Change of Control first occurs while an Award is outstanding.    (vii) "Consummation Date" means the date on which a Reorganization Transaction is consummated.    (viii) "Controlled Affiliate" of a Person means any corporation, business trust, or limited liability company or partnership with respect to which such Person owns, directly or indirectly, Voting Securities representing more than 50% of the aggregate voting power of the then-outstanding Voting Securities.     (ix) "Exempt Reorganization Transaction" means a Reorganization Transaction that results in the Persons who were the direct or indirect owners of the outstanding common stock and Voting Securities of the Company immediately before such Reorganization Transaction becoming, immediately after the -------------------------------------------------------------------------------- consummation of such Reorganization Transaction, the direct or indirect owners, of both more than 70% of the then-outstanding common stock of the Surviving Corporation and Voting Securities representing more than 70% of the combined voting power of the then-outstanding Voting Securities of the Surviving Corporation, in substantially the same respective proportions as such Persons' ownership of the common stock and Voting Securities of the Company immediately before such Reorganization Transaction.     (x) "Merger of Equals" means, as of any date, a transaction that, notwithstanding the fact that such transaction may also qualify as a Change of Control, satisfies all of the conditions set forth in paragraphs (A) or (B) below:     (A) if such date is on or after the Consummation Date, a Reorganization Transaction in respect of which all of the following conditions are satisfied as of such date, or if such date is prior to the Consummation Date, a proposed Reorganization Transaction in respect of which the merger agreement or other documents (including the exhibits and annexes thereto) setting forth the terms and conditions of such Reorganization Transaction, as in effect on such date after giving effect to all amendments thereof or waivers thereunder, require that the following conditions be satisfied on and, where applicable, after the Consummation Date:     (1) at least 50%, but not more than 70%, of the common stock of the surviving Corporation outstanding immediately after the consummation of the Reorganization Transaction, together with Voting Securities representing at least 50%, but not more than 70%, of the combined voting power of all Voting Securities of the Surviving Corporation outstanding immediately after such consummation shall be owned, directly or indirectly, by the persons who were the owners directly or indirectly of the common stock and Voting Securities of the Company immediately before such consummation in substantially the same proportions as their respective direct or indirect ownership, immediately before such consummation, of the common stock and Voting Securities of the Company, respective; and     (2) Allstate Incumbent Directors (determined as of such date using the date immediately preceding the Change of Control Effective Date as the baseline date) shall, throughout the period beginning on the Change of Control Effective Date and ending on the third anniversary of the Change of Control Effective Date, continue to constitute not less than 50% of the members of the Board; and --------------------------------------------------------------------------------     (3) The person who was the CEO of the Company immediately prior to the Change of Control Effective Date shall serve as (x) the CEO of the Company throughout the period beginning on the Change of Control Effective Date and ending on the Consummation Date and (y) the CEO of the Surviving Corporation at all times during the period commencing on the Consummation Date and ending on the first anniversary of the Consummation Date; provided, however, that a Reorganization Transaction that qualifies as a Merger of Equals shall cease to qualify as a Merger of Equals (a "Merger of Equals Cessation") and shall instead qualify as a Change of Control that is not a Merger of Equals from and after the first date during the Post-Change period (such date, the "Merger of Equals Cessation Date") as of which any one or more of the following shall occur for any reason:      (i) if any condition of clause (1) of paragraph (A) of this Section shall for any reason not be satisfied immediately after the consummation of the Reorganization Transaction; or     (ii) if as of the close of business on any date on or after the Change of Control Effective Date, any condition of clauses (2) or (3) of paragraph (A) of this Section shall not be satisfied; or     (iii) if on any date prior to the first anniversary of the Consummation Date, the Company shall make a filing with the SEC, issue a press release, or make a public announcement to the effect that the Company is seeking or intends to seek a replacement for the then-CEO of the Company, whether such replacement is to become effective before or after such first anniversary.     (B) As of such date, each Person who is a 20% Owner qualifies as an Approved Passive Holder. The Committee shall give all Grantees written notice of any Merger of Equals Cessation and the applicable Merger of Equals Cessation Date as soon as practicable after the Merger of Equals Cessation Date.     (xi) "Merger of Equals Cessation Date"—see the definition of "Merger of Equals".    (xii) "Person" means any individual, sole proprietorship, partnership, joint venture, limited liability company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or government instrumentality, division, agency, body or department. --------------------------------------------------------------------------------    (xiii) "Post-Change Period" means the period commencing on the Change of Control Effective Date and ending on the third anniversary of the Change of Control Effective Date.    (xiv) "Post-Merger of Equals Period" means the period commencing on a Change of Control Effective Date of a Change of Control that qualifies as a Merger of Equals and ending on the third anniversary of such Change of Control Effective Date or, if sooner, the Merger of Equals Cessation Date.    (xv) "Reorganization Transaction"—see clause (C) of the definition of "Change of Control."    (xvi) "Reorganization Transaction Termination"—see clause (C) of the definition of "Change of Control."   (xvii) "Surviving Corporation" means the corporation resulting from a Reorganization Transaction or, if securities representing at least 50% of the aggregate Voting Power of such resulting corporation are directly or indirectly owned by another corporation, such other corporation.   (xviii) "20% Owner"—see clause (A) of the definition of "Change of Control."   (xviv) "Voting Securities" of a corporation means securities of such corporation that are entitled to vote generally in the election of directors of such corporation.     (b)  Vesting of Replacement Options on Change of Control.  Except as otherwise specifically provided in The Allstate Corporation Change of Control Severance Plan (to the extent such plan is applicable to the Grantee), an Award Agreement relating to an Award or another written agreement with the Company to which the Grantee is a party,      (i) on a Change of Control Effective Date of a Change of Control that is not a Merger of Equals or, if applicable, on a Merger of Equals Cessation Date, each Replacement Option Award outstanding on such date shall become fully vested and nonforfeitable and, subject to Article 11, shall be exercisable in full provided, however, that for purposes of a Change of Control as defined in Section 24(a)(v)(C) only, each Award granted on or after March 13, 2001 shall become fully vested and nonforfeitable to the extent such Award is outstanding, on the Consummation Date with respect to such a Change of Control that is not a Merger of Equals or, if applicable, on a later Merger of Equals Cessation Date; and --------------------------------------------------------------------------------     (ii) if a Grantee has a Termination of Employment during the Post-Merger of Equals Period, which Termination of Employment is initiated by the Grantee's employer for a reason other than Cause or Disability, then each outstanding Replacement Option Award held by such Grantee (or his or her permitted transferee) on the date of such Termination of Employment shall become fully vested and nonforfeitable immediately prior to such Termination of Employment and, subject to Article 11, shall be exercisable in full. --------------------------------------------------------------------------------

<PAGE>  Exhibit 10(d)  FOURTH AMENDMENT TO THE EMERSON ELECTRIC CO. 1993 INCENTIVE SHARES PLAN           WHEREAS, Emerson Electric Co. ("Company") previously adopted the Emerson Electric 1993 Incentive Shares Plan ("Plan") for the benefit of eligible employees; and           WHEREAS, the Compensation and Human Resources Committee of the Board of Directors of the Company ("Committee") is authorized to amend the Plan pursuant to Section 12 thereof; and           WHEREAS, the Committee desires to amend the Plan effective as of October 1, 2001:           NOW, THEREFORE, effective as of October 1, 2001, the Plan is amended as follows:           1. The following is added at the end of the first paragraph of Section 7:                     However, the Committee may direct that a Participant as to whose compensation the Company's federal income tax deduction is not limited by Section 162(m) of the Internal Revenue Code of 1986, as amended, shall receive payment of an award before the determination that the applicable targeted performance objectives have been met, subject to adjustment and repayment of any such payment if the performance objectives are not met.           IN WITNESS WHEREOF, the foregoing amendment was adopted on the 1st day of October, 2001.

EXHIBIT 10.1     FIRST AMENDMENT TO CREDIT AGREEMENT                   THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into as of August 1, 2001, by and between NATROL, INC., a Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").   RECITALS                   WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of March 1, 2001, as amended from time to time ("Credit Agreement").                   WHEREAS, Bank and Borrower have agreed to certain changes in the terms and conditions set forth in the Credit Agreement and have agreed to amend the Credit Agreement to reflect said changes.                   NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Credit Agreement shall be amended as follows:                   1.             Section 1.1(a) of the Credit Agreement is hereby amended (a) by deleting "March 1, 2002" as the last day on which Bank will make advances under the Line of Credit, and by substituting for said date "July 15, 2002," and (b) by deleting "Ten Million Dollars ($10,000,000.00)" as the maximum principal amount available under the Line of Credit, and by substituting for said amount "Five Million Dollars ($5,000,000.00)," with such changes to be effective upon the execution and delivery to Bank of a promissory note substantially in the form of Exhibit A attached hereto (which promissory note shall replace and be deemed the Line of Credit Note defined in and made pursuant to the Credit Agreement) and all other contracts, instruments and documents required by Bank to evidence such change.                   2.             It is acknowledged that under Section 1.1(b) of the Credit Agreement, Borrower has been required to comply with the Borrowing Base as defined therein. Section 1.1(b) of the Credit Agreement is hereby amended by inserting the following at the end thereof:                   "Notwithstanding the foregoing, Borrower shall not be required to comply with the foregoing provisions of this Section 1.1(b) regarding the Borrowing Base until such time as Bank sends Borrower a written notice that Bank is reinstating the Borrowing Base (the "Reinstatement Notice"). Bank, in its sole discretion, may send the Reinstatement Notice to Borrower at any time. Commencing on the earlier of (i) the last day of the month following the month in which Borrower receives the Reinstatement Notice, or (ii) the last day of the month in which Borrower receives the Reinstatement Notice, if Borrower receives the Reinstatement Notice prior to the 15th day of such month, the Borrowing Base shall be reinstated and Borrower shall at all times thereafter comply with the foregoing provisions of this Section 1.1(b) regarding the Borrowing Base."                   3.             Section 4.3(b) of the Credit Agreement is hereby deleted and replaced by the following:                   "(b)         Not later than 25 days after and as of the end of each month, consolidated income statements of Borrower and Subsidiaries, prepared by Borrower;"                   4.             Section 4.3(d) of the Credit Agreement is hereby amended by inserting the following at the end thereof:   "provided, however, that the foregoing certificates, reports and information described in this paragraph (d) shall only be required after Bank has sent the Reinstatement Notice to Borrower and the Borrowing Base has been reinstated in accordance with Section 1.1(b);"                   5.             Sections 4.9(i), (j), and (k) are hereby deleted in their entirety, and the following substituted therefor:                   "(i)          Net profit after taxes not less than $400,000.00 on a fiscal year-to-date basis determined as of June 30, 2001.                   (j)            Net profit after taxes not less than $750,000.00 on a fiscal year-to-date basis determined as of September 30, 2001.                   (k)           Net profit after taxes not less than $1,000,000.00 for the fiscal year ending December 31, 2001."                   6.             In consideration of the changes set forth herein and as a condition to the effectiveness hereof, immediately upon signing this Amendment Borrower shall pay to Bank a non-refundable fee of $2,500.00.                   7.             Except as specifically provided herein, all terms and conditions of the Credit Agreement remain in full force and effect, without waiver or modification. Except as otherwise defined herein, all terms defined in the Credit Agreement shall have the same meaning when used in this Amendment. This Amendment and the Credit Agreement shall be read together, as one document.                   8.             Borrower hereby remakes all representations and warranties contained in the Credit Agreement and reaffirms all covenants set forth therein, as same may be modified hereby. Borrower further certifies that as of the date of this Amendment there exists no Event of Default as defined in the Credit Agreement, as same may be modified hereby, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default.                 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above.     NATROL, INC.       WELLS FARGO BANK,   NATIONAL ASSOCIATION           By: /s/ Dennis Jolicoeur       By: /s/ Jan Macy-Buescher         Jan Macy-Buescher     Title: CFO     Vice President                             EXHIBIT A   WELLS FARGO BANK   REVOLVING LINE OF CREDIT NOTE   $5,000,000.00   Los Angeles, CA     August 1, 2001                 FOR VALUE RECEIVED, the undersigned Natrol, Inc. ("Borrower") promises to pay to the order of WELLS FARGO BANK NATIONAL ASSOCIATION ("Bank") at its office at Los Angeles RCBO, 333 South Grand Avenue 3rd Flr, Los Angeles, CA 90071, 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 $5,000,000.00, 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 California 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 or 3 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 $500,000.00; 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%) determined by dividing Base LIBOR by a percentage equal to 100% less any LIBOR Reserve Percentage.   (i)            "Base LIBOR" means the rate per annum for United Sates 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 350 day year, actual days elapsed) either (i) at a fluctuating rate per annum .50000% above the Prime Rate in effect from time to time, or (ii) at a fixed rate per annum determined by Bank to be 3.00000% above LIBOR in effect on the first day of the applicable 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 option selected 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 Race 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 1st day of each month, commencing September 1, 2001.   (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 4% 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 the Credit Agreement between Borrower and Bank defined below; 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 July 15, 2002.   (b)           Advances. Advances hereunder, to the total amount of the principal sum available hereunder, may be made by the holder at the oral or written request of (i) Elliott Balbert or Dennis Jolicoeur, 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 $500,000.00; 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 or 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 or 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 2.000% 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 March 1, 2001, as amended from time to time (the "Credit Agreement"). Any default in the payment or performance of any obligation under this Note, or 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, 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 holder's rights and/or the collection of any amounts which become due to the holder under this Note and the prosecutor 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 California.             IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above.   Natrol, Inc.       WELLS FARGO BANK   REVOLVING LINE OF CREDIT NOTE   $5,000,000.00   Los Angeles, CA     August 1, 2001                 FOR VALUE RECEIVED, the undersigned Natrol, Inc. ("Borrower") promises to pay to the order of WELLS FARGO BANK NATIONAL ASSOCIATION ("Bank") at its office at Los Angeles RCBO, 333 South Grand Avenue 3rd Flr, Los Angeles, CA 90071,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 $5,000,000.00, 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 California 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 or 3 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 $500,000.00; 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%) determined by dividing Base LIBOR by a percentage equal to 100% less any LIBOR Reserve Percentage.   (i)            "Base LIBOR" means the rate per annum for United Sates 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 350 day year, actual days elapsed) either (i) at a fluctuating rate per annum .50000% above the Prime Rate in effect from time to time, or (ii) at a fixed rate per annum determined by Bank to be 3.00000% above LIBOR in effect on the first day of the applicable 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 option selected 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 Race 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 1st day of each month, commencing September 1, 2001.   (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 4% 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 the Credit Agreement between Borrower and Bank defined below; 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 July 15, 2002.   (b)           Advances. Advances hereunder, to the total amount of the principal sum available hereunder, may be made by the holder at the oral or written request of (i) Elliott Balbert or Dennis Jolicoeur, 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 $500,000.00; 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 or 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 or 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 2.000% 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 March 1, 2001, as amended from time to time (the "Credit Agreement"). Any default in the payment or performance of any obligation under this Note, or 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, 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 holder's rights and/or the collection of any amounts which become due to the holder under this Note and the prosecutor 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 California.             IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above.   Natrol, Inc.       By: /s/  Dennis Jolicoeur     Title:  CFO