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EXHIBIT 10.39 AMENDMENT NO. 1 TO AMENDED AND RESTATED AGREEMENT (ROW) This AMENDMENT NO. 1 TO AMENDED AND RESTATED AGREEMENT (the "Amendment"), is entered into as of February 23, 2001 by and between F. HOFFMANN-LA ROCHE LTD of Basel, Switzerland ("F. Roche") and PROTEIN DESIGN LABS, INC., a Delaware corporation having offices at 34801 Campus Drive, Fremont, California 94555, U.S.A. ("PDL") and amends that certain Amended and Restated Agreement dated October 20, 1999 (the "Agreement"). Except as expressly provided herein, capitalized terms shall have the meaning set forth in the Agreement. RECITALS A. WHEREAS, F. Roche and PDL are parties to the Agreement; and B. WHEREAS, F. Roche and PDL desire to amend the Agreement to clarify that asthma is included in the definition of Autoimmune Indications under Section 1.18 of the Agreement. AGREEMENT NOW THEREFORE, the parties agree as follows: Except as expressly set forth herein, capitalized terms and references to Sections, Exhibits and Articles shall be deemed references to the Agreement. 1. AMENDMENT OF AGREEMENT. Section 1.18 is amended to add "asthma," where indicated by underlining below and to read in full as follows: 1.18 "Autoimmune Indications" means (1) asthma and (2) all indications that involve pathogenic consequences, including tissue injury, produced by autoantibodies or autoreactive T lymphocytes interacting with self epitopes, i.e., autoantigens. Autoimmune Indications shall include, without limitation, psoriasis, rheumatoid arthritis, systemic lupus erythematosus, scleroderma, juvenile rheumatoid arthritis, polymytosis, Type I diabetes, sarcoidosis, Sjogrens syndrome, chronic active non-pathogenic hepatitis, non-infectous uveitis (Behcets), aplastic anemia, regional non-pathogenic enteritis (including ulcerative colitis, Crohn's Disease and inflammatory bowel disease), Kawasaki's disease, post-infectious encephalitis, multiple sclerosis, and tropic spastic paraparesis. 2. NO OTHER CHANGES. On and after the date hereof, each reference in the Agreement to "this Amended and Restated Agreement," "hereunder," "hereof," or words of like import referring to the Agreement, shall mean and be a reference to the Agreement as amended hereby. Except as specifically amended above, the Agreement is and shall continue to be in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment through their duly authorized representatives as of the date first set forth above. Protein Design Labs, Inc. F. Hoffmann-La Roche Ltd By By Title Title By Title --------------------------------------------------------------------------------

EXHIBIT 10.2 FIRST AMENDMENT TO SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF DUKE-WEEKS REALTY LIMITED PARTNERSHIP            The undersigned, as the General Partner of Duke-Weeks Realty Limited Partnership (the "Partnership", hereby amends the Partnership's Second Amended and Restated Agreement of Limited Partnership, as heretofore amended (the "Partnership Agreement"), pursuant to Sections 4.02(a) and 9.05(a)(v) of the Partnership Agreement, to add a new Exhibit O to read as provided in the attached Exhibit O. In all other respects, the Partnership Agreement shall continue in full force and effect as amended hereby. Any capitalized terms used in this agreement and not defined herein have the meanings given to them in the Partnership Agreement.          Dated:  February 1, 2001.                 DUKE-WEEKS REALTY CORPORATION,           as General Partner                        By:  _______________________________                     Matthew A. Cohoat                     Senior Vice President and                     Corporate Controller     Exhibit O              Series I Preferred Units. Pursuant to authority granted under Section 4.02(a) of this Agreement, the General Partner hereby establishes a series of preferred Units designated the 8.45% Series I Cumulative Redeemable Preferred Units (Liquidation Preference $250.00 Per Unit)(the "Series I Preferred Units") on the following terms: (a)         Number. The number of authorized units of the Series I Preferred Units shall be 345,000 and shall at all times be equal to the number of 8.45% Series I Cumulative Redeemable Preferred Shares ("Series I Preferred Shares) issued by the General Partner and then outstanding. Series I Preferred Units shall be issued only to and held only by the General Partner.            (b)      Relative Seniority. In respect of rights to receive dividends and to participate in distributions or payments in the event of any liquidation, dissolution or winding up of the Partnership, the Series I Preferred Units shall rank (i) on a parity with any class or series of Units of the Partnership ("Parity Units") ranking, as to the payment of Distributions and as to the distribution of assets upon liquidation, dissolution or winding up (whether or not the Distribution rates, Distribution payment dates or redemption or liquidation prices per Unit thereof are different from those of the Series I Preferred Units) if the holders of such class or series of Units and the Series I Preferred Units shall be entitled to the receipt of Distributions and of amounts distributable upon liquidation, dissolution or winding up (taking into account the effects of allocations of Profits, Losses and other items) in proportion to their respective amounts of accrued and unpaid Distributions per Unit or liquidation preferences, without preference or priority one over the other, (ii) senior to any class or series of Units of the Partnership ranking, as to Distributions or upon liquidation, junior to the Series I Preferred Units (collectively, "Junior Units") and (iii) senior to the Common Units and any other class or series of Units of the Partnership ranking, as to Distributions and upon liquidation, junior to the Series I Preferred Units (collectively, "Fully Junior Units"). In the event of a Terminating Capital Transaction and/or a liquidation, dissolution or winding up of the Partnership, holders of Series I Preferred Units shall be entitled to such Distributions as provided in Section 4.04 of the Partnership Agreement, taking into account the required allocations of Profits, Losses and other items to the Partnership as provided in Section 4.06 of the Partnership Agreement. Distributions to the holder of Series I Preferred Units will be made prior to Distributions to holders of Junior Units or Fully Junior Units or to other Partners in accordance with Capital Account positive balances pursuant to Section 4.04(d). Nothing contained in Section 4.06 of the Partnership Agreement or this Exhibit O shall prohibit the Partnership from issuing additional Units which are Parity Units with Series I Preferred Units.          (c)      Distributions. The General Partner, as holder of the then outstanding Series I Preferred Units, shall be entitled to receive, when and as declared by the General Partner out of any funds legally available therefor, cumulative Distributions at an initial rate of 8.45% per Unit per year, payable in equal amounts of $5.28125 per Unit quarterly in cash on the last day of each March, June, September and December or, if not a Business Day (as hereinafter defined), the next succeeding Business Day beginning on March 31, 2001 (each such day being hereinafter called a “Quarterly Distribution Date” and each period ending on a Quarterly Distribution Date being hereinafter called a “Distribution Period”). Distributions shall be payable to the General Partner as holder of the Series I Preferred Units at the close of business on the applicable record date (the “Record Date”), which shall be on such date designated by the Partnership for the payment of Distributions that is not more than 30 nor less than 10 days prior to such Quarterly Distribution Date.  The amount of any distribution payable for any Distribution Period shorter than a full Distribution Period (including the first Dividend Period) shall be prorated and computed on the basis of a 360-day year of twelve 30-day months. Distributions on each Series I Preferred Unit shall accrue and be cumulative from  and including the date of original issue thereof, whether or not (i) Distributions on such units are earned and declared, (ii) the Partnership has earnings, or (iii) on any Quarterly Distribution Date there shall be funds legally available for the payment of Distributions. Distributions paid on the Series I Preferred Units in an amount less than the total amount of such Distributions at the time accrued and payable on such units shall be allocated pro rata on a per Unit basis among all such Series I Preferred Units at the time outstanding. Except as provided in subparagraph (e)(2)(v) and the last sentence of this paragraph, unless the full cumulative Distributions on the Series I Preferred Units have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Distribution Periods and the then current Distribution Period, no Distributions (other than Distributions payable solely in Common Units or other Fully Junior Units) shall be declared or paid or set aside for payment or other Distribution made upon the Common Units or any other units of Partnership interest ranking junior to or on a parity with the Series I Preferred Units as to Distributions or upon liquidation, nor shall any Common Units, or any other units of Partnership interest ranking junior to or on a parity with the Series I Preferred Units as to Distributions or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of such units) by the Partnership or any subsidiary of the Partnership (except for conversion into or exchange for such capital units of the Partnership ranking junior to the Series I Preferred Units as to Distributions and upon liquidation).  If accrued Distributions on the Series I Preferred Units for all prior Distribution Periods have not been paid in full, then any Distribution declared on the Series I Preferred Units for any Distribution Period and on any series of preferred units at the time outstanding ranking on a parity as to the Distributions with the Series I Preferred Units will be declared ratably in proportion to accrued and unpaid Distributions on the Series I Preferred Units and such series of preferred units at the time outstanding ranking on a parity as to Distributions with the Series I Preferred Units.       “Business Day” shall mean any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York City are authorized or required by law, regulation or executive order to close.   (2)      The amount of any Distributions accrued on any Series I Preferred Units at any Quarterly Distribution Date shall be the amount of any unpaid Distributions accumulated thereon, to and including such Quarterly Distribution Date, whether or not earned or declared, and the amount of Distributions accrued on any units of Series I Preferred Units at any date other than a Quarterly Distribution Date shall be equal to the sum of the amount of any unpaid Distributions accumulated thereon, to and including the last preceding Quarterly Distribution Date, whether or not earned or declared, plus an amount calculated on the basis of the annual Distribution rate of 8.45% per unit, for the period after such last preceding Quarterly Distribution Date to and including the date as of which the calculation is made based on a 360-day year of twelve 30-day months.   (3)      Except as provided in this Exhibit O, the Series I Preferred Units shall not be entitled to participate in the earnings or assets of the Partnership.   (4)      Any Distribution payment made on the Series I Preferred Units shall be first credited against the earliest accrued but unpaid Distribution due with respect to such units which remains payable.   (5)      If, for any taxable year, the Partnership elects to designate as “capital gain Distributions” (as defined in Section 857 of the Code), any portion (the “Capital Gains Amount”) of the Distributions paid or made available for the year to holders of all classes of Units (the “Total Distributions”), then the portion of the Capital Gains Amount that shall be allocated to the holders of the Series I Preferred Units shall be the amount that the total Distributions paid or made available to the holders of the Series I Preferred Units for the year bears to the Total Distributions.     (e)          No Distributions on the Series I Preferred Units shall be authorized by the General Partner or be paid or set apart for payment by the Partnership at such time as the terms and provisions of any agreement of the Partnership, including any agreement relating to its indebtedness, prohibit such authorization, payment or setting apart for payment or provide that such authorization, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such authorization or payment shall be restricted or prohibited by law.  Notwithstanding the foregoing, Distributions on the Series I Preferred Units will accrue whether or not the Partnership has earnings, whether or not there are funds legally available for the payment of such Distributions and whether or not such Distributions are authorized. (e)      Liquidation Rights. (e)         Upon the voluntary or involuntary dissolution, liquidation or winding up of the Partnership, the holders of the Series I Preferred Units then outstanding shall be entitled to receive and to be paid out of the assets of the Partnership available for distribution to the Partners, before any payment or distribution shall be made on any Junior Units, the amount of $250.00 per Series I Preferred Unit, plus accrued and unpaid Distributions thereon. (e)         After the payment to the holders of the Series I Preferred Units of the full preferential amounts provided for in this Exhibit O, the holders of the Series I Preferred Units, as such, shall have no right or claim to any of the remaining assets of the Partnership. (e)         If, upon any voluntary or involuntary dissolution, liquidation, or winding up of the Partnership, the amounts payable with respect to the preference value of the Series I Preferred Units and any other units of the Partnership ranking as to any such distribution on a parity with the Series I Preferred Units are not paid in full, the holders of the Series I Preferred Units and of such other units will share ratably in any such distribution of assets of the Partnership in proportion to the full respective preference amounts to which they are entitled.   (4)               Neither the sale, lease, transfer or conveyance of all or substantially all of the property or business of the Partnership, nor the merger or consolidation of the Partnership into or with any other entity or the merger or consolidation of any other entity into or with the Partnership, shall be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary, for the purposes of this Exhibit O. (e)      Redemption by the Partnership. (1)         Optional Redemption.  The General Partner shall cause the Partnership to redeem one Series I Preferred Unit for each Series I Preferred Share redeemed by the General Partner, at a price per Series I Preferred Unit (the “Series I Redemption Price”), payable in cash, of $250.00, together with all accrued and unpaid Distributions to and including the date fixed for redemption (the “Series I Redemption Date”).  The Series I Preferred Units have no stated maturity and will not be subject to any sinking fund or mandatory redemption provisions.     (2)         Procedures of Redemption.    (i)      The General Partner shall provide the Partnership with a copy of any notice of redemption given by the General Partner pursuant to Section (e)(2)(i) of Exhibit I to its Second Amended and Restated Articles of Incorporation, as amended.  No failure to give such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series I Preferred Units.    (ii)               If notice has been mailed by the General Partner in accordance with Section (e)(2)(i) of Exhibit I to its Second Amended and Restated Articles of Incorporation, as amended, and provided that on or before the Series I Redemption Date specified in such notice all funds necessary for such redemption shall have been irrevocably set aside by the Partnership, separate and apart from its other funds in trust for the pro rata benefit of the holders of the Series I Preferred Units so called for redemption, so as to be, and to continue to be available therefor, then, from and after the Series I Redemption Date, Distributions on the Series I Preferred Units so called for redemption shall cease to accumulate, and said units shall no longer be deemed to be outstanding and shall not have the status of Series I Preferred Units and all rights of the General Partner as holder thereof (except the right to receive the Series I Redemption Price) shall cease. Upon surrender, in accordance with such notice, of the certificates for any Series I Preferred Units so redeemed (properly endorsed or assigned for transfer, if the Partnership shall so require and the notice shall so state), such Series I Preferred Units shall be redeemed by the Partnership at the Series I Redemption Price.  In case fewer than all the Series I Preferred Units represented by any such certificate are redeemed, a new certificate or certificates shall be issued representing the unredeemed Series I Preferred Units without cost to the holder thereof.    (iii)     Any funds deposited with a bank or trust company for the purpose of redeeming Series I Preferred Units shall be irrevocable except that:      (A)     the Partnership or the General Partner, as the case may be, shall be entitled to receive from such bank or trust company the interest or other earnings, if any, earned on any money so deposited in trust; and      (B)     any balance of monies so deposited and unclaimed by the General Partner, as holder of the Series I Preferred Units entitled thereto at the expiration of two years from the applicable Series I Redemption Date shall be repaid, together with any interest or other earnings earned thereon, to the Partnership, and after any such repayment, the General Partner as holder of the units entitled to the funds so repaid to the Partnership shall look only to the Partnership for payment without interest or other earnings.    (iv)     No Series I Preferred Units may be redeemed except from proceeds from the sale or other issuance of other equity interests of the Partnership. (v)         Unless full accumulated distributions on all Series I Preferred Units shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Distribution Periods and the then current Distribution Period, no Series I Preferred Units shall be redeemed or purchased or otherwise acquired directly or indirectly by the Partnership or any subsidiary of the Partnership (except by conversion into or exchange for Fully Junior Units) and no preferred units of the Partnership shall be redeemed unless all outstanding Series I Preferred Units are simultaneously redeemed; provided, however, that the foregoing shall not prevent the redemption of Series I Preferred Units to preserve the REIT status of the General Partner or the purchase or acquisition of Series I Preferred Units pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series I Preferred Units.  Notwithstanding the foregoing, in the case of a Redemption Request (as defined below) which has not been fulfilled at the time the General Partner gives notice of its election to redeem all or any Series I Preferred Shares, the Series I Preferred Units which are the subject of such pending Redemption Request shall be redeemed prior to any other Series I Preferred Units.          (f)      Voting Rights.  Except as required by law, and as set forth below, the holders of the Series I Preferred Units shall not be entitled to vote at any meeting for any purpose or otherwise to participate in any action taken by the Partnership or the Partners, or to receive notice of any meeting of Partners. (1) So long as any Series I Preferred Units remain outstanding, the Partnership will not, without the affirmative vote or consent of the holders of at least two-thirds of the Series I Preferred Units outstanding at the time, given in person or by proxy, either in writing or at a meeting (such series voting separately as a class), (i) authorize or create, or increase the authorized or issued amount of, any class or series of units ranking prior to the Series I Preferred Units with respect to the payment of Distributions or the distribution of assets upon liquidation, dissolution or winding up or reclassify any authorized units of the Partnership into such units, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such units; or (ii) amend, alter or repeal the provisions of the Partnership’s Amended and Restated Agreement of Limited Partnership, as amended, whether by merger, consolidation or otherwise (an “Event”), so as to materially and adversely affect any right, preference, privilege or voting power of the Series I Preferred Units or the holders thereof; provided, however, with respect to the occurrence of any of the Events set forth in (ii) above, so long as the Series I Preferred Units remain outstanding with the terms thereof materially unchanged, taking into account that upon the occurrence of an Event, the Partnership may not be the surviving entity, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting power of holders of Series I Preferred Units and provided further that (x) any increase in the amount of the authorized preferred units or the creation or issuance of any other series of preferred units, or (y) any increase in the amount of authorized Series I Preferred Units or any other preferred units, in each case ranking on a parity with or junior to the Series I Preferred Units with respect to payment of Distributions or the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.    The foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series I Preferred Units shall have been redeemed or called for redemption and sufficient funds shall have been deposited in trust to effect such redemption.            (2)      On each matter submitted to a vote of the holders of Series I Preferred Units in accordance with this Exhibit O, or as otherwise required by law, each Series I Preferred Unit shall be entitled to ten (10) votes, each of which ten (10) votes may be directed separately by the holder thereof.    

EXHIBIT 10.6 FIFTH AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT THIS FIFTH AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT ("this Amendment") is entered into on the 6th day of October, 1998, to be effective upon satisfaction of the conditions set forth herein, by and among MMI PRODUCTS, INC., a Delaware corporation ("MMI"), SECURITY FENCE SUPPLY CO., INC., a Maryland corporation ("Security") (MMI and Security are hereinafter collectively referred to as "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 hereinafter collectively referred to as "Lenders" and each as a "Lender"), and Fleet, as collateral agent for Lenders ("Collateral Agent"). RECITALS A. MMI, 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, (iii) that certain Third Amendment to the Amended and Restated Loan and Security Agreement, dated as of February 18, 1998, and (iv) that certain Fourth Amendment to the Amended and Restated Loan and Security Agreement, dated as of April 14, 1998 (as amended, the "Loan Agreement"). B. Pursuant to the terms of that certain Stock Purchase Agreement (the "Stock Purchase Agreement") dated of even date herewith by and among MMI, Security and Henry F. Long, Jr. and Henry F. Long, III (each a "Seller" and, collectively the "Sellers"), MMI has agreed to purchase from Sellers, and Sellers has agreed to sell to MMI, all of the issued and outstanding capital stock of Security (the "Stock Acquisition"). C. Borrower, Lenders and Collateral Agent desire to amend the Loan Agreement and the Other Agreements (i) to allow and provide for the Stock Acquisition, (ii) to add Security as a Borrower thereunder and allow and provide for the extension of loans and advances to Security thereunder, and (iii) to allow and provide for certain other matters, all as hereinafter 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 1.1 of the Loan Agreement; Amendment of Certain Definitions. Section 1.1 of the Loan Agreement is hereby amended as follows: (a) The definition of "Borrower" is hereby deleted in its entirety and the following is inserted in lieu thereof: "Borrower - individually and collectively (unless the context otherwise requires), MMI and Security." Furthermore, the definition of "Borrower" in the opening paragraph of the Loan Agreement shall be deemed to include both MMI and Security. (b) The definition of "Guarantor" is hereby deleted in its entirety and the following is inserted in lieu thereof: "Guarantor - Parent, Security, and any other Person who may hereafter guarantee payment or performance of the whole or any part of the Obligations." (c) The definition of Guaranty Agreement is hereby deleted in its entirety and the following is inserted in lieu thereof: "Guaranty Agreement" - (i) that certain Second Amended and Restated Unconditional Guaranty Agreement executed by Parent, pursuant to which Parent unconditionally guaranteed payment of the Obligations, as the same may be amended, supplemented or otherwise modified from time to time, and (ii) that certain Unconditional Guaranty Agreement executed by Security pursuant to which Security has unconditionally guaranteed payment of all of the Original Borrower Obligations, as the same may be amended, supplemented or otherwise modified from time to time." 2.02 Amendment to Section 1.1 of the Loan Agreement; Addition of Certain Definitions. Section 1.1 of the Loan Agreement is hereby amended by adding the following definitions thereto in proper alphabetical order: (a) "Applicable Margin - shall mean the following percentages determined as a function of Borrower's Adjusted Earnings From Operations as set forth on the most recent and timely Compliance Certificate delivered to Collateral Agent and each Lender by Borrower: ADJUSTED EARNINGS FROM OPERATIONS LIBOR MARGIN FOR REVOLVING CREDIT LOANS Greater than $40,000,000 1.25% Greater than $35,000,000 but equal to or less $40,000,000 1.50% Greater than $30,000,000 but equal to or less $35,000,000 1.75% Greater than $25,000,000 but equal to or less $30,000,000 2.00% Greater than $20,000,000 but equal to or less $25,000,000 2.25% Less than $20,000,000 2.50% Borrower's Adjusted Earnings From Operations shall be determined as of the end of each fiscal quarter of Borrower, for the twelve-month period ending on such date, from the monthly financial statements of Borrower most recently delivered to Collateral Agent and each Lender together with a Compliance Certificate in accordance with Section 9.1(J)(ii) hereof. Any change in the Applicable Margin shall be effective upon the date of receipt by Collateral Agent of Borrower's quarter-end monthly financial statements and related Compliance Certificate. If Borrower fails to deliver a Compliance Certificate by the date required pursuant to Section 9.1.(J)(ii) hereof, the Applicable Margin shall be conclusively presumed to equal to the highest applicable LIBOR margin specified in the pricing table set forth above until the date of delivery of such Compliance Certificate." (b) "Dated Assets - as defined in Section 2.7 of the Agreement." (c) "Dated Liabilities - as defined in Section 2.7 of the Agreement." (d) "Discount - Discount Fence Center, Inc., a Maryland corporation and a wholly owned Subsidiary of Security." (e) "MMI - MMI Products, Inc., a Delaware corporation." (f) "Original Borrower Obligations - as defined in Section 2.9 of the Agreement." (g) "Security - Security Fence Supply Co., Inc., a Maryland corporation and a wholly owned Subsidiary of MMI." 2.03 Addition of new Section 1.4 to the Loan Agreement. The Loan Agreement is hereby amended by adding a new Section 1.4 thereto, which shall read in its entirety as follows: "1.4 The Term 'Borrower' or 'Borrowers'. All references to 'Borrower' or 'Borrowers' herein shall refer to and include each of MMI and Security separately and all representations contained herein shall be deemed to be separately made by each of them, and each of the covenants, agreements and obligations set forth herein shall be deemed to be the joint and several covenants, agreements and obligations of them. Any notice, request, consent, report or other information or agreement delivered to Collateral Agent and/or Lender by any Borrower shall be deemed to be ratified by, consented to and also delivered by the other Borrower. Each Borrower recognizes and agrees that each covenant and agreement of 'Borrower' or 'Borrowers' under this Agreement and the other Loan Documents shall create a joint and several obligation of the Borrowers, which may be enforced against Borrowers, jointly, or against each Borrower separately. Without limiting the terms of this Agreement and the other Loan Documents, security interests granted under this Agreement and other Loan Documents in properties, interests, assets and collateral shall extend to the properties, interests, assets and collateral of each Borrower. Similarly, the term 'Obligations' shall include, without limitation, all obligations, liabilities and indebtedness of such corporations, or any one of them, to Collateral Agent and/or Lender, whether such obligations, liabilities and indebtedness shall be joint, several, joint and several or individual." 2.04 Addition of new Sections 2.7, 2.8 and 2.9 to the Loan Agreement. The Loan Agreement is hereby amended by adding a new Section 2.7, 2.8 and 2.9 thereto, which shall read in their entirety as follows: "2.7 Joint and Several Liability; Rights of Contribution. (A) Each Borrower states and acknowledges that: (i) pursuant to this Agreement, Borrowers desire to utilize their borrowing potential on a consolidated basis to the same extent possible if they were merged into a single corporate entity and that this Agreement reflects the establishment of credit facilities which would not otherwise be available to such Borrower if each Borrower were not jointly and severally liable for payment of all of the Obligations; (ii) it has determined that it will benefit specifically and materially from the advances of credit contemplated by this Agreement; (iii) it is both a condition precedent to the obligations of Collateral Agent and Lenders hereunder and a desire of the Borrowers that each Borrower execute and deliver to Collateral Agent and Lenders this Agreement; and (iv) Borrowers have requested and bargained for the structure and terms of and security for the advances contemplated by this Agreement. (B) Each Borrower hereby irrevocably and unconditionally: (i) agrees that it is jointly and severally liable to Collateral Agent and Lenders for the full and prompt payment of the Obligations and the performance by each Borrower of its obligations hereunder in accordance with the terms hereof; (ii) agrees to fully and promptly perform all of its obligations hereunder with respect to each advance of credit hereunder as if such advance had been made directly to it; and (iii) agrees as a primary obligation to indemnify Collateral Agent and/or any Lender on demand for and against any loss incurred by Collateral Agent and/or any Lender as a result of any of the obligations of any one or more of the Borrowers being or becoming void, voidable, unenforceable or ineffective for any reason whatsoever, whether or not known to Collateral Agent and/or any Lender or any Person, the amount of such loss being the amount which Collateral Agent and/or any Lender would otherwise have been entitled to recover from any one or more of the Borrowers. (C) It is the intent of each Borrower that the indebtedness, obligations and liability hereunder of no one of them be subject to challenge on any basis, including, without limitation, pursuant to any applicable fraudulent conveyance or fraudulent transfer laws. Accordingly, as of the date hereof, the liability of each Borrower under this Section 2.7, together with all of its other liabilities to all Persons as of the date hereof and as of any other date on which a transfer or conveyance is deemed to occur by virtue of this Agreement, calculated in amount sufficient to pay its probable net liabilities on its existing Indebtedness as the same become absolute and matured ("Dated Liabilities") is, and is to be, less than the amount of the aggregate of a fair valuation of its property as of such corresponding date ("Dated Assets"). To this end, each Borrower under this Section 2.7, (i) grants to and recognizes in each other Borrower, ratably, rights of subrogation and contribution in the amount, if any, by which the Dated Assets of such Borrower, but for the aggregate of subrogation and contribution in its favor recognized herein, would exceed the Dated Liabilities of such Borrower or, as the case may be, (ii) acknowledges receipt of and recognizes its right to subrogation and contribution ratably from each of the other Borrowers in the amount, if any, by which the Dated Liabilities of such Borrower, but for the aggregate of subrogation and contribution in its favor recognized herein, would exceed the Dated Assets of such Borrower under this Section 2.7. In recognizing the value of the Dated Assets and the Dated Liabilities, it is understood that Borrowers will recognize, to at least the same extent of their aggregate recognition of liabilities hereunder, their rights to subrogation and contribution hereunder. It is a material objective of this Section 2.7 that each Borrower recognizes rights to subrogation and contribution rather than be deemed to be insolvent (or in contemplation thereof) by reason of an arbitrary interpretation of its joint and several obligations hereunder. In addition to and not in limitation of the foregoing provisions of this Section 2.7, the Borrowers and Lenders hereby agree and acknowledge that it is the intent of each Borrower and of Lenders that the obligations of each Borrower hereunder be in all respects in compliance with, and not be voidable pursuant to, applicable fraudulent conveyance and fraudulent transfer laws. 2.8 Structure of Credit Facility. Each Borrower agrees and acknowledges that the present structure of the credit facilities detailed in this Agreement is based in part upon the financial and other information presently known to Lenders regarding each Borrower, the corporate structure of Borrowers, and the present financial condition of each Borrower. Each Borrower hereby agrees that Lenders shall have the right, in its their sole credit judgment, to require that any or all of the following changes be made to these credit facilities: (i) restrict loans and advances between Borrowers, (ii) establish separate lockbox and dominion accounts for each Borrower, and (iii) establish such other procedures as shall be reasonably deemed by Collateral Agent and/or Lenders to be useful in tracking where Loans are made under this Agreement and the source of payments received by Collateral Agent for the benefit of Lenders on such Loans. 2.9 Original Borrower Obligations. Notwithstanding any other provision of the Notes or this Agreement to the contrary, it is hereby agreed that Security is not assuming payment of the unpaid principal balance of the Obligations which was incurred by MMI prior to October __, 1998 pursuant to the Loan Documents (the "Original Borrower Obligations"). However the parties hereto agree and acknowledge that the preceding sentence shall not (A) limit any contingent liability of Security for payment of any of the Original Borrower Obligations which arises pursuant to the Guaranty Agreement executed on October __, 1998 by Security, or (B) limit the Liens in favor of Lender granted by Security against the assets of Security as a result of Security becoming an additional named "Borrower", which Liens shall secure payment of all Obligations arising in connection with this Agreement, whether currently existing or hereafter arising. For purposes of determining on or after the date hereof which Obligations outstanding constitute Original Borrower Obligations, all payments received by Lender from MMI on account of the Obligations shall be deemed to be applied first in payment of the Original Borrower Obligations until such time as the Original Borrower Obligations shall have been reduced to zero, and thereafter to the other Obligations as hereinafter set forth." 2.05 Amendment to Section 3.1(A)(i)(b) of the Loan Agreement. Section 3.1(A)(i)(b) is hereby deleted in its entirety and the following is inserted in lieu thereof: "(b) a rate per annum equal to the Eurodollar Base Rate plus the Applicable Margin then in effect for the Eurodollar Interest Period applicable thereto, and" 2.06 Amendment to Section 8.1(A) of the Loan Agreement. Section 8.1(A) of the Loan Agreement is hereby deleted in its entirety and the following is inserted in lieu thereof: "(A) Organization and Qualification. MMI is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Security is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland. Borrower has duly qualified and is authorized to do business and is in good standing as a foreign corporation in all states and jurisdictions where the character of its Properties or the nature of its activities make such qualification necessary and where the failure to be so qualified could reasonably be expected to cause a Material Adverse Effect; and has not been known as or used in any corporate, fictitious or trade names in the past seven (7) years except as disclosed on Exhibit E attached hereto and made a part hereof." 2.07 Amendment to Section 8.1(H) of the Loan Agreement. Section 8.1(H) of the Loan Agreement is hereby amended by adding a new last sentence thereto which shall read in its entirety as follows: "Discount is not engaged in any business activities and does not own or possess any Property." 2.08 Amendment to Section 8.1(P) of the Loan Agreement. The first sentence of Section 8.1(P) of the Loan Agreement is hereby deleted in its entirety and the following is inserted in lieu thereof: "MMI's federal tax identification number is 74-1622891, and Security's federal tax identification number is 52-1149248." 2.09 Amendment to Section 9.1(J)(ii) of the Loan Agreement. Section 9.1(J)(ii) of the Loan Agreement is hereby deleted in its entirety and the following is inserted in lieu thereof: "(ii) as soon as possible, but not later than (a) thirty (30) days after the end of each month hereafter that is not the last month of any fiscal quarter of Borrower and (b) forty-five (45) days after the end of each month hereafter that is the last month of any fiscal quarter of Borrower, unaudited interim consolidated financial statements of Borrower and its Subsidiaries as of the end of such month and of the portion of Borrower's fiscal year then elapsed, on a Consolidated basis, certified by the principal financial officer of Borrower as prepared in accordance with GAAP and fairly presenting the consolidated financial position and results of operations of Borrower and its Subsidiaries for such month and period subject only to changes from audit and year-end adjustments and except that such statements need not contain notes;" 2.10 Amendment to Section 11.1(I) of the Loan Agreement. Section 11.1(I) of the Loan Agreement is hereby deleted in its entirety and the following is inserted in lieu thereof: "(I) Change of Ownership. (i) Parent shall cease to own and control, beneficially and of record, all of the issued and outstanding capital stock of MMI, or (ii) MMI shall cease to own and control, beneficially and of record, all of the issued and outstanding capital stock of Security." 2.11 Amendment to Section 13.10 of the Loan Agreement. Section 13.10 of the Loan Agreement is hereby deleted in its entirety and the following is inserted in lieu thereof: "13.10. Notice. Except as otherwise expressly provided herein, all notices, requests and demands to or upon a party hereto shall be in writing, and shall be deemed to have been validly served, given or delivered (A) if sent by certified or registered mail against receipt, three (3) Business Days after deposit in the mail, postage prepaid, or, if earlier, when delivered against receipt, (B) if sent by telegraphic notice, when delivered to the telegraph company, or (C) if sent by any other method, upon actual delivery, in each case addressed as follows:   If to Collateral Agent: Fleet Capital Corporation 2711 North Haskell Suite 2100, LB 21 Dallas, Texas 75204 Attention: Loan Administration Manager   w/ a courtesy copy to: Patton Boggs LLP 2200 Ross Avenue, Suite 900 Dallas, Texas 75201 Attention: R. Jeffrey Cole   If to Borrower: MMI Products, Inc. Security Fence Supply Co., Inc. 515 W. Greens Road, Suite 710 Houston, Texas 77067 Attention: President   w/a courtesy copy to: Weil, Gotshal & Manges LLP 100 Crescent Court, Suite 1300 Dallas, Texas 75201-6950 Attention: Michael A. Saslaw, Esq.   If to Lenders: Fleet Capital Corporation 2711 North Haskell Suite 2100, LB 21 Dallas, Texas 75204 Attention: Loan Administration Manager   Transamerica Business Credit Corporation 8750 West Bryn Mawr Avenue, Suite 720 Chicago, Illinois 60631 Attention: David A. Sheetz     or to such other address as each party may designate for itself by like notice given in accordance with this Section 13.10; provided, however, that any notice, request or demand to or upon Collateral Agent pursuant to Section 2.4 and Section 3.4 shall not be effective until received by Collateral Agent." 2.12 Amendment to Exhibit D to Loan Agreement. Effective upon satisfaction of the conditions set forth in Article III of this Amendment, Exhibit D to the Loan Agreement (Borrower's Business Locations) is hereby deleted in its entirety and replaced with the Exhibit D attached hereto as Annex A. 2.13 Amendment to Exhibit E to Loan Agreement. Effective upon satisfaction of the conditions set forth in Article III of this Amendment, Exhibit E to the Loan Agreement (Corporate Names) is hereby deleted in its entirety and replaced with the Exhibit E attached hereto as Annex B. 2.14 Amendment to Exhibit F to Loan Agreement. Effective upon satisfaction of the conditions set forth in Article III of this Amendment, Exhibit F to the Loan Agreement (Patents, Trademarks, Copyrights and Licenses) is hereby deleted in its entirety and replaced with the Exhibit F attached hereto as Annex C. 2.15 Amendment to Exhibit G to Loan Agreement. 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 the Exhibit G attached hereto as Annex D. 2.16 Amendment to Exhibit I to Loan Agreement. Effective upon satisfaction of the conditions set forth on Article III of this Amendment, Exhibit I to the Loan Agreement (Litigation) is hereby deleted in its entirety and replaced with the Exhibit I attached hereto as Annex E. 2.17 Amendment to Exhibit J to Loan Agreement. Effective upon satisfaction of the conditions set forth in Article III of this Amendment, Exhibit J to the Loan Agreement (Pension Plans) is hereby deleted in its entirety and replaced with the Exhibit J attached hereto as Annex F. 2.18 Amendment to Exhibit K to Loan Agreement. Effective upon satisfaction of the conditions set forth in Article III of this Amendment, Exhibit K to the Loan Agreement (Labor Contracts) is hereby deleted in its entirety and replaced with the Exhibit K attached hereto as Annex G. 2.19 Amendment to Exhibit L to Loan Agreement. Effective upon satisfaction of the conditions set forth in Article III of this Amendment, Exhibit L to the Loan Agreement (Capital Leases) is hereby deleted in its entirety and replaced with the Exhibit L attached hereto as Annex H. 2.20 Amendment to Exhibit M to Loan Agreement. Effective upon satisfaction of the conditions set forth in Article III of this Amendment, Exhibit M to the Loan Agreement (Operating Leases) is hereby deleted in its entirety and replaced with the Exhibit M attached hereto as Annex I. 2.21 Amendment to Exhibit N to Loan Agreement. Effective upon satisfaction of the conditions set forth in Article III of this Amendment, Exhibit N to the Loan Agreement (Permitted Liens) is hereby deleted in its entirety and replaced with the Exhibit N attached hereto as Annex J. 2.22 Amendment to Exhibit P to Loan Agreement. Effective upon satisfaction of the conditions set forth in Article III of this Amendment, Exhibit P to the Loan Agreement (Property Subject to Landlord or Warehouseman Agreements) is hereby deleted in its entirety and replaced with the Exhibit P attached hereto as Annex K. 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 Parent, 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 Grant of Security Interest by Security 4.01 In accordance with Section 4.1 of the Loan Agreement, to secure the prompt payment and performance to Lenders of the Obligations, Security hereby grants to Collateral Agent, for the benefit of Lenders, and ratifies and reaffirms its earlier grant to Collateral Agent, for the benefit of Lenders, of, a continuing security interest in and Lien upon all Property of Security, including all of the following Property and interests in Property of Security, whether now owned or existing or hereafter created, acquired or arising and wheresoever located: (A) Accounts; (B) Inventory; (C) Equipment; (D) General Intangibles; (E) all investment property (as defined in Section 9.115 of the Code); (F) all monies and other Property of any kind, now or at any time or times hereafter, in the possession or under the control of Collateral Agent or any Lender or a bailee of Collateral Agent or any Lender; (G) all accessions to, substitutions for and all replacements, products and cash and non-cash proceeds of (A), (B), (C), (D), (E) and (F) above, including, without limitation, proceeds of and unearned premiums with respect to insurance policies insuring any of the Collateral; and (H) all books and records (including, without limitation, customer lists, credit files, computer programs, print-outs, and other computer materials and records) of Security pertaining to any of (A), (B), (C), (D), (E), (F) or (G) above. By execution of this Amendment, Security agrees to become an additional named "Borrower" for all purposes under the Loan Agreement (except as may be limited by Section 2.9 of the Loan Agreement), including, without limitation, for purposes of the grant of the Liens in favor of Collateral Agent for the benefit of Lenders against the assets of Security, and for purposes of becoming subject to the terms and conditions of Section 4 of the Loan Agreement. ARTICLE V Limited Waiver 5.01 Upon Borrower's compliance with the terms and conditions in Article III hereof, Collateral Agent and Lenders hereby consent to the Stock Acquisition and waive any Default or Event of Default that would otherwise arise under Section 9.2 of the Loan Agreement solely by reason of (i) MMI's execution, delivery and performance of the Stock Purchase Agreement, and (ii) MMI's consummation of the Stock Acquisition. 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 VI Ratifications, Representations and Warranties 6.01 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. 6.02 Representations and Warranties. Each 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 such Borrower and will not violate the Certificate/Articles of Incorporation or Bylaws of such 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) such Borrower is in full compliance with all covenants and agreements contained in the Loan Agreement and the Other Agreements, as amended hereby; and (e) MMI 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 VII Miscellaneous Provisions 7.01 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. 7.02 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. 7.03 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. 7.04 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. 7.05 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. 7.06 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. 7.07 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. 7.08 Headings. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. 7.09 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. 7.10 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. 7.11 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 upon satisfaction of the conditions set forth herein.     "BORROWERS"   MMI PRODUCTS, INC.       By: /s/ Robert N. Tenczar   Robert N. Tenczar,   Chief Financial Officer   SECURITY FENCE SUPPLY CO., INC.       By: /s/ Henry F. Long   Henry F. Long, III,   President       "LENDERS"   FLEET CAPITAL CORPORATION       By:   Joy L. Bartholomew,   Senior Vice President       TRANSAMERICA BUSINESS CREDIT CORPORATION       By:   Name:   Title:           "COLLATERAL AGENT"   FLEET CAPITAL CORPORATION       By:   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

    SEATTLE GENETICS, INC.   2001 Executive Performance Plan   OBJECTIVE   The objective of this program is to reward and recognize members of the Company’s management team for the successful attainment of corporate goals and objectives and individual performance toward meeting those goals and objectives for 2001.   ELIGIBILITY   Employees at the Associate Director level and above are eligible to participate in this program. Eligibility of other positions is subject to approval in the sole discretion of the Company’s Compensation Committee of the Board of Directors.  (See "Conditions" set forth below.)   Employees must be employed in an eligible position through December 1, 2001 in order to participate in the program for 2001.  Employees hired or promoted into an eligible position after January 1, 2001, but prior to December 1, 2001 will be eligible to earn a pro-rated bonus payment based on their period of participation from their date of hire or eligibility through December 1, 2001.  Eligible employees who change management positions during the year will be eligible to earn a pro-rated bonus payment based on time served in each eligible position. Participants must be considered an active employee on the date of bonus payout in order to be eligible for payout under the plan guidelines.   Eligible employees at the level below Vice President may also receive the Company's periodic milestone awards, which may be paid to specific departments or the Company at large in recognition for the successful accomplishment of a milestone event.  All employees at the level of Vice President and above are not eligible to receive periodic milestone awards.   PROGRAM CRITERIA   The Board of Directors or its Compensation Committee will establish the corporate goals and objectives for the year based on recommendations from the Chief Executive Officer and President.  Upon approval, these corporate goals and objectives will be communicated to all eligible program participants.  Seventy-five percent (75%) of the participant's annual performance bonus will be based on the attainment of these corporate goals and objectives.  Twenty-five percent (25%) of the annual performance bonus will be based on individual performance toward meeting these corporate goals and objectives.   Toward the close of the calendar year the Board of Directors will evaluate, measure and determine the success of the Company’s management teams efforts toward the attainment of the corporate goals and objectives.   Based on this assessment, the Compensation Committee of the Board will set the percentage of bonus that will be awarded for the corporate portion of the program.   The Chief Executive Officer and President will evaluate the contribution of each eligible participant (other than themselves) towards the attainment of the approved corporate goals and objectives for the calendar year.  (The Board of Directors or the Compensation Committee will evaluate the contribution of the Chief Executive Officer and President.) Recommendations will be provided to the Compensation Committee of the Board of Directors for consideration in their determination of the individual portion of the total bonus payment to be earned by each participant based on their individual performance toward meeting the corporate goals and objectives. Participants will need to successfully achieve at least half (50%) of their expected individual contributions toward corporate goals and objectives in order to be eligible to receive any payment under this program.   BONUS PAYMENTS   Payments will be processed in the next practical payroll cycle following the date of approval by the Board of Directors or its Compensation Committee.   Bonus payments will be based on the base pay rate of an eligible participant as of December 1, 2001.  Payments will be made minus all applicable payroll deductions.   Participants whose employment terminates for any reason prior to the bonus payouts will not be eligible to receive a bonus payment   LEAVE OF ABSENCE   Employees on an approved leave of absence of longer than 30 days will be eligible to receive a pro-rated payout based on the number of months they were an active employee.  If an employee is on an approved leave of absence on the date bonus payout is made, the employee will be eligible to receive payout, if any, upon return from the leave of absence.   TARGET AWARDS   The target awards for successful achievement of the 2001 corporate goals and objectives shall be determined by the Board, such target awards to range from 3% to 30% of base salary depending on the level of management responsibility.   Conditions   This program may be amended, modified or terminated at any time, for any reason within the sole discretion of the Compensation Committee of the Board of Directors or by the Board of Directors itself.  This may be done with or without notice to the participants. These changes may be retroactive or prospective, as determined in the sole discretion of the Compensation Committee or the Board. Additionally, this program may not be modified by any oral statement; it may only be modified in writing in a form authorized by the Compensation Committee or the Board.  Also, the Compensation Committee or the Board of Directors expressly reserves the right to decide that this program should not apply due to individual circumstances.  Such decision(s) will be made in the sole discretion of the Compensation Committee or the Board.  Accordingly, no one should rely on this statement as a firm commitment and no one should rely on any oral statements made about any change to the program.   As a reminder, your employment with the Company is on an “at will” basis, meaning that either you or the Company may terminate your employment at any time for any reason, with or without cause or advance notice.  This program sets forth the terms of the Executive Performance Plan with the Company and supersedes any prior representations or agreements, whether written or oral.  

Exhibit 10.1 -------------------------------------------------------------------------------- REVOLVING LOAN AGREEMENT dated as of May 24, 2001 among AVALONBAY COMMUNITIES, INC., as Borrower, THE CHASE MANHATTAN BANK, as a Bank, Co-Agent and Syndication Agent, FLEET NATIONAL BANK, as a Bank and Co-Agent, BANK OF AMERICA, N.A. FIRST UNION NATIONAL BANK and CITICORP REAL ESTATE, INC., each as a Bank and Documentation Agent, THE OTHER BANKS SIGNATORY HERETO, each as a Bank, J.P. MORGAN SECURITIES INC., as Sole Bookrunner and Lead Arranger, and FLEET NATIONAL BANK, as Administrative Agent --------------------------------------------------------------------------------              REVOLVING LOAN AGREEMENT dated as of May 24, 2001 among AVALONBAY COMMUNITIES, INC., a corporation organized and existing under the laws of the State of Maryland ("Borrower"); THE CHASE MANHATTAN BANK (“Chase"), FLEET NATIONAL BANK (in its individual capacity and not as Administrative Agent, “Fleet”) and the other lenders signatory hereto, as Banks; BANK OF AMERICA, N.A., FIRST UNION NATIONAL BANK and CITICORP REAL ESTATE, INC., as Documentation Agent; and FLEET NATIONAL BANK, as administrative agent for the Banks (in such capacity, together with its successors in such capacity, "Administrative Agent"; Chase, Fleet, the other lenders signatory hereto, such other lenders who from time to time become Banks pursuant to Section 2.19, 3.07 or 12.05 and, if applicable, any of the foregoing lenders' Designated Lender, each a "Bank" and collectively, the "Banks").              Borrower desires that the Banks extend credit as provided herein, and the Banks are prepared to extend such credit.  Accordingly, in consideration of the premises and the mutual agreements, covenants and conditions hereinafter set forth, Borrower, Administrative Agent and each of the Banks agree as follows: ARTICLE I DEFINITIONS; ETC.              Section 1.01     Definitions.  As used in this Agreement the following terms have the following meanings:              "Absolute Bid Rate" has the meaning specified in Section 2.02(c)(2).              "Absolute Bid Rate Loan" means a Bid Rate Loan bearing interest at the Absolute Bid Rate.              "Absolute Rate Auction" means a solicitation of Bid Rate Quotes setting forth Absolute Bid Rates pursuant to Section 2.02.              "Acceptance Letter" has the meaning specified in Section 2.19.              "Accordion Amount" means, at any time, $150,000,000 less the aggregate amount of reductions in the Total Loan Commitment pursuant to Section 2.10.              "Acquisition" means the acquisition by Borrower, directly or indirectly, of an interest in multi-family real estate.              "Additional Costs" has the meaning specified in Section 3.01.              "Administrative Agent" has the meaning specified in the preamble.              "Administrative Agent's Office" means Administrative Agent's address located at 777 Main Street, Hartford, Connecticut 06115, or such other address in the United States as Administrative Agent may designate by written notice to Borrower and the Banks.              "Affiliate" means, with respect to any Person (the "first Person"), any other Person (1) which directly or indirectly controls, or is controlled by, or is under common control with the first Person; or (2) 10% or more of the beneficial interest in which is directly or indirectly owned or held by the first Person.  The term "control" means the possession, directly or indirectly, of the power, alone, to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.              "Agreement" means this Revolving Loan Agreement.              "Applicable Lending Office" means, for each Bank and for its LIBOR Loan, Bid Rate Loan(s) or Base Rate Loan, as applicable, the lending office of such Bank (or of an Affiliate of such Bank) designated as such on its signature page hereof or in the applicable Assignment and Assumption Agreement, or such other office of such Bank (or of an Affiliate of such Bank) as such Bank may from time to time specify to Administrative Agent and Borrower as the office by which its LIBOR Loan, Bid Rate Loan(s) or Base Rate Loan (and, in the case of the Swing Lender, its Swing Loan), as applicable, is to be made and maintained.              "Applicable Margin" means, with respect to Base Rate Loans and LIBOR Loans (and for purposes of determining the Banks' L/C Fee Rate under Section 2.16(f)), the respective rates per annum determined at any time, based on the range into which Borrower's Credit Rating then falls, in accordance with the following table (any change in Borrower's Credit Rating causing it to move to a different range on the table shall effect an immediate change in the Applicable Margin): Range of Borrower's Credit Rating (S&P/Moody's or other agency equivalent)   Applicable Margin for Base Rate Loans (% per annum)   Applicable Margin for LIBOR Loans (% per annum)   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   Below BBB- or unrated/Below Baa3 or unrated   0.25   1.15   BBB-/Baa3   0.00   0.95   BBB/Baa2   0.00   0.75   BBB+/Baa1   0.00   0.60   A-or higher/A3 or higher   0.00   0.55                "Assignee" and "Consented Assignee" have the respective meanings specified in Section 12.05.              "Assignment and Assumption Agreement" means an Assignment and Assumption Agreement, substantially in the form of EXHIBIT E, pursuant to which a Bank assigns and an Assignee assumes rights and obligations in accordance with Section 12.05.              "Authorization Letter" means a letter agreement executed by Borrower in the form of EXHIBIT A.              "Available Total Loan Commitment" has the meaning specified in Section 2.01(b).              "Bank" and "Banks" have the respective meanings specified in the preamble; provided, however, that the term "Bank" shall exclude each Designated Lender when used in reference to a Ratable Loan, the Loan Commitments or terms relating to the Ratable Loans and the Loan Commitments.              "Bank Parties" means Administrative Agent and the Banks.              "Banking Day" means (1) any day on which commercial banks are not authorized or required to close in New York City and (2) whenever such day relates to a LIBOR Loan, a LIBOR Bid Rate Loan, an Interest Period with respect to a LIBOR Loan or a LIBOR Bid Rate Loan, or notice with respect to a LIBOR Loan or a LIBOR Bid Rate Loan or a LIBOR Auction, a day on which dealings in Dollar deposits are also carried out in the London interbank market and banks are open for business in London.               "Base Rate" means, for any day, the higher of (1) the Federal Funds Rate for such day plus .50%, or (2) the Prime Rate for such day.               "Base Rate Loan" means all or any portion (as the context requires) of a Bank's Ratable Loan which shall accrue interest at a rate determined in relation to the Base Rate.              "Bid Borrowing Limit" means $400,000,000.              "Bid Rate Loan" has the meaning specified in Section 2.01(c).              "Bid Rate Loan Note" has the meaning specified in Section 2.08.              "Bid Rate Quote" means an offer by a Bank to make a Bid Rate Loan in accordance with Section 2.02.              "Bid Rate Quote Request" has the meaning specified in Section 2.02(a).              "Borrower" has the meaning specified in the preamble.              "Borrower's Accountants" means Arthur Andersen LLP, or such other accounting firm(s) selected by Borrower and reasonably acceptable to the Super-Majority Banks.              "Borrower's Credit Rating" means the rating assigned from time to time to Borrower's unsecured and unsubordinated long-term indebtedness by, respectively, S&P, Moody's and/or one or more other nationally-recognized rating agencies reasonably approved Administrative Agent.  If such a rating is assigned by only one (1) such rating agency, it must be either S&P or Moody's.  If such a rating is assigned by two (2) such rating agencies, at least one (1) must be S&P or Moody's, and "Borrower's Credit Rating" shall be the lower of said ratings, except if the aforesaid ratings are greater than one (1) rating level apart, in which case "Borrower's Credit Rating" shall be the average of said ratings.  If such a rating is obtained from more than two (2) such rating agencies, "Borrower's Credit Rating" shall be the higher of the lowest two (2) ratings, if at least one (1) of such two (2) is either S&P or Moody's; if neither of the two (2) lowest ratings is from S&P or Moody's, then "Borrower's Credit Rating" shall be the lower of the ratings from S&P and Moody's.  Unless such indebtedness of Borrower is rated by either S&P or Moody's, "Borrower's Credit Rating" shall be considered unrated for purposes of this Agreement.              "Borrower's Principals" means the officers and directors of Borrower at any applicable time.              "Borrower's Share of UJV Combined Outstanding Indebtedness" means the sum of the indebtedness of each of the UJVs contributing to UJV Combined Outstanding Indebtedness multiplied by Borrower's respective beneficial fractional interests in each such UJV.              "Capitalization Value" means, as of the end of any calendar quarter, the sum of (1) Combined EBITDA (less all leasing commissions and management and development fees, net of any expenses applicable thereto, contributing to Combined EBITDA) for such quarter annualized (i.e., multiplied by four (4)), capitalized at a rate of 8.75% per annum (i.e., divided by 8.75%), (2) such leasing commissions and management and development fees for such quarter, annualized, (i.e., multiplied by four (4)), capitalized at a rate of 25% per annum (i.e., divided by 25%), (3) Cash and Cash Equivalents of Borrower and its Consolidated Businesses, as of the end of such quarter, as reflected in Borrower's Consolidated Financial Statements and (4) the lesser of (a) the aggregate book value (on a cost basis) of the properties of Borrower and its Consolidated Businesses under development plus Borrower's beneficial interest in the book value (on a cost basis) of the properties of the UJVs under development or (b) 20% of the sum of the amounts determined pursuant to clauses (1), (2) and (3) of this definition.              "Capital Lease" means any lease which has been or should be capitalized on the books of the lessee in accordance with GAAP.              "Cash and Cash Equivalents" means (1) cash, (2) direct obligations of the United States Government, including, without limitation, treasury bills, notes and bonds, (3) interest-bearing or discounted obligations of federal agencies and government-sponsored entities or pools of such instruments offered by Approved Banks and dealers, including, without limitation, Federal Home Loan  Mortgage Corporation participation sale certificates, Government National Mortgage Association modified pass through certificates, Federal National Mortgage Association bonds and notes, and Federal Farm Credit System securities, (4) time deposits, domestic and eurodollar certificates of deposit, bankers' acceptances, commercial paper rated at least A-1 by S&P and P-1 by Moody's and/or guaranteed by an Aa rating by Moody's, an AA rating by S&P or better rated credit, floating rate notes, other money market instruments and letters of credit each issued by Approved Banks, (5) obligations of domestic corporations, including, without limitation, commercial paper, bonds, debentures and loan participations, each of which is rated at least AA by S&P and/or Aa2 by Moody's and/or guaranteed by an Aa rating by Moody's, an AA rating by S&P or better rated credit, (6) obligations issued by states and local governments or their agencies, rated at least MIG-1 by Moody's and /or SP-1 by S&P and /or guaranteed by an irrevocable letter of credit of an Approved Bank, (7) repurchase agreements with major banks and primary government security dealers fully secured by the United States Government or agency collateral equal to or exceeding the principal amount on a daily basis and held in safekeeping and (8) real estate loan pool participations, guaranteed by an AA rating given by S&P or an Aa2 rating given by Moody's or better rated credit. For purposes of this definition, "Approved Bank" means a financial institution which has (x) (A) a minimum net worth of $500,000,000 and/or (B) total assets of at least $10,000,000,000 and (y) a minimum long-term debt rating of A+ by S&P or A1 by Moody's.              "Chase" has the meaning specified in the preamble.              "Closing Date" means the date this Agreement has been executed by all parties.              "Co-Agent" means each of Chase and Fleet and "Co-Agents" means Chase and Fleet collectively.              "Code" means the Internal Revenue Code of 1986, including the rules and regulations promulgated thereunder.              "Combined Debt Service" means, for any period of time, (1) Borrower's share of total debt service (including principal) paid or payable by Borrower and its Consolidated Businesses during such period (other than debt service on construction loans until completion of the relevant construction and other capitalized interest) plus a deemed annual capital expense charge of $150 per apartment unit owned by Borrower or its Consolidated Businesses plus (2) Borrower's beneficial interest in (a) total debt service (including principal) paid or payable by the UJVs during such period (other than debt service on construction loans until completion of the relevant construction and other capitalized interest) plus (b) a deemed annual capital expense charge of $150 per apartment unit owned by the UJVs plus (3) preferred dividends paid or payable by Borrower and its Consolidated Businesses during such period.              "Combined EBITDA" means, for any period of time, the sum, without duplication, of (1) Borrower's share of revenues less operating expenses, general and administrative expenses and property taxes before Interest Expense, income taxes, gains or losses on the sale of real estate and/or marketable securities, depreciation and amortization and extraordinary items for Borrower and its Consolidated Businesses, and adjusted, if material, for non-cash revenue attributable to straight lining of rents and (2) Borrower's beneficial interest in revenues less operating expenses, general and administrative expenses and property taxes before Interest Expense, income taxes, gains or losses on the sale of real estate and/or marketable securities, depreciation and amortization and extraordinary items (after eliminating appropriate intercompany amounts) applicable to each of the UJVs, and adjusted, if material, for non-cash revenue attributable to straight lining of rents, in all cases as reflected in Borrower's Consolidated Financial Statements.              "Consolidated Businesses" means, collectively, each Affiliate of Borrower who is or should be included in Borrower's Consolidated Financial Statements in accordance with GAAP.              "Consolidated Financial Statements" means, with respect to any Person, the consolidated balance sheet and related consolidated statement of operations, accumulated deficiency in assets and cash flows, and footnotes thereto, of such Person, prepared in accordance with GAAP.              "Consolidated Outstanding Indebtedness" means, as of any time, Borrower's share of all indebtedness and liability for borrowed money, secured or unsecured, of Borrower and its Consolidated Businesses, including mortgage and other notes payable but excluding any indebtedness which is margin indebtedness on cash and cash equivalent securities, all as reflected in Borrower's Consolidated Financial Statements.              "Consolidated Tangible Net Worth" means, at any date, Borrower's share of the consolidated stockholders' equity of Borrower and its Consolidated Businesses less their consolidated Intangible Assets, all determined as of such date.  For purposes of this definition, "Intangible Assets" means with respect to any such intangible assets, the amount (to the extent reflected in determining such consolidated stockholders' equity) of (1) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of assets of a going concern business made within twelve (12) months after the acquisition of such business) subsequent to September 30, 1994 in the book value of any asset (other than real property assets) owned by Borrower or a Consolidated Business and (2) all debt discount and expense, deferred charges, goodwill, patents, trademarks, service marks, trade names, anticipated future benefit of tax loss carry-forwards, copyrights, organization or developmental expenses and other intangible assets (in each case, not adjusted for depreciation).              "Contingent Obligations" means, without duplication, Borrower's share of (1) any contingent obligations of Borrower or its Consolidated Businesses required to be shown on the balance sheet of Borrower and its Consolidated Businesses in accordance with GAAP and (2) any obligation required to be disclosed in the footnotes to Borrower's Consolidated Financial Statements, guaranteeing partially or in whole any non-Recourse Debt, lease, dividend or other obligation, exclusive of contractual indemnities (including, without limitation, any indemnity or price-adjustment provision relating to the purchase or sale of securities or other assets) and guarantees of non-monetary obligations (other than guarantees of completion) which have not yet been called on or quantified, of Borrower or any of its Consolidated Businesses or of any other Person.  The amount of any Contingent Obligation described in clause (2) shall be deemed to be (a) with respect to a guaranty of interest or interest and principal, or operating income guaranty, the net present value (using the Base Rate as a discount rate) of the sum of all payments required to be made thereunder (which in the case of an operating income guaranty shall be deemed to be equal to the debt service for the note secured thereby), through (i) in the case of an interest or interest and principal guaranty, the stated date of maturity of the obligation (and commencing on the date interest could first be payable thereunder) or (ii) in the case of an operating income guaranty, the date through which such guaranty will remain in effect and (b) with respect to all guarantees not covered by the preceding clause (a), an amount equal to the stated or determinable amount of the primary obligation in respect of which such guaranty is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming Borrower and/or one or more of its Consolidated Businesses is required to perform thereunder) as recorded on the balance sheet and on the footnotes to the most recent Borrower's Consolidated Financial Statements required to be delivered pursuant to this Agreement.  Notwithstanding anything contained herein to the contrary, guarantees of completion shall not be deemed to be Contingent Obligations unless and until a claim for payment or performance has been made thereunder, at which time any such guaranty of completion shall be deemed to be a Contingent Obligation in an amount equal to any such claim.  Subject to the preceding sentence, (1) in the case of a joint and several guaranty given by Borrower or one of its Consolidated Businesses and another Person (but only to the extent such guaranty is recourse, directly or indirectly to Borrower), the amount of the guaranty shall be deemed to be 100% thereof unless and only to the extent that such other Person has delivered Cash and Cash Equivalents to secure all or any part of such Person's guaranteed obligations and (2) in the case of joint and several guarantees given by a Person in which Borrower owns an interest (which guarantees are non-recourse to Borrower), to the extent the guarantees, in the aggregate, exceed 10% of Capitalization Value, the amount in excess of 10% shall be deemed to be a Contingent Obligation of Borrower.  Notwithstanding anything contained herein to the contrary, "Contingent Obligations" shall be deemed not to include guarantees of unadvanced funds under any indebtedness of Borrower or its Consolidated Businesses or of construction loans to the extent the same have not been drawn.  All matters constituting "Contingent Obligations" shall be calculated without duplication.              "Continue", "Continuation" and "Continued" refer to the continuation pursuant to Section 2.12 of a LIBOR Loan as a LIBOR Loan from one Interest Period to the next Interest Period.              "Convert", "Conversion" and "Converted" refer to a conversion pursuant to Section 2.12 of a Base Rate Loan into a LIBOR Loan or a LIBOR Loan into a Base Rate Loan, each of which may be accompanied by the transfer by a Bank (at its sole discretion) of all or a portion of its Ratable Loan from one Applicable Lending Office to another.              "Debt" means (1) indebtedness or liability for borrowed money, or for the deferred purchase price of property or services (including trade obligations); (2) obligations as lessee under Capital Leases; (3) current liabilities in respect of unfunded vested benefits under any Plan; (4) obligations under letters of credit issued for the account of any Person; (5) all obligations arising under bankers' or trade acceptance facilities; (6) all guarantees, endorsements (other than for collection or deposit in the ordinary course of business), and other contingent obligations to purchase any of the items included in this definition, to provide funds for payment, to supply funds to invest in any Person, or otherwise to assure a creditor against loss; (7) all obligations secured by any Lien on property owned by the Person whose Debt is being measured, whether or not the obligations have been assumed; and (8) all obligations under any agreement providing for contingent participation or other hedging mechanisms with respect to interest payable on any of the items described above in this definition.              "Declining Bank" has the meaning specified in Section 2.19.              "Default" means any event which with the giving of notice or lapse of time, or both, would become an Event of Default.              "Default Rate" means a rate per annum equal to: (1) with respect to Base Rate Loans and Swing Loans, a variable rate 3% above the rate of interest then in effect thereon; and (2) with respect to LIBOR Loans and Bid Rate Loans, a fixed rate 3% above the rate(s) of interest in effect thereon (including the Applicable Margin or the LIBOR Bid Margin, as the case may be) at the time of Default until the end of the then current Interest Period therefor and, thereafter, a variable rate 3% above the rate of interest for a Base Rate Loan.              "Designated Lender" means a special purpose corporation that (i) shall have become a party to this Agreement pursuant to Section 12.16 and (ii) is not otherwise a Bank.              "Designating Lender" has the meaning specified in Section 12.16.              "Designation Agreement" means an agreement in substantially the form of EXHIBIT F, entered into by a Bank and a Designated Lender and accepted by Administrative Agent.              "Disposition" means a sale (whether by assignment, transfer or Capital Lease) of an asset.              "Documentation Agent" means, individually and collectively, Bank of America, N.A., First Union National Bank and Citicorp Real Estate, Inc.              "Dollars" and the sign "$" mean lawful money of the United States of America.              "Elect", "Election" and "Elected" refer to election, if any, by Borrower pursuant to Section 2.12 to have all or a portion of an advance of the Ratable Loans be outstanding as LIBOR Loans.              "Environmental Discharge" means any discharge or release of any Hazardous Materials in violation of any applicable Environmental Law.              "Environmental Law" means any applicable Law relating to pollution or the environment, including Laws relating to noise or to emissions, discharges, releases or threatened releases of Hazardous Materials into the work place, the community or the environment, or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials.              "Environmental Notice" means any written complaint, order, citation or notice from any Person (1) affecting or relating to Borrower's compliance with any Environmental Law in connection with any activity or operations at any time conducted by Borrower, (2) relating to (a) the existence of any Hazardous Materials contamination or Environmental Discharges or threatened Hazardous Materials contamination or Environmental Discharges at any of Borrower's locations or facilities or (b) remediation of any Environmental Discharge or Hazardous Materials at any such location or facility or any part thereof; or (3) relating to any violation or alleged violation by Borrower of any relevant Environmental Law.              "ERISA" means the Employee Retirement Income Security Act of 1974, including the rules and regulations promulgated thereunder.              "ERISA Affiliate" means any corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as Borrower, or any trade or business which is under common control (within the meaning of Section 414(c) of the Code) with Borrower, or any organization which is required to be treated as a single employer with Borrower under Section 414(m) or 414(o) of the Code.              "Event of Default" has the meaning specified in Section 9.01.              "Extension Option", "Notice to Extend" and "Request to Extend" have the respective meanings specified in Section 2.18.              "Facility Fee Rate" means the rate per annum determined, at any time, based on Borrower's Credit Rating in accordance with the following table.  Any change in Borrower's Credit Rating which causes it to move into a different range on the table shall effect an immediate change in the Facility Fee Rate.       Borrower's Credit Rating (S&P/Moody's)   Facility Fee Rate (% per annum) --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Below BBB- or unrated/Below Baa3 or unrated   0.25 BBB-/Baa3   0.20 BBB/Baa2   0.15 BBB+/Baa1   0.15 A-or higher/A3 or higher   0.15              "Federal Funds Rate" means, for any day, the rate per annum (expressed on a 360-day basis of calculation) equal to the weighted average of the rates on overnight federal funds transactions as published by the Federal Reserve Bank of New York for such day provided that (1) if such day is not a Banking Day, the Federal Funds Rate for such day shall be such rate on such transactions on the immediately preceding Banking Day as so published on the next succeeding Banking Day; and (2) if no such rate is so published on such next succeeding Banking Day, the Federal Funds Rate for such day shall be the average of the rates quoted by three (3) Federal Funds brokers to Administrative Agent on such day on such transactions.              "First Solicitation" has the meaning specified in Section 2.19.              "Fiscal Year" means each period from January 1 to December 31.              "Fleet" has the meaning specified in the preamble.              "Funds From Operations" means Combined EBITDA less the sum of Interest Expense and income taxes included in Combined EBITDA.              "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time, applied on a basis consistent with those used in the preparation of the financial statements referred to in Section 5.13 (except for changes concurred in by Borrower's Accountants).              "Good Faith Contest" means the contest of an item if: (1) the item is diligently contested in good faith, and, if appropriate, by proceedings timely instituted; (2) reserves that are adequate based on reasonably foreseeable likely outcomes are established with respect to the contested item; (3) during the period of such contest, the enforcement of any contested item is effectively stayed, delayed or postponed; and (4) the failure to pay or comply with the contested item during the period of the contest is not likely to result in a Material Adverse Change.              "Governmental Approvals" means any authorization, consent, approval, license, permit, certification, or exemption of, registration or filing with or report or notice to, any Governmental Authority.              "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.              "Hazardous Materials" means any pollutant, effluents, emissions, contaminants, toxic or hazardous wastes or substances, as any of those terms are defined from time to time in or for the purposes of any relevant Environmental Law, including asbestos fibers and friable asbestos, polychlorinated biphenyls, and any petroleum or hydrocarbon-based products or derivatives.              "Initial Advance" means the first advance of proceeds of the Loans.              "Interest Expense" means, for any period of time, Borrower's share of the consolidated interest expense (without deduction of consolidated interest income, and excluding (x) interest expense on construction loans and (y) other capitalized interest expense in respect of either construction activity or construction loans, in any such case under clauses (x) or (y), only until completion of the relevant construction) of Borrower and its Consolidated Businesses, including, without limitation or duplication (or, to the extent not so included, with the addition of), (1) the portion of any rental obligation in respect of any Capital Lease obligation allocable to interest expense in accordance with GAAP; (2) the amortization of Debt discounts; (3) any expense, payments or fees (other than up-front fees) with respect to interest rate swap or similar agreements; and (4) the interest expense and items listed in clauses (1) through (3) above applicable to each of the UJVs multiplied by Borrower's respective beneficial interests in the UJVs, in all cases as reflected in Borrower's Consolidated Financial Statements.              "Interest Period" means, (1) with respect to any LIBOR Loan, the period commencing on the date the same is advanced, converted from a Base Rate Loan or Continued, as the case may be, and ending, as Borrower may select pursuant to Section 2.05, on the numerically corresponding day in the first, second or third calendar month thereafter, provided that each such Interest Period which commences on the last Banking 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 Banking Day of the appropriate calendar month; (2) with respect to any LIBOR Bid Rate Loan, the period commencing on the date the same is advanced and ending, as Borrower may select pursuant to Section 2.02, on the numerically corresponding day in the first, second or third calendar month thereafter, provided that each such Interest Period which commences on the last Banking 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 Banking Day of the appropriate calendar month; and (3) with respect to any Absolute Bid Rate Loan, the period commencing on the date the same is advanced and ending, as Borrower may select pursuant to Section 2.02, provided, however, that each such period shall not be less than fourteen (14) days nor more than ninety (90) days.              "Invitation for Bid Rate Quotes" has the meaning specified in Section 2.02 (b).              "Law" means any federal, state or local statute, law, rule, regulation, ordinance, order, code, or rule of common law, now or hereafter in effect, and in each case as amended, and any judicial or administrative order, consent decree or judgment.              "Letter of Credit" has the meaning specified in Section 2.16(a).              "LIBOR Auction" means a solicitation of Bid Rate Quotes setting forth LIBOR Bid Margins pursuant to Section 2.02.              "LIBOR Base Rate" means, with respect to any Interest Period therefor, the rate per annum (rounded up, if necessary, to the nearest 1/100 of 1%) that appears on Dow Jones Page 3750 at approximately 11:00 a.m. (London time) on the date (the "LIBOR Determination Date") two (2) Banking Days prior to the first day of the applicable Interest Period, for the same period of time as the Interest Period; or, if such rate does not appear on Dow Jones Page 3750 as of approximately 11:00 a.m. (London time) on the LIBOR Determination Date, the rate (rounded up, if necessary, to the nearest 1/100 of 1%) for deposits in Dollars for a period comparable to the applicable Interest Period that appears on the Reuters Screen LIBOR Page as of approximately 11:00 a.m. (London time) on the LIBOR Determination Date.  If such rate does not appear on either Dow Jones Page 3750 or on the Reuters Screen LIBOR Page as of approximately 11:00 a.m. (London time) on the LIBOR Determination Date, the LIBOR Base Rate for the Interest Period will be determined on the basis of the offered rates for deposits in Dollars for the same period of time as such Interest Period that are offered by four (4) major banks in the London interbank market at approximately 11:00 a.m. (London time) on the LIBOR Determination Date.  Administrative Agent will request that the principal London office of each of the four (4) major banks provide a quotation of its Dollar deposit offered rate.  If at least two (2) such quotations are provided, the LIBOR Base Rate will be the arithmetic mean of the quotations.  If fewer than two (2) quotations are provided as requested, the LIBOR Base Rate will be determined on the basis of the rates quoted for loans in Dollars to leading European banks for amounts comparable to such amount requested by Borrower for the same period of time as such Interest Period offered by major banks in New York City at approximately 11:00 a.m. (New York time) on the LIBOR Determination Date.  In the event that Administrative Agent is unable to obtain any such quotation as provided above, it will be deemed that the LIBOR Base Rate cannot be determined.  For purposes of the foregoing definition, "Dow Jones Page 3750" means the display designated as "Page 3750" on the Dow Jones Markets Service (or such other page as may replace Page 3750 on that service or such other service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association Interest Settlement Rates for Dollar deposits); and "Reuters Screen LIBOR Page" means the display designated as page "LIBOR" on the Reuters Monitor Money Rates Service (or such other page as may replace the LIBOR page on that service for the purpose of displaying interbank rates from London in Dollars).              "LIBOR Bid Margin" has the meaning specified in Section 2.02(c)(2).              "LIBOR Bid Rate" means the rate per annum equal to the sum of (1) the LIBOR Interest Rate for the LIBOR Bid Rate Loan and Interest Period in question and (2) the LIBOR Bid Margin.              "LIBOR Bid Rate Loan" means a Bid Rate Loan bearing interest at the LIBOR Bid Rate.              "LIBOR Interest Rate" means, for any LIBOR Loan or LIBOR Bid Rate Loan, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by Administrative Agent to be equal to the quotient of (1) the LIBOR Base Rate for such LIBOR Loan or LIBOR Bid Rate Loan, as the case may be, for the Interest Period therefor divided by (2) one minus the LIBOR Reserve Requirement for such LIBOR Loan or LIBOR Bid Rate Loan, as the case may be, for such Interest Period.              "LIBOR Loan" means all or any portion (as the context requires) of any Bank's Ratable Loan which shall accrue interest at rate(s) determined in relation to LIBOR Interest Rate(s).              "LIBOR Reserve Requirement" means, for any LIBOR Loan or LIBOR Bid Rate Loan, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during the Interest Period for such LIBOR Loan or LIBOR Bid Rate Loan under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding $1,000,000,000 against "Eurocurrency liabilities" (as such term is used in Regulation D).  Without limiting the effect of the foregoing, the LIBOR Reserve Requirement shall also reflect any other reserves required to be maintained by such member banks by reason of any Regulatory Change against (1) any category of liabilities which includes deposits by reference to which the LIBOR Base Rate is to be determined as provided in the definition of "LIBOR Base Rate" in this Section 1.01 or (2) any category of extensions of credit or other assets which include loans the interest rate on which is determined on the basis of rates referred to in said definition of "LIBOR Base Rate".              "Lien" means any mortgage, deed of trust, pledge, negative pledge, security interest, hypothecation, assignment for collateral purposes, deposit arrangement, lien (statutory or other), or other security agreement or charge of any kind or nature whatsoever of any third party (excluding any right of setoff but 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 and carriers, warehousemen, mechanics and other similar inchoate liens that have been insured against in a manner reasonably satisfactory to Co-Agents).              "Loan" means, with respect to each Bank, collectively, its Ratable Loan and Bid Rate Loan(s), and, in the case of the Swing Lender, its Swing Loan(s).              "Loan Commitment" means, with respect to each Bank, the obligation to make a Ratable Loan in the principal amount set forth below (subject to change in accordance with the terms of this Agreement): Bank   Loan Commitment --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Chase   $ 55,000,000       Fleet   55,000,000       Bank of America, N.A.   55,000,000       First Union National Bank   55,000,000       Citicorp Real Estate, Inc.   55,000,000       Lehman Commercial Paper Inc.   45,000,000       Bankers Trust Company   35,000,000       AmSouth Bank   30,000,000       KeyBank National Association   25,000,000       PNC Bank, National Association   25,000,000       SouthTrust Bank   25,000,000       Comerica Bank   20,000,000       SunTrust Bank   20,000,000       TOTAL:   $ 500,000,000     --------------------------------------------------------------------------------              "Loan Documents" means this Agreement, the Notes, the Authorization Letter and the Solvency Certificate.              "Majority Banks" means at any time the Banks having Pro Rata Shares aggregating at least 51%; provided, however, that during the existence of an Event of Default, the "Majority Banks" shall be the Banks holding at least 51% of the then aggregate unpaid principal amount of the Loans.  For purposes of this definition, a Bank's Loan shall be deemed to include its participating interest in Swing Loans pursuant to Section 2.17(c) and the Swing Lender's Loans shall be deemed to exclude such participating interests of other Banks.              "Material Adverse Change" means an effect resulting from any circumstance or event or series of circumstances or events, of whatever nature, which does or could reasonably be expected to, on more than an interim basis, either (1) materially and adversely impair the ability of Borrower and its Consolidated Businesses, taken as a whole, to fulfill its material obligations or (2) cause a Default.              "Material Affiliates" means the Affiliates of Borrower described on EXHIBIT C, together with (or excluding) any Affiliates of Borrower which are hereafter from time to time reasonably determined by Administrative Agent to be material (or no longer material), upon written notice to Borrower, based on the most recent Borrower's Consolidated Financial Statements.              "Maturity Date" means May 24, 2004, subject to extension in accordance with Section 2.18.              "Moody's" means Moody's Investors Service, Inc.              "Multiemployer Plan" means a Plan defined as such in Section 3(37) of ERISA to which contributions have been made by Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA.              "New Bank" and "New Note" have the respective meanings specified in Section 2.19.              "Note" and "Notes" have the respective meanings specified in Section 2.08.              "Obligations" means each and every obligation, covenant and agreement of Borrower, now or hereafter existing, contained in this Agreement, and any of the other Loan Documents, whether for principal, reimbursement obligations, interest, fees, expenses, indemnities or otherwise, and any amendments or supplements thereto, extensions or renewals thereof or replacements therefor, including but not limited to all indebtedness, obligations and liabilities of Borrower to Administrative Agent and any Bank now existing or hereafter incurred under or arising out of or in connection with the Notes, this Agreement, the other Loan Documents, and any documents or instruments executed in connection therewith; in each case whether direct or indirect, joint or several, absolute or contingent, liquidated or unliquidated, now or hereafter existing, renewed or restructured, whether or not from time to time decreased or extinguished and later increased, created or incurred, and including all indebtedness of Borrower, under any instrument now or hereafter evidencing or securing any of the foregoing.              "Parent" means, with respect to any Bank, any Person controlling such Bank.              "Participant" and "Participation" have the respective meanings specified in Section 12.05.              "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA.              "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.              "Plan" means any employee benefit or other plan established or maintained, or to which contributions have been made, by Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA or to which Section 412 of the Code applies.              "presence", when used in connection with any Environmental Discharge or Hazardous Materials, means and includes presence, generation, manufacture, installation, treatment, use, storage, handling, repair, encapsulation, disposal, transportation, spill, discharge and release.              "Prime Rate" means the variable per annum rate of interest designated from time to time by Fleet National Bank at its principal office in Boston, Massachusetts as its "prime rate" (it being understood that the "prime rate" is a reference rate and does not necessarily represent the lowest or best rate being charged to any customer).              "Pro Rata Share" means, for purposes of this Agreement and with respect to each Bank, a fraction, the numerator of which is the amount of such Bank's Loan Commitment and the denominator of which is the Total Loan Commitment.              "Prohibited Transaction" means any transaction proscribed by Section 406 of ERISA or Section 4975 of the Code and to which no statutory or administrative exemption applies.              "Ratable Loan" has the meaning specified in Section 2.01(b).              "Ratable Loan Note" has the meaning specified in Section 2.08.              "Recourse Debt" means Debt, recourse for the satisfaction of which is not limited to specified collateral.              "Refunded Swing Loans" and "Refunding Date" have the respective meanings specified in Section 2.17.              "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System.              "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System.              "Regulatory Change" means, with respect to any Bank, any change after the date of this Agreement in United States federal, state, municipal or foreign laws or regulations (including Regulation D) or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks including such Bank of or under any United States, federal, state, municipal or 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.              "Reportable Event" means any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty (30) day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. §2615.              "Requested Increase" has the meaning specified in Section 2.19.              "Secured Indebtedness" means that portion of Total Outstanding Indebtedness that is secured.              "Shortfall" has the meaning specified in Section 2.19.              "Solvency Certificate" means a certificate in the form of EXHIBIT D, to be delivered by Borrower pursuant to the terms of this Agreement.              "Solvent" means, when used with respect to any Person, that the fair value of the property of such Person, on a going concern basis, is greater than the total amount of liabilities (including, without limitation, contingent liabilities) of such Person.              "S&P" means Standard and Poor's Ratings Services, a division of McGraw-Hill Companies.              "Super-Majority Banks" means at any time the Banks having Pro Rata Shares aggregating at least 66-2/3%; provided, however, that during the existence of an Event of Default, the "Super-Majority Banks" shall be the Banks holding at least 66-2/3% of the then aggregate unpaid principal amount of the Loans.  For purposes of this definition, a Bank's Loan shall be deemed to include its participating interest in Swing Loans pursuant to Section 2.17(c) and the Swing Lender's Loans shall be deemed to exclude such participating interests of other Banks.              "Supplemental Fee Letter" means, collectively, those certain letter agreements, each dated on or prior to the date hereof, between Borrower and each of Chase and Fleet.              "Supplemental Note" has the meaning specified in Section 2.19.              "Swing Lender" means Fleet in its capacity as the lender under the Swing Loan facility described in Section 2.17, and its successors in such capacity.              "Swing Loan" means a loan made by the Swing Lender pursuant to Section 2.17.              "Swing Loan Commitment" means $20,000,000.              "Swing Loan Note" has the meaning specified in Section 2.08.              "Swing Loan Refund Amount" has the meaning specified in Section 2.17.              "Syndication Agent" means The Chase Manhattan Bank.              "Syndication Expiration Date" has the meaning specified in Section 2.19.              "Total Loan Commitment" means an amount equal to the aggregate amount of all Loan Commitments (i.e., initially, $500,000,000), as the same may increase pursuant to Section 2.19 or decrease pursuant to Section 2.10.              "Total Outstanding Indebtedness" means, at any time, the sum, without duplication, of (1) Consolidated Outstanding Indebtedness; (2) Borrower's Share of UJV Combined Outstanding Indebtedness; and (3) Contingent Obligations.              "UJV Combined Outstanding Indebtedness" means, as of any time, all indebtedness and liability for borrowed money, secured or unsecured, of the UJV's, on a combined basis, including mortgage and other notes payable but excluding any indebtedness which is margin indebtedness on cash and cash equivalent securities, all as reflected in the balance sheets of each of the UJVs, prepared in accordance with GAAP.              "UJVs" means the unconsolidated joint ventures (including general and limited partnerships) in which Borrower owns a beneficial interest and which are accounted for under the equity method in Borrower's Consolidated Financial Statements.              "Unencumbered Asset Value" means, as of the end of any calendar quarter, Unencumbered Combined EBITDA for such quarter, annualized (i.e., multiplied by four (4)), capitalized at a rate of 8.75% per annum (i.e., divided by 8.75%).              "Unencumbered Combined EBITDA" means that portion of Combined EBITDA attributable to Unencumbered Wholly-Owned Assets (assuming corporate overhead is allocated proportionately to Unencumbered Wholly-Owned Assets).              "Unencumbered Wholly-Owned Assets" means income-producing assets, reflected on Borrower's Consolidated Financial Statements, wholly owned, directly or indirectly, by Borrower which (1) are not, and the direct or indirect interests of Borrower therein are not, subject to any Lien to secure all or any portion of Secured Indebtedness or any other encumbrances which, in the reasonable judgment of Co-Agents, may diminish the value of the asset in question and (2) complies with the occupancy requirements set forth in the immediately following sentence.  In order to qualify as an Unencumbered Wholly-Owned Asset for a particular calendar quarter an asset must (1) have average occupancy for the twelve (12)-month period ending with such quarter  of  85% or more and (2) have average quarterly occupancy for at least three (3) of the four (4) calendar quarters during such twelve (12)-month period of  85% or more.              "Unsecured Indebtedness" means that portion of Total Outstanding Indebtedness that is unsecured.              "Unsecured Interest Expense" means that portion of Interest Expense relating to Unsecured Indebtedness.              Section 1.02     Accounting Terms.  All accounting terms not specifically defined herein shall be construed in accordance with GAAP, and all financial data required to be delivered hereunder shall be prepared in accordance with GAAP.              Section 1.03     Computation of Time Periods.  Except as otherwise provided herein, in this Agreement, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and words "to" and "until" each means "to but excluding".              Section 1.04     Rules of Construction.  Except as provided otherwise, when used in this Agreement (1) "or" is not exclusive; (2) a reference to a Law includes any amendment, modification or supplement to, or replacement of, such Law; (3) a reference to a Person includes its permitted successors and permitted assigns; (4) all terms used in the singular shall have a correlative meaning when used in the plural and vice versa; (5) a reference to an agreement, instrument or document shall include such agreement, instrument or document as the same may be amended, modified or supplemented from time to time in accordance with its terms and as permitted by the Loan Documents; (6) all references to Articles, Sections or Exhibits shall be to Articles, Sections and Exhibits of this Agreement unless otherwise indicated; (7) "hereunder", "herein", "hereof" and the like refer to this Agreement as a whole; and (8) all Exhibits to this Agreement shall be incorporated into this Agreement. ARTICLE II THE LOANS              Section 2.01     Ratable Loans; Bid Rate Loans; Purpose.              (a)         Subject to the terms and conditions of this Agreement, the Banks agree to make loans to Borrower as provided in this Article II.              (b)        Each of the Banks severally agrees to make a loan to Borrower (each such loan by a Bank, a "Ratable Loan") in an amount up to its Loan Commitment pursuant to which the Bank shall from time to time advance and re-advance to Borrower an amount equal to its Pro Rata Share of the excess (the "Available Total Loan Commitment") of the Total Loan Commitment over the sum of (1) all previous advances (including Bid Rate Loans and Swing Loans) made by the Banks which remain unpaid and (2) the outstanding amount of all Letters of Credit.  Within the limits set forth herein, Borrower may borrow from time to time under this paragraph (b) and prepay from time to time pursuant to Section 2.09 (subject, however, to the restrictions on prepayment set forth in said Section), and thereafter re-borrow pursuant to this paragraph (b).  The Ratable Loans may be outstanding as (1) Base Rate Loans; (2) LIBOR Loans; or (3) a combination of the foregoing, as Borrower shall elect and notify Administrative Agent in accordance with Section 2.14.  The LIBOR Loan, Bid Rate Loan and Base Rate Loan of each Bank shall be maintained at such Bank's Applicable Lending Office.              (c)         In addition to Ratable Loans pursuant to paragraph (b) above, so long as Borrower's Credit Rating is BBB- or higher by S&P or Baa3 or higher by Moody's or an equivalent rating by another nationally-recognized rating agency, as reasonably approved by Administrative Agent, one or more Banks may, at Borrower's request and in their sole discretion, make non-ratable loans which shall bear interest at the LIBOR Bid Rate or the Absolute Bid Rate in accordance with Section 2.02 (such loans being referred to in this Agreement as "Bid Rate Loans").  Borrower may borrow Bid Rate Loans from time to time pursuant to this paragraph (c) in an amount up to the Available Total Loan Commitment at the time of the borrowing (taking into account any repayments of the Loans made simultaneously therewith) and shall repay such Bid Rate Loans as required by Section 2.08, and it may thereafter re-borrow pursuant to this paragraph (c); provided, however, that the aggregate outstanding principal amount of Bid Rate Loans at any particular time shall not exceed the Bid Borrowing Limit.              (d)        The obligations of the Banks under this Agreement are several, and no Bank shall be responsible for the failure of any other Bank to make any advance of a Loan to be made by such other Bank.  However, the failure of any Bank to make any advance of the Loan to be made by it hereunder on the date specified therefor shall not relieve any other Bank of its obligation to make any advance of its Loan specified hereby to be made on such date.              (e)         Borrower shall use the proceeds of the Loans for general capital and working capital requirements of Borrower and its Consolidated Businesses and UJVs (which shall include, but not be limited to, Acquisitions and/or costs incurred in connection with the development, construction or reconstruction of multi-family real estate properties).  In no event shall proceeds of the Loans be used in a manner that would violate Regulation U or in connection with a hostile acquisition.              Section 2.02     Bid Rate Loans.              (a)         When Borrower wishes to request offers from the Banks to make Bid Rate Loans, it shall transmit to Administrative Agent by facsimile a request (a "Bid Rate Quote Request") substantially in the form of EXHIBIT G-1 so as to be received not later than 12:00 Noon (New York time) on (x) the fifth Banking Day prior to the date for funding of the LIBOR Bid Rate Loan(s) proposed therein in the case of a LIBOR Auction or (y) the second Banking Day prior to the date for funding of the Absolute Bid Rate Loan(s) proposed therein in the case of an Absolute Rate Auction, specifying:              (1)         the proposed date of funding of the Bid Rate Loan(s), which shall be a Banking Day;              (2)         the aggregate amount of the Bid Rate Loans requested, which shall be $5,000,000 or a larger integral multiple of $500,000;              (3)         the duration of the Interest Period(s) applicable thereto, subject to the provisions of the definition of "Interest Period" in Section 1.01 and the provisions of Section 2.05; and              (4)         whether the Bid Rate Quotes requested are to set forth a LIBOR Bid Margin (to be used to compute the LIBOR Bid Rate) or an Absolute Bid Rate. Borrower may request offers to make Bid Rate Loans for more than one (1) Interest Period in a single Bid Rate Quote Request.  No more than two (2) Bid Rate Quote Requests may be submitted by Borrower during any calendar month  and no more than twenty-four (24) Bid Rate Quote Requests per year may be submitted by Borrower.              (b)        Promptly (the same day, if possible) upon receipt of a Bid Rate Quote Request, Administrative Agent shall send to the Banks by facsimile an invitation (an "Invitation for Bid Rate Quotes") substantially in the form of EXHIBIT G-2, which shall constitute an invitation by Borrower to the Banks to submit Bid Rate Quotes offering to make Bid Rate Loans to which such Bid Rate Quote Request relates in accordance with this Section.              (c)         (1)         Each Bank may submit a Bid Rate Quote containing an offer or offers to make Bid Rate Loans in response to any Invitation for Bid Rate Quotes.  Each Bid Rate Quote must comply with the requirements of this paragraph (c) and must be submitted to Administrative Agent by facsimile not later than (x) 2:00 p.m. (New York time) on the fourth Banking Day prior to the proposed date of the LIBOR Bid Rate Loan(s) in the case of a LIBOR Auction or (y) 9:30 a.m. (New York time) on the Banking Day immediately preceding the proposed date of the Absolute Bid Rate Loan(s) in the case of an Absolute Rate Auction; provided that Bid Rate Quotes submitted by Administrative Agent (or any Affiliate of Administrative Agent) in its capacity as a Bank may be submitted, and may only be submitted, if Administrative Agent or such Affiliate notifies Borrower of the terms of the offer or offers contained therein not later than (x) one (1) hour prior to the deadline for the other Banks in the case of a LIBOR Auction or (y) thirty (30) minutes prior to the deadline for the other Banks in the case of an Absolute Rate Auction.  Any Bid Rate Quote so made shall (subject to Borrower's satisfaction of the conditions precedent set forth in this Agreement to its entitlement to an advance) be irrevocable except with the written consent of Administrative Agent given on the instructions of Borrower.  Bid Rate Loans to be funded pursuant to a Bid Rate Quote may, as provided in Section 12.16, be funded by a Bank's Designated Lender.  A Bank making a Bid Rate Quote shall, if then known, specify in its Bid Rate Quote whether the related Bid Rate Loans are intended to be funded by such Bank's Designated Lender, as provided in Section 12.16, provided, however, that whether or not the same is specified in a Bank's Bid Rate Quote, such Bank's Bid Rate Loan(s) may be funded by its Designated Lender at the time of funding thereof.              (2)         Each Bid Rate Quote shall be in substantially the form of EXHIBIT G-3 and shall in any case specify:              (i)          the proposed date of funding of the Bid Rate Loan(s);              (ii)         the principal amount of the Bid Rate Loan(s) for which each such offer is being made, which principal amount (w) may be greater than or less than the Loan Commitment of the quoting Bank, (x) must be in the aggregate $5,000,000 or a larger integral multiple of $500,000, (y) may not exceed the principal amount of Bid Rate Loans for which offers were requested and (z) may be subject to an aggregate limitation as to the principal amount of Bid Rate Loans for which offers being made by such quoting Bank may be accepted;              (iii)        in the case of a LIBOR Auction, the margin above or below the applicable LIBOR Interest Rate (the "LIBOR Bid Margin") offered for each such LIBOR Bid Rate Loan, expressed as a percentage per annum (specified to the nearest 1/1,000th of 1%) to be added to (or subtracted from) the applicable LIBOR Interest Rate;              (iv)       in the case of an Absolute Rate Auction, the rate of interest, expressed as a percentage per annum (specified to the nearest 1/1,000th of 1%) (the "Absolute Bid Rate"), offered for each such Absolute Bid Rate Loan;              (v)        the applicable Interest Period; and              (vi)       the identity of the quoting Bank. A Bid Rate Quote may set forth up to three (3) separate offers by the quoting Bank with respect to each Interest Period specified in the related Invitation for Bid Rate Quotes.              (3)         Any Bid Rate Quote shall be disregarded if it:              (i)          is not substantially in conformity with EXHIBIT G-3 or does not specify all of the information required by sub-paragraph (c)(2) above;              (ii)         contains qualifying, conditional or similar language (except for an aggregate limitation as provided in sub-paragraph (c)(2)(ii) above);              (iii)        proposes terms other than or in addition to those set forth in the applicable Invitation for Bid Rate Quotes; or              (iv)       arrives after the time set forth in sub-paragraph (c)(1) above.              (d)        Administrative Agent shall (x) not later than 3:00 p.m. (New York time) on the fourth Banking Day prior to the proposed date of funding of the LIBOR Bid Rate Loan(s) in the case of a LIBOR Auction or (y) not later than 10:30 a.m. (New York time) on the Banking Day immediately preceding the proposed date of funding of the Absolute Bid Rate Loan(s) in the case of an Absolute Rate Auction, notify Borrower in writing of the terms of any Bid Rate Quote submitted by a Bank that is in accordance with paragraph (c).  In addition, Administrative Agent shall, on the Banking Day of its receipt thereof, notify Borrower in writing of any Bid Rate Quote that amends, modifies or is otherwise inconsistent with a previous Bid Rate Quote submitted by such Bank with respect to the same Bid Rate Quote Request.  Any such subsequent Bid Rate Quote shall be disregarded by Administrative Agent unless such subsequent Bid Rate Quote is submitted solely to correct a manifest error in such former Bid Rate Quote. Administrative Agent's notice to Borrower shall specify (A) the aggregate principal amount of Bid Rate Loans for which offers have been received for each Interest Period specified in the related Bid Rate Quote Request, (B) the respective principal amounts, LIBOR Bid Margins and Absolute Bid Rates so offered and (C) if applicable, limitations on the aggregate principal amount of Bid Rate Loans for which offers in any single Bid Rate Quote may be accepted.              (e)         Not later than 9:30 a.m. (New York time) on (x) the third Banking Day prior to the proposed date of funding of the LIBOR Bid Rate Loan in the case of a LIBOR Auction or (y) the Banking Day immediately preceding the proposed date of funding of the Absolute Bid Rate Loan in the case of an Absolute Rate Auction, Borrower shall notify Administrative Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to paragraph (d).  If Borrower fails to notify Administrative Agent of its acceptance of such offers, it shall be deemed to have rejected such offers.  A notice of acceptance shall be substantially in the form of EXHIBIT G-4 and shall specify the aggregate principal amount of offers for each Interest Period that are accepted.  Borrower may accept any Bid Rate Quote in whole or in part; provided that:              (i)          the principal amount of each Bid Rate Loan may not exceed the applicable amount set forth in the related Bid Rate Quote Request or be less than $500,000 per Bank and shall be an integral multiple of $100,000;              (ii)         acceptance of offers with respect to a particular Interest Period may only be made on the basis of ascending LIBOR Bid Margins or Absolute Bid Rates, as the case may be, offered for such Interest Period from the lowest effective cost; and              (iii)        Borrower may not accept any offer that is described in sub-paragraph (c)(3) or that otherwise fails to comply with the requirements of this Agreement.              (f)         If offers are made by two (2) or more Banks with the same LIBOR Bid Margins or Absolute Bid Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Bid Rate Loans in respect of which such offers are accepted shall be allocated by Administrative Agent among such Banks as nearly as possible (in multiples of $100,000, as Administrative Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. Administrative Agent shall promptly (and in any event within one (1) Banking Day after such offers are accepted) notify Borrower and each such Bank in writing of any such allocation of Bid Rate Loans.  Determinations by Administrative Agent of the allocation of Bid Rate Loans shall be conclusive in the absence of manifest error.              (g)        In the event that Borrower accepts the offer(s) contained in one (1) or more Bid Rate Quotes in accordance with paragraph (e), the Bank(s) making such offer(s) shall make a Bid Rate Loan in the accepted amount (as allocated, if necessary, pursuant to paragraph (f)) on the date specified therefor, in accordance with the procedures specified in Section 2.04, and such Bid Rate Loan shall bear interest at the accepted LIBOR Bid Rate or Absolute Bid Rate, as the case may be, for the applicable Interest Period.              (h)        Notwithstanding anything to the contrary contained herein, each Bank shall be required to fund its Pro Rata Share of the Available Total Loan Commitment in accordance with Section 2.01(b) despite the fact that any Bank's Loan Commitment may have been or may be exceeded as a result of such Bank's making Bid Rate Loans.              (i)          A Bank who is notified that it has been selected to make a Bid Rate Loan as provided above may designate its Designated Lender (if any) to fund such Bid Rate Loan on its behalf, as described in Section 12.16.  Any Designated Lender which funds a Bid Rate Loan shall on and after the time of such funding become the obligee under such Bid Rate Loan and be entitled to receive payment thereof when due.  No Bank shall be relieved of its obligation to fund a Bid Rate Loan, and no Designated Lender shall assume such obligation, prior to the time the applicable Bid Rate Loan is funded.              (j)          Administrative Agent shall promptly notify each Bank which submitted a Bid Rate Quote of Borrower's acceptance or non-acceptance thereof.  At the request of any Bank which submitted a Bid Rate Quote, Administrative Agent will promptly notify all Banks which submitted Bid Rate Quotes of (a) the aggregate principal amount of, and (b) the range of Absolute Bid Rates or LIBOR Bid Margins of, the accepted Bid Rate Loans for each requested Interest Period.              Section 2.03     Advances, Generally.  The Initial Advance shall be in the minimum amount of $500,000 and in integral multiples of $100,000 above such amount and shall be made upon satisfaction of the conditions set forth in Section 4.01.  Subsequent advances shall be made no more frequently than twice weekly thereafter, upon satisfaction of the conditions set forth in Section 4.02.  The amount of each advance subsequent to the Initial Advance shall be in the minimum amount of $500,000 (unless less than $500,000 is available for disbursement pursuant to the terms hereof at the time of any subsequent advance, in which case the amount of such subsequent advance shall be equal to such remaining availability) and in integral multiples of $100,000 above such amount.  Additional restrictions on the amounts and timing of, and conditions to the making of, advances of Bid Rate Loans are set forth in Section 2.02.              Section 2.04     Procedures for Advances.  In the case of advances of Ratable Loans hereunder, Borrower shall submit to Administrative Agent a request for each advance, stating the amount requested and certifying the purpose, in general terms, for which such advance is to be used, no later than 11:00 a.m. (New York time) on the date, in the case of advances of Base Rate Loans, which is one (1) Banking Day, and, in the case of advances of LIBOR Loans, which is three (3) Banking Days, prior to the date the advance is to be made.  In the case of advances of Swing Loans hereunder, Borrower shall submit to Administrative Agent a request for such advance, stating the amount requested and certifying the purpose, in general terms, for which such advance is to be used, no later than 11:00 a.m. (New York time) on the date which is one (1) Banking Day prior to the date the advance is to be made.  In the case of advances of Bid Rate Loans hereunder, Borrower shall submit a Bid Rate Quote Request at the time specified in Section 2.02, accompanied by a certification of the purpose, in general terms, for which the advance is to be used.  Administrative Agent, on the Banking Day of its receipt and approval of the request for advance, will so notify the Banks (or, in the case of Swing Loans, the Swing Lender) either by telephone or by facsimile.  Not later than 11:00 a.m. (New York time) on the date of each advance, each Bank (in the case of Ratable Loans) or the applicable Bank(s) (in the case of Bid Rate Loans) or the Swing Lender (in the case of Swing Loans) shall, through its Applicable Lending Office and subject to the conditions of this Agreement, make the amount to be advanced by it on such day available to Administrative Agent, at Administrative Agent's Office and in immediately available funds for the account of Borrower.  The amount so received by Administrative Agent shall, subject to the conditions of this Agreement, be made available to Borrower, in immediately available funds, by Administrative Agent's crediting an account of Borrower designated by Borrower and maintained with Administrative Agent at Administrative Agent's Office.              Section 2.05     Interest Periods; Renewals.  In the case of the LIBOR Loans and Bid Rate Loans, Borrower shall select an Interest Period of any duration in accordance with the definition of Interest Period in Section 1.01, subject to the following limitations: (1) no Interest Period may extend beyond the Maturity Date; and (2) if an Interest Period would end on a day which is not a Banking Day, such Interest Period shall be extended to the next Banking Day, unless such Banking Day would fall in the next calendar month, in which event such Interest Period shall end on the immediately preceding Banking Day.  Only twelve (12) discrete segments of a Bank's Ratable Loan bearing interest at a LIBOR Interest Rate, for a designated Interest Period, pursuant to a particular Election, Conversion or Continuation, may be outstanding at any one time (each such segment of each Bank's Ratable Loan corresponding to a proportionate segment of each of the other Banks' Ratable Loans).              Upon notice to Administrative Agent as provided in Section 2.14, Borrower may Continue any LIBOR Loan on the last day of the Interest Period of the same or different duration in accordance with the limitations provided above.  If Borrower shall fail to give notice to Administrative Agent of such a Continuation, such LIBOR Loan shall automatically become a LIBOR Loan with an Interest Period of one (1) month on the last day of the current Interest Period.  Administrative Agent shall notify each of the Banks, either by telephone or by facsimile, at least two (2) Banking Days prior to the termination of the Interest Period in question in the event of such failure by Borrower to give such notice of Continuation.              Section 2.06     Interest.  Borrower shall pay interest to Administrative Agent for the account of the applicable Bank on the outstanding and unpaid principal amount of the Loans, at a rate per annum as follows: (1) for Base Rate Loans at a rate equal to the Base Rate plus the Applicable Margin; (2) for LIBOR Loans at a rate equal to the applicable LIBOR Interest Rate plus the Applicable Margin; (3) for LIBOR Bid Rate Loans at a rate equal to the applicable LIBOR Bid Rate; (4) for Absolute Bid Rate Loans at a rate equal to the applicable Absolute Bid Rate; and (5) for Swing Loans at a three (3)-day LIBOR rate, as determined by the Swing Lender.  Any principal amount not paid when due (when scheduled, at acceleration or otherwise) shall bear interest thereafter, payable on demand, at the Default Rate.              The interest rate on Base Rate Loans shall change when the Base Rate changes.  Interest on Base Rate Loans, LIBOR Loans, Bid Rate Loans and Swing Loans shall not exceed the maximum amount permitted under applicable Law.  Interest shall be calculated for the actual number of days elapsed on the basis of, in the case of Base Rate Loans, LIBOR Loans, Bid Rate Loans and Swing Loans, three hundred sixty (360) days.              Accrued interest shall be due and payable in arrears upon and with respect to any payment or prepayment of principal and, (x) in the case of Base Rate Loans, LIBOR Loans and Swing Loans, on the first Banking Day of each calendar month and (y) in the case of Bid Rate Loans, at the expiration of the Interest Period applicable thereto; provided, however, that interest accruing at the Default Rate shall be due and payable on demand.              Section 2.07     Fees.              (a)         Borrower agrees to pay to and for the accounts of the parties specified therein, the fees provided for in the Supplemental Fee Letter.              (b)        Borrower shall pay to Administrative Agent for the account of each Bank a facility fee computed on the daily Loan Commitment of such Bank (irrespective of usage) at a rate per annum equal to the daily Facility Fee Rate, calculated on the basis of a year of three hundred sixty (360) days for the actual number of days elapsed.  The accrued facility fee shall be due and payable quarterly in arrears on the tenth (10th) day of  October, January, April and July of each year, commencing on the first such date after the Closing Date, and upon the Maturity Date (as stated or by acceleration or otherwise) or earlier termination of the Loan Commitments.              Section 2.08     Notes.  The Ratable Loan made by each Bank under this Agreement shall be evidenced by, and repaid with interest in accordance with, a single promissory note of Borrower in the form of EXHIBIT B duly completed and executed by Borrower, in the principal amount equal to such Bank's Loan Commitment, payable to such Bank for the account of its Applicable Lending Office (each such note, as the same may hereafter be amended, modified, extended, severed, assigned, renewed or restated from time to time, including any new or substitute notes pursuant to Section 2.19, 3.07 or 12.05, a "Ratable Loan Note"). The Bid Rate Loans of the Banks shall be evidenced by a single global promissory note of Borrower, in the form of EXHIBIT B-1, duly completed and executed by Borrower, in the principal amount of $400,000,000, payable to Administrative Agent for the account of the respective Banks making Bid Rate Loans (such note, as the same may hereafter be amended, modified, extended, severed, assigned, substituted, renewed or restated from time to time, the "Bid Rate Loan Note").  The Swing Loan of the Swing Lender shall be evidenced by, and repaid with interest in accordance with, a promissory note of Borrower, in the form of EXHIBIT B-2, duly completed and executed by Borrower, payable to the Swing Lender (such note, as the same may hereafter be amended, modified extended, severed, assigned, substituted, renewed or restated from time to time, the "Swing Loan Note").  A particular Bank's Ratable Loan Note, together with its interest, if any, in the Bid Rate Loan Note, and, in the case of the Swing Lender, the Swing Loan Note, are referred to collectively in this Agreement as such Bank's "Note"; all such Ratable Loan Notes and interests and Swing Loan Notes are referred to collectively in this Agreement as the "Notes".  The Ratable Loan Notes shall mature, and all outstanding principal and accrued interest and other sums thereunder shall be paid in full, on the Maturity Date, as the same may be accelerated.  The outstanding principal amount of each Bid Rate Loan evidenced by the Bid Rate Loan Note, and all accrued interest and other sums with respect thereto, shall become due and payable to the Bank making such Bid Rate Loan at the earlier of the expiration of the Interest Period applicable thereto or the Maturity Date, as the same may be accelerated.  Principal amounts evidenced by the Swing Loan Notes shall become due and payable three (3) Banking Days after said amounts are advanced.              Each Bank is hereby authorized by Borrower to endorse on the schedule attached to the Ratable Loan Note held by it, the amount of each advance and each payment of principal received by such Bank for the account of its Applicable Lending Office(s) on account of its Ratable Loan, which endorsement shall, in the absence of manifest error, be conclusive as to the outstanding balance of the Ratable Loan made by such Bank.  The Swing Lender is hereby authorized by Borrower to endorse on the schedule attached to the Swing Loan Note held by it, the amount of each advance and each payment of principal received by the Swing Lender for the account of its Applicable Lending Office(s) on account of its Swing Loan, which endorsement shall, in the absence of manifest error, be conclusive as to the outstanding balance of the Swing Loan made by the Swing Lender.  Administrative Agent is hereby authorized by Borrower to endorse on the schedule attached to the Bid Rate Loan Note the amount of each LIBOR Bid Rate Loan and/or Absolute Bid Rate Loan, the name of the Bank making the same, the date of the advance thereof, the interest rate applicable thereto and the expiration of the Interest Period applicable thereto (i.e., the maturity date thereof).  The failure by Administrative Agent or any Bank to make such notations with respect to the Loans or each advance or payment shall not limit or otherwise affect the obligations of Borrower under this Agreement or the Notes.              In case of any loss, theft, destruction or mutilation of any Bank's Note, Borrower shall, upon its receipt of an affidavit of an officer of such Bank as to such loss, theft, destruction or mutilation and an appropriate indemnification, execute and deliver a replacement Note to such Bank in the same principal amount and otherwise of like tenor as the lost, stolen, destroyed or mutilated Note.              Section 2.09     Prepayments.  Without prepayment premium or penalty but subject to Section 3.05, Borrower may, upon at least one (1) Banking Day's notice to Administrative Agent in the case of the Base Rate Loans and Swing Loans, and at least three (3) Banking Days' notice to Administrative Agent in the case of LIBOR Loans, prepay the Ratable Loans, provided that (1) any partial prepayment under this Section shall be in integral multiples of $500,000; (2) a LIBOR Loan or Swing Loan may be prepaid at any time, subject, however, to the provisions of Section 3.05; and (3) each prepayment under this Section shall include all interest accrued on the amount of principal prepaid through the date of prepayment.  Prepayment of Bid Rate Loans shall not be permitted.              Section 2.10     Cancellation of Commitments.              (a)         At any time, Borrower shall have the right, without premium or penalty, to terminate any unused Loan Commitments (i. e., to terminate Loan Commitments to the extent of the Available Total Loan Commitment) or unused commitment of the Swing Lender to make Swing Loans, in whole or in part, from time to time, provided that: (1) Borrower shall give notice of each such termination to Administrative Agent and the Swing Lender, if applicable, no later then 10:00 a.m. (New York time) on the date which is fifteen (15) Banking Days prior to the effectiveness of such termination; (2) the Loan Commitments of each of the Banks, or Swing Lender, as applicable, must be terminated ratably and simultaneously with those of the other Banks, or Swing Lender, as applicable; and (3) each partial termination of the Loan Commitments, or commitments to make Swing Loans, as a whole (and corresponding reduction of the Total Loan Commitment) shall be in an integral multiple of $1,000,000.              (b)        The Loan Commitments, to the extent terminated, may not be reinstated.              Section 2.11     Method of Payment.  Borrower shall make each payment under this Agreement and under the Notes not later than 11:00 a.m. (New York time) on the date when due in Dollars to Administrative Agent at Administrative Agent's Office in immediately available funds.  Administrative Agent will thereafter, on the day of its receipt of each such payment, cause to be distributed to each Bank (1) such Bank's appropriate share determined pursuant to Section 10.15 of the payments of principal and interest in like funds for the account of such Bank's Applicable Lending Office; and (2) fees payable to such Bank in accordance with the terms of this Agreement.  In the event Administrative Agent fails to pay funds received from Borrower to the Banks on the date on which Borrower is credited with payment, Administrative Agent shall pay interest on such amounts at the Federal Funds Rate until such payment to the Banks is made.  Borrower hereby authorizes Administrative Agent and the Banks, if and to the extent payment by Borrower is not made when due under this Agreement or under the Notes, to charge from time to time against any account Borrower maintains with Administrative Agent or any Bank any amount so due to Administrative Agent and/or the Banks.              Except to the extent provided in this Agreement, whenever any payment to be made under this Agreement or under the Notes is due on any day other than a Banking Day, such payment shall be made on the next succeeding Banking Day, and such extension of time shall in such case be included in the computation of the payment of interest and other fees, as the case may be.              Section 2.12     Elections, Conversions or Continuation of Loans.  Subject to the provisions of Article III and Sections 2.05 and 2.13, Borrower shall have the right to Elect to have all or a portion of any advance of the Ratable Loans be LIBOR Loans, to Convert Base Rate Loans into LIBOR Loans, to Convert LIBOR Loans into Base Rate Loans, or to Continue LIBOR Loans as LIBOR Loans, at any time or from time to time, provided that (1) Borrower shall give Administrative Agent notice of each such Election, Conversion or Continuation as provided in Section 2.14; and (2) a LIBOR Loan may be Converted or Continued only on the last day of the applicable Interest Period for such LIBOR Loan.  Except as otherwise provided in this Agreement, each Election, Continuation and Conversion shall be applicable to each Bank's Ratable Loan in accordance with its Pro Rata Share.              Section 2.13     Minimum Amounts. With respect to the Ratable Loans as a whole, each Election and each Conversion shall be in an amount at least equal to $1,000,000 and in integral multiples of $500,000.              Section 2.14     Certain Notices Regarding Elections, Conversions and Continuations of Loans.  Notices by Borrower to Administrative Agent of Elections, Conversions and Continuations of LIBOR Loans shall be irrevocable and shall be effective only if received by Administrative Agent not later than 10:30 a.m. (New York time) on the number of Banking Days prior to the date of the relevant Election, Conversion or Continuation specified below:   Number of Banking Days Prior Notice     --------------------------------------------------------------------------------   Conversions into Base Rate Loans two (2)         Elections of, Conversions into or Continuations as, LIBOR Loans three (3)   Promptly following its receipt of any such notice, and no later than the close of business on the Banking Day of such receipt, Administrative Agent shall so advise the Banks either by telephone or by facsimile.  Each such notice of Election shall specify the portion of the amount of the advance that is to be LIBOR Loans (subject to Section 2.13) and the duration of the  Interest Period applicable thereto (subject to Section 2.05); each such notice of Conversion shall specify the LIBOR Loans or Base Rate Loans to be Converted; and each such notice of Conversion or Continuation shall specify the date of Conversion or Continuation (which shall be a Banking Day), the amount thereof (subject to Section 2.13) and the duration of the Interest Period applicable thereto (subject to Section 2.05).  In the event that Borrower fails to Elect to have any portion of an advance of the Ratable Loans be LIBOR Loans, the entire amount of such advance shall constitute Base Rate Loans.  In the event that Borrower fails to Continue LIBOR Loans within the time period and as otherwise provided in this Section, such LIBOR Loans will automatically become LIBOR Loans with an Interest Period of one (1) month on the last day of the then current applicable Interest Period for such LIBOR Loans.  Administrative Agent shall notify each of the Banks, either by telephone or by facsimile, at least two (2) Banking Days prior to the termination of the Interest Period in question in the event of such failure by Borrower.              Section 2.15     Late Payment Premium.  Borrower shall, at Administrative Agent's option and upon notice to Borrower, pay to Administrative Agent for the account of the Banks a late payment premium in the amount of 4% of any payments of interest under the Loans made more than ten (10) days after the due date thereof, which shall be due with any such late payment.              Section 2.16     Letters of Credit.              (a)         Borrower, by notice to Administrative Agent, may request, in lieu of advances of proceeds of the Ratable Loans, that Administrative Agent issue unconditional, irrevocable standby letters of credit or direct-pay letters of credit (each, a "Letter of Credit") for the account of Borrower, payable by sight drafts, for such beneficiaries and with such other terms as Borrower shall specify.  Promptly upon issuance of a Letter of Credit, Administrative Agent shall notify each of the Banks.              (b)        The amount of any Letter of Credit shall be limited to the lesser of (x) $100,000,000 less the aggregate amount of all Letters of Credit theretofore issued or (y) the Available Total Loan Commitment, it being understood that the amount of each Letter of Credit issued and outstanding shall effect a reduction, by an equal amount, of the Available Total Loan Commitment (such reduction to be allocated to each Bank's Ratable Loan ratably in accordance with the Banks' respective Pro Rata Shares).              (c)         The amount of each Letter of Credit shall be further subject to the limitations applicable to amounts of advances set forth in Section 2.03 and the procedures for the issuance of each Letter of Credit shall be the same as the procedures applicable to the making of advances as set forth in the first sentence of Section 2.04.  Administrative Agent's issuance of each Letter of Credit shall be subject to Administrative Agent's determination that Borrower has satisfied all conditions precedent to its entitlement to an advance of proceeds of the Loans.              (d)        Each Letter of Credit shall expire no later than one (1) month prior to the Maturity Date, but may have a so-called "evergreen" clause allowing for the extension of the expiration date thereof upon the extension of the Maturity Date pursuant to Section 2.18.              (e)         In connection with, and as a further condition to the issuance of, each Letter of Credit, Borrower shall execute and deliver to Administrative Agent an application for the Letter of Credit on Administrative Agent's standard form therefor, together with such other documents, opinions and assurances as Administrative Agent shall reasonably require.              (f)         In connection with each Letter of Credit, Borrower hereby covenants to pay to Administrative Agent the following fees:  (1) a fee, payable quarterly in arrears (on the first Banking Day of each calendar quarter following the issuance of the Letter of Credit), for the account of the Banks, computed daily on the amount of the Letter of Credit issued and outstanding at a rate per annum equal to the "Banks' L/C Fee Rate" (as hereinafter defined) and (2) the fee, for Administrative Agent's own account, required by the Supplemental Fee Letter between Borrower and Fleet.  For purposes of this Agreement, the "Banks' L/C Fee Rate" shall mean, at any time, a rate per annum equal to the Applicable Margin for LIBOR Loans less 0.125% per annum.  It is understood and agreed that the last installment of the fees provided for in this paragraph (f) with respect to any particular Letter of Credit shall be due and payable on the first day of the calendar quarter following the return, undrawn, or cancellation of such Letter of Credit and Borrower's receipt of notice from Administrative Agent.              (g)        The parties hereto acknowledge and agree that, immediately upon notice from Administrative Agent of any drawing under a Letter of Credit, each Bank shall, notwithstanding the existence of a Default or Event of Default or the non-satisfaction of any conditions precedent to the making of an advance of the Loans, advance proceeds of its Ratable Loan, in an amount equal to its Pro Rata Share of such drawing, which advance shall be made to Administrative Agent to reimburse Administrative Agent, for its own account, for such drawing.  Each of the Banks further acknowledges that its obligation to fund its Pro Rata Share of drawings under Letters of Credit as aforesaid shall survive the Banks' termination of this Agreement or enforcement of remedies hereunder or under the other Loan Documents.  In the event that any Ratable Loan cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under any applicable bankruptcy or insolvency Law with respect to Borrower), then each Bank shall purchase (on or as of the date such Ratable Loan would otherwise have been made) from Administrative Agent a Participation interest in any unreimbursed drawing in an amount equal to its Pro Rata Share of such unreimbursed drawing.              (h)        Borrower agrees, upon the occurrence of an Event of Default and at the written request of Administrative Agent, (1) to deposit with Administrative Agent cash collateral in the amount of all the outstanding Letters of Credit, which cash collateral shall be held by Administrative Agent as security for Borrower's obligations in connection with the Letters of Credit and (2) to execute and deliver to Administrative Agent such documents as Administrative Agent reasonably requests to confirm and perfect the assignment of such cash collateral to Administrative Agent.              Section 2.17     Swing Loans.              (a)         During the term of this Agreement, the Swing Lender agrees, on the terms and conditions set forth in this Agreement, to make advances to Borrower pursuant to this Section from time to time in amounts such that (i) the aggregate of such advance and amount of Swing Loans theretofore advanced and still outstanding does not at any time exceed the Swing Loan Commitment and (ii) the amount of such advance does not exceed the Available Total Loan Commitment.  Each advance under this Section shall be in an aggregate principal amount of $1,000,000 or a larger multiple of $100,000 (except that any such advance may be in the aggregate available amount of Swing Loans determined in accordance with the immediately preceding sentence).  With the foregoing limits, Borrower may borrow under this Section, repay or, to the extent permitted by Section 2.09, prepay Swing Loans and reborrow under this Section at any time during the term of this Agreement.              (b)        The Swing Lender shall, on behalf of Borrower (which hereby irrevocably directs the Swing Lender to act on its behalf), on notice given by the Swing Lender no later than 1:00 p.m. (New York time) on the Banking Day immediately following the funding of any Swing Loan, request each Bank to make, and each Bank hereby agrees to make, an advance of its Ratable Loan, in an amount (with respect to each Bank, its "Swing Loan Refund Amount") equal to such Bank's Pro Rata Share of the aggregate principal amount of the Swing Loans (the "Refunded Swing Loans") outstanding on the date of such notice, to repay the Swing Lender.  Unless any of the events described in paragraph (5) of Section 9.01 with respect to Borrower shall have occurred and be continuing (in which case the procedures of paragraph (c) of this Section shall apply), each Bank shall make such advance of its Ratable Loan available to Administrative Agent at Administrative Agent's Office in immediately available funds, not later than 1:00 p.m. (New York time), on the third Banking Day immediately following the date of such notice.  Administrative Agent shall pay the proceeds of such advance of Ratable Loans to the Swing Lender, which shall immediately apply such proceeds to repay Refunded Swing Loans.  Effective on the day such advances of Ratable Loans are made, the portion of the Swing Loans so paid shall no longer be outstanding as Swing Loans, shall no longer be due as Swing Loans under the Swing Loan Note held by the Swing Lender, and shall be due as Ratable Loans under the respective Ratable Loan Notes issued to the Banks (including the Swing Lender).  Borrower authorizes the Swing Lender to charge Borrower's accounts with Administrative Agent (up to the amount available in each such accounts) in order to immediately pay the amount of such Refunded Swing Loans to the extent amounts received from the Banks are not sufficient to repay in full such Refunded Swing Loans.              (c)         If, prior to the time advances of Ratable Loans would have otherwise been made pursuant to paragraph (b) of this Section, one of the events described in paragraph (5) of Section 9.01 with respect to the Borrower shall have occurred and be continuing, each Bank shall, on the date such advances were to have been made pursuant to the notice referred to in paragraph (b) of this Section (the "Refunding Date"), purchase an undivided participating interest in the Swing Loans in an amount equal to such Bank's Swing Loan Refund Amount.  On the Refunding Date, each Bank shall transfer to the Swing Lender, in immediately available funds, such Bank's Swing Loan Refund Amount, and upon receipt thereof, the Swing Lender shall deliver to such Bank a Swing Loan participation certificate dated the date of the Swing Lender's receipt of such funds and in the Swing Loan Refund Amount of such Bank.              (d)        Whenever, at any time after the Swing Lender has received from any Bank such Bank's Swing Loan Refund Amount pursuant to paragraph (c) of this Section, the Swing Lender receives any payment on account of the Swing Loans in which the Banks have purchased Participations pursuant to said paragraph (c), the Swing Lender will promptly distribute to each such Bank its ratable share (determined on the basis of the Swing Loan Refund Amounts of all of the Banks) of such payment (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Bank's participating interest was outstanding and funded); provided, however, that in the event that such payment received by the Swing Lender is required to be returned, such Bank will return to the Swing Lender any portion thereof previously distributed to it by the Swing Lender.              (e)         Each Bank's obligation to transfer the amount of a Loan to the Swing Lender as provided in paragraph (b) of this Section or to purchase a participating interest pursuant to paragraph (c) of this Section shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such Bank, Borrower or any other Person may have against the Swing Lender or any other Person, (ii) the occurrence or continuance of a Default or an Event of Default, the termination or reduction of the Loan Commitments or the non-satisfaction of any condition precedent to the making of any advance of the Loans, (iii) any adverse change in the condition (financial or otherwise) of Borrower or any other Person, (iv) any breach of this Agreement by Borrower, any other Bank or any other Person or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing.              (f)         Notwithstanding anything above in this Section or elsewhere in this Agreement to the contrary, in the event that the Swing Lender funds a Swing Loan hereunder when it has actual knowledge that a monetary Default, or material Event of Default (which, for the avoidance of doubt shall include any violation of any provision of Article VII or Article VIII) has occurred and is continuing, the Banks shall have the option, but not the obligation, to make Ratable Loans to fund their ratable shares of such Swing Loan as contemplated in paragraph (b) of this Section or to purchase Participations as contemplated in paragraph (c) of this Section.              (g)        For purposes of Article III, Swing Loans shall be deemed to be LIBOR Loans.              Section 2.18     Extension Of Maturity.   Borrower shall have the option (the "Extension Option") to extend the original Maturity Date for a period of one (1) year.  Subject to the conditions set forth below, Borrower may exercise the Extension Option by delivering a written notice to Administrative Agent not less than ninety (90) days prior to the original Maturity Date (a "Notice to Extend"), stating that Borrower has elected to extend the original Maturity Date for one (1) year.  Borrower's delivery of the Notice to Extend shall be irrevocable and Borrower's right to exercise the Extension Option shall be subject to the following terms and conditions:  (i) there shall exist no Event of Default on both the date Borrower delivers the Notice to Extend to Administrative Agent and on the original Maturity Date, (ii) Borrower shall have paid to Administrative Agent for the account of each Bank an extension fee equal to 0.15% of such Bank's Loan Commitment simultaneously with delivery of the Notice to Extend and (iii) Borrower shall be in compliance with the covenants contained in Articles VII and VIII, as evidenced by a certificate from Borrower of the sort required by paragraph (3) of Section 6.09 (based on financial results for the most recent calendar quarter for which Borrower is required to report financial results).              Section 2.19     Additional Loan Commitments.              (a)         Borrower may, from time to time, up to a maximum of three (3) requests, request the Banks to increase their Loan Commitments, so as to increase the Total Loan Commitment to an amount no greater than the sum of the Accordion Amount plus $500,000,000 less the amount of any reduction of the Total Loan Commitment pursuant to Section 2.10.  The increase in the Total Loan Commitment pursuant to any such particular request shall be at least an amount (the "Minimum Request") equal to the lesser of (x) $50,000,000 or (y) the Accordion Amount less all previous increases in the Total Loan Commitment pursuant to this Section.  Borrower shall make each such request by giving notice to Syndication Agent no later than forty-five (45) days prior to the date (the "Syndication Expiration Date") that is twenty-seven (27) months after the Closing Date, which notice shall set forth the amount (which shall be no less than the Minimum Request) of the requested increase in the Total Loan Commitment (the "Requested Increase") and such other details with respect to such increase as Syndication Agent shall reasonably request.  Syndication Agent will use its best efforts, with the assistance of Borrower, to arrange a syndicate of Banks with Loan Commitments (including the then-existing Loan Commitments) aggregating the then existing Total Loan Commitment plus the Requested Increase.  Upon receipt of notice as aforesaid from Borrower, Syndication Agent shall promptly send a copy of such notice to each Bank and shall request that each Bank increase its Loan Commitment by an amount equal to its Pro Rata Share of the Requested Increase (the "First Solicitation").  Each Bank shall have the right, but not the obligation, to increase its Loan Commitment by an amount equal to its Pro Rata Share of the Requested Increase, and shall have a period of fifteen (15) days from the First Solicitation to notify Syndication Agent whether or not such Bank elects so to increase its Loan Commitment.  Any Bank that fails to respond to the First Solicitation within such fifteen (15)-day period will be deemed to have elected not to increase its Loan Commitment.  If all Banks elect to increase their respective Loan Commitments by amounts equal to their respective Pro Rata Shares of the Requested Increase, Syndication Agent shall so notify Borrower, Administrative Agent and each of the Banks, and Borrower shall proceed in accordance with paragraph (b) below.  If any Bank (any such Bank, a "Declining Bank") shall not elect or shall be deemed to have elected not to increase its Loan Commitment as aforesaid, (i) the amount of such Declining Bank's Loan Commitment shall be unchanged, (ii) Syndication Agent shall notify Borrower, Administrative Agent and each of the Banks as to which Banks have elected to increase their Loan Commitments and by what amounts and (iii) if Borrower so requests, Syndication Agent shall either (A) solicit from the Banks that elected to increase their respective Loan Commitments a further increase in their Loan Commitments in an aggregate amount equal to all or any portion of the aggregate amount of the Declining Banks' Pro Rata Shares of the Requested Increase (the "Shortfall") or (B) submit a list of proposed syndicate members that are not then a party to this Agreement to Borrower for its review and approval (such approval not to be unreasonably withheld or delayed) in order to obtain additional commitments in an amount equal to the Shortfall.  From and after the Syndication Expiration Date, Syndication Agent shall have no further obligation to syndicate the Facility or to obtain or accept any additional Loan Commitments.              (b)  In connection with increases to the Loan Commitments of some or all of the Banks as provided in paragraph (a) above, Borrower shall execute supplemental Ratable Loan Notes (the "Supplemental Notes") evidencing such increases, as well as such other confirmatory modifications to this Agreement as Syndication Agent shall reasonably request.  In connection with the addition of lenders as a result of solicitations by Syndication Agent pursuant to clause (B) of paragraph (a) above ("New Banks"), Borrower, Administrative Agent and each New Bank shall execute an Acceptance Letter in the form of EXHIBIT H, Borrower shall execute a Ratable Loan Note to each New Bank in the amount of the New Bank's Loan Commitment (a "New Note") and Borrower, Administrative Agent and the Banks shall execute such confirmatory modifications to this Agreement as Administrative Agent shall reasonably request, whereupon the New Bank shall become, and have the rights and obligations of, a "Bank", with a Loan Commitment in the amount set forth in such Acceptance Letter.  The Banks  shall have no right of approval with respect to a New Bank's becoming a Bank or the amount of its Loan Commitment, provided, however, that Syndication Agent shall have such right of approval, not to be unreasonably withheld.  Each Supplemental Note and New Note shall constitute "Ratable Loan Notes" for all purposes of this Agreement.              (c)  If at the time a New Bank becomes a Bank (or a Bank increases its Loan Commitment) pursuant to this Section there is any principal outstanding under the Ratable Loan Notes of the previously admitted Banks (the "Existing Banks"), such New Bank (or Bank increasing its Loan Commitment) shall remit to Administrative Agent an amount equal to the Outstanding Percentage (as defined below) multiplied by the Loan Commitment of the New Bank (or the amount of the increase in the Loan Commitment of a Bank increasing its Loan Commitment), which amount shall be deemed advanced under the Ratable Loan of the New Bank (or the Bank increasing its Loan Commitment).  Administrative Agent shall pay such amount to the Existing Banks in accordance with the Existing Banks' respective Pro Rata Shares (as calculated immediately prior to the admission of the New Bank (or the increase in a Bank's Loan Commitment)), and such payment shall effect an automatic reduction of the outstanding principal balance under the respective Ratable Loan Notes of the Existing Banks.  For purposes of this Section, the term "Outstanding Percentage" means the ratio of (i) the aggregate outstanding principal amount under the Ratable Notes of the Existing Banks, immediately prior to the admission of the New Bank (or the increase in the Loan Commitment of a Bank), to (ii) the aggregate of the Loan Commitments of the Existing Banks (as increased pursuant to this Section, if applicable) and the New Bank. ARTICLE III YIELD PROTECTION; ILLEGALITY, ETC.              Section 3.01     Additional Costs.  Borrower shall pay directly to each Bank from time to time on demand such amounts as such Bank may determine to be necessary to compensate it for any increased costs which such Bank determines are attributable to its making or maintaining a LIBOR Loan or a LIBOR Bid Rate Loan, or its obligation to make or maintain a LIBOR Loan or a LIBOR Bid Rate Loan, or its obligation to Convert a Base Rate Loan to a LIBOR Loan hereunder, or any reduction in any amount receivable by such Bank hereunder in respect of its LIBOR Loan or LIBOR Bid Rate Loan(s) or such obligations (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), in each case resulting from any Regulatory Change which:              (1)         changes the basis of taxation of any amounts payable to such Bank under this Agreement or the Notes in respect of any such LIBOR Loan or LIBOR Bid Rate Loan (other than changes in the rate of general corporate, franchise, branch profit, net income or other income tax imposed on such Bank or its Applicable Lending Office by the jurisdiction in which such Bank has its principal office or such Applicable Lending Office); or              (2)         (other than to the extent the LIBOR Reserve Requirement is taken into account in determining the LIBOR Rate at the commencement of the applicable Interest Period) imposes or modifies any reserve, special deposit, deposit insurance or assessment, minimum capital, capital ratio or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Bank (including any LIBOR Loan or LIBOR Bid Rate Loan or any deposits referred to in the definition of "LIBOR Interest Rate" in Section 1.01), or any commitment of such Bank (including such Bank's Loan Commitment hereunder); or              (3)         imposes any other condition affecting this Agreement or the Notes (or any of such extensions of credit or liabilities).              Without limiting the effect of the provisions of the first paragraph of this Section, in the event that, by reason of any Regulatory Change, any Bank either (1) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits of other liabilities of such Bank which includes deposits by reference to which the LIBOR Interest Rate is determined as provided in this Agreement or a category of extensions of credit or other assets of such Bank which includes loans based on the LIBOR Interest Rate or (2) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if such Bank so elects by notice to Borrower (with a copy to Administrative Agent), the obligation of such Bank to permit Elections of, to Continue, or to Convert Base Rate Loans into, LIBOR Loans shall be suspended (in which case the provisions of Section 3.04 shall be applicable) until such Regulatory Change ceases to be in effect.              Determinations and allocations by a Bank for purposes of this Section of the effect of any Regulatory Change pursuant to the first or second paragraph of this Section, on its costs or rate of return of making or maintaining its Loan or portions thereof or on amounts receivable by it in respect of its Loan or portions thereof, and the amounts required to compensate such Bank under this Section, shall be included in a calculation of such amounts given to Borrower and shall be conclusive absent manifest error.              Section 3.02     Limitation on Types of Loans.  Anything herein to the contrary notwithstanding, if, on or prior to the determination of the LIBOR Interest Rate for any Interest Period:              (1)         Administrative Agent reasonably determines (which determination shall be conclusive), and provides Borrower, in writing, with reasonable detail supporting such determination, that quotations of interest rates for the relevant deposits referred to in the definition of "LIBOR Interest Rate" in Section 1.01 are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for the LIBOR Loans or LIBOR Bid Rate Loans as provided in this Agreement; or              (2)         a Bank reasonably determines (which determination shall be conclusive), and provides Borrower, in writing, with reasonable detail supporting such determination, and promptly notifies Administrative Agent that the relevant rates of interest referred to in the definition of "LIBOR Interest Rate" in Section 1.01 upon the basis of which the rate of interest for LIBOR Loans or LIBOR Bid Rate Loans for such Interest Period is to be determined do not adequately cover the cost to such Bank of making or maintaining such LIBOR Loan or LIBOR Bid Rate Loan for such Interest Period; then Administrative Agent shall give Borrower prompt notice thereof, and so long as such condition remains in effect, the Banks (or, in the case of the circumstances described in clause (2) above, the affected Bank) shall be under no obligation to permit Elections of LIBOR Loans, to Convert Base Rate Loans into LIBOR Loans or to Continue LIBOR Loans and Borrower shall, on the last day(s) of the then current Interest Period(s) for the affected outstanding LIBOR Loans or LIBOR Bid Rate Loans, either (x) prepay the affected LIBOR Loans or LIBOR Bid Rate Loans or (y) Convert the affected LIBOR Loans into Base Rate Loans in accordance with Section 2.12 or convert the rate of interest under the affected LIBOR Bid Rate Loans to the rate applicable to Base Rate Loans by following the same procedures as are applicable for Conversions into Base Rate Loans set forth in Section 2.12.              Section 3.03     Illegality.  Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Bank or its Applicable Lending Office to honor its obligation to make or maintain a LIBOR Loan or LIBOR Bid Rate Loan hereunder, to allow Elections or Continuations of a LIBOR Loan or to Convert a Base Rate Loan into a LIBOR Loan, then such Bank shall promptly notify Administrative Agent and Borrower thereof and such Bank's obligation to make or maintain a LIBOR Loan or LIBOR Bid Rate Loan, or to permit Elections of, to Continue, or to Convert its Base Rate Loan into, a LIBOR Loan shall be suspended (in which case the provisions of Section 3.04 shall be applicable) until such time as such Bank may again make and maintain a LIBOR Loan or a LIBOR Bid Rate Loan.              Section 3.04     Treatment of Affected Loans.  If the obligations of any Bank to make or maintain a LIBOR Loan or a LIBOR Bid Rate Loan, or to permit an Election of a LIBOR Loan, to Continue its LIBOR Loan, or to Convert its Base Rate Loan into a LIBOR Loan, are suspended pursuant to Sections 3.01 or 3.03 (each LIBOR Loan or LIBOR Bid Rate Loan so affected being herein called an "Affected Loan"), such Bank's Affected Loan shall be automatically Converted into a Base Rate Loan (or, in the case of an Affected Loan that is a LIBOR Bid Rate Loan, the interest rate thereon shall be converted to the rate applicable to Base Rate Loans) on the last day of the then current Interest Period for the Affected Loan (or, in the case of a Conversion (or conversion) required by Sections 3.01 or 3.03, on such earlier date as such Bank may specify to Borrower).              To the extent that such Bank's Affected Loan has been so Converted (or the interest rate thereon so converted), all payments and prepayments of principal which would otherwise be applied to such Bank's Affected Loan shall be applied instead to its Base Rate Loan (or to its LIBOR Bid Rate Loan bearing interest at the converted rate) and such Bank shall have no obligation to Convert its Base Rate Loan into a LIBOR Loan.              Section 3.05     Certain Compensation.  Other than in connection with a Conversion of an Affected Loan, Borrower shall pay to Administrative Agent for the account of the applicable Bank, upon the request of such Bank through Administrative Agent which request includes a calculation of the amount(s) due, such amount or amounts as shall be sufficient (in the reasonable opinion of such Bank) to compensate it for any non-administrative, actual loss, cost or expense which such Bank reasonably determines is attributable to:              (1)         any payment or prepayment of a LIBOR Loan or Bid Rate Loan made by such Bank, or any Conversion or Continuation of a LIBOR Loan (or conversion of the rate of interest on a LIBOR Bid Rate Loan) made by such Bank, in any such case on a date other than the last day of an applicable Interest Period, whether by reason of acceleration or otherwise; or              (2)         any failure by Borrower for any reason to Convert a Base Rate Loan or a LIBOR Loan or Continue a LIBOR Loan to be Converted or Continued by such Bank on the date specified therefor in the relevant notice under Section 2.14; or              (3)         any failure by Borrower to borrow (or to qualify for a borrowing of) a LIBOR Loan or Bid Rate Loan which would otherwise be made hereunder on the date specified in the relevant Election notice under Section 2.14 or Bid Rate Quote acceptance under Section 2.02(e) given or submitted by Borrower.              Without limiting the foregoing, such compensation shall include any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after the date of such payment, prepayment, Conversion or Continuation (or failure to Convert, Continue or borrow).  A determination of any Bank as to the amounts payable pursuant to this Section shall be conclusive absent manifest error.              Section 3.06     Capital Adequacy.  If any Bank 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 Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within fifteen (15) days after demand by such Bank (with a copy to Administrative Agent), Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction.  A certificate of any Bank claiming compensation under this Section, setting forth in reasonable detail the basis therefor, shall be conclusive absent manifest error.              Section 3.07     Substitution of Banks.  If any Bank (an "Affected Bank") (1) makes demand upon Borrower for (or if Borrower is otherwise required to pay) Additional Costs pursuant to Section 3.01 or (2) is unable to make or maintain a LIBOR Loan or LIBOR Bid Rate Loan as a result of a condition described in Section 3.03 or clause (2) of Section 3.02, Borrower may, within ninety (90) days of receipt of such demand or notice (or the occurrence of such other event causing Borrower to be required to pay Additional Costs or causing said Section 3.03 or clause (2) of Section 3.02 to be applicable), as the case may be, give written notice (a "Replacement Notice") to Administrative Agent and to each Bank of Borrower's intention either (x) to prepay in full the Affected Bank's Note and to terminate the Affected Bank's entire Loan Commitment or (y) to replace the Affected Bank with another financial institution (the "Replacement Bank") designated in such Replacement Notice.              In the event Borrower opts to give the notice provided for in clause (x) above, and if the Affected Bank shall not agree within thirty (30) days of its receipt thereof to waive the payment of the Additional Costs in question or the effect of the circumstances described in Section 3.03 or clause (2) of Section 3.02, then, so long as no Default or Event of Default shall exist, Borrower may (notwithstanding the provisions of clause (2) of Section 2.10(a)) terminate the Affected Bank's entire Loan Commitment, provided that in connection therewith it pays to the Affected Bank all outstanding principal and accrued and unpaid interest under the Affected Bank's Note, together with all other amounts, if any, due from Borrower to the Affected Bank, including all amounts properly demanded and unreimbursed under Sections 3.01 and 3.05.              In the event Borrower opts to give the notice provided for in clause (y) above, and if (i) Administrative Agent shall, within thirty (30) days of its receipt of the Replacement Notice, notify Borrower and each Bank in writing that the Replacement Bank is reasonably satisfactory to Administrative Agent and (ii) the Affected Bank shall not, prior to the end of such thirty (30)-day period, agree to waive the payment of the Additional Costs in question or the effect of the circumstances described in Section 3.03 or clause (2) of Section 3.02, then the Affected Bank shall, so long as no Default or Event of Default shall exist, assign its Note and all of its rights and obligations under this Agreement to the Replacement Bank, and the Replacement Bank shall assume all of the Affected Bank's rights and obligations, pursuant to an agreement, substantially in the form of an Assignment and Assumption Agreement, executed by the Affected Bank and the Replacement Bank.  In connection with such assignment and assumption, the Replacement Bank shall pay to the Affected Bank an amount equal to the outstanding principal amount under the Affected Bank's Note plus all interest accrued thereon, plus all other amounts, if any (other than the Additional Costs in question), then due and payable to the Affected Bank; provided, however, that prior to or simultaneously with any such assignment and assumption, Borrower shall have paid to such Affected Bank all amounts properly demanded and unreimbursed under Sections 3.01 and 3.05.  Upon the effective date of such assignment and assumption, the Replacement Bank shall become a Bank Party to this Agreement and shall have all the rights and obligations of a Bank as set forth in such Assignment and Assumption Agreement, and the Affected Bank shall be released from its obligations hereunder, and no further consent or action by any party shall be required.  Upon the consummation of any assignment pursuant to this Section, a substitute Ratable Loan Note (and, if applicable, Swing Loan Note) shall be issued to the Replacement Bank by Borrower, in exchange for the return of the Affected Bank's Ratable Loan Note (and, if applicable, Swing Loan Note).  The obligations evidenced by such substitute note shall constitute "Obligations" for all purposes of this Agreement and the other Loan Documents.  In connection with Borrower's execution of substitute notes as aforesaid, Borrower shall deliver to Administrative Agent evidence, satisfactory to Administrative Agent, of all requisite corporate action to authorize Borrower's execution and delivery of the substitute notes and any related documents.  If the Replacement Bank is not incorporated under the Laws of the United States of America or a state thereof, it shall, prior to the first date on which interest or fees are payable hereunder for its account, deliver to Borrower and Administrative Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 10.13.  Each Replacement Bank shall be deemed to have made the representations contained in, and shall be bound by the provisions of, Section 10.13.              Borrower, Administrative Agent and the Banks shall execute such modifications to the Loan Documents as shall be reasonably required in connection with and to effectuate the foregoing.              Section 3.08     Applicability.  The provisions of this Article III shall be applied to Borrower so as not to discriminate against Borrower vis-a-vis similarly situated customers of the Banks. ARTICLE IV CONDITIONS PRECEDENT              Section 4.01     Conditions Precedent to the Initial Advance.  The obligations of the Banks hereunder and the obligation of each Bank to make the Initial Advance are subject to the condition precedent that Co-Agents shall have received and approved on or before the Closing Date (other than with respect to paragraph (10) below which shall be required prior to the Initial Advance) each of the following documents, and each of the following requirements shall have been fulfilled:              (1)         Fees and Expenses.  The payment of (a) all fees and expenses incurred by Co-Agents and Administrative Agent (including, without limitation, the reasonable fees and expenses of legal counsel) and (b) those fees specified in the Supplemental Fee Letter to be paid by Borrower on or before the Closing Date;              (2)         Loan Agreement and Notes.  This Agreement, the Ratable Loan Notes for each of the Banks signatory hereto, the Bid Rate Loan Note for Administrative Agent, and the Swing Note for the Swing Lender, each duly executed by Borrower;              (3)         Financial Statements.  (a) Audited Borrower's Consolidated Financial Statements as of and for the year ended December 31, 2000 and (b) unaudited Borrower's Consolidated Financial Statements, certified by the chief financial officer thereof, as of and for the quarter ended March 31, 2001;              (4)         Evidence of Formation of Borrower.  Certified (as of the Closing Date) copies of Borrower's certificate of incorporation and by-laws, with all amendments thereto, and a certificate of the Secretary of State of the jurisdiction of formation as to its good standing therein;              (5)         Evidence of All Corporate Action.  Certified (as of the Closing Date) copies of all documents evidencing the corporate action taken by Borrower authorizing the execution, delivery and performance of the Loan Documents and each other document to be delivered by or on behalf of Borrower pursuant to this Agreement;              (6)         Incumbency and Signature Certificate of Borrower.  A certificate (dated as of the Closing Date) of the secretary of Borrower certifying the names and true signatures of each person authorized to sign on behalf of Borrower;              (7)         Solvency Certificate.  A duly executed Solvency Certificate;              (8)         Opinion of Counsel for Borrower.  A favorable opinion, dated the Closing Date, of Goodwin Procter LLP, counsel for Borrower, as to such matters as Administrative Agent may reasonably request;              (9)         Authorization Letter.  The Authorization Letter, duly executed by Borrower;              (10)       Request for Advance.  A request for an advance in accordance with Section 2.04;              (11)       Certificate.  The following statements shall be true and Administrative Agent shall have received a certificate dated the Closing Date signed by a duly authorized signatory of Borrower stating, to the best of the certifying party's knowledge, the following:    (a)      All representations and warranties contained in this Agreement and in each of the other Loan Documents are true and correct on and as of the Closing Date as though made on and as of such date, and    (b)     No Default or Event of Default has occurred and is continuing, or could result from the transactions contemplated by this Agreement and the other Loan Documents;              (12)       Supplemental Fee Letter.  The Supplemental Fee Letter, duly executed by Borrower;              (13)       Covenant Compliance.  A covenant compliance certificate of the sort required by paragraph (3) of Section 6.09 for the most recent calendar quarter for which Borrower is required to report financial results;              (14)       Material Adverse Change.  There shall exist no Material Adverse Change;              (15)       Termination of Existing Credit Facility.  Evidence of termination of the existing $600,000,000 unsecured credit facility to Borrower; and              (16)       Additional Materials.  Such other approvals, documents, instruments or opinions as Administrative Agent or any Co-Agent may reasonably request.              Section 4.02     Conditions Precedent to Advances After the Initial Advance.  The obligation of each Bank to make advances of the Loans subsequent to the Initial Advance shall be subject to satisfaction of the following conditions precedent:              (1)         All conditions of Section 4.01 shall have been and remain satisfied as of the date of the advance;              (2)         No Default or Event of Default shall have occurred and be continuing as of the date of the advance or would result from the making of the advance;              (3)         Each of the representations and warranties contained in this Agreement and in each of the other Loan Documents shall be true and correct in all material respects as of the date of the advance; and              (4)         Administrative Agent shall have received a request for an advance in accordance with Section 2.04.              Section 4.03     Deemed Representations.  Each request by Borrower for, and acceptance by Borrower of, an advance of proceeds of the Loans shall constitute a representation and warranty by Borrower that, as of both the date of such request and the date of the advance (1) no Default or Event of Default has occurred and is continuing or would result from the making of the advance and (2) each representation or warranty contained in this Agreement or the other Loan Documents is true and correct in all material respects. ARTICLE V REPRESENTATIONS AND WARRANTIES              Borrower represents and warrants to Administrative Agent and each Bank as follows:              Section 5.01     Due Organization.  Borrower is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization, has the power and authority to own its assets and to transact the business in which it is now engaged, and, if applicable, is duly qualified for the conduct of business and in good standing under the Laws of each other jurisdiction in which such qualification is required and where the failure to be so qualified would cause a Material Adverse Change.              Section 5.02     Power and Authority; No Conflicts; Compliance With Laws.  The execution, delivery and performance of the obligations required to be performed by Borrower of the Loan Documents does not and will not (a) require the consent or approval of its shareholders or such consent or approval has been obtained, (b) contravene either its certificate of incorporation or by-laws, (c) to the best of Borrower's knowledge, violate any provision of, or require any filing, registration, consent or approval under, any Law (including, without limitation, Regulation U), order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to it, (d) result in a breach of or constitute a default under or require any consent under any indenture or loan or credit agreement or any other agreement, lease or instrument to which it may be a party or by which it or its properties may be bound or affected except for consents which have been obtained, (e) result in, or require, the creation or imposition of any Lien, upon or with respect to any of its properties now owned or hereafter acquired or (f) to the best of Borrower's knowledge, cause it to be in default under any such Law, order, writ, judgment, injunction, decree, determination or award or any such indenture, agreement, lease or instrument; to the best of its knowledge, Borrower is in material compliance with all Laws applicable to it and its properties.              Section 5.03     Legally Enforceable Agreements.  Each Loan Document is a legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar Laws affecting creditors' rights generally.              Section 5.04     Litigation.  There are no actions, suits or proceedings pending or, to its knowledge, threatened against Borrower or any of its Affiliates before any court or arbitrator or any Governmental Authority which are reasonably likely to result in a Material Adverse Change.              Section 5.05     Good Title to Properties.  Borrower and each of its Material Affiliates have good, marketable and legal title to all of the properties and assets each of them purports to own (including, without limitation, those reflected in the Consolidated Financial Statements referred to in Section 5.13), only with exceptions which do not materially detract from the value of such property or assets or the use thereof in Borrower's and such Material Affiliate's business, and except to the extent that any such properties and assets have been encumbered or disposed of since the date of such financial statements without violating any of the covenants contained in Article VII or elsewhere in this Agreement.  Borrower and its Material Affiliates enjoy peaceful and undisturbed possession of all leased property necessary in any material respect in the conduct of their respective businesses.  All such leases are valid and subsisting and are in full force and effect.              Section 5.06     Taxes.  Borrower has filed all tax returns (federal, state and local) required to be filed and has paid all taxes, assessments and governmental charges and levies due and payable without the imposition of a penalty, including interest and penalties, except to the extent they are the subject of a Good Faith Contest.              Section 5.07     ERISA.  Borrower is in compliance in all material respects with all applicable provisions of ERISA.  Neither a Reportable Event nor a Prohibited Transaction has occurred with respect to any Plan which could result in liability of Borrower; no notice of intent to terminate a Plan has been filed nor has any Plan been terminated within the past five (5) years; no circumstance exists which constitutes grounds under Section 4042 of ERISA entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings; Borrower and the ERISA Affiliates have not completely or partially withdrawn under Sections 4201 or 4204 of ERISA from a Multiemployer Plan; Borrower and the ERISA Affiliates have met the minimum funding requirements of Section 412 of the Code and Section 302 of ERISA of each with respect to the Plans of each and there is no material "Unfunded Current Liability" (as such quoted term is defined in ERISA) with respect to any Plan established or maintained by each; and Borrower and the ERISA Affiliates have not incurred any liability to the PBGC under ERISA (other than for the payment of premiums under Section 4007 of ERISA).  No part of the funds to be used by Borrower in satisfaction of its obligations under this Agreement constitute "plan assets" of any "employee benefit plan" within the meaning of ERISA or of any "plan" within the meaning of Section 4975(e)(1) of the Code, as interpreted by the Internal Revenue Service and the U.S. Department of Labor in rules, regulations, releases, bulletins or as interpreted under applicable case law.              Section 5.08     No Default on Outstanding Judgments or Orders.  Borrower and each of its Material Affiliates have satisfied all judgments which are not being appealed or which are not fully covered by insurance, and are not in default with respect to any judgment, order, writ, injunction, decree, rule or regulation of any court, arbitrator or federal, state, municipal or other Governmental Authority, commission, board, bureau, agency or instrumentality, domestic or foreign.              Section 5.09     No Defaults on Other Agreements.  Except as disclosed to Co-Agents and Administrative Agent in writing, Borrower is not a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any partnership, trust or other restriction which is likely to result in a Material Adverse Change.  Borrower is not 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 which is likely to result in a Material Adverse Change.              Section 5.10     Government Regulation.  Borrower is not subject to regulation under the Investment Company Act of 1940 or any statute or regulation limiting its ability to incur indebtedness for money borrowed as contemplated hereby.              Section 5.11     Environmental Protection.  To the best of Borrower's knowledge, none of Borrower's or its Material Affiliates' properties contains any Hazardous Materials that, under any Environmental Law currently in effect, (1) would impose liability on Borrower that is likely to result in a Material Adverse Change or (2) is likely to result in the imposition of a Lien on any assets of Borrower or its Material Affiliates, in each case if not properly handled in accordance with applicable Law or not covered by insurance or a bond, in either case reasonably satisfactory to Co-Agents.  To the best of Borrower's knowledge, neither it nor any of its Material Affiliates is in material violation of, or subject to any existing, pending or threatened material investigation or proceeding by any Governmental Authority under any Environmental Law.              Section 5.12     Solvency.  Borrower is, and upon consummation of the transactions contemplated by this Agreement, the other Loan Documents and any other documents, instruments or agreements relating thereto, will be, Solvent.              Section 5.13     Financial Statements.  The Borrower's Consolidated Financial Statements most recently delivered to the Banks pursuant to the terms of this Agreement are in all material respects complete and correct and fairly present the financial condition of the subject thereof as of the dates of and for the periods covered by such statements, all in accordance with GAAP.  There has been no Material Adverse Change since the date of such most recently delivered Borrower's Consolidated Financial Statements.              Section 5.14     Valid Existence of Affiliates.  At the Closing Date, the only Material Affiliates of Borrower are listed on EXHIBIT C.  Each Material Affiliate is a corporation, partnership or limited liability company duly organized and existing in good standing under the Laws of the jurisdiction of its formation.  As to each Material Affiliate, its correct name, the jurisdiction of its formation, Borrower's percentage of beneficial interest therein, and the type of business in which it is primarily engaged, are set forth on said EXHIBIT C.  Borrower and each of its Material Affiliates have the power to own their respective properties and to carry on their respective businesses now being conducted.  Each Material Affiliate is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the respective businesses conducted by it or its respective properties, owned or held under lease, make such qualification necessary and where the failure to be so qualified would cause a Material Adverse Change.              Section 5.15     Insurance.  Borrower and each of its Material Affiliates have in force paid 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 type of business and similarly situated.              Section 5.16     Accuracy of Information; Full Disclosure.  Neither this Agreement nor any documents, financial statements, reports, notices, schedules, certificates, statements or other writings furnished by or on behalf of Borrower to Administrative Agent or any Bank in connection with the negotiation of this Agreement or the consummation of the transactions contemplated hereby, or required herein to be furnished by or on behalf of Borrower (other than projections which are made by Borrower in good faith), contains any untrue or misleading statement of a material fact or omits a material fact necessary to make the statements herein or therein not misleading.  To the best of Borrower's knowledge, there is no fact which Borrower has not disclosed to Administrative Agent and the Banks in writing which materially affects adversely nor, so far as Borrower can now foresee, will materially affect adversely the business affairs or financial condition of Borrower or the ability of Borrower to perform this Agreement and the other Loan Documents. ARTICLE VI AFFIRMATIVE COVENANTS              So long as any of the Notes shall remain unpaid or the Loan Commitments remain in effect, or any other amount is owing by Borrower to any Bank Party hereunder or under any other Loan Document, Borrower shall, and, in the case of Sections 6.01 through 6.07, inclusive, shall cause each of its Material Affiliates to:              Section 6.01     Maintenance of Existence.  Preserve and maintain its legal existence and good standing in the jurisdiction of its organization, and qualify and remain qualified as a foreign entity in each other jurisdiction in which such qualification is required except to the extent that failure to be so qualified in such other jurisdictions is not likely to result in a Material Adverse Change.              Section 6.02     Maintenance of Records.  Keep adequate records and books of account, in which complete entries will be made reflecting all of its financial transactions, in accordance with GAAP.              Section 6.03     Maintenance of Insurance.  At all times, maintain and keep in force 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 type of business and similarly situated, which insurance shall be acceptable to Administrative Agent and may provide for reasonable deductibility from coverage thereof.  In connection with the foregoing, it is understood that Borrower's earthquake insurance coverage in place as of the Closing Date is acceptable to Administrative Agent.              Section 6.04     Compliance with Laws; Payment of Taxes.  Comply in all material respects with all Laws applicable to it or to any of its properties or any part thereof, 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, except to the extent they are the subject of a Good Faith Contest.              Section 6.05     Right of Inspection.  At any reasonable time and from time to time upon reasonable notice, permit Administrative Agent or any Bank or any agent or representative thereof to examine and make copies and abstracts from its records and books of account and visit its properties and to discuss its affairs, finances and accounts with the independent accountants of Borrower.              Section 6.06     Compliance With Environmental Laws.  Comply in all material respects with all applicable Environmental Laws and timely pay or cause to be paid all costs and expenses incurred in connection with such compliance, except to the extent there is a Good Faith Contest.              Section 6.07     Maintenance of Properties.  Do all things reasonably necessary to maintain, preserve, protect and keep its properties in good repair, working order and condition except where the cost thereof is not in Borrower's best interests and the failure to do so would not result in a Material Adverse Change.              Section 6.08     Payment of Costs.  Pay all costs and expenses required for the satisfaction of the conditions of this Agreement.              Section 6.09     Reporting and Miscellaneous Document Requirements.  Furnish directly to Administrative Agent (who shall provide, promptly upon receipt, to each of the Banks):              (1)         Annual Financial Statements.  As soon as available and in any event within ninety (90) days after the end of each Fiscal Year, Borrower's Consolidated Financial Statements as of the end of and for such Fiscal Year, in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the prior Fiscal Year and audited by Borrower's Accountants;              (2)         Quarterly Financial Statements.  As soon as available and in any event within forty-five (45) days after the end of each calendar quarter (other than the last quarter of the Fiscal Year), the unaudited Borrower's Consolidated Financial Statements as of the end of and for such calendar quarter, in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the prior Fiscal Year;              (3)         Certificate of No Default and Financial Compliance.  Within ninety (90) days after the end of each Fiscal Year and within forty-five (45) days after the end of each calendar quarter, a certificate of Borrower's chief financial officer or treasurer (a) stating that, to the best of his or her knowledge, no Default or Event of Default has occurred and is continuing, or if a Default or Event of Default has occurred and is continuing, specifying the nature thereof and the action which is proposed to be taken with respect thereto; (b) stating that the covenants contained in Sections 7.02, 7.03 and 7.04 and in Article VIII have been complied with (or specifying those that have not been complied with) and including computations demonstrating such compliance (or non-compliance); (c) setting forth the details of all items comprising Total Outstanding Indebtedness, Secured Indebtedness, Unencumbered Combined EBITDA, Interest Expense and Unsecured Indebtedness (including amount, maturity, interest rate and amortization requirements with respect to all Indebtedness and including an occupancy report for each Unencumbered Wholly-Owned Asset for each of the preceding four (4) calendar quarters and for such four (4) calendar quarter-period as a whole); and (d) only at the end of each Fiscal Year, stating Borrower's taxable income;              (4)         Certificate of Borrower's Accountants.  Simultaneously with the delivery of the annual financial statements required by paragraph (1) of this Section, (a) a statement of Borrower's Accountants who audited such financial statements comparing the computations set forth in the financial compliance certificate required by paragraph (3) of this Section to the audited financial statements required by paragraph (1) of this Section and (b) when the audited financial statements required by paragraph (1) of this Section have a qualified auditor's opinion, a statement of Borrower's Accountants who audited such financial statements of whether any Default or Event of Default has occurred and is continuing;              (5)         Notice of Litigation.  Promptly after the commencement and knowledge thereof, notice of all actions, suits, and proceedings before any court or arbitrator, affecting Borrower which, if determined adversely to Borrower is likely to result in a Material Adverse Change;              (6)         Notices of Defaults and Events of Default.  As soon as possible and in any event within ten (10) days after Borrower becomes aware of the occurrence of a material Default or any Event of Default, a written notice (which notice shall state that it is a "Notice of Default") setting forth the details of such Default or Event of Default and the action which is proposed to be taken with respect thereto;              (7)         Sales or Acquisitions of Assets.  Promptly after the occurrence thereof, written notice (which may be in the form of a press release sent to Administrative Agent) of any Disposition or acquisition (including Acquisitions) of assets (other than acquisitions or Dispositions of investments such as certificates of deposit, Treasury securities, money market deposits and other similar financial instruments in the ordinary course of Borrower's cash management) with respect to which Borrower is required to file an "8-K", together with, in the case of any acquisition of such an asset, copies of all material agreements governing the acquisition and historical financial information and Borrower's projections with respect to the property acquired;              (8)         Material Adverse Change.  As soon as is practicable and in any event within five (5) days after knowledge of the occurrence of any event or circumstance which is likely to result in or has resulted in a Material Adverse Change, written notice thereof;              (9)         Offices.  Thirty (30) days' prior written notice of any change in the chief executive office or principal place of business of Borrower;              (10)       Environmental and Other Notices.  As soon as possible and in any event within ten (10) days after receipt, copies of all Environmental Notices received by Borrower which are not received in the ordinary course of business and which relate to a situation which is likely to result in a Material Adverse Change;              (11)       Insurance Coverage.  Promptly, such information concerning Borrower's insurance coverage as Administrative Agent may reasonably request;              (12)       Proxy Statements, Etc..  Promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports which Borrower or its Material Affiliates sends to its shareholders, and copies of all regular, periodic and special reports, and all registration statements which Borrower or its Material Affiliates files with the Securities and Exchange Commission or any Governmental Authority which may be substituted therefor, or with any national securities exchange;              (13)       Operating Statements. As soon as available and in any event within forty-five (45) days after the end of each calendar quarter, an operating statement for each property directly or indirectly owned in whole or in part by Borrower;              (14)       Capital Expenditures.  As soon as available and in any event within forty-five (45) days after the end of each Fiscal Year, a schedule of such Fiscal Year's capital expenditures and a budget for the next Fiscal Year's planned capital expenditures for each property directly or indirectly owned in whole or in part by Borrower; and              (15)       General Information.  Promptly, such other information respecting the condition or operations, financial or otherwise, of Borrower or any properties of Borrower as Administrative Agent may from time to time reasonably request.              Section 6.10     Principal Prepayments as a Result of Reduction in Total Loan Commitment.  If the outstanding principal amount under the Notes at any time exceeds the Total Loan Commitment, Borrower shall, within ten (10) days of Administration Agent's written demand, make a payment in the amount of such excess in reduction of such outstanding principal balance. ARTICLE VII NEGATIVE COVENANTS              So long as any of the Notes shall remain unpaid, or the Loan Commitments remain in effect, or any other amount is owing by Borrower to any Bank Party hereunder or under any other Loan Document, Borrower shall not do any or all of the following:              Section 7.01     Mergers Etc.  Merge or consolidate with (except where Borrower is the surviving entity), or sell, assign, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired).              Section 7.02     Investments.  Directly or indirectly, make any loan or advance to any Person or 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 (any such transaction, an "Investment") if such Investment constitutes the acquisition of a minority interest in a Person (a "Minority Interest") and the amount of such Investment, together with the value of all other Minority Interests, would exceed 15% of Capitalization Value, determined as of the end of the most recent calendar quarter for which Borrower is required to have reported financial results pursuant to Section 6.09.  A 50% beneficial interest in a Person, in connection with which the holder thereof exercises joint control over such Person with the holder(s) of the other 50% beneficial interest, shall not constitute a "Minority Interest" for purposes of this Section.              Section 7.03     Sale of Assets.  Effect a Disposition of any of its now owned or hereafter acquired assets, including assets in which Borrower owns a beneficial interest through its ownership of interests in joint ventures, aggregating more than 25% of Capitalization Value.              Section 7.04     Distributions.  During the existence of any Event of Default, make, declare or pay, directly or indirectly, any dividend or distribution to any of its equity holders in an amount greater than the minimum dividend or distribution required under the Code to maintain the real estate investment trust status of Borrower under the Code, as evidenced by a detailed certificate of Borrower's chief financial officer or treasurer reasonably satisfactory in form and substance to Administrative Agent; provided, however, that following acceleration of the maturity of the Notes, Borrower shall not, directly or indirectly, make, declare or pay any dividend or distribution to any of its equity holders. ARTICLE VIII FINANCIAL COVENANTS              So long as any of the Notes shall remain unpaid, or the Loan Commitments remain in effect, or any other amount is owing by Borrower to any Bank Party under this Agreement or under any other Loan Document, Borrower shall not permit or suffer any or all of the following:              Section 8.01     Consolidated Tangible Net Worth.  At any time, Consolidated Tangible Net Worth  to be less than $2,000,000,000.              Section 8.02     Relationship of Total Outstanding Indebtedness to Capitalization Value.  At any time, Total Outstanding Indebtedness to exceed 55% of Capitalization Value.              Section 8.03     Relationship of Combined EBITDA to Interest Expense.  For any calendar quarter, the ratio of (1) Combined EBITDA to (2) Interest Expense (each for the twelve (12)-month period ending with such quarter), to be less than 2.25 to 1.00.              Section 8.04     Relationship of Combined EBITDA to Combined Debt Service.  For any calendar quarter, the ratio of (1) Combined EBITDA to (2) Combined Debt Service (each for the twelve (12)-month period ending with such quarter), to be less than 1.80 to 1.00.              Section 8.05     Ratio of Unsecured Indebtedness to Unencumbered Asset Value.  At any time, the ratio of (1) Unsecured Indebtedness to (2) Unencumbered Asset Value to exceed 55%.              Section 8.06     Relationship of Unencumbered Combined EBITDA to Unsecured Interest Expense.  For any calendar quarter, the ratio of (1) Unencumbered Combined EBITDA to (2) Unsecured Interest Expense (each for such calendar quarter), to be less than 2.00 to 1.00.              Section 8.07     Relationship of Dividends to Funds From Operations.  For any calendar year, dividends declared by Borrower to exceed 95% of Funds From Operations, each for such calendar year, or such greater amount as may be required under the Code to maintain the real estate investment trust status of Borrower under the Code, as evidenced by a detailed certificate of Borrower's chief financial officer or treasurer reasonably satisfactory in form and substance to Administrative Agent.              Section 8.08     Relationship of Secured Indebtedness to Capitalization Value.  At any time, Secured Indebtedness to exceed 40% of Capitalization Value. ARTICLE IX EVENTS OF DEFAULT              Section 9.01     Events of Default.  Any of the following events shall be an "Event of Default":              (1)         If Borrower shall:  fail to pay the principal of any Notes as and when due, and such failure to pay shall continue unremedied for five (5) days after the due date of such amount; or fail to pay interest accruing on any Notes as and when due, and such failure to pay shall continue unremedied for five (5) days after written notice by Administrative Agent of such failure to pay; or fail to make any payment required under Section 6.10 as and when due; or fail to pay any fee or any other amount due under this Agreement, any other Loan Document or the Supplemental Fee Letter as and when due and such failure to pay shall continue unremedied for two (2) Banking Days after written notice by Administrative Agent of such failure to pay; or              (2)         If any representation or warranty made by Borrower in this Agreement or in any other Loan Document or which is contained in any certificate, document, opinion, financial or other statement furnished at any time under or in connection with a Loan Document shall prove to have been incorrect in any material respect on or as of the date made; or              (3)         If Borrower shall fail (a) to perform or observe any term, covenant or agreement contained in Article VII or Article VIII; or (b) to perform or observe any term, covenant or agreement contained in this Agreement (other than obligations specifically referred to elsewhere in this Section 9.01) or any Loan Document, or any other document executed by Borrower and delivered to Administrative Agent or the Banks in connection with the transactions contemplated hereby and such failure under this clause (b) shall remain unremedied for thirty (30) consecutive calendar days after notice thereof (or such shorter cure period as may be expressly prescribed in the applicable document); provided, however, that if any such default under clause (b) above cannot by its nature be cured within such thirty (30) day, or shorter, as the case may be, grace period and so long as Borrower shall have commenced cure within such thirty (30) day, or shorter, as the case may be, grace period and shall, at all times thereafter, diligently prosecute the same to completion, Borrower shall have an additional period, not to exceed sixty (60) days,  to cure such default; in no event, however, is the foregoing intended to effect an extension of the Maturity Date; or              (4)         If Borrower shall fail (a) to pay any Recourse Debt (other than the payment obligations described in paragraph (1) of this Section) in any amount, or any Debt (other than Recourse Debt) in an amount equal to or greater than $50,000,000, in any such case when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) after the expiration of any applicable grace period, or (b) to perform or observe any material term, covenant, or condition under any agreement or instrument relating to any such Debt, 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 the lapse of time, or both (other than in cases where, in the judgment of the Majority Banks, meaningful discussions likely to result in (i) a waiver or cure of the failure to perform or observe, or (ii) otherwise averting such acceleration are in progress between Borrower and the obligee of such Debt), the maturity of such Debt, or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled or otherwise required prepayment), prior to the stated maturity thereof; or              (5)         If Borrower, or any Affiliate of Borrower to which $50,000,000 or more of Capitalization Value is attributable, shall (a) generally not, or be unable to, or shall admit in writing its inability to, pay its debts as such debts become due; or (b) make an assignment for the benefit of creditors, 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) commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation Law of any jurisdiction, whether now or hereafter in effect; or (d) have had any such petition or application filed or any such proceeding shall have been commenced, against it, in which an adjudication or appointment is made or order for relief is entered, or which petition, application or proceeding remains undismissed or unstayed for a period of sixty (60) days or more; or (e) be the subject of any proceeding under which all or a substantial part of its assets may be subject to seizure, forfeiture or divestiture; or (f) by any act or omission indicate its consent to, approval of or acquiescence in any such petition, application or proceeding or order for relief or the appointment of a custodian, receiver or trustee for all or any substantial part of its property; or (g) suffer any such custodianship, receivership or trusteeship for all or any substantial part of its property, to continue undischarged for a period of sixty (60) days or more; or              (6)         If one or more judgments, decrees or orders for the payment of money in an amount in excess of 5% of Consolidated Tangible Net Worth (excluding any such judgments, decrees or orders which are fully covered by insurance) in the aggregate shall be rendered against Borrower or any of its Material Affiliates, and any such judgments, decrees or orders shall continue unsatisfied and in effect for a period of thirty (30) consecutive days without being vacated, discharged, satisfied or stayed or bonded pending appeal; or              (7)         If any of the following events shall occur or exist with respect to Borrower or any ERISA Affiliate: (a) any Prohibited Transaction involving any Plan; (b) any Reportable Event with respect to any Plan; (c) the filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (d) any event or circumstance which would constitute grounds for the termination of, or for the appointment of a trustee to administer, any Plan under Section 4042 of ERISA, or the institution by the PBGC of proceedings for any such termination or appointment under Section 4042 of ERISA; or (e) complete or partial withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer Plan or the reorganization, insolvency, or termination of any Multiemployer Plan; and in each case above, if such event or conditions, if any, could in the reasonable opinion of any Bank subject Borrower to any tax, penalty, or other liability to a Plan, Multiemployer Plan, the PBGC or otherwise (or any combination thereof) which in the aggregate exceeds or is likely to exceed $50,000; or              (8)         If at any time Borrower is not a qualified real estate investment trust under Sections 856 through 860 of the Code or is not a publicly traded company listed on the New York Stock Exchange; or              (9)         If at any time any portion of Borrower's assets constitute plan assets for ERISA purposes (within the meaning of C.F.R. §2510.3-101); or              (10)       If, in the reasonable judgment of all of the Banks (and the basis for such determination is provided to Borrower in writing in reasonable detail), there shall occur a Material Adverse Change; or              (11)       If, during any period of up to twelve (12) consecutive months commencing on or after the Closing Date, individuals who were directors of Borrower at the beginning of such period (the "Continuing Directors"), plus any new directors whose election or appointment was approved by a majority of the Continuing Directors then in office, shall cease for any reason to constitute a majority of the Board of Directors of Borrower; or              (12)       If, through any transaction or series of related transactions, any Person (including Affiliates of such Person) shall acquire beneficial ownership, directly or indirectly, of securities of Borrower (or of securities convertible into securities of Borrower) representing 25% or more of the combined voting power of all securities of Borrower entitled to vote in the election of directors.              Section 9.02     Remedies.  If any Event of Default shall occur and be continuing, Administrative Agent shall, upon request of the Majority Banks, by notice to Borrower, (1) declare the outstanding balance of the Notes, all interest thereon, and all other amounts payable under this Agreement to be forthwith due and payable, whereupon such balance, all such interest, and all such amounts due under this Agreement and under any other Loan Document 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 Borrower; and/or (2) exercise any remedies provided in any of the Loan Documents or by law.  Notwithstanding the foregoing, if an Event of Default under Section 9.01(10) shall occur and be continuing, Administrative Agent shall not be entitled to exercise the foregoing remedies until (1) it has received a written notice from all of the Banks (the "Unanimous Bank Notices") (i) requesting Administrative Agent exercise such remedies and (ii) indicating each Bank's conclusion in its reasonable judgment that  a Material Adverse Change has occurred and (2) Administrative Agent has provided notice to Borrower, together with copies of all of the Unanimous Bank Notices. ARTICLE X ADMINISTRATIVE AGENT; RELATIONS AMONG BANKS              Section 10.01   Appointment, Powers and Immunities of Administrative Agent.  Each Bank hereby irrevocably appoints and authorizes Administrative Agent to act as its agent hereunder and under any other Loan Document with such powers as are specifically delegated to Administrative Agent by the terms of this Agreement and any other Loan Document, together with such other powers as are reasonably incidental thereto.  Administrative Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and any other Loan Document or required by Law, and shall not by reason of this Agreement be a fiduciary or trustee for any Bank except to the extent that Administrative Agent acts as an agent with respect to the receipt or payment of funds (nor shall Administrative Agent have any fiduciary duty to Borrower nor shall any Bank have any fiduciary duty to Borrower or to any other Bank).  No implied covenants, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against Administrative Agent.  Neither Administrative Agent nor any of its directors, officers, employees, attorneys-in-fact or affiliates shall be responsible to the Banks for any recitals, statements, representations or warranties made by Borrower or any officer, partner or official of Borrower or any other Person contained in this Agreement or any other Loan Document, or in any certificate or other document or instrument referred to or provided for in, or received by any of them under, this Agreement or any other Loan Document, or for the value, legality, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or any other document or instrument referred to or provided for herein or therein, for the perfection or priority of any Lien securing the Obligations or for any failure by Borrower to perform any of its obligations hereunder or thereunder.  Administrative Agent may employ agents and attorneys-in-fact and shall not be responsible, except as to money or securities received by it or its authorized agents, for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care.  Neither Administrative Agent nor any of its directors, officers, employees, attorneys-in-fact, agents or affiliates shall be liable or responsible for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith, except for its or their own gross negligence or willful misconduct.  Borrower shall pay any fee agreed to by Borrower and Administrative Agent with respect to Administrative Agent's services hereunder.              Section 10.02   Reliance by Administrative Agent.  Administrative Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by Administrative Agent.  Administrative Agent may deem and treat each Bank as the holder of the Loan made by it for all purposes hereof and shall not be required to deal with any Person who has acquired a Participation in any Loan or Participation from a Bank.  As to any matters not expressly provided for by this Agreement or any other Loan Document, Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions signed by the Majority Banks, Super-Majority Banks or all Banks, as required by this Agreement, and such instructions of the Majority Banks, Super-Majority Banks or all Banks, as the case may be, and any action taken or failure to act pursuant thereto, shall be binding on all of the Banks and any other holder of all or any portion of any Loan or Participation.              Section 10.03   Defaults.  Administrative Agent shall not be deemed to have knowledge of the occurrence of a Default or Event of Default unless Administrative Agent has received notice from a Bank or Borrower specifying such Default or Event of Default and stating that such notice is a "Notice of Default."  In the event that Administrative Agent receives such a notice of the occurrence of a Default or Event of Default, Administrative Agent shall give prompt notice thereof to the Banks.  Administrative Agent, following consultation with the Banks, shall (subject to Section 10.07) take such action with respect to such Default or Event of Default which is continuing as shall be directed by the Majority Banks; provided that, unless and until Administrative Agent shall have received such directions, Administrative Agent may 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 interest of the Banks; and provided further that Administrative Agent shall not send a notice of Default or acceleration to Borrower without the approval of the Majority Banks.  In no event shall Administrative Agent be required to take any such action which it determines to be contrary to Law or to the Loan Documents.  Each of the Banks acknowledges and agrees that no individual Bank may separately enforce or exercise any of the provisions of any of the Loan Documents, including, without limitation, the Notes, other than through Administrative Agent.              Section 10.04   Rights of Administrative Agent as a Bank.  With respect to its Loan Commitment and the Loan provided by it, Administrative Agent 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 Administrative Agent, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include Administrative Agent in its capacity as a Bank.  Administrative Agent and its Affiliates may (without having to account therefor to any Bank) accept deposits from, lend money to (on a secured or unsecured basis), and generally engage in any kind of banking, trust or other business with Borrower (and any Affiliates of Borrower) as if it were not acting as Administrative Agent.              Section 10.05   Indemnification of Administrative Agent.  Each Bank agrees to indemnify Administrative Agent (to the extent not reimbursed under Section 12.04 or under the applicable provisions of any other Loan Document, but without limiting the obligations of Borrower under Section 12.04 or such provisions), for its Pro Rata Share of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against Administrative Agent in any way relating to or arising out of this Agreement, any other Loan Document or any other documents contemplated by or referred to herein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses which Borrower is obligated to pay under Section 12.04) or under the applicable provisions of any other Loan Document or the enforcement of any of the terms hereof or thereof or of any such other documents or instruments; provided that no Bank shall be liable for (1) any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified, (2) any loss of principal or interest with respect to Administrative Agent's Loan or (3) any loss suffered by Administrative Agent in connection with a swap or other interest rate hedging arrangement entered into with Borrower.              Section 10.06   Non-Reliance on Administrative Agent and Other Banks.  Each Bank agrees that it has, independently and without reliance on Administrative Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of Borrower and the decision to enter into this Agreement and that it will, independently and without reliance upon Administrative Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any other Loan Document.  Administrative Agent shall not be required to keep itself informed as to the performance or observance by Borrower of this Agreement or any other Loan Document or any other document referred to or provided for herein or therein or to inspect the properties or books of Borrower.  Except for notices, reports and other documents and information expressly required to be furnished to the Banks by Administrative Agent hereunder, Administrative Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the affairs, financial condition or business of Borrower (or any Affiliate of Borrower) which may come into the possession of Administrative Agent or any of its Affiliates.  Administrative Agent shall not be required to file this Agreement, any other Loan Document or any document or instrument referred to herein or therein, for record or give notice of this Agreement, any other Loan Document or any document or instrument referred to herein or therein, to anyone.              Section 10.07   Failure of Administrative Agent to Act.  Except for action expressly required of Administrative Agent hereunder, Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall have received further assurances (which may include cash collateral) of the indemnification obligations of the Banks under Section 10.05 in respect of any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action.  If any indemnity furnished by the Banks to Administrative Agent for any purpose shall, in the reasonable opinion of Administrative Agent, be insufficient or become impaired, Administrative Agent may call for additional indemnity and cease, or not commence, to do the action indemnified against until such additional indemnity is furnished.              Section 10.08   Resignation or Removal of Administrative Agent.  Administrative Agent hereby agrees not to unilaterally resign except in the event it becomes an Affected Bank and is removed or replaced as a Bank pursuant to Section 3.07, in which event it shall have the right to resign.  Fleet agrees that it may be replaced as Administrative Agent by the Majority Banks if its Loan Commitment is reduced to $25,000,000 or less through assignments to Assignees.  In addition, Administrative Agent may be removed at any time with cause by the Super-Majority Banks.  In the case of any removal of Administrative Agent, Borrower and the  Banks shall be promptly notified thereof.  Upon any such resignation or removal of Administrative Agent, the Super-Majority Banks shall have the right to appoint a successor Administrative Agent, which successor Administrative Agent, so long as it is reasonably acceptable to the Super-Majority Banks, shall be that Bank then having the greatest Loan Commitment; if two (2) or more Banks have an equal greatest Loan Commitment, the Super-Majority Banks shall select between or among them.  If no successor Administrative Agent shall have been so appointed by the Super-Majority Banks and shall have accepted such appointment within thirty (30) days after the Super-Majority Banks' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent, which shall be one of the Banks.  The Super-Majority Banks or the retiring Administrative Agent, as the case may be, shall upon the appointment of a successor Administrative Agent promptly so notify Borrower and the other Banks.  Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder.  After any retiring Administrative Agent's removal hereunder as Administrative Agent, the provisions of this Article X shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent.              Section 10.09   Amendments Concerning Agency Function.  Notwithstanding anything to the contrary contained herein, Administrative Agent shall not be bound by any waiver, amendment, supplement or modification hereof or of any other Loan Document which affects its duties, rights, and/or function hereunder or thereunder unless it shall have given its prior written consent thereto.              Section 10.10   Liability of Administrative Agent.  Administrative Agent shall not have any liabilities or responsibilities to Borrower on account of the failure of any Bank to perform its obligations hereunder or to any Bank on account of the failure of Borrower to perform its obligations hereunder or under any other Loan Document.              Section 10.11   Transfer of Agency Function.  Without the consent of Borrower or any Bank, Administrative Agent may at any time or from time to time transfer its functions as Administrative Agent hereunder to any of its offices wherever located in the United States, provided that Administrative Agent shall promptly notify Borrower and the Banks thereof.              Section 10.12   Non-Receipt of Funds by Administrative Agent.  (a) Unless Administrative Agent shall have received notice from a Bank or Borrower (either one as appropriate being the "Payor") prior to the date on which such Bank is to make payment hereunder to Administrative Agent of the proceeds of a Loan or Borrower is to make payment to Administrative Agent, as the case may be (either such payment being a "Required Payment"), which notice shall be effective upon receipt, that the Payor will not make the Required Payment in full to Administrative Agent, Administrative Agent may assume that the Required Payment has been made in full to Administrative Agent on such date, and Administrative Agent in its sole discretion may, but shall not be obligated to, in reliance upon such assumption, make the amount thereof available to the intended recipient on such date.  If and to the extent the Payor shall not have in fact so made the Required Payment in full to Administrative Agent, the recipient of such payment shall repay to Administrative Agent forthwith on demand such amount made available to it together with interest thereon, for each day from the date such amount was so made available by Administrative Agent until the date Administrative Agent recovers such amount, at the customary rate set by Administrative Agent for the correction of errors among Banks for three (3) Banking Days and thereafter at the Base Rate.              (b)   If, after Administrative Agent has paid each Bank's share of any payment received or applied by Administrative Agent in respect of the Loan, that payment is rescinded or must otherwise be returned or paid over by Administrative Agent, whether pursuant to any bankruptcy or insolvency Law, sharing of payments clause of any loan agreement or otherwise, such Bank shall, at Administrative Agent's request, promptly return its share of such payment or application to Administrative Agent, together with such Bank's proportionate share of any interest or other amount required to be paid by Administrative Agent with respect to such payment or application.  In addition, if a court of competent jurisdiction shall adjudge that any amount received and distributed by Administrative Agent is to be repaid, each Person to whom any such distribution shall have been made shall either repay to Administrative Agent its share of the amount so adjudged to be repaid or shall pay over to the same in such manner and to such Persons as shall be determined by such court.              Section 10.13   Withholding Taxes.  Each Bank represents that it is entitled to receive any payments to be made to it hereunder without the withholding of any tax and will furnish to Administrative Agent such forms, certifications, statements and other documents as Administrative Agent may request from time to time to evidence such Bank's exemption from the withholding of any tax imposed by any jurisdiction or to enable Administrative Agent or Borrower to comply with any applicable Laws or regulations relating thereto.  Without limiting the effect of the foregoing, if any Bank is not created or organized under the Laws of the United States of America or any state thereof, such Bank will furnish to Administrative Agent a United States Internal Revenue Service Form W-8ECI in respect of all payments to be made to such Bank by Borrower or Administrative Agent under this Agreement or any other Loan Document or a United States Internal Revenue Service Form W-8BEN establishing such Bank's complete exemption from United States withholding tax in respect of payments to be made to such Bank by Borrower or Administrative Agent under this Agreement or any other Loan Document, or such other forms, certifications, statements or documents, duly executed and completed by such Bank as evidence of such Bank's exemption from the withholding of U.S. tax with respect thereto.  Administrative Agent shall not be obligated to make any payments hereunder to such Bank in respect of any Loan or Participation or such Bank's Loan Commitment or obligation to purchase Participations until such Bank shall have furnished to Administrative Agent the requested form, certification, statement or document.              Section 10.14   Minimum Commitment by Co-Agents.  Each of Fleet and Chase agrees that, in the event it sells its individual Loan Commitment down to zero, it may be removed as a Co-Agent by the Majority Banks.  In addition, in the event Chase's Individual Loan Commitment is reduced to $25,000,000 or less through assignments, Borrower may replace Chase as Syndication Agent with a lending institution selected by Borrower.  In making such selection, Borrower will consider in good faith Fleet, Bank of America, N.A., First Union National Bank and Citicorp Real Estate, Inc.              Section 10.15   Pro Rata Treatment.  Except to the extent otherwise provided, (1) each advance of proceeds of the Ratable Loans shall be made by the Banks; (2) each reduction of the amount of the Total Loan Commitment under Section 2.10 shall be applied to the Loan Commitments of the Banks; and (3) each payment of the fee accruing under paragraph (b) of Section 2.07 and clause (1) of Section 2.16(f) shall be made for the account of the Banks, ratably according to the amounts of their respective Loan Commitments.  Except as otherwise expressly provided in this Agreement, each payment in respect of principal or interest under the Loans shall be applied to such obligations owing to the Banks pro rata according to the respective amounts then due and owing to the Banks.              Section 10.16   Sharing of Payments Among Banks.  If a Bank shall obtain payment of any principal of or interest on any Loan made by it through the exercise of any right of setoff, banker's lien, counterclaim, or by any other means (including direct payment), and such payment results in such Bank receiving a greater payment than it would have been entitled to had such payment been paid directly to Administrative Agent for disbursement to the Banks, then such Bank shall promptly purchase for cash from the other Banks Participations in the Loans made by the other Banks in such amounts, and make such other adjustments from time to time as shall be equitable to the end that all the Banks shall share ratably the benefit of such payment.  To such end the Banks shall make appropriate adjustments among themselves (by the resale of Participations sold or otherwise) if such payment is rescinded or must otherwise be restored.  Borrower agrees that any Bank so purchasing a Participation in the Loans made by other Banks may exercise all rights of setoff, banker's lien, counterclaim or similar rights with respect to such Participation.  Nothing contained herein shall require any Bank to exercise any such right or shall affect the right of any Bank to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness of Borrower.              Section 10.17   Possession of Documents.  Each Bank shall keep possession of its own Ratable Loan Note and the Swing Lender shall keep possession of its Swing Loan Note.  Administrative Agent shall hold all the other Loan Documents and related documents in its possession and maintain separate records and accounts with respect thereto, and shall permit the Banks and their representatives access at all reasonable times to inspect such Loan Documents, related documents, records and accounts. ARTICLE XI NATURE OF OBLIGATIONS              Section 11.01   Absolute and Unconditional Obligations.  Borrower acknowledges and agrees that its obligations and liabilities under this Agreement and under the other Loan Documents shall be absolute and unconditional irrespective of (1) any lack of validity or enforceability of any of the Obligations, any Loan Documents, or any agreement or instrument relating thereto; (2) any change in the time, manner or place of payment of, or in any other term in respect of, all or any of the Obligations, or any other amendment or waiver of or consent to any departure from any Loan Documents or any other documents or instruments executed in connection with or related to the Obligations; (3) any exchange or release of any collateral, if any, or of any other Person from all or any of the Obligations; or (4) any other circumstances which might otherwise constitute a defense available to, or a discharge of, Borrower or any other Person in respect of the Obligations.              The obligations and liabilities of Borrower under this Agreement and other Loan Documents shall not be conditioned or contingent upon the pursuit by any Bank or any other Person at any time of any right or remedy against Borrower or any other Person which may be or become liable in respect of all or any part of the Obligations or against any collateral or security or guarantee therefor or right of setoff with respect thereto.              Section 11.02   Non-Recourse to Borrower's Principals.  Notwithstanding anything to the contrary contained herein, in any of the other Loan Documents, or in any other instruments, certificates, documents or agreements executed in connection with the Loans (all of the foregoing, for purposes of this Section, hereinafter referred to, individually and collectively, as the "Relevant Documents"), no recourse under or upon any Obligation, representation, warranty, promise or other matter whatsoever shall be had against any of Borrower's Principals and each Bank expressly waives and releases, on behalf of itself and its successors and assigns, all right to assert any liability whatsoever under or with respect to the Relevant Documents against, or to satisfy any claim or obligation arising thereunder against, any of Borrower's Principals or out of any assets of Borrower's Principals, provided, however, that nothing in this Section shall be deemed to (1) release Borrower from any personal liability pursuant to, or from any of its respective obligations under, the Relevant Documents, or from personal liability for its fraudulent actions or fraudulent omissions; (2) release any of Borrower's Principals from personal liability for its or his own fraudulent actions or fraudulent omissions; (3) constitute a waiver of any obligation evidenced or secured by, or contained in, the Relevant Documents or affect in any way the validity or enforceability of the Relevant Documents; or (4) limit the right of Administrative Agent and/or the Banks to proceed against or realize upon any collateral hereafter given for the Loans or any and all of the assets of Borrower (notwithstanding the fact that any or all of Borrower's Principals have an ownership interest in Borrower and, thereby, an interest in the assets of Borrower) or to name Borrower (or, to the extent that the same are required by applicable Law or are determined by a court to be necessary parties in connection with an action or suit against Borrower or any collateral hereafter given for the Loans, any of Borrower's Principals) as a party defendant in, and to enforce against any collateral hereafter given for the Loans and/or assets of Borrower any judgment obtained by Administrative Agent and/or the Banks with respect to, any action or suit under the Relevant Documents so long as no judgment shall be taken (except to the extent taking a judgment is required by applicable Law or determined by a court to be necessary to preserve Administrative Agent's and/or Banks' rights against any collateral hereafter given for the Loans or Borrower, but not otherwise) or shall be enforced against Borrower's Principals or their assets. ARTICLE XII MISCELLANEOUS              Section 12.01   Binding Effect of Request for Advance.  Borrower agrees that, by its acceptance of any advance of proceeds of the Loans under this Agreement, it shall be bound in all respects by the request for advance submitted on its behalf in connection therewith with the same force and effect as if Borrower had itself executed and submitted the request for advance and whether or not the request for advance is executed and/or submitted by an authorized person.              Section 12.02   Amendments and Waivers.  No amendment or waiver of any provision of this Agreement or any other Loan Document nor consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Banks and, solely for purposes of its acknowledgment thereof, Administrative Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given, provided, however, that no amendment, waiver or consent shall, unless in writing and signed or consented to by (A) the Super-Majority Banks modify any provision of Section 7.02, Article VIII or clause (11) or (12) of Section 9.01, or any other provision requiring the consent of the Super-Majority Banks; and (B) all the Banks do any of the following:  (1)  reduce the principal of, or interest on, the Notes or any fees due hereunder or any other amount due hereunder or under any Loan Document; (2) except as provided in Section 2.18, postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees due hereunder or under any Loan Document; (3) change the definition of "Majority Banks" or "Super-Majority Banks"; (4) amend this Section or any other provision requiring the consent of all the Banks; or (5) waive any default under paragraph (5) of Section 9.01.  Any advance of proceeds of the Loans made prior to or without the fulfillment by Borrower of all of the conditions precedent thereto, whether or not known to Administrative Agent and the Banks, shall not constitute a waiver of the requirement that all conditions, including the non-performed conditions, shall be required with respect to all future advances.  No failure on the part of Administrative Agent or any Bank 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 herein provided are cumulative and not exclusive of any remedies provided by law.  All communications from Administrative Agent to the Banks requesting the Banks' determination, consent, approval or disapproval (i) shall be given in the form of a written notice to each Bank, (ii) shall be accompanied by a description of the matter or thing as to which such determination, approval, consent or disapproval is requested and (iii) shall include Administrative Agent's recommended course of action or determination in respect thereof.  Each Bank shall reply promptly, but in any event within ten (10) Banking Days (or five (5) Banking Days with respect to any decision to accelerate or stop acceleration of the Loan) after receipt of the request therefor by Administrative Agent (the "Bank Reply Period").  Unless a Bank shall give written notice to Administrative Agent that it objects to the recommendation or determination of Administrative Agent (together with a written explanation of the reasons behind such objection) within the Bank Reply Period, such Bank shall be deemed to have approved or consented to such recommendation or determination.              Section 12.03   Usury.  Anything herein to the contrary notwithstanding, the obligations of Borrower under this Agreement and the Notes shall be subject to the limitation that payments of interest shall not be required to the extent that receipt thereof would be contrary to provisions of Law applicable to a Bank limiting rates of interest which may be charged or collected by such Bank.              Section 12.04   Expenses; Indemnification.  Borrower agrees to reimburse Co-Agents and Administrative Agent on demand for all costs, expenses, and charges (including, without limitation, all reasonable fees and charges of engineers, appraisers and legal counsel) incurred by any of them in connection with the Loans and to reimburse each of the Banks for reasonable legal costs, expenses and charges incurred by each of the Banks in connection with the performance or enforcement of this Agreement, the Notes, or any other Loan Documents; provided, however, that Borrower is not responsible for costs, expenses and charges incurred by the Bank Parties in connection with the administration or syndication of the Loans (other than the fees required by the Supplemental Fee Letter).  Borrower agrees to indemnify Administrative Agent and each Bank and their respective directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses incurred by any of them arising out of or by reason of (x) any claims by brokers due to acts or omissions by Borrower or (y) any investigation or litigation or other proceedings (including any threatened investigation or litigation or other proceedings) relating to any actual or proposed use by Borrower of the proceeds of the Loans, including without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified).              The obligations of Borrower under this Section and under Article III shall survive the repayment of all amounts due under or in connection with any of the Loan Documents and the termination of the Loans, provided, however, that in the case of Article III, such obligations shall survive only for a period of ninety (90) days after such repayment and termination.              Section 12.05   Assignment; Participation.  This Agreement shall be binding upon, and shall inure to the benefit of, Borrower, Administrative Agent, the Banks and their respective successors and permitted assigns.  Borrower may not assign or transfer its rights or obligations hereunder.              Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Loan (each a "Participation").  In the event of any such grant by a Bank of a Participation to a Participant, whether or not Borrower or Administrative Agent was given notice, such Bank shall remain responsible for the performance of its obligations hereunder, and Borrower and Administrative Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations hereunder.  Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of Borrower hereunder and under any other Loan Document including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement or any other Loan Document; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (1) through (5) of Section 12.02 without the consent of the Participant.              Any Bank  may at any time assign to any bank or other institution with the acknowledgment of Administrative Agent and the consent of Co-Agents and, provided there exists no Event of Default, Borrower, which consents shall not be unreasonably withheld or delayed (such assignee, a "Consented Assignee"), or, without such consents,  to one or more banks or other institutions which are majority owned subsidiaries of a Bank or to the Parent of a Bank (each Consented Assignee or subsidiary bank or institution, an "Assignee") all, or a proportionate part of all, of its rights and obligations under this Agreement and its Note, and such Assignee shall assume rights and obligations, pursuant to an Assignment and Assumption Agreement executed by such Assignee and the assigning Bank, provided that, in each case, after giving effect to such assignment the Assignee's Loan Commitment, and, in the case of a partial assignment, the assigning Bank's Loan Commitment, each will be equal to or greater than $10,000,000, provided, further, however, that the assigning Bank shall not be required to maintain a Loan Commitment in the minimum amount aforesaid in the event it assigns all of its rights and obligations under this Agreement and its Note.  Notwithstanding the provisions of the immediately preceding sentence, the consents of Co-Agents and Borrower shall not be required in the case of assignments by any Bank provided that the Assignee thereunder (or a guarantor of such Assignee's obligations under this Agreement) has a credit rating of AA (or its equivalent) or higher from a nationally recognized rating agency, and provided, further, however, that assignments by Co-Agents shall remain subject to the provisions of Section 10.14.  Upon (i) execution and delivery of such instrument, (ii) payment by such Assignee to the Bank of an amount equal to the purchase price agreed between the Bank and such Assignee and (iii) payment by such Assignee to Administrative Agent of a fee, for Administrative Agent's own account, in the amount of $3,500, such Assignee shall be a Bank Party to this Agreement and shall have all the rights and obligations of a Bank as set forth in such Assignment and Assumption Agreement, and the assigning Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required.  Upon the consummation of any assignment pursuant to this paragraph, substitute Ratable Loan Notes (and, if applicable, Swing Loan Notes) shall be issued to the assigning Bank and Assignee by Borrower, in exchange for the return of the original Ratable Loan Note (and, if applicable, Swing Loan Note).  The obligations evidenced by such substitute notes shall constitute "Obligations" for all purposes of this Agreement and the other Loan Documents.   In connection with Borrower's execution of substitute notes as aforesaid, Borrower shall deliver to Administrative Agent evidence, satisfactory to Administrative Agent, of all requisite corporate action to authorize Borrower's execution and delivery of the substitute notes and any related documents.  If the Assignee is not incorporated under the Laws of the United States of America or a state thereof, it shall, prior to the first date on which interest or fees are payable hereunder for its account, deliver to Borrower and Administrative Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 10.13.  Each Assignee shall be deemed to have made the representations contained in, and shall be bound by the provisions of, Section 10.13.  Notwithstanding the foregoing, any Designated Lender may assign at any time to its Designating Lender, without the consents required by or other limitations set forth in the first sentence of this paragraph, any or all of the Loans it may have funded hereunder and pursuant to its Designation Agreement.              Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank.  No such assignment shall release the transferor Bank from its obligations hereunder.              Borrower recognizes that in connection with a Bank's selling of Participations or making of assignments, any or all documentation, financial statements, appraisals and other data, or copies thereof, relevant to Borrower or the Loans may be exhibited to and retained by any such Participant or assignee or prospective Participant or assignee.  In connection with a Bank's delivery of any financial statements and appraisals to any such Participant or assignee or prospective Participant or assignee, such Bank shall also indicate that the same are delivered on a confidential basis.  Borrower agrees to provide all assistance reasonably requested by a Bank to enable such Bank to sell Participations or make assignments of its Loan as permitted by this Section.  Each Bank agrees to provide Borrower with notice of all Participations sold by such Bank to other than its Affiliates.              Section 12.06   Documentation Satisfactory.  All documentation required from or to be submitted on behalf of Borrower in connection with this Agreement and the documents relating hereto shall be subject to the prior approval of, and be satisfactory in form and substance to, Administrative Agent, its counsel and, where specifically provided herein, the Banks.  In addition, the persons or parties responsible for the execution and delivery of, and signatories to, all of such documentation, shall be acceptable to, and subject to the approval of, Administrative Agent and its counsel and the Banks.              Section 12.07   Notices.  Unless the party to be notified otherwise notifies the other party in writing as provided in this Section, and except as otherwise provided in this Agreement, notices shall be given to Administrative Agent by telephone, confirmed by writing, and to the Banks and to Borrower by ordinary mail or overnight courier, receipt confirmed, addressed to such party at its address on the signature page of this Agreement.  Notices shall be effective  (1) if by telephone, at the time of such telephone conversation, (2) if given by mail, three (3) days after mailing; and (3) if given by overnight courier, upon receipt.              Section 12.08   Setoff.  Borrower agrees that, in addition to (and without limitation of) any right of setoff, bankers' lien or counterclaim a Bank may otherwise have, each Bank shall be entitled, at its option, to offset balances (general or special, time or demand, provisional or final) held by it for the account of Borrower at any of such Bank's offices, in Dollars or in any other currency, against any amount payable by Borrower to such Bank under this Agreement or such Bank's Note, or any other Loan Document which is not paid when due (regardless of whether such balances are then due to Borrower), in which case it shall promptly notify Borrower and Administrative Agent thereof; provided that such Bank's failure to give such notice shall not affect the validity thereof.  Payments by Borrower hereunder or under the other Loan Documents shall be made without setoff or counterclaim.              Section 12.09   Table of Contents; Headings.  Any table of contents and the headings and captions hereunder are for convenience only and shall not affect the interpretation or construction of this Agreement.              Section 12.10   Severability.  The provisions of this Agreement are intended to be severable.  If for any reason any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction.              Section 12.11   Counterparts.  This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing any such counterpart.              Section 12.12   Integration.  The Loan Documents and Supplemental Fee Letter set forth the entire agreement among the parties hereto relating to the transactions contemplated thereby and supersede any prior oral or written statements or agreements with respect to such transactions.              Section 12.13   Governing Law.  This Agreement shall be governed by, and construed and enforced in accordance with, the Laws of the State of New York (without giving effect to New York's principles of conflicts of Laws).              Section 12.14   Waivers.  In connection with the obligations and liabilities as aforesaid, Borrower hereby waives  (1) promptness and diligence; (2) notice of any actions taken by any Bank Party under this Agreement, any other Loan Document or any other agreement or instrument relating thereto except to the extent otherwise provided herein; (3) all other notices, demands and protests, and all other formalities of every kind in connection with the enforcement of the Obligations, the omission of or delay in which, but for the provisions of this Section, might constitute grounds for relieving Borrower of its obligations hereunder; (4) any requirement that any Bank Party protect, secure, perfect or insure any Lien on any collateral or exhaust any right or take any action against Borrower or any other Person or any collateral; (5) any right or claim of right to cause a marshalling of the assets of Borrower; and (6) all rights of subrogation or contribution, whether arising by contract or operation of law (including, without limitation, any such right arising under the Federal Bankruptcy Code) or otherwise by reason of payment by Borrower, either jointly or severally, pursuant to this Agreement or other Loan Documents.              Section 12.15   Jurisdiction; Immunities.  Borrower, Administrative Agent and each Bank hereby irrevocably submit to the jurisdiction of any New York State or United States Federal court sitting in New York City over any action or proceeding arising out of or relating to this Agreement, the Notes or any other Loan Document.  Borrower, Administrative Agent, and each Bank irrevocably agree that all claims in respect of such action or proceeding may be heard and determined in such New York State or United States Federal court.  Borrower, Administrative Agent, and each Bank irrevocably consent to the service of any and all process in any such action or proceeding by the mailing of copies of such process to Borrower, Administrative Agent or each Bank, as the case may be, at the addresses specified herein.  Borrower, Administrative Agent and each Bank agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law.  Borrower, Administrative Agent and each Bank further waive any objection to venue in the State of New York and any objection to an action or proceeding in the State of New York on the basis of forum non conveniens.  Borrower, Administrative Agent and each Bank agree that any action or proceeding brought against Borrower, Administrative Agent or any Bank, as the case may be, shall be brought only in a New York State court sitting in New York City or a United States Federal court sitting in New York City, to the extent permitted or not expressly prohibited by applicable Law.              Nothing in this Section shall affect the right of Borrower, Administrative Agent or any Bank to serve legal process in any other manner permitted by Law.              To the extent that Borrower, Administrative Agent or any Bank have or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether from service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, Borrower, Administrative Agent and each Bank hereby irrevocably waive such immunity in respect of its obligations under this Agreement, the Notes and any other Loan Document.              BORROWER, ADMINISTRATIVE AGENT AND EACH BANK WAIVE ANY RIGHT EACH SUCH PARTY MAY HAVE TO JURY TRIAL IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING BROUGHT WITH RESPECT TO THIS AGREEMENT, THE NOTES OR THE LOANS.              Section 12.16   Designated Lender.  Any Bank (other than a Bank who is such solely because it is a Designated Lender) (each, a "Designating Lender") may at any time designate one (1) Designated Lender to fund Bid Rate Loans on behalf of such Designating Lender subject to the terms of this Section and the provisions in Section 12.05 shall not apply to such designation.  No Bank may designate more than one (1) Designated Lender.  The parties to each such designation shall execute and deliver to Administrative Agent for its acceptance a Designation Agreement.  Upon such receipt of an appropriately completed Designation Agreement executed by a Designating Lender and a designee representing that it is a Designated Lender, Administrative Agent will accept such Designation Agreement and give prompt notice thereto to Borrower, whereupon, (i) from and after the "Effective Date" specified in the Designation Agreement, the Designated Lender shall become a party to this Agreement with a right to make Bid Rate Loans on behalf of its Designating Lender pursuant to Section 2.02 after Borrower has accepted the Bid Rate Quote of the Designating Lender and (ii) the Designated Lender shall not be required to make payments with respect to any obligations in this Agreement except to the extent of excess cash flow of such Designated Lender which is not otherwise required to repay obligations of such Designated Lender which are then due and payable; provided, however, that regardless of such designation and assumption by the Designated Lender, the Designating Lender shall be and remain obligated to Borrower, Administrative Agent and the Banks for each and every of the obligations of the Designating Lender and its related Designated Lender with respect to this Agreement, including, without limitation, any indemnification obligations under Section 10.05.  Each Designating Lender shall serve as the administrative agent of its Designated Lender and shall on behalf of, and to the exclusion of, the Designated Lender:  (i) receive any and all payments made for the benefit of the Designated Lender and (ii) give and receive all communications and notices and take all actions hereunder, including, without limitation, votes, approvals, waivers and consents under or relating to this Agreement and the other Loan Documents.  Any such notice, communication, vote, approval, waiver or consent shall be signed by the Designating Lender as administrative agent for the Designated Lender and shall not be signed by the Designated Lender on its own behalf, but shall be binding on the Designated Lender to the same extent as if actually signed by the Designated Lender.  Borrower, Administrative Agent and the Banks may rely thereon without any requirement that the Designated Lender sign or acknowledge the same.  No Designated Lender may assign or transfer all or any portion of its interest hereunder or under any other Loan Document, other than assignments to the Designating Lender which originally designated such Designated Lender.              Section 12.17   No Bankruptcy Proceedings.  Each of Borrower, the Banks and Administrative Agent hereby agrees that it will not institute against any Designated Lender or join any other Person in instituting against any Designated Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding under any federal or state bankruptcy or similar Law, for one (1) year and one (1) day after the payment in full of the latest maturing commercial paper note issued by such Designated Lender.              IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.   AVALONBAY COMMUNITIES, INC.               By /s/ Joanne M. Lockridge -------------------------------------------------------------------------------- [SEAL]     Name:  Joanne M. Lockridge       Title:    Vice President             Address for Notices:       15 River Road       Suite 210       Wilton, CT  06897             Attention:  Joanne M. Lockridge       Vice President - Finance           Telephone: (203) 761-6545     Telecopy: (203) 761-6560       THE CHASE MANHATTAN BANK       (as Bank, Co-Agent and Syndication Agent)         By /s/ Charles E. Hoagland --------------------------------------------------------------------------------       Name:  Charles E. Hoagland       Title:    Vice President       Address for Notices and       Applicable Lending Office:               The Chase Manhattan Bank       270 Park Avenue       New York, NY 10017             Attention: George E. Winckler             Telephone: (212) 270-9537     Telecopy: (212) 270-3513         FLEET NATIONAL BANK (as Co-Agent, Bank and Administrative Agent)         By /s/ Lisa Sanders --------------------------------------------------------------------------------       Name:  Lisa Sanders       Title:    Vice President       Address for Notices and       Applicable Lending Office:               Fleet National Bank       777 Main Street       Mail Code CTEH 40223B       Hartford, CT 06115             Attention: Lisa Sanders             Telephone: (203) 973-1913     Telecopy: (203) 964-9038           BANK OF AMERICA            (as Bank and Documentation Agent)             By /s/ Nina Di Sandro --------------------------------------------------------------------------------       Name:  Nina Di Sandro       Title:  Vice President           Address for Notices and       Applicable Lending Office:               Bank of America, N.A.       MD2-600-06-14       6610 Rockledge Drive – 6th Floor       Bethesda, MD 20817         Attention: Nina DiSandro             Telephone: (301) 493-7048     Telecopy: (301) 493-2885               FIRST UNION NATIONAL BANK            (as Bank and Documentation Agent)             By /s/ Daniel J. Sullivan --------------------------------------------------------------------------------       Name:  Daniel J. Sullivan       Title:    Managing Director           Address for Notices and       Applicable Lending Office:               First Union National Bank       One First Union Center       301 South College Street       NC 5604       Charlotte, NC 28288-5604         Attention:  David Hoagland             Telephone:  (704) 374-4809     Telecopy:    (704) 383-6205           CITICORP REAL ESTATE, INC.            (as Bank and Documentation Agent)             By /s/ David Z. Hirsh --------------------------------------------------------------------------------       Name:  David Z. Hirsh       Title:    Vice President           Address for Notices and       Applicable Lending Office:               Citicorp Real Estate, Inc.       390 Greenwich Street       New York, NY 10013             Attention: David Hirsh             Telephone: (212) 723-5881     Telecopy: (212) 723-8380             LEHMAN COMMERCIAL PAPER INC.             By /s/ Francis X. Gilhool --------------------------------------------------------------------------------       Name:  Francis X. Gilhool       Title:    Authorized Signatory           Address for Notices and       Applicable Lending Office:               Lehman Commercial Paper Inc.       3 World Financial Center       New York, NY 10285-1200             Attention: Thomas Buffa             Telephone: (212) 526-5153     Telecopy: (212) 526-0035           BANKERS TRUST COMPANY             By /s/ Steven P. Lapham --------------------------------------------------------------------------------       Name:  Steven P. Lapham       Title:    Director           Address for Notices and       Applicable Lending Office:               Bankers Trust Company       130 Liberty Street       MS:  NYC 02-2502       New York, New York 10006             Attention: Linda Wang             Telephone: (212) 250-2781     Telecopy: (212) 669-0743             AMSOUTH BANK             By /s/ Alan C. Brown --------------------------------------------------------------------------------       Name:  Alan C. Brown       Title:    Senior Vice President           Address for Notices and       Applicable Lending Office:               AmSouth Bank       1900 5th Avenue North       Birmingham, AL 35203             Attention: Robert Blair             Telephone: (205) 326-4071     Telecopy: (205) 326-4075           KEYBANK NATIONAL ASSOCIATION             By /s/ Mary Ellen Fowler --------------------------------------------------------------------------------       Name:  Mary Ellen Fowler       Title:    Vice President           Address for Notices and       Applicable Lending Office:               KeyBank National Association       127 Public Square       OH-01-27-0839       Cleveland, OH 44114             Attention: Mary Ellen Fowler             Telephone: (216) 689-4975     Telecopy: (216) 689-4997             PNC BANK, NATIONAL ASSOCIATION             By /s/ Connie Bond Stuart --------------------------------------------------------------------------------       Name:  Connie Bond Stuart       Title:    Senior Vice President           Address for Notices and       Applicable Lending Office:               PNC Bank, National Association       One PNC Plaza       249 Fifth Avenue       P1-POPP-19-2       Pittsburgh, PA 15222             Attention: Real Estate Banking             Telephone: (412) 762-8519     Telecopy: (412) 762-5751           with a copy to:               1401 Eye Street, N.W. – Suite 200       Washington, DC 20005             Attention: David Bucher             Telephone: (202) 393-2440     Telecopy: (202) 393-1545           SOUTHTRUST BANK             By /s/ Ronald A. Brantley, II --------------------------------------------------------------------------------       Name:  Ronald A. Brantley, II       Title:    Commercial Loan Officer           Address for Notices and       Applicable Lending Office:               SouthTrust Bank       420 North 20th Street       Birmingham, AL 35203             Attention: Ronnie Brantley             Telephone: (205) 254-4438     Telecopy: (205) 254-8270             COMERICA BANK             By /s/ Casey L. Ostrander --------------------------------------------------------------------------------       Name:  Casey L. Ostrander       Title:    Account Officer           Address for Notices and       Applicable Lending Office:               Comerica Bank       500 Woodward Avenue       MC 3256       Detroit, Michigan 48226             Attention: Casey Ostrander             Telephone: (313) 222-5286     Telecopy: (313) 222-9295           SUNTRUST BANK             By /s/ Nancy B. Richards --------------------------------------------------------------------------------       Name:  Nancy B. Richards       Title:    Vice President           Address for Notices and       Applicable Lending Office               SunTrust Bank       8245 Boone Blvd., Suite 820       Vienna, Virginia 22182             Attention: Nancy B. Richards             Telephone: (703) 902-9039     Telecopy: (703) 902-9245   EXHIBIT A AUTHORIZATION LETTER ________ ___, 2001 Fleet National Bank _____________________ _____________________ _____________________ Re:        Revolving Loan Agreement dated as of ____________, 2001 (the "Loan Agreement"; capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement) among us, as Borrower, the Banks named therein, and you, as Administrative Agent for said Banks Ladies/Gentlemen:              In connection with the captioned Loan Agreement, we hereby designate any of the following persons to give to you instructions, including notices required pursuant to the Loan Agreement, orally, by telephone or teleprocess, or in writing:              [NAMES]                Instructions may be honored on the oral, telephonic, teleprocess or written instructions of anyone purporting to be any one of the above designated persons even if the instructions are for the benefit of the person delivering them.  We will furnish you with written confirmation of each such instruction signed by any person designated above (including any telecopy which appears to bear the signature of any person designated above) on the same day that the instruction is provided to you, but your responsibility with respect to any instruction shall not be affected by your failure to receive such confirmation or by its contents.              Without limiting the foregoing, we hereby unconditionally authorize any one of the above-designated persons to execute and submit requests for advances of proceeds of the Loans (including the Initial Advance) and notices of Elections, Conversions and Continuations to you under the Loan Agreement with the identical force and effect in all respects as if executed and submitted by us.              You and the Banks shall be fully protected in, and shall incur no liability to us for, acting upon any instructions which you in good faith believe to have been given by any person designated above, and in no event shall you or the Banks be liable for special, consequential or punitive damages.  In addition, we agree to hold you and the Banks and your and their respective agents harmless from any and all liability, loss and expense arising directly or indirectly out of instructions that we provide to you in connection with the Loan Agreement except for liability, loss or expense occasioned by your gross negligence or willful misconduct.              Upon notice to us, you may, at your option, refuse to execute any instruction, or part thereof, without incurring any responsibility for any loss, liability or expense arising out of such refusal if you in good faith believe that the person delivering the instruction is not one of the persons designated above or if the instruction is not accompanied by an authentication method that we have agreed to in writing.              We will promptly notify you in writing of any change in the persons designated above and, until you have actually received such written notice and have had a reasonable opportunity to act upon it, you are authorized to act upon instructions, even though the person delivering them may no longer be authorized.   Very truly yours,       AVALONBAY COMMUNITIES, INC.       By --------------------------------------------------------------------------------     Name:     Title: EXHIBIT B RATABLE LOAN NOTE     $___________ New York, New York   ____________________________________________, 200_              For value received, AvalonBay Communities, Inc., a Maryland corporation ("Borrower"), hereby promises to pay to the order of ___________ or its successors or assigns (collectively, the "Bank"), at the principal office of Fleet National Bank ("Administrative Agent") located at __________________ for the account of the Applicable Lending Office of the Bank, the principal sum of ________ Dollars ($____________), or if less, the amount loaned by the Bank under its Ratable Loan to Borrower pursuant to the Loan Agreement (as defined below) and actually outstanding, in lawful money of the United States and in immediately available funds, in accordance with the terms set forth in the Loan Agreement.  Borrower also promises to pay interest on the unpaid principal balance hereof, for the period such balance is outstanding, in like money, at said office for the account of said Applicable Lending Office, at the time and at a rate per annum as provided in the Loan Agreement.  Any amount of principal hereof which is not paid when due, whether at stated maturity, by acceleration, or otherwise, shall bear interest from the date when due until said principal amount is paid in full, payable on demand, at the rate set forth in the Loan Agreement.              The date and amount of each advance of the Ratable Loan made by the Bank to Borrower under the Loan Agreement referred to below, and each payment of said Ratable Loan, shall be recorded by the Bank on its books and, prior to any transfer of this Note (or, at the discretion of the Bank, at any other time), may be endorsed by the Bank on the schedule attached hereto and any continuation thereof.              This Note is one of the Ratable Loan Notes referred to in the Revolving Loan Agreement dated as of ________ __, 2001 (as the same may be amended from time to time, the "Loan Agreement") among Borrower, the Banks named therein (including the Bank) and Administrative Agent, as administrative agent for the Banks.  All of the terms, conditions and provisions of the Loan Agreement are hereby incorporated by reference.  All capitalized terms used herein and not defined herein shall have the meanings given to them in the Loan Agreement.              The Loan Agreement contains, among other things, provisions for the prepayment of and acceleration of this Note upon the happening of certain stated events.              No recourse shall be had under this Note against Borrower's Principals except as and to the extent set forth in Section 11.02 of the Loan Agreement.              All parties to this Note, whether principal, surety, guarantor or endorser, hereby waive presentment for payment, demand, protest, notice of protest and notice of dishonor.              This Note shall be governed by, and construed and enforced in accordance with, the Laws of the State of New York, provided that, as to the maximum lawful rate of interest which may be charged or collected, if the Laws applicable to the Bank permit it to charge or collect a higher rate than the Laws of the State of New York, then such Law applicable to the Bank shall apply to the Bank under this Note.   AVALONBAY COMMUNITIES, INC.       By -------------------------------------------------------------------------------- [SEAL]       Name:       Title:   Date Amount of Advance Amount of Payment Balance Outstanding Notation By -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   EXHIBIT B-1 BID RATE LOAN NOTE $400,000,000 New York, New York   __________, 2001              For value received, AvalonBay Communities, Inc., a Maryland corporation ("Borrower"), hereby promises to pay to the order of Fleet National Bank ("Administrative Agent") or its successors or assigns for the account of the respective Banks making Bid Rate Loans or their respective successors or assigns (for the further account of their respective Applicable Lending Offices), at the principal office of Administrative Agent located at _____________________________________________________, the principal sum of Four Hundred Million Dollars ($400,000,000), or if less, the amount loaned by one or more of said Banks under their respective Bid Rate Loans to Borrower pursuant to the Loan Agreement (as defined below) and actually outstanding, in lawful money of the United States and in immediately available funds, in accordance with the terms set forth in the Loan Agreement.  Borrower also promises to pay interest on the unpaid principal balance hereof, for the period such balance is outstanding, in like money, at said office for the account of said Banks for the further account of their respective Applicable Lending Offices, at the times and at the rates per annum as provided in the Loan Agreement.  Any amount of principal hereof which is not paid when due, whether at stated maturity, by acceleration, or otherwise, shall bear interest from the date when due until said principal amount is paid in full, payable on demand, at the rate set forth in the Loan Agreement.              The date and amount of each Bid Rate Loan to Borrower under the Loan Agreement referred to below, the name of the Bank making the same, the interest rate applicable thereto and the maturity date thereof (i.e., the end of the Interest Period Applicable thereto) shall be recorded by Administrative Agent on its records and may be endorsed by Administrative Agent on the schedule attached hereto and any continuation thereof.              This Note is the Bid Rate Loan Note referred to in the Revolving Loan Agreement dated as of ______________, 2001 (as the same may be amended from time to time, the "Loan Agreement") among Borrower, the Banks named therein and Administrative Agent, as administrative agent for the Banks.  All of the terms, conditions and provisions of the Loan Agreement are hereby incorporated by reference.  All capitalized terms used herein and not defined herein shall have the meanings given to them in the Loan Agreement.              The Loan Agreement contains, among other things, provisions for the prepayment of and acceleration of this Note upon the happening of certain stated events.              No recourse shall be had under this Note against the Borrower's Principals except as and to the extent set forth in Section 11.02 of the Loan Agreement.              All parties to this Note, whether principal, surety, guarantor or endorser, hereby waive presentment for payment, demand, protest, notice of protest and notice of dishonor.              This Note shall be governed by, and construed and enforced in accordance with, the Laws of the State of New York, provided that, as to the maximum lawful rate of interest which may be charged or collected, if the Laws applicable to a particular Bank permit it to charge or collect a higher rate than the Laws of the State of New York, then such Law applicable to such Bank shall apply to such Bank under this Note.   AVALONBAY COMMUNITIES, INC.       By -------------------------------------------------------------------------------- [SEAL]       Name:       Title: Bid Rate Loan # Bank Date of Advance Principal Amount Interest Rate Maturity (i.e., Expiration of Interest Period) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- EXHIBIT B-2 SWING LOAN NOTE New York, New York __________, 200_              For value received, AvalonBay Communities, Inc., a Maryland corporation ("Borrower"), hereby promises to pay to the order of ___________ or its successors or assigns (collectively, the "Bank"), at the principal office of Fleet National Bank ("Administrative Agent") located at ___________________ for the account of the Applicable Lending Office of the Bank, the principal sum equal to the amount loaned by the Bank under its Swing Loan to Borrower pursuant to the Loan Agreement (as defined below) and actually outstanding, in lawful money of the United States and in immediately available funds, in accordance with the terms set forth in the Loan Agreement.  Borrower also promises to pay interest on the unpaid principal balance hereof, for the period such balance is outstanding, in like money, at said office for the account of said Applicable Lending Office, at the time and at a rate per annum as provided in the Loan Agreement.  Any amount of principal hereof which is not paid when due, whether at stated maturity, by acceleration, or otherwise, shall bear interest from the date when due until said principal amount is paid in full, payable on demand, at the rate set forth in the Loan Agreement.              The date and amount of each advance of the Swing Loan made by the Bank to Borrower under the Loan Agreement referred to below, and each payment of said Swing Loan, shall be recorded by the Bank on its books and, prior to any transfer of this Note (or, at the discretion of the Bank, at any other time), may be endorsed by the Bank on the schedule attached hereto and any continuation thereof.              This Note is one of the Swing Loan Notes referred to in the Revolving Loan Agreement dated as of ________ __, 2001 (as the same may be amended from time to time, the "Loan Agreement") among Borrower, the Banks named therein (including the Bank) and Administrative Agent, as administrative agent for the Banks.  All of the terms, conditions and provisions of the Loan Agreement are hereby incorporated by reference.  All capitalized terms used herein and not defined herein shall have the meanings given to them in the Loan Agreement.              The Loan Agreement contains, among other things, provisions for the prepayment of and acceleration of this Note upon the happening of certain stated events.              No recourse shall be had under this Note against Borrower's Principals except as and to the extent set forth in Section 11.02 of the Loan Agreement.              All parties to this Note, whether principal, surety, guarantor or endorser, hereby waive presentment for payment, demand, protest, notice of protest and notice of dishonor.              This Note shall be governed by, and construed and enforced in accordance with, the Laws of the State of New York, provided that, as to the maximum lawful rate of interest which may be charged or collected, if the Laws applicable to the Bank permit it to charge or collect a higher rate than the Laws of the State of New York, then such Law applicable to the Bank shall apply to the Bank under this Note.   AVALONBAY COMMUNITIES, INC.           By -------------------------------------------------------------------------------- [SEAL]       Name:         Title:   Date Amount of Advance Amount of Payment Balance Outstanding Notation By -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   [Other Exhibits Omitted] TABLE OF CONTENTS     ARTICLE I DEFINITIONS; ETC.   Section 1.01 Definitions Section 1.02 Accounting Terms Section 1.03 Computation of Time Periods Section 1.04 Rules of Construction     ARTICLE II THE LOANS   Section 2.01 Ratable Loans; Bid Rate Loans; Purpose. Section 2.02 Bid Rate Loans. Section 2.03 Advances, Generally Section 2.04 Procedures for Advances Section 2.05 Interest Periods; Renewals Section 2.06 Interest Section 2.07 Fees Section 2.08 Notes Section 2.09 Prepayments Section 2.10 Cancellation of Commitments Section 2.11 Method of Payment Section 2.12 Elections, Conversions or Continuation of Loans Section 2.13 Minimum Amounts Section 2.14 Certain Notices Regarding Elections, Conversions and Continuations of Loans Section 2.15 Late Payment Premium Section 2.16 Letters of Credit Section 2.17 Swing Loans Section 2.18 Extension Of Maturity Section 2.19 Additional Loan Commitments.     ARTICLE III YIELD PROTECTION; ILLEGALITY, ETC.   Section 3.01 Additional Costs Section 3.02 Limitation on Types of Loans Section 3.03 Illegality Section 3.04 Treatment of Affected Loans Section 3.05 Certain Compensation Section 3.06 Capital Adequacy Section 3.07 Substitution of Banks Section 3.08 Applicability     ARTICLE IV CONDITIONS PRECEDENT   Section 4.01 Conditions Precedent to the Initial Advance Section 4.02 Conditions Precedent to Advances After the Initial Advance Section 4.03 Deemed Representations       ARTICLE V REPRESENTATIONS AND WARRANTIES   Section 5.01 Due Organization Section 5.02 Power and Authority; No Conflicts; Compliance With Laws Section 5.03 Legally Enforceable Agreements Section 5.04 Litigation Section 5.05 Good Title to Properties Section 5.06 Taxes Section 5.07 ERISA Section 5.08 No Default on Outstanding Judgments or Orders Section 5.09 No Defaults on Other Agreements Section 5.10 Government Regulation Section 5.11 Environmental Protection Section 5.12 Solvency Section 5.13 Financial Statements Section 5.14 Valid Existence of Affiliates Section 5.15 Insurance Section 5.16 Accuracy of Information; Full Disclosure     ARTICLE VI AFFIRMATIVE COVENANTS   Section 6.01 Maintenance of Existence Section 6.02 Maintenance of Records Section 6.03 Maintenance of Insurance Section 6.04 Compliance with Laws; Payment of Taxes Section 6.05 Right of Inspection Section 6.06 Compliance With Environmental Laws Section 6.07 Maintenance of Properties Section 6.08 Payment of Costs Section 6.09 Reporting and Miscellaneous Document Requirements Section 6.10 Principal Prepayments as a Result of Reduction in Total Loan Commitment     ARTICLE VII NEGATIVE COVENANTS   Section 7.01 Mergers Etc Section 7.02 Investments Section 7.03 Sale of Assets Section 7.04 Distributions     ARTICLE VIII FINANCIAL COVENANTS   Section 8.01 Consolidated Tangible Net Worth Section 8.02 Relationship of Total Outstanding Indebtedness to Capitalization Value Section 8.03 Relationship of Combined EBITDA to Interest Expense Section 8.04 Relationship of Combined EBITDA to Combined Debt Service Section 8.05 Ratio of Unsecured Indebtedness to Unencumbered Asset Value Section 8.06 Relationship of Unencumbered Combined EBITDA to Unsecured Interest Expense Section 8.07 Relationship of Dividends to Funds From Operations Section 8.08 Relationship of Secured Indebtedness to Capitalization Value       ARTICLE IX EVENTS OF DEFAULT   Section 9.01 Events of Default Section 9.02 Remedies     ARTICLE X ADMINISTRATIVE AGENT; RELATIONS AMONG BANKS   Section 10.01 Appointment, Powers and Immunities of Administrative Agent Section 10.02 Reliance by Administrative Agent Section 10.03 Defaults Section 10.04 Rights of Administrative Agent as a Bank Section 10.05 Indemnification of Administrative Agent Section 10.06 Non-Reliance on Administrative Agent and Other Banks Section 10.07 Failure of Administrative Agent to Act Section 10.08 Resignation or Removal of Administrative Agent Section 10.09 Amendments Concerning Agency Function Section 10.10 Liability of Administrative Agent Section 10.11 Transfer of Agency Function Section 10.12 Non-Receipt of Funds by Administrative Agent Section 10.13 Withholding Taxes Section 10.14 Minimum Commitment by Co-Agents Section 10.15 Pro Rata Treatment Section 10.16 Sharing of Payments Among Banks Section 10.17 Possession of Documents     ARTICLE XI NATURE OF OBLIGATIONS   Section 11.01 Absolute and Unconditional Obligations Section 11.02 Non-Recourse to Borrower's Principals     ARTICLE XII MISCELLANEOUS   Section 12.01 Binding Effect of Request for Advance Section 12.02 Amendments and Waivers Section 12.03 Usury Section 12.04 Expenses; Indemnification Section 12.05 Assignment; Participation Section 12.06 Documentation Satisfactory Section 12.07 Notices Section 12.08 Setoff Section 12.09 Table of Contents; Headings Section 12.10 Severability Section 12.11 Counterparts Section 12.12 Integration Section 12.13 Governing Law Section 12.14 Waivers Section 12.15 Jurisdiction; Immunities Section 12.16 Designated Lender Section 12.17 No Bankruptcy Proceedings         EXHIBIT A - Authorization Letter       EXHIBIT B - Ratable Loan Note       EXHIBIT B-1 - Bid Rate Loan Note       EXHIBIT B-2 - Swing Loan Note       EXHIBIT C - Information Regarding Material Affiliates       EXHIBIT D - Solvency Certificate       EXHIBIT E - Assignment and Assumption Agreement       EXHIBIT F - Designation Agreement       EXHIBIT G-1 - Bid Rate Quote Request       EXHIBIT G-2 - Invitation for Bid Rate Quotes       EXHIBIT G-3 - Bid Rate Quote       EXHIBIT G-4 - Borrower's Acceptance of Bid Rate Quote       EXHIBIT H   Acceptance Letter                

Ex 10.13(a) Employment Agreement   MCMS, INC. 83 Great Oaks Boulevard San Jose, California   October 18, 2000   Tony Nicholls 2230 Stillwater Court Neenah, Wisconsin 54956 Dear Tony:           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 the Chief Operating Officer, upon the terms and conditions as set forth in this letter agreement for the period beginning as of October 18, 2000 (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 Chief Operating Officer of the Company and shall have the normal duties, responsibilities and authority of the Chief Operating Officer, 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 a Chief Operating Officer. (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 $180,000 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 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 one year 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 one year, 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 demonstratable 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-Solicitation. (a)       In further consideration of the compensation to be paid to Executive hereunder, for six (6) months after the Employment 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, (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. (b)       In the event of the breach or threatened breach by Executive of any of the provisions of this paragraph 7, the Company shall be entitled to withhold any of the amounts agreed to be paid to the Executive hereunder and the Company shall also be entitled to terminate his employment status hereunder and the provision of any benefits and compensation conditioned upon such status. In addition and supplementary to other rights and remedies existing in its favor, the Company 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. 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. 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 applications 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 his 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:     --------------------------------------------------------------------------------   Tony Nicholls  

  Exhibit 10.2   CHANGE OF CONTROL AGREEMENT                   THIS CHANGE OF CONTROL AGREEMENT (the "Agreement") is made as of August 23, 2001 between DOT HILL SYSTEMS CORP., a [Delaware] corporation (the "Company"), and James L. Lambert ("Employee").                   WHEREAS, in order to provide an incentive for Employee to participate actively in the affairs and maximize the value of the Company, the Company is willing to provide Employee with certain benefits on the terms and conditions set forth below.                   NOW THEREFORE, for good and valuable consideration, the sufficiency of which is hereby acknowledged, Employee and the Company (each, a "Party," and collectively, the "Parties") agree as follows:   1.             BENEFITS IN THE EVENT OF A CHANGE OF CONTROL.  If a Change of Control (defined below) occurs then, without further action by Employee or the Company, Employee shall be entitled to the benefits set forth below:                   (a)           As of immediately prior to such Change of Control, the vesting applicable to all options to purchase shares of the Company's capital stock ("Options") and all shares of the Company's capital stock which are subject to the Company's right to repurchase such shares ("Restricted Stock") held by Employee as of the effective date of such Change of Control shall be accelerated in full such that Employee shall have the right to exercise in accordance with the terms thereof all or any portion of such Options (notwithstanding any vesting schedule set forth in such Options) and any such Company repurchase rights with respect to such Restricted Stock shall lapse in full; and                   (b)           Employee shall be entitled to a lump sum cash payment in an amount equal to one hundred fifty percent (150%) of Employee's annual base salary in effect as of the date of such Change of Control (the "Lump Sum Payment"), subject to applicable withholdings as required by applicable law, payable on the Effective Date specified in a Release delivered by Employee to the Company following such Change of Control in the form attached to Employee's Employment Agreement with the Company dated August 2, 1999 (the "Employment Agreement"). The Lump Sum Payment provided for in this Section 1(a)(ii) shall be reduced by the amount of any cash severance payment made to Employee by the Company pursuant to paragraph 10 of the Employment Agreement. Any payments made pursuant to paragraph 10 of the Employment Agreement shall be reduced by the amount of any cash payments made hereunder.   2.             DEFINITION.  For purposes of this Agreement, "Change of Control" shall mean: (1) a dissolution or liquidation of the Company; (2) any sale or transfer of all or substantially all of the assets of the Company; (3) any merger, consolidation or similar transaction in which the holders of the Company's outstanding voting securities immediately prior to such transaction do not hold, immediately following such transaction, securities representing fifty percent (50%) or more of the combined voting power of the outstanding securities of the surviving entity; or (4) the acquisition by any person (within the meaning of Section 13(d)(3) or Section 14 (d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in a single transaction or series of related transactions, of beneficial ownership (within the meaning of Rule 13d 3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing fifty percent (50%) or more of the combined voting power of the then-outstanding securities of the Company, excluding in any case shares of capital stock of the Company purchased from the Company in a transaction the principal purpose of which is to raise capital for the Company.   3.             GOLDEN PARACHUTE TAXES.  In the event that any payment or distribution by the Company, or the grant of any benefit by the Company, to or for the benefit of Employee (whether paid or payable, distributed or distributable or granted or to be granted pursuant to the terms of this Agreement or otherwise) (collectively, "Benefits") would be nondeductible by the Company for federal income tax purposes because of Section 280G of the Internal Revenue Code (the "Code") and/or would cause Employee to be liable for an excise tax pursuant to Section 4999 of the Code, then the Benefits paid, distributed or granted to Employee under this Agreement shall equal (i) the full amount of such Benefits or (ii) the Reduced Amount (as defined below), whichever of the foregoing amounts is determined by the Company to result, on an after-tax basis, in the receipt by Employee of the greatest amount of such Benefits, notwithstanding that all or some portion of the Benefits may be taxable under Section 4999 of the Code. In making its determination pursuant to the preceding sentence, the Company shall take into account all applicable Federal, state, and local employment and income taxes, as well as the excise tax imposed by Section 4999 of the Code. For purposes of this Section 4, the "Reduced Amount" shall be the maximum amount payable to Employee that would result in no portion of the Benefits being (i) nondeductible by the Company under Section 280G of the Code or (ii) subject to an excise tax liability under Section 4999 of the Code. Notwithstanding the foregoing and any other provision contained herein, in the event (as a result of Benefits to be received under this Agreement or any other plan or arrangement between the Employee and the Company) of any required reduction, as a result of Section 4999 of the Code, of Benefits to be received by Employee, reduction shall be made from such other plan or arrangement prior to any reduction relating to Benefits to be received by Employee under this Agreement.   4.             GENERAL PROVISIONS.                   (a)           This Agreement shall be governed by the laws of the State of California (without regard to principles of conflict of laws).                   (b)           Any notice, demand or request required or permitted to be given by either the Company or Employee pursuant to the terms of this Agreement shall be in writing and shall be deemed given when delivered personally or deposited in the U.S. mail, First Class with postage prepaid, and addressed to the parties at such addresses as have been previously furnished by the Parties or such other address as a Party may request by notifying the other in writing.                   (c)           The rights and obligations of Employee under this Agreement may not be transferred or assigned without the prior written consent of the Company.                   (d)           This Agreement is meant to supplement the terms of stock option agreement(s) or other agreement(s) pursuant to which Employee acquired the Options, as well as any written employment agreement between the Company and Employee. To the extent that the terms and conditions of this Agreement are inconsistent with those found in such stock option agreement(s) or other agreement(s) (employment or otherwise), the terms and conditions of this Agreement shall be controlling.                   (e)           Any Party's failure to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor prevent any Party from thereafter enforcing each and every other provision of this Agreement. The rights granted the Parties herein are cumulative and shall not constitute a waiver of any Party's right to assert all other legal remedies available to it under circumstances.                   (f)            Employee agrees upon request to execute any further documents or instruments necessary or desirable to carry out the purposes or intent of this Agreement.                   (g)           In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired.                   (h)           This Agreement, in whole or in part, may be modified, waived or amended upon the written consent of the Company and Employee.                   (i)            Notwithstanding anything to the contrary herein, nothing contained in this Agreement shall in any way alter Employee's rights under the Employment Agreement except for the last sentence of paragraph 1(b) above.                   (j)            This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which shall constitute one instrument.   [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]                       IN WITNESS WHEREOF, the undersigned have set their hand as of the date first above written.       EMPLOYEE         DOT HILL SYSTEMS CORP.                                                     /s/ James L. Lambert         /s/ Benjamin Brussell     James L. Lambert         By:  Benjamin Brussell     23-Aug-01                         Director, Chairman - Comp Committee               Title:    

QuickLinks -- Click here to rapidly navigate through this document AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT     THIS AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT is entered into as of January 31, 2001, by and among:     (1) PRECISION RECEIVABLES CORP., an Oregon corporation (together with its successors and permitted assigns, the "Borrower"),     (2) PRECISION CASTPARTS CORP., an Oregon corporation (together with its successors, "PCC"), as initial servicer hereunder (in such capacity, together with any successor servicer or sub-servicer appointed pursuant to Section 8.1, the "Servicer"),     (3) BLUE RIDGE ASSET FUNDING CORPORATION, a Delaware corporation (together with its successors, "Blue Ridge"), and WACHOVIA BANK, N.A., a national banking association, in its capacity as a Liquidity Bank to Blue Ridge (together with its successors, "Wachovia"), as Lenders (hereinafter defined), and     (4) WACHOVIA BANK, N.A., as agent for the Lenders (in such capacity, together with any successors thereto in such capacity, the "Agent"), and amends and restates in its entirety that certain Credit and Security Agreement dated as of December 10, 1999 among the parties (the "Existing Agreement"). Unless otherwise indicated, capitalized terms used in this Agreement are defined in Annex A. W I T N E S S E T H:     WHEREAS, the Borrower is a wholly-owned direct subsidiary of PCC;     WHEREAS, certain of PCC's Subsidiaries as Originators have entered into the First-Step Receivables Purchase Agreement pursuant to which each of the Originators has sold, and hereafter will sell, to PCC all of its right, title and interest in and to its accounts receivable and certain related rights;     WHEREAS, PCC has entered into the Sale Agreement pursuant to which PCC has sold and/or contributed, and hereafter will sell and/or contribute, to the Borrower all of PCC's right, title and interest in and to such accounts receivable and related rights;     WHEREAS, the Originators are engaged primarily in the business of manufacturing complex metal components and products including large, complex structural investment castings and airfoil castings used in jet aircraft engines, industrial gas turbines, fluid management systems, industrial metalworking tools and machines, pulp and paper, advanced metalforming technologies, tungsten carbide and other metal products;     WHEREAS, the Borrower has requested that the Lenders make revolving loans to the Borrower from time to time hereafter secured by the Collateral, and, subject to the terms and conditions contained in this Agreement, the Lenders are willing to make such secured loans;     WHEREAS, the Lenders have requested that PCC act as the initial Servicer for the Collateral, and, subject to the terms and conditions contained in this Agreement, PCC is willing to act in such capacity; and     WHEREAS, Wachovia has been requested, and is willing, to act as the Agent under this Agreement.     NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto hereby agree as follows: 1 -------------------------------------------------------------------------------- ARTICLE I. THE CREDIT     Section 1.1  The Facility.  On the terms and subject to the conditions set forth in this Agreement, the Borrower (or the Servicer on the Borrower's behalf) may from time to time during the Revolving Period request Advances be made on Settlement Dates by delivering a Borrowing Request to the Agent in accordance with Section 2.1. Upon receipt of a copy of each Borrowing Request from the Borrower or Servicer, the Agent shall advise the Borrower not later than 12:00 noon (New York City time) on the Business Day following such receipt whether Blue Ridge and/or the Liquidity Banks will fund a Loan (or Loans) in the aggregate amount of the requested Advance, and in the event that Blue Ridge elects not to make any such Loan to the Borrower, each of the Liquidity Banks severally agrees to make its Ratable Share of such Loan to the Borrower, on the terms and subject to the conditions hereof, provided that at no time may the aggregate principal amount of Blue Ridge's and the Liquidity Banks' Loans at any one time outstanding exceed the lesser of (i) the Aggregate Commitment, and (ii) the Borrowing Base (such lesser amount, the "Allocation Limit"). Each Loan shall be in the minimum amount of $10,000,000 or a larger integral multiple of $1,000,000, or for the remaining unused amount of the Aggregate Commitment. All Liquidity Banks' Commitments shall terminate on the Termination Date. Each of the Loans, and all other Obligations of the Borrower, shall be secured by the Collateral as provided in Article IX.     Section 1.2  Funding Mechanics; Liquidity Fundings.       (a) Each Advance hereunder shall consist of Loans made from Blue Ridge and/or the Liquidity Banks.     (b) Each Lender funding any Advance (or portion thereof) shall initiate a wire transfer in the principal amount of its Loan on the applicable Borrowing Date to the Agent in immediately available funds not later than 10:00 a.m. (New York City time) on the applicable Borrowing Date and, subject to its receipt of such Loan proceeds, the Agent shall initiate a wire transfer of such funds to the account specified by the Borrower in its Borrowing Request not later than 11:00 a.m. (New York City time) on such Borrowing Date.     (c) While it is the intent of Blue Ridge to fund each requested Advance through the issuance of Commercial Paper Notes, the parties acknowledge that if Blue Ridge is unable, or determines that it is undesirable, to issue Commercial Paper Notes to fund all or any portion of the Loans at a CP Rate, or is unable to repay such Commercial Paper Notes upon the maturity thereof, Blue Ridge may put all or any portion of its Loans to the Liquidity Banks at any time pursuant to the Liquidity Agreement to finance or refinance the necessary portion of its Loans through a Liquidity Funding to the extent available. The Liquidity Fundings may be Alternate Base Rate Loans or Eurodollar Loans, or a combination thereof, selected by the Borrower in accordance with Article II. Regardless of whether a Liquidity Funding constitutes an assignment of a Loan or the sale of one or more participations therein, each Liquidity Bank participating in a Liquidity Funding shall have the rights of a "Lender" hereunder with the same force and effect as if it had directly made a Loan to the Borrower in the amount of its Liquidity Funding.     (d) Nothing herein shall be deemed to commit Blue Ridge (or any other Lender) to make CP Rate Loans.     Section 1.3  Interest Rates.       (a) Each CP Rate Loan shall bear interest on the outstanding principal amount thereof at the CP Rate applicable to each CP Accrual Period.     (b) Each Eurodollar Loan shall bear interest on the outstanding principal amount thereof from and including the first day of the Interest Period applicable thereto selected in accordance with 2 -------------------------------------------------------------------------------- Article II of this Agreement to (but not including) the last day of such Interest Period at a rate per annum equal to the sum of (i) the applicable Eurodollar Rate (Reserve Adjusted) for such Interest Period plus (ii) the LIBOR Spread (as defined in the Fee Letter).     (c) Each Alternate Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from and including the date such Loan is made to but excluding the date it is paid at a rate per annum equal to the Alternate Base Rate for such day. Changes in the rate of interest on Alternate Base Rate Loans will take effect simultaneously with each change in the Alternate Base Rate.     (d) Notwithstanding anything to the contrary contained in Sections 1.3(a), (b) or (c), upon the occurrence of an Event of Default, and during the continuance thereof, all Obligations shall bear interest, payable upon demand, at the Default Rate.     (e) Interest at any of the aforementioned rates shall be calculated for actual days elapsed on the basis of a 360-day year. Interest shall be payable for the day a Loan is made but not for the day of any payment on the amount paid if payment is received prior to noon (local time) at the place of payment. If any payment of principal of or interest on a Loan shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment.     Section 1.4  Payment Dates; Noteless Agreement.       (a) The Borrower promises to pay the principal of each CP Rate Loan on the earlier to occur of (i) the Termination Date, and (ii) the refinancing of such Loan with an Alternate Base Rate Loan or a Eurodollar Rate Loan.     (b) The Borrower promises to pay the principal of each Eurodollar Loan on the earlier to occur of (i) the Termination Date, and (ii) the last day of its Interest Period.     (c) The Borrower promises to pay the principal of each Alternate Base Rate Loan, together with all accrued and unpaid interest thereon, on or before the earlier to occur of (i) the Termination Date, and (ii) the refinancing of such Loan with a CP Rate Loan or a Eurodollar Rate Loan.     (d) The Borrower promises to pay all accrued and unpaid interest on each Loan on its applicable Interest Payment Date.     (e) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. Upon request of the Borrower or the Agent, such Lender will confirm the outstanding principal balances of its Loans and the amount of any accrued and unpaid interest thereon. The entries maintained in the accounts maintained pursuant to this Section shall be prima facie evidence of the existence and amounts of the Obligations therein recorded; provided, however, that the failure of any Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Obligations in accordance with their terms.     Section 1.5  Prepayments.  Subject, in the case of CP Rate Loans and Eurodollar Loans, to the funding indemnification provisions of Section 4.3:     (a) The Borrower may from time to time prepay, without penalty or premium, all outstanding Loans, or, in a minimum aggregate amount of $5,000,000 (or a larger integral multiple of $1,000,000), any portion of the outstanding Loans upon at least two (2) Business Days' prior written notice to the Agent (each such written notice, a "Prepayment Notice"), provided that each such prepayment of principal is made ratably amongst the Lenders and is accompanied by (i) a payment of all accrued and unpaid interest thereon and (ii) if the applicable Prepayment Notice was delivered in less than the 3 -------------------------------------------------------------------------------- Required Notice Period prior to such prepayment, payment of any applicable Broken Funding Costs in connection with such prepayment;     (b) If on any Business Day, the aggregate outstanding principal amount of Blue Ridge's Loans and the Liquidity Fundings made by the Liquidity Banks exceeds the Allocation Limit, the Borrower shall prepay such Loans, without premium or penalty, by initiating a wire transfer to the Agent not later than 11:00 a.m. (New York City time) on the second Business Day thereafter in an amount sufficient to eliminate such excess, together with accrued and unpaid interest on the amount prepaid; and     (c) Upon receipt of any wire transfer pursuant to Section 1.5(b), the Agent shall initiate a wire transfer to the Lenders of their respective shares thereof not later than 11:00 a.m. (New York City time) on the date when received.     Section 1.6  Reductions in Aggregate Commitment.  The Borrower may permanently reduce the Aggregate Commitment in whole, or ratably in part, in a minimum amount of $10,000,000 (or a larger integral multiple of $1,000,000), upon at least five (5) Business Days' written notice to the Agent (each, a "Commitment Reduction Notice"), provided, however, that (a) the amount of the Aggregate Commitment may not be reduced below the aggregate principal amount of the outstanding Advances, and (b) the amount of the Aggregate Commitment may not be reduced below $25,000,000 unless the Aggregate Commitment is terminated in full. All accrued and unpaid fees shall be payable on the effective date of any termination of the Aggregate Commitment. Each Commitment Reduction Notice shall be irrevocable once delivered to the Agent.     Section 1.7  Requests for Increases in Aggregate Commitment.  The Borrower may from time to time request increases in the Aggregate Commitment in a minimum amount of $10,000,000 (or a larger integral multiple of $1,000,000), upon at least thirty (30) days' prior written notice to the Agent, which notice shall specify the amount of and proposed effective date for any such requested increase (each, a "Commitment Increase Request"). If each of the Lenders agrees to the requested increase by notifying the Agent and the Borrower in writing of their concurrence, such increase shall be made to the Commitments of the Liquidity Banks, ratably in accordance with their respective Ratable Shares as of the effective date specified in the Commitment Increase Request. If less than all of the Lenders agree to such increase, the amount of the Aggregate Commitment shall remain unchanged.     Section 1.8  Extension of the Scheduled Termination Date.  Provided that no Event of Default exists and is continuing, the Borrower may request an extension of the Scheduled Termination Date by submitting a request for an extension (each, an "Extension Request") to the Agent no more than 60 days prior to the Scheduled Termination Date then in effect. The Extension Request must specify the new Scheduled Termination Date requested by the Borrower and the date (which must be at least thirty (30) days after the Extension Request is delivered to the Agent) as of which the Agent, the Lenders and the Liquidity Banks must respond to the Extension Request (the "Response Date"). The new Scheduled Termination Date shall be no more than 364 days after the Scheduled Termination Date in effect at the time the Extension Request is received, including the Scheduled Termination Date as one of the days in the calculation of the days elapsed. Promptly upon receipt of an Extension Request, the Agent shall notify Blue Ridge and the Liquidity Banks of the contents thereof and shall request each such Person to approve the Extension Request. Each Lender and Liquidity Bank approving the Extension Request shall deliver its written approval to the Agent no later than the Response Date, whereupon the Agent shall notify the Borrower within one (1) Business Day thereafter as to whether all of the Lenders have approved the Extension Request. If all of the Lenders have approved the Extension Request, the Scheduled Termination Date specified in the Extension Request shall become effective on the existing Scheduled Termination Date, and the Agent shall promptly notify the Borrower and the Lenders of the new Scheduled Termination Date. If all of the Lenders do not unanimously agree to an Extension Request, the Scheduled Termination Date shall remain unchanged. 4 --------------------------------------------------------------------------------     Section 1.9  Distribution of Certain Notices; Notification of Interest Rates.  Promptly after receipt thereof, the Agent will notify Blue Ridge and the Liquidity Banks of the contents of each Information Package, Borrowing Request, Extension Request, Commitment Reduction Notice, Prepayment Notice, Commitment Increase Request or notice of default received by it from the Borrower or the Servicer hereunder. In addition, the Agent shall promptly notify the Lenders and the Borrower of each determination of and change in Interest Rates. ARTICLE II. BORROWING AND PAYMENT MECHANICS; CERTAIN COMPUTATIONS     Section 2.1  Method of Borrowing.  The Borrower (or the Servicer on the Borrower's behalf) shall give the Agent irrevocable notice in the form of Exhibit 2.1 hereto (each, a "Borrowing Request") not later than 12:00 noon (New York City time) at least two (2) Business Days before the Borrowing Date (which shall be a Settlement Date) of each Advance. On each Borrowing Date each Lender shall make available its Loan or Loans in immediately available funds to the Agent by initiating a wire transfer in such amount not later than 10:00 a.m. (New York City time). Subject to its receipt of such wire transfers, the Agent will initiate a wire transfer of the funds so received from the Lenders to the Borrower at the account specified in its Borrowing Request not later than 11:00 a.m. (New York City time) on the applicable Borrowing Date. Neither the Borrower, nor the Servicer on the Borrower's behalf, may deliver more than one (1) Borrowing Request in any month that would have the effect of increasing the aggregate outstanding principal balance of the Advances.     Section 2.2  Selection of Eurodollar Interest Periods.  Prior to the occurrence of an Event of Default, the Borrower (or the Servicer on the Borrower's behalf) in its Borrowing Request may request Interest Periods to apply from time to time to Eurodollar Loans in the event that Blue Ridge avails itself of a Liquidity Funding; provided, however, that (i) at least one (1) Interest Period shall mature on each Settlement Date, (ii) no Interest Period which began prior to the Scheduled Termination Date shall extend beyond the Scheduled Termination Date, and (iii) not less than $1,000,000 of principal may be allocated to any Interest Period of any Lender, and no Alternate Base Rate Loan may have a principal amount of less than $1,000,000.     The Borrower (or the Servicer on the Borrower's behalf) may not request an Interest Period for a Eurodollar Loan unless it shall have given the Agent written notice of its desire therefor not later than 12:00 noon (New York City time) at least three (3) Business Days prior to the first day of the desired Interest Period. Accordingly, all Liquidity Fundings shall initially be Alternate Base Rate Loans.     Unless the Agent shall have received written notice by 12:00 noon (New York City time) on the third Business Day prior to the last day of an Interest Period that the Borrower intends to reduce the aggregate principal amount of the Eurodollar Loans outstanding from the Liquidity Banks, each of the Liquidity Banks shall be entitled to assume that the Borrower desires to refinance its maturing Eurodollar Loans on the last day of such Interest Period with Eurodollar Loans with a one (1) month Interest Period.     Section 2.3  Computation of Concentration Limits and Unpaid Balance.  The Obligor Concentration Limits and the aggregate Unpaid Balance of Receivables of each Obligor and its Affiliated Obligors (if any) shall be calculated as if each such Obligor and its Affiliated Obligors were one Obligor.     Section 2.4  Maximum Interest Rate.  No provision of this Agreement shall require the payment or permit the collection of interest in excess of the maximum permitted by applicable law.     Section 2.5  Payments and Computations, Etc.       (a)  Payments.  The Borrower or the Servicer, as the case may be, shall initiate a wire transfer of immediately available funds of all amounts to be paid or deposited by the Borrower or the Servicer to 5 -------------------------------------------------------------------------------- the Agent or any of the Lenders (other than amounts payable under Section 4.2) no later than 11:00 a.m. (New York City time) on the day when due in Dollars to the Agent at its address specified in Schedule 14.2, and, to the extent such payment is for the account of a Lender, the Agent shall promptly disburse such funds to the appropriate Lender.     (b)  Late Payments.  To the extent permitted by law, upon demand, the Borrower or the Servicer, as applicable, shall pay to the Agent for the account of each Person to whom payment of any Obligation is due, interest on all amounts not paid or deposited by 2:00 p.m. (New York City time) on the date when due (without taking into account any applicable grace period) at the Default Rate; provided, however, that no such interest rate shall at any time exceed the maximum rate permitted by applicable law.     (c)  Method of Computation.  All computations of interest, Servicer's Fee, any per annum fees payable under Section 4.1 and any other per annum fees payable by the Borrower to the Lenders, the Servicer or the Agent under the Loan Documents shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) elapsed.     (d)  Avoidance or Recission of Payments.  To the maximum extent permitted by applicable law, no payment of any Obligation shall be considered to have been paid if at any time such payment is rescinded or must be returned for any reason.     Section 2.6  Non-Receipt of Funds by the Agent.  Unless a Lender notifies the Agent prior to the date and time on which it is scheduled to fund a Loan that it does not intend to fund, the Agent may assume that such funding will be made and may, but shall not be obligated to, make the amount of such Loan available to the intended recipient in reliance upon such assumption. If such Lender has not in fact funded its Loan proceeds to the Agent, the recipient of such payment shall, on demand by the Agent, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to the Federal Funds Rate for such day. ARTICLE III. SETTLEMENTS     Section 3.1  Reporting.       (a)  Information Packages.  Not later than the 17th of each month hereafter, or if any such day is not a Business Day, on the next succeeding Business Day (each, a "Reporting Date"), the Servicer shall deliver to the Agent, a report in the form of Exhibit 3.1 (a) (each, an "Information Package") accompanied by an electronic file in a form reasonably satisfactory to the Agent; provided, however, that if an Event of Default shall exist and be continuing, the Agent may request that a computation of the Borrowing Base be made more frequently than monthly.     (b)  Interest; Other Amounts Due.  At or before 12:00 noon (New York City time) on the Business Day before each Settlement Date, the Agent shall notify the Borrower and the Servicer of (i) the aggregate principal balance of all Loans that are then outstanding, and (ii) the aggregate amount of all principal, interest and fees that will be due and payable by the Borrower to the Agent for the account of the Agent or the Lenders on such Settlement Date.     Section 3.2  Turnover of Collections.  Without limiting the Agent's and the Lenders' recourse to the Borrower for payment of any and all Obligations:     (a) If any Information Package reveals that a mandatory prepayment is required under Section 1.5(b), not later than 12:00 noon (New York City time) on the next succeeding Settlement Date, the Servicer shall turn over to the Agent, for distribution to the Lenders, a portion of the Collections equal to the aggregate amount of such required mandatory prepayments; 6 --------------------------------------------------------------------------------     (b) If any Loans are to be voluntarily prepaid on a Settlement Date in accordance with Section 1.5(a), on such Settlement Date the Servicer shall turn over to the Agent, for distribution to the Lenders, a portion of the Collections equal to the aggregate amount of such optional prepayment; and     (c) In addition to, but without duplication of, the foregoing, on (i) each Settlement Date and (ii) each other date on which any principal of or interest on any of the Loans becomes due (whether by acceleration or otherwise), the Servicer shall turn over to the Agent, for distribution to the Lenders, a portion of the Collections equal to the aggregate amount all principal, interest, fees, Broken Funding Costs and other Obligations that are due and owing on such date.     If the Collections are insufficient to make all payments required under clauses (a), (b) and (c) and to pay the Servicer's Fees and, if applicable, expenses due and owing to any replacement Servicer under Section 8.1(d) (all of the foregoing, collectively, the "Required Amounts") and the Borrower has made any Demand Advances, the Borrower shall make demand upon PCC for payment of the Demand Advances in an amount equal to the lesser of the Required Amounts or the aggregate outstanding principal balance of such Demand Advances (plus any accrued and unpaid interest thereon) and, upon receipt of such amount, the Borrower shall pay it to the Agent for distribution in accordance with this Section 3.2.     (d) If the amount of Collections and payments on Demand Advances received by the Agent on any Settlement Date are insufficient to pay all Required Amounts, such amount shall be applied to the items specified in the subclauses below, in the order of priority of such subclauses:     (i)  to any accrued and unpaid interest on the Loans that is then due and owing, including any previously accrued interest which was not paid on its applicable due date, together with any and all Broken Funding Costs that are then due and owing;     (ii) if the Servicer is not the Borrower or an Affiliate thereof, to any accrued and unpaid Servicer's Fee that is then due and owing to such Servicer, together with any invoiced expenses of the Servicer due and owing pursuant to Section 8.1(d);     (iii) to the Usage Fee and the Facility Fee accrued during such Settlement Period, plus any previously accrued Usage Fee and Facility Fee not paid on a prior Settlement Date;     (iv) to the payment of the principal of any Loans that are then due and owing;     (v) to other Obligations that are then due and owing;     (vi) if the Servicer is the Borrower, PCC or one of their respective Affiliates, to the accrued and unpaid Servicer's Fee that are then due and owing to such Servicer; and     (vii) the balance, if any, to the Borrower.     Section 3.3  Non-Distribution of Servicer's Fee.  Each of the Agent and the other Secured Parties hereby consents to the retention by the Servicer of a portion of the Collections equal to the Servicer's Fee (and, if applicable, any invoiced expenses of such Servicer that are due and owing pursuant to Section 8.1(d)) so long as the Collections received by the Servicer are sufficient to pay all amounts pursuant to Section 3.2 of a higher priority as specified in such Section.     Section 3.4  Deemed Collections.  If on any day:     (a) the Unpaid Balance of any Receivable is reduced as a result of any defective or rejected goods or services, any cash discount or any other adjustment by any Originator or any Affiliate thereof, or as a result of any tariff or other governmental or regulatory action, or     (b) the Unpaid Balance of any Receivable is reduced or canceled as a result of a setoff in respect of any claim by the Obligor thereof (whether such claim arises out of the same or a related or an unrelated transaction), or 7 --------------------------------------------------------------------------------     (c) the Unpaid Balance of any Receivable is reduced on account of the obligation of any Originator or any Affiliate thereof to pay to the related Obligor any rebate or refund, or     (d) the Unpaid Balance of any Receivable is less than the amount included in calculating the Net Pool Balance for purposes of any Information Package (for any reason other than such Receivable becoming a Defaulted Receivable), or     (e) any of the representations or warranties of the Borrower set forth in Section 6.1(j), (l) or (p) were not true when made with respect to any Receivable, or any of the representations or warranties of the Borrower set forth in Section 6.1(l) are no longer true with respect to any Receivable, or any Receivable is repurchased by any of the Originators pursuant to the Sale Agreement,     then, on such day, the Borrower shall be deemed to have received a Collection of such Receivable (1) in the case of clauses (a)-(d) above, in the amount of such reduction or cancellation or the difference between the actual Unpaid Balance and the amount included in calculating such Net Pool Balance, as applicable; and (2) in the case of clause (e) above, in the amount of the Unpaid Balance of such Receivable. ARTICLE IV. FEES AND YIELD PROTECTION     Section 4.1  Fees.  PCC or the Borrower, as applicable, shall pay to the Agent and the Lenders certain fees from time to time in amounts and payable on such dates as are set forth in the Fee Letter.     Section 4.2  Yield Protection.  If (i) Regulation D or (ii) any Regulatory Change:     (a) shall subject an Affected Party to any tax, duty or other charge with respect to its portion of the Obligations or, as applicable, its Commitment or its Liquidity Commitment, or shall change the basis of taxation of payments to the Affected Party of any Obligations, owed to or funded in whole or in part by it or any other amounts due under this Agreement in respect of its portion of the Obligations or, as applicable, its Commitment or its Liquidity Commitment except for (1) taxes based on, or measured by, net income, or changes in the rate of tax on or determined by reference to the overall net income, of such Affected Party imposed by the United States of America, by the jurisdiction in which such Affected Party's principal executive office is located and, if such Affected Party's principal executive office is not in the United States of America, by the jurisdiction where such Affected Party's principal office in the United States is located, (2) franchise taxes, taxes on, or in the nature of, doing business taxes or capital taxes, or (3) withholding taxes required for payments made to any foreign entity which, at the time such foreign entity issues its Commitment or Liquidity Commitment or becomes an assignee of a Lender hereunder, fails to deliver to the Agent and the Borrower an accurate IRS Form 1001 or 4224 (or successor form), as applicable; or     (b) shall impose, modify or deem applicable any reserve (including, without limitation, any reserve imposed by the Federal Reserve Board, but excluding any reserve included in the determination of interest), special deposit or similar requirement against assets of any Affected Party, deposits or obligations with or for the account of any Affected Party or with or for the account of any affiliate (or entity deemed by the Federal Reserve Board to be an affiliate) of any Affected Party, or credit extended by any Affected Party; or     (c) shall affect the amount of capital required or expected to be maintained by any Affected Party; or     (d) shall impose any other condition affecting any Obligation owned or funded in whole or in part by any Affected Party, or its rights or obligations, if any, to make Loans or Liquidity Fundings; or     (e) shall change the rate for, or the manner in which the Federal Deposit Insurance Corporation (or a successor thereto) assesses deposit insurance premiums or similar charges; 8 -------------------------------------------------------------------------------- and the result of any of the foregoing is or would be:     (x) to increase the cost to or to impose a cost on (I) an Affected Party funding or making or maintaining any Loan, any Liquidity Funding, or any commitment of such Affected Party with respect to any of the foregoing, or (II) the Agent for continuing its or the Borrower's relationship with any Affected Party, in each case, in an amount deemed to be material by such Affected Party,     (y) to reduce the amount of any sum received or receivable by an Affected Party under this Agreement or under the Liquidity Agreement, or     (z) to reduce the rate of return on such Affected Party's capital as a consequence of its Commitment, its Liquidity Commitment or the Loans made by it to a level below that which such Affected Party could have achieved but for the occurrence of such circumstances, then, within thirty days after demand by such Affected Party (which demand shall be accompanied by a certificate setting forth, in reasonable detail, the basis of such demand and the methodology for calculating, and the calculation of, the amounts claimed by the Affected Party), the Borrower shall pay directly to such Affected Party such additional amount or amounts as will compensate such Affected Party for such actual additional cost, actual increased cost or actual reduction.     (f)  Each Affected Party will promptly notify the Borrower and the Agent of any event of which it has knowledge (including any future event that, in the judgment of such Affected Party, is reasonably certain to occur) which will entitle such Affected Party to compensation pursuant to this Section 4.2; provided, however, no failure to give or delay in giving such notification shall adversely affect the rights of any Affected Party to such compensation.     (g) In determining any amount provided for or referred to in this Section 4.2, an Affected Party may use any reasonable averaging and attribution methods (consistent with its ordinary business practices) that it (in its reasonable discretion) shall deem applicable. Any Affected Party when making a claim under this Section 4.2 shall submit to the Borrower the above-referenced certificate as to such actual additional cost, actual increased cost or actual reduced return (including calculation thereof in reasonable detail), which statement shall, in the absence of demonstrable error, be conclusive and binding upon the Borrower.     (h) Each of the Lenders agrees, and to require each Affected Party to agree that, with reasonable promptness after an officer of such Lender or such Affected Party responsible for administering the Transaction Documents becomes aware that it has become an Affected Party under this Section 4.2, is entitled to receive payments under this Section 4.2, or is or has become subject to U.S. withholding taxes payable by any Loan Party in respect of its investment hereunder, it will, to the extent not inconsistent with any internal policy of such Person or any applicable legal or regulatory restriction, (i) use all reasonable efforts to make, fund or maintain its commitment or investment hereunder through another branch or office of such Affected Party, or (ii) take such other reasonable measures, if, as a result thereof, the circumstances which would cause such Person to be an Affected Party under this Section 4.2 would cease to exist, or the additional amounts which would otherwise be required to be paid to such Person pursuant to this Section 4.2 would be reduced, or such withholding taxes would be reduced, and if the making, funding or maintaining of such commitment or investment through such other office or in accordance with such other measures, as the case may be, would not otherwise adversely affect such commitment or investment or the interests of such Person; provided that such Person will not be obligated to utilize such other lending office pursuant to this Section 4.2 unless the Borrower agrees to pay all incremental expenses incurred by such Person as a result of utilizing such other office as described in clause (i) above.     Section 4.3  Broken Funding Costs.  In the event that any Lender or any Liquidity Bank shall, for any reason other than default by such Lender or Liquidity Bank, actually incur any Broken Funding Costs, then, upon written notice from the Agent to the Borrower and the Servicer, the Borrower shall 9 -------------------------------------------------------------------------------- pay to the Servicer, and the Servicer shall pay to the Agent for the account of such Lender or Liquidity Bank, as applicable, the amount of such actual Broken Funding Costs. Such written notice (which shall include the methodology for calculating, and the calculation of, the amount of such actual loss or expense, in reasonable detail) shall, in the absence of demonstrable error, be conclusive and binding upon the Borrower and the Servicer. ARTICLE V. CONDITIONS OF ADVANCES     Section 5.1  Conditions Precedent to Initial Advance.  The initial Advance pursuant to the Existing Agreement was subject to the condition precedent that the Agent shall have received, on or before the date of such initial Advance, the following each (unless otherwise indicated) dated such date and in form and substance reasonably satisfactory to the Agent:     (a) Each of the First-Step Receivables Purchase Agreement and the Sale Agreement, duly executed by the parties thereto;     (b) A certificate of the Secretary or Assistant Secretary of each Loan Party certifying the names and true signatures of the officers authorized on its behalf to sign this Agreement and the other Transaction Documents to be delivered by it hereunder (on which certificate the Agent and the Lenders may conclusively rely until such time as the Agent shall receive from such Loan Party a revised certificate meeting the requirements of this subsection (b));     (c) The articles or certificate of incorporation of each Loan Party, duly certified by the Secretary of State of such Loan Party's state of incorporation, as of a recent date acceptable to the Agent in each case together with a copy of the by-laws of such Loan Party, duly certified by the Secretary or an Assistant Secretary of such Loan Party;     (d) Copies of good standing certificates (or the equivalent) for each Loan Party, issued by the Secretaries of State of the state of incorporation of such Loan Party and the state where such Loan Party's principal place of business is located;     (e) Acknowledgment copies (or other evidence of filing reasonably acceptable to the Agent) of (i) proper financing statements (Form UCC-1), in such form as the Agent may reasonably request, naming each of the Originators as debtor and seller of its Receivables and Related Assets, PCC as the secured party, and the Borrower as assignee, (ii) UCC-3 assignments with respect to each of the financing statements described in clause (i) above naming the Agent, for the benefit of the Secured Parties, as assignee of the Borrower, and (iii) financing statements (Form UCC-1), in such form as the Agent may reasonably request, naming the Borrower as the debtor and the Agent, as agent for the Secured Parties, as the secured party, or other, similar instruments or documents, as may be necessary or, in the opinion of the Agent desirable under the UCC or any comparable law of all appropriate jurisdictions to perfect the sale by each of the Originators to PCC, and by PCC to the Borrower of, and the Agent's security interest in the Collateral;     (f)  Search reports provided in writing to the Agent (i) listing all effective financing statements that name any Originator or Loan Party as debtor and that are filed in the jurisdictions in which filings were made pursuant to subsection (e) above and in such other jurisdictions that the Agent shall reasonably request, together with copies of such financing statements (none of which (other than any of the financing statements described in subsection (e) or above or in subsection (m) below) shall cover any Receivables or Related Assets), and (ii) listing all tax liens and judgment liens (if any) filed against any debtor referred to in clause (i) above in the jurisdictions described therein and showing no such Liens;     (g) The Subordinated Note, duly executed by the Borrower (and any revolving notes to be issued under the First-Step Receivables Purchase Agreement, duly executed by PCC); 10 --------------------------------------------------------------------------------     (h) Favorable opinions of Stoel Rives LLP, Wallace F. Whitney, Jr., Esq. and Latham & Watkins, collectively covering the matters set forth in of Exhibit 5.1(h);     (i)  Favorable opinions of counsel to the Originators and the Loan Parties, as to:     (1) the existence of a "true sale" of the Receivables from each of the Originators to PCC under the First-Step Receivables Purchase Agreement and from PCC to the Borrower under the Sale Agreement; and     (2) the inapplicability of the doctrine of substantive consolidation to the Borrower and each of the Originators and PCC in connection with any bankruptcy proceeding involving any of the Originators or PCC;     (j)  A pro forma Information Package, prepared as of the Cut-Off Dates specified in clauses (a)(i) and (b)(i) of the definition of "Cut-Off Date";     (k) A report in form and substance satisfactory to the Agent from the Initial Due Diligence Auditor as to a pre-closing due diligence audit by the Initial Due Diligence Auditor;     (l)  The Liquidity Agreement, in form and substance satisfactory to the Agent, duly executed by the parties thereto;     (m) UCC-3 partial releases and/or termination statements with respect to any existing Liens on the Collateral;     (n) The Fee Letter, together with payment of the Structuring Fee;     (o) A certificate of an Authorized Officer of each of the Loan Parties certifying that as of the date of the initial Advance, no Event of Default or Unmatured Event of Default exists and is continuing; and     (p) Such other agreements, instruments, certificates, opinions and other documents as the Agent may reasonably request.     Section 5.2  Conditions Precedent to All Advances.  Each Advance (including the initial Advance) shall be subject to the further conditions precedent that on the applicable Borrowing Date, each of the following statements shall be true (and the Borrower, by accepting the amount of such Advances or by receiving the proceeds of any Loan comprising such Advance, and PCC, upon such acceptance or receipt by the Borrower, shall be deemed to have certified that):     (a) the representations and warranties contained in Section 6.1 are correct in all material respects on and as of the date of such Advance as though made on and as of such day and shall be deemed to have been made on such day (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date),     (b) no event has occurred and is continuing, or would result from such Advance, that constitutes an Event of Default or Unmatured Default,     (c) the Termination Date shall not have occurred, and     (d) the Agent shall have timely received an appropriate Borrowing Request in accordance with Section 2.1; provided, however, the absence of the occurrence and continuance of an Unmatured Default shall not be a condition precedent to any Advance which does not increase the aggregate principal amount of all Advances outstanding over the aggregate outstanding principal balance of the Advances as of the opening of business on such day. 11 -------------------------------------------------------------------------------- ARTICLE VI. REPRESENTATIONS AND WARRANTIES     Section 6.1  Representations and Warranties of Loan Parties.  Each Loan Party represents and warrants, as to itself, as follows:     (a)  Due Incorporation and Good Standing; Ownership of the Originators and the Borrower.  Each Loan Party is a corporation duly incorporated, validly existing and in good standing (to the extent applicable) under the laws of the jurisdiction of its incorporation. PCC owns, directly or indirectly, all the issued and outstanding capital stock of each of the Originators and the Borrower, and all of such capital stock is fully paid and non-assessable and free and clear of any Liens.     (b)  Due Qualification.  Each Loan Party is duly qualified to do business as a foreign corporation in good standing (to the extent applicable) in all jurisdictions not covered by Section 6.1(a) in which the ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified or have such licenses or approvals would not have a Material Adverse Effect.     (c)  Power and Authority; Due Authorization.  Each Loan Party (i) has all necessary power, authority and legal right, and has obtained all necessary licenses and approvals, (A) to execute and deliver this Agreement and the other Transaction Documents to which it is a party, (B) to carry out the terms of the Transaction Documents to which it is a party, (C) in the case of the Servicer (or any Affiliate thereof that is acting as a sub-servicer), to service the Receivables and the Related Assets in accordance with this Agreement and the Sale Agreement, and (D) in the case of the Borrower, to grant the security interest in the Collateral and borrow the Loans on the terms and conditions herein provided, and (ii) has duly authorized by all necessary corporate action the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party and, in the case of the Borrower, the security interest described in clause (i)(D) above.     (d)  Title to Receivables; Valid Security Interest.  Each Receivable has been acquired by PCC from the applicable Originator in accordance with the terms of the First-Step Receivables Purchase Agreement, and by the Borrower from PCC in accordance with the terms of the Sale Agreement, and the Borrower has thereby irrevocably obtained all legal and equitable title to, and has the legal right to sell and encumber, such Receivable and the Related Assets. Each such Receivable has been transferred to the Borrower free and clear of any Lien except as contemplated hereby. Without limiting the foregoing, there have been duly filed all financing statements or other similar instruments or documents necessary under the UCC of all appropriate jurisdictions to perfect the Borrower's ownership interest in such Receivable. This Agreement creates a valid security interest in the Collateral in favor of the Agent, for the benefit of the Secured Parties, enforceable against creditors of and purchasers from the Borrower to the extent provided by the UCC.     (e)  Noncontravention.  The execution, delivery and performance by such Loan Party of this Agreement and each other Transaction Document to which it is party do not and will not: (i) contravene the terms of any of its articles or certificate of incorporation or by-laws; (ii) conflict with or result in a material breach or contravention of, or the creation of any Lien under, any document evidencing any material Contractual Obligation to which such Person is a party or any order, injunction, writ or decree of any Governmental Authority to which such Person or its property is subject; or (iii) violate any Requirement of Law. 12 --------------------------------------------------------------------------------     (f)  No Proceedings.  There are no actions, suits, labor controversies, proceedings, claims or disputes pending, or to the best knowledge of such Loan Party, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against such Loan Party, or its Subsidiaries or any of their respective properties which: (i) purport to affect or pertain to this Agreement or any other Transaction Document, or any of the transactions contemplated hereby or thereby; or (ii) if determined adversely to such Loan Party or its Subsidiaries, would reasonably be expected to have a Material Adverse Effect, except for such matters as described in (x) PCC's Report on Form 10-K for the fiscal year ended March 28, 1999, and (y) Wyman-Gordon Company's Report on Form 10-K for the fiscal year ended May 31, 1999. No injunction, writ, temporary restraining order or order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any other Transaction Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided. The Loan Parties are generally subject to suit and neither they nor any of their properties or revenues enjoys any right of immunity from judicial proceedings.     (g)  Enforceability.  This Agreement and each other Transaction Document signed by such Loan Party constitutes, a legal, valid and binding obligation of such Loan Party, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability).     (h)  Government Approvals.  No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, such Loan Party of this Agreement or any other Transaction Document, except for (i) the filing of the UCC financing statements referred to in Article V, and (ii) the filing of any UCC continuation statements and amendments from time to time required in relation to any UCC financing statements filed in connection with this Agreement, as provided in Section 8.5, all of which, at the time required in Article V or Section 8.5, as applicable, shall have been duly made and shall be in full force and effect.     (i)  Financial Statements and Absence of Certain Material Adverse Changes.       (x) Each of the financial statements of PCC and its consolidated Subsidiaries previously or hereafter furnished to the Agent, fairly presents in all material respects the consolidated financial condition of PCC and its consolidated Subsidiaries, taken as a whole, as at the dates thereof and the results of their consolidated operations for the periods covered thereby and each of such financial statements has been prepared in accordance with GAAP consistently applied (subject, in the case of interim financial statements, to customary year-end audit adjustments).     (y) From September 26, 1999 through and including the date of the initial Advance, there has been no material adverse change in PCC's consolidated financial condition, business or operations. Since the date of the initial Advance, there has been no material adverse change in PCC's consolidated financial condition, business or operations that has had, or would reasonably be expected to have, a material adverse effect upon its ability to perform its obligations, as an Originator or as Servicer, under the Transaction Documents when and as required, and no material adverse effect on the collectibility of any material portion of the Receivables.     (z) Since the date of the initial Advance, no event has occurred which would have a Material Adverse Effect.     (j)  Nature of Receivables.  Each Receivable constitutes an Account.     (k)  Margin Regulations.  The use of all funds obtained by such Loan Party under this Agreement or any other Transaction Document will not conflict with or contravene any of Regulations T, U and X promulgated by the Federal Reserve Board from time to time. 13 --------------------------------------------------------------------------------     (l)  Quality of Title.  (i) Each Receivable, together with the Related Assets, is owned by the Borrower free and clear of any Lien (other than any Lien arising pursuant to Section 5.1(e) or arising solely as the result of any action taken by the Agent or one of the Secured Parties); (ii) the Agent, on behalf of the Secured Parties, has a valid and perfected first priority security interest in the Collateral; and (iii) no financing statement or other instrument similar in effect covering any portion of the Collateral is on file in any recording office except such as may be filed (A) in favor of an Originator in accordance with the Contracts, (B) in favor of PCC (and the Borrower or the Agent as its assigns) in connection with the First-Step Receivables Purchase Agreement, (C) in favor of the Borrower (and the Agent as its assign) in connection with the Sale Agreement, (D) in favor of the Agent in accordance with this Agreement or (E) in connection with any Lien arising solely as the result of any action taken by the Agent or one of the Secured Parties.     (m)  Accurate Reports.  No Information Package (if prepared by such Loan Party, or to the extent information therein was supplied by such Loan Party), no other information furnished verbally or in writing prior to the date of this Agreement, and no other information, exhibit, financial statement, document, book, record or report furnished or to be furnished in writing after the date of this Agreement, by or on behalf of such Loan Party to the Agent or any of the Lenders pursuant to this Agreement was or will be inaccurate in any material respect as of the date it was or will be dated or (except as otherwise disclosed to the Agent or the Lenders at such time) as of the date so furnished, or contained or (in the case of information or other materials to be furnished in the future) will contain any material misstatement of fact or omitted or (in the case of information or other materials to be furnished in the future) will omit to state a material fact or any fact necessary to make the statements contained therein not materially misleading in light of the circumstances made or presented.     (n)  Offices.  The principal places of business and chief executive offices of the Servicer and the Borrower, and the offices where the Servicer and the Borrower keep their books, records and documents evidencing Receivables, the related Contracts, purchase orders and other agreements related to such Receivables, are located at the addresses specified in Schedule 6.1(n) (or at such other locations, notified to the Agent in accordance with Section 7.1(f) , in jurisdictions where all action required by Section 8.5 has been taken and completed).     (o)  Lock-Box Accounts.  The names and addresses of all the Lock-Box Banks, together with the account numbers of the accounts of the Borrower at such Lock-Box Banks, are specified in Schedule 6.1(o) (or have been notified to and approved by the Agent in accordance with Section 7.3(d)). Each of the Lock-Box Accounts is subject to a Lock-Box Agreement that is in full force and effect.     (p)  Eligible Receivables.  Each Receivable included as an Eligible Receivable in the Net Pool Balance in connection with any computation or recomputation of the Borrowing Base is an Eligible Receivable on such date.     (q)  [Reserved].       (r)  Names.  In the past five (5) years, the Borrower has not used any corporate names, trade names or assumed names other than the name in which it has executed this Agreement.     (s)  Credit and Collection Policy.  With respect to each Receivable, each of the applicable Originator, the Borrower and the Servicer has complied in all material respects with the applicable Credit and Collection Policy, whether written or unwritten, and no change has been made to such Credit and Collection Policy since the date of this Agreement which would be reasonably likely to materially and adversely affect the collectibility of the Receivables or decrease the credit quality of any newly created Receivables except for such changes as to which the Agent has received the notice required under Section 7.2(j) and has given its prior written consent thereto (which consent shall not be unreasonably withheld or delayed). 14 --------------------------------------------------------------------------------     (t)  Payments to Originator.  With respect to each Receivable and its Related Rights sold or contributed to the Borrower by PCC, the Borrower has given, and PCC has received, reasonably equivalent value in exchange therefor, and such transfer was not made for or on account of an antecedent debt. No transfer by PCC of any Receivable is or may be voidable under any section of the Federal Bankruptcy Code.     (u)  Not an Investment Company.  The Borrower is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended from time to time, or any successor statute.     (v)  Borrowing Base.  As of each Borrowing Date, after giving effect to the Loans to be made on such date, the Borrowing Base is at least equal to the aggregate outstanding principal balance of the Advances. ARTICLE VII. GENERAL COVENANTS OF LOAN PARTIES     Section 7.1  Affirmative Covenants of Loan Parties.  From the date hereof until the Final Payout Date, unless the Agent shall otherwise consent in writing:     (a)  Compliance With Laws, Etc.  Each Loan Party will comply in all material respects with all applicable laws, rules, regulations and orders, including those with respect to the Receivables and related Contracts, except where the failure to so comply would not individually or in the aggregate have a Material Adverse Effect.     (b)  Preservation of Corporate Existence.  Each Loan Party will preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing (to the extent applicable) as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification would have a Material Adverse Effect.     (c)  Audits.  Each Loan Party will (i) at any time and from time to time upon not less than ten (10) Business Days' notice (unless an Event of Default has occurred and is continuing, in which case no such notice shall be required) during regular business hours, permit the Agent or any of its agents or representatives: (A) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of such Loan Party relating to Receivables, including, without limitation, the related Contracts and purchase orders and other agreements, and (B) to visit the offices and properties of such Loan Party for the purpose of examining such materials described in clause (i)(A) next above, and to discuss matters relating to Receivables or such Loan Party's performance hereunder with any of the officers or employees of such Loan Party having knowledge of such matters; and (ii) without limiting the provisions of clause (i) above, from time to time, at the expense of such Loan Party, permit certified public accountants or auditors selected by the Agent to conduct a review of such Loan Party's books and records with respect to the Receivables and Related Assets (each, a "Review"); provided, however, that, so long as no Event of Default has occurred and is continuing, the Loan Parties shall only be responsible for the reasonable costs and expenses of one such Review under this Section or under Section 7.2(g) in any one (1) calendar year.     (d)  Keeping of Records and Books of Account.  The Servicer will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain, all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the daily identification of outstanding Unpaid Balances by Obligor and related debit and credit details of the 15 -------------------------------------------------------------------------------- Receivables). Each of the Borrower and PCC shall post all Demand Advances to its respective books and records in accordance with GAAP on or before each Settlement Date.     (e)  Performance and Compliance with Receivables and Contracts.  Each Loan Party will, at its expense, timely and fully perform and comply with all material provisions, covenants and other promises, if any, required to be observed by it under the Contracts related to the Receivables and all agreements related to such Receivables, except where the failure to so perform or comply would not have a Material Adverse Effect.     (f)  Location of Records.  Each Loan Party will keep its principal place of business and chief executive office, and the offices where it keeps its records concerning the Receivables, all related Contracts and all agreements related to such Receivables (and all original documents relating thereto), at the address(es) of the Servicer and the Borrower referred to in Section 6.1(n) or, upon 15 days' prior written notice to the Agent, at such other locations in jurisdictions where all action required by Section 8.5 shall have been taken and completed.     (g)  Credit and Collection Policies.  The Borrower will require, and PCC will cause, each Originator to comply in all material respects with the applicable Credit and Collection Policy, whether written or unwritten, in regard to each Receivable and the related Contracts.     (h)  Sale Agreement and First-Step Receivables Purchase Agreement.  The Borrower will perform and comply in all material respects with all of its covenants and agreements set forth in the Sale Agreement, and will enforce the performance by PCC of its obligations under the Sale Agreement and by PCC and each of the Originators of its respective obligations under the First-Step Receivables Purchase Agreement. PCC will perform and comply in all material respects with all of its covenants and agreements set forth in the Sale Agreement and the First-Step Receivables Purchase Agreement, and will enforce the performance by each of the Originators of its obligations under the First-Step Receivables Purchase Agreement.     (i)  Collections.  All Obligors shall be instructed to make payments on Receivables directly to a Lock-Box Account which, from and after January 31, 2000, is the subject of a Lock-Box Agreement. If, notwithstanding the foregoing, any Collections are paid directly to any Loan Party, such Loan Party shall deposit the same (with any necessary indorsements) to such a Lock-Box Account within two (2) Business Days after receipt thereof. Upon demand of the Agent, the Borrower or the Servicer shall establish a segregated account at Wachovia which is subject to a perfected security interest in favor of the Agent, for the benefit of the Secured Parties (the "Collection Account"), into which all deposits from time to time in Lock-Box Accounts, and all other Collections, are concentrated pending application in accordance with the terms of this Agreement to the Obligations.     (j)  Further Assurances.  Each of the Loan Parties shall take all necessary action to establish and maintain (i) in favor of the Borrower, a valid and perfected ownership interest in the Receivables and Related Assets, and (ii) in favor of the Agent for the benefit of the Secured Parties, a valid and perfected first priority security interest in the Receivables and the Related Assets, including, without limitation, taking such action to perfect, protect or more fully evidence the interest of the Agent as the Agent may reasonably request.     Section 7.2  Reporting Requirements of Loan Parties.  From the date hereof until the Final Payout Date, unless the Agent shall otherwise consent in writing:     (a)  Quarterly Financial Statements.  (i) PCC will furnish to the Agent as soon as available and in any event within 55 days after the end of each of the first three (3) quarters of each fiscal year of PCC, copies of its unaudited consolidated balance sheets and related consolidated statements of income and cash flow, showing the financial condition of PCC and its consolidated Subsidiaries as of the close of such fiscal quarter and the results of its operations and the operations of such Subsidiaries during such fiscal quarter and the then elapsed portion of the fiscal year, together with a Certificate of Financial 16 -------------------------------------------------------------------------------- Officer in the form attached hereto as Exhibit 7.2 executed by the chief financial officer or treasurer of PCC; and (ii) the Borrower will furnish to the Agent, as soon as available and in any event within 55 days after the end of each of the first three (3) quarters of each fiscal year of the Borrower, copies of the financial statements of the Borrower, consisting of at least a balance sheet as at the close of such quarter and statements of earnings and changes in cash flows for such quarter and for the period from the beginning of the fiscal year to the close of such quarter, together with a Certificate of Financial Officer in the form attached hereto as Exhibit 7.2 executed by the chief financial officer or treasurer of the Borrower;     (b)  Annual Financial Statements.  (i) PCC will furnish to the Agent, as soon as available and in any event within 100 days after the end of each fiscal year of PCC, copies of its audited consolidated balance sheets and related audited consolidated statements of income and cash flow, showing the financial condition of PCC and its consolidated Subsidiaries as of the close of such fiscal year and the results of its operations and the operations of such Subsidiaries during such year, all audited by PriceWaterhouse Coopers LLP or other independent public accountants of recognized national standing and accompanied by an opinion of such accountants (which shall not be qualified in any material respect) to the effect that such consolidated financial statements fairly present the financial condition and results of operations of PCC on a consolidated basis (except as noted therein) in accordance with GAAP consistently applied; and (ii) the Borrower will furnish to the Agent, as soon as available and in any event within 100 days after the end of each fiscal year of the Borrower, copies of the financial statements of the Borrower, consisting of at least a balance sheet of Borrower for such year and statements of earnings, cash flows and shareholders' equity, setting forth in each case in comparative form corresponding figures from the preceding fiscal year, together with a Certificate of Financial Officer in the form attached hereto as Exhibit 7.2 executed by the chief financial officer or treasurer of the Borrower;     (c)  Reports to SEC and Exchanges.  In addition to the reports required by subsections (a) and (b) next above, promptly upon the Agent's reasonable request, PCC will furnish to the Agent copies of any reports or registration statements that PCC files with the SEC or any national securities exchange other than registration statements relating to employee benefit plans and to registrations of securities for selling securities;     (d)  ERISA.  Promptly after the filing or receiving thereof, each Loan Party will furnish to the Agent copies of all reports and notices with respect to any Reportable Event which any Loan Party files under ERISA with the Internal Revenue Service, the PBGC or the U.S. Department of Labor or which such Loan Party receives from the PBGC;     (e)  Events of Default, etc.  As soon as possible and in any event within ten (10) Business Days after any Authorized Officer of either Loan Party obtains knowledge of the occurrence of any Event of Default or any Unmatured Default, each Loan Party will furnish to the Agent a written statement of a Authorized Officer of such Loan Party setting forth details of such event and the action that such Loan Party will take with respect thereto;     (f)  Litigation.  As soon as possible and in any event within ten (10) Business Days after any Authorized Officer of either Loan Party obtains knowledge thereof, such Loan Party will furnish to the Agent notice of (i) any litigation, investigation or proceeding relating to either of the Loan Parties, the Transaction Documents or the Receivables which may exist at any time which would reasonably be expected to have a Material Adverse Effect and (ii) any development in previously disclosed litigation which development would reasonably be expected to have a Material Adverse Effect;     (g)  Reviews of Receivables.  As soon as available and in any event within 120 days following the end of each fiscal year of the Borrower, the Borrower will furnish to the Agent a report summarizing the results of the Review referenced in Section 7.1(c) prepared by accountants or auditors reasonably selected by the Agent as of the end of such fiscal year, substantially in the form of the report delivered 17 -------------------------------------------------------------------------------- pursuant to Section 5.1(k) and covering such other matters as the Agent may reasonably request in order to protect the interests of the Agent or the other Secured Parties under or as contemplated by this Agreement;     (h)  Change in Business or Credit and Collection Policy.  Each Loan Party will furnish to the Agent prompt written notice of any material change in the character of such Loan Party's business prior to the occurrence of such change, and each Loan Party will provide the Agent with not less than fifteen (15) Business Days' prior written notice of any material change in the Credit and Collection Policy (together with a copy of such proposed change); and     (i)  Other.  Promptly, from time to time, each Loan Party will furnish to the Agent such other information, documents, records or reports respecting the Receivables or the condition or operations, financial or otherwise, of such Loan Party as the Agent may from time to time reasonably request in order to protect the interests of the Agent or the other Secured Parties under or as contemplated by this Agreement.     Section 7.3  Negative Covenants of Loan Parties.  From the date hereof until the Final Payout Date, without the prior written consent of the Agent:     (a)  Sales, Liens, Etc.  (i) The Borrower will not, except as otherwise provided herein and in the other Transaction Documents, sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Lien upon or with respect to, any Collateral, or any account to which any Collections are sent, or any right to receive income or proceeds from or in respect of any of the foregoing (except, prior to the execution of the Lock-Box Agreements, set-off rights of any bank at which any such account is maintained), and (ii) the Servicer will not assert any interest in the Receivables, except as the Servicer.     (b)  Extension or Amendment of Receivables.  No Loan Party will, except as otherwise permitted in Section 8.2(c), extend, amend or otherwise modify the terms of any Receivable, or amend, modify or waive any material term or condition of any Contract related thereto in any way that would have a Material Adverse Effect.     (c)  Change in Business or Credit and Collection Policy.  No Loan Party will make or permit to be made any change in the character of its business or in the Credit and Collection Policy, which change would, in either case, have a Material Adverse Effect.     (d)  Change in Payment Instructions to Obligors.  No Loan Party will add or terminate any bank as a Lock-Box Bank from those listed in Schedule 6.1(o) or, after the Collection Account has been established pursuant to Section 7.1(i), make any change in its instructions to Obligors regarding payments to be made to the Borrower or the Servicer or payments to be made to any Lock-Box Bank (except for a change in instructions solely for the purpose of directing Obligors to make such payments to another existing Lock-Box Bank), unless (i) the Agent shall have received prior written notice of such addition, termination or change and (ii) the Agent shall have received duly executed copies of Lock-Box Agreements in a form reasonably acceptable to the Agent with each new Lock-Box Bank.     (e)  Deposits to Lock-Box Accounts and Collection Account.  No Loan Party will deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box Account or the Collection Account, any cash or cash proceeds other than Collections of Receivables.     (f)  Changes to Other Documents.  No Loan Party will enter into any amendment or modification of, or supplement to, the First-Step Receivables Purchase Agreement, the Sale Agreement, the Subordinated Note or the Borrower's articles or certificate of incorporation. 18 --------------------------------------------------------------------------------     (g)  Restricted Payments by the Borrower.  The Borrower will not:     (i)  Purchase or redeem any shares of the capital stock of the Borrower, declare or pay any dividends thereon, make any loan to any Originator, make any distribution to stockholders or set aside any funds for any such purpose, unless, in each of the foregoing cases: (A) such purchase, redemption, payment, loan or distribution is made on, or immediately following, a Settlement Date after payment of all Obligations due and owing on such Settlement Date, and (B) after giving effect to such purchase, redemption, payment, loan or distribution, the Borrower's net worth (determined in accordance with GAAP) will be at least $4,500,000; or     (ii) Make any payment of principal or interest on the Subordinated Note if any Event of Default exists or would result therefrom or if such payment would result in the Borrower's having insufficient cash on hand to pay all Obligations that will be due and owing on the next succeeding Settlement Date.     (h)  Borrower Indebtedness.  The Borrower will not incur or permit to exist any Indebtedness or liability on account of deposits except: (A) Subordinated Loans incurred in accordance with the Sale Agreement and evidenced by a Subordinated Note, (B) current payables and expense reimbursement obligations arising under the Transaction Documents and not overdue and (C) other current accounts payable arising in the ordinary course of business and not overdue, in an aggregate amount at any time outstanding of less than $10,775.     (i)  Prohibition on Additional Negative Pledges.  No Loan Party will, nor will it permit any of its Subsidiaries to, enter into or assume any agreement (other than this Agreement and the other Transaction Documents) prohibiting the creation or assumption of any Lien upon the Receivables or Related Assets, whether now owned or hereafter acquired, except as contemplated by the Transaction Documents, or otherwise prohibiting or restricting any transaction contemplated hereby or by the other Transaction Documents, and no Loan Party will enter into or assume any agreement creating any Lien upon the Subordinated Note.     (j)  Name Change, Offices, Records and Books of Accounts.  The Borrower will not change its name, identity or corporate structure (within the meaning of Section 9-402(7) of any applicable enactment of the UCC) or relocate its chief executive office or any office where Records are kept by it unless it shall have: (i) given the Agent at least fifteen (15) Business Days' prior written notice thereof and (ii) prior to the effectiveness of such change, delivered to the Agent all financing statements, instruments and other documents requested by the Agent in connection with such change or relocation.     (k)  Mergers, Consolidations and Acquisitions.  The Borrower will not merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or purchase, lease or otherwise acquire (in one transaction or a series of transactions) all or substantially all of the assets of any other Person (whether directly by purchase, lease or other acquisition of all or substantially all of the assets of such Person or indirectly by purchase or other acquisition of all or substantially all of the capital stock of such other Person) other than the acquisition of the Receivables and Related Assets pursuant to the Sale Agreement.     (l)  Disposition of Receivables and Related Assets.  Except pursuant to this Agreement, the Borrower will not sell, lease, transfer, assign or otherwise dispose of (in one transaction or in a series of transactions) any Receivables and Related Assets.     (m)  Borrowing Base.  The Borrower will not request any Advance if, after giving effect thereto, the aggregate outstanding principal balance of the Loans would exceed the Borrowing Base.     Section 7.4  Separate Corporate Existence of the Borrower.  Each Loan Party hereby acknowledges that Lenders and the Agent are entering into the transactions contemplated hereby in reliance upon the Borrower's identity as a legal entity separate from the Servicer and its other Affiliates. Therefore, 19 -------------------------------------------------------------------------------- each Loan Party shall take all steps specifically required by this Agreement or reasonably required by the Agent to continue the Borrower's identity as a separate legal entity and to make it apparent to third Persons that the Borrower is an entity with assets and liabilities distinct from those of its Affiliates, and is not a division of PCC or any other Person. Without limiting the foregoing, each Loan Party will take such actions as shall be required in order that:     (a) The Borrower will be a limited purpose corporation whose primary activities are restricted in its certificate of incorporation to purchasing or otherwise acquiring from PCC, owning, holding, granting security interests in the Collateral, entering into agreements for the financing and servicing of the Receivables, making loans to the Originators, and conducting such other activities as it deems necessary or appropriate to carry out its primary activities;     (b) Not less than one (1) member of the Borrower's Board of Directors (the "Independent Director") shall be an individual who is not, and never has been, a direct, indirect or beneficial stockholder, officer, director, employee, affiliate, associate, material supplier or material customer of PCC or any of its Affiliates (other than an Affiliate organized with a limited purpose charter for the purpose of acquiring receivables or other financial assets or intangible property). The certificate of incorporation of the Borrower shall provide that (a) at least one (1) member of the Borrower's Board of Directors shall be an Independent Director, (b) the Borrower's Board of Directors shall not approve, or take any other action to cause the filing of, a voluntary bankruptcy petition with respect to the Borrower unless the Independent Director shall approve the taking of such action in writing prior to the taking of such action and (c) the provisions requiring an independent director and the provision described in clauses (a) and (b) of this paragraph (ii) cannot be amended without the prior written consent of the Independent Director;     (c) The Independent Director shall not at any time serve as a trustee in bankruptcy for the Borrower or any Affiliate thereof;     (d) Any director, employee, consultant or agent of the Borrower will be compensated from the Borrower's funds for services provided to the Borrower. The Borrower will not engage any agents other than its attorneys, auditors and other professionals and a servicer and any other agent contemplated by the Transaction Documents for the Collateral, which servicer will be fully compensated for its services by payment of the Servicer's Fee, and certain organizational expenses in connection with the formation of the Borrower;     (e) The Borrower will contract with the Servicer to perform for the Borrower all operations required on a daily basis to service the Collateral. The Borrower will pay the Servicer the Servicer's Fee pursuant hereto. The Borrower will not incur any material indirect or overhead expenses for items shared with PCC (or any other Affiliate thereof) which are not reflected in the Servicer's Fee. To the extent, if any, that the Borrower (or any other Affiliate thereof) shares items of expenses not reflected in the Servicer's Fee, for legal, auditing and other professional services and directors' fees, such expenses will be allocated to the extent practical on the basis of actual use or the value of services rendered, and otherwise on a basis reasonably related to the actual use or the value of services rendered, it being understood that PCC shall pay all expenses relating to the preparation, negotiation, execution and delivery of the Transaction Documents, including, without limitation, legal, rating agency and other fees;     (f)  The Borrower's operating expenses will not be paid by any other Loan Party or other Affiliate of the Borrower;     (g) The Borrower will have its own stationery;     (h) The books of account, financial reports and corporate records of the Borrower will be maintained separately from those of PCC and each other Affiliate of the Borrower; 20 --------------------------------------------------------------------------------     (i)  Any financial statements of any Loan Party or Affiliate thereof which are consolidated to include the Borrower will contain detailed notes clearly stating that (A) all of the Borrower's assets are owned by the Borrower, and (B) the Borrower is a separate corporate entity with its own separate creditors that will be entitled to be satisfied out of the Borrower's assets prior to any value in the Borrower becoming available to the Borrower's equity holders; and the accounting records and the published financial statements of each of the Originators will clearly show that, for accounting purposes, the Receivables and Related Assets have been sold by such Originator to the Borrower;     (j)  The Borrower's assets will be maintained in a manner that facilitates their identification and segregation from those of the Servicer and the other Affiliates;     (k) Each Affiliate of the Borrower will strictly observe corporate formalities in its dealings with the Borrower, and, except as permitted pursuant to this Agreement with respect to Collections, funds or other assets of the Borrower will not be commingled with those of any of its Affiliates;     (l)  No Affiliate of the Borrower will maintain joint bank accounts with the Borrower or other depository accounts with the Borrower to which any such Affiliate (other than in the Borrower's or such Affiliate's existing or future capacity as the Servicer hereunder or under the Sale Agreement) has independent access, provided that prior to demand by the Agent pursuant to Section 7.1(i) to establish a segregated Collection Account, Collections may be deposited into general accounts of PCC, subject to the obligations of the Servicer hereunder;     (m) No Affiliate of the Borrower shall, directly or indirectly, name the Borrower or enter into any agreement to name the Borrower as a direct or contingent beneficiary or loss payee on any insurance policy covering the property of any Affiliate of the Borrower;     (n) Each Affiliate of the Borrower will maintain arm's length relationships with the Borrower, and each Affiliate of the Borrower that renders or otherwise furnishes services or merchandise to the Borrower will be compensated by the Borrower at market rates for such services or merchandise;     (o) No Affiliate of the Borrower will be, nor will it hold itself out to be, responsible for the debts of the Borrower or the decisions or actions in respect of the daily business and affairs of the Borrower. PCC and the Borrower will immediately correct any known misrepresentation with respect to the foregoing and they will not operate or purport to operate as an integrated single economic unit with respect to each other or in their dealing with any other entity;     (p) The Borrower will keep correct and complete books and records of account and minutes of the meetings and other proceedings of its stockholder and board of directors, as applicable, and the resolutions, agreements and other instruments of the Borrower will be continuously maintained as official records by the Borrower; and     (q) Each of the Borrower, on the one hand, and the Originators, on the other hand, will conduct its business solely in its own corporate name and in such a separate manner so as not to mislead others with whom they are dealing. ARTICLE VIII. ADMINISTRATION AND COLLECTION     Section 8.1  Designation of Servicer.       (a)  PCC as Initial Servicer.  The servicing, administering and collection of the Receivables shall be conducted by the Person designated as Servicer hereunder from time to time in accordance with this Section 8.1. Until the Agent gives to PCC a Successor Notice (as defined in Section 8.1(b)), PCC is hereby designated as, and hereby agrees to perform the duties and obligations of, Servicer pursuant to the terms hereof. 21 --------------------------------------------------------------------------------     (b)  Successor Notice; Servicer Transfer Events.  Upon PCC's receipt of a notice from the Agent following a Servicer Transfer Event of the designation of a new Servicer (a "Successor Notice"), PCC agrees that it will terminate its activities as Servicer hereunder in a manner that will facilitate the transition of the performance of such activities to the new Servicer, and the Agent (or the designee of the Agent) shall assume each and all of PCC's obligations to service and administer the Receivables, on the terms and subject to the conditions herein set forth, and PCC shall use its reasonable best efforts to assist the Agent (or the Agent's designee) in assuming such obligations. Without limiting the foregoing, PCC agrees, at its expense, to take all actions necessary to provide the new Servicer with access to all computer software necessary to generate reports useful in collecting or billing Receivables, solely for use in collecting and billing Receivables. If PCC disputes the occurrence of a Servicer Transfer Event, PCC may take appropriate action to resolve such dispute; provided that PCC must terminate its activities hereunder as Servicer and allow the newly designated Servicer to perform such activities on the date specified by the Agent as described above, notwithstanding the commencement or continuation of any proceeding to resolve the aforementioned dispute, if the Agent reasonably determine, in good faith, that such termination is necessary or advisable to protect the Secured Parties' interests hereunder.     (c)  Subcontracts.  So long as PCC is acting as the Servicer, it may subcontract with one or more of the Originators for servicing, administering or collecting all or any portion of the Receivables, provided, however, that no such subcontract shall relieve PCC of its primary liability for performance of its duties as Servicer pursuant to the terms hereof and any such subservicing arrangement may be terminated at the request of the Agent at any time after a Successor Notice has been given. In addition to the foregoing, with the prior written consent of the Agent (which consent shall not be unreasonably withheld or delayed), any Servicer may subcontract with other Persons for servicing, administering or collecting all or any portion of the Receivables, provided, however, that no such subcontract shall relieve such Servicer of its primary liability for performance of its duties as Servicer pursuant to the terms hereof and any such subservicing arrangement may be terminated at the request of the Agent at any time that the Agent reasonably determines that such subservicer is not performing adequately.     (d)  Expense Indemnity after a Servicer Transfer Event.  In addition to, and not in lieu of the Servicer's Fee, if PCC or one of its Affiliates is replaced as Servicer following a Servicer Transfer Event, the Borrower shall reimburse the Servicer within ten (10) Business Days after receipt of a written invoice, any and all reasonable costs and expenses of the Servicer incurred in connection with its servicing of the Receivables for the benefit of the Secured Parties.     Section 8.2  Duties of Servicer.       (a)  Appointment; Duties in General.  Each of the Borrower, the Lenders and the Agent hereby appoints as its agent, the Servicer, as from time to time designated pursuant to Section 8.1, to enforce its rights and interests in and under the Receivables, the Related Security and the related Contracts. The Servicer shall take or cause to be taken all such actions as may be necessary or advisable to collect each Receivable from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy.     (b)  Segregation of Collections.  The Servicer shall not be required (unless otherwise requested by the Agent) to segregate the funds constituting such portions of such Collections prior to the remittance thereof in accordance with Article III. If instructed by the Agent, the Servicer shall segregate and deposit into the Collection Account Collections not later than the second Business Day following receipt by the Servicer of such Collections in immediately available funds.     (c)  Modification of Receivables.  PCC, while it is the Servicer, may, in accordance with the Credit and Collection Policy, so long as no Event of Default and no Unmatured Default shall have occurred and be continuing, extend the maturity or adjust the Unpaid Balance of any Receivable as PCC may reasonably determine to be appropriate to maximize Collections in a manner consistent with the Credit 22 -------------------------------------------------------------------------------- and Collection Policy (although no such extension or adjustment shall alter the status of such Receivable as a Defaulted Receivable or a Delinquent Receivable or, in the case of an adjustment, limit the rights of the Agent or the Lenders under Section 3.4).     (d)  Documents and Records.  Each Loan Party shall deliver to the Servicer, and the Servicer shall hold in trust for the Borrower and the Secured Parties, all documents, instruments and records (including, without limitation, computer tapes or disks) that evidence or relate to Receivables.     (e)  Certain Duties to the Borrower.  The Servicer shall, as soon as practicable following receipt, turn over to the Borrower (i) that portion of the Collections which are not required to be turned over to the Agent, less the Servicer's Fee, and, in the event that neither PCC nor any other Loan Party or Affiliate thereof is the Servicer, all reasonable and appropriate out-of-pocket costs and expenses of the Servicer of servicing, collecting and administering the Receivables to the extent not covered by the Servicer's Fee received by it, and (ii) the Collections of any receivable which is not a Receivable. The Servicer, if other than PCC or any other Loan Party or Affiliate thereof, shall, as soon as practicable upon demand, deliver to the Borrower all documents, instruments and records in its possession that evidence or relate to receivables of the Borrower other than Receivables, and copies of documents, instruments and records in its possession that evidence or relate to Receivables.     (f)  Termination.  The Servicer's authorization under this Agreement shall terminate upon the Final Payout Date.     (g)  Power of Attorney.  The Borrower hereby grants to the Servicer an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of the Borrower all steps which are necessary or advisable to endorse, negotiate or otherwise realize on any writing or other right of any kind held or transmitted by the Borrower or transmitted or received by Lender (whether or not from the Borrower) in connection with any Receivable.     Section 8.3  Rights of the Agent.       (a)  Notice to Obligors.  At any time when an Unmatured Default or an Event of Default has occurred and is continuing, the Agent may notify the Obligors of Receivables, or any of them, of its security interest, for the benefit of the Secured Parties, in the Collateral.     (b)  Notice to Lock-Box Banks.  At any time after the occurrence of an Unmatured Default or an Event of Default, the Agent is hereby authorized to direct the Agent, and the Agent is hereby authorized and directed to comply with such direction, to give notice to the Lock-Box Banks, as provided in the Lock-Box Agreements, of the transfer to the Agent of dominion and control over the Lock-Boxes and related Lock-Box Accounts to which the Obligors of Receivables make payments. The Borrower and the Servicer hereby transfer to the Agent, effective when the Agent shall give notice to the Lock-Box Banks as provided in the Lock-Box Agreements, the exclusive dominion and control over such Lock-Boxes and Lock-Box Accounts, and shall take any further action that the Agent may reasonably request to effect such transfer.     (c)  Rights on Servicer Transfer Event.  At any time following the designation of a Servicer other than PCC pursuant to Section 8.1:     (i)  The Agent may direct the Obligors of Receivables, or any of them, to pay all amounts payable under any Receivable directly to the Agent or its designee.     (ii) Any Loan Party shall, at the Agent's request and at such Loan Party's expense, give notice of the Agent's security interest in the Collateral to each Obligor of Receivables and direct that payments be made directly to the Agent or its designee.     (iii) Each Loan Party shall, at the Agent's request: (A) assemble all of the documents, instruments and other records (including, without limitation, computer programs, tapes and disks) 23 -------------------------------------------------------------------------------- which evidence the Collateral, or which are otherwise necessary or desirable to collect the Collateral, and make the same available to the successor Servicer at a place selected by the Agent, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections in a manner acceptable to the Agent and promptly upon receipt, remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to the successor Servicer.     (iv) Each of the Loan Parties, the Agent and the Lenders hereby authorizes the Agent and grants to the Agent an irrevocable power of attorney (which shall terminate on the Final Payout Date), to take any and all steps in such Person's name and on behalf of such Person which are necessary or desirable, in the determination of the Agent, to collect all amounts due under any and all Receivables, including, without limitation, endorsing any Loan Party's name on checks and other instruments representing Collections and enforcing such Receivables and the related Contracts.     Section 8.4  Responsibilities of Loan Parties.  Anything herein to the contrary notwithstanding:     (a)  Contracts.  Each Loan Party shall remain responsible for performing all of its obligations (if any) under the Contracts related to the Receivables and under the related agreements to the same extent as if the security interest in the Collateral had not been granted hereunder, and the exercise by the Agent or its designee of its rights hereunder shall not relieve any Loan Party from such obligations.     (b)  Limitation of Liability.  The Agent and the Lenders shall not have any obligation or liability with respect to any Receivables, Contracts related thereto or any other related agreements, nor shall any of them be obligated to perform any of the obligations of any Loan Party or any Originator thereunder; provided. however, that if the Agent or any Lender performs any of such obligations, it shall be liable for failure to perform such obligations in a manner that is not grossly negligent.     Section 8.5  Further Action Evidencing the Security Interest.       (a)  Further Assurances.  Each Loan Party agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action that the Agent or its designee may reasonably request in order to perfect, protect or more fully evidence the Agent's security interest, on behalf of the Secured Parties, in the Collateral, or to enable the Agent or its designee to exercise or enforce any of the Secured Parties' respective rights hereunder or under any Transaction Document in respect thereof. Without limiting the generality of the foregoing, each Loan Party will:     (i)  upon the request of the Agent, execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate, in accordance with the terms of this Agreement;     (ii) upon the request of the Agent after the occurrence and during the continuance of an Event of Default, mark conspicuously each Contract evidencing each Receivable with a legend, acceptable to the Agent, evidencing the Agent's security interest therein pursuant to this Agreement; and     (iii) mark its master data processing records evidencing the Collateral with a legend, acceptable to the Agent, evidencing that a security interest in the Collateral has been granted pursuant to this Agreement.     (b)  Additional Financing Statements; Continuation Statements; Performance by Agent.  Each Loan Party hereby authorizes the Agent or its designee to file one (1) or more financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any of the Collateral now existing or hereafter arising in the name of any Loan Party. If any Loan Party fails to promptly execute and deliver to the Agent any financing statement or continuation statement or amendment 24 -------------------------------------------------------------------------------- thereto or assignment thereof requested by the Agent each Loan Party hereby authorizes the Agent to execute such statement on behalf of such Loan Party. If any Loan Party fails to perform any of its agreements or obligations under this Agreement, the Agent or its designee may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the reasonable expenses of the Agent or its designee incurred in connection therewith shall be payable by Loan Parties as provided in Section 14.5.     Section 8.6  Application of Collections.  Any payment by an Obligor in respect of any indebtedness owed by it to an Originator or the Borrower shall, except as otherwise specified by such Obligor or required by the underlying Contract or law, be applied, first, as a Collection of any Receivable or Receivables then outstanding of such Obligor in the order of the age of such Receivables, starting with the oldest of such Receivables and, second, to any other indebtedness of such Obligor. ARTICLE IX. SECURITY INTEREST     Section 9.1  Grant of Security Interest.  To secure the due and punctual payment of the Obligations, whether now or hereafter existing, due or to become due, direct or indirect, or absolute or contingent, including, without limitation, all Indemnified Amounts, in each case pro rata according to the respective amounts thereof, the Borrower hereby pledges to the Agent, for the benefit of the Secured Parties, and hereby grants to the Agent, for the benefit of the Secured Parties, a security interest in all of the Borrower's right, title and interest now or hereafter existing in, to and under (a) all the Receivables and Related Assets, (b) the First-Step Receivables Purchase Agreement, the Sale Agreement and the other Transaction Documents, (c) the Demand Advances, and (d) all proceeds of any of the foregoing (collectively, the "Collateral").     Section 9.2  Remedies.  Upon the occurrence of an Event of Default, the Agent, on behalf of the Secured Parties, shall have, with respect to the Collateral granted pursuant to Section 9.1, and in addition to all other rights and remedies available to Lenders or the Agent under this Agreement and the other Transaction Documents or other applicable law, all the rights and remedies of a secured party upon default under the UCC.     Section 9.3  Termination after Final Payout Date.  Each of the Secured Parties hereby authorizes the Agent, and the Agent hereby agrees, promptly after the Final Payout Date to execute and deliver to the Borrower such UCC-3 termination statements as may be necessary to terminate the Agent's security interest in and Lien upon the Collateral, all at the Borrower's expense. Upon the Final Payout Date, all right, title and interest of the Agent and the other Secured Parties in and to the Collateral shall terminate.     Section 9.4  Limitation on Rights to Collateral Proceeds.  Nothing in this Agreement shall entitle the Secured Parties to receive or retain proceeds of the Collateral in excess of the aggregate amount of the Obligations owing to such Secured Parties (or to any Indemnified Party claiming through such Secured Parties). ARTICLE X. EVENTS OF DEFAULT     Section 10.1  Events of Default.  The occurrence of any of the following events shall constitute an "Event of Default" hereunder:     (a) The Servicer or the Borrower shall fail to pay any Obligation of the type described in clause (i) of the definition of "Obligations" or to deposit any amount required to be deposited by it hereunder in respect of any such Obligations within one (1) Business Day after the same is required to 25 -------------------------------------------------------------------------------- be paid or deposited, or the Servicer or the Borrower shall fail to pay any Obligation of the type described in clause (ii) of the definition of "Obligations" or to deposit any amount required to be deposited by it hereunder in respect of any such Obligations within five (5) Business Days after the same is required to be paid or deposited; or     (b) Any representation or warranty made or deemed to be made by any Loan Party (or any of its officers) under this Agreement or any other Transaction Document or any Information Package or other information, recomputation of the Borrowing Base or other report delivered pursuant hereto shall prove to have been false or incorrect in any material adverse respect when made or deemed to have been made; or     (c) (i) Any Loan Party fails to perform or observe any term, covenant or agreement contained in any of Sections 7.1(i), 7.2(e), 7.2(f), 7.2(g), 7.2(h), 7.3 or 8.2(b); or       (ii) Any Loan Party fails to perform or observe any other term, covenant or agreement contained in this Agreement or any other Transaction Document, and such default shall continue unremedied for a period of ten (10) Business Days (or, in the case of Section 3.1(a), a period of two (2) Business Days) after the earlier to occur of (A) the date upon which written notice thereof is given to such Loan Party by the Agent and (B) the date either of the Loan Parties becomes aware thereof; or     (d) (i) The Borrower shall (A) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness (other than Subordinated Loans) of which the aggregate unpaid principal amount is $10,775 or greater, when and as the same shall become due and payable (after expiration of any applicable grace period) or (B) fail to observe or perform any other term, covenant, condition or agreement (after expiration of any applicable grace period) contained in any agreement or instrument evidencing or governing any such Indebtedness if the effect of any failure referred to in this clause (B) is to cause, or permit the holder or holders of such Indebtedness or a trustee on its or their behalf (with or without the giving of notice, the lapse of time or both) to cause, such Indebtedness to become due prior to its stated maturity; or       (ii) PCC or any of its Subsidiaries (other than the Borrower) (A) shall fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness of which the aggregate unpaid principal amount is in excess of $35,000,000, when and as the same shall become due and payable (after expiration of any applicable grace period) or (B) shall fail to observe or perform any other term, covenant, condition or agreement (after expiration of any applicable grace period) contained in any agreement or instrument evidencing or governing any Indebtedness in excess of $35,000,000 in aggregate principal amount of PCC or any of its Subsidiaries (other than the Borrower) if the effect of any failure referred to in this clause (B) is to cause, or permit the holder or holders of such Indebtedness or a trustee on its or their behalf (with or without the giving of notice, the lapse of time or both) to cause, such Indebtedness to become due prior to its stated maturity; or     (e) An Event of Bankruptcy shall have occurred and remain continuing with respect to any Loan Party or, if the Servicer is not PCC or an Affiliate thereof, with respect to the Servicer; or     (f)  The three (3)-month rolling average Dilution Ratio at any Cut-Off Date exceeds 4.50%; or     (g) The three (3)-month rolling average Default Ratio at any Cut-Off Date exceeds 4.75%; or     (h) The three (3)-month rolling average Delinquency Ratio at any Cut-Off Date exceeds 8.25%; or     (i)  On any Settlement Date, after giving effect to the payments made under Article II or Article III, the aggregate outstanding principal balance of the Advances exceeds the Allocation Limit; or     (j)  There shall have occurred any event which materially adversely impairs the ability of the Originators, taken as a whole, to originate Receivables; or     (k) A Change in Control shall occur; or 26 --------------------------------------------------------------------------------     (l)  The Internal Revenue Service shall file notice of a lien pursuant to Section 6323 of the Code with regard to any of the Receivables or Related Assets and such lien shall not have been released within seven (7) days, or the PBGC shall file a notice of lien pursuant to Section 4068 of the ERISA with regard to any of the Receivables or Related Assets; or     (m) The Agent, on behalf of the Secured Parties, for any reason, does not have a valid, perfected first priority security interest in the Receivables and the Related Assets; or     (n) (i) (A) One or more non-interlocutory judgments, non-interlocutory orders, decrees or arbitration awards is entered against the Borrower involving in the aggregate a liability (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) as to any single or related series of transactions, incidents or conditions, greater than or equal to $10,775, and the same shall remain unsatisfied, unvacated and unstayed pending appeal for a period of thirty (30) days after the entry thereof, (B) any non-monetary judgment, order or decree is entered against the Borrower which has a Material Adverse Effect, or (C) any non-monetary judgment, order or decree is entered against the Borrower which would reasonably be expected to have a Material Adverse Effect, and the same shall remain unsatisfied, unvacated and unstayed pending appeal for a period of ten (10) days after the entry thereof; or       (ii) (A) One or more non-interlocutory judgments, non-interlocutory orders, decrees or arbitration awards is entered against PCC or any of the Originators involving in the aggregate a liability (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) as to any single or related series of transactions, incidents or conditions, of $35,000,000 or more, and the same shall remain unsatisfied, unvacated and unstayed pending appeal for a period of thirty (30) days after the entry thereof, (B) any non-monetary judgment, order or decree is entered against PCC or any of the Originators which has a Material Adverse Effect, or (C) any non-monetary judgment, order or decree is entered against PCC or any of the Originators which would reasonably be expected to have a Material Adverse Effect, and the same shall remain unsatisfied, unvacated and unstayed pending appeal for a period of ten (10) days after the entry thereof; or     (o) (i) An ERISA Event shall occur with respect to a Pension Plan or Multiemployer Plan which his resulted or could reasonably be expected to result in liability of any of the Originators under Title IV of ERISA to such Pension Plan, such Multiemployer Plan or the PBGC in an aggregate amount in excess of $35,000,000; (ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans at any time exceeds $50,000,000; or (iii) any of the Originators or any ERISA Affiliate shall fail to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $35,000,000; or     (p) Any other event occurs that has, or could reasonably be expected to have, a Material Adverse Effect.     Section 10.2  Remedies.       (a)  Optional Acceleration.  Upon the occurrence of an Event of Default (other than an Event of Default described in Section 10.1(e) with respect to the Borrower), the Agent may by notice to the Borrower, declare the Termination Date to have occurred and the Obligations to be immediately due and payable, whereupon the Aggregate Commitment shall terminate and all Obligations shall become immediately due and payable.     (b)  Automatic Acceleration.  Upon the occurrence of an Event of Default described in Section 10.1(e) with respect to the Borrower, the Termination Date shall automatically occur and the Obligations shall be immediately due and payable. 27 --------------------------------------------------------------------------------     (c)  Additional Remedies.  Upon the Termination Date pursuant to this Section 10.2, the Aggregate Commitment will terminate, no Loans or Advances thereafter will be made, and the Agent, on behalf of the Secured Parties, shall have, in addition to all other rights and remedies under this Agreement or otherwise, all other rights and remedies provided under the UCC of each applicable jurisdiction and other applicable laws, which rights shall be cumulative. ARTICLE XI. THE AGENT     Section 11.1  Appointment.       (a) Each Lender hereby irrevocably designates and appoints Wachovia as its agent hereunder, and authorizes the Agent to take such action on its behalf under the provisions of the Transaction Documents and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of the Transaction 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 Lender or Liquidity Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of the Agent shall be read into this Agreement or otherwise exist against the Agent.     (b) The provisions of this Article XI are solely for the benefit of the Agent and the Lenders, and neither of the Loan Parties shall have any rights as a third-party beneficiary or otherwise under any of the provisions of this Article XI, except that this Article XI shall not affect any obligations which the Agent or any Lender may have to either of the Loan Parties under the other provisions of this Agreement.     (c) In performing its functions and duties hereunder, the Agent shall act solely as the agent of the Secured Parties and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for either of the Loan Parties or any of their respective successors and assigns.     Section 11.2  Delegation of Duties.  The Agent may execute any of its duties under this Agreement 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 11.3  Exculpatory Provisions.  Neither the Agent nor any of its directors, officers, agents or employees shall be (i) liable to any of the Lenders for any action lawfully taken or omitted to be taken by it or them or any Person described in Section 11.2 under or in connection with this Agreement (except for its, their or such Person's own bad faith, gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower contained in this Agreement or in any certificate, report, statement or other document referred to or provided for in, or received under or in connection with, this Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other document furnished in connection herewith, or for any failure of either of the Loan Parties to perform its respective obligations hereunder, or for the satisfaction of any condition specified in Article V, except receipt of items required to be delivered to the Agent. The Agent shall not be under any obligation to any Lender or Liquidity Bank to ascertain or to inquire as to the observance or performance of any of the agreements or covenants contained in, or conditions of, this Agreement, or to inspect the properties, books or records of the Loan Parties. This Section 11.3 is intended solely to govern the relationship between each Agent, on the one hand, and the Lenders and their respective Liquidity Banks, on the other. 28 --------------------------------------------------------------------------------     Section 11.4  Reliance by Agent.       (a) The Agent shall in all cases be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Loan Parties), independent accountants and other experts selected by the Agent. The Agent shall in all cases be fully justified in failing or refusing to take any action under this Agreement or any other document furnished in connection herewith unless it shall first receive such advice or concurrence of such of the Lenders and Liquidity Banks as it shall determine to be appropriate under the relevant circumstances, or it shall first be indemnified to its satisfaction by the Liquidity Banks against any and all liability, cost and expense which may be incurred by it by reason of taking or continuing to take any such action.     (b) Any action taken by the Agent in accordance with Section 11.4(a) shall be binding upon all Lenders.     Section 11.5  Notice of Events of Default.  The Agent shall not be deemed to have knowledge or notice of the occurrence of any Event of Default or Unmatured Default unless the Agent has received notice from a Lender, a Liquidity Bank or a Loan Party referring to this Agreement, stating that an Event of Default or Unmatured Default has occurred hereunder and describing such Event of Default or Unmatured Default. In the event that the Agent receives such a notice, it shall promptly give notice thereof to the Lenders and Liquidity Banks. The Agent shall take such action with respect to such Event of Default or Unmatured Default as shall be directed by the Majority Lenders.     Section 11.6  Non-Reliance on Agent and Other Lenders.  Each of the Lenders 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 hereafter taken, including, without limitation, any review of the affairs of the Loan Parties, shall be deemed to constitute any representation or warranty by the Agent. Each of the Lenders also represents and warrants to the Agent and the other Lenders that it has, independently and without reliance upon any such Person (or any of their Affiliates) and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of the Loan Parties and made its own decision to enter into this Agreement. Each of the Lenders also represents that it will, independently and without reliance upon the Agent or any other Liquidity Bank or Lender, 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 to make such investigation as it deems necessary to inform itself as to the business, operations, property, prospects, financial and other condition and creditworthiness of the Loan Parties. Neither of the Agent nor any of the Lenders, nor any of their respective Affiliates, shall have any duty or responsibility to provide any party to this Agreement with any credit or other information concerning the business, operations, property, prospects, financial and other condition or creditworthiness of the Loan Parties which may come into the possession of such Person or any of its respective officers, directors, employees, agents, attorneys-in-fact or affiliates, except that the Agent shall promptly distribute to the Lenders and the Liquidity Banks, copies of financial and other information expressly provided to the Agent by either of the Loan Parties pursuant to this Agreement for distribution to the Lenders.     Section 11.7  Indemnification of Agent.  Each Liquidity Bank agrees to indemnify the Agent and its officers, directors, employees, representatives and agents (to the extent not reimbursed by the Loan Parties and without limiting the obligation of the Loan Parties to do so), ratably in accordance with their respective Ratable Shares, from and against any and all liabilities, obligations, losses, damages, 29 -------------------------------------------------------------------------------- penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for the Agent or such Person in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not the Agent in its capacity as such or such Person shall be designated a party thereto) that may at any time be imposed on, incurred by or asserted against the Agent or such Person as a result of, or arising out of, or in any way related to or by reason of, any of the transactions contemplated hereunder or the execution, delivery or performance of this Agreement or any other document furnished in connection herewith (but excluding any such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the bad faith, gross negligence or willful misconduct of the Agent or such Person as finally determined by a court of competent jurisdiction).     Section 11.8  Agent in its Individual Capacity.  The Agent in its individual capacity and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Loan Parties and their Affiliates as though it were not the Agent hereunder. With respect to its Loans, if any, pursuant to this Agreement, the Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not an Agent, and the terms "Lender" and "Lenders" shall include the Agent in its individual capacity.     Section 11.9  Successor Agent.  The Agent, upon five (5) days' notice to the Borrower and the Lenders, may voluntarily resign at any time; provided, however, that Wachovia shall not voluntarily resign as the Agent so long as any of the Liquidity Banks' respective Commitments remain in effect or Blue Ridge has any outstanding Loans hereunder. If the Agent (other than Wachovia) shall voluntarily resign, then the Majority Lenders during such five (5)-day period shall appoint, from amongst the remaining Lenders, a successor agent, whereupon 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 its appointment, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement. Upon replacement of the Agent in accordance with this Section 11.9, the retiring Agent shall execute such UCC-3 assignments and amendments, and assignments and amendments of the Transaction Documents, as may be necessary to give effect to its replacement by a successor Agent. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article XI and Article XIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement.     Section 11.10  Agent's Conflict Waivers.  Wachovia acts, or may in the future act, (i) as administrative agent for Blue Ridge, (ii) as issuing and paying agent for Blue Ridge's Commercial Paper Notes, (iii) to provide credit or liquidity enhancement for the timely payment for Blue Ridge's Commercial Paper Notes and (iv) to provide other services from time to time for Blue Ridge (collectively, the "Wachovia Roles"). Without limiting the generality of Sections 11.1 and 11.8, each Agent, Lender and Liquidity Bank hereby acknowledges and consents to any and all Wachovia Roles and agrees that in connection with any Wachovia Role, Wachovia may take, or refrain from taking, any action which it, in its discretion, deems appropriate, including, without limitation, in its role as administrative agent for Blue Ridge, the giving of notice to the Liquidity Banks of a mandatory purchase pursuant to the Liquidity Agreement, and hereby acknowledges that neither Wachovia nor any of its Affiliates has any fiduciary duties hereunder to any Lender (other than Blue Ridge) or to any of the Liquidity Banks arising out of any Wachovia Roles.     Section 11.11  UCC Filings.  Each of the Secured Parties hereby expressly recognizes and agrees that the Agent may be listed as the assignee or secured party of record on the various UCC filings required to be made under the Transaction Documents in order to perfect their respective interests in the Collateral, that such listing shall be for administrative convenience only in creating a record or nominee holder to take certain actions hereunder on behalf of the Secured Parties and that such listing 30 -------------------------------------------------------------------------------- will not affect in any way the status of the Secured Parties as the true parties in interest with respect to the Collateral. In addition, such listing shall impose no duties on the Agent other than those expressly and specifically undertaken in accordance with this Article XI. ARTICLE XII. ASSIGNMENTS AND PARTICIPATIONS     Section 12.1  Restrictions on Assignments, etc.       (a) No Loan Party may assign its rights, or delegate its duties hereunder or any interest herein without the prior written consent of the Agent; provided, however, that the foregoing shall not be deemed to restrict PCC's right, prior to delivery of a Successor Notice, to delegate its duties as Servicer to other Originators, provided that PCC shall remain primarily liable for the performance or non-performance of such duties.     (b) Blue Ridge may, at any time, assign all or any portion of a Loan, or sell participations therein, to the Liquidity Banks (or to the Agent for the ratable benefit of the Liquidity Banks).     (c) In addition to, and not in limitation of, assignments and participations described in Section 12.1(b):     (i)  in the event that any Liquidity Bank becomes a Downgraded Liquidity Bank, such Downgraded Liquidity Bank shall give prompt written notice of its Downgrading Event to the Agent and to the Borrower. Within five (5) Business Days after the Borrower's receipt of such notice, the Borrower may propose an Eligible Assignee who is willing to accept an assignment of, and to assume, such Downgraded Liquidity Bank's rights and obligations under this Agreement and under the Liquidity Agreement. In the event that the Borrower fails to propose such an Eligible Assignee within such five (5) Business Day period, or such Eligible Assignee does not execute and deliver assignment and assumption documents reasonably acceptable to such Downgraded Liquidity Bank and the Agent and pay the Downgraded Liquidity Bank's Obligations in full, in each case, not later than 5:00 p.m. (New York City time) on the tenth (10th) Business Day following the Borrower's receipt of notice of such Downgrading Event, the Agent may identify an Eligible Assignee without the Borrower's consent, and the Downgraded Liquidity Bank shall promptly assign its rights and obligations to the Eligible Assignee designated by the Agent against payment in full of the Obligations;     (ii) each of the Lenders may assign all or any portion of its Loans and, if applicable its Commitment under this Agreement to any Eligible Assignee with the prior written consent of (A) the Agent and (B) the Borrower, which consent of the Borrower shall not be unreasonably withheld or delayed; and     (iii) each of the Lenders may sell participations in all or any portion of their respective rights and obligations in, to and under the Transaction Documents and the Obligations in accordance with Sections 12.2 and 14.7.     Section 12.2  Rights of Assignees and Participants.       (a) Upon the assignment by a Lender in accordance with Section 12.1(b) or (c), the Eligible Assignee(s) receiving such assignment shall have all of the rights of such Lender with respect to the Transaction Documents and the Obligations (or such portion thereof as has been assigned).     (b) In no event will the sale of any participation interest in any Lender's or any Eligible Assignee's rights under the Transaction Documents or in the Obligations relieve the seller of such participation of its obligations, if any, hereunder or, if applicable, under the Liquidity Agreement. 31 --------------------------------------------------------------------------------     Section 12.3  Terms and Evidence of Assignment.  Any assignment to any Eligible Assignee(s) pursuant to Section 1.2(c), 12.1(b) or 12.1(c) shall be upon such terms and conditions as the assigning Lender and the Agent, on the one hand, and the Eligible Assignee, on the other, may mutually agree, and shall be evidenced by such instrument(s) or document(s) as may be satisfactory to such Lender, the Agent and the Eligible Assignee(s). Any assignment made in accordance with the terms of this Article XII shall relieve the assigning Lender of its obligations, if any, under this Agreement (and, if applicable, the Liquidity Agreement) to the extent assigned. ARTICLE XIII. INDEMNIFICATION     Section 13.1  Indemnities by the Borrower.       (a)  General Indemnity.  Without limiting any other rights which any such Person may have hereunder or under applicable law, the Borrower hereby agrees to indemnify each of the Agent, the Lenders, the Liquidity Banks, each of their respective Affiliates, and all successors, transferees, participants and assigns and all officers, directors, shareholders, controlling persons, employees and agents of any of the foregoing (each, an "Indemnified Party"), forthwith on demand, from and against any and all damages, losses, claims, liabilities and related costs and expenses, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") awarded against or incurred by any of them arising out of or relating to the Transaction Documents, the Obligations or the Collateral, excluding, however, (x) Indemnified Amounts to the extent determined by a court of competent jurisdiction to have resulted from bad faith, gross negligence or willful misconduct on the part of such Indemnified Party or (y) recourse (except as otherwise specifically provided in this Agreement) for Indemnified Amounts to the extent the same includes losses in respect of Receivables which are uncollectible on account of the insolvency, bankruptcy or lack of creditworthiness of the related Obligor. Without limiting the foregoing, the Borrower shall indemnify each Indemnified Party for Indemnified Amounts arising out of or relating to:     (i)  the creation of any Lien on, or transfer by any Loan Party of any interest in, the Collateral other than the sale of Receivables and related property by the Originators to PCC pursuant to the First-Step Receivables Purchase Agreement, the sale or contribution of Receivables and related property by PCC to the Borrower pursuant to the Sale Agreement and the grant by the Borrower of a security interest in the Collateral to the Agent pursuant to Section 9.1;     (ii) any representation or warranty made by any Loan Party (or any of its officers) under or in connection with any Transaction Document, any Information Package or any other information or report delivered by or on behalf of any Loan Party pursuant hereto, which shall have been false, incorrect or misleading in any respect when made or deemed made or delivered, as the case may be;     (iii) the failure by any Loan Party to comply with any applicable law, rule or regulation with respect to any Receivable or the related Contract, or the nonconformity of any Receivable or the related Contract with any such applicable law, rule or regulation;     (iv) the failure to vest and maintain vested in the Agent, for the benefit of the Secured Parties, a valid and perfected first priority security interest in the Collateral, free and clear of any other Lien, other than a Lien arising solely as a result of an act of one of the Secured Parties, now or at any time thereafter;     (v) the failure to file, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Collateral; 32 --------------------------------------------------------------------------------     (vi) any dispute, claim, offset or defense (other than discharge in bankruptcy) of the Obligor to the payment of any Receivable (including, without limitation, a defense based on such Receivables or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the goods and/or services related to such Receivable or the furnishing or failure to furnish such goods and/or services;     (vii) any matter described in Section 3.4;     (viii) any failure of either Loan Party, as the Borrower, the Servicer or otherwise, to perform its duties or obligations in accordance with the provisions of this Agreement or the other Transaction Documents to which it is a party;     (ix) any products liability claim or any claim of breach by either Loan Party of any related Contract with respect to any Receivable;     (x) any tax or governmental fee or charge (but not including taxes upon or measured by net income, franchise taxes or withholding taxes), all interest and penalties thereon or with respect thereto, and all out-of-pocket costs and expenses, including the reasonable fees and expenses of counsel in defending against the same, which may arise by reason of the Agent's security interest in the Collateral;     (xi) the commingling of Collections of Receivables at any time with other funds;     (xii) any investigation, litigation or proceeding related to or arising from this Agreement or any other Transaction Document, the transactions contemplated hereby or thereby, the use of the proceeds of any Loan, the security interest in the Receivables and Related Assets or any other investigation, litigation or proceeding relating to the Borrower or any of the Originators in which any Indemnified Party becomes involved as a result of any of the transactions contemplated hereby or thereby (other than an investigation, litigation or proceeding (1) relating to a dispute solely amongst the Lenders (or certain Lenders) and the Agent or (2) excluded by Section 13.1(a));     (xiii) any inability to litigate any claim against any Obligor in respect of any Receivable as a result of such Obligor being immune from civil and commercial law and suit on the grounds of sovereignty or otherwise from any legal action, suit or proceeding;     (xiv)  the occurrence of any Event of Default of the type described in Section 10.1(e); or     (xv) any loss incurred by any of the Secured Parties as a result of the inclusion in the Borrowing Base of Receivables owing from any single Obligor and its Affiliated Obligors which causes the aggregate Unpaid Balance of all such Receivables to exceed the applicable Obligor Concentration Limit.     (b)  Contest of Tax Claim; After-Tax Basis.  If any Indemnified Party shall have notice of any attempt to impose or collect any tax or governmental fee or charge for which indemnification will be sought from any Loan Party under Section 13.1(a)(x), such Indemnified Party shall give prompt and timely notice of such attempt to the Borrower and the Borrower shall have the right, at its expense, to participate in any proceedings resisting or objecting to the imposition or collection of any such tax, governmental fee or charge. Indemnification hereunder shall be in an amount necessary to make the Indemnified Party whole after taking into account any tax consequences to the Indemnified Party of the payment of any of the aforesaid taxes (including any deduction) and the receipt of the indemnity provided hereunder or of any refund of any such tax previously indemnified hereunder, including the effect of such tax, deduction or refund on the amount of tax measured by net income or profits which is or was payable by the Indemnified Party. 33 --------------------------------------------------------------------------------     (c)  Contribution.  If for any reason the indemnification provided above in this Section 13.1 (and subject to the exceptions set forth herein) is unavailable to an Indemnified Party or is insufficient to hold an Indemnified Party harmless, then the Borrower shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by such Indemnified Party on the one hand and the Borrower on the other hand but also the relative fault of such Indemnified Party as well as any other relevant equitable considerations.     Section 13.2  Indemnities by Servicer.  Without limiting any other rights which any Indemnified Party may have hereunder or under applicable law, the Servicer hereby agrees to indemnify each of the Indemnified Parties forthwith on demand, from and against any and all Indemnified Amounts awarded against or incurred by any of them arising out of or relating to the Servicer's performance of, or failure to perform, any of its obligations under or in connection with any Transaction Document, or any representation or warranty made by the Servicer (or any of its officers in their capacities as such) under or in connection with any Transaction Document, any Information Package or any other information or report delivered by or on behalf of the Servicer, which shall have been false, incorrect or misleading in any material respect when made or deemed made or delivered, as the case may be, or the failure of the Servicer to comply with any applicable law, rule or regulation with respect to any Receivable or the related Contract. Notwithstanding the foregoing, in no event shall any Indemnified Party be awarded any Indemnified Amounts (a) to the extent determined by a court of competent jurisdiction to have resulted from bad faith, gross negligence or willful misconduct on the part of such Indemnified Party or (b) as recourse for Indemnified Amounts to the extent the same includes losses in respect of Receivables which are uncollectible on account of the insolvency, bankruptcy or lack of creditworthiness of the related Obligor.     If for any reason the indemnification provided above in this Section 13.2 (and subject to the exceptions set forth herein) is unavailable to an Indemnified Party or is insufficient to hold an Indemnified Party harmless, then the Servicer shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by such Indemnified Party on the one hand and the Servicer on the other hand but also the relative fault of such Indemnified Party as well as any other relevant equitable considerations. ARTICLE XIV. MISCELLANEOUS     Section 14.1  Amendments, Etc.  No amendment or waiver of any provision of this Agreement nor consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be in writing and signed by each of the Loan Parties and the Agent, and any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. The Loan Parties acknowledge that, before entering into such an amendment or granting such a waiver or consent, the Agent will be required to obtain the approval of the Majority Lenders (or, in certain instances, all of the Liquidity Banks) and may be required to obtain the approval of the Rating Agencies.     Section 14.2  Notices, Etc.  All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including facsimile communication) and shall be personally delivered or sent by express mail or courier or by certified mail, postage prepaid, or by facsimile, to the intended party at the address or facsimile number of such party set forth on Schedule 14.2 or at such other address or facsimile number as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective, (a) if personally delivered or sent by express mail or courier or if sent by certified mail, when received, and (b) if transmitted by facsimile, when sent, receipt confirmed by telephone or electronic means. 34 --------------------------------------------------------------------------------     Section 14.3  No Waiver; Remedies.  No failure on the part of the Agent or any of the other Secured Parties to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Without limiting the foregoing, each of the Agent, the Lenders and the Liquidity Banks is hereby authorized by the Borrower at any time and from time to time, to the fullest extent permitted by law, to set off and apply to payment of any Obligations that are then due and owing any and all deposits (general or special, time or demand provisional or final) at any time held and other indebtedness at any time owing by such Person to or for the credit or the account of the Borrower.     Section 14.4  Binding Effect; Survival.  This Agreement shall become effective upon receipt by the Agent of a counterpart hereof, duly executed by each of the parties hereto, whereupon it shall be binding upon and inure to the benefit of each the Loan Parties, the Agent, the Lenders and their respective successors and permitted assigns, and the provisions of Section 4.2 and Article XIII shall inure to the benefit of the Affected Parties and the Indemnified Parties, respectively, and their respective successors and assigns; provided, however, nothing in the foregoing shall be deemed to authorize any assignment not permitted by Section 12.1. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until the Final Payout Date. The rights and remedies with respect to any breach of any representation and warranty made by the Borrower pursuant to Article VI and the provisions of Article XIII and Sections 4.2, 14.5, 14.6, 14.7, 14.8 and 14.15 shall be continuing and shall survive any termination of this Agreement.     Section 14.5  Costs, Expenses and Taxes.  In addition to their obligations under the other provisions of this Agreement, the Loan Parties jointly and severally agree to pay:     (a) within fifteen (15) Business Days after receipt of a written invoice therefor: all reasonable out-of-pocket costs and expenses (including, without limitation, the reasonable fees and expenses of counsel and independent accountants) incurred by each of the Lenders, the Agent and the Liquidity Banks in connection with the negotiation, preparation, execution and delivery of any amendment or consent to, or waiver of, any provision of the Transaction Documents which is requested or proposed by any Loan Party (whether or not consummated), the administration of the Transaction Documents following an Event of Default (or following a waiver of or consent to any Event of Default), or the enforcement by any of the foregoing Persons of, or any actual or claimed breach of, this Agreement or any of the other Transaction Documents, including, without limitation, (i) the reasonable fees and expenses of counsel to any of such Persons incurred in connection with any of the foregoing or in advising such Persons as to their respective rights and remedies under any of the Transaction Documents in connection with any of the foregoing, and (ii) the reasonable fees and expenses of independent accountants incurred in connection with any review of any Loan Party's books and records or valuation of the Receivables and Related Assets; and     (b) upon demand: all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement or the other Transaction Documents (and Loan Parties, jointly and severally agree to indemnify each Indemnified Party against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees).     Section 14.6  No Proceedings.  Each of the parties hereto hereby agrees that it will not institute against the Borrower or Blue Ridge, or join any Person in instituting against the Borrower or Blue Ridge, any insolvency proceeding (namely, any proceeding of the type referred to in the definition of Event of Bankruptcy) so long as any Commercial Paper Notes or other senior Indebtedness issued by Blue Ridge shall be outstanding or there shall not have elapsed one (1) year plus one (1) day since the 35 -------------------------------------------------------------------------------- last day on which any such Commercial Paper Notes or other senior Indebtedness shall have been outstanding.     Section 14.7  Confidentiality of Borrower Information.       (a)  Confidential Borrower Information.  Each party hereto (other than the Loan Parties) acknowledges that certain of the information provided to such party by or on behalf of the Loan Parties in connection with this Agreement and the transactions contemplated hereby is or may be confidential, and each such party severally agrees that, unless PCC shall otherwise agree in writing, and except as provided in subsection (b), such party will not disclose to any other person or entity:     (i)  any information regarding, or copies of, any nonpublic financial statements, reports, schedules and other information furnished by any Loan Party to the Agent or the Lenders (A) prior to the date hereof in connection with such party's due diligence relating to the Loan Parties and the transactions contemplated hereby, or (B) pursuant to Section 3.1, 5.1, 6.1(i), 6.1(m), 7.1(c) or 7.2, or     (ii) any other information regarding any Loan Party which is designated by any Loan Party to such party in writing as confidential (the information referred to in clauses (i) and (ii) above, whether furnished by any Loan Party or any attorney for or other representative thereof (each, a "Borrower Information Provider"), is collectively referred to as the "Borrower Information"); provided, however, "Borrower Information" shall not include any information which is or becomes generally available to the general public or to such party on a nonconfidential basis from a source other than any Borrower Information Provider, or which was known to such party on a nonconfidential basis prior to its disclosure by any Borrower Information Provider.     (b)  Disclosure.  Notwithstanding subsection (a), each party may disclose any Borrower Information:     (i)  to any of such party's attorneys and auditors,     (ii) to any dealer or placement agent for such party's Commercial Paper Notes, who (A) in the good faith belief of such party, has a need to know the Borrower Information, (B) is informed by such party of the confidential nature of the Borrower Information and the terms of this Section 14.7 and (C) has agreed in writing to be bound by the provisions of this Section 14.7,     (iii) to any Liquidity Bank (whether or not on the date of disclosure, such Liquidity Bank continues to be an Eligible Assignee), to any other actual or potential permitted assignee or participant permitted under Section 12.1 who has agreed to be bound by the provisions of this Section 14.7,     (iv) to any rating agency that maintains a rating for such party's Commercial Paper Notes or is considering the issuance of such a rating, for the purposes of reviewing the credit of any Lender in connection with such rating,     (v) to any other party to this Agreement (and any independent attorneys and auditors of such party), for the purposes contemplated hereby,     (vi) as may be required by any municipal, state, federal or other regulatory body having or claiming to have jurisdiction over such party, in order to comply with any law, order, regulation, regulatory request or ruling applicable to such party,     (vii) subject to subsection (c), in the event such party is legally compelled (by interrogatories, requests for information or copies, subpoena, civil investigative demand or similar process) to disclose such Borrower Information, 36 --------------------------------------------------------------------------------     (viii) to any entity that provides a surety bond or other credit enhancement to Blue Ridge, or     (ix) in connection with the enforcement of this Agreement or any other Transaction Document. In addition, each of the Lenders and the Agent may disclose on a "no name" basis to any actual or potential investor in Commercial Paper Notes information regarding the nature of this Agreement, the basic terms hereof (including without limitation the amount and nature of the Aggregate Commitment and the Advances), the nature, amount and status of the Receivables, and the current and/or historical ratios of losses to liquidations and/or outstandings with respect to the Receivables.     (c)  Legal Compulsion.  In the event that any party hereto (other than any Loan Party) or any of its representatives is requested or becomes legally compelled (by interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any of the Borrower Information, such party will (or will cause its representative to):     (i)  provide PCC with prompt written notice so that (A) PCC may seek a protective order or other appropriate remedy, or (B) PCC may, if it so chooses, agree that such party (or its representatives) may disclose such Borrower Information pursuant to such request or legal compulsion; and     (ii) unless PCC agrees that such Borrower Information may be disclosed, make a timely objection to the request or compulsion to provide such Borrower Information on the basis that such Borrower Information is confidential and subject to the agreements contained in this Section 14.7. In the event such protective order or remedy is not obtained, or PCC agrees that such Borrower Information may be disclosed, such party will furnish only that portion of the Borrower Information which (in such party's good faith judgment) is legally required to be furnished and will exercise reasonable efforts to obtain reliable assurance that confidential treatment will be afforded the Borrower Information.     (d)  Survival.  This Section 14.7 shall survive termination of this Agreement.     Section 14.8  Confidentiality of Program Information.       (a)  Confidential Information.  Each party hereto acknowledges that Blue Ridge and the Agent regard the structure of the transactions contemplated by this Agreement to be proprietary, and each such party agrees that:     (i)  it will not disclose without the prior consent of Blue Ridge or the Agent (other than to the directors, employees, auditors, counsel or affiliates (collectively, "representatives") of such party, each of whom shall be informed by such party of the confidential nature of the Program Information (as defined below) and of the terms of this Section 14.8): (A) any information regarding the pricing in, or copies of, the Liquidity Agreement or the Fee Letter, or (B) any information which is furnished by Blue Ridge or the Agent to such party and which is designated by Blue Ridge or the Agent to such party in writing or otherwise as confidential or not otherwise available to the general public (the information referred to in clauses (A) and (B) is collectively referred to as the "Program Information"); provided, however, that such party may disclose any such Program Information (I) as may be required by any municipal, state, federal or other regulatory body having or claiming to have jurisdiction over such party, including, without limitation, the SEC, (II) in order to comply with any law, order, regulation, regulatory request or ruling applicable to such party, (III) subject to subsection (c) below, in the event such party is legally compelled (by interrogatories, requests for information or copies, subpoena, civil investigative demand or similar process) to disclose any such Program Information, or (IV) in financial statements as required by GAAP; 37 --------------------------------------------------------------------------------     (ii) it will use the Program Information solely for the purposes of evaluating, administering and enforcing the transactions contemplated by the Transaction Documents and making any necessary business judgments with respect thereto; and     (iii) it will, upon demand, return (and cause each of its representatives to return) to the Agent, all documents or other written material received from Blue Ridge or the Agent in connection with (a)(i) (B) or (C) above and all copies thereof made by such party which contain the Program Information.     (b)  Availability of Confidential Information.  This Section 14.8 shall be inoperative as to such portions of the Program Information which are or become generally available to the public or such party on a nonconfidential basis from a source other than the Agent or were known to such party on a nonconfidential basis prior to its disclosure by the Agent.     (c)  Legal Compulsion to Disclose.  In the event that any party or anyone to whom such party or its representatives transmits the Program Information is requested or becomes legally compelled (by interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any of the Program Information, such party will:     (i)  provide the Agent with prompt written notice so that the Agent may seek a protective order or other appropriate remedy and/or, if it so chooses, agree that such party may disclose such Program Information pursuant to such request or legal compulsion; and     (ii) unless the Agent agrees that such Program Information may be disclosed, make a timely objection to the request or compulsion to provide such Program Information on the basis that such Program Information is confidential and subject to the agreements contained in this Section 14.8. In the event that such protective order or other remedy is not obtained, or the Agent agrees that such Program Information may be disclosed, such party will furnish only that portion of the Program Information which (in such party's good faith judgment) is legally required to be furnished and will exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded the Program Information. In the event any Loan Party is required to file a copy of the Program Information with the SEC or any other governmental authority, it will (A) provide the Agent with prompt written notice of such requirement and (B) exercise reasonable efforts to obtain reliable assurance that such governmental authority will give confidential treatment to the Program Information.     (d)  Survival.  This Section 14.8 shall survive termination of this Agreement.     Section 14.9  Captions and Cross References.  The various captions (including, without limitation, the table of contents) in this Agreement are provided solely for convenience of reference and shall not affect the meaning or interpretation of any provision of this Agreement. Unless otherwise indicated, references in this Agreement to any Section, Annex, Schedule or Exhibit are to such Section of or Annex, Schedule or Exhibit to this Agreement, as the case may be, and references in any Section, subsection, or clause to any subsection, clause or subclause are to such subsection, clause or subclause of such Section, subsection or clause.     Section 14.10  Integration.  This Agreement and the other Transaction Documents contain a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire understanding among the parties hereto with respect to the subject matter hereof, superseding all prior oral or written understandings.     Section 14.11  Governing Law.  THIS AGREEMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW, EXCEPT TO THE EXTENT THAT 38 -------------------------------------------------------------------------------- THE PERFECTION OF THE SECURITY INTEREST OF THE AGENT, ON BEHALF OF THE SECURED PARTIES, IN THE COLLATERAL IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.     Section 14.12  Waiver Of Jury Trial.  EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING OR OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL NOT BE TRIED BEFORE A JURY.     Section 14.13  Consent To Jurisdiction; Waiver Of Immunities.  EACH LOAN PARTY HEREBY ACKNOWLEDGES AND AGREES THAT:     (a) IT IRREVOCABLY (i) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION, FIRST, OF ANY UNITED STATES FEDERAL COURT, AND SECOND, IF FEDERAL JURISDICTION IS NOT AVAILABLE, OF ANY NEW YORK STATE COURT, IN EITHER CASE SITTING IN THE BOROUGH OF MANHATTAN, IN NEW YORK COUNTY, NEW YORK, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND (ii) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF AN ACTION OR PROCEEDING IN SUCH COURTS.     (b) TO THE EXTENT THAT IT HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM THE JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID TO EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, IT HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER OR IN CONNECTION WITH THIS AGREEMENT.     Section 14.14  Execution in Counterparts.  This Agreement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement.     Section 14.15  No Recourse Against Other Parties.  The several obligations of the Lenders under this Agreement are solely the corporate obligations of such Lender. No recourse shall be had for the payment of any amount owing by such Lender under this Agreement or for the payment by such Lender of any fee in respect hereof or any other obligation or claim of or against such Lender arising out of or based upon this Agreement, against any employee, officer, director, incorporator or stockholder of such Lender. Each of the Borrower, the Servicer and the Agent agrees that Blue Ridge shall be liable for any claims that such party may have against Blue Ridge only to the extent Blue Ridge has excess funds and to the extent such assets are insufficient to satisfy the obligations of Blue Ridge hereunder, Blue Ridge shall have no liability with respect to any amount of such obligations remaining unpaid and such unpaid amount shall not constitute a claim against Blue Ridge. Any and all claims against Blue Ridge or the Agent shall be subordinate to the claims against such Persons of the holders of Commercial Paper Notes and the Liquidity Banks. 39 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. BORROWER:   PRECISION RECEIVABLES CORP.     By: -------------------------------------------------------------------------------- Name: William D. Larsson Title: President SERVICER:   PRECISION CASTPARTS CORP.     By: -------------------------------------------------------------------------------- Name: William D. Larsson Title: Vice President and Chief Financial Officer AGENT:   WACHOVIA BANK, N.A., AS AGENT     By: -------------------------------------------------------------------------------- Name: Title: LENDERS:   BLUE RIDGE ASSET FUNDING CORPORATION     BY: WACHOVIA BANK, N.A., ITS ATTORNEY-IN-FACT     By: -------------------------------------------------------------------------------- Name: Title: Commitment: not applicable     WACHOVIA BANK, N.A.     By: -------------------------------------------------------------------------------- Name: Title: Commitment: $150,000,000 40 -------------------------------------------------------------------------------- ANNEX A DEFINITIONS     A. Certain Defined Terms.  As used in this Agreement:     "Account" shall have the meaning specified in Section 9-106 of the UCC.     "Adjusted Dilution Ratio" at any time means the rolling average of the Dilution Ratio for the 12 Settlement Periods then most recently ended.     "Advance" means a borrowing hereunder consisting of the aggregate amount of the several Loans made on the same Borrowing Date.     "Affected Party" means each of the Lenders, the Agent and the Liquidity Banks.     "Affiliate" means, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, membership interests, by contract, or otherwise.     "Affiliated Obligor" in relation to any Obligor means an Obligor that is an Affiliate of such Obligor.     "Agent" has the meaning provided in the preamble of this Agreement.     "Aggregate Commitment" means the aggregate of the Commitments of the Liquidity Banks, as reduced or increased from time to time pursuant to the terms hereof.     "Agreement" means this Amended and Restated Credit and Security Agreement, as it may be amended or modified and in effect from time to time.     "Allocation Limit" has the meaning set forth in Section 1.1.     "Alternate Base Rate" means for any day, the rate per annum equal to the higher as of such day of (i) the Base Rate, or (ii) one-half of one percent (0.50%) above the Federal Funds Rate. For purposes of determining the Alternate Base Rate for any day, changes in the Prime Rate or the Federal Funds Rate shall be effective on the date of each such change. The Alternate Base Rate is not necessarily intended to be the lowest rate of interest determined by Wachovia in connection with extensions of credit.     "Alternate Base Rate Loan" means a Loan which bears interest at the Alternate Base Rate or the Default Rate.     "Approved Country" means a country other than the United States (or one of its possessions or territories) which has been approved by the Agent in writing prior to the occurrence of a Servicer Credit Event; provided, however, that the Agent may, upon not less than ten (10) Business Days' prior written notice withdraw its approval of any such country.     "Article" means an article of this Agreement unless another document is specifically referenced.     "Authorized Officer" means, as to any Loan Party or Originator, either its Vice President and Chief Financial Officer or its Treasurer, acting singly.     "Base Rate" means the rate of interest per annum publicly announced from time to time by Wachovia as its "prime rate." (The "prime rate" is a rate set by Wachovia based upon various factors including Wachovia's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate.) Any change in the prime rate announced by Wachovia shall take effect at the opening of business on the day specified in the public announcement of such change. 41 --------------------------------------------------------------------------------     "Blue Ridge" has the meaning provided in the preamble of this Agreement.     "Borrower" has the meaning provided in the preamble of this Agreement.     "Borrower Information" has the meaning set forth in Section 14.7(a).     "Borrower Information Provider" has the meaning set forth in Section 14.7(a).     "Borrowing Base" means, on any date of determination, the amount determined by reference to the following formula: [(NPB—RR)—EDC] where:         NPB   =   the Net Pool Balance as of the most recent Cut-Off Date; RR   =   the Required Reserve as of the most recent Cut-Off Date; and EDC   =   Deemed Collections that have occurred since the most recent Cut-Off Date to the extent such Deemed Collections exceed the portion, if any, of the Dilution Reserve which is included in the Required Reserve.     "Borrowing Date" means a date on which an Advance is made hereunder.     "Borrowing Request" is defined in Section 2.1.     "Broken Funding Costs" means for any Loan which: (i) has its principal reduced without compliance by the Borrower with the notice requirements hereunder or (ii) does not have its principal reduced following the delivery of any Prepayment Notice or (iii) is assigned by Blue Ridge to the Liquidity Banks under the Liquidity Agreement or terminated prior to the date on which it was originally scheduled to end; an amount equal to the excess, if any, of (A) the CP Costs that would have accrued during the remainder of the tranche periods for Commercial Paper Notes or (as applicable) interest that would have accrued during the remainder of the CP Accrual Periods or Interest Periods determined by the Agent to relate to such Loan (as applicable) subsequent to the date of such reduction, assignment or termination (or in respect of clause (ii) above, the date such reduction of principal was designated to occur pursuant to the Prepayment Notice) of the principal amount of such Loan if such reduction, assignment or termination had not occurred or such Prepayment Notice had not been delivered, over (B) the sum of (x) to the extent all or a portion of such principal amount is allocated to another Loan, the amount of CP Costs or interest actually accrued during the remainder of such period on such principal amount for the new Loan, and (y) to the extent such principal amount is not allocated to another Loan, the income, if any, actually received during the remainder of such period by the holder of such Loan from investing the portion of such principal amount not so allocated. All Broken Funding Costs shall be due and payable hereunder upon demand.     "Business Day" means (i) any day on which banks are not authorized or required to close in New York, New York, Atlanta, Georgia, or Portland, Oregon, and The Depository Trust Company of New York is open for business, and (ii) if the applicable Business Day relates to any computation or payment to be made with respect to the Eurodollar Rate (Reserve Adjusted), any day on which dealings in dollar deposits are carried on in the London interbank market.     "Change in Control" means:     (a) the failure of PCC to own (directly or through one or more wholly-owned Subsidiaries of PCC) 100% of the issued and outstanding shares of the capital stock (including all warrants, options, conversion rights, and other rights to purchase or convert into such stock) of the Borrower on a fully diluted basis; or 42 --------------------------------------------------------------------------------     (b) (i) any Person or two (2)or more Persons acting in concert acquires beneficial ownership (within the meaning of Rule 13d-3 of the SEC under the Exchange Act), directly or indirectly, of securities of PCC (or other securities convertible into such securities) representing 25% or more of the combined voting power of all securities of PCC entitled to vote in the election of directors, or (ii) during any period of up to 12 consecutive months, individuals who at the beginning of such 12-month period were directors of PCC ceasing for any reason to constitute a majority of the Board of Directors of PCC unless the Persons replacing such individuals were nominated by the Board of Directors of PCC, or (iii) any Person or two (2)or more Persons acting in concert acquiring by contract or otherwise, or entering into a contract or arrangement which upon consummation will result in its or their acquisition of, or control over, securities of PCC (or other securities convertible into such securities) representing 25% or more of the combined voting power of all securities of PCC entitled to vote in the election of directors.     "Code" means the Internal Revenue Code of 1986, as the same may be amended from time to time.     "Collateral" has the meaning set forth in Section 9.1.     "Collection Account" has the meaning set forth in Section 7.1(i).     "Collections" means, (a) with respect to any Receivable, all funds which either (i) are received by the Borrower, any of the Originators or the Servicer from or on behalf of the related Obligor in payment of any amounts owed (including, without limitation, purchase prices, finance charges, interest and all other charges) in respect of such Receivable, or applied to such amounts owed by such Obligor (including, without limitation, insurance payments that the Borrower, any Originator or the Servicer applies in the ordinary course of its business to amounts owed in respect of such Receivable and net proceeds of sale or other disposition of repossessed goods or other collateral or property of the Obligor or any other party directly or indirectly liable for payment of such Receivable and available to be applied thereon), or (ii) are Deemed Collections, and (b) with respect to any Demand Advance, any payment of principal or interest in respect thereof.     "Commercial Paper Notes" shall mean the commercial paper promissory notes, if any, issued by or on behalf of Blue Ridge that fund any CP Rate Loan.     "Commitment" means, for Wachovia, its obligation to make Loans not exceeding the amount set forth below its signature to the Agreement in its capacity as a Lender, as such amount may be modified from time to time pursuant to the terms hereof.     "Commitment Increase Request" has the meaning set forth in Section 1.7.     "Commitment Reduction Notice" has the meaning set forth in Section 1.6.     "Contract" means with respect to any Receivable, any agreement, contract or other writing with respect to the provision of goods or services by an Originator to an Obligor, any paper or electronic bill, statement or invoice for goods or services rendered by an Originator to an Obligor, and any instrument or chattel paper now or hereafter evidencing all or any portion of the same.     "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of or other instrument, document or agreement to which such Person is a party or by which it or any of its property is bound.     "CP Accrual Period" means each calendar month (or portion thereof) during which any Loan is funded with Commercial Paper Notes.     "CP Costs" means, for each day, the sum of (i) discount or interest accrued on Pooled Commercial Paper on such day, plus (ii) any and all accrued commissions in respect of placement agents and Commercial Paper Note dealers, and issuing and paying agent fees incurred, in respect of such Pooled 43 -------------------------------------------------------------------------------- Commercial Paper for such day, plus (iii) other costs associated with funding small or odd-lot amounts with respect to all receivable purchase or financing facilities which are funded by Pooled Commercial Paper for such day, minus (iv) any accrual of income net of expenses received on such day from investment of collections received under all receivable purchase or financing facilities funded substantially with Pooled Commercial Paper, minus (v) any payment received on such day net of expenses in respect of Broken Funding Costs related to the prepayment of any investment or loan of Blue Ridge pursuant to the terms of any receivable purchase or financing facilities funded substantially with Pooled Commercial Paper. In addition to the foregoing costs, if Borrower shall request any Loan during any period of time determined by the Agent in its sole discretion to result in incrementally higher CP Costs applicable to such Loan, the principal associated with any such Loan shall, during such period, be deemed to be funded by Blue Ridge in a special pool (which may include capital associated with other receivable purchase or financing facilities) for purposes of determining such additional CP Costs applicable only to such special pool and charged each day during such period against such principal. Notwithstanding the foregoing, on any day when any Event of Default or Unmatured Event of Default shall have occurred and be continuing, the CP Costs for each Loan funded through the issuance of Commercial Paper Notes shall equal the greater of (a) the amount determined for such day pursuant to the preceding two sentences, and (b) interest on the principal amount associated with such Loan a rate per annum equal to the Base Rate plus 2% per annum.     "CP Rate" means, with respect to any CP Accrual Period, the rate per annum equivalent to the CP Costs accrued with respect to the principal amount of any Loan funded with Commercial Paper Notes.     "CP Rate Loan" means a Loan made by Blue Ridge which bears interest at a CP Rate.     "Credit and Collection Policy" means those written and unwritten credit and collection policies and practices of each of the Originators relating to Contracts and Receivables as in effect on the date of this Agreement, as modified without violating Section 7.3(c), but subject to compliance with applicable tariffs or state regulations in effect from time to time; provided that if an Event of Default or an Unmatured Default has occurred, at the request of the Agent, PCC shall provide a detailed written summary of each Credit and Collection Policy.     "Cut-Off Date" means (a)(i) October 24, 1999 and (ii) November 21, 1999 for Receivables originated by PCC Structurals, Inc., PCC Airfoils, Inc., Johnston Pump Company, Inc., General Valve Company, Inc., and Paco Pumps, Inc., (b)(i) October 30, 1999 and (ii) November 24, 1999 for Receivables originated by Wyman-Gordon Forgings, Inc., Wyman-Gordon Investment Castings, Inc., Precision Founders, Inc., and Wyman-Gordon Company and (c) for all Receivables, the last day of each fiscal accounting period after the date specified in clause (a)(ii) or (b)(ii), as applicable.     "Days Sales Outstanding" means, as of any day, an amount equal to the product of (x) 91, multiplied by (y) the amount obtained by dividing (i) the aggregate outstanding balance of Receivables as of the most recent Cut-Off Date, by (ii) the aggregate amount of Receivables created during the three (3) Settlement Periods including and immediately preceding such Cut-Off Date.     "Deemed Collections" means Collections deemed received by the Borrower under Section 3.4.     "Default Horizon Ratio" at any time means (i) for Receivables originated by PCC Structurals, Inc., Precision Founders, Inc., Wyman-Gordon Forgings, Inc., Wyman-Gordon Investment Castings, Inc., and Wyman-Gordon Company, the ratio (expressed as a percentage) computed as of the Cut-Off Date for the next preceding Settlement Period by dividing the aggregate sales generated by such Originators during the most recent four (4) Settlement Periods by the Unpaid Balance of Eligible Receivables of such Originators as of the most recent Cut-Off Date; (ii) for Receivables originated by PCC Airfoils, Inc., Johnston Pump Company, Inc., General Valve Company, Inc., and Paco Pumps, Inc., the ratio (expressed as a percentage) computed as of the Cut-Off Date for the next preceding Settlement Period by dividing the aggregate sales generated by such Originators during the most recent three 44 -------------------------------------------------------------------------------- (3) Settlement Periods by the Unpaid Balance of Eligible Receivables of such Originators as of the most recent Cut-Off Date.     "Default Rate" means a rate per annum equal to the sum of (i) the Alternate Base Rate plus (ii) 2.00%, changing when and as the Alternate Base Rate changes.     "Default Ratio" means, as of any Cut-Off Date, (i) for Receivables originated by PCC Structurals, Inc., Precision Founders, Inc., Wyman-Gordon Forgings, Inc., Wyman-Gordon Investment Castings, Inc., and Wyman-Gordon Company, the ratio (expressed as a percentage) computed by dividing (x) the total amount of such Receivables which became Defaulted Receivables during the Settlement Period that includes such Cut-Off Date, by (y) the aggregate sales generated by these respective Originators during the Settlement Period occurring four (4) months prior to the Settlement Period ending on such Cut-Off Date; (ii) for Receivables originated by PCC Airfoils, Inc., Johnston Pump Company, Inc., General Valve Company, Inc., and Paco Pumps, Inc., the ratio (expressed as a percentage) computed by dividing (x) the total amount of such Receivables which became Defaulted Receivables during the Settlement Period that includes such Cut-Off Date, by (y) the aggregate sales generated by these respective Originators during the Settlement Period occurring three (3) months prior to the Settlement Period ending on such Cut-Off Date.     "Defaulted Receivable" means (i) for Receivables originated by PCC Structurals, Inc., Precision Founders, Inc., Wyman-Gordon Forgings, Inc., Wyman-Gordon Investment Castings, Inc., and Wyman-Gordon Company, a Receivable: (a) as to which any payment, or part thereof, remains unpaid for more than 120 days from the original invoice date for such Receivable; (b) as to which an Event of Bankruptcy has occurred and remains continuing with respect to the Obligor thereof; or (c) which has been, or, consistent with the Credit and Collection Policy would be, written off the Borrower's, any Originator's or the Servicer's books as uncollectible; (ii) for Receivables originated by PCC Airfoils, Inc., Johnston Pump Company, Inc., General Valve Company, Inc., and Paco Pumps, Inc., a Receivable: (a) as to which any payment, or part thereof, remains unpaid for more than 90 days from the original invoice date for such Receivable; (b) as to which an Event of Bankruptcy has occurred and remains continuing with respect to the Obligor thereof; or (c) which has been, or, consistent with the Credit and Collection Policy would be, written off the Borrower's, any Originator's or the Servicer's books as uncollectible.     "Delinquency Ratio" at any time means the ratio (expressed as a percentage) computed as of the Cut-Off Date for the next preceding Settlement Period by dividing (x) the aggregate Unpaid Balance of all Receivables that are Delinquent Receivables on such Cut-Off Date by (y) the aggregate Unpaid Balance of Receivables on such Cut-Off Date.     "Delinquent Receivable" means (i) for Receivables originated by PCC Structurals, Inc., Precision Founders, Inc., Wyman-Gordon Forgings, Inc., Wyman-Gordon Investment Castings, Inc., and Wyman-Gordon Company, a Receivable as to which any payment, or part thereof, remains unpaid for 91-120 days from the original invoice date of such Receivable; (ii) for Receivables originated by PCC Airfoils, Inc., Johnston Pump Company, Inc., General Valve Company, Inc., and Paco Pumps, Inc., a Receivable as to which any payment, or part thereof, remains unpaid for 61-90 days from the original invoice date of such Receivable.     "Demand Advance" means an advance made by the Borrower to PCC on any day during the Revolving Period (other than a Settlement Date) on which no Servicer Transfer Event exists and is continuing, which advance (a) is payable upon demand, (b) is not evidenced by an instrument, chattel paper or a certificated security, (c) bears interest at a market rate determined by the Borrower and PCC from time to time, and (d) may not be offset by PCC against amounts due and owing from the Borrower to PCC under the Subordinated Note. 45 --------------------------------------------------------------------------------     "Dilution" means the amount of any reduction or cancellation of the Unpaid Balance of a Receivable as described in Section 3.4(a) .     "Dilution Horizon Ratio" means, on any date of determination, an amount calculated by dividing (a) cumulative sales generated during the three (3) most recent Settlement Periods by (b) the Net Pool Balance as of the most recent Cut-Off Date.     "Dilution Ratio" means a percentage equal to a fraction, the numerator of which is the total amount of decreases in Unpaid Balances due to Dilutions during the most recent Settlement Period, and the denominator of which is the amount of sales generated during the Settlement Period three (3) months prior to the most recent Settlement Period.     "Dilution Reserve" means, on any date of determination, an amount equal to the product of (a) the sum of (i) the product of two (2) times the Adjusted Dilution Ratio, plus (ii) the Dilution Volatility Component, times (b) the Dilution Horizon Ratio.     "Dilution Volatility Component" means an amount (expressed as a percentage) equal to the product of (i) the difference between (a) the highest three (3)-month rolling average Dilution Ratio over the past 12 Settlement Periods and (b) the Adjusted Dilution Ratio, and (ii) a fraction, the numerator of which is equal to the amount calculated in (i)(a) of this definition and the denominator of which is equal to the amount calculated in (i)(b) of this definition.     "Dollars" means dollars in lawful money of the United States of America.     "Downgraded Liquidity Bank" means a Liquidity Bank which has been the subject of a Downgrading Event.     "Downgrading Event" with respect to any Person means the lowering of the rating with regard to the short-term securities of such Person to below (i) A-1 by S&P, or (ii) P-1 by Moody's.     "Eligible Assignee" means (a) any "bankruptcy remote" special purpose entity which is administered by Wachovia (or any Affiliate of Wachovia) that is in the business of acquiring or financing receivables, securities and/or other financial assets and which issues commercial paper notes that are rated at least A-1 by S&P and P-1 by Moody's, (b) any Qualifying Liquidity Bank having a combined capital and surplus of at least $250,000,000, or (c) any Downgraded Liquidity Bank whose liquidity commitment has been fully drawn by Blue Ridge or the Agent and funded into a collateral account.     "Eligible Receivable" means, at any time, a Receivable:     (a) which is a Receivable arising out of the sale of goods or services by an Originator in the ordinary course of its business that has been sold to PCC in a "true sale" transaction pursuant to the First-Step Receivables Purchase Agreement, and sold or contributed by PCC to the Borrower pursuant to the Sale Agreement in a "true sale" or "true contribution" transaction;     (b) as to which the perfection of the Agent's security interest, on behalf of the Secured Parties, is governed by the laws of a jurisdiction where the Uniform Commercial Code-Secured Transactions is in force, and which constitutes an "account" as defined in the Uniform Commercial Code as in effect in such jurisdiction;     (c) the Obligor of which is not (i) an Affiliate of any Loan Party, or (ii) a Governmental Authority as to which the assignment of receivables owing therefrom requires compliance with the Federal Assignment of Claims Act or other similar legislation;     (d) the Obligor of which is either (i) a resident of the United States (or one of its possessions or territories), or (ii) prior to the occurrence of a Servicer Credit Event, a resident of an Approved Country; 46 --------------------------------------------------------------------------------     (e) which is not a Defaulted Receivable at such time and which was not, as of the Cut-Off Date immediately preceding its acquisition by the Borrower, a Delinquent Receivable;     (f)  with regard to which the representations and warranties of the Borrower in Sections 6.1(j) and (l) are true and correct;     (g) the granting of a security interest (as defined in Article 1 of the UCC) therein does not contravene or conflict with any law;     (h) which is denominated and payable only in Dollars in the United States;     (i)  which arises under a Contract and is evidenced by a Contract, in each case that has been duly authorized and that, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor of such Receivable enforceable against such Obligor in accordance with its terms and is not subject to any dispute, offset (except as provided below), counterclaim or defense whatsoever; provided, however, that if such dispute, offset, counterclaim or defense affects only a portion of the Unpaid Balance of such Receivable, then such Receivable may be deemed an Eligible Receivable to the extent of the portion of such Unpaid Balance which is not so affected, and provided further, that Receivables owing from any Obligor to whom the applicable Originator owes accounts payable (thereby giving rise to a potential offset) may be treated as Eligible Receivables to the extent the Obligor of such receivables has agreed pursuant to a written agreement in form and substance satisfactory to the Agent, that such Receivables shall not be subject to such offset;     (j)  which, together with the Contract related thereto, does not contravene in any material respect any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to usury, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no party to the Contract related thereto is in violation of any such law, rule or regulation in any material respect if such violation would impair the collectibility of such Receivable;     (k) which satisfies in all material respects all applicable requirements of the applicable Originator's Credit and Collection Policy;     (l)  the original term of which has not been extended (except as permitted in Section 8.2(c)) and the Unpaid Balance of which has not been adjusted more than once; and     (m) as to which the Obligor is not Messier Dowty (Quebec).     "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time.     "ERISA Affiliate" means any trade or business (whether or not incorporated) under common control with PCC within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).     "ERISA Event" means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by PCC or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by PCC or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due 47 -------------------------------------------------------------------------------- but not delinquent under Section 4007 of ERISA, upon PCC or any ERISA Affiliate in excess of $5,000,000.     "Eurodollar Business Day" means a day of the year as defined in clause (ii) of the definition of "Business Day."     "Eurodollar Loan" means a Loan which bears interest at the applicable Eurodollar Rate.     "Eurodollar Rate" means, for any Interest Period, the rate per annum determined on the basis of the offered rate for deposits in Dollars of amounts equal or comparable to the principal amount of the related Liquidity Funding offered for a term comparable to such Interest Period, which rates appear on Telerate page 3750 (or any successor page thereto) effective as of 11:00 A.M., London time, two (2) Eurodollar Business Days prior to the first day of such Interest Period, provided that if no such offered rates appear on such page, the Eurodollar Rate for such Interest Period will be the arithmetic average (rounded upwards, if necessary, to the next higher 1/100th of 1%) of rates quoted by not less than two (2) major banks in New York City, selected by the Agent, at approximately 10:00 A.M., New York City time, two (2) Eurodollar Business Days prior to the first day of such Interest Period, for deposits in Dollars offered by leading European banks for a period comparable to such Interest Period in an amount comparable to the principal amount of such Liquidity Funding.     "Eurodollar Rate (Reserve Adjusted)" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upwards, if necessary, to the next higher 1/100th of 1%) by dividing (i) the applicable Eurodollar Rate for such Interest Period by (ii) 1.00 minus the Eurodollar Reserve Percentage.     "Eurodollar Reserve Percentage" shall mean, with respect to any Interest Period, the maximum reserve percentage, if any, applicable to a Liquidity Bank under Regulation D during such Interest Period (or if more than one percentage shall be applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be applicable) for determining such Liquidity Bank's reserve requirement (including any marginal, supplemental or emergency reserves) with respect to liabilities or assets having a term comparable to such Interest Period consisting or included in the computation of "Eurocurrency Liabilities" pursuant to Regulation D. Without limiting the effect of the foregoing, the Eurodollar Reserve Percentage shall reflect any other reserves required to be maintained by such Liquidity Bank by reason of any Regulatory Change against (a) any category of liabilities which includes deposits by reference to which the "London Interbank Offered Rate" or "LIBOR" is to be determined or (b) any category of extensions of credit or other assets which include LIBOR-based credits or assets.     "Event of Default" means an event described in Section 10.1.     "Event of Bankruptcy" shall be deemed to have occurred with respect to a Person if either:     (a) a case or other proceeding shall be commenced, without the application or consent of such Person, in any court, seeking the liquidation, reorganization, debt arrangement, dissolution, winding up, or composition or readjustment of debts of such Person, the appointment of a trustee, receiver, custodian, liquidator, assignee, sequestrator or the like for such Person or all or substantially all of its assets, or any similar action with respect to such Person under any law relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debts, and such case or proceeding shall continue undismissed, or unstayed and in effect, for a period of 60 consecutive days; or an order for relief in respect of such Person shall be entered in an involuntary case under the federal bankruptcy laws or other similar laws now or hereafter in effect; or     (b) such Person shall commence a voluntary case or other proceeding under any applicable bankruptcy, insolvency, reorganization, debt arrangement, dissolution or other similar law now or hereafter in effect, or shall consent to the appointment of or taking possession by a receiver, liquidator, 48 -------------------------------------------------------------------------------- assignee, trustee (other than a trustee under a deed of trust, indenture or similar instrument), custodian, sequestrator (or other similar official) for, such Person or for any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall be adjudicated insolvent, or admit in writing its inability to pay its debts generally as they become due, or, if a corporation or similar entity, its board of directors shall vote to implement any of the foregoing.     "Excess Concentration Amount" means, as of any date, the sum of the amounts by which the aggregate Unpaid Balance of Receivables of each Obligor exceeds the Obligor Concentration Limit for such Obligor.     "Exchange Act" means the Securities Exchange Act of 1934, as amended.     "Exhibit" refers to an exhibit to this Agreement, unless another document is specifically referenced.     "Existing Agreement" has the meaning provided in the preamble of this Agreement.     "Extension Request" has the meaning set forth in Section 1.8.     "Facility Fee" has the meaning set forth in each of the Fee Letter.     "Federal Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy", as amended and any successor statute thereto.     "Federal Funds Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the next higher 1/100th of 1%) 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 on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (i) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to the Agent on such day on such transactions, as reasonably determined by the Agent.     "Federal Reserve Board" means the Board of Governors of the Federal Reserve System, or any successor thereto or to the functions thereof.     "Fee Letter" means that certain Fee Letter dated as of December 10, 1999 by and among PCC, the Borrower, Blue Ridge and the Agent.     "Final Payout Date" means the date following the Termination Date on which the Obligations have been paid in full.     "First-Step Receivables Purchase Agreement" means the First-Step Receivables Purchase Agreement dated as of December 10, 1999, by and between the Originators, as sellers, and PCC, as buyer, as it may be amended, supplemented or otherwise modified from time to time in accordance with Section 7.3(f).     "GAAP" shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such accounting profession, which are applicable to the circumstances as of the date of determination.     "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and 49 -------------------------------------------------------------------------------- any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.     "Guarantee" of or by any Person means any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (b) to purchase property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness or (c) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness; provided however that the term Guarantee shall not include endorsements for collection or deposit, in either case, in the ordinary course of business.     "Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property or assets purchased by such Person, (e) all obligations of such Person issued or assumed as the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, but limited, if such obligations are without recourse to such Person, to the lesser of the principal amount of such Indebtedness or the fair market value of such property, (g) all Guarantees by such Person of Indebtedness of others, (h) all capital lease obligations of such Person, (i) all obligations of such Person in respect of interest rate protection agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements (the amount of any such obligation to be the amount that would be payable upon the acceleration, termination or liquidation thereof) and (j) all obligations of such Person as an account party in respect of letters of credit and bankers' acceptances. The Indebtedness of any Person shall include the Indebtedness of any partnership in which such Person is a general partner.     "Indemnified Amounts" has the meaning set forth in Section 13.1(a).     "Indemnified Party" has the meaning set forth in Section 13.1(a).     "Independent Director" has the meaning set forth in Section 7.4(b).     "Information Package" has the meaning set forth in Section 3.1(a).     "Initial Due Diligence Auditor" means Arthur Andersen, LLP.     "Interest Payment Date" means:     (a) with respect to any CP Rate Loan, each Settlement Date while such Loan remains outstanding, the date on which any such Loan is prepaid, in whole or in part, and the Termination Date;     (b) with respect to any Eurodollar Loan, the last day of its Interest Period, the date on which any such Loan is prepaid, in whole or in part, and the Termination Date;     (c) with respect to any Alternate Base Rate Loan, each Settlement Date while such Loan remains outstanding, the date on which any such Loan is prepaid, in whole or in part, and the Termination Date; and 50 --------------------------------------------------------------------------------     (d) with respect to any Loan while the Default Rate is applicable thereto, upon demand or, in the absence of any such demand, each Settlement Date while such Loan remains outstanding, the date on which any such Loan is prepaid, in whole or in part, and the Termination Date.     "Interest Period" means, with respect to a Eurodollar Loan, a period not to exceed three (3) months commencing on a Business Day selected by the Borrower (or the Servicer on the Borrower's behalf) pursuant to this Agreement and agreed to by the Agent. Such Interest Period shall end on the day which corresponds numerically to such date one (1), two (2), or three (3) months thereafter, provided, however, that (i) if there is no such numerically corresponding day in such next, second or third succeeding month, such Interest Period shall end on the last Business Day of such next, second or third succeeding month, and (ii) if an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day unless said next succeeding Business Day falls in a new calendar month, then such Interest Period shall end on the immediately preceding Business Day.     "Interest Rate" means a Eurodollar Rate (Reserve Adjusted), a CP Rate, the Alternate Base Rate or the Default Rate.     "Interest Reserve" shall mean, on any date of determination, 1.5 times the Alternate Base Rate times a fraction the numerator of which is the 12-month high Days Sales Outstanding and the denominator of which is 360.     "Lenders" means Blue Ridge, Wachovia and their respective successors and permitted assigns.     "Lien" means any security interest, lien, encumbrance, pledge, assignment, title retention agreement, similar claim, right or interest.     "Liquidity Agreement" means the Liquidity Asset Purchase Agreement dated as of December 16, 1999 among Blue Ridge, the Agent, and the Liquidity Banks from time to time party thereto, as the same may be amended, restated, supplemented, replaced or otherwise modified from time to time.     "Liquidity Bank" means (a) Wachovia, and (b) any Eligible Assignee of Wachovia's Commitment hereunder and Wachovia's Liquidity Commitment under the Liquidity Agreement to which all consents of the Agent and the Borrower required under Section 12.1(c) hereof have been given. A Liquidity Bank will become a "Lender" hereunder at such time as it makes any Liquidity Funding.     "Liquidity Commitment" means, with respect to each Liquidity Bank, its commitment to make Liquidity Fundings pursuant to the Liquidity Agreement.     "Liquidity Funding" means (a) a purchase made by any Liquidity Bank pursuant to its Liquidity Commitment of all or any portion of one of Blue Ridge's Loans, or (b) any Loan made by the Liquidity Banks in lieu of Blue Ridge pursuant to Section 1.1.     "Liquidity Termination Date" means the earlier to occur of the following:     (a) the date on which the Liquidity Banks' commitments pursuant to the Liquidity Agreement expire, cease to be available to Blue Ridge or otherwise cease to be in full force and effect; or     (b) the date on which a Downgrading Event with respect to a Liquidity Bank shall have occurred and been continuing for not less than thirty (30) days, and either (i) the Downgraded Liquidity Bank shall not have been replaced by a Qualifying Liquidity Bank pursuant to the Liquidity Agreement, or (ii) the commitment of such Downgraded Liquidity Bank under a Liquidity Agreement shall not have been funded or collateralized in such a manner that will avoid a reduction in or withdrawal of the credit rating applied to the Commercial Paper Notes to which such Liquidity Agreement applies by any of the rating agencies then rating such Commercial Paper Notes. 51 --------------------------------------------------------------------------------     "Loan" means any loan made by a Lender to the Borrower pursuant to this Agreement. Each Loan shall either be a CP Rate Loan, an Alternate Base Rate Loan or a Eurodollar Rate Loan, selected in accordance with the terms of this Agreement.     "Loan Parties" means, collectively, (i) the Borrower, and (ii) PCC.     "Lock-Box" has the meaning set forth in the Lock-Box Agreements.     "Lock-Box Account" means any bank account of the Borrower or the Agent into which Collections are deposited or transferred and which, from and after January 31, 2000, is subject to a Lock-Box Agreement.     "Lock-Box Agreement" means an agreement, in substantially the form of Exhibit A (or as otherwise approved by the Agent), among an Originator, PCC, the Borrower, the Agent and a Lock-Box Bank.     "Lock-Box Bank" means any of the banks holding one or more lock-boxes, blocked accounts or Lock-Box Accounts receiving Collections from Receivables.     "Loss Reserve" as of any Cut-Off Date means an amount equal to (A) two (2) times (B) the sum of (1) the product of (a) the total Unpaid Balance of Eligible Receivables originated by PCC Structurals, Inc., Precision Founders, Inc., Wyman-Gordon Forgings, Inc., Wyman-Gordon Investment Castings, Inc., and Wyman-Gordon Company divided by the total Unpaid Balance of Eligible Receivables originated by all Originators, times (b) the highest three (3)-month rolling average Default Ratio, as defined in (i) of such definition, during the most recent 12 Settlement Periods, times (c) the Default Horizon Ratio, as defined in (i) of such definition, and (2) the product of (x) the total Unpaid Balance of Eligible Receivables originated by PCC Airfoils, Inc., Johnston Pump Company, Inc., General Valve Company, Inc., and Paco Pumps, Inc., divided by the total Unpaid Balance of Eligible Receivables originated by all Originators, times (y) the highest three (3)-month rolling average Default Ratio, as defined in (ii) of such definition, during the most recent 12 Settlement Periods, times (z) the Default Horizon Ratio, as defined in (ii) of such definition.     "Majority Lenders" means, collectively, (a) Lenders whose Commitments aggregate more than 50% of the Aggregate Commitment, and (b) in addition to the foregoing, at any time while Blue Ridge has any Loans outstanding, "Majority Lenders" shall also include Blue Ridge.     "Material Adverse Effect" means:     (i)  a material adverse change in, or a material adverse effect upon (A) the operations, business, properties, condition (financial or otherwise) or prospects of PCC and its Subsidiaries taken as a whole, or (B) the Borrower's assets or financial condition (in each case, after taking into account any and all contributions to the Borrower's capital made and/or improvements in the speed or percentage of Collections from and after the date of this Agreement);     (ii) a material impairment of the ability of any Loan Party to perform under any Transaction Document or to avoid or cure, as applicable, any Unmatured Default or Event of Default;     (iii) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Transaction Document;     (iv) a material adverse effect upon the validity, enforceability or collectibility of a material portion of the Receivables; or     (v) a material adverse effect upon the validity, perfection, priority or enforceability of the Borrower's title to—or the Agent's security interest, on behalf of the Secured Parties, in—the Collateral.     "Moody's" means Moody's Investors Service, Inc. 52 --------------------------------------------------------------------------------     "Multiemployer Plan" means a "multiemployer plan", within the meaning of Section 4001(a)(3) of ERISA, to which PCC or any ERISA Affiliate makes, is making, or is obligated to make contributions or, during the preceding three (3) calendar years, has made, or been obligated to make, contributions.     "Net Pool Balance" means, at any time, an amount equal to (i) the aggregate Unpaid Balance of all Eligible Receivables at such time, minus (ii) the Excess Concentration Amount at such time.     "Obligations" means, collectively: (i) all unpaid principal of the Loans, all accrued and unpaid interest on the Loans, all accrued and unpaid Broken Funding Costs, and all accrued and unpaid fees under the Fee Letter, and (ii) all expenses, reimbursements, indemnities and other obligations of the Borrower to the Lenders (or any Lender), the Agent or any Indemnified Party arising under the Transaction Documents.     "Obligor" means a Person obligated to make payments with respect to a Receivable, including any guarantor thereof.     "Obligor Concentration Limit" means, at any time:     (a) in relation to the aggregate Unpaid Balance of Receivables owed by all Obligors residing in a country other than the United States (or one of its territories or possessions), the percentage of Eligible Receivables specified in the table below (unless and until the Agent, upon not less than three (3) Business Days' prior written notice to the Borrower, designates a different percentage): Country --------------------------------------------------------------------------------   S&P/Moody's Country Sovereign Rating --------------------------------------------------------------------------------   Allowable % of Eligible Receivables -------------------------------------------------------------------------------- Belgium   AA+/Aaa   1.0% Canada   AA+/Aa2   10.0% France   AAA/Aaa   5.0% Germany   AAA/Aaa   8.0% Ireland   A+/Aaa   1.0% Italy   AA/Aaa   3.0% Japan   AAA/Aa1   3.0% Netherlands   AAA/Aaa   1.0% Norway   AAA/Aaa   3.0% Singapore   AAA/Aa1   1.0% South Korea   BBB-/Baa3   2.0% Spain   AA+/Aaa   1.0% Sweden   AA+/Aa1   3.0% Switzerland   AAA/Aaa   3.0% Turkey   B/B1   2.0% United Kingdom   AAA/Aaa   10.0%     (b) in relation to the aggregate Unpaid Balance of Receivables owed by any single Obligor and its Affiliated Obligors (if any), the applicable concentration limit shall, unless the Agent from time to time upon the Borrower's request (or the Servicer's request on behalf of the Borrower) agrees to a higher percentage of Eligible Receivables (each such higher percentage, a "Special Obligor Concentration Limit") for a particular Obligor and its Affiliates, be determined as follows for Obligors who have a short term unsecured debt rating (or, in the absence of such a rating, the equivalent long term unsecured senior debt rating) currently assigned to them by either S&P or Moody's, the applicable concentration limit shall be determined according to the following table (and, if such Obligor is rated 53 -------------------------------------------------------------------------------- by both agencies and has a split rating (except for an A-1+/P-1 rating), the applicable rating will be the lower of the two): S&P Rating --------------------------------------------------------------------------------   Moody's Rating --------------------------------------------------------------------------------   Allowable % of Eligible Receivables -------------------------------------------------------------------------------- A-1+       10% A-1   P-1   8% A-2   P-2   6% A-3   P-3   3% Below A-3 or Not Rated by either S&P or Moody's   Below P-3 or Not Rated by either S&P or Moody's   2.5% As of the date hereof, the Special Obligor Concentration Limit for General Electric Company and its Affiliates shall be 30% of the aggregate Unpaid Balance of Eligible Receivables; provided, however, that such Special Obligor Concentration Limit shall be automatically deemed revoked at the time, if any, when General Electric Company ceases to have a short-term unsecured senior debt rating of higher than "A-2" from S&P and a short-term unsecured senior debt rating of higher than "P-2" from Moody's.     "Originator" means any of PCC Structurals, Inc., an Oregon corporation, PCC Airfoils, Inc., an Ohio corporation, Johnston Pump Company, Inc., a California corporation, General Valve Company, Inc., a California corporation, Paco Pumps, Inc., a Delaware corporation, Precision Founders, Inc., a California corporation, Wyman-Gordon Forgings, Inc., a Delaware corporation, Wyman-Gordon Investment Castings, Inc., a Delaware corporation, and Wyman-Gordon Company, a Massachusetts corporation, and their respective successors.     "PBGC" means the Pension Benefit Guaranty Corporation, or any Governmental Authority succeeding to any of its principal functions under ERISA.     "PCC" has the meaning set forth in the preamble of this Agreement.     "Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA which PCC sponsors or maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five (5) plan years.     "Person" means any natural person, corporation, firm, joint venture, partnership, limited liability company, association, enterprise, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof.     "Pooled Commercial Paper" means Commercial Paper Notes subject to any particular pooling arrangement by Blue Ridge, but excluding Commercial Paper Notes issued by Blue Ridge for a tenor and in an amount specifically requested by any Person in connection with any agreement effected by Blue Ridge.     "Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA) which a Loan Party sponsors or maintains or to which a Loan Party makes, is making, or is obligated to make contributions and includes any Pension Plan, other than a Plan maintained outside the United States primarily for the benefit of Persons who are not U.S. residents.     "Prepayment Notice" has the meaning set forth in Section 1.5(a).     "Program Information" has the meaning set forth in Section 14.8.     "Qualifying Liquidity Bank" means a Liquidity Bank with a rating of its short-term securities equal to or higher than (i) A-1 by S&P and (ii) P-1 by Moody's. 54 --------------------------------------------------------------------------------     "Ratable Share" means with respect to any Liquidity Bank, the ratio which its Commitment bears to the Aggregate Commitment.     "Receivable" means any right to payment arising from the sale of goods and/or services by an Originator, including, without limitation, the right to payment of any interest or finance charges and other amounts with respect thereto, which is sold or contributed to the Borrower under the Sale Agreement. Rights to payment arising from any one transaction, including, without limitation, rights to payment represented by an individual invoice, shall constitute a Receivable separate from a Receivable consisting of the rights to payment arising from any other transaction or evidenced by any other invoice; provided, however, any right to payment referred to in this sentence shall be a Receivable regardless of whether the account debtor or the Borrower treats such right to payment as a separate payment obligation.     "Records" means, with respect to any Receivable, all Contracts and other documents, books, records and other information (including, without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights) relating to such Receivable, any Related Assets and the related Obligor.     "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System.     "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System.     "Regulatory Change" shall mean any change after the date of this Agreement in United States (federal, state or municipal) or foreign laws or regulations (including Regulation D) or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks (including the Liquidity Banks) of or under any United States (federal, state or municipal) or 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.     "Related Assets" means (a) all rights to, but not any obligations under, all Related Security related to any Receivables, (b) all rights and interests of the Borrower under the Sale Agreement and the First-Step Receivables Purchase Agreement, (c) all Records evidencing or otherwise relating to any Receivables, (d) the Collection Account (if any) and all Lock-Box Accounts and all cash and instruments therein, to the extent constituting or representing the items in the following clauses (e) and (f), (e) all of the Borrower's rights to demand and receive payment in respect of any Demand Advances, and (f) all Collections in respect of, and other proceeds of, any Receivables or any other Related Assets.     "Related Security" means, with respect to any Receivable, all of the Borrower's right, title and interest in and to: (a) all Records that relate to such Receivable; (b) all security deposits and other security interests or liens and property subject thereto from time to time purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise; (c) all UCC financing statements covering any collateral securing payment of such Receivable; (d) all guarantees and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable whether pursuant to the Contract related to such Receivable or otherwise; and (e) all insurance policies, and all claims thereunder, related to such Receivable, in each case to the extent directly related to rights to payment, collection and enforcement, and other rights with respect to such Receivable. 55 --------------------------------------------------------------------------------     "Reportable Event" means any of the events set forth in Section 4043(c) of ERISA or the regulations thereunder, other than any such event for which the thirty (30)-day notice requirement under ERISA has been waived in regulations issued by the PBGC.     "Reporting Date" has the meaning set forth in Section 3.1(a).     "Required Amounts" has the meaning set forth in Section 3.2.     "Required Notice Period" means, with respect to any reduction of the aggregate outstanding principal of the Advances, the number of days' prior notice set forth in the table below opposite the amount of such reduction: Reduction of Aggregate Outstanding --------------------------------------------------------------------------------   Required Notice Period -------------------------------------------------------------------------------- Principal of the Advances less than 25% of the Aggregate Commitment   2 Business Days greater than or equal to 25% but less than 50% of the Aggregate Commitment   5 Business Days greater than or equal to 50% of the Aggregate Commitment   10 Business Days     "Required Reserve" means:     (X) on any day prior to the occurrence of a Servicer Credit Event, the greater of (A) (i) the Net Pool Balance times (ii) the sum of (a) the product of (1) 4.0 times (2) the Obligor Concentration Limit for unrated Obligors plus (b) the sum of the Obligor Concentration Limit for all Approved Countries with sovereign ratings lower than A by S&P or lower than A2 by Moody's and (B) the sum of (i) (a) the Unpaid Balance of Eligible Receivables times (b) the Loss Reserve, (ii) (a) the Net Pool Balance times (b) the Interest Reserve, and (iii) (a) the Net Pool Balance times (b) the Servicing Reserve; and     (Y) on any day from and after the occurrence of a Servicer Credit Event, the greater of (A) (i) the Net Pool Balance times (ii) the sum of (a) the product of (1) 4.0 times (2) the Obligor Concentration Limit for unrated Obligors plus (b) the sum of the Obligor Concentration Limit for all Approved Countries with sovereign ratings lower than A by S&P or lower than A2 by Moody's plus (c) the product of (1) the Adjusted Dilution Ratio and (2) the Dilution Horizon Ratio and (B) the sum of (i) (a) the Unpaid Balance of Eligible Receivables times (b) the Loss Reserve, (ii) (a) the Net Pool Balance times (b) the Interest Reserve, (iii) (a) the Net Pool Balance times (b) the Servicing Reserve, and (iv) (a) the Net Pool Balance times (b) the Dilution Reserve.     "Requirement of Law" means, as to any Person, any law (statutory or common), treaty, rule or regulation or final, nonappealable determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.     "Response Date" has the meaning set forth in Section 1.8.     "Review" has the meaning set forth in Section 7.1(c).     "Revolving Period" means the period from and after the date of the initial Advance under this Agreement to but excluding the Termination Date.     "S&P" means Standard and Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc.     "Sale Agreement" means the Receivables Sale and Contribution Agreement dated as of December 10, 1999 between PCC, as seller and contributor, and the Borrower, as purchaser or recipient, as it may be amended, supplemented or otherwise modified in accordance with Section 7.3(f). 56 --------------------------------------------------------------------------------     "Schedule" refers to a specific schedule to this Agreement, unless another document is specifically referenced.     "Scheduled Termination Date" means February 28, 2001, unless extended by unanimous agreement of the Agent, the Lenders and the Liquidity Banks.     "SEC" means the Securities and Exchange Commission.     "Section" means a numbered section of this Agreement, unless another document is specifically referenced.     "Secured Parties" means the Agent, the Indemnified Parties and the Affected Parties.     "Servicer" has the meaning set forth in the preamble of this Agreement.     "Servicer Credit Event" means that the rating with regard to the long-term unsecured debt of PCC has been lowered to BB or below by S&P and to Ba2 or below by Moody's.     "Servicer Transfer Event" means the occurrence and continuance of any Unmatured Default or Event of Default.     "Servicer's Fee" accrued for any day in a Settlement Period means:     (a) an amount equal to (x) 1.0% per annum (or, at any time while PCC is the Servicer, such lesser percentage as may be agreed between the Borrower and the Servicer on an arms' length basis based on then prevailing market terms for similar services), times (y) the aggregate Unpaid Balance of the Receivables at the close of business on the first day of such Settlement Period, times (z) 1/360; or     (b) on and after the Servicer's reasonable request made at any time when PCC shall no longer be the Servicer, an alternative amount specified by the Servicer not exceeding (x) 110% of the Servicer's costs and expenses of performing its obligations under the Agreement during the Settlement Period when such day occurs, divided by (y) the number of days in such Settlement Period.     "Servicing Reserve" shall mean 1.0% times a fraction, the numerator of which is the highest Days Sales Outstanding calculated for each of the most recent 12 Settlement Periods and the denominator of which is 360.     "Settlement Date" means (a) the second Business Day after each Reporting Date, and, following the occurrence and during the continuance of an Unmatured Default or an Event of Default, such other Business Days as the Agent may specify in a written notice to the Loan Parties, and (b) the Termination Date.     "Settlement Period" means: (a) the period from and including the date of the initial Advance to but excluding the next Cut-Off Date; and (b) thereafter, each period from and including a Cut-Off Date to the earlier to occur of the next Cut-Off Date or the Final Payout Date.     "Structuring Fee" has the meaning set forth in the Fee Letter.     "Subordinated Loan" has the meaning set forth in the Sale Agreement.     "Subordinated Note" has the meaning set forth in the Sale Agreement.     "Subsidiary" of any Person means (i) a corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned or controlled by such Person, directly or indirectly through Subsidiaries, and (ii) any partnership, association, joint venture or other entity in which such Person, directly or indirectly through Subsidiaries, has more than a 50% equity interest at the time. 57 --------------------------------------------------------------------------------     "Successor Notice" has the meaning set forth in Section 8.1(b).     "Termination Date" means the earliest to occur of:     (a) the Scheduled Termination Date;     (b) the Liquidity Termination Date;     (c) the date designated by the Borrower as the "Termination Date" on not less than five (5) Business Days' notice to the Agent, provided that on such date the Obligations are or have been paid in full;     (d) the date specified in Section 10.2(a) or (b); or     (e) the Purchase Termination Date (under and as defined in the First-Step Receivables Purchase Agreement or the Sale Agreement; or     (f)  Blue Ridge shall become an "investment company."     "Transaction Documents" means this Agreement, the Lock-Box Agreements, the First-Step Receivables Purchase Agreement, the Sale Agreement, the Fee Letter, the Subordinated Note and the other documents to be executed and delivered in connection herewith.     "Transferee" is defined in Section 12.4.     "UCC" means the Uniform Commercial Code as from time to time in effect in the applicable jurisdiction or jurisdictions.     "Unfunded Pension Liability" means the excess of a Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan(s) pursuant to Section 412 of the Code for the applicable plan year.     "Unmatured Default" means an event which, but for the lapse of time or the giving of notice, or both, would constitute an Event of Default.     "Unpaid Balance" of any Receivable means at any time the unpaid amount thereof, but excluding all late payment charges, delinquency charges and extension or collection fees.     "Usage Fee" has the meaning set forth in the Fee Letter.     "Wachovia" has the meaning set forth in the preamble of this Agreement.     "Wachovia Roles" has the meaning set forth in Section 11.10,cfn.     The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms.     B. Other Terms.  All accounting terms not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9.     C. Computation of Time Periods.  Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". 58 -------------------------------------------------------------------------------- QuickLinks AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT W I T N E S S E T H: ARTICLE I. THE CREDIT ARTICLE II. BORROWING AND PAYMENT MECHANICS; CERTAIN COMPUTATIONS ARTICLE III. SETTLEMENTS ARTICLE IV. FEES AND YIELD PROTECTION ARTICLE V. CONDITIONS OF ADVANCES ARTICLE VI. REPRESENTATIONS AND WARRANTIES ARTICLE VII. GENERAL COVENANTS OF LOAN PARTIES ARTICLE VIII. ADMINISTRATION AND COLLECTION ARTICLE IX. SECURITY INTEREST ARTICLE X. EVENTS OF DEFAULT ARTICLE XI. THE AGENT ARTICLE XII. ASSIGNMENTS AND PARTICIPATIONS ARTICLE XIII. INDEMNIFICATION ARTICLE XIV. MISCELLANEOUS ANNEX A DEFINITIONS

EXHIBIT 10.1 REVOLVING NOTE SECURED BY DEED OF TRUST $18,000,000.00 July 2, 2001 FOR VALUE RECEIVED, Lithia Real Estate, Inc., an Oregon corporation ("Borrower"), PROMISES TO PAY to the order of Toyota Motor Credit Corporation ("TMCC"), at 19001 S. Western Avenue, P.O. Box 2958, Torrance, California 90509-2958, the principal sum of Eighteen Million Dollars ($18,000,000.00), or such lesser amount outstanding from time to time under the Loan Agreement (hereafter defined), together with interest on the unpaid principal balance from time to time outstanding at the fluctuating monthly per annum rate of two (2.00%) percentage points above the three (3) month London Interbank Offered Rate ("LIBOR"), as published by the Wall Street Journal in its "Money Rates" section, in effect on the date loan proceeds are first disbursed (the "Disbursement Date"). The LIBOR Rate shall be calculated on the basis of actual days elapsed over a three hundred and sixty (360) day year. Interest shall be payable in arrears and the LIBOR Rate shall be adjusted, as necessary, on the first calendar day of each month, based on the LIBOR Rate in effect as of the last calendar day of the preceding month. Should the method of establishing the LIBOR Rate, or the publication of the London Interbank Offered Rates for three (3) month deposits in the Wall Street Journal cease or be abolished, then the LIBOR Rate shall be based on a comparable index selected by TMCC. 1. The loan evidenced by this Note shall be governed by that certain Revolving Loan and Security Agreement (the "Loan Agreement") of even date herewith between Borrower and TMCC. Reference to the Loan Agreement is made for a description of the terms upon which the Loan evidenced by this Note is made and this Note is issued. In the event of any inconsistency or conflict between the terms of this Note and the terms of the Loan Agreement, the terms of this Note shall control. Capitalized terms used in this Note which are not defined herein have the meanings set forth in the Loan Agreement. This Note is subject to acceleration upon the terms provided herein and in the Loan Agreement. 2. Monthly payments of interest only shall be due and payable on the first day of each month commencing on the first day of the first month following the Disbursement Date and shall continue for sixty (60) months at which time all unpaid principal and accrued unpaid interest shall be due and payable in full (the "Maturity Date"). In the event the Disbursement Date is between the sixteenth (16th) and the thirty-first (31st) day of the month, the monthly payments of interest shall commence on the first day of the second month following the Disbursement Date. 3. Interest shall be calculated on the basis of a year of three hundred sixty (360) days for the actual number of days elapsed. Each payment made shall be credited first to interest then due, and the remainder to principal. 4. Time is of the essence of this Note. Should Borrowers fail to make any payment within ten (10) days of it being due, Borrowers agree to pay a late charge of two percent (2%) of the late payment, but only once for each such late payment. Borrowers acknowledge that TMCC will incur additional expenses in handling the delinquent payment, the exact amount of which is difficult to ascertain, but that said late charge is a reasonable estimate of TMCC's expenses so incurred. 1 -------------------------------------------------------------------------------- 5. Should default be made in all or part of any payment which remains uncured more than ten (10) days from its due date under this Note, or should default be made under any of the agreements contained in the Loan Agreement or in any Deed of Trust (as such term is defined below) or any other agreement securing this Note or executed in connection herewith (after any applicable cure period provided therein), and not cured within the applicable cure or grace period provided in such agreement or instrument, the whole unpaid principal balance hereof and interest accrued thereon, together with any and all other amounts payable hereunder or thereunder, shall become immediately 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 it in the event of any subsequent default. 6. This Note is secured by all mortgages, deeds of trust, security agreements, collateral assignments, and other liens and security now or at any time hereafter executed or granted by Borrowers to TMCC and by any rights of subrogation accruing to TMCC, by reason of any indebtedness discharged by the proceeds of this Note. Without limiting the foregoing, this Note is secured by one or more deeds of trust or mortgages (collectively, "Deed of Trust") covering, among other property, the real estate provided for in the Loan Agreement. The Deed of Trust securing this Note provides that all amounts due under this Note may be made immediately due and payable in the event that, among other defaults as described in the Deed of Trust, the property described in the Deed of Trust is sold, transferred, conveyed, encumbered or otherwise alienated without TMCC's prior written consent, all as specifically set forth in the Deed of Trust. 7. The makers, endorsers, guarantors and sureties of this Note, and each of them, hereby waive diligence, all notices, including notice of intent to accelerate and notice of acceleration, demand, presentment for payment, notice of non-payment, protest and notice of protest, expressly agree that this Note, or any payment hereunder may be extended or modified from time to time, and consent to the acceptance of further security for this Note, including other types of security, and the release of security, all without in any way affecting their liability. The right to plead any and all statutes of limitations as a defense to any demand secured by the Deed of Trust or any other security securing this Note, against makers, endorsers, guarantors or sureties is expressly waived by each and all said parties. 8. If this Note is referred to an attorney for collection or legal advice following a default, or if any other judicial or nonjudicial action is instituted or an attorney is employed to reclaim, sequester, protect, preserve or enforce any interest in real property or other security for this Note, including but not limited to proceedings under the United States Bankruptcy Code or eminent domain, Borrowers agree to pay the holder's attorneys' fees and costs. 9. The duties, covenants, conditions and obligations of Borrower in this Note shall be binding obligations of Borrower's heirs, executors, administrators, personal representatives, successors and assigns. 10. Each and every party signing or endorsing this Note binds himself or herself as principal and not as surety, and each shall be jointly and severally liable hereunder. 11. This Note shall be governed by and interpreted in accordance with the laws of the State of Oregon. If any of the provisions hereof shall be determined to be invalid under applicable law, such invalidity shall not invalidate any other provision of this Note, but it shall be construed as if not containing the particular provision or provisions held to be invalid, and all rights and obligations of the parties shall be construed and enforced accordingly. 2 -------------------------------------------------------------------------------- 12. This Note is payable only in lawful money of the United States of America, in immediately available funds. 13. BORROWER HEREBY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF OREGON AND THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON, AS WELL AS TO THE JURISDICTION OF ALL COURTS FROM WHICH AN APPEAL MAY BE TAKEN FROM THE AFORESAID COURTS, FOR THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF ANY OF BORROWER'S OBLIGATIONS UNDER OR WITH RESPECT TO THIS NOTE, AND EXPRESSLY WAIVES ANY AND ALL OBJECTIONS IT MAY HAVE AS TO VENUE IN ANY OF SUCH COURTS. 14. BORROWER AND TMCC MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY OTHER LOAN DOCUMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR TMCC TO ACCEPT THIS NOTE AND MAKE THE LOAN. 15. BORROWER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A COMMERCIAL TRANSACTION. IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. "BORROWER": LITHIA REAL ESTATE, INC., an Oregon corporation By:   Name: Title: Jeffrey B. DeBoer Secretary, Treasurer 3 --------------------------------------------------------------------------------

  EXHIBIT 10.1 AGREEMENT OF SETTLEMENT, COMPROMISE, AND RELEASE BETWEEN AV PARTNERSHIP AND AV DEVELOPMENT CORPORATION AND CALIFORNIA COASTAL COMMUNITIES, INC., HEARTHSIDE HOMES, INC. AND HEARTHSIDE HOLDINGS, INC.                            This agreement of settlement, compromise, and release (“Settlement Agreement”) is entered into as of March 27, 2001 by and between, on the one hand, plaintiff and cross-defendant AV PARTNERSHIP and cross-defendant AV DEVELOPMENT CORPORATION (“AVD Corp.”) (collectively, the “AVP Parties”) and, on the other hand, defendant and cross-complainant CALIFORNIA COASTAL COMMUNITIES, INC., (“CCC”) and cross-complainants HEARTHSIDE HOMES, INC., (“Homes, Inc.”) and HEARTHSIDE HOLDINGS, INC. (“Holdings, Inc.”) (collectively, the “CCC Parties”) [the AVP Parties and the CCC Parties each individually are referred to as “Party” and collectively are referred to as the “Parties”] with FS Equity Partners III, L.P., a Delaware limited partnership, in its capacity as the holder of the Secured Promissory Notes (as hereinafter defined) made by AV Partnership (in such capacity “FSEP”), joining in solely for the limited purposes set forth in Section 2.8 hereof.                            This Settlement Agreement is entered into with reference to the following facts:                            A.         On or about October 28, 1994, CC C (formerly known as Koll Real Estate Group, Inc.) and Holdings, Inc. formerly known as Kathryn G. Thompson Company, Inc., a Delaware corporation, executed a written guarantee with AV Partnership whereby they guaranteed payment and performance of four promissory notes that Homes, Inc. had executed and delivered to AV Partnership for the purposes of evidencing its contribution of its share of equity capital to AV Partnership (“Equity Notes”).  The Equity Notes in the aggregate total Four Million, Seven Hundred and Seventy-Five Thousand Dollars ($4,775,000) in principal amount  and carry interest accruing at Ten Percent (10%) per annum since the deemed dates of disbursement, all due and payable on or prior to April 4, 1999.                            B.          The CCC Parties disputed the enforceability of the written guarantee on the grounds that a certain financial projection pre-dating the execution of the guarantee should have been, but was not, disclosed to them, and had such projection been disclosed, it would have caused the CCC Parties to not execute the guarantee.  Consequently, the CCC Parties refused to pay the monies due and owing on April 4, 1999.  In order to have sufficient time to conduct informal negotiations to attempt a voluntary resolution of this dispute, the Parties extended the due date on the promissory notes and guarantee to October 31, 1999.                            C.          Unable to resolve the dispute, on November 1, 1999 AV Partnership filed its verified complaint against CCC, AV Partnership v. California Coastal Communities, Inc. (Case No. BC 219402).  The complaint alleges a single cause of action to enforce the collection of the principal and interest due and payable on the four promissory notes pursuant to the written guarantee.                            D.         On December 2, 1999, CCC answered AV Partnership’s verified complaint and, together with Homes, Inc. and Holdings, Inc. filed a cross-complaint against AV Partnership and AVD Corp., among others.  The cross-complaint contains six causes of action, four of which are brought against the AVP Parties: (1) fraud; (2) rescission of the guarantee; (3) breach of fiduciary duty; and (4) declaratory relief.                            E.          These matters came on for a mandatory settlement conference before the Honorable Owen L. Kwong on January 25, 2001.  At that conference, the Parties reached a settlement and compromise of all the claims asserted in the complaint and cross-complaint, and entered that settlement and compromise on the record pursuant to California Code of Civil Procedure Section 664.6.                            F.           The Parties desire to provide for the liquidation, final dissolution and orderly winding up of the business of AV Partnership and desire to dissolve AV Partnership on or prior to December 31, 2001.  In connection therewith, the Parties have agreed that (i) AVD Corp. shall be the successor-in-interest to, and shall receive all of the Assets (as hereinafter defined) on behalf of, AV Partnership and the AVP Affiliates, and shall assume and undertake to perform the obligations of the AV Partnership and the AVP Affiliates to FSEP pursuant to the Secured Promissory Notes (as hereinafter defined) made payable to FSEP and other FSEP Loan Documents (the “FS Obligations”), and (ii) the CCC Parties shall assume and undertake to perform all Obligations (as hereinafter defined) of AV Partnership and the AVP Affiliates (other than the FS Obligations and any Federal or state income taxes that may be payable by AVD Corp., AV Development Corporation-2, a Delaware corporation (“AVDC-2”) and/or RSB Investment, Inc., a California corporation (“RSB”) and their respective shareholders and any other parent Persons thereof (the “AVP Tax Obligations”).                            G.          In connection with the activities of the AV Partnership, AV Partnership and FSEP entered into that certain Loan Agreement dated as of March 4, 1994 (as amended, the “Loan Agreement”) pursuant to which FSEP agreed to make, from time to time, certain loans (the “Loans”) to AV Partnership and its affiliates, which Loans were evidenced by five secured promissory notes made payable to the order of FSEP (the “Secured Promissory Notes”).  The Loans and Secured Promissory Notes were secured by various deeds of trust, security agreements and guarantees made by AV Partnership, its general partners and their respective affiliates in favor of FSEP as secured party and/or beneficiary (collectively, with the Loan Agreement and the Secured Promissory Notes, the “FSEP Loan Documents”).  Some or all of the indebtedness and obligations of AV Partnership and its affiliates evidenced by and as set forth in the Secured Promissory Notes and the other Loan Documents remain outstanding and owing to FSEP.                            In consideration of the mutual promises and respective agreements and conditions contained in this Settlement Agreement, and intending to be mutually bound thereby, the AVP Parties and the CCC Parties agree as follows:              1.          Definitions and Rules of Construction                            As used in this Settlement Agreement, and for the purpose of this Settlement Agreement only, the following terms have the following meanings:                            1.1        “AVP Group” means AV Partnership, AV Development Corporation, RSB Investment, Inc. and their past, present, and future employees, officers, directors, principals, parent entities, subsidiaries, affiliates, divisions, joint ventures, agents, servants, shareholders, attorneys, representatives, predecessors, successors, assigns, and acquired entities (including, without limitation, the past, present, and future employees, officers, directors, principals, parent entities, subsidiaries, affiliates, divisions, joint ventures, agents, servants, shareholders, attorneys, representatives, predecessors, successors, and assigns of any such acquired entities), and all Persons acting by, through, under or in concert with any of them, and each of them other than the CCC Group.                            1.2        “CCC Group” means California Coastal Communities, Inc., Hearthside Homes, Inc. and Hearthside Holdings, Inc. and their past, present, and future employees, officers, directors, principals, parent entities, subsidiaries, affiliates, divisions, joint ventures, agents, servants, shareholders, attorneys, representatives, predecessors, successors, assigns, and acquired entities (including, without limitation, the past, present, and future employees, officers, directors, principals, parent entities, subsidiaries, affiliates, divisions, joint ventures, agents, servants, shareholders, attorneys, representatives, predecessors, successors, and assigns of any such acquired entities), and all Persons acting by, through, under or in consent with any of them, and each of them.                            1.3        “Person” means any individual, corporation, partnership, association, trust, or any other entity (or estate, guardian, or beneficiary thereof) or organization.                            1.4        “Action” means the complaint and cross-complaint filed in the Superior Court of Los Angeles under Case No. BC 219402.                            1.5        “AVP Affiliates” shall mean AVP Partners Corporation, AVP Partners Corporation-2, Ridge/Meadows, L.P., AV/Sea Country, L.L.C. and Vistas Audubon.                            1.6        “Guarantee” means the Third Amended and Restated Guarantee Agreement executed by the partners of the AV Partnership and Koll Real Estate Group, Inc. (n.k.a. CCC) and Kathryn G. Thompson Company, a Delaware corporation (n.k.a. Holdings, Inc.), a copy of which is attached as Exhibit “A” to the verified complaint in this Action.                            1.7        “Equity Notes” means the four Amended and Restated Promissory Notes executed by Kathryn G. Thompson Company, a California corporation (n.k.a. Homes, Inc.), copies of which are attached as Exhibits “B,” “C,” “D” and “E” to the verified complaint in this Action.                            1.8        “Claims” means any past, present, or future actual, threatened, or potential claims, insurance claims, cross complaints, third-party claims, rights, proceedings, demands, requests, suits, law suits, administrative proceedings, causes of actions, orders, actions, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, torts, controversies, judgments, executions, liabilities, and obligations whatsoever whether in law or equity, whether formal or informal, whether in tort or breach of contract, and whether in writing.                            1.9        “Assets” shall have the meaning set forth in Section 2.4.                            1.10     “Obligation” shall have the meaning set forth in Section 2.6.                            1.11     Rules of Construction:  Capitalized terms in this Settlement Agreement shall have their respective meanings specified in Section 1 of the Settlement Agreement or as defined elsewhere in this Settlement Agreement.  The definitions in Section 1 of this Settlement Agreement apply equally to both the singular and plural forms of the terms defined.  The words “shall” and “will” are used interchangeably throughout this Settlement Agreement.  The use of either connotes a mandatory requirement and does not connote a different degree, right, or obligation for either party.  Use of the word “and” shall include in its meaning the word “or” and vice versa.  Use of the word “any” shall include within its meaning the word “all” and vice versa.              2.          Payment and Releases                           2.1        Each of the undersigned desires to provide for the liquidation, final dissolution and orderly winding up of the business of AV partnership and hereby agree to dissolve AV Partnership on or prior to December 31, 2001.  In connection therewith, the AVP Group and the CCC Group hereby agree that (i) AVD Corp. shall be the successor-in-interest to, and shall receive all of the Assets on behalf of, AV Partnership and the AVP Affiliates, and shall assume and undertake to perform the FS Obligations of AV Partnership and the AVP Affiliates to FSEP pursuant to the Secured Promissory Notes, and (ii) the CCC Parties shall assume and undertake to perform all Obligations of AV Partnership and the AVP Affiliates (other than the FS Obligations and the AVP Tax Obligations).  The dissolution and distributions shall be accomplished in the manner set forth herein irrespective of the capital accounts of the partners.  Debts and liabilities of AV Partnership shall be paid or provided for in accordance with these provisions.  All interests in Assets shall be distributed to AVD Corp. and are hereby assigned to AVD Corp. and all Obligations (other than the FS Obligations and the AVP Tax Obligations) are hereby assumed by the CCC Parties.  The CCC Parties shall be responsible for all legal fees and other costs for dissolving, terminating and/or winding up AV Partnership and the AVP Affiliates, provided, that, the CCC Parties shall have no responsibility for the legal fees and other costs for dissolving, terminating and/or winding up AVD Corp., AVDC-2, RSB and/or their respective shareholder Persons and/or any other parent Persons thereof.                            2.2        In consideration for the releases and agreements and covenants contained in this Settlement Agreement, the CCC Parties hereby agree to pay AV Partnership Three Million, Seven Hundred and Fifty Thousand Dollars ($3,750,000.00) on or before April 2, 2001, which will be paid by check made payable to AVD Corp. or its designee.                            2.3        In addition, the Parties agree to split in equal shares the petty cash and cash on deposit in the AV Partnership cash accounts as of the opening of business on January 25, 2001.  The Parties agree that the amount on deposit at that time was Four Hundred and Seventy-Four Thousand, Seven Hundred Sixty-Three Dollars and Eighty-Eight Cents ($474,763.88).  Upon the execution of this Settlement Agreement, the CCC Parties shall cause to be issued from the AV Partnership account two checks, each in the amount of Two Hundred and Thirty-Seven Thousand, Three Hundred and Eighty-One Dollars and Ninety-Four Cents ($237,381.94), one of which shall be made payable to AVD Corp. or its designee and which shall be delivered to AVD Corp. or its designee on or before April 2, 2001, and the other check made payable to Homes, Inc. and which shall be delivered to Homes, Inc. on or before April 2, 2001.  Interest on said cash accounts of AV Partnership which accrues on the opening of business on January 25, 2001, through April 2, 2001 shall be retained by and payable to Homes, Inc.                            2.4        Further, except as expressly provided in Section 2.3 above or this Section 2.4 below, all money and other things of value of any kind or character received by the AV Partnership or by any of the AVP Group and/or CCC Group on behalf of or relating to AV Partnership or the AVP Affiliates after the opening of business on January 25, 2001, in excess of the cash on deposit in the AV Partnership cash accounts at the start of business on that date, shall be the sole and exclusive property of the AVP Parties (collectively, the “Assets”), and the CCC Group hereby:  (i) assign to AVD Corp. or its designee the Assets and all rights to the Assets; and (ii) expressly waive any interest in or Claim to such money or property; and (iii) agree to take or cause to be taken all actions, including the execution of all documents, as may be necessary or desirable to effect the foregoing.  The Parties currently understand, but the CCC Parties do not warrant, that such anticipated receipts include, without limitation,           (1)         Approximately Five Hundred and Forty-Eight Thousand, Nine Hundred and Seventy-Seven Dollars and Eighty-Three Cents ($548,977.83) plus interest minus bank fees and charges on deposit with Imperial Bank which serves as collateral for an AV Partnership line of credit;              (2)         Approximately $70,000 due from Sea Country Homes; and              (3)         Approximately $25,000 due from the proceeds of the sale to the CCC Parties of the stocks and assets of Hearthside Funding. Starting on April 2, 2001, and on the first business day of every month thereafter until all Assets have been collected, the CCC Group will remit or cause to be remitted to AVD Corp. or its designee any such monies or other things of value received since the last distribution to AVD Corp. or its designee together with an accounting of the source of all such Assets; provided, that, any interest that accrues on Assets which are collected by the CCC Parties from the time of the last distribution until the next monthly scheduled distribution shall be retained by and shall be payable to Homes, Inc. (with the understanding that interest accruing on the Imperial Bank deposit identified in Section 2.4(1), minus any bank fees or charges incurred to maintain said line of credit, and on the Zurich Insurance Co. premiums identified in Section 2.5 are the sole and exclusive property of AVD Corp. or its designee).  Notwithstanding the foregoing, if, and to the extent that, the CCC Parties shall receive a payment on the insurance which is described in Section 2.5 below for claims made under the described policies and which relates to a reimbursement of actual expenses incurred by the CCC Parties, said payments shall be retained by and payable to Homes, Inc.  All checks shall be made payable to AVD Corp. or its designee.                            2.5        The Parties agree that the excess insurance premiums paid by or on behalf of the AV Partnership or the CCC Group and currently held by the Zurich Insurance Co. (which the Parties estimate to be approximately Five Hundred and Forty Thousand Dollars ($540,000.00)) including any interest accruing thereon are the sole and exclusive property of AVD Corp. or its designee and the CCC Group does hereby irrevocably transfer and assign all such amounts or rights to AVD Corp. or its designee.  The CCC Parties shall execute all documents and take all other reasonable steps necessary to secure and deliver payment by Zurich Insurance Co. of those excess premiums to AVD Corp. or its designee.  The CCC Parties represent and warrant that attached as Exhibit A hereto is a true and correct copy of the irrevocable written instruction and direction by the CCC Parties to Zurich Insurance Co. to pay said amounts to AVD Corp. or its designee and that they do not presently have knowledge of any fact or reason why Zurich Insurance Co. would not honor such instruction.  The CCC Parties shall take or cause to be taken all other requests or requirements of Zurich Insurance Co. to effect the payments to AVD Corp. or its designee.  If litigation with Zurich Insurance Co. is needed to obtain these funds, either in whole or in part, the CCC Parties will participate in and prosecute an action at law or equity to its final nonappealable resolution at the direction of the AVP Parties by and through attorneys that the AVP Parties will select in their sole discretion; provided that the AVP Parties shall fund the costs of said litigation, including attorneys fees.  In addition, the CCC Parties agree to maintain in place without modification insurance policies numbers UMB8321-901-00 and WC8321-903-00 with Zurich to cover the potential liabilities related to the operations of AV Partnership.                            2.6        From the opening of business on January 25, 2001 and forever more, the CCC Parties further agree to assume, undertake, perform and be solely responsible for, and shall indemnify, defend and hold the AVP Group harmless from, any and all (i) obligations, liabilities, duties, responsibilities, commitments, assessments, taxes (other than the AVP Tax Obligations) and tasks of or relating to AV Partnership and/or the AVP Affiliates, whether now existing or hereinafter arising, other than the FS Obligations, without any set-off, deduction, deferment or reduction of any Asset (collectively, the “Obligations”), and (ii) Claims, known and unknown, whether now existing or hereinafter arising, brought against the AVP Group arising out of or relating to the AV Partnership and/or AVP Affiliates, including without limitation:              (1)         All Claims related to or arising from construction defects;              (2)         All Claims related to or arising from home purchaser warranties;              (3)         All Claims related to or arising from customer service liabilities;              (4)         All Claims related to or arising out of the performance or failure to perform any Obligations; and              (5)         All Claims relating to or arising out of the business undertaken by the AV Partnership and/or the AVP Affiliates, including without limitation, the acquisition of land, grading of land, and development, construction and sales of homes.                            In connection with the Obligations, the CCC Parties agree to keep or cause to be kept adequate books of account of AV Partnership and the AVP Affiliates.  The AVP Group and their authorized representatives shall have at all times, during normal business hours, free access to and the right to inspect and copy, at its expense, the books of account.  The CCC Parties shall cause to be prepared all tax returns and statements, if any, which must be filed on behalf of AV Partnership, the AVP Affiliates and AV Holdings Corp., a Delaware corporation and its subsidiaries, for tax years 2000 and 2001 and shall submit such returns and statements to the AVP Parties for their approval prior to filing and, when approved by the AVP Parties, shall make timely filing thereof.  The CCC Parties shall be paid a fee of $17,000.00 upon completion of the 2000 tax returns for all of the AVP Group and a fee of $8,000.00 upon completion of the 2001 tax returns.  In addition, the CCC Parties shall cause to be furnished to the AVP Parties such additional information regarding the business of AV Partnership and the AVP Affiliates as may be necessary to enable the AVP Parties to prepare their federal, state and local tax returns.  Each of the CCC Parties and the AVP Parties hereby agrees to use its best efforts to resolve any disputes with respect to the proposed treatment of any item on a tax return of AV Partnership and/or the AVP Affiliates prior to the required filing date therefor.  The AVP Parties shall be responsible for any and all costs incurred in obtaining an independent review of the tax returns.                            2.7        In consideration of the promises contained in this Settlement Agreement, both Parties and each of them agree to dismiss with prejudice, on or before April 6, 2001, the complaint and cross-complaint filed in this Action.  Each Party is to bear its own attorneys’ fees, expenses, and all other costs in connection with the conduct and dismissal of the Action.                            2.8        In consideration of the promises contained in this Settlement Agreement and the compromise of the amounts due and payable on the Equity Notes and Guarantee, the CCC Group hereby release and forever discharge the AVP Group from any claims, obligations, liabilities or duties, known or unknown, regardless of whether such claims were included in the Action including, without limitation, any and all claims against FSEP.  Likewise, in consideration for the promises contained in this Settlement Agreement and the payment of the Settlement Sum, the AVP Parties Group releases and forever discharges the CCC Group from any claims, liabilities, duties, or obligations, known or unknown, regardless of whether such claims were included in the Action except as otherwise expressly provided in this Settlement Agreement.  Further, both Parties and each of them waive any claims for malicious prosecution and abuse of process arising from the filing, prosecution, or defense of this Action.  In consideration of the promises contained in this Settlement Agreement and the payment of the Settlement Sum, FSEP hereby agrees to look solely to AVD Corp. for the payment and performance of the FS Obligations and does hereby release and forever discharge the CCC Group from any claims, liabilities, duties or obligations, known or unknown, relating to or arising out of the Secured Promissory Notes and the other Loan Documents (provided, however, that the foregoing release is not, and shall not be deemed to be, a novation or satisfaction of the indebtedness and obligations evidenced by the Secured Promissory Notes and the other Loan Documents).  To the maximum extent allowed by law, the release provided in this Section 2.8 to the CCC Group will be void ab initio and will be of no force or effect and the obligations of the CCC Group will be automatically reinstated if the proceeds obtained by the AVP Group must be restored or returned by the AVP Group as a preference, fraudulent conveyance or otherwise under any bankruptcy, insolvency or similar law by or on behalf of any of the CCC Group.                            2.9        Each Party represents, warrants, and agrees that it is the sole and lawful owner of all rights, titles, and interests in and to every claim or matter released herein; and has not assigned or transferred or purported to or attempted to assign or transfer to any person or entity any claim or other matter related herein.  A Party shall defend, indemnify and hold the other Party harmless from any and all claims arising out of or relating to any assignment or transfer and any purported or attempted assignment or transfer contrary to the terms of this paragraph.                            2.10     It is the intention of the Parties that the foregoing releases shall be effective as a bar to all matters released herein.  In furtherance, and not in limitation, of such intention the releases described herein shall be, and shall remain in effect as, full and complete releases, notwithstanding the discovery or existence of any additional or different claims or facts.  To further effectuate this intention, both Parties and each of them hereby waives any rights under California Civil Code Section 1542 for any and all matters released herein.  California Civil Code Section 1542 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. In waiving the provisions of Section 1542 of the California Civil Code, the Parties acknowledge that they may hereafter discover claims or facts in addition to or different from those which they now believe to be true with respect to the subject matter of the Action and other matters released herein, but agree that they have taken that possibility into account in reaching this Settlement Agreement and that the releases given herein shall be and remain in effect as full and complete releases notwithstanding the discovery or existence of such additional or different claims or facts, as to which each Party expressly assumes the risk.                            2.11     Notwithstanding paragraph 2.10 above, nothing in said paragraph is intended to waive or modify and shall not be deemed to be a waiver or modification of the Party’s respective rights, remedies or obligations under this Settlement Agreement.  Further, nothing in this instrument shall limit the right of any Party to enforce the terms of this Settlement Agreement.  Accordingly, pursuant to California Code of Civil Procedure Section 664.6, the Parties request, and hereby agree and stipulate to, the Court's retention of jurisdiction to enforce the terms of the Settlement Agreement until performance in full of its terms.                            2.12     Nothing in this Settlement Agreement is or should be construed to be an acknowledgement or admission by CCC that it is liable with respect to Persons not a party to this Settlement Agreement for the business of the AV Partnership or Hearthside Homes, Inc.  CCC’s joint and several liability and duty to defend and indemnify as provided in Sections 2.3, 2.4, 2.5 and 2.6 of this Settlement Agreement do not create or confer any benefit on Persons not a party to the Settlement Agreement, but are solely and exclusively for the benefit of the AVP Group.  Further, these provisions (1) do not reflect any obligation to the AV Partnership that CCC had prior to the date of the Settlement Agreement; and (2) do not create any obligation or duty to Persons not a party to this Settlement Agreement that did not previously exist between CCC and that Person prior to the date of the Settlement Agreement.              3.          Other Terms and Conditions                            3.1        In consideration of the mutual promises set forth in this Settlement Agreement, the Parties have agreed to settle all Claims strictly as a business accommodation unrelated to the merits of the respective Claims of the Parties.  The Parties represent, warrant and agree that neither the execution of this Settlement Agreement nor the provision of any consideration pursuant thereto is intended as, nor shall it be construed or referred to in any way as, an admission of the liability or responsibility at any time or for any purpose whatsoever, including as an admission of the truth of the allegations, interpretations, claims, or contentions of either Party.                            3.2        The Parties agree that this Settlement Agreement has been negotiated at arm’s length by parties of equal bargaining power, each of whom was represented by competent counsel of its own choosing.  Accordingly, it is acknowledged that each Party, with the assistance of competent counsel, has participated in the drafting of this Settlement Agreement, and that any ambiguity should not be construed for or against any Party on account of such drafting.  The Parties further acknowledge that the obligations and releases herein described are in good faith and are reasonable in the context of the matters released.                            3.3        Except as required pursuant to corporate securities laws, the existence of this Settlement Agreement and the terms and conditions of this Settlement Agreement are confidential and shall not be disclosed by either Party to any Person unless, upon advice of counsel, either Party or both are compelled or required by applicable law; provided, that the foregoing shall not preclude a party from discussing this Settlement Agreement or disclosing the contents thereof to said Parties’ accountants, lawyers, lenders, advisors, and others who may have a reason to know, each of whom shall be bound by the confidentiality provisions of this Settlement Agreement.  The provisions of this Section 3.3 shall not, however, include any information which either (a) is demonstrated by a Party to have been independently developed by said Party (or independently developed by a third party, and lawfully disclosed to said Party) and is in said Party’s possession prior to the disclosure by the other Party, (b) is or becomes part of the general public or industry knowledge, other than as a result of said Party’s violation of this Settlement Agreement, or (c) has been disclosed by said Party following approval by the other Party.  Prior to any disclosure compelled or required by applicable law, the disclosing Party shall to the extent possible provide notice to the nondisclosing Party in time sufficient for the nondisclosing Party to seek a protective order.  Attached as Exhibit B is a draft of disclosure to be included in CCC’s Annual Report and Form 10-K.  Furthermore, this agreement will be filed as an exhibit to CCC’s Form 10-K.  The Parties agree that disclosure (not legally compelled or required) shall be a material breach of the Settlement Agreement and cause irreparable harm to the nondisclosing Party, and that the nondisclosing Party may seek equitable, as well as legal, relief to enforce this provision provided, that, the terms and provisions of Section 2 of this Settlement Agreement shall not be altered or amended in any fashion.  Further, nothing herein prohibits a Party from disclosing the Settlement Agreement to a court of competent jurisdiction in an action to enforce the terms and conditions of the Settlement Agreement.                            3.4        No amendment, modification, addendum, or revision of this Settlement Agreement shall be valid unless it is in writing and signed by the Party or Parties to be bound, in which event there need be no separate consideration therefor.                            3.5        No waiver or indulgence of any breach or series of breaches of this Settlement Agreement shall be deemed or construed as a waiver of any other breach of the same or any other provision hereof or affect the enforceability of any part or all of this Settlement Agreement, and no waiver shall be valid unless executed in writing by the waiving Party.                            3.6        This Settlement Agreement shall be subject to any statute or rule of court that restricts or prohibits the admission into evidence of any offer or agreement to compromise.  Notwithstanding the foregoing sentence, this Settlement Agreement may be admitted into evidence in any action to enforce its terms or secure its benefits.                            3.7        The Parties represent, warrant, and agree to execute all documents and to do all things necessary to fully effectuate the terms of this Settlement Agreement.                            3.8        Each Party to this Settlement Agreement agrees to bear its own costs, expenses and attorneys’ fees with respect to all matters encompasses in the Action and with respect to the negotiation and drafting of this Settlement Agreement.                            3.9        This Settlement Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed one and the same instrument.  However, this Settlement Agreement is not and shall not be effective unless and until each Party executes the original or a counterpart.                            3.10     The Parties represent, warrant and agree that this Settlement Agreement shall bind them and each of their personal and legal representatives, successors, assigns, executors and administrators, and all other Persons who may claim under or through them and shall inure to the benefit of each Party released herein, and to their personal and legal representatives, successors, assigns, executors, and administrators, and all other Persons who may claim under or through them.                            3.11     This Settlement Agreement shall be deemed made and entered into in the State of California, and shall in all respects be governed, enforced, and construed in accordance with the laws of the State of California.                            3.12     Each Party acknowledges and represents that it has fully and carefully read this Settlement Agreement prior to execution; that it has been fully apprised by its attorneys of the legal effect and meaning of this document and all terms and conditions hereof; that it has had the opportunity to make whatever investigation or inquiry it deemed necessary or appropriate in connection with the subject matter of this Settlement Agreement; that it has been afforded the opportunity to negotiate as to any and all terms hereof; and that it is executing this Settlement Agreement voluntarily, free from any undue influence, coercion, duress, or menace of any kind.                            3.13     The Parties represent, warrant, and agree that this Settlement Agreement contains the entire Settlement Agreement between the Parties; that this Settlement Agreement supersedes any and all prior agreements or understandings relating to the comprise that is the subject matter of this Settlement Agreement between the Parties; that the terms of this Settlement Agreement are contractual and not a mere recital; that in executing this Settlement Agreement, no Party is relying on any statement or representation made by the other Party, or the other Party’s agents, servants, or attorneys concerning the subject matter, basis, or effect of this Settlement Agreement other than as set forth herein; and that each Party is relying solely on its own judgment and knowledge.                            3.14     The Parties shall not use the documents produced by the other party (for which said Party did not already have a copy) and depositions taken during the course of litigation of the Action for any purpose without the written consent of the other Party.  Each Party agrees to destroy or cause to be destroyed all copies of documents produced by the other Party and that within thirty (30) days of executing the Settlement Agreement counsel for each party shall send written confirmation that those documents have been destroyed.  Copies of the documents attached as exhibits to depositions are excluded from the obligation to destroy such documents; provided however, that all deposition transcripts and their exhibits will be kept confidential if not destroyed.                            3.15     It is the express intention of all Parties hereto that this Settlement Agreement shall not create in or convey to any Person who or which is not a Party to this Settlement Agreement any rights against the AVP Parties or the CCC Parties.                            3.16     Each of the undersigned further declares and represents that he or she is competent to execute this instrument and that he or she is duly authorized, and has the full right and authority, to execute this Settlement Agreement on behalf of the Party for whom he or she is signing.                            3.17     If a provision of this Settlement Agreement or the application thereof is held invalid or unenforceable, its invalidity or unenforceability shall not affect any other provisions or applications of this Settlement Agreement, and such other provisions or applications shall be given effect without the invalid or unenforceable provision or application, and to this end the Settlement Agreement is deemed to be severable.                            3.18     The representations, warranties, agreements, and promises made by each Party to this Settlement Agreement and contained herein shall survive the execution of this Settlement Agreement.              IN WITNESS WHEREFORE, this Settlement Agreement has been read and signed in duplicate originals by the duly authorized representative of the Parties as of the date first above written. AV PARTNERSHIP By: AV Development Corporation   Its General Partner   By: /s/  WILLIAM M. WARDLAW --------------------------------------------------------------------------------   Name: William M. Wardlaw   Title: President   Date: --------------------------------------------------------------------------------       By: RSB Investment, Inc.   Its General Partner   By: /s/ ROBERT S. BENNETT --------------------------------------------------------------------------------   Name: Robert S. Bennett   Title: President   Date: 3/30/01       By: Hearthside Homes, Inc.   By:  /s/ RAYMOND J. PACINI --------------------------------------------------------------------------------   Name: Raymond J. Pacini   Title: CEO   Date: 3/29/01       AV DEVELOPMENT CORPORATION, INC. By: /s/  WILLIAM M. WARDLAW --------------------------------------------------------------------------------   Name: William M. Wardlaw   Title: President   Date --------------------------------------------------------------------------------           CALIFORNIA COASTAL COMMUNITIES, INC.       By: /s/ RAYMOND J. PACINI --------------------------------------------------------------------------------         Raymond J. Pacini --------------------------------------------------------------------------------   Name   President and CEO --------------------------------------------------------------------------------   Title   3/29/01 --------------------------------------------------------------------------------   Date       HEARTHSIDE HOMES, INC.       By: /s/ RAYMOND J. PACINI --------------------------------------------------------------------------------         Raymond J. Pacini --------------------------------------------------------------------------------   Name   CEO --------------------------------------------------------------------------------   Title   3/29/01 --------------------------------------------------------------------------------   Date     HEARTHSIDE HOLDINGS, INC.       By: /s/ RAYMOND J. PACINI --------------------------------------------------------------------------------         Raymond J. Pacini --------------------------------------------------------------------------------   Name   President and CEO --------------------------------------------------------------------------------   Title   3/29/01 --------------------------------------------------------------------------------   Date       JOINING IN SOLELY FOR THE LIMITED PURPOSES SET FORTH IN SECTION 2.8 HEREOF; FS EQUITY PARTNERS III, L.P., a Delaware limited partnership By: FS Capital Partners, L.P.   A California limited partnership   Its General Partner   By: FS Holdings, Inc.     A Delaware corporation     Its General Partner         By: /s/  WILLIAM M. WARDLAW --------------------------------------------------------------------------------           William M. Wardlaw --------------------------------------------------------------------------------   Name   Vice President --------------------------------------------------------------------------------   Title   --------------------------------------------------------------------------------   Date                 APPROVED AS TO FORM AND CONTENT O’MELVENY & MYERS LLP By: /s/  THOMAS M. RIORDAN --------------------------------------------------------------------------------   Thomas M. Riordan Attorneys for Plaintiff and Cross-Defendants AV PARTNERSHIP and AV DEVELOPMENT CORPORATION          3/30/01 -------------------------------------------------------------------------------- Date           ALLEN MATKINS LECK GAMBLE & MALLORY LLP By /s/ GREORY G. GORMAN --------------------------------------------------------------------------------   Gregory G. Gorman     Attorneys for Defendant and Cross-Complainants CALIFORNIA COASTAL COMMUNITIES, INC., HEARTHSIDE HOMES, INC., and HEARTHSIDE HOLDINGS INC.          4/4/01 -------------------------------------------------------------------------------- Date          

MEDIA ARTS GROUP, INC. Exhibit 10.48   EMPLOYMENT AGREEMENT   THIS EMPLOYMENT AGREEMENT is entered into as of June 19, 2001, by and between MEDIA ARTS GROUP, INC., a Delaware corporation (the “Employer” or the “Company”), and ANTHONY THOMOPOULOS, of 1280 Canyon Road, Los Angeles, CA 90077 (the “Employee”).   RECITALS   A. Employer is the holding company of various wholly owned subsidiaries which are engaged in the business of the creation, printing, reproduction, marketing, production, and selling of various forms of artwork, including, without limitation, paintings, prints, lithographs, posters, as well as licensing and wholesale distribution of plates, figurines, and other two- and three-dimensional artwork.  Employer is also engaged in significant growth which may lead to the acquisition and development of related and other businesses.   B. The Board of Directors of the Employer (the “Board”) has approved and authorized the entry of this Agreement with the Employee.   C. The parties of this Agreement desire to enter into this Agreement setting forth the terms and conditions for the employment relationship of the Employee with the Employer.   NOW, THEREFORE, IN CONSIDERATION OF THE COVENANTS, CONDITIONS AND PROMISES OF THE PARTIES SET FORTH BELOW, Employer and Employee agree as follows:   1)    Employment.  The Employee is employed as Interim Chief Executive Officer as of the date of this Agreement and through and until the termination of this Agreement, as hereinafter defined, with the duties and responsibilities and on the terms and conditions hereinafter set forth.   2)    Responsibilities and Duties of Employee.  It is agreed that Employee is employed on a full-time basis (approximately three to four days per week), which is defined to mean Employee’s entire productive time, ability and attention.  In his capacity as Interim Chief Executive Officer, Employee shall be primarily responsible for, and shall personally perform or personally supervise, the strategic management and functions of the Company.  In addition, Employee shall be responsible for the search and retention of a Chief Executive Officer for the Company.   In addition to the aforementioned responsibilities and duties, Employee shall perform such other duties and responsibilities as the Board shall designate as are not inconsistent with the Employee’s position with the Employer, including the performance of duties with respect to any subsidiaries of the Employer.   Employee shall at times perform the duties set forth herein faithfully, industriously, and to the best of the Employee’s ability, experience and talent.  Employee shall be responsible to the Board in regard to all matters unless otherwise mutually agreed to by the parties.   3)    Location of the Employee’s Work.  The Employee shall be based in the principal executive offices of the Employer in Morgan Hill, California, or in any city which the principal executive offices of the Employer may relocate.  The Employee shall be provided with appropriate temporary housing or lodging expenses including travel expenses to and from primary residence and corporate office during the term of his employment, along with appropriate transportation in the form of an automobile.   4)    Duration of Employment.  The Employer agrees to employ Employee in the capacity set for the above for the period of time commencing as of the date hereof and ending 90 days later, on September 17, 2001.  However, should Employee not find and the Company not be able to retain a suitable Chief Executive Officer on or before September 17, 2001, then Employee shall remain employed by the Company for up to an additional 90-day period, until December 16, 2001.   5)    Compensation to Employee.   a)     Salary.  The Employer agrees to pay the Employee total compensation for the initial 90-day period in the amount of $250,000.00.  Employee shall not be entitled to receive bonus payments or profit-sharing payments of any kind during the period of time Employee is employed hereunder.  If Employee is successful in identifying a Chief Executive Officer during the first 90-day period, and should the Company retain such Chief Executive Officer prior to the end of the first 90-day period, then Employee shall still be entitled to receive the full $250,000.00 compensation for the first 90-day period.  Should the employment of Employee extend into the second 90-day period, then Employee shall be compensated through the issuance of stock options, priced at $1.00 per share.  Such options shall be granted to Employee at the rate of 50,000 per 30-day period and shall be immediately exercisable at the conclusion of each 30-day period, or at the termination of Employee’s employment, whichever shall occur first.  Should Employee’s employment during the second 90-day period terminate prior to the end of any 30-day period therein, then the entire 50,000 options shall be granted at that time.   Should the employment of the employee be terminated prior to the first 90 days without cause (see paragraph 7a) the employee shall be entitled to receive the full $250,000 compensation for the first 90-day period.   The salary under this Paragraph (a) of this Section 5 shall be payable according to Employer’s normal payroll practices and shall be subject to standard federal and California tax withholding rules.   b)     Health Care, Disability, and Life Insurance Benefits.  The Employer agrees to provide medical insurance coverage under the Employer’s group medical insurance plan for the Employee and his dependents, at no cost to the Employee for such coverage of the Employee and his dependents.  The Employer agrees to pay the premiums on the life and disability insurance policies which are in effect as of the date hereof and under which the Employee receives life insurance and disability insurance coverage.   6)    Expenses Incurred by Employee.  In General.  In addition to the compensation structure set forth in Section 5, the Employer shall pay all direct out-of-pocket expenses incurred by the Employee in connection with the performance of his duties set forth herein including, but not limited to, travel, lodging and long distance telephone expenses.  The Employee shall include in any request for reimbursement for such expenses a detailed account with receipts of all expenses incurred by the Employee, and a detailed account of the business relating to those expenses, in connection with the performance of his duties as described in this Agreement.     7)    Termination.   a)     Cause.  Subject to the notice provisions set forth below, the Employer may terminate the Employee’s employment for “Cause” at any time.  “Cause” shall mean termination upon (1) the willful failure by the Employee to substantially perform his duties with the Employer (other than any such failure resulting from his incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to him by the Board, which demand specifically identifies the manner in which the Board believes that he has not substantially performed his duties or (2) the willful engaging by the Employee in conduct which is demonstrably and materially injurious to the Employer, monetarily or otherwise.  For purposes of this paragraph (a) of this Section 7, no act, or failure to act, on the Employee’s part shall be deemed “willful” unless done, or omitted to be done, by him not in good faith and without the reasonable belief that this action or omission was in the best interest of the Employer.  Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds (2/3) of the entire membership of the Board at a meeting of such Board (after reasonable notice to him and an opportunity for him, together with his counsel, to be heard before such Board), finding that he has engaged in the conduct set forth above in this paragraph (a) and specifying the particulars thereof in detail.   b)     Notice of Termination.  Any termination of the Employee’s employment by the Employer or by the Employee shall be communicated by written Notice of Termination to the other party hereto in accordance with Section10.  “Notice of Termination” shall mean a notice that shall indicate the specific termination provision in the Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for the termination of the Employee’s employment under the provision so indicated.   c)     Date of Termination.  “Date of Termination” shall mean (1) if the Employee’s employment is terminated by his death, the date of his death; (2) if the Employee’s employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that he shall not have returned to the full-time performance of his duties during such thirty (30) day period); (3) if the Employee’s employment is terminated for Cause, the date specified in the Notice of Termination (which shall not be less than thirty (30) days from the date of Notice of Termination is given), and (4) if the Employee’s employment is terminated for any other reason, the date specified in the Notice of Termination.   8)    No Assignments.  This Agreement is personal to each of the parties hereto.  No party may assign or delegate any rights or obligations hereunder without first obtaining the written consent of all of the other parties hereto, except that this Agreement shall be binding upon and inure to the benefit of any successor corporation to the Employer.   a)     This Agreement shall inure to the benefit of and be enforceable by the Employee and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees.  If the Employee should die while any amount would still be payable to him hereunder had he continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his devisee, legatee or other designee, if there is no such designee, to his estate.   9)    Noncompetition.   a)     General.  The Employee agrees that while this Agreement is in effect, he will not, directly or indirectly, without the prior written consent of the Employer, provide consultative service with or without pay, own, manage, operate, join, control, participate in, or be connected as a stockholder, partner, or otherwise with any business, individual, partner, firm, corporation, or other entity which is then in competition with the Employer or any subsidiary or affiliate of the Employer in violation of this Agreement and that the Employer would by reason of such competition be entitled to injunctive relief in a court of appropriate jurisdiction, and the Employee further consents and stipulates to the entry of such injunctive relief in such a court prohibiting the Employee from competing with the Employer or any subsidiary or affiliate of the Employer, in the areas set forth above, in violation of this Agreement.     b)     Right to Company Materials.  The Employee agrees that all styles, designs, lists, materials, books, files, reports, correspondence, records, and other documents (“Company Material”) used, prepared, or made available to the Employee, shall be and shall remain the property of the Employer, its subsidiary, or its affiliate, as the case may be.  Upon termination of employment of the expiration of the Agreement, all Company Materials shall be returned immediately to the Employer, its subsidiary, or its affiliate, as the case may be; provided, however, that the Employee shall be entitled to make and retain any copies thereof with respect to matters involving the Employee.   c)     Antisolicitation.  The Employee promises and agrees that while this Agreement continues in effect, he will not influence or attempt to influence customers or suppliers of the Employer or any of its present or future subsidiaries or affiliates, either directly or indirectly, to divert their business to any individual, partnership, firm, corporation, or other entity then in competition with the business of the Employer, or any subsidiary or affiliate of the Employer.   d)     Soliciting Employees.  The Employee promises and agrees that while this Agreement continues in effect, he will not directly or indirectly solicit any of the employees of the Employer, its subsidiaries or its affiliates to work for or invest in, as the case may be, any business, individual, partnership, firm, corporation, or other entity then in competition with the business of the Employer or any subsidiary or affiliate of the Employer.   e)     Restriction on Use or Disclosure of Trade Secrets.  It is expressly understood that the Employee may be dealing with trade secrets of the Employer, its subsidiaries and its affiliates, including but not limited to information, system(s), inventions, and processes, all of a confidential nature, that concern the operations of the Employer, its subsidiaries or affiliates and that are the Employer’s property and are used in the course of the Employer’s business or that of its subsidiaries or affiliates.  The Employee promises and agrees that he will not disclose to anyone, directly, or indirectly, either while this Agreement is in effect or at any time thereafter, any of such trade secrets, or use them other than in the course of his employment.  The Employee acknowledges that the Employer may use all remedies, including injunctive relief, in order to enforce the provisions of this paragraph (e).   10)  Notice.  For the purpose of this Agreement, notices provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notice of a change of address shall be effective only upon actual receipt:   Employer:                                                                                                             MEDIA ARTS GROUP, INC.                                                                                                                                900 Lightpost Way                                                                                                                                Morgan Hill, CA 95037                                                                                                                                Attn:  General Counsel   Employee:                                                                                                            ANTHONY THOMOPOULOS                                                                                                                                1280 Stone Canyon Road                                                                                                                                Los Angeles, CA 90077     11)  Indemnification.  If the Employee is made or is threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal administrative or investigative, by reason of the fact that he is or was an officer of the Employer, or is or was an officer of the Employer serving at the request of the Employer as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, then the Employer shall indemnify the Employee against expenses (including attorneys’ fees), judgements, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith, as such term is defined in the Bylaws of the Employer, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; provided, however, that with respect to actions, suit or proceedings by or in the right of the Employer, the Employer shall not indemnify the Employee in respect of any claim, issue or matter as to such which Employee shall have been adjudged to be liable to the Employer unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such Employee is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper.   The termination of any action, suit or proceeding by judgement, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Employer, and, with respect to any criminal action or proceeding, any reasonable cause to believe that his conduct is unlawful.   12)  Entire Agreement.  This Agreement represents the entire agreements of parties hereto.  No agreements or representation, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by any of the parties which are not expressly set forth in this Agreement.   13)  Amendments, Additions, Modifications, Waiver or Discharge.  No amendments or additions to this Agreement shall be binding unless in writing and signed by all parties hereto.  No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by all parties hereto.   14)  Governing Law.  This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of California and any applicable federal laws.   15)  Captions and Section Numbers.  The captions and numbers to the sections and paragraphs of this Agreement are inserted for convenience only and shall not affect the construction or interpretation hereto.   16)  Triplicate Originals; Counterparts.  This Agreement and all amendments shall be fully executed in triplicate and each triplicate shall constitute an original of the same instrument.  This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.   17)  Arbitration.  Any controversy or claim arising out of or relating to this Agreement shall be settled exclusively by arbitration, conducted before a panel of three (3) arbitrators in Morgan Hill, California in accordance with the rules or the American Arbitration Association then in effect.  Judgment may be entered on the arbitrator’s award in any court having jurisdiction.   18)  Severability.  The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.     19)  Numbers.  Unless the context clearly indicates otherwise, words used herein in the singular include the plural and words in the plural include the singular.   20)  Gender.  The use of feminine, masculine, or neuter pronoun shall not be restrictive as to gender and shall be interpreted in all cases as the context may require.   21)  Representations of Employee.  The Employee represents that he is not under contract of any kind with any entity or business which would prohibit him from entering into this Agreement.  The Employee further represents that he is entirely free to enter into this Agreement and that he neither has not will enter into any agreement or other obligation while this Agreement is in effect which might conflict with this Agreement or interfere or conflict with any of the terms thereof.   22)  Representation of Employer.  The Employer represents that it is a corporation in good standing by and under the laws of the State of Delaware and that its president has the authority to properly execute this Agreement.   IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement on the date first indicated above.       MEDIA ARTS GROUP, INC.             By:  /s/ Herb Montgomery       Herb Montgomery     Senior Vice President, Chief Financial Officer             /s/ Anthony D. Thomopoulos       Anthony Thomopoulos     Employee       /s/ Timothy S. Guster     Timothy Guster     Senior Vice President, General Counsel      

Exhibit 10.32 Ball Corporation Deposit Share Program Table of Contents 1. Purpose.........................................................................................1 2. Definitions.....................................................................................1 2.1 Cliff Lapse..........................................................................1 2.2 Committee............................................................................1 2.3 Deferral.............................................................................1 2.4 Disability...........................................................................1 2.5 Effective Date.......................................................................1 2.6 Grant Date...........................................................................1 2.7 Holding Period.......................................................................1 2.8 Newly Acquired Shares................................................................1 2.9 Participant..........................................................................1 2.10 Program..............................................................................1 2.11 Restricted Shares....................................................................2 2.12 Restricted Units.....................................................................2 2.13 Retirement...........................................................................2 2.14 Shareholder of Record................................................................2 3. Restricted Stock Grant..........................................................................2 3.1 Minimum Number of Newly Acquired Shares..............................................2 3.2 Granting of Restricted Shares........................................................2 4. Holding Period for the Newly Acquired Shares....................................................2 5. Lapse of Restrictions...........................................................................3 5.1 Cliff Lapse..........................................................................3 5.2 Accelerated Lapse Rate...............................................................3 6 Additional Cash Payment.........................................................................3 7. Retirement, Disability or Death.................................................................3 7.1 Proration Calculation................................................................3 7.2 Proration's Effect on Lapse Schedule as a Result of Retirement or Disability.......................................................................3 7.3 Proration's Effect on Lapse Schedule as a Result of Death............................3 7.4 Fractional Shares....................................................................3 8. Forfeiture......................................................................................4 9. Deferral of Award...............................................................................4 9.1 Exchange of Restricted Shares........................................................4 9.2 Election to Defer....................................................................4 9.3 Exchange of Restricted Shares from Restricted Units..................................4 9.4 Date of Deferral.....................................................................4 10. Miscellaneous...................................................................................4 10.1 Administration of the Program........................................................4 10.2 Amendment and Termination of Program.................................................4 10.3 Successors and Mergers, Consolidations, or Change in Control.........................5 10.4 Employment or Future Eligibility to Participate Not Guaranteed.......................5 10.5 Gender, Singular or Plural...........................................................5 10.6 Captions.............................................................................5 10.7 Applicable Law.......................................................................5 10.8 Validity.............................................................................5 Deposit Share Program ("Program") 1. Purpose To encourage key executives to acquire a larger equity ownership interest in the Corporation to further align the personal interests of the Participants with the interests of the shareholders of the Corporation, in order to promote share price growth and enhancement of shareholder value. 2. Definitions 2.1 Cliff Lapse means restrictions lapse at one time on the fourth anniversary following the date of grant of Restricted Shares under this Program. 2.2 Committee means the Human Resources Committee of the Board of Directors of Ball Corporation. 2.3 Deferral means the amount of elective Restricted Units deferred by a Participant into the Ball Corporation 2000 Deferred Compensation Company Stock Plan. 2.4 Disability means a bodily injury or disease as determined by the Committee that totally and continuously prevents the Participant, for at least six consecutive months, from engaging in the Participant's regular occupation. 2.5 Effective Date means March 7, 2001, which is the effective date of the Deposit Share Program. 2.6 Grant Date means the actual date of issuance of the Restricted Shares pursuant to this Program. 2.7 Holding Period means the time period during which a Participant may not sell Newly Acquired Shares in order to have the restrictions lapse on a Restricted Stock grant. 2.8 Newly Acquired Shares means Ball Corporation Common Stock acquired within two years after the Effective Date of the Deposit Share Program. It does not include Ball Corporation Common Stock attained by a Participant through the Corporation's other benefit plans, which include but are not limited to the 401(k) plan, the Employee Stock Purchase Plan and the Employee Stock Ownership Plan. 2.9 Participant means an employee who has been selected for participation in the Program by management and approved by the Committee. 2.10 Program means the Deposit Share Program as set forth in this document as amended from time to time. 2.11 Restricted Shares means shares of stock that are issued or transferred to a Participant under this Program pursuant to the Ball Corporation 1997 Stock Incentive Plan. 2.12 Restricted Units means the Performance Unit Award based on the dollar value of Ball Corporation Common Stock as provided for in the Ball Corporation 1997 Stock Incentive Plan. 2.13 Retirement means termination of employment by a Participant for whatever reason other than death or disability after attainment of age 55. 2.14 Shareholder of Record means the person who holds Ball Corporation Common Stock that is held in an account by the transfer agent and for which dividends are paid by the transfer agent. 3. Restricted Stock Grant The grant under this Program shall be a Restricted Stock Grant ("Restricted Share") pursuant to the Ball Corporation 1997 Stock Incentive Plan. If, at any time or from time to time, within two years of the effective date of the Program, the Participant provides evidence to the Corporate Secretary's Department of the Corporation, reasonably satisfactory to the Corporation, of Participant's acquisition of Newly Acquired Shares during the two-year period commencing March 7, 2001, together with a written promise by the Participant to hold the shares for the prescribed period, then the Corporation will grant the Participant a Restricted Share for each Newly Acquired Share so acquired, up to the maximum number of Restricted Shares specified in the Participant's Award Letter. 3.1 Minimum Number of Newly Acquired Shares - The minimum number of Newly Acquired Shares that will be matched by Restricted Shares at one time is 200 shares. The Participant may accumulate purchases of fewer than 200 shares, and when the total number of accumulated shares is equal to or exceeds 200 shares, the Participant may then request that matching Restricted Shares be issued. 3.2 Granting of Restricted Shares - The Restricted Shares will be granted on the 15th of each month provided the documentation required in Section 3.1 is received on or before the 5th of that month, otherwise it will granted the following month. If the 15th occurs on a holiday or weekend, the Restricted Shares will be issued on the workday immediately prior to that holiday or weekend. 4. Holding Period for the Newly Acquired Shares The Participant must agree that the Newly Acquired Shares will not be sold or transferred prior to the lapse of restrictions on the matching Restricted Shares. A pledge of Newly Acquired Shares as collateral for any loan during the holding period is not considered to be a sale or transfer of the shares for purposes of this Program; however, in the event of default on the loan, the Newly Acquired Shares will be considered to be sold and the matching Restricted Shares will be forfeited. 5. Lapse of Restrictions 5.1 Cliff Lapse - Except as provided herein, restrictions on all Restricted Shares will cliff lapse on the fourth anniversary following the date of grant of the Restricted Shares. 5.2 Accelerated Lapse Rate - The restrictions may lapse at an accelerated rate if the Participant meets stock ownership guidelines, which are measured at the end of the month prior to the accelerated lapse date. The accelerated lapse schedule is as follows: Anniversary Following Percentage Date of Grant -------------------- ------------------------------- 30% Second 30% Third 40% Fourth 6. Additional Cash Payment The Participant also will receive a dividend equivalent, if any, payable with respect to the Restricted Shares from the date of grant until restrictions lapse. 7. Retirement, Disability or Death Participants who retire before restrictions have lapsed on Restricted Shares granted under this Program will receive a prorated portion of their Restricted Shares. 7.1 Proration Calculation Number of restricted Number of shares still outstanding X Number of days from grant to retirement,disability or death = Restricted Shares on date of retirement, Number of days from grant to scheduled cliff lapsing outstanding after disability or death proration 7.2 Proration's Effect on Lapse Schedule as a Result of Retirement or Disability - Restricted Shares outstanding after proration will have restrictions lapse according to Section 5 above. 7.3 Proration's Effect on Lapse Schedule as a Result of Death - Restricted Shares outstanding after proration will lapse and the unrestricted shares will be issued to the participant or his beneficiary. 7.4 Fractional Shares - All fractional shares will be rounded up at proration. 8. Forfeiture All rights in and to any and all Restricted Shares granted pursuant to this Program which have not had restrictions lapse as described above in this Program, shall be forfeited upon the Participant's termination from the Corporation, except for prorated Restricted Shares as provided for in Section 7. In addition, any Restricted Shares granted pursuant to this Program shall be forfeited if the Newly Acquired Shares to which the Restricted Shares relate are sold or transferred by the Participant prior to the lapse of restrictions on such Restricted Shares. For each Restricted Share for which the restrictions have lapsed, the holding period requirement for an equal number of Newly Acquired Shares shall also end. 9. Deferral of Award 9.1 Exchange of Restricted Shares - Participants in the Program will have an opportunity to exchange Restricted Shares granted under this Program for Restricted Units issued under the Ball Corporation 2000 Deferred Compensation Company Stock Plan (the "Deferred Stock Plan"). 9.2 Election to Defer - In order to exchange shares and utilize the Deferred Stock Plan, the Participant must elect to exchange any Restricted Shares granted under this Program at least one year prior to the lapse of restrictions on such Restricted Shares. The Restricted Units will be eligible for a Corporation Matching Contribution under the Deferred Stock Plan. 9.3 Exchange of Restricted Shares for Restricted Units - In the event a Participant elects to undertake such an exchange, the Restricted Shares granted under this Program will be cancelled and an equivalent number of Restricted Units will be issued to the Participant. Restrictions and the Participant's rights with respect to such Restricted Units will be determined under the terms of the Program. 9.4 Date of Deferral - The actual deferral of the Restricted Units will not occur until restrictions lapse on the Restricted Units. 10. Miscellaneous 10.1 Administration of the Program - The Human Resources Committee of the Board of Directors shall be the sole administrator of the Program. The Committee shall have full power to formulate additional details and regulations for carrying out this Program. The Committee shall also be empowered to make any and all of the determinations not herein specifically authorized which may be necessary or desirable for the effective administration of the Program. Any decision or interpretation of any provision of this Program adopted by the Committee shall be final and conclusive. 10.2 Amendment and Termination of Program - The Committee may at any time amend the Program in whole or in part; provided, however, that no amendment shall be effective to affect the Participant's vested right therein, and, except as provided below, no amendment shall be effective to decrease the future benefits under the Program payable to any Participant or beneficiary with respect to any amount granted or vested prior to the date of the amendment. Written notice of any amendments shall be given promptly to each Participant. No notice shall be required with respect to amendments that are non-material or administrative in nature. 10.3 Successors and Mergers, Consolidations, or Change in Control - The terms and conditions of this Program and Election Form shall enure to the benefit of and bind the Corporation, the Participants, their successors, assignees, and personal representatives. If substantially all of the stock or assets of the Corporation are merged into, or consolidated with, another corporation or entity, then the obligations created hereunder shall be obligations of the acquirer or successor corporation or entity. 10.4 Employment or Future Eligibility to Participate Not Guaranteed - Nothing contained in this Program nor any action taken hereunder shall be construed as a contract of employment or as giving any Participant any right to be retained in the employ of the Corporation. Designation as a Participant may be revoked at any time by the Committee with respect to any Restricted Shares not yet granted. 10.5 Gender, Singular and Plural - All pronouns and any variations thereof shall be deemed to refer to the masculine and feminine gender as the identity of the person or persons may require. As the context may require, the singular may be read as the plural and the plural as the singular. 10.6 Captions - The captions to the articles, sections, and paragraphs of this Program are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 10.7 Applicable Law - This Program shall be governed and construed in accordance with the laws of the State of Indiana. 10.8 Validity - In the event any provision of this Program is held invalid, void, or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Program.

EXHIBIT 10.1 EMPLOYMENT AND NON-COMPETE AGREEMENT             THIS AGREEMENT is between AutoZone, Inc., a Nevada corporation and its various subsidiaries (collectively "AutoZone"), and Steve Odland, an individual ("Employee"), effective as of January 29, 2001 (the "Effective Date"). For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Employment. AutoZone agrees to employ Employee and Employee agrees to remain in the employment of AutoZone, or a subsidiary or affiliate, until the expiration of the Term or until earlier termination as provided under this Agreement.   2. Term. This Agreement shall be effective as of the Effective Date and shall continue until the third anniversary of the Effective Date unless sooner terminated pursuant to Paragraph 13, 14 or 15. The period of employment under this Paragraph 2 is referred to as the "Term."   3. Salary. Employee shall receive a salary from AutoZone as follows: During the term of this Agreement, Employee shall receive minimum annual compensation of $650,000, subject to increases as determined by the Compensation Committee of the Board of Directors ("Base Salary"). The Base Salary amount shall be paid on a pro-rated basis for all partial years based on a 364-day year. AutoZone reserves the right to increase the Base Salary above the amounts stated above in its sole discretion, provided that Employee's first salary review shall occur as soon as practicable following the end of AutoZone's 2002 fiscal year, consistent with AutoZone's practices for its other senior executives. All salary shall be paid at the same time and in the same manner that AutoZone's other senior executives are paid.   4. Bonuses. (a) Annual Bonus. During the term of this Agreement, Employee shall be entitled to receive an annual bonus (the "Annual Bonus") in an amount equal to 100% of his Base Salary if the Target (as defined below) is met and up to a maximum of the lesser of 200% of his Base Salary or $2,000,000 if the Target is exceeded, subject to and determined in accordance with policies and procedures established by AutoZone's Compensation Committee of the Board of Directors which shall be based upon the financial and operational goals and objectives for the Employee and AutoZone established by the Compensation Committee for each of AutoZone's fiscal years ("Target") in accordance with AutoZone's 2000 Executive Incentive Compensation Plan, as amended from time to time, or its successor plan (the "Incentive Compensation Plan"), a copy of which is attached hereto as Exhibit A. The Target is established at the sole discretion of the Compensation Committee of the Board of Directors and is subject to review and revision at any time upon notification to the Employee. Notwithstanding the foregoing, for AutoZone's 2001 fiscal year, Employee shall receive an Annual Bonus of not less than $370,410.96. All bonuses shall be paid at the same time and in the same manner that AutoZone's other senior executives are paid.   (b) Long-Term Bonus. Subject to final approval by AutoZone's Board of Directors and approval by AutoZone's stockholders of the long-term incentive plan established by the Compensation Committee of AutoZone's Board of Directors (the "Long-Term Incentive Plan"), during the term of this Agreement, Employee shall be entitled to participate in the Long-Term Incentive Plan in accordance with the terms and conditions thereof and on the same basis as AutoZone's other senior executives; provided, however, that for purposes of the initial three year cycle of such plan beginning on the first day of AutoZone's 2001 fiscal year (the "Initial Cycle"), Employee shall be treated as if his employment with AutoZone commenced on the first day of AutoZone's 2001 fiscal year. Employee's participation in, and all bonuses payable to Employee under, the Long-Term Incentive Plan shall be subject to and determined in accordance with policies and procedures established by AutoZone's Compensation Committee of the Board of Directors which shall be based upon the financial and operational goals and objectives for the Employee and AutoZone established by the Compensation Committee for each cycle of the Long-Term Incentive Plan ("Long-Term Target") in accordance with the Long-Term Incentive Plan. The Long-Term Target is established at the sole discretion of the Compensation Committee of the Board of Directors and is subject to review and revision at any time upon notification to the Employee. All bonuses under the Long-Term Incentive Plan shall be paid at the same time and in the same manner that AutoZone's other senior executives are paid.   Duties. Employee shall serve as Chief Executive Officer of AutoZone, Inc., performing such duties as AutoZone, Inc.'s Board of Directors may direct from time to time and as are normally associated with such a position. In addition, if so elected, Employee shall also serve as Chairman of AutoZone, Inc.'s Board of Directors. AutoZone may, in its sole discretion, alter, expand or curtail the services to be performed by Employee or position held by Employee from time to time, without adjustment in compensation. Employee shall devote his full time and attention to AutoZone's business. During the term of this Agreement, Employee shall not engage in any other business activity that conflicts with his duties with AutoZone, regardless of whether it is pursued for gain or profit. Employee may, however, invest his assets in or serve on the Board of Directors of other companies so long as they do not require Employee's services in the day to day operation of their affairs and do not violate AutoZone's conflict of interest policy.   Other Benefits. Other benefits to be received by Employee from AutoZone shall be the ordinary benefits received by AutoZone's other senior executives, which may be changed by AutoZone in its sole discretion from time to time, including, without limitation, Employee Stock Purchase Plan (Section 423 Plan), AutoZone Executive Deferred Compensation Plan, vacation, medical, dental and vision plans, short-term disability plan, long-term disability plan, annual physical exam (at AutoZone cost), term life insurance up to $750,000 (at AutoZone cost) and supplemental term life insurance up to $250,000 or such increased life insurance limits as may be provided from time to time.   Special Payment. Upon the Effective Date, AutoZone shall pay Employee a one-time special payment in an amount equal to $150,000, subject to such withholding and other normal employee deductions as may be required by law.   Relocation. AutoZone shall reimburse Employee for all reasonable and actual moving expenses incurred by Employee in connection with his relocation to Memphis, Tennessee which are properly incurred by him in accordance with the policies of AutoZone, provided that proper vouchers are submitted to AutoZone by Employee evidencing such expenses. Without limitation, such expenses shall include: (a) expenses of periodic travel between Employee's current primary residence and Memphis, and reasonable temporary living expenses, for Employee and his family for a period not to exceed one year from the date of this Agreement, (b) provision for AutoZone to purchase Employee's current principal residence, no later than the date Employee closes on his purchase of a replacement residence, at a price equal to the amount paid by Employee to purchase and improve Employee's current residence (but in no event exceeding $1,400,000), and all costs of sale including brokerage commissions, title closing costs and insurance and recording fees, state and local transfer taxes, and recording fees, (c) all closing costs to purchase a residence in the Memphis area, including mortgage application fees, reasonable and customary points (but in no event exceeding 3 points) for loan origination and mortgage fees, and legal fees, title insurance and recording fees, state and local transfer taxes, and inspection fees, (d) provided that such loan is secured by a second mortgage on Employee's current residence, an interest-free short-term bridge loan in such amount as is required to cover a down payment on Employee's replacement residence prior to closing a sale on Employee's current residence, but in no event shall the amount of any such loan exceed $60,000 or the term of such loan exceed 90 days, (e) all moving expenses, including packing, unpacking, storage, transport and full replacement value insurance, and air travel for Employee and his family, (f) separate transport of two automobiles, and (g) $10,000 relocation allowance payment for incidentals, including deposit forfeitures. Notwithstanding the foregoing, if Employee has not sold his current residence prior to the expiration of ninety (90) days following the Effective Date, AutoZone may elect to purchase Employee's current residence pursuant to clause (b) above, provided that Employee may, upon notice to AutoZone, require AutoZone to purchase his current residence at any time prior to the expiration of such 90-day period. If any payment of relocation expenses (other than taxable gain on payments to purchase Employee's principal residence and other than the relocation allowance described in clause (g) above) is subject to any federal, state or local taxes, AutoZone shall pay Employee a Tax Gross-Up Payment with respect to such taxes. For purposes of this Agreement, a "Tax Gross-Up Payment" means an amount payable to Employee such that after payment of such taxes on such amount there remains a balance sufficient to pay the taxes being reimbursed.   Attorneys Fees. AutoZone shall promptly pay or reimburse Employee for all reasonable attorneys fees actually incurred by Employee in the negotiation, preparation and delivery of this Agreement; provided, however, that the aggregate amount of AutoZone's obligation under this Paragraph 9 shall not exceed $15,000. Except as otherwise provided herein, each party hereto shall bear its own costs and attorneys fees.   Stock Options. Effective as of the fifth (5th) business day following the date on which AutoZone releases its earnings report for the second quarter of its 2001 fiscal year, the Compensation Committee of the Board of Directors of AutoZone shall grant Employee a non-qualified stock option (the "Option") under AutoZone's stock option plan (the "Option Plan") to purchase 275,000 shares of common stock of AutoZone (the "Common Stock"), at a per share exercise price equal to the Fair Market Value (as defined in the Option Plan) of a share of Common Stock on the date on which the Option is granted (the "Grant Date"). Subject to Employee's continued employment by AutoZone, the Option shall vest in cumulative annual installments of 25% of the shares subject to the Option on each of the first four anniversaries of the Grant Date, so that the Option shall be fully vested on the fourth anniversary of the Grant Date. The term of the Option shall be ten (10) years from the Grant Date. The Option shall be evidenced by a Stock Option Agreement in substantially the form attached hereto as Exhibit B, which, together with the Option Plan, shall set forth the terms and conditions of the Option. Employee shall be considered for possible future annual or other grants of Options for the first fiscal year in which options are granted after the Grant Date and each fiscal year thereafter during the Term, as determined by the Compensation Committee of the Board of Directors in its discretion based on Employee's performance, consistent with the treatment of other senior executives of AutoZone.   Supplemental Pension Plan Service Credit. For all purposes under AutoZone's Executive Deferred Compensation Plan (a copy of which is on file with the Securities and Exchange Commission, the "supplemental pension"), Employee shall be immediately eligible for participation therein and shall thereupon be credited with four years of defined benefit pension accruals and vesting service (such that Employee shall be fully vested on the first anniversary of the Effective Date provided that he is then an employee of AutoZone or his employment is terminated prior to such date by AutoZone without Cause or by Employee for Good Reason) for Employee's time in service with Employee's former employer, including, without limitation, a benefit accrual equal to such amounts as Employee would have accrued under the AutoZone tax-qualified pension plan if such plan does not credit Employee with such prior employer service thereunder.   Taxes. Employee understands that all salary, bonuses and other benefits will be subject to reduction for amounts required to be withheld by law as taxes and otherwise . Termination by AutoZone or by Employee for Good Reason. a.  Without Cause or for Good Reason. AutoZone may terminate this Agreement without Cause, and Employee may terminate this Agreement for Good Reason, at any time upon notice by the terminating party to the other party. In such event, Employee shall thereupon resign from AutoZone's Board of Directors and shall cease to be Chief Executive Officer of AutoZone, Inc. and Chairman of its Board of Directors, and his employment with AutoZone shall terminate. In the event of a termination pursuant to this Paragraph 13(a),   i. Employee shall receive as soon as practicable after such termination a lump sum cash amount in immediately available funds equal to his then current Base Salary for the balance of the fiscal year in which this Agreement is terminated, plus two (2) times his then prevailing annual Base Salary. In addition, AutoZone shall pay Employee the following bonus amounts: (A) Employee's full Annual Bonus for the fiscal year in which this Agreement is terminated pursuant to this Paragraph 13(a), based on the Targets attained by AutoZone and Employee for such fiscal year, (B) any unpaid bonus payable to Employee under the Long-Term Incentive Plan for any cycle completed prior to the termination date, and (C) if Employee's employment is terminated pursuant to this Paragraph 13(a) prior to the payment of his bonus with respect to the Initial Cycle under the Long-Term Incentive Plan, AutoZone shall pay Employee a pro rated bonus with respect to the Initial Cycle under the Long-Term Incentive Plan calculated as of the close of the Initial Cycle based on the period of time elapsed from the date on which the Initial Cycle began until this Agreement is terminated and the formula established by the Compensation Committee for officers for the Initial Cycle, provided, however, that the amount of any bonus payable to Employee under this clause (C) shall in no event exceed the pro rated portion of 100% of Employee's Base Salary. Said bonuses shall be paid when other officer bonuses are paid for that fiscal year or cycle. Except as set forth in the preceding sentence, Employee shall not be entitled to receive any bonus payments after the termination of his employment hereunder;   ii. During the period from the date of termination and ending on the earlier of (A) the last day of the second full fiscal year following such termination or (B) the first day on which Employee becomes eligible to participate in a group health plan of a subsequent employer which provides benefits comparable to AutoZone's health plan, Employee shall receive health insurance coverage under AutoZone's health insurance plan on the same terms and conditions as other senior executive employees of AutoZone; provided, however, that if Employee is ineligible under the terms of AutoZone's health plan to continue to be so covered, AutoZone shall provide Employee with substantially equivalent coverage through other sources or will provide Employee with a lump-sum payment in such amount that, after all taxes on that amount, shall be equal to the cost to Employee of providing himself such coverage;   iii. Upon the date of Employee's termination pursuant to this Paragraph 13(a), the Option shall automatically be fully vested and exercisable with respect to all shares subject thereto; and   iv. If such termination occurs prior to the first anniversary of the Effective Date, Employee shall thereupon be fully vested in all benefits accrued by Employee under Employee's supplemental pension as of the date of termination (including benefit accruals pursuant to Paragraph 11 hereof). Any provision of Paragraph 8 to the contrary notwithstanding, Employee shall not be liable for reimbursement of any relocation expenses provided thereunder. AutoZone shall have no other obligations other than those stated herein upon the termination of this Agreement and Employee hereby releases AutoZone from any and all obligations and claims except those as are specifically set forth herein. Any provision of this Agreement to the contrary notwithstanding, "Good Reason" shall mean any one of the following events, unless Employee consents in writing:   (1) (I) the material failure of AutoZone to comply with the provisions of Paragraphs 3 through 11 of this Agreement, (II) any material adverse change in the status, responsibilities, perquisites of Employee (except, in the case of perquisites, for across-the-board changes applicable to all other senior executives), including any actual material adverse change in status which results from an assignment of this Agreement by AutoZone pursuant to Paragraph 22 below, (III) approval by AutoZone, Inc.'s Board of Directors of a transaction (other than a Change of Control) pursuant to which Employee would cease to be the Chief Executive Officer of AutoZone, Inc. or the publicly-held successor to AutoZone, Inc., provided that Employee has provided written notice of termination to the Board of Directors within 60 days following such approval and provided that such termination shall not be effective until the consummation of such approved transaction, (IV) any failure to nominate or elect Employee as Chairman of the Board of Directors of AutoZone, Inc.(or the publicly-held successor to AutoZone, Inc.), (V) causing or requiring Employee to report to anyone other than the Board of Directors, (VI) assignment of duties which are materially and adversely inconsistent with his positions and duties described in this Agreement, or (VII) any other material breach of the Agreement by AutoZone;   provided, that no such act or omission shall constitute Good Reason unless Employee gives AutoZone 30 days prior written notice (except as provided in clause (III) of this subparagraph (1)) of such act or omission and AutoZone fails to cure such act or omission within the 30-day period;   (2) The failure of AutoZone to assign this Agreement to a successor to AutoZone or failure of a successor to AutoZone to explicitly assume and agree to be bound by the Agreement; or   (3) The requiring of Employee to be principally based at any office or location more than 60 miles from the current corporate offices of AutoZone in Memphis, Tennessee. (b)  With Cause . AutoZone shall have the right to terminate this Agreement and Employee's employment with AutoZone for Cause at any time by a determination of a majority of the members of the Board of Directors in good faith. Upon such termination for Cause, Employee shall have no right to receive any compensation, salary, or bonus and shall immediately cease to receive any benefits (other than those as may be required pursuant to the AutoZone Pension Plan or by law) and any stock options shall be governed by the respective stock option agreements in effect between the Employee and AutoZone at that time. "Cause" shall mean (i) the willful engagement by the Employee in conduct which is demonstrably and materially injurious to AutoZone, monetarily or otherwise, and (ii) if reasonably capable of being cured, is not cured by the Employee within thirty (30) days after the Board of Directors provides him with a detailed notice of the conduct that is considered to be grounds for a determination of Cause. For this purpose, no act or failure to act by the Employee shall be considered "willful" unless done, or omitted to be done, by the Employee not in good faith and without reasonable belief that his action or omission was in the best interest of AutoZone. 1. Termination by Employee. Employee may terminate this Agreement at anytime upon written notice to AutoZone. Upon such termination, other than for Good Reason, Employee's employment shall terminate and Employee shall cease to receive any further salary, benefits, or bonus, and all stock options granted shall be governed by the respective stock option agreement(s) between the Employee and AutoZone.   2. Termination by Employee upon a Change of Control. Employee may terminate this Agreement upon a Change of Control of AutoZone by giving written notice to AutoZone within sixty (60) days after the occurrence of a Change of Control. Upon giving such notice to AutoZone, Employee's employment shall terminate and Employee shall receive such compensation, benefits and other rights as are provided for a termination by AutoZone without Cause. Except as set forth in the preceding sentence, Employee shall not be entitled to receive any payments or benefits under this Agreement upon a termination of his employment pursuant to this Paragraph 15. Any of the following events shall constitute a "Change of Control": (a) the acquisition after the date hereof, in one or more transactions, of beneficial ownership (as defined in Rule 13d-3(a)(1) under the Securities Exchange Act of 1934, as amended ("Exchange Act")), by any person or entity or any group of persons or entities who constitute a group (as defined in Section 13(d)(3) under the Exchange Act) of any securities such that as a result of such acquisition such person, entity or group beneficially owns AutoZone, Inc.'s then outstanding voting securities representing 51% or more of the total combined voting power entitled to vote on a regular basis for a majority of the Board of Directors of AutoZone, Inc. or (b) the sale of all or substantially all of the assets of AutoZone (including, without limitation, by way of merger, consolidation, lease or transfer) in a transaction where AutoZone or the beneficial owners (as defined in Rule 13d-3(a)(1) under the Exchange Act) of capital stock of AutoZone do not receive (i) voting securities representing a majority of the total combined voting power entitled to vote on a regular basis for the board of directors of the acquiring entity or of an affiliate which controls the acquiring entity or (ii) securities representing a majority of the total combined equity interest in the acquiring entity, if other than a corporation; provided however, that the foregoing provisions of this Paragraph 15 shall not apply to any reorganization, recapitalization or similar transaction in which all or substantially all of the individuals and entities who were the beneficial owners of the outstanding voting securities of AutoZone immediately prior to such transaction respectively continue to beneficially own, directly or indirectly, the outstanding voting securities of the surviving entity in such transaction in substantially the same proportions as their beneficial ownership immediately prior to such transaction.   3. Effect of Termination. Any termination of Employee's service as an officer of AutoZone shall be deemed a termination of Employee's service on all boards and as an officer of all subsidiaries of AutoZone.   4. Non-Compete. Employee agrees that he will not, for the period commencing on the termination date of this Agreement pursuant to Paragraph 13, 14 or 15 (whichever is applicable) of this Agreement and ending on   i. the last day of the second full fiscal year of AutoZone ending after the fiscal year in which such termination date occurs if either Employee voluntarily terminates this Agreement (with or without Good Reason) or this Agreement is terminated by AutoZone for Cause or   ii. the expiration of the period commencing on the date of termination of Employee's employment and ending on the last day of the second full fiscal year following such termination (the "Continuation Period"), if this Agreement is terminated by AutoZone without Cause, be engaged in or concerned with, directly or indirectly, any business related to or involved in the retail sale of auto parts to "DIY" customers, or the wholesale or retail sale of auto parts to commercial installers in any state, province, territory or foreign country in which AutoZone operates now or shall operate during the term set forth in this Non-Compete section (herein called "Competitor"), as an employee, director, consultant, beneficial or record owner, partner, joint venturer, officer or agent of the Competitor, other than the acquisition of not more than a 1% equity interest in a publicly-traded Competitor; provided, solely for purposes of excluding any retail business with retail stores that sell automotive parts and automotive accessories as a minor portion of the retail business in each of its retail stores from the term "Competitor", any such retail business engaged in the same business or substantially the same business as that of AutoZone either directly or through an operating division or subsidiary of such retail business shall not be deemed to be a "Competitor" if both (a) the average sales per store per annum of the business or the average sales per store per annum of any organizational unit, part, subpart, subsidiary or affiliate of such business from the sale of automotive parts and automotive accessories (excluding sales at stores which do not sell automotive parts and automotive accessories ) shall be less than 10% of the average sales per store per annum of AutoZone for the same year and (b) the total sales of automotive parts and accessories for any such retail business (including the sales of automotive parts and automotive accessories by any organizational unit, part, subpart, subsidiary or affiliate of such business) shall be, in the aggregate, less than 10% of such business' total gross sales. The parties acknowledge and agree that the time, scope, geographic area and other provisions of this Non-Compete section have been specifically negotiated by sophisticated commercial parties and specifically hereby agree that such time, scope, geographic area and other provisions are reasonable under the circumstances and are in exchange for the obligations undertaken by AutoZone pursuant to this Agreement. Further, Employee agrees not to hire, for himself or any other entity, encourage anyone or entity to hire, or entice away from AutoZone any employee of AutoZone during the term of this non-compete obligation. If at any time in a proceeding under or arising out of this Agreement (or a proceeding brought on behalf of or at the direction of Employee) a court of competent jurisdiction holds that any portion of this Non-Compete section is unenforceable for any reason, then Employee shall forfeit his right to any further salary, bonus, stock option exercises, or benefits from AutoZone during any Continuation Period.   5. Confidentiality. Unless otherwise required by law, Employee shall hold in confidence any proprietary or confidential information obtained by him during his employment with AutoZone, which shall include, but not be limited to, information regarding AutoZone's present and future business plans, vendors, systems, operations and personnel. Confidential information shall not include information: (a) publicly disclosed by AutoZone, (b) rightfully received by Employee from a third party without restrictions on disclosure, (c) approved for release or disclosure by AutoZone, or (d) produced or disclosed pursuant to applicable laws, regulation or court order. Employee acknowledges that all such confidential or proprietary information is and shall remain the sole property of AutoZone and all embodiments of such information shall remain with AutoZone. Unless otherwise required by law, each of AutoZone and Employee shall hold in confidence all matters regarding the termination of employment of Employee and the conduct of Employee or the Board of Directors resulting in such termination.   6. Breach by Employee. The parties further agree that if, at any time, despite the express agreement of the parties hereto, Employee violates the provisions of this Agreement by violating the Non-Compete or Confidentiality sections, or by failing to perform his obligations under this Agreement, Employee shall forfeit any unexercised stock options, vested or not vested, and AutoZone may cease paying any further salary or bonus. In the event of breach by Employee of any provision of this Agreement, Employee acknowledges that such breach will cause irreparable damage to AutoZone, the exact amount of which will be difficult or impossible to ascertain, and that remedies at law for any such breach will be inadequate. Accordingly, AutoZone shall be entitled, in addition to any other rights or remedies existing in its favor, to obtain, without the necessity for any bond or other security, specific, performance and/or injunctive relief in order to enforce, or prevent breach of any such provision.   7. Death of Employee or Disability. If Employee should die or become disabled (such that he is no longer capable of performing his duties) during the term of this Agreement, then all salary and bonuses shall cease as of the date of his death or disability, all stock options shall be governed by the terms of the respective stock option agreements, and Employee shall receive disability or death benefits as may be provided under AutoZone's then existing policies and procedures related to disability or death of AutoZone senior executives.   8. Waiver. Any waiver of any breach of this Agreement by AutoZone shall not operate or be construed as a waiver of any subsequent breach by Employee. No waiver shall be valid unless in writing and signed by an authorized officer of AutoZone.   9. Assignment. Employee acknowledges that his services are unique and personal. Accordingly, Employee shall not assign his rights or delegate his duties or obligations under this Agreement. Employee's rights and obligations under this Agreement shall inure to the benefit of and be binding upon AutoZone successors and assigns. AutoZone may assign this Agreement to any wholly-owned subsidiary operating for the use and benefit of AutoZone.   10. Entire Agreement. This Agreement contains the entire understanding of the parties related to the matters discussed herein. It may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension, or discharge is sought.   11. Jurisdiction. This Agreement shall be governed and construed by the laws of the State of Tennessee, without regard to its choice of law rules. The parties agree that the only proper venue for any dispute under this Agreement shall be in the state or federal courts located in Shelby County, Tennessee.   12. Survival. Paragraphs 13, 15, 17, 18, 19, 24, 27 and 29 of this Agreement shall survive any termination of this Agreement or Employee's employment with AutoZone (including, without limitation termination pursuant to Paragraph 13, 14 or 15).   13. Notices. All notices hereunder shall be in writing and delivered by hand, by nationally-recognized delivery service that guarantees overnight delivery, or by first-class, registered or certified mail, return receipt requested, postage prepaid, addressed as follows:   If to AutoZone, to:         AutoZone, Inc.                                      123 South Front Street                                       Memphis, TN 38103                                       Attention: General Counsel With copy to:                 Gary Olson, Esq.                                       Latham & Watkins                                       633 West Fifth Street, Suite 4000                                       Los Angeles, CA 90071 If to Employee, to:          Steve Odland                                       c/o AutoZone, Inc.                                       123 South Front Street                                       Memphis, TN 38103 With copy to:                  Vedder, Price, Kaufman & Kammholz                                        222 North LaSalle Street, Suite 2600                                        Chicago, IL 60601                                        Attention: Robert J. Stucker   Either party may from time to time designate a new address by notice given in accordance with this Paragraph. Notice shall be effective when actually received by the addressee.   14. Tax Gross-Up Payment. If it shall be finally determined that any payment to Employee pursuant to this Agreement or any other payment or benefit from AutoZone, any affiliate, or any other person would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any similar tax payable under any United States federal, state, local or other law, then Employee shall receive a Tax Gross-Up Payment with respect to all such excise taxes and similar taxes (collectively, the "Excise Tax"). An initial determination as to whether a Tax Gross-Up Payment is required pursuant to this Agreement and the amount of such Tax Gross-Up Payment shall be made at AutoZone's expense by a nationally recognized accounting firm selected by AutoZone (the "Accounting Firm"). The determination by the Accounting Firm (the "Determination") shall be binding, final and conclusive upon AutoZone and the Employee for purposes of any dispute between the parties hereto. The parties hereto shall cooperate with each other in connection with any proceeding or claim involving any taxing authority under this Paragraph 27 relating to the existence or amount of any liability for the Excise Tax; provided, however, that AutoZone shall control all proceedings taken in connection with such proceeding or claim and shall bear and pay directly all costs, expenses, and tax penalties and interest incurred in connection with such proceeding or claim. As a result of uncertainty in the application of Section 4999 of the Code at the time of the initial Determination by the Accounting Firm, it is possible that the Tax Gross-Up Payment made will have been an amount less than AutoZone should have paid pursuant to this Paragraph 27 (the "Underpayment") or an amount greater than AutoZone should have paid pursuant to this Paragraph 27 (the "Overpayment"). In the event that it is finally determined that an Underpayment exists and the Employee is required to make a payment of any Excise Tax, the Tax Gross-Up Payment shall be adjusted accordingly and the shortfall shall be promptly paid by AutoZone to the Employee or for his benefit. In the event that it is finally determined that an Overpayment exists and AutoZone paid a Tax Gross-Up Payment to the Employee in excess of the amount of the Tax Gross-Up Payment to which he is actually entitled hereunder, such excess shall be promptly reimbursed by the Employee to AutoZone.   15. No Mitigation. The Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Employee in any subsequent employment.   16. Indemnification. Employee shall be indemnified while serving as Chief Executive Officer or Chairman of the Board of Directors to the same extent and in the same manner as other members of the Board of Directors and senior executives of AutoZone.   17. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterpart signature pages may be delivered via facsimile.       IN WITNESS WHEREOF, the respective parties execute this Agreement.   AUTOZONE, INC.   By: /s/ Ronald Terry  Title: Director /s/ Steve Odland  Employee         -------------------------------------------------------------------------------- EXHIBIT A AUTOZONE, INC. AMENDED AND RESTATED 2000 EXECUTIVE INCENTIVE COMPENSATION PLAN 1.  Purpose             The AutoZone, Inc. 2000 Executive Incentive Compensation Plan ("Plan") is designed to provide incentives and rewards to eligible employees of AutoZone, Inc. (the "Company") and its affiliates who have significant responsibility for the success and growth of the Company and assist the Company in attracting, motivating, and retaining key employees on a competitive basis. The Plan is designed to ensure that the annual bonus paid pursuant to this Plan to eligible employees of the Company is deductible under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). This Plan shall be ratified by the Company's stockholders pursuant to 26 C.F.R. § 1.162-27(e)(4)(vi) at the annual meeting to be held on December 9, 1999, and shall be effective for the entire 2000 fiscal year. If the stockholders do not ratify the Plan, the Plan shall not become effective. 2.  Administration of the Plan             The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company ("Committee"). The Committee shall be appointed by the Board of Directors of the Company and shall consist of at least two outside directors of the Company that satisfy the requirements of Code Section 162(m). The Committee shall have the sole discretion and authority to administer and interpret the Plan in accordance with Code Section 162(m). The Committee's interpretations of the Plan, and all actions taken and determinations made by the Committee pursuant to the powers vested in it hereunder, shall be conclusive and binding on all parties concerned, including the Company, its stockholders and any person receiving an award under the Plan. 3.  Eligibility             The individuals entitled to participate in the Plan shall be the executive officers of the Company, as determined by the Committee. 4.  Awards                 Executive officers as determined by the Committee may be granted annual incentive awards under this Plan at such times of each year as will satisfy the requirements of Code Section 162(m), provided, however, that if an individual becomes an executive officer during a year, an incentive goal for that individual shall be made for that fiscal year at the time she or he becomes an executive officer. The Committee may, in its discretion, grant annual incentive awards to non-executive officers and managers of the Company outside of this Plan.             The annual incentive award to each executive officer shall be based on the Company, a subsidiary or division, attaining one or more of the following objective goals as established by the Committee for the fiscal year: > (a)  earnings > (b) earnings per share > (c) sales > (d) market share > (e) revenue > (f) operating or net cash flows > (g) pre-tax profits > (h) earnings before interest and taxes > (i) return on capital > (j) economic value added > (k) return on inventory > (l) EBIT margin > (m) gross profit margin > (n) sales > (o) sales per square foot > (p) comparable store sales             Different measures of goal attainment may be set for different plan participants. The performance goal may be a single goal or a range with a minimum goal up to a maximum goal, with corresponding increases in the incentive award up to the maximum award set by the Committee and as may be limited by this Plan. Such performance goals may disregard, at the Committee's discretion, the effect of one-time charges and extraordinary events such as asset write-downs, litigation judgments or settlements, changes in tax laws, accounting principles or other laws or provisions affecting reported results, accruals for reorganization or restructuring, and any other extraordinary non-recurring items, acquisitions or divestitures and any foreign exchange gains or losses. These goals shall be established by the Committee either by written consent or as evidenced by the minutes of a meeting at such times as to qualify amounts paid under this Plan for tax deductible treatment under Code Section 162(m).             Payment of an earned award will be made in cash, or at the option of the Committee, in whole or in part in Company common stock. Upon completion of each fiscal year, the Committee shall review performance verses the established goal, and shall certify (either by written consent or as evidenced by the minutes of a meeting) the specified performance goals achieved for the fiscal year (if any), and direct which award payments are payable under the Plan, if any. No payment will be made if the minimum pre-established goals are not met. The Committee may, in its discretion, reduce or eliminate an individual's award that would have been otherwise paid. No individual may receive in any one fiscal year an award under the Plan of an amount greater than the lesser of (i) 200% of such individual's base salary for that year or (ii) $2 million. 5.  Miscellaneous Provisions             (a)  The Company shall have the right to deduct all federal, state, or local taxes required by law or Company policy from any award paid.             (b)  Nothing contained in this Plan grants to any person any claim or right to any payments under the Plan. Such payments shall be made at the sole discretion of the Compensation Committee.             (c)  Nothing contained in this Plan or any action taken by the Committee pursuant to this Plan shall be construed as giving an individual any right to be retained in the employ of the Company.             (d)  The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any award under the Plan.             (e)  The Plan may be amended, subject to the limits of Code Section 162(m), or terminated by the Committee at any time. However, no amendment to the Plan shall be effective without prior approval of the Company's stockholders which would (i) increase the maximum amount that may be paid under the Plan to any person or (ii) modify the business criteria on which performance targets are to be based under the Plan.             (f)  This Plan shall terminate on the fifth anniversary after the date of ratification by the Company's stockholders. -------------------------------------------------------------------------------- EXHIBIT B NON-QUALIFIED STOCK OPTION AGREEMENT (AUTOZONE OPTIONEE)             This NON-QUALIFIED STOCK OPTION AGREEMENT (this "Agreement"), dated as of ____________, 2001, is made by and between AutoZone, Inc., a Nevada corporation (the "Company"), and the person identified as the "Optionee" on Schedule I, an employee of the Company ("Optionee") (together, the "Parties"). RECITALS             A. The Company wishes to carry out the AutoZone, Inc. Amended and Restated 1996 Stock Option Plan (the "Plan") (the terms of which are hereby incorporated by reference and made a part of this Agreement).             B. The Compensation Committee of the Company's Board of Directors has determined that it would be to the advantage and best interest of the Company and its stockholders to grant the Non-Qualified Option provided for herein to Optionee and has advised the Company thereof and instructed the undersigned officers to issue said Option.             In order to implement the following and in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Parties do hereby agree as follows: ARTICLE I DEFINITIONS                 Whenever the following terms are used in this Agreement they shall have the meaning specified below unless the context clearly indicates to the contrary. Whenever the context so indicates, the masculine pronoun shall include the feminine and neuter, and the singular the plural. Section 1.01 - Affiliate             "Affiliate" shall mean any Subsidiary and any limited partnership of which the Company or any Subsidiary is the general partner. Section 1.02 - Cause             "Cause" shall mean (i) the willful engagement by the Optionee in conduct which is demonstrably and materially injurious to the Employer, monetarily or otherwise, and (ii) if reasonably capable of being cured, is not cured by the Optionee within thirty (30) days after the Board of Directors provides him with a detailed notice of the conduct that is considered to be grounds for a determination of Cause. For this purpose, no act or failure to act by the Optionee shall be considered "willful" unless done, or omitted to be done, by the Optionee not in good faith and without reasonable belief that his action or omission was in the best interest of the Employer. Section 1.03 - Committee             "Committee" shall mean the Compensation Committee of the Company's Board of Directors which has been appointed to administer the Plan. Section 1.04 - Common Stock             "Common Stock" shall mean shares of the Company's common stock, $.01 par value per share. Section 1.05 - Corporate Transaction             "Corporate Transaction" shall mean any of the following stockholder-approved transactions to which the Company is a party:             (a) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the State in which the Company is incorporated, from a holding company or effect a similar reorganization as to form whereupon this Plan and all Awards are assumed by the successor entity:             (b) the sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, in complete liquidation or dissolution of the Company in a transaction not covered by the exceptions to clause (a), above; or             (c) any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred or issued to a person or persons different from those who held such securities immediately prior to such merger. Section 1.06 - Duly Endorsed             "Duly Endorsed" shall mean duly endorsed by the person or persons in whose name a stock certificate is registered in blank or accompanied by a duly executed stock assignment separate from certificate with the signature(s) thereon guaranteed by a commercial bank or trust company or a member of a national securities exchange or a member of the National Association of Securities Dealers. Section 1.07 - Employer             "Employer" shall mean the Company, or any Affiliate, whichever at the time employs the Optionee. Section 1.08 - Option             "Option" shall mean the non-qualified option or options to purchase Common Stock granted under this Agreement. Section 1.09 - Option Stock             "Option Stock" shall mean all shares of Common Stock acquired by Optionee pursuant to the exercise of this Option or any portion hereof. Section 1.10 - Permanent Disability             Optionee shall be deemed to have a "Permanent Disability" hereunder when the majority of the Board of Directors of the Employer shall, in good faith, so determine. Section 1.11 - Public Offering             "Public Offering" shall mean the sale of any shares of Common Stock, or any securities convertible into or exercisable or exchangeable for shares of Common Stock, to the public pursuant to an effective underwritten registration statement filed under the Securities Act of 1933, as amended. Section 1.12 - Secretary             "Secretary" shall mean the Secretary of the Company. Section 1.13 - Subsidiary             "Subsidiary" shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then 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. Section 1.14 - Termination of Employment             "Termination of Employment" shall mean the time when the employee-employer relationship between the Optionee and the Employer is terminated for any reason, including, but not by way of limitation, a termination for Permanent Disability or by resignation, discharge with or without Cause, death or retirement, but excluding any termination where there is a simultaneous reemployment by the Employer. The Committee, in its absolute discretion, shall determine the effect of all other matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge with or without Cause, and all questions of whether particular leaves of absence constitute Termination of Employment. ARTICLE II GRANT OF OPTION Section 2.01 - Grant of Option             For good and valuable consideration, on the date hereof the Company irrevocably grants to the Optionee the option or options to purchase the number of shares of its $.01 par value Common Stock set forth on Schedule I attached hereto upon the terms and conditions set forth in this Agreement. Section 2.02 - Purchase Price             The purchase price of the shares of Common Stock covered by the Option shall be the applicable amount per share without commission or other charge as set forth for the Option in Schedule I attached hereto. Section 2.03 - Adjustments in Option             In the event that the outstanding shares of Common Stock subject to the Option are changed into or exchanged for a different number or kind of shares or other securities of the Company, or of another corporation, by reason of merger, consolidation, recapitalization, reclassification, stock split, stock dividend or combination of shares, the Committee shall make an appropriate and equitable adjustment in the number and kind of shares as to which the Option, or portions thereof then unexercised, shall be exercisable, to the end that after such event the Optionee's proportionate interest shall be maintained as before the occurrence of such event. Such adjustment in the Option shall be made without change in the aggregate price applicable to the unexercised portion of the Option (except for any change in the aggregate price resulting from rounding-off of share quantities or prices) and with any necessary corresponding adjustment in the option price per share. Any such adjustment made by the Committee shall be final and binding upon the Optionee, the Company and all other interested persons. ARTICLE III PERIOD OF EXERCISABILITY Section 3.01 - Commencement of Exercisability             The Option shall become exercisable as of the applicable Exercise Dates set forth on Schedule I hereof. Notwithstanding the foregoing, the Option shall become fully exercisable with respect to all shares subject thereto upon the occurrence of any of the following events: (i) a Termination of Employment by the Company without Cause, (ii) a Termination of Employment by the Optionee for Good Reason (as defined in that certain Employment Agreement, effective as of January 29, 2001, between the Company and the Optionee (the "Employment Agreement"), or (iii) a Termination of Employment by the Optionee (with or without Good Reason) within sixty (60) days after the occurrence of a Change of Control (as defined in the Employment Agreement) of the Company. Section 3.02 - Duration of Exercisability             The Option, once it becomes exercisable pursuant to Section 3.01, shall remain exercisable until it becomes unexercisable under Section 3.03. Section 3.03 - Expiration of Option             The Option may not be exercised to any extent by anyone after the first to occur of the following events: (a) The expiration of ten (10) years and one (1) day from the date hereof; or (b) The time of the Optionee's Termination of Employment unless such Termination of Employment results from Optionee's death, Permanent Disability, voluntary termination, involuntary termination without Cause or retirement from the Company at the Optionee's normal retirement age as set forth in the AutoZone, Inc. Associate's Pension Plan, as it may be amended from time to time; or (c) The expiration of thirty (30) days from the date of the Optionee's Termination of Employment by reason of Optionee's Permanent Disability, voluntary termination or involuntary termination without Cause, unless the Optionee dies within said thirty-day period; or (d) The expiration of ninety (90) days from the date of the Optionee's death; or (e) Subject to Paragraph 15 of the Employment Agreement, the effective date of either the merger or consolidation of the Company with or into another corporation (except a wholly-owned subsidiary of the Company), or the acquisition by another corporation or person of all or substantially all of the Company's assets or 80% or more of the Company's then outstanding voting stock, or the liquidation or dissolution of the Company, unless the Committee waives this provision in connection with such transaction. At least ten (10) days prior the effective date of such merger, consolidation, exchange, acquisition, liquidation or dissolution, the Committee shall give the Optionee notice of such event if the Option has then neither been fully exercised nor become unexercisable under this Section 3.03. Section 3.04 - Reduction In or Expiration of Option In Event of Demotion             In the event that the Optionee is assigned to a position in the Company or an Affiliate, which, as determined by the Committee in good faith, pays a lower salary or involves less responsibility than the Optionee's position with the Company on the date of grant, the Committee may, in its sole discretion, reduce the number of shares of Common Stock subject to this Option or terminate the entire Option in accordance with Section 3.03 as if the Optionee's employment were terminated for Cause. ARTICLE IV EXERCISE OF OPTIONS Section 4.01 - Person Eligible to Exercise             During the lifetime of the Optionee, only the Optionee may exercise the Option or any portion thereof. After the death of the Optionee, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.03, be exercised by his personal representative or by any person empowered to do so under the Optionee's will or under the then applicable laws of descent and distribution. Section 4.02 - Manner of Exercise             The Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary or his designee of all of the following prior to the time when the Option or such portion becomes unexercisable under Section 3.03: (a) Notice in writing signed by the Optionee or the other person then entitled to exercise the Option or portion thereof, stating that the Option or portion thereof is thereby exercised, such notice complying with all applicable rules established by the Committee; and (b)     (i) Full payment (in cash or by check) for the shares with respect to which such Option or portion is           exercised; or   (ii) Delivery of a notice that the Optionee has placed a market sell order with a broker approved by the Company with respect to shares of Common Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the option exercise price.   (iii) A combination of the consideration provided in the foregoing subparagraphs (i) and (ii); and (c) Full payment in cash to the Company of all amounts which, under federal, state or local law, it is required to withhold upon exercise of the Option; and (d) In the event the Option or portion thereof shall be exercised pursuant to Section 4.01 by any person or persons other than the Optionee, appropriate proof of the right of such person or persons to exercise the Option. Section 4.03 - Conditions to Issuance of Stock Certificates             The shares of Option Stock may be either previously authorized but unissued shares or issued shares which have then been reacquired by the Company. Such shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any certificate or certificates for shares of Option Stock prior to fulfillment of all of the following conditions: (a) The admission of such shares to listing on all stock exchanges on which such class of stock is then listed; and (b) The completion of any registration or other qualification of such shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Committee shall, in its absolute discretion, determine to be necessary or advisable; and (c) The receipt of any approval or other clearance from any state or federal governmental agency which the Committee shall, in its absolute discretion, determine to be necessary or advisable; and (d) The payment to the Employer of all amounts which, under federal, state or local law, it is required to withhold upon exercise of the Option; and (e) The lapse of such reasonable period of time following the exercise of the Option as the Committee may from time to time establish for reasons of administrative convenience. Section 4.04 - Rights as Stockholder             The holder of the Option shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any shares purchasable upon the exercise of any part of the Option unless and until certificates representing such shares shall have been issued by the Company to such holder. Section 4.05 - Number of Shares Exercised             Optionee shall not exercise the Option to purchase fewer than one hundred (100) shares of Option Stock at a time, unless the vested portion is less than 100 shares, in which event the Optionee shall exercise the right to purchase all vested Options at the time of exercise. ARTICLE V TRANSFER AND OTHER RESTRICTIONS Section 5.01 - Rule 144             If the Company shall have filed a registration statement pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or engaged in a Public Offering, the Company will file the reports required to be filed by it under the Act and the Exchange Act and the rules and regulations adopted by the Securities and Exchange Commission ("SEC") thereunder, to the extent required from time to time to enable the Optionee to sell shares of Option Stock without registration under the Act within the limitations of the exemptions provided by (i) Rule 144 under the Act, as such Rule may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the SEC. Notwithstanding anything contained in this Section 5.01, the Company may deregister under Section 12 of the Exchange Act if it is then permitted to do so pursuant to the Exchange Act and the rules and regulations thereunder. Section 5.02 - Rule 144 Sales             If any of the Option Stock is to be disposed of in accordance with Rule 144 under the Act or otherwise, the Optionee shall promptly notify the Company of such intended disposition and shall deliver to the Company at or prior to the time of such disposition such documentation as the Company may reasonably request in connection with such sale and, in the case of a disposition pursuant to Rule 144, shall deliver to the Company an executed copy of any notice on Form 144 required to be filed with the SEC. Section 5.03 - Resales Prohibited During Public Offerings             Optionee agrees that if any shares of the capital stock of the Company are offered to the public pursuant to an effective registration statement under the Act, that upon the written request of the Company, Optionee will not effect any public sale or distribution of any of the Option Stock not covered by such registration statement within a period beginning seven days prior to and ending 120 days after the effective date of such registration statement. ARTICLE VI OTHER PROVISIONS Section 6.01 - Administration             The Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon the Optionee, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement. Section 6.02 - Option Not Transferable             Neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Optionee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy) and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 6.02 shall not prevent transfers by will or by the applicable laws of descent and distribution. Section 6.03 - Shares to Be Reserved             The Company shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement. Section 6.04 - Notices             Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Secretary and any notice to be given to the Optionee shall be addressed to him at the address given on Schedule I hereof. By a notice given pursuant to this Section 6.04, either party may hereafter designate a different address for notices to be given to him. Any notice which is required to be given to the Optionee shall, if the Optionee is then deceased, be given to the Optionee's personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 6.04. Any notice shall have been deemed duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service. Section 6.05 - Titles             Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. Section 6.06 - Binding Effect             The provisions of this Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, legal representatives, successors and assigns. In the case of a transferee permitted under Section 6.02 hereof, such transferee shall be deemed the Optionee hereunder for purposes of obtaining the benefits or enforcing the rights of Optionee hereunder; provided, however, that no transferee shall derive any rights under this Agreement unless and until such transferee has delivered to the Company a valid undertaking and becomes bound by the terms of this Agreement. Section 6.07 - Amendment             except as otherwise stated in this Agreement, this Agreement may be amended only be a written instrument signed by the Parties which specifically states that it is amending this Agreement. Section 6.08 - Applicable Law             The laws of the State of Nevada shall govern the interpretation, validity and performance of the terms of this Agreement, regardless of the law that might be applied under principles of conflicts of law. Section 6.09 -Adjustment of Options             (a) Subject to Section 6.09(c), in the event that the Committee determines that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer, exchange or the disposition of all or substantially all of the assets of the Company (including, but not limited to, a Corporate Transaction), or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event, in the Committee's sole discretion, affects the Common Stock such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits intended to be made available under the Plan or with respect to an Option, then the Committee shall, in such manner as it may deem equitable, adjust any or all of the number and kind of shares of Common Stock subject to this Option, or the grant or exercise price with respect to this Option.             (b) Subject to Section 6.09(c) and to Paragraph 13(a) and Paragraph 15 of the Employment Agreement, in the event of any Corporate Transaction or other transaction or event described in Section 6.09(a) or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate, or of changes in applicable laws, regulations, or accounting principles, the Committee in its discretion may take any one or more of the following actions whenever the Committee determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available with respect to the Option, to facilitate such transactions or events, or to give effect to such changes in laws, regulations or principles: >             (i) In its sole and absolute discretion, and on such terms > and conditions as it deems appropriate, the Committee may provide by > action taken prior to the occurrence of such transaction or event and > either automatically or upon the Optionee's request, for either the > purchase of any Option for an amount of cash equal to the amount that > could have been attained upon the exercise of such Option or realization > of the Optionee's rights had such Option been currently exercisable or > payable or fully vested or the replacement of such Option with other > rights or property selected by the Committee in its sole discretion; >             (ii) In its sole and absolute discretion, the Committee may > provide by action taken prior to the occurrence of such transaction or > event that the Option cannot be exercised after such event; >             (iii) In its sole and absolute discretion, and on such terms > and conditions as it deems appropriate, the Committee may provide, by > action taken prior to the occurrence of such transaction or event, that > for a specified period of time prior to such transaction or event, Option > shall be exercisable as to all shares covered thereby, notwithstanding > anything to the contrary in Section 3.01; >             (iv) In its sole and absolute discretion, and on such terms > and conditions as it deems appropriate, the Committee may provide, by > action taken prior to the occurrence of such transaction or event, that > upon such event, such Option be assumed by the successor or survivor > corporation, or a parent or subsidiary thereof, or shall be substituted > for by similar options, rights or awards covering the stock of the > successor or survivor corporation, or a parent or subsidiary thereof, > with appropriate adjustments in the number and kind of shares and prices; > or >             (v) In its sole and absolute discretion, and on such terms > and conditions as it deems appropriate, the Committee may make > adjustments in the number and type of shares of Common Stock subject to > the Option.             (c) No adjustment or action described in this Section 6.09 or in any other provision of this Agreement shall be authorized to the extent that such adjustment or action would cause the Option to fail to so qualify under Section 162(m), as the case may be, or any successor provisions thereto. Furthermore, no such adjustment or action shall be authorized to the extent such adjustment or action would result in short-swing profits liability under Section 16 of the Exchange Act or violate the exemptive conditions of Rule 16b-3.             (d) The number of shares of Common Stock subject to any Option or the vesting thereof shall always be rounded to the nearest whole number. Section 6.10 - Optionee's Employment by Employer             Nothing contained in this Agreement or in any other agreement (other than the Employment Agreement) entered into by the Company and the Optionee contemporaneously with the execution of this Agreement (i) obligates the Employer to employ Optionee in any capacity whatsoever, or (ii) prohibits or restricts the Employer from terminating the employment of the Optionee at any time or for any reason whatsoever, with or without cause, and the Optionee hereby acknowledges and agrees that neither the Company nor any other person has made any representations or promises whatsoever to the Optionee concerning the Optionee's employment or continued employment by the Employer.             IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto by their signatures on the following Schedule I. -------------------------------------------------------------------------------- SCHEDULE I Name and Address of Optionee:   Steve Odland «Address1»     A. Number of shares subject to Option (Section 2.01):                                                              275,000 B. Purchase Price (Section 2.02):                                                                              $________ C. Date of Grant:                                                                              ____________, 2001 D. Commencement of Exercisability (Section 3.01(a)):             The Options granted under this Agreement shall become exercisable in four (4) cumulative installments as follows:             (i) The first installment shall consist of one-fourth of the shares covered by the Option and shall become exercisable on the first anniversary of the date the Option is granted.             (ii) The second installment shall consist of one-fourth of the shares covered by the Option and shall become exercisable on the second anniversary of the date the Option is granted.             (iii) The third installment shall consist of one-fourth of the shares covered by the Option and shall become exercisable on the third anniversary of the date the Option is granted.             (iv) The fourth installment shall consist of one-fourth of the shares covered by the Option and shall become exercisable on the fourth anniversary of the date the Option is granted.             The Optionee and AutoZone each agree to be bound by all terms and conditions of the Non-Qualified Stock Option Agreement dated ____________, 2001, and this Schedule I to that Agreement. "Optionee"                                                                  AutoZone, Inc.   _____________________________________         By:___________________________ Signature «SSN»                                                                          By:___________________________ Optionee's Taxpayer ID

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.29 Youbet.com, Inc. 5901 DeSoto Avenue Woodland Hills, California 91367 May 9, 2001 Robert M. Fell Fell & Company, Inc. 3453 Padaro Lane Carpinteria, California 93013 Dear Bob:     The Compensation Committee of the Board of Directors on April 12, 2001 and the Board of Directors on May 9, 2001 have approved the following amendments to the Amended and Restated Services Agreement dated as of March 1, 1999 (the "Services Agreement") between Fell & Company, Inc. ("FCI") and Youbet.com, Inc. (the "Company") as set forth below. Capitalized terms used herein without definition shall have the meanings set forth in the Services Agreement. All of the provisions of this letter agreement are subject to the execution of the proposed licensing agreement with ODS Technologies, L.P. and ODS Properties, Inc. and the related agreements under discussion (collectively, the "TVG Agreement"), and none of such provisions will become effective unless the TVG Agreement is so executed. 1.Upon the execution of the TVG Agreement, the Base Fee will be increased by one hundred fifty thousand dollars ($150,000) retroactive to March 8, 2000. 2.After the Company shareholders meeting relating to the authorization of certain warrants in connection with the TVG Agreement, FCI will be permitted to terminate the Services Agreement by giving notice to the Company within 90 days after the date of such shareholders meeting. 3.If FCI terminates the Service Agreement as provided in paragraph 2 hereof, FCI will be entitled to receive a lump sum payment of two times the Base Fee (as increased pursuant to paragraph 1 hereof). Such payment will be payable to FCI within five days after the termination of the Services Agreement. In addition, the Company will continue to provide the benefits described in Section 3 C and D of the Service Agreement for a period of two years following the termination thereof if the Services Agreement is terminated as provided in paragraph 2 hereof. Any unvested stock options held by Robert M. Fell, the Robert M. Fell Living Trust and/or FCI (collectively, "Fell") will also immediately vest in full. 4.Subject to the execution of the TVG Agreement, upon expiration or termination of the Services Agreement, as the case may be, and if Robert M. Fell is not serving as a director of the Company, Mr. Fell agrees to serve as a consultant to the Company through May 9, 2003. Such consulting services shall be at the request of the Company, upon mutually agreeable times, not to exceed ten hours per month, and Mr. Fell shall not receive any additional compensation for such services. In addition, subject to the execution of the TVG Agreement, at the request of the Board of Directors, Mr. Fell agrees to serve as Chairman of the Board of Directors through May 9, 2002. 5.The Company has converted the term life insurance policy on Mr. Fell described in the Services Agreement to a whole life policy. The Company will make all payments required under the policy during the term of the Services Agreement. In addition, if the Services Agreement is terminated as provided in paragraph 2 hereof, the Company will continue to pay all premiums required to be paid thereunder for two years following the termination of the Services Agreement. -------------------------------------------------------------------------------- 6.Upon the execution of the TVG Agreement, the Company will amend the exercise price of seven hundred and fifty thousand (750,000) Company warrants, previously issued to Fell, to the market price as of April 12, 2001, determined by calculating the average closing price of the underlying stock for the ten (10) trading days prior to such date. 7.Additionally, upon the execution of the TVG Agreement, the Company will amend the respective exercise prices of any remaining Company warrants and options, previously issued to Fell, to the current market price at that time, determined by calculating the average closing price of the underlying stock for the ten (10) trading days subsequent to the date the TVG Agreement is publicly announced.     The Company will cooperate with FCI to minimize the tax consequences arising from the foregoing amendments.     Except as amended hereby, the Services Agreement will remain in full force and effect. Please evidence your approval with the foregoing amendments by executing a copy of this letter and returning it to the undersigned.     Very truly yours,     -------------------------------------------------------------------------------- Caesar P. Kimmel Agreed and Accepted:     Fell & Company, Inc.     -------------------------------------------------------------------------------- Robert M. Fell Youbet.com, Inc. 5901 DeSoto Avenue Woodland Hills, California 91367     -------------------------------------------------------------------------------- Youbet.com, Inc. 5901 DeSoto Avenue Woodland Hills, California 91367 As of June 29, 2001 Robert M. Fell Fell & Company, Inc. 3453 Padaro Lane Carpinteria, California 93013 Dear Bob:     This letter is made with reference to that certain letter agreement (the "May 9 Letter") dated May 9, 2001, by and between Fell & Company, Inc. ("FCI") and Youbet.com, Inc. (the "Company"), with respect to amendments to the Amended and Restated Services Agreement dated as of March 1, 1999 (the "Services Agreement") between FCI and the Company. Capitalized terms used herein without definition shall have the meanings set forth in the May 9 Letter. The May 9 Letter is amended as follows: 8.Numbered paragraph 2 of the May 9 Letter is amended to read in its entirety as follows: "After the Company shareholders meeting relating to the authorization of certain warrants in connection with the TVG Agreement, FCI will be permitted to terminate the Services Agreement by giving notice to the Company within one year after the date of such shareholders meeting." 9.Numbered paragraphs 6 and 7 are deleted in their entirety and replaced with the following paragraph: "The Company will amend the exercise price of the one million two hundred thousand (1,200,000) Company warrants and three hundred thousand Company options, previously issued to Fell, to provide for an exercise price of $1.09 per share, the closing price of the underlying stock on the Nasdaq National Market on June 29, 2001."     Except as amended by this letter, the May 9 Letter and the Services Agreement will remain in full force and effect. Please evidence your approval with the foregoing amendments by executing a copy of this letter and returning it to the undersigned.     Very truly yours,     -------------------------------------------------------------------------------- Caesar P. Kimmel Agreed and Accepted:     Fell & Company, Inc.     -------------------------------------------------------------------------------- Robert M. Fell     -------------------------------------------------------------------------------- QuickLinks EXHIBIT 10.29

Exhibit C Marvin I. Weinberger and Fran Solow Weinberger

EMPLOYMENT AGREEMENT           EMPLOYMENT AGREEMENT dated as of June 20, 2000 by and between ALLIANCE CAPITAL MANAGEMENT L.P., a Delaware limited partnership (the “Partnership”), and LEWIS A. SANDERS (the “Employee”).           WHEREAS, Sanford C. Bernstein Inc. (“Bernstein”) and the Partnership have entered into that certain Acquisition Agreement as of the date hereof (the “Acquisition Agreement”);           WHEREAS, the Partnership wishes to assure itself of the services of the Employee for the period provided in this Agreement upon the Closing Date, as defined in the Acquisition Agreement (the “Closing Date”); and           WHEREAS, the Employee is willing to serve in the employ of the Partnership for such period upon the terms and conditions hereinafter provided;           NOW THEREFORE, in consideration of the mutual promises and agreements set forth below, the Partnership and the Employee agree as follows:           1.       Effectiveness and Employment. This Agreement shall be effective as of the Closing Date and the Partnership shall employ the Employee, and the Employee shall be employed by the Partnership, subject to the terms and conditions of this Agreement.           2.       Term. The employment of the Employee hereunder shall, except as otherwise provided in Section 5 hereof, continue through the third anniversary of the Closing Date, as defined in the Acquisition Agreement (the “Employment Term”).           3.       Duties.           (a)      The Employee shall devote substantially all of his business time, effort and energies to the business of the Partnership; provided, however, that it shall not be a violation of this Agreement for the Employee to (i) serve, with prior approval of the Board (as defined below), on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach on a limited basis at educational institutions and (iii) manage the Employee’s personal investments, so long as such activities described in clauses (i), (ii) and (iii) do not significantly interfere with the performance of the Employee’s responsibilities as an employee of the Partnership in accordance with this Agreement.  It is expressly understood and agreed that to the extent that any such activities, including serving as an officer or director of Bernstein, have been conducted by the Employee (and disclosed to the Partnership) prior to the Closing Date, the continued conduct of such activities subsequent to the Closing Date shall not thereafter be deemed to interfere with the performance of the Employee’s responsibilities to the Partnership.           (b)      The Employee shall be employed by the Partnership as Chief Investment Officer, with the appropriate authority, duties and responsibilities attendant to such position.  During the Employment Term, the Employee shall report to the Chief Executive Officer of the Partnership.  The Partnership shall use its best efforts to cause the Employee to be nominated for election to the Board of Directors (the “Board”) of Alliance Capital Management Corporation (“ACMC”), the general partner of the Partnership, during the Employment Term, and to cause the Employee to be appointed to the position of Vice Chairman of the Board for the period of his service on the Board during the Employment Term.  Pursuant to Section 6.03 of the Acquisition Agreement, the Employee shall also be appointed to the Executive Committee and the Bernstein Committee (each, as defined in the Acquisition Agreement).           4.       Compensation and Benefits.           (a)      Base Salary. During the Employment Term, the Partnership shall pay the Employee a base salary at the annual rate of not less than $1,000,000 per year (the “Base Salary”), payable in substantially equal biweekly installments or otherwise in accordance with the Partnership’s payroll practices as in effect from time to time.  The Employee shall be entitled to such increases in his Base Salary as may be determined from time to time by the SCB Committee, as defined in the Acquisition Agreement (the “Bernstein Committee”), subject to the aggregate limitation set forth in Section 9.05(a) of the Acquisition Agreement.  Base Salary shall not be reduced after any such increase and the term Base Salary as utilized in this Agreement shall refer to Base Salary as so increased.           (b)      Deferred Compensation. In addition to his Base Salary, during the Employment Term, the Employee shall participate in the Deferred Compensation Plan specified in Section 9.03 of the Acquisition Agreement (the “Deferred Compensation Plan”) and shall receive a minimum annual Award (as defined in the Plan) of $5,333,000 (the “Minimum Award”).           (c)      Expense Reimbursement. The Partnership shall promptly reimburse the Employee for the ordinary and necessary business expenses incurred by him in the performance of his duties hereunder in accordance with the Partnership’s usual policy.           (d)      Other Benefit Plans.  The Employee shall be eligible to participate in employee benefit plans maintained by the Partnership during the Employment Term in accordance with the terms set forth under Section 9.04 of the Acquisition Agreement.           5.       Termination of Employment.           (a)      Compensation and Benefits.  Except as explicitly provided below in this Section 5, upon termination of the Employee’s employment hereunder during the Employment Term, his right to Base Salary and future awards under the Deferred Compensation Plan (and Employee’s right to unvested awards under the Deferred Compensation Plan) shall terminate, except that the Employee shall be entitled to receive the pro rata portion of his Base Salary for services rendered to the date of termination.  The benefits to which the Employee may be entitled pursuant to the plans, policies and arrangements referred to in Section 4(d) hereof shall be determined upon such termination in accordance with the terms of such plans, policies and arrangements.           (b)      Death and Disability.  The Employee’s employment hereunder shall terminate upon his death during the Employment Term, and may be terminated by the Partnership by written notice to the Employee upon the determination by the Board in good faith that he is physically or mentally incapacitated during the Employment Term and has been unable for a period of six consecutive months to perform the duties for which he was responsible immediately before the onset of his incapacity (“disability”).  In order to assist the Board in making such a determination, the Employee shall, as reasonably requested by the Board, (i) make himself available for medical examinations by one or more physicians chosen by the Board and approved by the Employee, whose approval shall not unreasonably be withheld, and (ii) grant the Board and any such physicians access to all relevant medical information concerning him , arrange to furnish copies of medical records to them and use his best efforts to cause his own physicians to be available to discuss his health with them.  In the event of a termination of employment under this Section 5(b), the Employee shall immediately vest on the date of any such termination in the full amount of all awards previously granted and outstanding under the Deferred Compensation Plan, and such benefits shall be payable in accordance with the terms of such plan.           (c)      Termination by the Partnership for Cause.  During the Employment Term, the Employee’s employment hereunder may be terminated by the Partnership for Cause.  For purposes of this Agreement, the term “Cause” shall mean (i) the Employee’s continuing willful failure to perform his duties hereunder (other than as a result of total or partial incapacity due to physical or mental illness), following at least 30 days’ written notice to the Employee of such failure and an opportunity to cure, (ii) gross negligence or malfeasance in the performance of the Employee’s duties hereunder, (iii) the Employee’s engaging in any conduct which (A) constitutes an employment disqualification under applicable law (including the Securities Exchange Act of 1934) or a felony under the laws of the United States or any state thereof which is materially and demonstrably injurious to the business or the reputation of the Partnership, or (B) a violation of federal or state securities law by reason of which finding of violation described in this clause (B) the Board determines in good faith that the continued employment of the Employee by the Partnership would be seriously detrimental to the Partnership and its business, reputation, character or standing, (iv) in the absence of a finding by a court or other governmental body with proper jurisdiction that a felony or employment disqualification described in (iii)(A) or a violation described in (iii)(B) has occurred, a determination in good faith by the Board that an act or acts by the Employee constitutes a felony or employment disqualification or violation, or (v) breach of the provisions of Section 6(a), Section 6(b) or Section 6(c) hereof.  The benefits to which the Employee may be entitled pursuant to the plans, policies and arrangements referred to in Section 4(d) hereof shall be determined upon such termination in accordance with the terms of such plans, policies and arrangements.           For purposes of this Section 5(c), no act or failure to act, on the part of the Employee, shall be considered “willful” unless it is done, or omitted to be done, by the Employee in bad faith or without reasonable belief that the Employee’s action or omission was in the best interests of the Partnership.  Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or based upon the advice of counsel for the Partnership shall be conclusively presumed to be done, or omitted to be done, by the Employee in good faith and in the best interests of the Partnership.  The cessation of employment of the Employee shall not be deemed to be for Cause unless and until there shall have been delivered to the Employee a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board (excluding the Employee, if applicable) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Employee and the Employee is given an opportunity, together with counsel, to be heard before the Board) specifying the particulars of the conduct described above.           (d)      Termination by the Partnership without Cause.  The Employee’s employment hereunder may be terminated by the Partnership (i) other than for Cause or (ii) as provided in Section 5(b) hereof, but in the event that the Employee’s employment is terminated in accordance with the foregoing clause (i) of this Section 5(d) during the Employment Term, and notwithstanding any other provision of this Agreement to the contrary, the Employee shall nevertheless receive (A) the Base Salary which would otherwise have been payable to him pursuant to Section 4(a) for the Employment Term, payable in accordance with ordinary payroll practices, to the extent not previously paid, (B) a cash payment equal to the Minimum Award for each annual period of the Employment Term, to the extent such Minimum Award has not previously been made for such annual period, payable as of the first date that awards are made under the Deferred Compensation Plan for each such annual period, (C) full vesting and distribution of all Awards, if any, previously made to the Employee under the Deferred Compensation Plan, and (D) any benefits to which the Employee may be entitled in accordance with the terms of the plans, policies and arrangements referred to in Section 4(d) hereof upon or by reason of such termination (but otherwise benefits and other entitlements under such plans, policies and arrangements shall cease upon such termination).  To the extent that Employee is eligible to receive severance benefits under any other severance plan, policy or arrangement, such severance benefits shall be reduced by the sum of the amount paid to the Employee under clauses (A) and (B) above.           (e)      Termination by the Employee.  In addition to such other rights as the Employee may have in connection with a breach of this Agreement by the Partnership, the Employee may, during the Employment Term, terminate his employment hereunder for Good Reason.  For purposes of this Agreement, “Good Reason” shall mean in the absence of a written consent of the Employee:         (A)     the assignment to the Employee of any duties inconsistent with the Employee’s title and position (including status, offices and reporting requirements), authority, duties or responsibilities as contemplated by Section 3 of this Agreement, or any other action by the Partnership which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated and insubstantial action not taken in bad faith and which is remedied by the Partnership within 45 days after receipt of notice thereof given by the Employee;         (B)     any failure by the Partnership to comply with any of the provisions of Section 4 of this Agreement, other than an isolated and insubstantial failure not occurring in bad faith and which is remedied by the Partnership within 45 days after receipt of notice thereof given by the Employee; or         (C)     (i) any failure of the Employee to be elected to the Board, or (ii) removal of the Employee from the Board by the Partnership without Cause. Upon a termination by the Employee for Good Reason during the Employment Term, the Employee shall receive the payments and benefits he would have received on a termination by the Partnership without Cause as set forth in Section 5(d).           (f)       Certain Payments.  The Partnership shall pay to the Employee an amount which, on an after-tax basis (including federal income and excise taxes, and state and local income taxes) equals the excise tax, if any, imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), upon the Employee by reason of “payments” (as defined in Section 280G of the Code) to the Employee by the Partnership or its affiliates during the Employment Term (other than any such payments arising by reason of the transactions described in the Acquisition Agreement).  For purposes of this Section 5(f), the Employee shall be deemed to pay federal, state and local income taxes at the highest marginal rate of taxation for the calendar year in which the gross-up payment is to be made, taking into account the maximum reduction in federal income taxes which could be obtained from deduction of state and local income taxes.  Notwithstanding any other provision of this Agreement to the contrary, the provisions of this Section 5(f) shall survive beyond the end of the Employment Term.           6.       Covenants.           (a)      Confidentiality. The Employee acknowledges that he has acquired and will acquire confidential information respecting the business of the Partnership.  Accordingly, the Employee agrees that he will not willfully disclose, at any time (during the Employment Term or thereafter), any such confidential information to any unauthorized third party without the written consent of the Partnership as authorized by the Board, except as required to respond to a subpoena or other legal proceeding and except to consult with legal or other advisors, provided that such advisors agree to be bound by the provisions of this Section 6(a); provided, that in the event the Employee is requested pursuant a subpoena or other legal proceeding to disclose any such confidential information, the Employee shall promptly notify the Partnership of such request and shall fully cooperate with the Partnership in any attempt to contest such request.  For this purpose, information shall be considered confidential only if such information is proprietary to the Partnership and has not been made publicly available prior to its disclosure by the Employee.           (b)      Non-Competition. Through the third anniversary of the Closing Date or, in the event of a termination of employment by the Partnership without Cause or by the Employee for Good Reason, through the date of such termination, the Employee shall not, without the consent of the Board, directly or indirectly, knowingly engage or be interested in (whether as an owner, partner, shareholder, employee, director, officer, agent, consultant or otherwise), with or without compensation, any business that is in direct or indirect competition with any active or planned business conducted by the Partnership, any successor to the Partnership’s business, or any of their affiliates or subsidiaries and in which the Employee participated while he was employed by the Partnership, any successor to the Partnership’s business or any of their affiliates or subsidiaries prior to the date hereof or during the Employment Term.  Nothing in this Section 6(b) shall prohibit the Employee from acquiring or holding, directly or indirectly, any units in the Partnership or not more than five percent of any class of publicly traded securities of any business.           (c)      Non-Solicitation of  Employees. Through the third anniversary of the Closing Date or, in the event of a termination of employment by the Partnership without Cause or by the Employee for Good Reason, through the date of such termination, the Employee shall not directly or indirectly (i) solicit or induce, or cause others to solicit or induce any employees of the Partnership, Alliance Capital Management Holding L.P., or any of their subsidiaries (“Partnership Employees”) to leave or in any way modify their relationship with the Partnership (except as such actions relate to carrying out the Employee’s duties as contemplated under Section 3 hereof), (ii) hire or cause others to hire any of the Partnership Employees or (iii) encourage or assist in the hiring process of any Partnership Employee or in the modification of any such employee’s relationship with the Partnership, or cause others to participate, encourage or assist in the hiring process of any Partnership Employee.           (d)      Non-Solicitation of Clients. Notwithstanding anything to the contrary in Section 6(b) hereof, Section 6(b) shall not be applicable with respect to the Employee if his employment hereunder is terminated by the Partnership other than for Cause or by the Employee for Good Reason, provided that, through the earlier of the third anniversary of the Closing Date and the end of the one year period beginning on the date as of which his employment was so terminated, the Employee shall not, without the consent of the Board, directly or indirectly, in any capacity, with or without compensation, knowingly solicit, represent, or accept business on behalf of himself or any other person or entity from, (i) any clients or accounts as to whom the Employee had any direct involvement in the performance of any investment management or investment advisory services while he was employed by the Partnership, any successor to the Partnership’s business or any of their affiliates or subsidiaries (during the Employment Term or prior thereto), or (ii) any prospective clients or accounts as to whom the Employee, while so employed, directly participated in the solicitation, or was specifically identified to such prospective clients or accounts as a person who might have direct involvement in the performance, of investment management or investment advisory services proposed to be performed by the Partnership, any successor to the Partnership’s business or any of their affiliates or subsidiaries.  For purposes of this Section 6(d), “prospective clients or accounts” shall be deemed to mean clients or accounts specifically identified in the Partnership’s records as such and which have been contacted with a view to becoming clients or accounts of the Partnership either in person or by individualized mail.           (e)      Remedy for Breach and Modification. The Employee acknowledges that the provisions of this Section 6 are reasonable and necessary for the protection of the Partnership and that the Partnership will be irrevocably damaged if such covenants are not specifically enforced.  Accordingly, the Employee agrees that, in addition to any other relief or remedies available to the Partnership, the Partnership shall be entitled to seek and obtain an appropriate injunction or other equitable remedy from a court with proper jurisdiction for the purposes of restraining the Employee from any actual or threatened breach of such covenants, and no bond or security will be required in connection therewith.  If any provision of this Section 6 is deemed invalid or unenforceable, such provision shall be deemed modified and limited to the extent necessary to make it valid and enforceable.           7.       Indemnification. For the period beginning with the date that the Employee becomes employed by the Partnership, he is hereby designated an “Indemnified Person” within the meaning of Section 6.09 of the Agreement of Limited Partnership of the Partnership as in effect on such date, and such designation shall remain in effect through the latest of the end of the Employment Term, termination of the Employee’s employment for any reason, or the running of the relevant statute of limitations; provided, that nothing herein shall require indemnification for any conduct occurring after termination of the Employee’s employment.           8.       Miscellaneous.           (a)      Effectiveness.  In the event that the transactions contemplated by the Acquisition Agreement are not consummated, this Agreement shall have no further force and effect.           (b)      Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to agreements made and to be performed in that State.           (c)      Notice. Any notice, consent, request or other communication made or given in connection with this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by registered or certified mail, return receipt requested, to those listed below at their following respective addresses or at such other address as each may specify by notice to the others:           To the Employee:                        At the address for the Employee set forth below           To the Partnership:                      Alliance Capital Management Corporation                     1345 Avenue of the Americas                     New York, New York  10105                     Attention: David Brewer                     Senior Vice President and Secretary           (d)      Entire Agreement; Amendment. Except with respect to deferred compensation arrangements between the Employee and the Partnership or any of its affiliates or subsidiaries and except as otherwise provided in employee benefit plans and arrangements maintained by the Partnership or any of its affiliates or subsidiaries in which the Employee participates, this Agreement shall supersede any and all existing agreements (other than the Acquisition Agreement) between the Employee and the Partnership or any of its affiliates or subsidiaries relating to the terms of the Employee’s employment during the Employment Term.  It may not be amended except by a written agreement signed by both parties.           (e)      Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver thereof or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.           (f)       Assignment. Except as otherwise provided in this paragraph, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, representatives, successors and assigns.  This Agreement shall not be assignable by the Employee, and shall be assignable by the Partnership only to any corporation or other entity resulting from the reorganization, merger or consolidation of the Partnership with any other corporation or entity or any corporation or entity to or with which the Partnership’s business or substantially all of its business or assets may be sold, exchanged or transferred, and it must be so assigned by the Partnership to, and accepted as binding upon it by, such other corporation or entity in connection with any such reorganization, merger, consolidation, sale, exchange or transfer (the provisions of this sentence also being applicable to any successive such transaction).  If the Partnership is converted into a corporation, all references herein to the “Board” shall be deemed to refer to the Board of Directors of the corporation and all references herein to the “Partnership” shall be deemed to refer to the corporation, unless the context otherwise requires.  Upon such assignment, the corporation shall become solely liable for all obligations of the Partnership to the Employee hereunder for any period on and after the effective date of such conversion.           (g)      Withholding. The Partnership shall have the right to deduct from all amounts paid to the Employee any taxes required by law to be withheld in respect of payments pursuant to this Agreement.           (h)      Headings. Section headings are used herein for convenience of reference only and shall not affect the meaning of any provision of this Agreement.             (i)       Rules of Construction. Whenever the context so requires, the use of the masculine gender shall be deemed to include the feminine and vice versa, and the use of the singular shall be deemed to include the plural and vice versa.           (j)       Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.           IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.   ALLIANCE CAPITAL MANAGEMENT L.P.       By: ALLIANCE CAPITAL MANAGEMENT CORPORATION, its General Partner       By: /s/ Bruce W. Calvert --------------------------------------------------------------------------------         Name: Bruce W. Calvert --------------------------------------------------------------------------------         Title: Vice Chairman and Chief Executive Officer --------------------------------------------------------------------------------               LEWIS A. SANDERS       /s/ Lewis A. Sanders --------------------------------------------------------------------------------       Address: 4 East 66th St. --------------------------------------------------------------------------------         New York, NY 10021 --------------------------------------------------------------------------------                       --------------------------------------------------------------------------------

QuickLinks -- Click here to rapidly navigate through this document AMENDMENT NUMBER ONE TO AMENDED AND RESTATED CREDIT AGREEMENT     THIS AMENDMENT NUMBER ONE TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment") is made as of February 28, 2001, by and among BANK OF AMERICA, N.A., a national banking association, U.S. BANK NATIONAL ASSOCIATION, a national banking association, KEYBANK NATIONAL ASSOCIATION, a national banking association (the "Lenders"), BANK OF AMERICA, N.A., as agent for the Lenders (the "Agent"); and FLOW INTERNATIONAL CORPORATION, a Washington corporation ("Borrower"). RECITALS     A. Lenders, Agent and Borrower are parties to that certain Amended and Restated Credit Agreement dated as of December 29, 2001 (the "Credit Agreement").     B. Borrower has requested that Lenders and Agent amend a certain financial covenant under the Credit Agreement for the fiscal quarter ending January 31, 2001, pursuant to the terms and subject to the conditions set forth herein.     NOW, THEREFORE, the parties hereto agree as follows: AGREEMENT     1.  Definitions. Capitalized terms not otherwise defined in this Amendment shall have the meaning set forth in the Credit Agreement.     2.  Amendment to Section 6.17(c). Section 6.17(c) is hereby deleted and replaced with the following:     (c) 3.90 to 1 as at the fiscal quarter ending January 31, 2001;     3.  Conditions to Effectiveness. This Amendment shall become effective when Borrower, Agent and each Lender have executed and delivered counterparts hereof to Agent.     4.  Representations and Warranties. Borrower hereby represents and warrants to the Lenders and Agent that each of the representations and warranties set forth in Article 5 of the Credit Agreement is true and correct in each case as if made on and as of the date of this Amendment and Borrower expressly agrees that it shall be an additional Event of Default under the Credit Agreement if any representation or warranty made hereunder shall prove to have been incorrect in any material respect when made.     5.  No Further Amendment. Except as expressly modified by the terms of this Amendment, all of the terms and conditions of the Credit Agreement and the other Loan Documents shall remain in full force and effect and the parties hereto expressly reaffirm and ratify their respective obligations thereunder.     6.  Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Washington.     7.  Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same agreement. 1 --------------------------------------------------------------------------------     8.  Oral Agreements Not Enforceable. 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.     IN WITNESS WHEREOF, the parties hereto have executed this Amendment Number One to Amended and Restated Credit Agreement as of the date first above written. BORROWER:   FLOW INTERNATIONAL CORPORATION               By:             -------------------------------------------------------------------------------- Name Stephen D. Reichenbach Title:  Chief Financial Officer           LENDERS:   BANK OF AMERICA, N.A.               By:             -------------------------------------------------------------------------------- Name: William P. Stivers Title:  Senior Vice President               U.S. BANK NATIONAL ASSOCIATION               By:             -------------------------------------------------------------------------------- Name: Allan Forney Title:   Vice President               KEYBANK NATIONAL ASSOCIATION               By             -------------------------------------------------------------------------------- Name: Jason R. Gill Title:  Vice President           AGENT:   BANK OF AMERICA, N.A.               By:             -------------------------------------------------------------------------------- Name: Ken Puro Title:  Vice President 2 -------------------------------------------------------------------------------- QuickLinks AMENDMENT NUMBER ONE TO AMENDED AND RESTATED CREDIT AGREEMENT RECITALS AGREEMENT

          WPS RESOURCES CORPORATION DEFERRED COMPENSATION PLAN As Amended and Restated Effective January 1, 2001       WPS RESOURCES CORPORATION DEFERRED COMPENSATION PLAN     The WPS Resources Corporation Deferred Compensation Plan (the "Plan") has been adopted to promote the best interests of WPS Resources Corporation (the "Company") and the stockholders of the Company by attracting and retaining key management employees possessing a strong interest in the successful operation of the Company and its subsidiaries or affiliates and encouraging their continued loyalty, service and counsel to the Company and its subsidiaries or affiliates. The Plan is amended and restated effective January 1, 2001 as set forth herein.     Except as expressly provided herein, the Plan, as herein amended and restated effective January 1, 2001, applies to those employees who are actively employed by the Company on January 1, 2001, and who have been designated for participation by the Committee. Except as expressly provided herein, distribution of benefits to an employee who retired from or terminated employment with the Company prior to January 1, 2001, shall be governed by the terms of the Plan as in effect on the date of the employee's retirement or termination of employment.     The Plan, as hereby amended and restated, is subject to shareholder approval at the 2001 annual meeting of shareholders of the Company. In the event that shareholder approval is not obtained, the Plan as hereby amended and restated will be null and void, and the Plan as in effect on December 31, 2000 shall continue.   ARTICLE I. DEFINITIONS AND CONSTRUCTION      Section 1.01. Definitions.     The following terms have the meanings indicated below unless the context in which the term is used clearly indicates otherwise:     (a) Account: The record keeping account or accounts maintained to record the interest of each Participant under the Plan. An Account is established for record keeping purposes only and not to reflect the physical segregation of assets on the Participant's behalf, and may consist of such subaccounts or balances as the Committee may determine to be necessary or appropriate.     (b) Act: The Securities Act of 1933, as interpreted by regulations and rules issued pursuant thereto, all as amended and in effect from time to time. Any reference to a specific provision of the Act shall be deemed to include reference to any successor provision thereto.     (c) Annual Bonus Deferral: See Section 1.01(l)(ii).     (d) Available Investment Option: See Section 5.01(a).     (e) Base Compensation: The base salary or wage payable by a Participating Employer for services performed prior to reduction for contributions by the Participant to this Plan or pre-tax or after-tax contributions by the Participant to any other employee benefit plan maintained by a Participating Employer, but exclusive of extraordinary payments such as overtime, bonuses, meal allowances, reimbursed expenses, termination pay, moving pay, commuting expenses, severance pay, non-elective deferred compensation payments or accruals, stock options, the value of employer-provided fringe benefits or coverage, all as determined in accordance with such uniform rules, regulations or standards as may be prescribed by the Committee.     (f) Base Compensation Deferral: See Section 1.01(l)(i).     (g) Beneficiary: The person or entity designated by a Participant to be his beneficiary for purposes of this Plan. If a Participant designates his spouse as a beneficiary, such beneficiary designation automatically shall become null and void on the date of the Participant's divorce or legal separation from such spouse. If a valid designation of Beneficiary is not in effect at time of the Participant's death, the estate of the Participant is deemed to be the sole Beneficiary. If a Beneficiary dies while entitled to receive distributions from the Plan, any remaining payments shall be paid to the estate of the Beneficiary. Beneficiary designations shall be in writing, filed with the Committee, and in such form as the Committee may prescribe for this purpose.     (h) Board: The Board of Directors of the Company.     (i) Code: The Internal Revenue Code of 1986, as interpreted by regulations and rulings issued pursuant thereto, all as amended and in effect from time to time. Any reference to a specific provision of the Code shall be deemed to include reference to any successor provision thereto.     (j) Committee: The Compensation and Nominating Committee of the Board.     (k) Company: WPS Resources Corporation, or any successor corporation.     (l) Deferral: An amount credited, in accordance with a Participant's election, to the Participant's Account under the Plan in lieu of the current payment of an equal amount of cash compensation to the Participant. > (i) Base Compensation Deferral: A Deferral of a portion of a Participant's > Base Compensation in accordance with Section 2.01. > > (ii) Annual Bonus Deferral: A Deferral of all or a portion of a Participant's > annual bonus award in accordance with Section 2.02. > > (iii) LTIP Deferral: A Deferral of all or a portion of a Participant's > performance share award under the WPS Resources Corporation 2001 Omnibus > Incentive Compensation Plan, in accordance with Section 2.03.     (m) ERISA: The Employee Retirement Income Security Act of 1974, as interpreted by regulations and rulings issued pursuant thereto, all as amended and in effect from time to time. Any reference to a specific provision of ERISA shall be deemed to include reference to any successor provision thereto.     (n) Exchange Act: The Securities Exchange Act of 1934, as interpreted by regulations and rules issued pursuant thereto, all as amended and in effect from time to time. Any reference to a specific provision of the Exchange Act shall be deemed to include reference to any successor provision thereto.     (o) Investment Options: The hypothetical investment accounts described in Article IV and such other investment options as the Committee may from time to time determine (which may, but need not, be based upon one or more of the investment options available under the Wisconsin Public Service Corporation Administrative Employees Savings Plan).     (p) Investment Period: See Section 5.01(e).     (q) LTIP Deferral: See Section 1.01(l)(iii).     (r) Participant: Subject to Section 2.02, a common law employee of a Participating Employer who has been designated by the Committee as being eligible to participate in this Plan and, where the context so requires, a former employee entitled to receive a benefit hereunder.     (s) Participating Employer: The Company and any direct or indirect subsidiary of the Company that, with the consent of the Committee, participates in the Plan for the benefit of one or more Participants.     (t) Stock Unit Accounts: The Incentive Stock Unit Account described in Section 4.03 and the Base Stock Unit Account described in Section 4.04.     (u) Trust: The WPS Resources Corporation Deferred Compensation Trust or other funding vehicle which may from time to time be established, as amended and in effect from time to time.     (v) WPS Resources Stock: The common stock, $1.00 par value, of the Company.     (w) WPS Resources Stock Units: The hypothetical shares of WPS Resources Stock that are credited to the Stock Unit Accounts in accordance with Sections 4.03 and 4.04.      Section 1.02. Construction and Applicable Law.     (a) Wherever any words are used in the masculine, they shall be construed as though they were used in the feminine in all cases where they would so apply; and wherever any words are use in the singular or the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. Titles of articles and sections are for general information only, and the Plan is not to be construed by reference to such items.     (b) This Plan is intended to be a plan of deferred compensation maintained for a select group of management or highly compensated employees as that term is used in ERISA, and shall be interpreted so as to comply with the applicable requirements thereof. In all other respects, the Plan is to be construed and its validity determined according to the laws of the State of Wisconsin to the extent such laws are not preempted by federal law. In case any provision of the Plan is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Plan, but the Plan shall, to the extent possible, be construed and enforced as if the illegal or invalid provision had never been inserted.   ARTICLE II. PARTICIPATION      Section 2.01. Eligibility.     A Participant shall be eligible to participate in the Plan only if the Participant is employed by a Participating Employer and if the Participant has been designated for participation by the Committee.      Section 2.02. Certain Transfers of Employment.     If directed by the Committee, a Participant whose employment is transferred to a corporation or other entity (the "Transferee Employer") that is not a Participating Employer, but in which the Company or an affiliate of the Company holds an ownership interest, then until the earliest to occur of (a) the date on which the Participant ceases to be employed by such Transferee Employer, (b) the date on which the Company or an affiliate of the Company no longer holds an ownership interest in the Transferee Employer, or (c) such other date determined by the Committee, the Participant shall be treated as if he or she were still actively employed by a Participating Employer. The foregoing rule shall apply only for the purpose of determining whether the Participant has terminated employment for purposes of the distribution provisions of Article VI; it shall not apply, and the Participant shall not be entitled to make additional Deferrals, with respect to remuneration attributable to services rendered with the Transferee Employer. The Committee may promulgate such additional rules as may be necessary or desirable in connection with any such transfer of employment.   ARTICLE III. DEFERRALS OF COMPENSATION      Section 3.01. Deferrals Of Base Compensation.     (a) Initial Deferral Election. A Participant may elect, in such form and manner as the Committee may prescribe, to defer payment of a portion of the Base Compensation that would otherwise be paid to the Participant. A Participant's election shall specify the percentage (in increments of 1% to a maximum of 75% or such lesser amount or percentage as may be established by the Committee) of the Participant's Base Compensation that the Participant wishes to defer. A validly executed election shall become effective with respect to Base Compensation earned by the Participant in the first payroll period that commences on or after the date on which the Participant's deferral election is received and accepted by the Committee, or as soon thereafter as practicable. A Participant's deferral election, once effective, shall remain in effect until modified by the Participant in accordance with subsection (b) below or otherwise revoked in accordance with Plan rules.     (b) Revised Deferral Election. A Participant may modify his then current deferral election by filing a revised election form, properly completed and signed, with the Committee. A validly executed revised election will be effective with respect to Base Compensation earned by the Participant with the first payroll period commencing on or after the date on which the Participant's revised deferral election is received and accepted by the Committee, or as soon thereafter as practicable. A Participant's revised deferral election, once effective, shall remain in effect until again modified by the Participant under this subsection (b) or otherwise revoked in accordance with Plan rules.      Section 3.02. Deferrals of Annual Bonus Awards.     (a) Election of Bonus Deferrals. A Participant may irrevocably elect, in such form and manner as the Committee may prescribe, to defer payment of a portion of the annual cash bonus that is awarded and that would otherwise be paid to the Participant with respect to any year. A Participant's election shall specify the percentage (in increments of 1% to a maximum of 100% or such lesser amount or percentage as may be established by the Committee) of the Participant's annual cash bonus that the Participant wishes to defer. A validly executed election shall become effective with respect to the annual bonus that may be awarded to the Participant with respect to a calendar year if the Participant's deferral election is received and accepted by the Committee on or before April 1 of that calendar year or within such other period as the Committee may establish; provided that the Participant's deferral election with respect to the 2001 annual bonus (that would otherwise be paid in 2002) may be submitted within 45 days following the date on which shareholders of the Company approve the Plan at the Company's 2001 annual meeting, or within such other period as the Committee may establish. A Participant's election to defer an annual bonus award shall be effective only for the year to which the election relates, and shall not carry over from year to year.      Section 3.03. Deferral of LTIP Performance Share Awards.     A Participant may irrevocably elect, in such form and manner as the Committee may prescribe, to defer payment of a portion of any performance shares awarded to the Participant under the WPS Resources Corporation 2001 Onmibus Incentive Compensation Plan. A Participant's election shall specify the whole number of performance shares (up to 100% of such shares or such lesser number or percentage as may be established by the Committee) of the Participant's award that the Participant wishes to defer. A validly executed election shall become effective with respect to performance shares to be earned by the Participant with respect to any performance period under the WPS Resources Corporation 2001 Omnibus Incentive Compensation Plan if the Participant's deferral election is received and accepted by the Committee on or before April 1 of the calendar year in which the performance period begins, or within such other period as the Committee may establish; provided that the Participant's deferral election with respect to the performance period that begins in 2001 may be submitted within 45 days following the date on which shareholders of the Company approve the Plan at the Company's 2001 annual meeting, or within such other period as the Committee may establish. A Participant's election to defer a performance share award shall be effective only for the performance period to which the election relates, and a Participant's election does not carry over from performance period to performance period. A Participant's LTIP Deferral will be automatically credited to the Participant's Incentive Stock Unit Account.      Section 3.04. Matching Contribution Credits.     (a) Allocation of Credits. A Participant who is a participant in the Wisconsin Public Service Corporation Administrative Employees' Savings Plan ("Savings Plan") and who makes Base Compensation Deferrals and/or Annual Bonus Deferrals under this Plan shall be entitled to a matching contribution credit, determined as of December 31 of each year, equal to the difference (if any) between: > (i) The value of the matching contribution that the Participant would have > received under the Savings Plan, if Base Compensation Deferrals and Annual > Bonus Deferrals made by the Participant under this Plan were instead treated > as "compensation" under the Savings Plan for purposes of applying the > Participant's deferral election under the Savings Plan; provided that all > limits and restrictions otherwise imposed under the Savings Plan, including > the maximum compensation limit under Section 401(a)(17) of the Code, shall > continue to apply; and > > (ii) The value of the matching contribution actually received by the > Participant for that year under the Savings Plan.     (b) Investment of Credits. A Participant's matching contribution credit will be automatically credited to the Participant's Incentive Stock Unit Account.      Section 3.05. Involuntary Termination of Deferral Elections.     A Participant's deferral elections shall be automatically revoked upon the Participant's termination of employment from the Participating Employers, unless the Committee determines otherwise. In addition, if the Committee determines that the Participant is no longer eligible to participate in the Plan or that revocation of a Participant's eligibility is necessary or desirable in order for the Plan to qualify under ERISA as a plan of deferred compensation for a select group of management or highly compensated employees. ARTICLE IV. HYPOTHETICAL INVESTMENT OPTIONS      Section 4.01. Reserve Account A.     (a) Limited Purpose Account. Reserve Account A is limited to compensation deferred by a Participant prior to January 1, 1996, together with attributed earnings on such deferrals through December 31, 2000. Except for attributed earnings as described below, no further deferrals, contributions or credits of any kind will be made to this account on behalf of a Participant.     (b) Crediting of Interest Equivalent. As of the end of each Plan Year, the Account will be credited with an interest equivalent on the balance in the account from time to time during the year. The annual interest equivalent will be the sum (on a non-compounded basis) of the attributed earnings for each month during the year based on the account balance as of the last day of the month. Unless modified by the Committee, the interest equivalent rate for any month will be the greater of: > (i) one-half of one percent (0.5%); or > > (ii) one-twelfth (1/12) of the consolidated return on common shareholders' > equity of the Company and all consolidated subsidiaries (ROE); provided, > however, that unless the Committee determines otherwise, this Paragraph (ii) > will not apply to a former Participant who terminates employment with a > Participating Employer prior to attainment of age 55 and prior to the > occurrence of a Change in Control (as defined in Section 8.01). For the months > of April through September, ROE means the consolidated return on equity of the > Company and all consolidated subsidiaries for the twelve (12) months ended on > the preceding March 31 as calculated pursuant to the Company's standard > accounting procedure for financial reporting to shareholders. For the months > October through March, ROE means return on equity as described above for the > twelve (12) months ended on the preceding September 30.     (c) Revised Rate. Subject to Article VIII, the Committee may revise the interest equivalent rate or the manner in which it is calculated, but in no event shall the rate be less than six percent (6%) per annum. Any such revised rate shall be effective with the calendar month following such action by the Committee.      Section 4.02. Reserve Account B.     (a) Availability. Reserve Account B is an Available Investment Option with respect to the deemed investment of Base Compensation Deferrals and Annual Bonus Deferrals. It is credited with earnings equivalent based upon a percentage of the Company's return on equity for the year.     (b) Crediting of Interest Equivalent. As of the end of each calendar quarter, the account will be credited with an interest equivalent on the balance in the account from time to time during the year. The quarterly interest equivalent will be the sum (on a non-compounded basis) of the attributed earnings for each month during the quarter based on the account balance as of the last day of each month. Unless modified by the Committee, the interest equivalent rate for any month will be the greater of: > (i) one-half of one percent (0.5%); or > > (ii) seventy percent (70%) of one-twelfth (1/12) of the consolidated return on > common shareholders equity of the Company and all consolidated subsidiaries > (ROE); provided, however, that unless the Committee determines otherwise, this > Paragraph (ii) will not apply to a former Participant who terminates > employment with a Participating Employer prior to attainment of age 55 and > prior to the occurrence of a Change in Control (as defined in Section 8.01). > For the months of April through September, ROE means the consolidated return > on equity of the Company and all consolidated subsidiaries for the twelve (12) > months ended on the preceding March 31 as calculated pursuant to the Company's > standard accounting procedure for financial reporting to shareholders. For the > months October through March, ROE means return on equity as described above > for the twelve (12) months ended on the preceding September 30.     (c) Revised Rate. Subject to Article VIII, the Committee may revise the interest equivalent rate or the manner in which it is calculated, but in no event shall the rate be less than six percent (6%) per annum. Any such revised rate shall be effective with the calendar month following such action by the Committee.      Section 4.03. Incentive Stock Unit Account.     (a) Limited Purpose "Buy Only" Account. The Incentive Stock Unit Account is a "buy only" account limited to (i) Annual Bonus Deferrals that the Participant elects to be credited to the Incentive Stock Unit Account in accordance with Section 5.01(c), (ii) LTIP Deferrals pursuant to Section 3.03, and (iii) matching contribution credits pursuant to Section 3.04.     (b) Conversion to WPS Stock Units. As of the end of each month, all eligible Deferrals made by or on behalf of a Participant during that month and allocated to the Incentive Stock Unit Account and, for the month of December, all of a Participant's matching contribution credits under Section 3.04 (the "Incentive Stock Unit Convertible Amount") are converted, for record keeping purposes, into whole and fractional WPS Resources Stock Units, with fractional units calculated to four decimal places. The conversion shall be accomplished by dividing each Participant's Incentive Stock Unit Convertible Amount by the average purchase price of all shares of WPS Resources Stock purchased during that month by or on behalf of the Trust and the WPS Resources Corporation Stock Investment Plan. Likewise, any dividends that would have been payable on the WPS Resources Stock Units credited to a Participant's Incentive Stock Unit Account had such Units been actual shares of WPS Resources Stock shall be converted, for record keeping purposes, into whole and fractional WPS Resources Stock Units based on the average purchase price of all shares of WPS Resources Stock purchased by or on behalf of the Trust and the WPS Resources Corporation Stock Investment Plan during the month in which the dividend is paid. Notwithstanding the foregoing, if for any month there are no open-market purchases by or on behalf of the Trust and the WPS Resources Corporation Stock Investment Plan, the conversion shall be accomplished based upon the closing price of a share of WPS Resources Stock on the last date on the applicable month on which a share of WPS Resources Stock was traded, as reported in the Wall Street Journal's New York Stock Exchange Composite Transaction listing.      Section 4.04. Base Stock Unit Account.     (a) Availability. The Base Stock Unit Account is an Available Investment Option with respect to the deemed investment of Base Compensation Deferrals.     (b) Conversion to WPS Stock Units. As of the end of each month, all eligible Deferrals made by or on behalf of a Participant during that month and allocated to the Base Stock Unit Account (the "Base Stock Unit Convertible Amount") are converted, for record keeping purposes, into whole and fractional WPS Resources Stock Units, with fractional units calculated to four decimal places. The conversion shall be accomplished by dividing each Participant's Base Stock Unit Convertible Amount by the average purchase price of all shares of WPS Resources Stock purchased during that month by or on behalf of the Trust and the WPS Resources Corporation Stock Investment Plan. Likewise, any dividends that would have been payable on the WPS Resources Stock Units credited to a Participant's Base Stock Unit Account had such Units been actual shares of WPS Resources Stock shall be converted, for record keeping purposes, into whole and fractional WPS Resources Stock Units based on the average purchase price of all shares of WPS Resources Stock purchased by or on behalf of the Trust and the WPS Resources Corporation Stock Investment Plan during the month in which the dividend is paid. Notwithstanding the foregoing, if for any month there are no open-market purchases by or on behalf of the Trust and the WPS Resources Corporation Stock Investment Plan, the conversion shall be accomplished based upon the closing price of a share of WPS Resources Stock on the last date on the applicable month on which a share of WPS Resources Stock was traded, as reported in the Wall Street Journal's New York Stock Exchange Composite Transaction listing.     (c) Conversion from WPS Stock Units. If a Participant elects under Section 5.01(f) to reallocate all or any portion of his Base Stock Unit Account among the other Available Investment Options, the WPS Resources Stock Units to which such election relates shall be converted, for record keeping purposes, into an amount equal to the product of such units and the closing price of a share of WPS Resources Stock, on the most recent date prior to the effective date of such reallocation on which a share of WPS Resources Stock was traded, as reported in the Wall Street Journal's New York Stock Exchange Composite Transaction listing.     (d) Securities Law Restrictions. Notwithstanding anything to the contrary herein, all elections under Section 5.01(f) by a Participant who is subject to Section 16 of the Exchange Act are subject to review by the Committee prior to implementation. Further, the following reallocation transactions under Section 5.01(f) by a Participant who is subject to Section 16 of the Exchange Act are prohibited: (i) elections to reallocate the deemed investment of the affected Participant's Account into WPS Resources Stock Units within six (6) months of an election to reallocate deemed investments out of WPS Resources Stock Units; and (ii) elections to reallocate the deemed investment of the affected Participant's Account out of WPS Resources Stock Units within six (6) months of an election to reallocate deemed investments into WPS Resources Stock Units (collectively, "Prohibited Transactions"). All Prohibited Transactions are void. In accordance with Section 9.02, the Committee may restrict additional transactions, or impose other rules and procedures, to the extent deemed desirable by the Committee in order to comply with the Exchange Act.   ARTICLE V. ACCOUNTING AND HYPOTHETICAL INVESTMENT ELECTIONS      Section 5.01. Hypothetical Investment of Participant Accounts.     (a) Available Investment Options. > (i) For purposes of directing the deemed investment of Base Compensation > Deferrals under subsection (b) below and for purposes of reallocating the > deemed investment of the Participant's Account under subsection (f) below, the > Available Investment Options shall be all of the Investment Options other than > Reserve Account A and the Incentive Stock Unit Account. > > (ii) For purposes of directing the deemed investment of Annual Bonus Deferrals > under subsection (c) below, the Available Investment Options shall be all of > the Investment Options other than Reserve Account A and the Base Stock Unit > Account.     (b) Deemed Investment of Base Compensation Deferrals. In accordance with uniform rules prescribed by the Committee, each Participant shall designate, in writing or in such other manner as the Committee may prescribe, how Base Compensation Deferrals made while the designation is in effect are credited among the Available Investment Options. When selecting more than one Available Investment Option, the Participant shall designate, in whole multiples of 10% or such other percentage determined by the Committee, the percentage of his or her Base Compensation Deferrals to be credited to each Available Investment Option. If the Participant fails to make a timely and complete investment designation, he or she shall be deemed to have elected that 100% of his or her Base Compensation Deferrals be credited to Reserve Account B or such other of the Available Investment Options specified by the Committee for this purpose. A Participant's election or deemed election shall become effective beginning with the first payroll period commencing on or after the date on which the election is received and accepted by the Committee, and shall remain in effect unless and until modified by a subsequent election that becomes effective in accordance with the rules of this subsection.     (c) Deemed Investment of Annual Bonus Deferrals. In accordance with uniform rules prescribed by the Committee, each Participant shall designate, in writing or in such other manner as the Committee may prescribe, how Annual Bonus Deferrals made while the designation is in effect are credited among the Available Investment Options. When selecting more than one Available Investment Option, the Participant shall designate, in whole multiples of 10% or such other percentage determined by the Committee, the percentage of his or her Annual Bonus Deferrals to be credited to each Available Investment Option; provided, that with respect to any portion of the Annual Bonus Deferral that the Participant allocates to the Incentive Stock Unit Account, the amount allocated to such account will be 105% of the amount designated by the Participant for deferral into the Incentive Stock Unit Account. If the Participant fails to make a timely and complete investment designation, he or she shall be deemed to have elected that 100% of his or her Annual Bonus Deferral be credited to Reserve Account B or such other Investment Option specified by the Committee for this purpose. A Participant's election or deemed election shall become effective with respect to annual bonus amounts awarded on or after the date on which the election is received and accepted by the Committee, and shall remain in effect unless and until modified by a subsequent election that becomes effective in accordance with the rules of this subsection.      (d) Deemed Investment of LTIP Deferrals. LTIP Deferrals under Section 3.03 and matching contribution credits under Section 3.04 are credited to the Incentive Stock Unit Account. The Participant is not permitted to make an investment election with respect to LTIP Deferrals and matching contribution credits.     (e) Allocation of Deemed Investment Gain or Loss. On a quarterly basis or such other basis as the Committee may prescribe (the "Investment Period"), the Account of each Participant will be credited (or charged) based upon the investment gain (or loss) that the Participant would have realized with respect to his or her Account had the Account been invested in accordance with the terms of the Plan and where applicable, the Participant's written election. Subject to the special rules set forth in Article IV with respect to Reserve Account A, Reserve Account B, the Incentive Stock Unit Account and the Base Stock Unit Account, the credit (or charge) shall be the sum, separately calculated for each of the Investment Options, of the product obtained by multiplying (i) the portion (if any) of the Participant's Account as of the first day of the Investment Period that is deemed to have been invested in each Investment Option, and (ii) the rate of return experienced by that Investment Option during the Investment Period.  The Committee, in its discretion, may prescribe alternate rules for the valuation of Participant Accounts, including, without limitation, the application of unit accounting principles.     (f) Reallocation of Account. Subject to Section 4.04(d), and in accordance with rules prescribed by the Committee, each Participant may elect to reallocate his or her Account (other than the portion deemed to be invested in Reserve Account A or the Incentive Stock Unit Account) among the Available Investment Options. When selecting more than one Investment Option, the Participant shall designate, in whole multiples of 10% or such other percentage determined by the Committee, the percentage of his or her Account (other than the portion that is deemed to be invested in Reserve Account A or the Incentive Stock Unit Account) that is deemed to be invested in each Available Investment Option after the investment reallocation is given effect. A Participant's reallocation election made in any Investment Period shall become effective on the first day of the next Investment Period, or as soon thereafter as is practicable, and shall remain in effect unless and until modified by a subsequent election that becomes effective in accordance with the rules of this subsection. Other than a reallocation of a Participant's Account pursuant to a revised investment election submitted by the Participant, the deemed investment allocation of a Participant will not be adjusted to reflect differences in the relative investment return realized by the various hypothetical Investment Options that the Participant has designated.     (g) The foregoing provisions of this Section shall be effective on the first day of the month coincident with or next following the date on which shareholders of the Company approve the Plan as hereby amended and restated, or as soon thereafter as is practicable. Prior to implementation of the terms and conditions of this Section, a Participant's Account shall be credited with hypothetical investment gain or loss in accordance with the terms of the Plan as in effect on December 31, 2000.      Section 5.02. Accounts are For Record Keeping Purposes Only.     Plan Accounts and the record keeping procedures described herein serve solely as a device for determining the amount of benefits accumulated by a Participant under the Plan, and shall not constitute or imply an obligation on the part of a Participating Employer to fund such benefits. In any event, a Participating Employer may, in its discretion, set aside assets equal to part or all of such account balances and invest such assets in Company stock, life insurance or any other investment deemed appropriate. Any such assets, including WPS Resources Stock and any other assets held under the Trust, shall be and remain the sole property of the Company and except to the extent that the Trust authorizes a Participant to direct the trustee with respect to the voting of WPS Resources Stock held in the Trust, a Participant shall have no proprietary rights of any nature whatsoever with respect to such assets.   ARTICLE VI. DISTRIBUTION OF ACCOUNTS      Section 6.01. Distribution Election.     (a) Election. A Participant, at the time he commences participation in the Plan, shall make a distribution election with respect to his Account. The election shall be in such form as the Committee may prescribe, and shall specify the distribution commencement date, the distribution period, and the distribution method applicable following the Participant's death. Any such election shall be consistent with the following rules (or where the Participant fails to make a selection, in accordance with the default rules set forth below): > (i) Distribution Commencement Date. Unless the Participant has selected a > later commencement date (which in no event shall be later than the first > distribution period following the Participant's attainment of age 72), > distribution of a Participant's Accounts will commence within 60 days > following the end of the calendar year in which the Participant terminates > employment or service from all Participating Employers. For purposes of this > Plan, a Participant who is disabled shall be deemed to have retired or > terminated at the conclusion of benefits under all disability income plans > sponsored by a Participating Employer or to which a Participating Employer > contributes, unless otherwise determined by the Committee. Further, a > Participant who ceases employment with a Participating Employer in connection > with an early retirement (reduction in force) program sponsored by the > Participating Employer shall, if a participant in the Wisconsin Public Service > Administrative Employees Retirement Plan, be deemed to have retired upon > commencement of retirement benefits under such plan. > > (ii) Distribution Period. Distributions will be made in 1 to 15 annual > installments, as elected by the Participant. > > (iii) Distribution of Remaining Account Following Participant's Death. In the > event of the Participant's death, the Participant's remaining undistributed > interest will be distributed to the Beneficiary designated by the Participant > in either a single sum payment or in installments, as elected by the > Participant. If the Participant has elected that death benefits be paid in a > single sum, the payment shall be made no later than March 1 following the > calendar year in which occurs the Participant's death. If the Participant has > elected that death benefits be paid in installments, (A) any installments > previously commenced to the Participant shall continue to the Beneficiary and > (B) if installment distributions had not commenced as of the date of the > Participant's death, payments over the installment period elected by the > Participant shall commence to the Beneficiary no later than March 1 following > the calendar year in which occurs the Participant's death.     (b) Effectiveness of Election. A distribution election shall be deemed made only when it is received and accepted as complete by the Committee, and shall remain in effect until modified by the Participant in accordance with Section 6.02 below or otherwise revoked in accordance with Plan rules.      Section 6.02. Modified Distribution Election.     A Participant may from time to time modify his distribution election by filing a revised distribution election, properly completed and signed, with the Committee. However, a revised distribution election will be given effect only if the Participant remains employed by a Participating Employer for twelve (12) consecutive months following the date that the revised election is received and accepted as complete by the Committee.      Section 6.03. Calculation of Annual Distribution Amount.     (a) Pre-2001 Retirees. For any Participant whose retirement or termination date is prior to January 1, 2001, distribution of the Participant's Account will be calculated and made under the distribution provisions of the Plan applicable to the Participant on the date of the Participant's retirement or termination of employment.     (b) Post-2000 Retirees. For a Participant who retires or terminates employment after December 31, 2000, the annual distribution amount, unless the Committee specifies a different or alternate method, shall be calculated as follows: > (i) The annual distribution amount for the Participant's Account, other than > the portion of the Account that is deemed to be invested in the Stock Unit > Accounts (the "Distributable Account"), shall be determined by dividing (A) > the aggregate balance in the Distributable Account as of January 1 of the year > for which the distribution is being made, by (B) the number of installment > payments remaining to be made under the distribution period selected by the > Participant. Distributions shall be made in cash. The amount of any > distribution under this Paragraph (i) will be charged pro-rata against the > Participant's interest in each Investment Option comprising the Distributable > Account. Notwithstanding the foregoing, the last installment payment of the > Distributable Account shall be adjusted to take into account deemed investment > gains or losses for the period between the January 1 valuation date and the > date of actual payment according to such methods and procedures adopted by the > Committee. > > (ii) The annual distribution amount for each of the Stock Unit Accounts shall > be determined on a share basis by dividing (A) the number of WPS Resources > Stock Units credited to the relevant Stock Unit Account as of January 1 of the > year for which the distribution is being made (subject to subsequent > adjustment under Section 7.01), by (B) the number of installment payments > remaining to be made under the distribution period selected by the > Participant, and then rounding the quotient obtained for all but the final > installment to the next lowest whole number of WPS Resources Stock Units. The > Committee will then direct that the Participant receive shares of WPS > Resources Stock and/or cash equal to the annual distribution amount. For any > portion of the distribution that the Committee directs be satisfied by making > a cash payment to the Participant, the cash payment shall be determined by > multiplying the annual distribution amount (or the portion of the annual > distribution amount being satisfied in cash) by the closing price of WPS > Resources Stock on January 21 of the year in which the distribution is being > made, as such share price is reported in the Wall Street Journal's New York > Stock Exchange Composite Transactions listing. If January 21 falls on a > Saturday, Sunday or holiday, the calculation of the cash portion of the > distributions will be made based upon the closing price as reported for the > immediately preceding business day. The amount of any distribution under this > Paragraph (ii) will be charged pro-rata against the Participant's interest in > the Incentive Stock Unit Account and the Base Stock Unit Account.      Section 6.04. Time of Distribution.     Subject to the provisions of Sections 7.01 and 8.02, each distribution of WPS Resources Stock made to a Participant (or Beneficiary) shall be distributed on January 22 (or if January 22 falls on a Saturday, Sunday or holiday, the immediately following business day). For distribution and tax reporting purposes, the value of WPS Resources Stock distributed shall equal the number of shares distributed multiplied by the closing price of WPS Resources Stock on January 21 (or if January 21 falls on a Saturday, Sunday or holiday, the immediately preceding business day) of the year in which the distribution is being made as reported in the Wall Street Journal's New York Stock Exchange Composite Transaction listing. The cash portion of any distribution will be made no later than March 1 of the year for which the distribution is being made.      Section 6.05. Other Distribution Rules.     (a) Limit on Shares. Subject to adjustment as provided in subsection (c) below, the total number of authorized but previously unissued shares of WPS Resources Stock which may be distributed to Participants or Beneficiaries pursuant to the Plan shall be one hundred fifty thousand (150,000), which number shall not be reduced by or as a result of (i) any cash distributions pursuant to the Plan or (ii) the distribution to Participants or Beneficiaries pursuant to the Plan of any outstanding shares of WPS Resources Stock purchased by or on behalf of the Trust.     (b) Tax Withholding. The amount actually distributed to the Participant will be reduced by applicable income tax withholding. Unless the Participant has made a contrary election, income tax on the entire annual distribution amount will be withheld from the cash portion of the distribution, and WPS Resources Stock will be used to satisfy withholding obligations only to the extent that the cash portion of the distribution is insufficient for this purpose.     (c) Adjustments to Stock. In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, split-up, share combination or other change in the corporate structure of the Company or a Participating Employer affecting WPS Resources Stock, such adjustment shall be made in the number and class of shares which may be distributed pursuant to the Plan as may be determined to be appropriate and equitable by the Committee in its sole discretion.   ARTICLE VII. RULES WITH RESPECT TO WPS RESOURCES STOCK AND WPS RESOURCES STOCK UNITS      Section 7.01. Transactions Affecting WPS Resources Stock.     In the event of any merger, share exchange, reorganization, consolidation, recapitalization, stock dividend, stock split or other change in corporate structure of the Company or a Participating Employer affecting WPS Resources Stock, the Committee may make appropriate equitable adjustments with respect to the WPS Resources Stock Units (if any) credited to the Stock Unit Accounts of each Participant, including without limitation, adjusting the date as of which such units are valued and/or distributed, as the Committee determines is necessary or desirable to prevent the dilution or enlargement of the benefits intended to be provided under the Plan.      Section 7.02. No Shareholder Rights With Respect to WPS Resources Stock Units.     Participants shall have no rights as a stockholder pertaining to WPS Resources Stock Units credited to their Accounts. No WPS Resources Stock Unit nor any right or interest of a Participant under the Plan in any WPS Resources Stock Unit may be assigned, encumbered, or transferred, except by will or the laws of descent and distribution. The rights of a Participant hereunder with respect to any WPS Resources Stock Unit are exercisable during the Participant's lifetime only by him or his guardian or legal representative.   ARTICLE VIII. SPECIAL RULES APPLICABLE IN THE EVENT OF A CHANGE IN  CONTROL OF THE COMPANY      Section 8.01. Definitions.     For purposes of this Article VIII, the following terms shall have the following respective meanings:     (a) An "Affiliate" of, or a person "affiliated" with, a specified person is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified and the term "Associate" used to indicate a relationship with any person, means (i) any corporation or organization (other than the registrant or a majority-owned subsidiary of the registrant) of which such person is an officer or partner or is, directly or indirectly, the beneficial owner of 10 percent or more of any class of equity securities, (ii) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity, and (iii) any relative or spouse of such person, or any relative of such spouse, who has the same home as such person or who is a director or officer of the registrant or any of its parents or subsidiaries.     (b) A person shall be deemed to be the "Beneficial Owner" of any securities: > (i) which such Person or any of such Person's Affiliates or Associates has the > right to acquire (whether such right is exercisable immediately or only after > the passage of time) pursuant to any agreement, arrangement, or > under-standing, or upon the exercise of conversion rights, exchange rights, or > other rights, warrants or options, or otherwise; provided, however, that a > Person shall not be deemed the Beneficial Owner of, or to beneficially own, > (A) securities tendered pursuant to a tender or exchange offer made by or on > behalf of such Person or any of such Person's Affiliates or Associates until > such tendered securities are accepted for purchase or (B) securities issuable > upon exercise of Rights pursuant to the terms of the Company's Rights > Agreement with Firstar Trust Company, dated as of December 12, 1996, as > amended from time to time (or any successor to such Rights Agreement) at any > time before the issuance of such securities; > > (ii) which such Person or any of such Person's Affiliates or Associates, > directly or indirectly, has the right to vote or dispose of or has "beneficial > ownership" of (as determined pursuant to Rule 13d-3 of the General Rules and > Regulations under the Act), including pursuant to any agreement, arrangement > or understanding; provided, however, that a Person shall not be deemed the > Beneficial Owner of, or to beneficially own, any security under this > subparagraph (ii) as a result of an agreement, arrangement or understanding to > vote such security if the agreement, arrangement or understanding: (A) arises > solely from a revocable proxy or consent given to such Person in response to a > public proxy or consent solicitation made pursuant to, and in accordance with, > the applicable rules and regulations under the Act and (B) is not also then > reportable on a Schedule 13D under the Act (or any comparable or successor > report); or > > (iii) which are beneficially owned, directly or indirectly, by any other > Person with which such Person or any of such Person's Affiliates or Associates > has any agreement, arrangement or understanding for the purpose of acquiring, > holding, voting (except pursuant to a revocable proxy as described in > Paragraph (ii) above) or disposing of any voting securities of the Company.     (c) A "Change in Control" shall be deemed to have occurred if: > (i) any Person (other than any employee benefit plan of the Company or of any > subsidiary of the Company, any Person organized, appointed or established > pursuant to the terms of any such benefit plan or any trustee, administrator > or fiduciary of such a plan) is or becomes the Beneficial Owner of securities > of the Company representing at least 30% of the combined voting power of the > Company's then outstanding securities; > > (ii) one-half or more of the members of the Board are not Continuing > Directors; > > (iii) there shall be consummated any merger, consolidation, or reorganization > of the Company with any other corporation as a result of which less than 50% > of the outstanding voting securities of the surviving or resulting entity are > owned by the former shareholders of the Company other than a shareholder who > is an Affiliate or Associate of any party to such consolidation or merger; > > (iv) there shall be consummated any merger of the Company or share exchange > involving the Company in which the Company is not the continuing or surviving > corporation other than a merger of the Company in which each of the holders of > the Company's Common Stock immediately prior to the merger have the same > proportionate ownership of common stock of the surviving corporation > immediately after the merger; > > (v) there shall be consummated any sale, lease, exchange or other transfer (in > one transaction or a series of related transactions) of all, or substantially > all, of the assets of the Company to a Person which is not a wholly owned > subsidiary of the Company; or > > (vi) the shareholders of the Company approve any plan or proposal for the > liquidation or dissolution of the Company.     (d) "Continuing Directors" means (i) any member of the Board of Directors of the Company who was a member of such Board on May 1, 1997, (ii) any successor of a Continuing Director who is recommended to succeed a Continuing Director by a majority of the Continuing Directors then on such Board, and (iii) additional directors elected by a majority of the Continuing Directors then on such Board.     (e) "Person" means any individual, firm, partnership, corporation or other entity, including any successor (by merger or otherwise) of such entity, or a group of any of the foregoing acting in concert.      Section 8.02. Amendments in Connection with a Change in Control.     (a) Board Authority to Amend or Terminate Plan. Prior to the occurrence of a Change in Control, the Board may exercise its authority under Section 9.06, including, to the extent deemed necessary or desirable by the Board in anticipation of a Change in Control, any of the following actions: > (i) The Board may amend the Plan to eliminate WPS Resources Stock Units and > cause the value of such units as of the Amendment Date (such value to be > determined under Section 4.04(c)) to be reallocated to Reserve Account B. The > term "Amendment Date" means the date on which an amendment to the Plan is > validly adopted or the date on which the amendment is or purports to be > effective, whichever is later. > > (ii) The Board may terminate the Plan and require that all benefits accrued to > the date of termination (or such later date as the Board specifies) be > distributed to Participants (or Beneficiaries), in a single sum regardless of > a Participant's prior election as to the form and timing of benefit payments.     (b) Automatic Amendments. Unless terminated by the Board pursuant to subsection (a)(ii), the Plan shall automatically be amended upon a Change in Control to provide that: > (i) the rate of interest equivalent to be credited with respect to Reserve > Account A for each month following the Change in Control shall be the greater > of (A) the rate of interest equivalent otherwise applicable with respect to > Reserve Account A if such amount were calculated based upon the consolidated > return on common shareholders equity of the Company (including for this > purpose any successor corporation that is the survivor of a merger with the > Company or any successor to that corporation) and all subsidiaries, and (B) a > rate equal to two (2) percentage points above the prime lending rate at > Firstar Bank, N.A. (or any successor thereto) as of the last business day of > that month; and > > (ii) the rate of interest equivalent to be credited with respect to Reserve > Account B for each month following the Change in Control shall be the greater > of (A) the rate of interest equivalent otherwise applicable with respect to > Reserve Account B if such amount were calculated based upon the consolidated > return on common shareholders equity of the Company (including for this > purpose any successor corporation that is the survivor of a merger with the > Company or any successor to that corporation) and all subsidiaries, and (B) a > rate equal to two (2) percentage points above the prime lending rate at > Firstar Bank, N.A. (or any successor thereto) as of the last business day of > that month. The minimum rate of interest equivalent under clause (B) shall > cease to apply on the third anniversary of the Change in Control in the event > that the Participant is actively employed by the Company (or any subsidiary or > affiliate of the Company) on such date.     (c) Prohibition on Certain Amendments. Notwithstanding the foregoing, on or after the effective date of a Change in Control, the Board or Company may not, without the written consent of the affected Participant (or in the case of a deceased Participant, the Participant's Beneficiary) amend the Plan or take an action to terminate the Plan that would: > (i) Result in a decrease in the number of, or a change in the type of, > Available Investment Options that were made available under the Plan > immediately prior to the Change of Control; or > > (ii) Cause the Accounts to be valued under Section 5.01(e) less frequently > than quarterly; or > > (iii) Impair or otherwise limit a Participant's rights to reallocate his > Accounts under Section 5.01(f) as in effect on the date immediately prior to > the Change in Control; or > > (iv) Decrease the interest rate credited under Reserve Account A or Reserve > Account B as determined pursuant to subsection (b) above, except as > specifically provided therein; or > > (v) Eliminate the distribution options made available under Section 6.02 or > otherwise terminate any distribution elections then in effect.      Section 8.03. Maximum Payment Limitation.     (a) Limit on Payments. Except as provided in subsection (b) below, if any portion of the payments or benefits described in this Plan or under any other agreement with or plan of the Company (in the aggregate, "Total Payments"), would constitute an "excess parachute payment", then the Total Payments to be made to the Participant shall be reduced such that the value of the aggregate Total Payments that the Participant is entitled to receive shall be one dollar ($1) less than the maximum amount which the Participant may receive without becoming subject to the tax imposed by Section 4999 of the Code or which the Company may pay without loss of deduction under Section 280G(a) of the Code; provided that this Section shall not apply in the case of a Participant who has in effect a valid employment contract providing that the Total Payments to the Participant shall be determined without regard to the maximum amount allowable under Section 280G of the Code. The terms "excess parachute payment" and "parachute payment" shall have the meanings assigned to them in Section 280G of the Code, and such "parachute payments" shall be valued as provided therein. Present value shall be calculated in accordance with Section 280G(d)(4) of the Code. Within forty (40) days following delivery of notice by the Company to the Participant of its belief that there is a payment or benefit due the Participant which will result in an excess parachute payment as defined in Section 280G of the Code, the Participant and the Company, at the Company's expense, shall obtain the opinion (which need not be unqualified) of nationally recognized tax counsel selected by the Company's independent auditors and acceptable to the Participant in his sole discretion (which may be regular outside counsel to the Company), which opinion sets forth (A) the amount of the Base Period Income, (B) the amount and present value of Total Payments and (C) the amount and present value of any excess parachute payments determined without regard to the limitations of this Section. As used in this Section, the term "Base Period Income" means an amount equal to the Participant's "annualized includible compensation for the base period" as defined in Section 280G(d)(1) of the Code. For purposes of such opinion, 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, which determination shall be evidenced in a certificate of such auditors addressed to the Company and the Participant. Such opinion shall be addressed to the Company and the Participant and shall be binding upon the Company and the Participant. If such opinion determines that there would be an excess parachute payment, the payments hereunder that are includible in Total Payments or any other payment or benefit determined by such counsel to be includible in Total Payments shall be reduced or eliminated as specified by the Participant in writing delivered to the Company within thirty days of his receipt of such opinion or, if the Participant fails to so notify the Company, then as the Company shall reasonably determine, so that under the bases of calculations set forth in such opinion there will be no excess parachute payment. If such legal counsel so requests in connection with the opinion required by this Section, the Participant and the Company shall obtain, at the Company's expense, and the legal counsel may rely on in providing the opinion, the advice of a firm of recognized executive compensation consultants as to the reasonableness of any item of compensation to be received by the Participant. If the provisions of Sections 280G and 4999 of the Code (or any successor provisions) are repealed without succession, then this Section shall be of no further force or effect.     (b) Employment Contract Governs. The provisions of subsection (a) above shall not apply to a Participant whose employment is governed by an employment contract that provides for Total Payments in excess of the limitation described in subsection (a) above.      Section 8.04. Resolution of Disputes.     If, after a Change in Control, (a) a dispute arises with respect to the enforcement of the Participant's rights under the Plan, or (b) any legal proceeding shall be brought to enforce or interpret any provision contained in the Plan or to recover damages for breach of the Plan, in either case so long as the Participant is not acting in bad faith or otherwise pursuing a course of action that a reasonable person would determine to be frivolous, the Participant shall recover from the Company any reasonable attorneys' fees and necessary costs and disbursements incurred as a result of such dispute or legal proceeding ("Expenses"), and prejudgment interest on any money judgment obtained by the Participant calculated at the rate of interest announced by Firstar Bank Milwaukee, Milwaukee, Wisconsin (or any successor thereto), from time to time as its prime or base lending rate from the date that payments to the Participant should have been made under this Plan. Within ten (10) days after the Participant's written request therefor, the Company shall pay to the Participant, or such other person or entity as the Participant may designate in writing to the Company, the Participant's Expenses in advance of the final disposition or conclusion of any such dispute or legal proceeding. In the case of a deceased Participant, this Section shall apply with respect to the Participant's Beneficiary or estate.   ARTICLE IX. GENERAL PROVISIONS      Section 9.01. Administration.     The Committee shall administer and interpret the Plan and supervise preparation of Participant elections, forms, and any amendments thereto. To the extent necessary to comply with applicable conditions of Rule 16b-3, the Committee shall consist of not less than two members of the Board, each of whom is also a director of the Company and qualifies as a "non-employee director" for purposes of Rule 16b-3. If at any time the Committee shall not be in existence or not be composed of members of the Board who qualify as "non-employee directors", then all determinations affecting Participants who are subject to Section 16 of the Exchange Act shall be made by the full Board, and all determinations affecting other Participants shall be made by the Board or an officer of the Board. The Committee may, in its discretion, delegate any or all of its authority and responsibility; provided that the Committee shall not delegate authority and responsibility with respect to non-ministerial functions that relate to the participation by Participants who are subject to Section 16 of the Exchange Act at the time any such delegated authority or responsibility is exercised. To the extent of any such delegation, any references herein to the Committee shall be deemed references to such delegee. Interpretation of the Plan shall be within the sole discretion of the Committee and shall be final and binding upon each Participant and Beneficiary. The Committee may adopt and modify rules and regulations relating to the Plan as it deems necessary or advisable for the administration of the Plan. If any delegee of the Committee shall also be a Participant or Beneficiary, any determinations affecting the delegee's participation in the Plan shall be made by the Committee.      Section 9.02. Restrictions to Comply with Applicable Law.     (a) General Restrictions. Notwithstanding any other provision of the Plan, the Company shall have no liability to deliver any shares of WPS Resources Stock under the Plan or make any payment unless such delivery or payment would comply with all applicable laws and the applicable requirements of any securities exchange or similar entity. In addition, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 under the Exchange Act. The Committee shall administer the Plan so that transactions under the Plan will be exempt from Section 16 of the Exchange Act, and shall have the right to restrict any transaction, or impose other rules and requirements, to the extent it deems necessary or desirable for such exemption to be met.     (b) Restriction on Transfer. Shares of WPS Resources Stock issued under the Plan may not be sold or otherwise disposed of except (i) pursuant to an effective registration statement under the Act, or in a transaction which, in the opinion of counsel for the Company, is exempt from registration under the Act; and (ii) in compliance with state securities laws. Further, as a condition to issuance of shares of WPS Resources Stock under the Plan, the Participant, his Beneficiary or his heirs, legatees or legal representatives, as the case may be, shall execute and deliver to the Company a restrictive stock transfer agreement in such form, and subject to such terms and conditions, as shall be reasonably determined or approved by the Committee, which agreement, among other things, may impose certain restrictions on the sale or other disposition of any shares of stock acquired under the Plan. The Committee may waive the foregoing restrictions, in whole or in part, in any particular case or cases or may terminate such restrictions whenever the Committee determines that such restrictions afford no substantial benefit to the Company.     (c) Additional Restrictions; Legends. All shares of WPS Resources Stock delivered under the Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the Plan and any applicable federal or state securities laws, and the Committee may cause a legend or legends to be put on any certificates to make appropriate references to such restrictions.      Section 9.03. Claims Procedures.     (a) If a Participant or Beneficiary believes that he or she has not received the full benefit provided for in the Plan, the Participant or Beneficiary file a claim for benefits with the Committee. If the Committee denies the claim, the Committee shall deliver to the claimant a written explanation setting forth the specific reasons for the denial, pertinent references to the Plan section on which the denial is based, such other information as may be pertinent and a description of the procedures to be followed by the claimant in obtaining a review of his or her claim. For purposes of this paragraph, the claimant's claim shall be deemed filed when presented in writing to the Committee and the Committee's explanation shall be provided to the claimant within ninety (90) days of the date the claim is filed.     (b) The claimant shall be provided sixty (60) days following his or her receipt of the denial of the claim to file a written request for appeal to the Committee. The claimant and his or her representative may present additional information or documents pertinent to the Committee's review. The Committee shall decide the issue on appeal, which decision shall be final, and furnish the claimant with a written decision of his or her claim on review within sixty (60) days of receipt of claimant's request for appeal. The Committee's decision shall indicate the specific reasons for the decision and the pertinent provisions of the Plan on which the decision is based. If the Committee does not furnish a written decision to the claimant within such sixty (60) day period, the claim shall be deemed denied on appeal.      Section 9.04. Participant Rights Unsecured.     (a) Unsecured Claim. The right of a Participant or his Beneficiary to receive a distribution hereunder shall be an unsecured claim, and neither the Participant nor any Beneficiary shall have any rights in or against any amount credited to his Account or any other specific assets of a Participating Employer. The right of a Participant or Beneficiary to the payment of benefits under this Plan shall not be assigned, encumbered, or transferred, except by will or the laws of descent and distribution. The rights of a Participant hereunder are exercisable during the Participant's lifetime only by him or his guardian or legal representative.     (b) Contractual Obligation. The Company may authorize the creation of a trust or other arrangements to assist it in meeting the obligations created under the Plan. However, any liability to any person with respect to the Plan shall be based solely upon any contractual obligations that may be created pursuant to the Plan. No obligation of a Participating Employer shall be deemed to be secured by any pledge of, or other encumbrance on, any property of a Participating Employer. Nothing contained in this Plan and no action taken pursuant to its terms shall create or be construed to create a trust of any kind, or a fiduciary relationship between a Participating Employer and any Participant or Beneficiary, or any other person.      Section 9.05. Income Tax Withholding.     No later than the date as of which an amount first becomes includible in the gross income of the Participant for Federal income tax purposes, the Participant shall pay or make arrangements satisfactory to the Committee regarding the payment of, any Federal, state, local or foreign taxes of any kind required by law to be withheld with respect to such amount.      Section 9.06. Amendment or Termination of Plan.     There shall be no time limit on the duration of the Plan. Except as otherwise limited pursuant to Section 8.02, the Board (or where specified herein, the Committee) may at any time amend or terminate the Plan, including but not limited to modifying the terms and conditions applicable to (or otherwise eliminating) Deferrals to be made on or after the amendment or termination date; provided, however, that no amendment or termination may reduce or eliminate any Account balance accrued to the date of such amendment or termination (except as such Account balance may be reduced as a result of investment losses allocable to such Account).      Section 9.07. Administrative Expenses.     Costs of establishing and administering the Plan will be paid by the Participating Employers.      Section 9.08. Effect on Other Employee Benefit Plans.     Deferrals credited to a Participant's Account under this Plan shall not be considered "compensation" for the purpose of computing benefits under any qualified retirement plan maintained by a Participating Employer, but shall be considered compensation for welfare benefit plans, such as life and disability insurance programs sponsored by a Participating Employer, unless otherwise specifically provided by the terms of such plan.      Section 9.09. Successors and Assigns.     This Plan shall be binding upon and inure to the benefit of the Participating Employers, their successors and assigns and the Participants and their heirs, executors, administrators, and legal representatives.

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.4 AMENDMENT NO. 3 TO REAL ESTATE PURCHASE AND SALE AGREEMENT     THIS AMENDMENT NO. 3 TO REAL ESTATE PURCHASE AND SALE AGREEMENT (this "Amendment") dated as of February 27, 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, and Amendment No. 2 dated February 14, 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 March 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 (including without limitation those described at Sections 3.1, 5.2, 5.6, 5.8, and 5.10 of the Agreement) except those described at Sections 5.1, 5.3, 5.4, 5.5, 5.7, 5.9, 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.     IV.  NO EXTENSION OF CLOSING BASED ON LACK OF DNR CONSENT TO LEASE ASSIGNMENT.  The last sentence of Section 5.9 (beginning with the words "If such consent" and ending with the words "(and the parties shall cooperate for such purpose)") and the last sentence of Section 5.15 of the Agreement (beginning with the words "It is understood" and ending with the words "in the manner described in Section 5.9 above") are hereby deleted, it being the present understanding of Buyer and Seller that Buyer has sufficient time to obtain DNR consent to the transfer of the DNR Lease. Closing shall not be extended beyond April 27, 2001, except upon the mutual agreement of Buyer and Seller.     V.  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 27, 2001.     VI.  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 March      , 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.     VII.  OWSI STOCK PURCHASE AGREEMENT.  The obligations of Buyer and Seller under the Agreement are expressly conditioned on, and subject to satisfaction of, the following condition precedent: on or before March      , 2001, Buyer as buyer and Olympic Property Group LLC as seller shall have mutually executed and delivered a Stock Purchase Agreement relating to the stock of Olympic Water and Sewer, Inc.     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:   2/27/01 -------------------------------------------------------------------------------- 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:   2/27/01 -------------------------------------------------------------------------------- 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:   2/27/01 --------------------------------------------------------------------------------     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:   2/27/01 --------------------------------------------------------------------------------     OLYMPIC REAL ESTATE MANAGEMENT, INC., a Washington corporation     By:   /s/ TOM GRIFFIN    --------------------------------------------------------------------------------     Print Name:   Tom Griffin --------------------------------------------------------------------------------     Its:   Vice President --------------------------------------------------------------------------------     Date:   2/27/01 --------------------------------------------------------------------------------     OLYMPIC RESORTS LLC, a Washington limited liability company     By:   /s/ GREGORY M. MCCARRY    --------------------------------------------------------------------------------     Print Name:   Gregory M. McCarry --------------------------------------------------------------------------------     Its:   C.O.O. --------------------------------------------------------------------------------     Date:   2/27/01 -------------------------------------------------------------------------------- 3 -------------------------------------------------------------------------------- QuickLinks Exhibit 10.4 AMENDMENT NO. 3 TO REAL ESTATE PURCHASE AND SALE AGREEMENT

Exhibit 10.24(b) Supplemental Agreement No. 2 to Purchase Agreement No. 2211 between The Boeing Company and Continental Airlines, Inc.   Relating to Boeing Model 767-200ER Aircraft   THIS SUPPLEMENTAL AGREEMENT, entered into as of October 31, 2000, by and between THE BOEING COMPANY, a Delaware corporation with its principal office in Seattle, Washington, (Boeing) and Continental Airlines, Inc., a Delaware corporation with its principal office in Houston, Texas (Customer); WHEREAS, the parties hereto entered into Purchase Agreement No. 2211 dated November 16, 1998, (the Purchase Agreement) relating to Boeing Model 767-200ER aircraft, (Aircraft); and WHEREAS, Boeing and Customer wish to amend the Purchase Agreement to reflect the finalized configuration of the Aircraft; and WHEREAS, Boeing and Customer have mutually agreed to [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]; and WHEREAS, Boeing and Customer have mutually agreed to amend the Purchase Agreement to reflect an [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]; and WHEREAS, Boeing and Customer have mutually agreed to amend the Purchase Agreement to incorporate the effect of these and certain other changes; NOW THEREFORE, in consideration of the mutual covenants herein contained, the parties agree to amend the Purchase Agreement as follows:   Table of Contents : Remove and replace, in its entirety, the "Table of Contents", with the "Table of Contents" attached hereto, to reflect the changes made by this Supplemental Agreement No. 2. 2. Tables: Remove and replace, in its entirety, "Table 1, Aircraft Delivery, Description, Price and Advance Payments" with the revised "Table 1, Aircraft Delivery, Description, Price and Advance Payments", attached hereto, to reflect a change to the optional features price related to the incorporation of a new Exhibit A. 3. Exhibits: Remove and replace, in its entirety, Exhibit A with the revised Exhibit A (attached hereto) to reflect the final configuration of the Aircraft. 4. Supplemental Exhibits: Remove and replace, in its entirety, Supplemental Exhibit CS1 with the revised Supplemental Exhibit CS1 (attached hereto) to reflect an [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]. 5. Letter Agreements: Remove and replace, in its entirety, Letter Agreement 2211-01R1, "Option Aircraft" with new Letter Agreement 2211-01R2, "Option Aircraft" attached hereto, to reflect the [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].     The Purchase Agreement will be deemed to be supplemented to the extent herein provided as of the date hereof and as so supplemented will continue in full force and effect.   EXECUTED IN DUPLICATE as of the day and year first written above.     THE BOEING COMPANY Continental Airlines, Inc.       By: /s/ J. A. McGarvey   By: /s/ Gerald Laderman   Its: Attorney-In-Fact   Its: Senior Vice President - Finance TABLE OF CONTENTS   ARTICLES Revised By: 1. Quantity, Model and Description 2. Delivery Schedule 3. Price 4. Payment 5. Miscellaneous   TABLE 1. Aircraft Information Table SA No. 2   EXHIBIT A. Aircraft Configuration SA No. 2 B. Aircraft Delivery Requirements and Responsibilities   SUPPLEMENTAL EXHIBITS BFE1. BFE Variables CS1. Customer Support Variables SA No. 2 EE1. Engine Escalation/Engine Warranty and Patent Indemnity SLP1. Service Life Policy Components TABLE OF CONTENTS     LETTER AGREEMENTS Revised By: 2211-01R2 Option Aircraft SA No. 2 2211-02 Demonstration Flights 2211-03 Spares Initial Provisioning 2211-04 Flight Crew Training Spares Parts Support 2211-05 Escalation Sharing 6-1162-JMG-184 Installation of Cabin Systems Equipment SA No. 1     TABLE OF CONTENTS     CONFIDENTIAL LETTER AGREEMENTS Revised By: 6-1162-JMG-0089 Performance Guarantees 6-1162-JMG-0090 Promotion Support 6-1162-JMG-0092R1 Special Matters SA No. 1   SUPPLEMENTAL AGREEMENTS Dated as of: Supplemental Agreement No. 1 July 2, 1999 Supplemental Agreement No. 2 October 31, 2000 Table 1 to Purchase Agreement No. 2211 Aircraft Delivery, Description, Price and Advance Payments   Airframe Model/MTGW: 767-200ER 395,000 Engine Model: CF6-80C2B4F Airframe Basic Price: [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE Optional Features: SECURITIES AND EXCHANGE COMMIS- SION PURSUANT TO A REQUEST FOR Sub-Total of Airframe CONFIDENTIAL TREATMENT] and Features: Engine Price (Per Aircraft): Aircraft Basic Price (Excluding BFE/SPE): Seller Purchased Equipment (SPE) Estimate: Detail Specification: D019T001 (6/6/1997) Price Base Year: Jul-97 Airframe Escalation Data : Base Year Index (ECI): [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE Basic Year Index (ICI): SECURITIES AND EXCHANGE COMMIS- SION PURSUANT TO A REQUEST FOR Engine Escalation Data: CONFIDENTIAL TREATMENT] Base Year Index (CPI): [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] AIRCRAFT CONFIGURATION between THE BOEING COMPANY and Continental Airlines, Inc.   Exhibit A to Purchase Agreement Number 2211 AIRCRAFT CONFIGURATION Dated October 31, 2000 relating to BOEING MODEL 767-224ER AIRCRAFT   The Detail Specification is Boeing Detail Specification D019T001CAL62E1 dated as of even date herewith. Such Detail Specification will be comprised of Boeing Configuration Specification D019T001, revision A, dated June 6, 1997 as amended to incorporate the Options listed below, including the effects on Manufacturer's Empty Weight (MEW) and Operating Empty Weight (OEW). Such Options are set forth in Boeing Document D019TCR1CAL62E-1. As soon as practicable, Boeing will furnish to Buyer copies of the Detail Specification, which copies will reflect such Options. The Aircraft Basic Price reflects and includes all effects of such Options, except such Aircraft Basic Price does not include the price effects of any Buyer Furnished Equipment or Seller Purchased Equipment [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]   CUSTOMER SUPPORT VARIABLES between THE BOEING COMPANY and CONTINENTAL AIRLINES, INC.   Supplemental Exhibit CS1 to Purchase Agreement Number 2211   CUSTOMER SUPPORT VARIABLES relating to BOEING MODEL 767-224ER AIRCRAFT     Customer and Boeing will conduct planning conferences approximately 12 months prior to delivery of the first Aircraft, or as mutually agreed, in order to develop and schedule a customized Customer Support Program to be furnished by Boeing in support of the Aircraft. The customized Customer Services Program will be based upon and equivalent to the entitlements summarized below. 1. Maintenance Training. Maintenance Training Differences Course covering operational, structural or systems differences between Customer's newly-purchased Aircraft and an aircraft of the same model currently operated by Customer; 1 class of 15 students. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]   [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 1.4 Training materials will be provided to each student. In addition, one set of training materials as used in Boeing's training program, including visual aids, text and graphics will be provided for use in Customer's own training program. 2. Flight Training. Boeing will provide, if required, one classroom course to acquaint up to 8 students (four flight crews) with operational, systems and performance differences between Customer's newly-purchased Aircraft and an aircraft of the same model currently operated by Customer. 2.2 Training materials will be provided to each student [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]   3. Planning Assistance. 3.1 Maintenance and Ground Operations. Upon request, Boeing will visit Customer's main base to evaluate aircraft maintenance facilities, develop recommendations and assist in maintenance planning. Spares . Boeing will revise, as applicable, the customized Recommended Spares Parts List (RSPL) and Illustrated Parts Catalog (IPC)   4. Technical Data and Documents. The following list contains the documents Customer will receive to support the introduction and operation of the Aircraft. Customer and Boeing will conduct a planning conference approximately 12 months before the first delivery of the Aircraft to mutually determine the proper format (e.g. digital or hard copy) and quantity of Materials to be furnished to Customer. 4.1 Flight Operations. Aircraft Rescue and Firefighting Document Airplane Characteristics for Airport Planning Document Airplane Flight Manual Dispatch Deviation Procedures Guide ETOPS Guide Vol. III Fault Reporting Manual Flight Attendant Manual Flight Crew Training Manual FMC Supplemental Data Document Fuel Measuring Stick Calibration Document Jet Transport Performance Methods Operational Performance Software Operations Manual Performance Engineer's Manual Planning and Performance Manual Quick Reference Handbook Weight and Balance Manual 4.2 Maintenance. Aircraft Recovery Document Baggage/Cargo Loading Manual Configuration, Maintenance and Procedures for Extended Range Operation Corrosion Prevention Manual Engine Handling Document ETOPS Guide Vol. I ETOPS Guide Vol. II Facilities and Equipment Planning Document Fault Isolation Manual Illustrated Tool and Equipment List/Manual Maintenance Inspection Intervals Report Maintenance Manual Maintenance Planning Data Document Maintenance Task Cards and Index Non-Destructive Test Manual Overhaul and Component Maintenance Manual Power Plant Buildup Manual Special Tool and Ground Handling Equipment Drawings and Index Standard Overhaul Practices Manual Standard Wiring Practices Manual Structural Repair Manual Systems Schematics Manual Wiring Diagram Manual 4.3 Service Bulletin Engineering. Service Bulletins Service Bulletins Index Structural Item Interim Advisory 4.4 Service Engineering. All Operator Letter Combined Index In Service Activity Report Maintenance Tips Service Letters 4.5 Data & Services Management. Illustrated Parts Catalog 4.6 Boeing Product Standards Services. Standards Books Supplementary Tooling Documentation   4.7 Supplier Contract Management Component Maintenance/Overhaul Manuals and Index Ground Support Equipment Data Supplier Product Support and Assurance Agreements Document (Vol I and Vol II) Product Support Supplier Directory Provisioning Information Publications Index Service Bulletins October 31, 2000 2211-01R2   Continental Airlines, Inc. 1600 Smith Houston, TX 77002       Subject: Option Aircraft Reference: Purchase Agreement 2211 (the Purchase Agreement) between The Boeing Company (Boeing) and Continental Airlines, Inc. (Customer) relating to Model 767-224ER aircraft (the Aircraft)   This Letter Agreement amends and supplements the Purchase Agreement. All terms used but not defined in this Letter Agreement have the same meaning as in the Purchase Agreement. This Letter Agreement supersedes and replaces in its entirety Letter Agreement 2211-01R1. Boeing agrees to manufacture and sell to Customer additional Model 767-224ER aircraft as Option Aircraft. The delivery months, number of aircraft, Advance Payment Base Price per aircraft and advance payment schedule are listed in the Attachment to this Letter Agreement (the Attachment). 1. Aircraft Description and Changes 1.1 Aircraft Description: The Option Aircraft are described by the Detail Specification listed in the Attachment. 1.2 Changes: The Detail Specification will be revised to include: (i) Changes applicable to the basic Model 767 aircraft which are developed by Boeing between the date of the Detail Specification and the signing of the definitive agreement to purchase the Option Aircraft; (ii) Changes required to obtain required regulatory certificates; and (iii) Changes mutually agreed upon.   2. Price 2.1 The pricing elements of the Option Aircraft are listed in the Attachment. 2.2 Price Adjustments. 2.2.1 Optional Features. The Optional Features Prices selected for the Option Aircraft will be adjusted to Boeing's current prices as of the date of execution of the definitive agreement for the Option Aircraft. 2.2.2 Escalation Adjustments. The Airframe Price and the Optional Features Prices for Option Aircraft delivering before January, 2005, will be escalated on the same basis as the Aircraft, and will be adjusted to Boeing's then-current escalation provisions as of the date of execution of the definitive agreement for the Option Aircraft. The engine manufacturer's current escalation provisions, listed in Exhibit Supplement EE1 to the Purchase Agreement have been estimated to the months of scheduled delivery using commercial forecasts to calculate the Advance Payment Base Price listed in the Attachment to this Letter Agreement. The engine escalation provisions will be revised if they are changed by the engine manufacturer prior to the signing of a definitive agreement for the Option Aircraft. 2.2.3 Base Price Adjustments. The Airframe Price and the Engine Price of the Option Aircraft delivering before January, 2005, will be adjusted to Boeing's and the engine manufacturer's then current prices as of the date of execution of the definitive agreement for the Option Aircraft. 2.2.4 Prices for Long Lead Time Aircraft. Boeing and the engine manufacturer have not established prices and escalation provisions for Model 767-224ER aircraft and engines for delivery in the year 2005 and after. When prices and the pricing bases are established for the Model 767-224ER aircraft delivering in the year 2005 and after, the information listed in the Attachment will be appropriately amended. 3. Payment. 3.1 Customer has paid a deposit to Boeing in the amount shown in the Attachment for each Option Aircraft (Deposit), prior to the date of this Letter Agreement. If Customer exercises an option, the Deposit will be credited against the first advance payment due. If Customer does not exercise an option, Boeing will retain the Deposit for that Option Aircraft.   3.2 Following option exercise, advance payments in the amounts and at the times listed in the Attachment will be payable for the Option Aircraft. The remainder of the Aircraft Price for the Option Aircraft will be paid at the time of delivery. 4. Option Exercise. Customer may exercise an option by giving written notice to Boeing on or before the date [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] months prior to the first business day of the applicable delivery month listed in the Attachment (Option Exercise Date).   5. Contract Terms. Boeing and Customer will use their best efforts to reach a definitive agreement for the purchase of an Option Aircraft, including the terms and conditions contained in this Letter Agreement, in the Purchase Agreement, and other terms and conditions as may be agreed upon to add the Option Aircraft to the Purchase Agreement as an Aircraft. In the event the parties have not entered into a definitive agreement within 30 days following option exercise, either party may terminate the purchase of such Option Aircraft by giving written notice to the other within 5 days. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]     Very truly yours, THE BOEING COMPANY   By    /s/ J. A. McGarvey            Its           Attorney-In-Fact              ACCEPTED AND AGREED TO this Date: October 31, 2000 Continental Airlines, Inc.   By     /s/ Gerald Laderman                   Its Senior Vice President - Finance   Attachment Attachment to Letter Agreement No. 2211-01R2 Option Aircraft Delivery, Description, Price and Advance Payments   Airframe Model/MTGW: 767-200ER 395,000 Engine Model: CF6-80C2B4F Airframe Base Price: [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE Optional Features: COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] Sub-Total of Airframe And Features: Engine Price (Per Aircraft): Aircraft Basic Price (Excluding BFE/SPE): Buyer Furnished Equipment (BFE) Estimate: Seller Purchased Equipment (SPE) Estimate: Non-Refundable Deposit per Aircraft at Definitive Agreement: Detail Specifications: D019T001 (6/6/97) Price Base Year: Jul-97 Airframe Escalation Data: Base Year Index (ECI): [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE Base Year Index (ICI): COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] Engine Escalation Data: Base Year Index (CPI): [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.28      LOGO [g612030.jpg] INDEPENDENT CONTRACTOR AGREEMENT     This Agreement (the "Agreement") is made as of April 15, 2001 (the "Effective Date"), by and between Intraware, Inc., a Delaware corporation with a principal place of business at 25 Orinda Way, Orinda, CA 94563 ("Intraware"), and Mark P. Long, an individual residing at 1022 Sunrise Ridge Drive, Lafayette, CA 94549 (the "Independent Contractor"). 1.Services and Obligations of the Independent Contractor.     1.1 Scope of the Services. During the term of this Agreement, the Independent Contractor shall perform the services described in each Engagement Addendum attached hereto as Exhibit A (the "Services").     1.2 Method of Performing the Services. The Independent Contractor will determine the method, details and means of performing the Services.     1.3 Office Space and Support Staff. The Independent Contractor will be responsible for supplying his own office space but may perform Services under this Agreement on Intraware's premises at Intraware's request. The Independent Contractor will be responsible for supplying his own office support staff, if any. Any and all personnel hired by the Independent Contractor, as employees, consultants, agents or otherwise (collectively "Staff") shall be the responsibility of the Independent Contractor. The Independent Contractor will inform all Staff in writing at the time that such Staff are hired by the Independent Contractors that such Staff are not employees of Intraware and that Intraware has no present or future obligation to employ such Staff or provide such Staff with any compensation and/or employment benefits. The Independent Contractor will be solely responsible for the acts of such Staff and the Staff will conduct their activities at the Independent Contractor's risk, expense and supervision. The Independent Contractor warrants and covenants that the Staff shall be subject to all of the obligations applying to the Independent Contractor pursuant to this Agreement and that each member of the Staff shall execute a copy of this Agreement.     1.4 Withholding, Taxes and Benefits. The Independent Contractor will be responsible for withholding, accruing and paying all income, social security and other taxes and amounts required by law for the Consulting Fee (as defined below in Section 2.1) and all payments to the Staff, if any. The Independent Contractor will also be responsible for all statutory insurance and other benefits required by law for the Independent Contractor and the Staff and all other benefits promised to the Staff by the Independent Contractor, if any. The Independent Contractor shall provide Intraware with a completed W-9 form.     1.5 Proprietary Rights and Confidentiality. As a condition of this Agreement, Independent Contractor shall execute the "Contractor Confidential Information, Invention Assignment and Arbitration Agreement" attached hereto as Exhibit B and made a part hereof by this reference. 2.Compensation and Obligations of Intraware.     2.1 Compensation. During the term of any Engagement Addendum, Intraware will pay the Independent Contractor the fee specified in such Engagement Addendum (attached hereto as Exhibit A) (the "Consulting Fee"). The Consulting Fee shall constitute the Independent Contractor's 1 -------------------------------------------------------------------------------- sole compensation for the performance of the Independent Contractor's services under this Agreement. Intraware may offset any amount payable hereunder against any payments due from the Independent Contractor pursuant to any other written agreement or arrangement. 3.Term and Termination.     3.1 Term. This Agreement shall be effective from the Effective Date written above until terminated as hereinafter provided (the "Term"). Each Engagement Addendum attached hereto as Exhibit A shall remain in effect for the period specified in such Exhibit. The term of any Engagement Addendum may be extended for additional periods of time upon the mutual agreement by the parties at any time prior to the expiration of the then-current term of such Engagement Addendum.     3.2 Termination. If no Engagement Addendum is in effect, either party may terminate this Agreement upon written notice to the other.     3.3 Effect of Termination and Survival. Upon the termination of this Agreement for whatever reason: (a) all obligations of the parties hereunder shall cease; (b) Intraware shall pay the Independent Contractor all Consulting Fees due up to the date of such termination, except as otherwise provided in the applicable Engagement Addendum; and (c) the Independent Contractor shall return to Intraware all Confidential Information (as defined in Exhibit B). The terms of this Section 3.3 and Exhibit B shall survive the Term of this Agreement however terminated. 4.  Relationship Between Intraware and the Independent Contractor. On and after the Effective Date, the Independent Contractor and his Staff, if any, shall at all times be and be deemed to be independent contractors of Intraware. Neither the Independent Contractor nor any of his Staff is an employee or agent of Intraware for any purpose whatsoever, and shall not be entitled to paid vacation days, sick days, holidays or any other benefits provided to Intraware employees. The Independent Contractor agrees that no income, social security or other taxes or amounts shall be withheld or accrued by Intraware for the Independent Contractor's benefit or for the benefit of his Staff and no statutory insurance shall be written by Intraware on behalf of the Independent Contractor or the employees of the Independent Contractor. Neither the Independent Contractor nor any of his Staff shall, under any circumstances, have any authority to act for or to bind Intraware or to sign the name of Intraware or to otherwise represent that Intraware is in any way responsible for his acts or omissions. Neither the Independent Contractor nor his Staff has or have any authority to create any contract or obligation, express or implied, on behalf of, in the name of, or binding upon Intraware. It is anticipated that the Independent Contractor will perform services as an independent contractor, employee, officer or director for parties other than Intraware during the Term. 5. Miscellaneous.     5.1 This Agreement cannot be assigned by either party without the other's prior written consent, except in connection with a merger, reorganization or sale of substantially all of the assets of Intraware.     5.2 This Agreement, including the Exhibits hereto, supersedes any and all agreements, either oral or in writing, between the parties hereto with respect to the services of Independent Contractor, and contains all of the covenants and agreements between the parties with respect to such services in any manner whatsoever. Each party to this Agreement acknowledges that no representations, inducement, promises or agreements, oral or otherwise, with regard to this Agreement or the services to be rendered under it have been made by any party, or anyone acting on behalf of any party, which are not embodied herein. The foregoing shall not be deemed to supersede or void any provision of that certain Confidential Termination and Separation Agreement and General Release entered into between Intraware and the Independent Contractor on or about the date of this Agreement, or of any agreement between Intraware and the Independent Contractor referenced therein. 2 --------------------------------------------------------------------------------     5.3 No modification or waiver of this Agreement shall be binding unless in writing and signed by the parties hereto. The waiver by either party of any breach by the other party of any of its obligations hereunder or the failure of such party to exercise any of its rights in respect of such breach shall not be deemed to be a waiver of any subsequent breach.     5.4 Any controversy between Intraware and the Independent Contractor and/or his Staff or between any employee of Intraware and the Independent Contractor and/or his Staff, including, but not limited to, those involving the construction or application of any of the terms, provisions or conditions of this Agreement or otherwise arising out of or relating to this Agreement, shall be settled by arbitration in accordance with the then-current commercial arbitration rules of the American Arbitration Association, and judgment on the award rendered by the arbitrator(s) may be rendered by any court having jurisdiction thereof. Intraware and the Independent Contractor shall share the costs of the arbitrator equally but shall each bear their own costs and legal fees associated with the arbitration. The location of the arbitration shall be in San Francisco, California.     5.5 This Agreement will be governed by and construed in accordance with the laws of the State of California.     5.6 Any notice or other communication under this Agreement shall be considered given when delivered personally or delivered by first class mail or express courier service (such as DHL Courier or Federal Express Courier) to the parties at their respective addresses set forth above (or at such other address as a party may specify by notice made pursuant to the terms of this Section 5.8).     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth above. INTRAWARE, INC.   MARK P. LONG By:         --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Name:         --------------------------------------------------------------------------------     Title:         --------------------------------------------------------------------------------     3 -------------------------------------------------------------------------------- EXHIBIT A ENGAGEMENT ADDENDUM 1.Date of Engagement Addendum: April 15, 2001 2.Name(s) of Independent Contractor Personnel Assigned to Engagement: Mark Long 3.Description of Services: Consulting services in the areas of strategic development, mergers and acquisitions, corporate finance, investor relations, and such other areas of corporate activity as Intraware and the Independent Contractor may mutually agree from time to time. Such services shall be provided on an as-needed, on-call basis. Intraware understands and agrees that the services of the Independent Contractor shall be rendered in whatever manner deemed appropriate by the Independent Contractor and shall not be for a specific amount of time and shall not require any specific deliverables or reports. Independent Contractor shall be entitled to deliver the services via phone or email, at his discretion. Independent Contractor shall only be required to be reasonably available by phone and email and shall not be required to be on-site at any time. Unless otherwise agreed by Independent Contractor, telephone or email interactions shall not exceed two hours per week. In addition, Intraware agrees that the value of the services is in the opinions and recommendations reached by the Independent Contractor based on his training, experience and knowledge of Intraware. Intraware understands that the Independent Contractor makes no representations or warranties regarding the opinions and recommendations other than that they are the opinions and recommendations reached by the Independent Contractor based on the facts and circumstances as described to him. 4.Duration of Engagement: Start Date: April 15, 2001 End Date: April 14, 2002 5.Compensation: Consulting Fee consisting of (a) a one-time set-up fee of $1,000, payable within 30 days after receipt of invoice, and (b) an ongoing fee of $22,877.00 per month, payable in arrears on the 15th of each month during the duration specified in Section 4 above, with the final payment due April 15th, 2002 for the final month of the Engagement. 6.Termination: Notwithstanding anything to the contrary in Section 3.2 of the attached Agreement, this Engagement Addendum may not be terminated except as follows. Either party hereto may terminate this Engagement Addendum on 30 days' written notice to the other party if such other party materially breaches Section 1.3 of the Confidential Termination and Separation and General Release Agreement dated April 15, 2001 (the "Separation Agreement") and fails to cure such breach during such 30-day notice period. In addition, Intraware may terminate this Engagement Addendum (i) immediately upon any cancellation or termination of the Borrower's obligations under the Cancellation Agreement and Unsecured Subordinated Promissory Note dated April 15, 2001 (the "Note") for any reason; and (ii) upon 5 days' written notice to the Independent Contractor upon any hiring, or retention as a consultant, contractor, or director, of the Independent Contractor in connection with a business which, in the reasonable discretion of Intraware, is a direct competitor of Intraware in the area of electronic software delivery, electronic software management, or information technology asset management and where Independent Contractor is participating in the business unit, including as an advisor, which is engaged in the competitive line of business (a "Competitor"). Within 30 days of beginning employment or retention by a person or entity other than Intraware during the term of this Engagement Addendum, the Independent Contractor shall notify Intraware of the identity of such person or entity. In addition, the parties may terminate this Engagement Addendum at any time by mutual consent. In the event of any termination of this Engagement Addendum under this paragraph, Intraware shall not be required to make any further payments hereunder to Independent i -------------------------------------------------------------------------------- Contractor after the date of termination of this Engagement Addendum, other than a payment equal to $4,902 multiplied by the number of months remaining in the term of this Engagement Addendum (as specified in paragraph 4 above) prorated as applicable for any partial month period, and the Independent Contractor shall not be required to perform any additional services for Intraware. Notwithstanding the foregoing, in the event of any termination of this Engagement Addendum under this paragraph for: (a) material breach of Section 1.3 of the Separation Agreement by Independent Contractor or (b) the hiring or retention of Independent Contractor by a Competitor, the Independent Contractor shall not be required to perform any additional services for Intraware, and Intraware shall not be required to pay any amounts to the Independent Contractor other than a pro-rata portion of the Consulting Fee for the period up to the termination date. INTRAWARE, INC.   MARK P. LONG By:         --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Name:         --------------------------------------------------------------------------------     Title:         --------------------------------------------------------------------------------     ii -------------------------------------------------------------------------------- EXHIBIT B INTRAWARE, INC. CONTRACTOR CONFIDENTIAL INFORMATION, INVENTION ASSIGNMENT AND ARBITRATION AGREEMENT     As a condition of the retention of Independent Contractor by Intraware, Inc., its subsidiaries, affiliates, successors or assigns (together "Intraware"), and in consideration of Independent Contractor's receipt of consulting fees now and hereafter paid by Intraware, Independent Contractor agrees to the following. As used herein, the term "Independent Contractor" shall include the Independent Contractor as well as any specific Independent Contractor personnel named at the end of this Agreement. 1.Confidential Information. (a)Intraware Information. Independent Contractor agrees at all times during the term of his retention by Intraware and thereafter, to hold in strictest confidence, and not to use, except for the benefit of Intraware, or to disclose to any person, firm or corporation except for the benefit of Intraware and with written authorization of an authorized officer of Intraware, any Confidential Information of Intraware. Independent Contractor understands that "Confidential Information" means any Intraware proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, customer lists and customers (including, but not limited to, customers of Intraware on whom Independent Contractor called or with whom Independent Contractor became acquainted during the term of his retention by Intraware), markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, finances or other business information disclosed to the Independent Contractor by Intraware either directly or indirectly in writing, orally or by drawings or observation of parts or equipment. Independent Contractor further understands that Confidential Information does not include any of the foregoing items which has become publicly known and made generally available through no wrongful act of Independent Contractor or of others who were not under confidentiality obligations as to the item or items involved or improvements or new versions thereof. (b)Former Client Information. Independent Contractor agrees that it will not, during his engagement with Intraware, improperly use or disclose any proprietary information or trade secrets of any former or concurrent client of the Independent Contractor or of other person or entity and that Independent Contractor will not bring onto the premises of Intraware any unpublished document or proprietary information belonging to any such client, person or entity unless consented to in writing by such client, person or entity. (c)Third Party Information. Independent Contractor recognizes that Intraware has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on Intraware's part to maintain the confidentiality of such information and to use it only for certain limited purposes. Independent Contractor agrees to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out his work for Intraware consistent with Intraware's agreement with such third party. i -------------------------------------------------------------------------------- 2.  Inventions. (a)Inventions Retained and Licensed. If in the course of his work for Intraware, Independent Contractor incorporates into an Intraware product, process or service any invention, original work of authorship, development, improvement, or trade secret which was made by Independent Contractor prior to his retention by Intraware (collectively referred to as "Prior Inventions"), Intraware is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make, have made, modify, use and sell such Prior Inventions as part of or in connection with such product, process or machine. (b)Assignment of Inventions. Independent Contractor agrees that it will promptly make full written disclosure to Intraware, will hold in trust for the sole right and benefit of Intraware, and hereby assigns to Intraware, or its designee, all his right, title, and interest in and to any and all inventions, original works of authorship, developments, concepts, improvements, designs, discoveries, ideas, trademarks or trade secrets, whether or not patentable or registrable under copyright or similar laws, which Independent Contractor may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, in the course of the Independent Contractor's performance of services for Intraware (collectively referred to as "Inventions"). Independent Contractor further acknowledge that all original works of authorship which are made by it (solely or jointly with others) in the course of the Independent Contractor's performance of services for Intraware and which are protectable by copyright are "works made for hire," as that term is defined in the United States Copyright Act. Independent Contractor understands and agrees that the decision whether or not to commercialize or market any invention developed by it solely or jointly with others is within Intraware's sole discretion and for Intraware's sole benefit and that no royalty will be due to it as a result of Intraware's efforts to commercialize or market any such invention. (c)Inventions Assigned to the United States. Independent Contractor agrees to assign to the United States government all his right, title, and interest in and to any and all Inventions whenever such full title is required to be in the United States by a contract between Intraware and the United States or any of its agencies. (d)Maintenance of Records. Independent Contractor agrees to keep and maintain adequate and current written records of all Inventions made by it (solely or jointly with others) during the term of his retention by Intraware. The records will be in the form of notes, sketches, drawings, and any other format that may be specified by Intraware. The records will be available to and remain the sole property of Intraware at all times. (e)Patent and Copyright Registrations. Independent Contractor agrees to assist Intraware, or its designee, at Intraware's expense, in every proper way to secure Intraware's rights in the Inventions and any copyrights, patents, mask work rights or other intellectual property rights relating thereto in any and all countries, including the disclosure to Intraware of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which Intraware shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to Intraware, its successors, assigns, and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. Independent Contractor further agrees that his obligation to execute or cause to be executed, when it is in his power to do so, any such instrument or papers shall continue after the termination of this Agreement. If Intraware is unable for any reason to secure the Independent Contractor's signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Inventions or original works of ii -------------------------------------------------------------------------------- authorship assigned to Intraware as above, then Independent Contractor hereby irrevocably designates and appoints Intraware and its duly authorized officers and agents as his agent and attorney in fact, to act for and in his behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent or copyright registrations thereon with the same legal force and effect as if executed by it. 3.  Returning Intraware Documents. Independent Contractor agrees that, upon termination of the Independent Contractor's services for Intraware, Independent Contractor will deliver to Intraware (and will not keep in his possession, recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items developed by it pursuant to his performance of services for Intraware or otherwise belonging to Intraware, its successors or assigns, including, without limitation, those records maintained pursuant to paragraph 3(d). Upon termination of the Independent Contractor's services for Intraware, Independent Contractor agrees to sign and deliver the "Termination Certification" attached hereto as Attachment 1. 4.  Solicitation of Employees. Independent Contractor agrees that for a period of twelve (12) months immediately following the termination of his relationship with Intraware for any reason, whether with or without cause, Independent Contractor shall not either directly or indirectly solicit, induce, recruit or encourage any of Intraware's employees to leave their employment, or take away such employees, or attempt to solicit, induce, recruit, encourage or take away employees of Intraware, either for itself or for any other person or entity. 5.[Intentionally Deleted] 6.  Representations. Independent Contractor agrees to execute any proper oath or verify any proper document required to carry out the terms of this Agreement. Independent Contractor represent that his performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by it in confidence or in trust prior to his retention by Intraware. Independent Contractor have not entered into, and Independent Contractor agrees it will not enter into, any oral or written agreement in conflict herewith. 7.  Remedies. Independent Contractor acknowledges that any breach of his obligations under this Agreement may result in irreparable injury for which Intraware shall have no adequate remedy at law. Accordingly, if Independent Contractor breaches or threatens to breach any of Independent Contractor's obligations under this Agreement, Intraware shall be entitled, without proving or showing any actual damage sustained, to a temporary restraining order, preliminary injunction, permanent injunction and/or order compelling specific performance to prevent or cease the breach of Independent Contractor's obligations under this Agreement. Nothing in this Agreement shall be interpreted as prohibiting Intraware from obtaining any other remedies otherwise available to it for such breach or threatened breach, including the recovery of damages. 8.  Arbitration. Any controversy between Intraware and the Independent Contractor or between any employee of Intraware and the Independent Contractor, including, but not limited to, those involving the construction or application of any of the terms, provisions or conditions of this Agreement or otherwise arising out of or relating to this Agreement, shall be settled by arbitration in accordance with the then-current commercial arbitration rules of the American Arbitration Association, and judgment on the award rendered by the arbitrator(s) may be rendered by any court having jurisdiction thereof. Intraware and the Independent Contractor shall share the costs of the arbitrator equally but shall each bear their own costs and legal fees associated with the arbitration. The location of the arbitration shall be in San Francisco, California. iii -------------------------------------------------------------------------------- 9.  General Provisions. (a)Governing Law; Consent to Personal Jurisdiction. This Agreement will be governed by the laws of the State of California. Independent Contractor hereby expressly consents to the personal jurisdiction of the state and federal courts located in California for any lawsuit filed there against it by Intraware arising from or relating to this Agreement. (b)Entire Agreement. This Agreement sets forth the entire agreement and understanding between Intraware and Independent Contractor relating to the subject matter herein and supersedes all prior discussions between us. No modification of or amendment to this Agreement, nor any waiver of any rights under this agreement, will be effective unless in writing signed by the party to be charged. Any subsequent change or changes in Independent Contractor's duties, salary or compensation will not affect the validity or scope of this Agreement. (c)Severability. If one or more of the provisions in this Agreement are deemed void by law, then the remaining provisions will continue in full force and effect. (d)Successors and Assigns. This Agreement will be binding upon Independent Contractor's heirs, executors, administrators and other legal representatives and will be for the benefit of Intraware, its successors, and its assigns. 10.  Acknowledgements by Independent Contractor. The Independent Contractor acknowledges and agrees to each of the following items: (a)It is executing this Agreement voluntarily and without any duress or undue influence by Intraware or anyone else; and (b)It has carefully read this Agreement. Independent Contractor has asked any questions needed for it to understand the terms, consequences and binding effect of this Agreement and fully understand them, including that Independent Contractor is waiving his right to a jury trial by signing below; and (c)It sought the advice of an attorney of his choice if Independent Contractor wanted to before signing this Agreement. INTRAWARE, INC.   MARK P. LONG By:         --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Name:         --------------------------------------------------------------------------------     Title:         --------------------------------------------------------------------------------     iv -------------------------------------------------------------------------------- ATTACHMENT 1 INTRAWARE, INC. TERMINATION CERTIFICATION     This is to certify that Independent Contractor does not have in his possession, nor has Independent Contractor failed to return, any devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items belonging to Intraware, Inc., its subsidiaries, affiliates, successors or assigns (together, the "Intraware").     Independent Contractor further certifies that it has complied with all the terms of Intraware's Contractor Confidential Information, Invention Assignment and Arbitration Agreement signed by it, including the reporting of any inventions and original works of authorship (as defined therein), conceived or made by it (solely or jointly with others) covered by that agreement.     Independent Contractor further agrees that, in compliance with the Contractor Confidential Information, Invention Assignment, and Arbitration Agreement, it will preserve as confidential all trade secrets, confidential knowledge, data or other proprietary information relating to products, processes, know-how, designs, formulas, developmental or experimental work, computer programs, data bases, other original works of authorship, customer lists, business plans, financial information or other subject matter pertaining to any business of Intraware or any of its employees, clients, consultants or licensees.     Independent Contractor further agrees that for twelve (12) months from this date, Independent Contractor will not hire any employees of Intraware and Independent Contractor will not solicit, induce, recruit or encourage any of Intraware's employees to leave their employment. Date:   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------         Signature         --------------------------------------------------------------------------------         Name of Independent Contractor (typed or printed) [DO NOT SIGN THIS PAGE ON INITIAL EXECUTION OF AGREEMENT— SIGN ONLY WHEN AGREEMENT IS TERMINATED] v -------------------------------------------------------------------------------- QuickLinks EXHIBIT 10.28 INDEPENDENT CONTRACTOR AGREEMENT EXHIBIT A ENGAGEMENT ADDENDUM EXHIBIT B INTRAWARE, INC. CONTRACTOR CONFIDENTIAL INFORMATION, INVENTION ASSIGNMENT AND ARBITRATION AGREEMENT ATTACHMENT 1 INTRAWARE, INC. TERMINATION CERTIFICATION [DO NOT SIGN THIS PAGE ON INITIAL EXECUTION OF AGREEMENT— SIGN ONLY WHEN AGREEMENT IS TERMINATED]

THE HOME DEPOT, INC.   DEFERRED STOCK UNITS PLAN AND AGREEMENT                     THIS DEFERRED STOCK UNITS PLAN AND AGREEMENT EVIDENCES THAT, SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS, ON SEPTEMBER 17, 2001 (THE “GRANT DATE”), THE HOME DEPOT, INC., A DELAWARE CORPORATION, (THE “COMPANY”) GRANTED TO ROBERT L. NARDELLI (THE “EXECUTIVE”) AN AWARD OF DEFERRED STOCK UNITS CORRESPONDING TO TWO HUNDRED FIFTY THOUSAND (250,000) SHARES OF COMMON STOCK, $.05 PAR VALUE (“COMMON STOCK”), OF THE COMPANY (EACH A “DEFERRED STOCK UNIT”): 1.         DEFINITIONS.   AS USED HEREIN, THE FOLLOWING TERMS SHALL BE DEFINED AS SET FORTH BELOW: (A)           "CAUSE" SHALL MEAN THAT EXECUTIVE HAS BEEN CONVICTED OF A FELONY INVOLVING THEFT OR MORAL TURPITUDE, OR ENGAGED IN CONDUCT THAT CONSTITUTES WILLFUL GROSS NEGLECT OR WILLFUL GROSS MISCONDUCT WITH RESPECT TO EXECUTIVE'S EMPLOYMENT DUTIES WHICH RESULTS IN MATERIAL ECONOMIC HARM TO THE COMPANY; PROVIDED, HOWEVER, THAT FOR PURPOSES OF DETERMINING WHETHER CONDUCT CONSTITUTES WILLFUL GROSS MISCONDUCT, NO ACT ON EXECUTIVE'S PART SHALL BE CONSIDERED “WILLFUL” UNLESS IT IS DONE BY EXECUTIVE IN BAD FAITH AND WITHOUT REASONABLE BELIEF THAT HIS ACTION WAS IN THE BEST INTERESTS OF THE COMPANY.  NOTWITHSTANDING THE FOREGOING, THE COMPANY MAY NOT TERMINATE EXECUTIVE'S EMPLOYMENT FOR CAUSE UNLESS (1) A DETERMINATION THAT CAUSE EXISTS IS MADE AND APPROVED BY A MAJORITY OF THE COMPANY'S BOARD OF DIRECTORS (THE "BOARD"), (2) EXECUTIVE IS GIVEN AT LEAST THIRTY (30) DAYS’ WRITTEN NOTICE OF THE BOARD MEETING CALLED TO MAKE SUCH DETERMINATION, AND (3) EXECUTIVE AND HIS LEGAL COUNSEL ARE GIVEN THE OPPORTUNITY TO ADDRESS SUCH MEETING. (B)           A "CHANGE IN CONTROL" SHALL BE DEEMED TO HAVE OCCURRED IF: (1)           Any “person” (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), excluding for this purpose, (A) the Company or any subsidiary of the Company, or (B) any employee benefit plan of the Company or any subsidiary of the Company, or any person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan which acquires beneficial ownership of voting securities of the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than twenty percent (20%) of the combined voting power of the Company’s then outstanding securities; provided, however, that no Change in Control will be deemed to have occurred as a result of a change in ownership percentage resulting solely from an acquisition of securities by the Company; or   (2)           During any two (2) consecutive years (not including any period beginning prior to December 3, 2000), individuals who at the beginning of such two (2) year period constitute the Board and any new director (except for a director designated by a person who has entered into an agreement with the Company to effect a transaction described elsewhere in this definition of Change in Control) whose election by the Board 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 at least a majority of the Board; or   (3)           Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, all or substantially all of the individuals and entities who were the beneficial owners of outstanding voting securities of the Company immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of 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 company resulting from such Business Combination (including, without limitation, a company which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the outstanding voting securities of the Company; or   (4)           Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.   (C)           "COMMITTEE" MEANS THE COMPENSATION COMMITTEE OF THE BOARD. (D)           "DISABILITY" MEANS EXECUTIVE'S INABILITY TO SUBSTANTIALLY PERFORM HIS DUTIES UNDER THAT CERTAIN EMPLOYMENT AGREEMENT ENTERED INTO BETWEEN THE COMPANY AND EXECUTIVE EFFECTIVE AS OF DECEMBER 4, 2000 (THE "EMPLOYMENT AGREEMENT"), WITH REASONABLE ACCOMMODATION, AS EVIDENCED BY A CERTIFICATE SIGNED EITHER BY A PHYSICIAN MUTUALLY ACCEPTABLE TO THE COMPANY AND EXECUTIVE OR, IF THE COMPANY AND EXECUTIVE CANNOT AGREE UPON A PHYSICIAN, BY A PHYSICIAN SELECTED BY AGREEMENT OF A PHYSICIAN DESIGNATED BY THE COMPANY AND A PHYSICIAN DESIGNATED BY EXECUTIVE; PROVIDED, HOWEVER, THAT IF SUCH PHYSICIANS CANNOT AGREE UPON A THIRD PHYSICIAN WITHIN THIRTY (30) DAYS, SUCH THIRD PHYSICIAN SHALL BE DESIGNATED BY THE AMERICAN ARBITRATION ASSOCIATION. (E)           "GOOD REASON" SHALL MEAN, WITHOUT EXECUTIVE'S CONSENT, (1) THE ASSIGNMENT TO EXECUTIVE OF ANY DUTIES INCONSISTENT IN ANY MATERIAL RESPECT WITH EXECUTIVE'S POSITION (INCLUDING STATUS, OFFICES, TITLES AND REPORTING RELATIONSHIPS), AUTHORITY, DUTIES OR RESPONSIBILITIES AS CONTEMPLATED BY SECTION 3 OF THE EMPLOYMENT AGREEMENT, OR ANY OTHER ACTION BY THE COMPANY WHICH RESULTS IN A SIGNIFICANT DIMINUTION IN SUCH POSITION, AUTHORITY, DUTIES OR RESPONSIBILITIES, EXCLUDING ANY ISOLATED AND INADVERTENT ACTION NOT TAKEN IN BAD FAITH AND WHICH IS REMEDIED BY THE COMPANY WITHIN TEN (10) DAYS AFTER RECEIPT OF NOTICE THEREOF GIVEN BY EXECUTIVE; (2) ANY FAILURE BY THE COMPANY TO COMPLY WITH ANY OF THE PROVISIONS OF SECTIONS 4 OR 5 OF THE EMPLOYMENT AGREEMENT OTHER THAN AN ISOLATED AND INADVERTENT FAILURE NOT COMMITTED IN BAD FAITH AND WHICH IS REMEDIED BY THE COMPANY WITHIN TEN (10) DAYS AFTER RECEIPT OF NOTICE THEREOF GIVEN BY EXECUTIVE; (3) EXECUTIVE BEING REQUIRED TO RELOCATE TO A PRINCIPAL PLACE OF EMPLOYMENT MORE THAN TWENTY-FIVE (25) MILES FROM HIS PRINCIPAL PLACE OF EMPLOYMENT WITH THE COMPANY AS OF DECEMBER 4, 2000; (4) DELIVERY BY THE COMPANY OF A NOTICE DISCONTINUING THE AUTOMATIC EXTENSION PROVISION OF SECTION 2 OF THE EMPLOYMENT AGREEMENT; (5) FAILURE BY THE COMPANY TO ELECT EXECUTIVE TO THE POSITION OF SOLE CHAIRMAN OF THE BOARD IN COMPLIANCE WITH THE TERMS OF SECTION 3.1 OF THE EMPLOYMENT AGREEMENT; OR (6) ANY PURPORTED TERMINATION BY THE COMPANY OF EXECUTIVE'S EMPLOYMENT OTHERWISE THAN AS EXPRESSLY PERMITTED BY THE EMPLOYMENT AGREEMENT. 2.             DEFERRED STOCK UNITS. (A)           VESTING SCHEDULE; ISSUANCE OF SHARES.  FIFTY THOUSAND (50,000) DEFERRED STOCK UNITS SHALL BECOME VESTED ON THE GRANT DATE AND EACH OF THE FIRST FOUR ANNIVERSARIES OF EXECUTIVE'S EMPLOYMENT DATE OF DECEMBER 4, 2000 (THE “VESTING DATES”); PROVIDED THAT, EXCEPT AS PROVIDED IN SUBPARAGRAPH (C) BELOW, EXECUTIVE IS EMPLOYED BY THE COMPANY ON THE APPLICABLE VESTING DATE.  THE COMPANY SHALL ISSUE ONE SHARE OF COMMON STOCK TO EXECUTIVE FOR EACH VESTED DEFERRED STOCK UNIT ON JANUARY 1 OF THE THIRD CALENDAR YEAR FOLLOWING THE CALENDAR YEAR IN WHICH THE DEFERRED STOCK UNIT VESTS (AS ILLUSTRATED IN THE SCHEDULE ON APPENDIX A HERETO), UNLESS (1) EXECUTIVE HAS ELECTED TO DEFER THE ISSUANCE OF SUCH SHARES PURSUANT TO SUBPARAGRAPH (B) BELOW, OR (2) EXECUTIVE'S EMPLOYMENT TERMINATES PRIOR TO SUCH DATE (IN WHICH CASE SHARES SHALL BE ISSUED AS PROVIDED UNDER SUBPARAGRAPH (C) BELOW).  EACH DEFERRED STOCK UNIT SHALL BE CANCELLED UPON THE ISSUANCE OF A SHARE OF COMMON STOCK WITH RESPECT THERETO. (B)           DEFERRAL.  EXECUTIVE MAY ELECT IN WRITING ON OR BEFORE DECEMBER 31 OF THE CALENDAR YEAR FOLLOWING THE CALENDAR YEAR IN WHICH THE DEFERRED STOCK UNITS VEST (THE “LATEST DEFERRAL DATE”), TO DEFER THE ISSUANCE OF SHARES OF COMMON STOCK WITH RESPECT TO ALL OR A PART OF SUCH VESTED DEFERRED STOCK UNITS.  ANY SUCH ELECTION SHALL SPECIFY THE DATE OF ISSUANCE FOR THE DEFERRED SHARES AND SHALL BE IRREVOCABLE AFTER THE LATEST DEFERRAL DATE. (C)           TERMINATION OF EMPLOYMENT; CHANGE IN CONTROL.  IF (1) THE COMPANY TERMINATES EXECUTIVE’S EMPLOYMENT OTHER THAN FOR CAUSE, (2) EXECUTIVE, UPON FIFTEEN (15) DAYS’ PRIOR WRITTEN NOTICE, TERMINATES HIS EMPLOYMENT FOR GOOD REASON, (3) EXECUTIVE’S EMPLOYMENT TERMINATES DUE TO DEATH OR DISABILITY, OR (4) A CHANGE IN CONTROL OCCURS WHILE EXECUTIVE IS EMPLOYED BY THE COMPANY, ANY DEFERRED STOCK UNITS THAT HAVE NOT YET VESTED SHALL IMMEDIATELY VEST.  UNLESS EXECUTIVE HAS ELECTED PURSUANT TO SUBPARAGRAPH (B) ABOVE TO DEFER ISSUANCE TO A LATER DATE, THE COMPANY SHALL ISSUE TO EXECUTIVE, WITHIN TEN (10) DAYS AFTER THE TERMINATION OF EXECUTIVE'S EMPLOYMENT FOR ANY REASON, ONE SHARE OF COMMON STOCK FOR EACH OUTSTANDING VESTED DEFERRED STOCK UNIT, AND EACH OUTSTANDING DEFERRED STOCK UNIT SHALL BE CANCELLED. (D)           LIMITATION OF RIGHTS; DIVIDEND EQUIVALENTS.  EXECUTIVE SHALL NOT HAVE ANY RIGHT TO TRANSFER ANY RIGHTS UNDER THE DEFERRED STOCK UNITS EXCEPT AS PERMITTED BY PARAGRAPH 4 BELOW, SHALL NOT HAVE ANY RIGHTS OF OWNERSHIP IN THE SHARES OF COMMON STOCK SUBJECT TO THE DEFERRED STOCK UNITS PRIOR TO THE ISSUANCE OF SUCH SHARES, AND SHALL NOT HAVE ANY RIGHT TO VOTE SUCH SHARES.  EXECUTIVE, HOWEVER, SHALL RECEIVE A CASH PAYMENT EQUAL TO THE CASH DIVIDENDS PAID ON SHARES UNDERLYING OUTSTANDING VESTED DEFERRED STOCK UNITS WHEN CASH DIVIDENDS ARE PAID TO SHAREHOLDERS OF THE COMPANY. 3.         ADMINISTRATION.  THIS PLAN AND AGREEMENT SHALL BE ADMINISTERED BY THE COMMITTEE.  THE INTERPRETATION AND CONSTRUCTION BY THE COMMITTEE OF ANY PROVISION HEREIN AND ANY DETERMINATION BY THE COMMITTEE PURSUANT TO ANY PROVISION OF THIS PLAN AND AGREEMENT SHALL BE FINAL AND CONCLUSIVE.  NO MEMBER OF THE COMMITTEE SHALL BE LIABLE TO ANY PERSON FOR ANY SUCH ACTION TAKEN OR DETERMINATION MADE IN GOOD FAITH. 4.         TRANSFERABILITY.  EXCEPT AS OTHERWISE PROVIDED IN THIS PARAGRAPH 4, THE DEFERRED STOCK UNITS GRANTED PURSUANT TO THIS PLAN AND AGREEMENT SHALL NOT BE SOLD, PLEDGED, ASSIGNED, HYPOTHECATED, TRANSFERRED OR DISPOSED OF IN ANY MANNER, WHETHER BY THE OPERATION OF LAW OR OTHERWISE.  EXECUTIVE MAY TRANSFER THE DEFERRED STOCK UNITS, IN WHOLE OR IN PART, TO A SPOUSE OR LINEAL DESCENDANT (A “FAMILY MEMBER”), A TRUST FOR THE EXCLUSIVE BENEFIT OF EXECUTIVE AND/OR FAMILY MEMBERS, A PARTNERSHIP OR OTHER ENTITY IN WHICH ALL THE BENEFICIAL OWNERS ARE EXECUTIVE AND/OR FAMILY MEMBERS, OR ANY OTHER ENTITY AFFILIATED WITH EXECUTIVE THAT MAY BE APPROVED BY THE COMMITTEE (A "PERMITTED TRANSFEREE").  SUBSEQUENT TRANSFERS OF THE DEFERRED STOCK UNITS SHALL BE PROHIBITED EXCEPT IN ACCORDANCE WITH THIS PARAGRAPH 4.  ALL TERMS AND CONDITIONS OF THE DEFERRED STOCK UNITS, INCLUDING PROVISIONS RELATING TO THE TERMINATION OF EXECUTIVE'S EMPLOYMENT WITH THE COMPANY, SHALL CONTINUE TO APPLY FOLLOWING A TRANSFER MADE IN ACCORDANCE WITH THIS PARAGRAPH 4.  UPON ANY ATTEMPT OF A TRANSFER OF THE DEFERRED STOCK UNITS PROHIBITED BY THIS PARAGRAPH 4, THE DEFERRED STOCK UNITS SHALL IMMEDIATELY BECOME NULL AND VOID. 5.         ADJUSTMENTS.   THE NUMBER OF SHARES COVERED BY THE DEFERRED STOCK UNITS AND, IF APPLICABLE, THE KIND OF SHARES COVERED BY THE DEFERRED STOCK UNITS SHALL BE ADJUSTED TO REFLECT ANY STOCK DIVIDEND, STOCK SPLIT, OR COMBINATION OF SHARES OF THE COMPANY'S COMMON STOCK.  IN ADDITION, THE COMMITTEE MAY MAKE OR PROVIDE FOR SUCH ADJUSTMENT IN THE NUMBER OF SHARES COVERED BY THE DEFERRED STOCK UNITS, AND THE KIND OF SHARES COVERED THE DEFERRED STOCK UNITS, AS THE COMMITTEE IN ITS SOLE DISCRETION MAY IN GOOD FAITH DETERMINE TO BE EQUITABLY REQUIRED IN ORDER TO PREVENT DILUTION OR ENLARGEMENT OF EXECUTIVE'S RIGHTS THAT OTHERWISE WOULD RESULT FROM (A) ANY EXCHANGE OF SHARES OF THE COMPANY'S COMMON STOCK, RECAPITALIZATION OR OTHER CHANGE IN THE CAPITAL STRUCTURE OF THE COMPANY, (B) ANY MERGER, CONSOLIDATION, SPIN-OFF, SPIN-OUT, SPLIT-OFF, SPLIT-UP, REORGANIZATION, PARTIAL OR COMPLETE LIQUIDATION OR OTHER DISTRIBUTION OF ASSETS (OTHER THAN A NORMAL CASH DIVIDEND), ISSUANCE OF RIGHTS OR WARRANTS TO PURCHASE SECURITIES, OR (C) ANY OTHER CORPORATE TRANSACTION OR EVENT HAVING AN EFFECT SIMILAR TO ANY OF THE FOREGOING.  MOREOVER, IN THE EVENT OF ANY SUCH TRANSACTION OR EVENT, THE COMMITTEE MAY PROVIDE IN SUBSTITUTION FOR THE DEFERRED STOCK UNITS SUCH ALTERNATIVE CONSIDERATION AS IT MAY IN GOOD FAITH DETERMINE TO BE EQUITABLE UNDER THE CIRCUMSTANCES AND MAY REQUIRE IN CONNECTION THEREWITH THE SURRENDER OF THE DEFERRED STOCK UNITS SO REPLACED. 6.         FRACTIONAL SHARES.  THE COMPANY SHALL NOT BE REQUIRED TO ISSUE ANY FRACTIONAL SHARES PURSUANT TO THIS PLAN AND AGREEMENT, AND THE COMMITTEE MAY ROUND FRACTIONS DOWN. 7.         TAXES.  TO THE EXTENT THAT THE COMPANY IS REQUIRED TO WITHHOLD FEDERAL, STATE, LOCAL OR FOREIGN TAXES IN CONNECTION WITH ANY BENEFIT REALIZED BY EXECUTIVE OR ANY OTHER PERSON UNDER THIS PLAN AND AGREEMENT, IT SHALL BE A CONDITION TO THE REALIZATION OF SUCH BENEFIT THAT EXECUTIVE OR SUCH OTHER PERSON MAKE ARRANGEMENTS SATISFACTORY TO THE COMPANY FOR PAYMENT OF ALL SUCH TAXES REQUIRED TO BE WITHHELD, WHICH ARRANGEMENTS MAY INCLUDE EXECUTIVE'S DELIVERY TO THE COMPANY OF A CHECK EQUAL TO THE AMOUNT OF SUCH TAXES.  UPON THE PAYMENT OF ANY DIVIDEND EQUIVALENTS PAYABLE PURSUANT TO PARAGRAPH 2(D) ABOVE, EXECUTIVE AGREES THAT THE COMPANY SHALL DEDUCT THEREFROM SUCH AMOUNTS AS ARE NECESSARY TO SATISFY APPLICABLE WITHHOLDING REQUIREMENTS. 8.         NO IMPACT ON OTHER BENEFITS AND EMPLOYMENT.  THIS PLAN AND AGREEMENT SHALL NOT CONFER UPON EXECUTIVE ANY RIGHT WITH RESPECT TO CONTINUANCE OF EMPLOYMENT OR OTHER SERVICE WITH THE COMPANY AND SHALL NOT INTERFERE IN ANY WAY WITH ANY RIGHT THAT THE COMPANY WOULD OTHERWISE HAVE TO TERMINATE EXECUTIVE'S EMPLOYMENT AT ANY TIME, SUBJECT TO THE TERMS OF THE EMPLOYMENT AGREEMENT.  NOTHING HEREIN CONTAINED SHALL AFFECT EXECUTIVE'S RIGHT TO PARTICIPATE IN AND RECEIVE BENEFITS UNDER AND IN ACCORDANCE WITH THE THEN CURRENT PROVISIONS OF ANY PENSION, INSURANCE OR OTHER EMPLOYMENT PLAN OR PROGRAM OF THE COMPANY OR ANY OF ITS SUBSIDIARIES NOR CONSTITUTE AN OBLIGATION FOR CONTINUED EMPLOYMENT. 9.         CANCELLATION.  WITH EXECUTIVE'S CONCURRENCE, THE COMMITTEE MAY CANCEL THIS PLAN AND AGREEMENT.  IN THE EVENT OF SUCH CANCELLATION, THE COMMITTEE MAY AUTHORIZE THE GRANTING OF NEW DEFERRED STOCK UNITS, WHICH MAY OR MAY NOT COVER THE SAME NUMBER OF SHARES THAT HAD BEEN THE SUBJECT OF THE DEFERRED STOCK UNITS, IN SUCH MANNER AND SUBJECT TO SUCH OTHER TERMS AND CONDITIONS AS THEN DETERMINED BY THE COMMITTEE. 10.       GOVERNING LAW.  THE VALIDITY, CONSTRUCTION AND EFFECT OF THIS PLAN AND AGREEMENT WILL BE DETERMINED IN ACCORDANCE WITH (A) THE DELAWARE GENERAL CORPORATION LAW, AND (B) TO THE EXTENT APPLICABLE, OTHER LAWS (INCLUDING THOSE GOVERNING CONTRACTS) OF THE STATE OF GEORGIA (WITHOUT REGARD TO THE CHOICE OF LAW PROVISIONS THEREOF). 11.       MERGER CLAUSE.  THIS PLAN AND AGREEMENT SUPERSEDES ANY AND ALL UNDERSTANDINGS BETWEEN THE COMPANY AND EXECUTIVE WITH RESPECT TO THE DEFERRED STOCK UNITS AND, EXCEPT AS OTHERWISE PROVIDED HEREIN, THIS PLAN AND AGREEMENT MAY BE AMENDED ONLY IN WRITING SIGNED BY THE COMPANY AND EXECUTIVE. Please indicate your understanding and acceptance of the foregoing by signing and returning a copy of this Plan and Agreement.       THE HOME DEPOT, INC.           /s/  Bernie Marcus     By: Bernie Marcus                 I hereby acknowledge receipt of the Deferred Stock Units granted on September 17, 2001, which have been granted to me under the foregoing terms and conditions.  I further agree to conform to all of the terms and conditions of such Deferred Stock Units.       EXECUTIVE           /s/  Robert L. Nardelli     Robert L. Nardelli           Date:   10/24/01   APPENDIX A   SCHEDULE FOR DEFERRED STOCK UNITS       Number of             Deferred           Distribution Date Stock Units   Vesting Date   Latest Deferral Date   if No Deferral               1.     50,000   September 17, 2001   December 31, 2002   January 1, 2004 2.     50,000   December 4, 2001     December 31, 2002   January 1, 2004 3.     50,000   December 4, 2002     December 31, 2003   January 1, 2005 4.     50,000   December 4, 2003     December 31, 2004   January 1, 2006 5.     50,000   December 4, 2004     December 31, 2005   January 1, 2007  

FIRST AMENDMENT TO CREDIT AGREEMENT              THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the “Amendment”), dated as of June 27, 2001, is by and among F.Y.I. INCORPORATED, a Delaware corporation (“F.Y.I”), BANK OF AMERICA, N.A., as Administrative Agent (the “Administrative Agent”), and the Lenders under the Credit Agreement (as hereinafter defined) which are signatories hereto. R E C I T A L S:              A.         F.Y.I., the Administrative Agent and the Lenders have entered into that certain Credit Agreement dated as of April 3, 2001 (the “Credit Agreement”).              B.          F.Y.I. has requested, and the Administrative Agent and the Lenders which are signatories hereto (which Lenders constitute Required Lenders) have agreed, to amend the Credit Agreement, subject to the terms and conditions contained herein.              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 hereto hereby agree as follows: ARTICLE 1. Definitions              Section 1.1       Definitions.  Capitalized terms used in this Amendment, to the extent not otherwise defined herein, shall have the same meanings as in the Credit Agreement, as amended hereby. ARTICLE 2. Amendments and Consent              Section 2.1       Amendments to Section 1.1.              (a)         The following defined terms contained in Section 1.1 of the Credit Agreement are hereby amended and restated to read in their entirety as follows:              “Master Guaranty” means a guaranty of the Domestic Subsidiaries of F.Y.I. (other than MMS Securities, Inc.) in favor of the Administrative Agent, for the benefit of the Administrative Agent and the Lenders, in substantially the form of Exhibit H, as the same may be modified pursuant to one or more Joinder Agreements and as the same may otherwise be modified from time to time.              (b)        The following new defined terms are hereby added to Section 1.1 of the Credit Agreement, which defined terms shall read in their entirety as follows:              “MMS Securities, Inc.” means MMS Securities, Inc., a Michigan corporation.              Section 2.2       Amendment to Section 5.2.  Section 5.2 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:              Section 5.2       Guaranties.  Each Domestic Subsidiary of F.Y.I. in existence on the Closing Date (other than MMS Securities, Inc.) shall guarantee the payment and performance of the Obligations pursuant to the Master Guaranty.              Section 2.3       Amendment to Section 9.1.  Section 9.1(e) of the Credit Agreement is hereby amended and restated to read in its entirety as follows:              (e)         Intercompany Debt between or among F.Y.I. and any of its Wholly-Owned Subsidiaries incurred in the ordinary course of business, subject to the requirement that any and all of the Debt permitted pursuant to this Section 9.1(e) shall be unsecured, shall be evidenced by instruments satisfactory to the Administrative Agent which will be pledged to the Administrative Agent for the benefit of the Administrative Agent and the Lenders and shall be subordinated to the Obligations pursuant to a subordination agreement in form and substance satisfactory to the Administrative Agent (the foregoing being referred to as "Intercompany Debt"); provided also that the aggregate sum of Intercompany Debt loaned by F.Y.I. or any of its Subsidiaries to MMS Securities, Inc. (to the extent permitted by this Section 9.1(e)) plus other Investments made by F.Y.I. or any of its Subsidiaries in MMS Securities, Inc. (to the extent permitted by Section 9.5(g)) shall not exceed $1,000,000; provided also that the aggregate sum of (i) the outstanding principal amount of the loans, advances and other extensions of credit made to Foreign Subsidiaries by F.Y.I. and its Domestic Subsidiaries plus (ii) the Investments by F.Y.I. in any Foreign Subsidiary (collectively, the "Foreign Debt and Investment") shall not at any time exceed an amount equal to the product of the book value of the total assets of F.Y.I. and its Subsidiaries, on a consolidated basis in accordance with GAAP, multiplied by 5% (such product herein the "Maximum Foreign Amount").              Section 2.4       Amendment to Section 9.5.  Section 9.5(g) of the Credit Agreement is hereby amended and restated to read in its entirety as follows:              (g)        (i) Investments by F.Y.I. and its Subsidiaries in its Subsidiaries existing on the Closing Date, (ii) any Investments of F.Y.I. in its Subsidiaries which represent amounts invested in such Subsidiary to enable such Subsidiary (A) to pay all or a portion of the purchase consideration for a Permitted Acquisition, (B) to make Permitted Capital Expenditures, (C) to retire any Existing Debt, or (D) to retire any Debt assumed in connection with a Permitted Acquisition, and (iii) Investments by F.Y.I. in Wholly-Owned Subsidiaries of F.Y.I.; provided, that the Foreign Debt and Investments shall not at any time exceed an amount equal to the Maximum Foreign Amount; provided also that the aggregate sum of Intercompany Debt loaned by F.Y.I. or any of its Subsidiaries to MMS Securities, Inc. (to the extent permitted by Section 9.1(e)) plus other Investments made by F.Y.I. or any of its Subsidiaries in MMS Securities, Inc. (to the extent permitted by this Section 9.5(g)) shall not exceed $1,000,000.              Section 2.5       Conditional Consent.  F.Y.I. has, pursuant to a letter dated June 21, 2001 from Barry L. Edwards, Executive Vice President and Chief Financial Officer of F.Y.I., to Todd M. Burns, Senior Vice President of the Administrative Agent (the “Asset Disposition Letter”) informed the Administrative Agent and the Lenders that it intends to dispose of the assets and/or stock of the Subsidiaries listed on Schedule 1 hereto (each an “Asset Disposition” and collectively the “Asset Dispositions”), which Asset Dispositions would exceed the $250,000 annual cap on Net Proceeds from asset dispositions to unaffiliated entities set forth in Section 9.8(b) of the Credit Agreement (the “Asset Disposition Covenant”).  In connection therewith, F.Y.I. has requested that the Administrative Agent and the Required Lenders consent to the Asset Dispositions and that the Administrative Agent release any Subsidiaries listed on Schedule 1 hereto whose stock has been sold and/or who have been dissolved (the “Released Subsidiaries”) from the Master Guaranty and from the Security Agreements (if and to the extent that the Released Subsidiaries are party to any of the Security Agreements).  Subject to the satisfaction of the conditions set forth in the proviso at the end of this Section 2.5 and the conditions set forth in Section 3.1 below, the Administrative Agent and the undersigned Lenders (which Lenders constitute Required Lenders) hereby consent to the Asset Dispositions and, concurrently with the consummation (if any) of the Asset Dispositions, the Administrative Agent agrees to release the Released Subsidiaries from the Security Documents to which such Subsidiaries are parties (the “Releases”); provided, however, that the consent to the Asset Dispositions and the Releases are subject to the satisfaction of the condition precedents that (i) the Asset Dispositions shall be consummated on or before  August 30, 2001 and (ii) the aggregate value of assets and stock disposed of in connection with the Asset Dispositions shall not exceed $80,000,000. ARTICLE 3. Miscellaneous              Section 3.1       Conditions to Effectiveness.  This Amendment shall be effective upon the execution hereof by F.Y.I., the Administrative Agent and the Required Lenders and the satisfaction of the following conditions precedent:              (a)         Reaffirmation of Master Guaranty Agreement.  The parties to the Master Guaranty Agreement shall have executed and delivered to the Administrative Agent the Reaffirmation of Master Guaranty attached hereto.              (b)        Asset Disposition Documents.  F.Y.I. shall have delivered to the Administrative Agent such documents as the Administrative Agent may reasonably require to evidence the sale of the stock or the dissolution of the Released Subsidiaries.              (c)         Payment of Fees and Expenses.  F.Y.I. shall have paid all fees and expenses of or incurred by the Administrative Agent and its counsel to the extent billed on or before the date hereof and payable pursuant to this Amendment.              (d)        Additional Information.  Such additional agreements, documents, instruments and information as the Administrative Agent or its legal counsel may reasonably request to effect the transactions contemplated hereby.              Section 3.2       Agreement Relating to the Leased Properties.  Subject to the terms and conditions hereof, each of the undersigned Lenders hereby agrees that the failure of F.Y.I. to deliver an executed Mortgage to the Administrative Agent relating to the leased property of F.Y.I. and its Subsidiaries listed on Schedule 1.1(a) to the Credit Agreement (the “Leased Properties”) prior to such time as the Funded Debt to EBITDA Ratio exceeds 2.50 to 1.00 for two consecutive fiscal quarters of F.Y.I. (the “Lien Attachment Date”), will not result in an Event of Default under the Agreement; provided that (a) prior to the Lien Attachment Date, F.Y.I. will deliver to the Administative Agent executed Mortgages relating to the Leased Properties, in form and substance reasonably satisfactory to the Administrative Agent, within 45 days of request for such Mortgages by the Administrative Agent or Required Lenders, and (b) F.Y.I. will deliver to the Administative Agent executed Mortgages relating to the Leased Properties, in form and substance reasonably satisfactory to the Administrative Agent, within 45 days of the Lien Attachment Date.              Section 3.3       Limited Nature of Consent.  The consent set forth in Section 2.5 of this Amendment shall not be deemed a consent to the departure from or waiver of (a) the Asset Disposition Covenant for any purpose other than to permit the Asset Dispositions or (b) any other covenant or condition in any Loan Document or (c) any Event of Default that otherwise may arises as a result of the Asset Disposition.              Section 3.4       Representations and Warranties.  F.Y.I. hereby represents and warrants to the Administration Agent and the Lenders that (a) the execution, delivery and performance of this Amendment and any and all other Loan Documents executed and/or delivered in connection herewith have been authorized by all requisite action on the part of each of the Loan Parties party thereto and will not violate the articles of incorporation or bylaws of any Loan Party, (b) the representations and warranties contained in the Credit Agreement, as amended hereby, and any other Loan Document are true and correct on and as of the date hereof as though made on and as of the date hereof (except to the extent that such representations and warranties were expressly, in the Credit Agreement, made only in reference to a specific date), (c) after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing, and (d) F.Y.I. is in full compliance with all covenants and agreements contained the Credit Agreement, as amended hereby, and the other Loan Documents.              Section 3.5       Survival of Representations and Warranties.  All representations and warranties made in this Amendment or any other Loan Document shall survive the execution and delivery of this Amendment and the other Loan Documents, and no investigation by the Administration Agent or any Lender shall affect the representations and warranties or the right of the Administrative Agent or any Lender to rely upon them.              Section 3.6       Ratifications.  Except as expressly modified and superseded by this Amendment, the terms and provisions of the Credit Agreement are ratified and confirmed and shall continue in full force and effect. F.Y.I., the Administrative Agent and the Lenders agree that the Credit Agreement as amended hereby shall continue to be legal, valid, binding and enforceable in accordance with its terms.              Section 3.7       Reference to Credit Agreement.  Each of the Loan Documents, including the Credit Agreement and any and all other agreements or documents now or hereafter executed and/or delivered pursuant to the terms hereof or pursuant to the terms of the Credit Agreement as amended hereby, is hereby amended so that any reference in such Loan Document to the Credit Agreement shall mean a reference to the Credit Agreement as amended hereby.              Section 3.8       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.              Section 3.9       Applicable Law.  This Amendment shall be governed by and construed in accordance with the laws of the State of Texas and the applicable laws of the United States of America.              Section 3.10     Successors and Assigns.  This Amendment is binding upon and shall inure to the benefit of F.Y.I., the Administrative Agent and the Lenders and their respective successors and permitted assigns, except F.Y.I. may not assign or transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and the Required Lenders.              Section 3.11     Counterparts.  This Amendment may be executed in one or more Counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same agreement.              Section 3.12     Headings.  The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment.              Section 3.13     ENTIRE AGREEMENT.  THIS AMENDMENT AND ALL OTHER INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THIS AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.              IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the day and year first written above. F.Y.I. INCORPORATED     By:     -------------------------------------------------------------------------------- Name:     -------------------------------------------------------------------------------- Title:     --------------------------------------------------------------------------------     ADMINISTRATIVE AGENT:   BANK OF AMERICA, N.A., as Administrative Agent     By:     -------------------------------------------------------------------------------- Name:     -------------------------------------------------------------------------------- Title:     --------------------------------------------------------------------------------     LENDERS:   BANK OF AMERICA, N.A., as a Lender     By:     -------------------------------------------------------------------------------- Name:     -------------------------------------------------------------------------------- Title:     --------------------------------------------------------------------------------     SUNTRUST BANK, as syndication agent and as a Lender     By:     -------------------------------------------------------------------------------- Name:     -------------------------------------------------------------------------------- Title:     --------------------------------------------------------------------------------     WELLS FARGO BANK TEXAS, NATIONAL ASSOCIATION, as documentation agent and as a Lender     By:     -------------------------------------------------------------------------------- Name:     -------------------------------------------------------------------------------- Title:     --------------------------------------------------------------------------------     BANK ONE, NA, as a Lender     By:     -------------------------------------------------------------------------------- Name:     -------------------------------------------------------------------------------- Title:     --------------------------------------------------------------------------------     BNP PARIBAS, as a Lender   By:     -------------------------------------------------------------------------------- Name:     -------------------------------------------------------------------------------- Title:     --------------------------------------------------------------------------------     By:     -------------------------------------------------------------------------------- Name:     -------------------------------------------------------------------------------- Title:     --------------------------------------------------------------------------------     FIRST UNION NATIONAL BANK, as a Lender     By:     -------------------------------------------------------------------------------- Name:     -------------------------------------------------------------------------------- Title:     --------------------------------------------------------------------------------     THE BANK OF NOVA SCOTIA, as a Lender     By:     -------------------------------------------------------------------------------- Name:     -------------------------------------------------------------------------------- Title:     --------------------------------------------------------------------------------     THE CHASE MANHATTAN BANK, as a Lender     By:     -------------------------------------------------------------------------------- Name:     -------------------------------------------------------------------------------- Title:     --------------------------------------------------------------------------------     WACHOVIA BANK, N.A., as a Lender     By:     -------------------------------------------------------------------------------- Name:     -------------------------------------------------------------------------------- Title:     --------------------------------------------------------------------------------     WASHINGTON MUTUAL BANK, as a Lender     By:     -------------------------------------------------------------------------------- Name:     -------------------------------------------------------------------------------- Title:     --------------------------------------------------------------------------------     TEXAS CAPITAL BANK, NATIONAL ASSOCIATION, as a Lender     By:     -------------------------------------------------------------------------------- Name:     -------------------------------------------------------------------------------- Title:     --------------------------------------------------------------------------------     RAYMOND JAMES BANK, FSB, as a Lender     By:     -------------------------------------------------------------------------------- Name:     -------------------------------------------------------------------------------- Title:     --------------------------------------------------------------------------------   REAFFIRMATION OF MASTER GUARANTY AGREEMENT              Reference is made to that certain Credit Agreement dated as of April 3, 2001 among F.Y.I. Incorporated (“F.Y.I.”), Bank of America, N.A., as administrative agent (the “Administrative Agent”), and the Lenders party thereto (as amended, the “Credit Agreement”) and that certain First Amendment to Credit Agreement dated as of June 27, 2001 among F.Y.I., the Administrative Agent and the Lenders (the “First Amendment”).  Each of the undersigned parties (individually a “Guarantor” and collectively the “Guarantors”) hereby (a) consents to the terms of the First Amendment; (b) agrees that the Master Guaranty Agreement dated as of April 3, 2001 executed by the Guarantors (the “Master Guaranty Agreement”) is and shall continue in full force and effect for the benefit of the Lender with respect to the Obligations; and (c) agrees that (i) the Master Guaranty Agreement is not released, diminished or impaired in any way by the transactions contemplated by the First Amendment, including, without limitation, the Asset Dispositions described in Section 2.5 of the First Amendment and the exclusion of MMS Securities, Inc. from the guarantee requirement contained in Section 5.2 of the Credit Agreement, (ii) the representations and warranties of such Guarantor in the Master Guaranty Agreement remain true and correct as if made on the date hereof and (iii) the Master Guaranty Agreement is hereby ratified and confirmed in all respects; provided that, with respect to the Guarantors whose capital stock is to be sold or who will be dissolved in connection with the Asset Dispositions (as such term is defined in the First Amendment), such Guarantors will be released by the Administrative Agent from their obligations under the Master Guaranty Agreement and the other Loan Documents concurrently with or immediately after such capital stock sale or dissolution.              Unless otherwise defined herein, each capitalized term used in this Reaffirmation of Master Guaranty Agreement has the meaning given to such term in the Credit Agreement, as amended by the First Amendment.              This Reaffirmation of Master Guaranty Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement, but in making proof of this Reaffirmation of Master Guaranty Agreement, it shall not be necessary to account for more than one such counterpart.              IN WITNESS WHEREOF, the undersigned parties have duly executed this Reaffirmation of Master Guaranty Agreement effective as of the date of the First Amendment. GUARANTORS: ADVANCED DIGITAL GRAPHICS, INC. AMERICAN ECONOMICS GROUP  ACQUISITION CORP. AMERICAN ECONOMICS GROUP, INC. APS SERVICES ACQUISITION CORP. ASSOCIATE RECORD TECHNICIAN SERVICES ACQUISITION CORP. B&B (BALTIMORE-WASHINGTON) ACQUISITION CORP. BANKNOTE PRINTING COMPANY CALIFORNIA MEDICAL RECORD SERVICE ACQUISITION CORP. CH ACQUISITION CORP. COPY RIGHT ACQUISITION CORP. COPY RIGHT, INC. CREATIVE MAILINGS, INC. DATA ENTRY & INFORMATIONAL SERVICES ACQUISITION CORP. DATA ENTRY & INFORMATIONAL SERVICES, INC. DELIVEREX ACQUISITION CORP. DISC ACQUISITION CORP. DOCTEX ACQUISITION CORP. DPAS ACQUISITION CORP. EAGLE LEGAL SERVICES ACQUISITION CORP. ECONOMIC RESEARCH SERVICES, INC. EXIGENT COMPUTER GROUP ACQUISITION CORP. EXIGENT COMPUTER GROUP, INC. F.Y.I. CORPORATE ACQUISITION CORP. F.Y.I. DIRECT INC. FYIDOCS.COM INC. F.Y.I.ETRIEVE INCORPORATED F.Y.I. GOVERNMENT SERVICES INC. F.Y.I. HEALTHSERVE INCORPORATED F.Y.I. IMAGE INC. F.Y.I. INPUT INC. F.Y.I. INTEGRATED SOLUTIONS INC. F.Y.I. INVESTMENTS HOLDING, INC. F.Y.I. LEGAL INCORPORATED F.Y.I. LEGALSERVE INCORPORATED F.Y.I. MANAGEMENT, INC. F.Y.I. PRINT INC. F.Y.I. RADIOLOGY, INC. F.Y.I. RECORDS INC. F.Y.I. STORAGE INC. GLOBAL DIRECT ACQUISITION CORP. GLOBAL DIRECT, INC. HEALTHSERVE V.C. CORP. IMAGENT ACQUISITION CORP. IMC MANAGEMENT, INC. INFORMATION MANAGEMENT SERVICES ACQUISITION CORP. INFORMATION MANAGEMENT SERVICES, INC. INPUT MANAGEMENT, INC. LEXICODE ACQUISITION CORP. LEXICODE CORPORATION LIFO MANAGEMENT, INC. MAILING & MARKETING ACQUISITION CORP. MAILING & MARKETING, INC. MANAGED CARE PROFESSIONALS ACQUISITION CORP. MANAGED CARE PROFESSIONALS, INC. MAVRICC MANAGEMENT SYSTEMS, INC. MICRO PUBLICATION SYSTEMS, INC. MICROFILM DISTRIBUTION SERVICES, INC. MICROFILMING SERVICES, INC. MICROMEDIA OF NEW ENGLAND ACQUISITION CORP. MICROMEDIA OF NEW ENGLAND, INC. MMS ESCROW AND TRANSFER AGENCY, INC. NBDE ACQUISITION CORP. NEWPORT BEACH DATA ENTRY, INC. NEWPORT BEACH DATA ENTRY, LLC PENINSULA RECORD MANAGEMENT, INC. PERMANENT RECORDS MANAGEMENT, INC. PINNACLE MANAGEMENT, INC. PMI IMAGING SYSTEMS ACQUISITION CORP. PMI IMAGING SYSTEMS, INC. PREMIER ACQUISITION CORP. QCS INET ACQUISITION CORP. QUALITY COPY ACQUISITION CORP. QUALITY DATA CONVERSIONS, INC. RAC (CALIFORNIA) ACQUISITION CORP. RECORDEX ACQUISITION CORP. RESEARCHERS ACQUISITION CORP. RTI LASER PRINT SERVICES ACQUISITION CORP. RUST CONSULTING ACQUISITION CORP. RUST CONSULTING, INC. STAT HEALTHCARE CONSULTANTS ACQUISITION CORP. STAT HEALTHCARE CONSULTANTS, INC. SYNERGEN, LLC TAPS ACQUISITION CORP. T.C.H. GROUP, INC. TCH MAILHOUSE, INC. THE RUST CONSULTING GROUP, INC. ZIA INFORMATION ANALYSIS GROUP, INC.   By:     --------------------------------------------------------------------------------   Barry L. Edwards, Authorized Officer for each of the Original Guarantors     F.Y.I. DISCOVERY SERVICES INCORPORATED   By:     -------------------------------------------------------------------------------- Name: William Gregerson Title: Vice President     F.Y.I. INVESTMENTS, INC. By:     -------------------------------------------------------------------------------- Name: Ron Zazworsky Title: President     F.Y.I. MANAGEMENT, L.P. By:  F.Y.I. Management, Inc., its general partner   By:       --------------------------------------------------------------------------------   Name: Barry L. Edwards   Title: Vice President       IMC, L.P. By:  IMC Management, Inc., its general partner         By:       --------------------------------------------------------------------------------   Name: Barry L. Edwards   Title: Vice President     INPUT OF TEXAS, L.P. By:  Input Management, Inc., its general partner     By:       --------------------------------------------------------------------------------   Name: Barry L. Edwards   Title: Vice President   LIFO SYSTEMS, L.P. By:  LIFO Management, Inc., its general partner     By:       --------------------------------------------------------------------------------   Name: Barry L. Edwards   Title: Vice President       PERMANENT RECORDS, L.P. By:  Permanent Records Management, Inc., its general partner     By:       --------------------------------------------------------------------------------   Name: Barry L. Edwards   Title: Vice President       PINNACLE LEGAL MANAGEMENT LIMITED PARTNERSHIP By:  Pinnacle Management, Inc., its general partner     By:       --------------------------------------------------------------------------------   Name: Barry L. Edwards   Title: Vice President               Address for Notices to each of the Guarantors: 3232 McKinney Avenue, Suite 900 Dallas, Texas 75204 Attn: Barry L. Edwards   SCHEDULE 1 TO FIRST AMENDMENT TO CREDIT AGREEMENT ASSET DISPOSITIONS PMI Imaging Systems, Inc. by PMI Imaging Systems Acquisition Corp. F.Y.I. Discovery Services Incorporated Eagle Legal Services Acquisition Corp. Researchers Acquisition Corp. The Rust Consulting Group, Inc. Pinnacle Legal Management Limited Partnership MAVRICC Management Systems, Inc. MMS Escrow and Transfer Agency, Inc. MMS Securities, Inc. Advanced Digital Graphics, Inc. T.C.H. Group, Inc. TCH Mailhouse, Inc. CH Acquisition Corp.  

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.58 ***Text Omitted and Filed Separately Confidential Treatment Requested Under 17 C.F.R. §§ 200.80(b)(4) 200.83 and 240.24b-2 AGREEMENT between ADOBE SYSTEMS INCORPORATED, a Delaware corporation having a place of business at 345 Park Avenue, San Jose, CA 95110-2704 ("Adobe Systems"), ADOBE SYSTEMS BENELUX, B.V., a company incorporated in The Netherlands and having a place of business at Europlaza, Hoogoorddreef 54a, 1101 DG Amsterdam ZO, The Netherlands ("Adobe Benelux") (Adobe Systems and Adobe Benelux collectively referred to as "Adobe"), and SYKES NORTH AMERICA, a Florida corporation having a place of business at 100 North Tampa Street, Suite 3900, Tampa, FL 33602 ("Sykes US"), SYKES EUROPE LIMITED, a company incorporated in Scotland under the Companies Act with registered number 86519 and having its registered office at Nether Road, Galashiels, Selkirkshire, TD1 3HE ("Sykes Europe"), SYKES ASIA PACIFIC, located on the 4th Floor, SMPPI Building, St. Francis Avenue, Ortigas Centre, Mandaluyong City 1550, Metro Manila, The Philippines ("Sykes Asia") (Sykes US, Sykes Asia and Sykes Europe collectively referred to as "Sykes"). Whereas: (A)Adobe is a world leader in the development, licensing and distribution of desktop publishing software; (B)Adobe Systems wishes to be provided with a variety of services to support and facilitate its technical support programs in Canada, the United States and Mexico; (C)Adobe Benelux wishes to be provided with a variety of services to support and facilitate its technical support programs in Europe, the Middle East, Africa, Australia and Asia; 1 -------------------------------------------------------------------------------- (D)Sykes US is willing to provide such services to Adobe Systems in Canada, the United States and Mexico on the following terms and conditions; (E)Sykes Asia is willing to provide such services to Adobe Benelux throughout Asia and Australia on the following terms and conditions; and (F)Sykes Europe is willing to provide such services to Adobe Benelux throughout Europe, the Middle East and Africa on the following terms and conditions; NOW THEREFORE IT IS AGREED AS FOLLOWS: 1.OVERVIEW     The parties agree that all rights or obligations associated with performance of the services described herein for and on behalf of Adobe Systems shall be performed only by Sykes US, as defined herein, and all rights or obligations associated with performance of the Services described herein for and on behalf of Adobe Benelux shall be performed either by Sykes Europe or Sykes Asia as described in this Agreement.     Accordingly, Sykes US will provide Services to Adobe Systems only in the geographic regions of Canada, the United States and Mexico. Further, Sykes Asia will provide Services to Adobe Benelux only in the geographic regions of Asia and Australia. Finally, Sykes Europe will provide Services to Adobe Benelux in all other geographic regions not covered by Sykes US or Sykes Asia in this Agreement.     The parties further agree that all obligations performed for Sykes US shall be performed only by Adobe Systems, and all obligations performed for either Sykes Europe or Sykes Asia shall be performed Adobe Benelux by as described in this Agreement. 2.DEFINITIONS AND INTERPRETATION 2.1In this Agreement unless the context otherwise requires, the following expressions shall bear the following meanings:     "Adobe"   shall mean Adobe Systems or Adobe Benelux, as appropriate;     "Adobe Databases"   shall mean the separate Adobe Systems and Adobe Benelux databases from time to time made available by Adobe US to Sykes US and/or by Adobe Benelux to Sykes Europe/Sykes Asia or created by Sykes Asia, Sykes Europe or Sykes US pursuant to the provision of Services hereunder; for the purposes of this Agreement, including but not limited to the databases specified in the Schedule;     "Adobe Financial Month(s)"   shall mean the period(s) of four or five weeks Adobe Benelux or Adobe Systems uses for internal financial accounting purposes, a list of all such months to be provided by Adobe Benelux to Sykes Europe and/or Sykes Asia, or provided by Adobe Systems to Sykes US at the beginning of the relevant financial year while this Agreement is in force;     "Adobe Financial Quarter(s)"   shall mean the period(s) of thirteen (13) weeks Adobe Benelux or Adobe Systems uses for its internal financial accounting purposes, a list of all such quarters to be provided by Adobe Benelux to Sykes Europe and/or Sykes Asia, or provided by Adobe Systems to Sykes US, upon commencement of this Agreement and at the beginning of the relevant financial year while this Agreement is in force;         2 --------------------------------------------------------------------------------     "Adobe Financial Year"   shall mean 4th December 1999 to 1st December 2000 for financial year 2000 and, for subsequent years, such period as Adobe Systems and/or Adobe Benelux designates as its financial year for its internal financial accounting purposes;     "Adobe Products"   shall mean Products but excluding Third Party Products;     "Agreement"   shall mean this Agreement, as between Adobe Benelux and Sykes Europe/Sykes Asia and as between Adobe Systems and Sykes US;     "Asia Call Center Facility"   shall mean Sykes Asia Call Center facility at 4th Floor, SMPPI Building, St. Francis Avenue, Ortigas Center, Mandaluyong City 1550, Metro Manila, Philippines or such other premises as may be approved in advance by Adobe Benelux from time to time;     "Asia Services"   shall mean the Services provided by Sykes Asia on behalf of Adobe Benelux in at least the following (1) countries: Australia, China, Korea and (2) languages: Cantonese, English, Fukienese, Korean (when available) and Mandarin;     "ASN Members"   shall mean certain members from time to time having access to Services;     "CCS"   shall mean the call center software owned by Sykes US, Sykes Asia or Sykes Europe and used in the co-ordination and management of the Services by Sykes US, Sykes Asia or Sykes Europe and used by Adobe Systems or Adobe Benelux, as appropriate, and as upgraded or modified with Adobe Systems or Adobe Benelux, as appropriate, prior written approval and development requirements from time to time;     "Charges Schedule"   shall mean Part 3 of the Schedule;     "Client Group Manager"   shall mean in relation to the relevant Management Team, the person identified as having those responsibilities in the relevant part of the Schedule;     "Commercial Practices"   shall mean accepted industry practice regarding the nature of work to be done and the timescales in which it is to be carried out;     "Confidential Information"   shall have the meaning given to it in Clause 9;     "Contract Term"   shall mean the period beginning on the Effective Date (as hereinafter defined) and ending at 12:00 midnight GMT on 1st December 2002, unless terminated earlier in accordance with the provisions hereof;     "CSN"   shall mean the customer service number allocated to all Registered End Users and ASN Members;     "CSR"   shall mean a customer services representative allocated to the provision of Services and forming part of the Services Team;     "Effective Date"   shall mean 4th December 1999;         3 --------------------------------------------------------------------------------     "End User"   shall mean a licensee of the Product(s) who acquires such products for its own use rather than distribution, and shall exclude distributors, dealers, value added distributors, original equipment manufacturers, third party vendors, system integrators and other parties who have licensed the Product(s) for distribution or for any purpose other than for their own use;     "Europe Call Center Facility"   shall mean Sykes' Call Center facility at Calder House, 599 Calder Road, Edinburgh, Scotland, EH11 4GA or such other premises as may be approved in advance by Adobe;     "Europe Services"   shall mean the Services to be provided by Sykes Europe on behalf of Adobe Benelux in at least the following (1) countries: Belgium, Denmark, Finland, France, Germany, Iceland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, United Kingdom and (2) languages: Danish, Dutch, English, Finnish, French, German, Italian, Norwegian, Portuguese, Spanish, Swedish;     "Incoming Request"   shall mean an incoming request from any person by fax, phone, post, e-mail or other media from time to time specified by Adobe Benelux or Adobe Systems for any of the Services, as appropriate;     "Intellectual Property"   shall mean all intellectual property rights, similar and/or neighboring rights and sui generis rights, of whatever nature anywhere in the world and all rights pertaining thereto including but not limited to all present and future title to and/or interests therein whether recorded or registered in any manner or otherwise, including without prejudice to the foregoing generality, trade marks and service marks and applications therefor, patents and patent applications, copyright, database and unfair extraction rights, designs, design rights both registered and unregistered, design right applications, trade secrets, know-how, information, production methods, data, source codes and object codes, discoveries, specifications, diagrams, technology, research, methods of formulation, results of tests and field trials, specifications of materials, composites of materials, formulae and processes;     "Lifeline"   shall mean the Adobe Benelux or Adobe Systems intranet known as Lifeline which contains details of policies and with which Sykes Asia, Sykes Europe or Sykes US is expected to comply or such other intranet or other system as Adobe Benelux or Adobe Systems may from time to time use for such purpose;     "Management Team"   shall mean the management team(s) set up by Sykes Asia, Sykes Europe or Sykes US to manage their respective Services under this Agreement (as more specifically detailed in the relevant Parts of the Schedule);     "North America Call Center Facility"   shall mean Sykes US' warehouse and/or call center facility located 10101 Claude Freeman Drive, Charlotte, North Carolina 28262 and another facility located in Canada at a location to be determined;         4 --------------------------------------------------------------------------------     "North America Services"   shall mean the Services to be provided by Sykes US on behalf of Adobe Systems in the following (1) countries: Canada, the United States and Mexico, and (2) languages: English, French, and Spanish;     "Performance Metrics"   shall mean the measurements in relation to each of the Services as set out in the relevant Services Schedule on which Sykes Asia, Sykes Europe or Sykes US shall provide reports in terms of Clause 3.6;     "Performance Standards"   shall mean in relation to each Service, the binding performance standards identified in relation to that Service in the relevant Services Schedule;     "Products"   shall mean Adobe Benelux or Adobe Systems products and Third Party products, as appropriate, or as otherwise defined in a Schedule;     "QBR"   shall mean the quarterly business review in relation to each quarter to review performance of Services in the preceding quarter, problems encountered and to set goals and objectives for Sykes Asia, Sykes Europe or Sykes US for the following quarter to be held by the parties in terms of Clause 3.10;     "Registered End Users"   shall mean End Users who have been Verified and entered into the Sales and Registration Database or Type On Call Database, as the case may be;     "Sales and Registration"   shall mean the database held by Sykes Asia, Sykes Europe or Sykes US, as appropriate, and containing, among other information, details of appropriate Registered End Users in Asia, Europe and North America, respectively, and product registration for such Registered End Users;     "Schedule"   shall mean the schedule appended hereto which shall form part of this Agreement;     "Services"   shall mean the services provided by Sykes US, Sykes Asia and/or Sykes Europe or as otherwise defined in a statement of work or in Part 2 of the Schedule;     "Services Team"   shall mean the Sykes US, Sykes Asia and Sykes Europe employees allocated to the provision of North America Services, Asia Services, Europe Services, respectively;     "SKU(s)"   shall mean the stock keeping unit numbers allocated to stock held by Sykes US, Sykes Asia or Sykes Europe;     "Sykes Associated Company"   shall mean any group or party other than Sykes Asia, Sykes Europe, or Sykes US affiliated with and providing Services for or on behalf of Sykes Asia, Sykes Europe, or Sykes US;     "Trade Marks"   shall have the meaning given to it in Clause 13.3;     "Training"   shall mean the training for the provision of Services;         5 --------------------------------------------------------------------------------     "Type On Call Countries"   shall mean United Kingdom, Eire, France, Germany, Austria, Netherlands, Sweden, Belgium, Switzerland, Algeria, Australia, Botswana, Brazil, Bulgaria, Burkina Faso, Canada, Channel Islands, China, the Commonwealth of Independent States, Corsica, Crete, Croatia, Cyprus, Czech Republic, Czechoslovakia, Denmark, Egypt, Estonia, Faroe Islands, Finland, Gibraltar, Greece, Guadeloupe, Hong Kong, Hungary, Iceland, India, Israel, Italy, Ivory Coast, Jordan, Kenya, Kuwait, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Martinique, Mexico, Monaco, Mongolia, Namibia, Norway, Poland, Portugal, Romania, Russia, Saudi Arabia, Singapore, Slovakia, Slovenia, South Africa, Spain, Tanzania, Tunisia, Turkey, United Arab Emirates, United States, Yemen, Yugoslavia, Zambia and Zimbabwe and such other countries as the parties may agree in writing from time to time (such agreement not to be unreasonably withheld or delayed);     "Type On Call Database"   shall mean the database held by Adobe Benelux or Adobe Systems to which Sykes US, Sykes Europe or Sykes Asia has access in terms of this Agreement which holds, among other information, details of all Registered End Users who have registered Type On Call Products;     "Type On Call Languages"   shall mean Cantonese, Dutch, English, Finnish, French, Fukienese, German, Italian, Mandarin, Norwegian, Spanish, Dutch and Swedish and such other languages as the parties may agree in writing from time to time;     "Type On Call Product"   shall mean the Adobe Product (as amended from time to time by Adobe) containing various Adobe fonts which require to be unlocked for use by End Users following registration using the Type On Call Services;     "Type On Call Services"   shall mean the Services under which Sykes US, Sykes Europe or Sykes Asia will register their respective End Users for Type On Call Products and provide unlocking Services to their respective Registered End Users to allow them to unlock fonts within the Type On Call Product;     "Updates"   shall mean updates, patches, bug fixes and/or workarounds which Adobe Benelux or Adobe Systems may from time to time make available in relation to Adobe Products (whether on the Internet or otherwise);     "Verified"   shall mean that the customer services number of the End User in question has been verified in accordance with mutually agreed upon procedures;     "Working Day"   shall mean each weekday (i.e. Monday through Friday inclusive) during the Contract Term other than Christmas Day and New Year's Day, and such weekend days (i.e. Saturday and Sunday) as the parties may agree in writing from time to time (such agreement not to be unreasonably withheld or delayed). (a)"Client Group Manager", "Client Group Administrator", "Operations Manager", "Programme Manager", "Senior Supervisor", "Client Lead", "Administrator", "Team 6 -------------------------------------------------------------------------------- Lead", "Senior Communicator", "Data Entry Supervisor" and "Data Entry Administrator" shall mean in relation to the relevant Services Team or Management Team the person from time to time identified as such, as agreed by the parties. 2.2Reference to any statute or statutory provisions shall include any statute or statutory provision which amends or replaces, or has amended or replaced, it and shall include any subordinate legislation made under the relevant statute. 2.3In circumstances where Sykes US, Sykes Asia or Sykes Europe is permitted hereunder to use the services of a sub-contractor in their performance of the Services, references herein to Sykes US, Sykes Asia or Sykes Europe shall, where appropriate, be construed as references to that sub-contractor provided always that Sykes shall remain primarily liable to Adobe Benelux or Adobe Systems, as appropriate, in respect of such sub-contractors. 2.4A reference to the singular shall include a reference to the plural and vice versa, and a reference to any gender includes a reference to all other genders. 2.5Headings are for convenience only and shall not affect interpretation. 3.APPOINTMENT     3.1  Non-Exclusive Appointment   (a)By Adobe Benelux. Adobe Benelux hereby appoints Sykes Asia, and Sykes Asia hereby accepts appointment, as a non-exclusive provider of the Asia Services during the Contract Term, subject to the terms of this Agreement. As at the Effective Date, Adobe Benelux hereby instructs Sykes Asia to provide all the Asia Services detailed in this Agreement but, consistent with the non-exclusive nature of this appointment, Adobe Benelux shall be entitled at any time to discontinue and/or suspend the provision by Sykes Asia of any or all of the Services by giving a period of notice which shall not be less than forty-five (45) days. (b)By Adobe Benelux. Adobe Benelux hereby appoints Sykes Europe, and Sykes Europe hereby accepts appointment, as a non-exclusive provider of the Europe Services during the Contract Term, subject to the terms of this Agreement. As at the Effective Date, Adobe Benelux hereby instructs Sykes Europe to provide all the Europe Services detailed in this Agreement but, consistent with the non-exclusive nature of this appointment, Adobe Benelux shall be entitled at any time to discontinue and/or suspend the provision by Sykes Europe of any or all of the Services by giving a reasonable period of notice which shall not be less than forty-five (45) days. If Adobe Benelux, during the Contract Term, seeks (1) any extension to the existing Europe Services provided under this Agreement, or (2) the provision of new services similar to the Services provided by Sykes Europe which are not covered by this Agreement, Sykes Europe shall have the opportunity to tender for the provision of such new services. (c)By Adobe Systems. Adobe US hereby appoints Sykes US, and Sykes US hereby accepts appointment, as a non-exclusive provider of the North America Services during the Contract Term, subject to the terms of this Agreement. As at the Effective Date, Adobe US hereby instructs Sykes US to provide all the North America Services detailed in this Agreement but, consistent with the non-exclusive nature of this appointment, Adobe US shall be entitled at any time to discontinue and/or suspend the provision by Sykes US of any or all of the Services by giving a reasonable period of notice which shall not be less than forty- five (45) days. If Adobe US, during the Contract Term, seeks (1) any extension to the existing North America Services provided under this Agreement, or (2) the provision of new services similar 7 -------------------------------------------------------------------------------- to the Services provided by Sykes US which are not covered by this Agreement, Sykes US shall have the opportunity to tender for the provision of such new services.     3.2  Performance   (a)Sykes Asia, Sykes Europe and Sykes US warrant and undertake to Adobe Benelux and Adobe Systems, as appropriate, that their respective Services shall at all times be provided in accordance with this Agreement, their Services schedules (including but not limited to their Performance Standards and Performance Metrics) and any applicable shall mean any statement of work, schedule, or related documentation containing directions, guidelines, processes or procedures directed to Sykes Europe, Sykes Asia or Sykes US. (b)Adobe Benelux or Adobe Systems shall be entitled by thirty (30) days' prior written notice from Sykes Europe, Sykes Asia or Sykes US, as appropriate, to amend any statement of work, schedule or related documentation containing directions, guidelines, processes or procedures directed to Sykes Europe, Sykes Asia or Sykes US provided that such amendments will not have a material impact as determined by Adobe (whether requiring an increase or decrease) on the resources required by Sykes Europe, Sykes Asia or Sykes US, as appropriate, to provide their Services. Any such proposed amendments which will have a material impact (whether requiring an increase or decrease) on such resources shall be approved in advance in writing by Sykes Europe, Sykes Asia or Sykes US, as appropriate, acting reasonably. Sykes Europe, Sykes Asia and Sykes US shall be entitled to request amendments to directions, guidelines, processes, statement of work or procedures if such amendments will not affect the nature or quality of the Services but all such amendments will require to be approved in advance in writing by Adobe Benelux or Adobe Systems, as appropriate. (c)For the avoidance of doubt, unless explicitly stated to be a responsibility of Adobe Benelux or Adobe Systems, all obligations, duties, responsibilities and other matters set out or referred to in the Schedule, and any guidelines shall be the responsibility of Sykes' only and shall be Sykes' obligations under the terms of this Agreement, and except insofar as explicitly stated to be a responsibility of Adobe Benelux or Adobe Systems, it shall be Sykes' responsibility to ensure that Sykes Asia, Sykes Europe or Sykes US, as appropriate, performs any and all Services as described in the relevant Services Schedule or guidelines.     3.3  Resources   Without prejudice to specific obligations elsewhere in this Agreement, Sykes Asia, Sykes Europe or Sykes US shall at all times devote sufficient resources and teams of sufficiently qualified personnel to enable it to provide their Services efficiently and professionally. Without prejudice to the generality of the foregoing, or any Performance Standard or Performance Metric set in relation to their Services, Sykes Asia, Sykes Europe or Sykes US shall provide their Services with best efforts and Sykes Asia, Sykes Europe or Sykes US shall at all times perform their Services courteously and in such manner as not to injure Adobe Benelux' or Adobe Systems' name or damage Adobe Benelux' or Adobe Systems' goodwill.     3.4  No Breach   Sykes Asia, Sykes Europe and Sykes US hereby represents to Adobe Benelux or Adobe Systems that Sykes Asia, Sykes Europe and/or Sykes US, as appropriate, will not be in breach of any existing obligation binding on Sykes Asia, Sykes Europe and Sykes US by reason of its entering into this Agreement. 8 --------------------------------------------------------------------------------     3.5  Other Services   Sykes Asia, Sykes Europe and Sykes US undertake and agree that it will, upon request, appropriately provide Adobe Benelux or Adobe Systems with such additional Services as Adobe Benelux or Adobe Systems may from time to time appropriately require during the Contract Term as long as the request conforms with Commercial Practices and at prices to be agreed by the parties. If such Services are requested and included in this Agreement, the parties shall agree to the terms of a Services Schedule in relation to such Services (or such amendments to existing Services Schedule(s) as may be appropriate) together with such additions and/or amendments to any schedule, statement of work, documentation, appendices or any written documentation containing directions, guidelines, processes or procedures directed to Sykes Europe, Sykes Asia or Sykes US, as may be appropriate.     3.6  Reporting and Performance Metrics   Sykes Asia, Sykes Europe and Sykes US shall provide such reports, information and data as Adobe Systems and Adobe Benelux shall, from time to time, require in relation to the performance of this Agreement. This requirement shall include but is not limited to reports on the Performance Metrics which shall be produced by Sykes Asia, Sykes Europe or Sykes US, as appropriate, and in relation to their Service in the terms set out in the relevant Services Schedule and the production by Sykes Asia, Sykes Europe and Sykes US, as appropriate, of all other reports, information and data more particularly specified in the Schedule. Reports on the Performance Metrics shall include all reports on the Performance Standards. Sykes Asia, Sykes Europe and Sykes US shall, as appropriate, ensure that all reports on the Performance Metrics and Performance Standards contain charts which show sufficient historical data to identify trends, clearly understood titles and labels, the goal or objective, a clear indication of which trend and trend direction is good and which is bad and a scale which accurately demonstrates but does not distort trends. Sykes Asia, Sykes Europe and Sykes US shall, as appropriate, ensure that all Performance Standards are drawn to the attention of all relevant employees. Sykes Asia, Sykes Europe and Sykes US shall, as appropriate, ensure that all Performance Metrics and Performance Standards are broken down as detailed in the relevant Services Schedule. Without prejudice to the foregoing, Sykes Asia, Sykes Europe and Sykes US shall use all reasonable endeavours to inform Adobe Benelux and Adobe Systems, as appropriate and without delay, of any matter which comes to the attention of Sykes Asia, Sykes Europe and Sykes US which is likely to affect materially the provision of Services.     3.7  Services Provided in Adobe Benelux or Adobe Systems' Name and Grant of License   Any Services provided by Sykes Asia and Sykes Europe shall be in the name of Adobe Benelux. Any Services provided by Sykes US shall be in the name of Adobe Systems. So far as required by Sykes Asia, Sykes Europe and Sykes US for the proper performance of its duties hereunder during the Contract Term and for no other purpose whatsoever, Adobe Benelux or Adobe Systems shall use its reasonable endeavours to procure for Sykes Asia, Sykes Europe or Sykes US, as appropriate, a non-exclusive royalty- free limited licence to use specified trade marks, service marks, trade names and logos belonging to or licensed by Adobe Systems pertaining to Products. Such license shall automatically terminate on the date of termination or expiry of this Agreement howsoever terminated or expiring and with effect from such date Sykes Asia, Sykes Europe or Sykes US, as appropriate, shall have no further right to use any such trade marks, service marks, trade names or logos of Adobe Systems pertaining to Products or their licensors. Either Adobe Benelux or Adobe Systems may, in their sole discretion, distribute support software to Sykes technicians from Sykes Asia/Sykes Europe or Sykes US, respectively. Any support software provided by Adobe Benelux or Adobe Systems shall be subject to any applicable license, such license modifiable from time to time by Adobe Benelux or Adobe Systems, respectively, in their sole discretion. 9 --------------------------------------------------------------------------------     3.8  Intellectual Property   (a)Adobe Benelux. It is hereby expressly agreed that Adobe Systems shall be the sole and exclusive owner of all Intellectual Property rights in all work carried out by Sykes Europe and Sykes Asia (or on behalf of Sykes Europe or Sykes Asia) in the provision of the Services including but not limited to copyright in reports, manuals, electronic files and technical notes authored by Sykes Europe or Sykes Asia, copyright and database rights in any and all databases created or updated and copyright and related rights in any and all software developed by Sykes Europe or Sykes Asia in the performance of the Services, to the extent that such software is bespoke software commissioned from Sykes Europe or Sykes Asia by Adobe Benelux and charged to Adobe Benelux or Adobe Systems. Where Adobe Benelux has funded such software development, Sykes Europe and Sykes Asia shall only be entitled to use such software for the exclusive benefit of Adobe Benelux during the Contract Term, and any transitional period provided in Clause 14.6(a). In the event Sykes Asia or Sykes Europe develops any other software under this Agreement for the benefit of Adobe Benelux and other Sykes Asia and Sykes Europe clients, the parties shall agree how, if at all, the development costs of such software shall be apportioned. In any event, Adobe Systems shall own all intellectual property in such software and shall not be limited in any way to use, sub-license and reproduce such software. Sykes Asia and Sykes Europe hereby assign as legal and beneficial owner to Adobe Systems, by way of future assignation any and all such Intellectual Property rights which are capable of future assignation and on Adobe Systems' request shall assign as legal and beneficial owner all other such Intellectual Property rights. Sykes Asia and Sykes Europe shall procure the waiver by all persons involved in the creation or development of any such works of such moral or similar rights as such persons may from time to time have in or in relation to such works. Without prejudice to the foregoing, Sykes Asia and Sykes Europe undertake to do all such things and execute (or procure the execution of) all such documents as Adobe Benelux or Adobe Systems shall from time to time require in order to perfect Adobe Systems title to same and obtain any applicable protections in Adobe Systems name and to confirm such waivers including but not limited to procuring assignations and waivers in Adobe Systems' favor from contractors and consultants. Sykes Asia and Sykes Europe warrant and represent to Adobe Benelux that each is entitled to assign such Intellectual Property to Adobe Systems and that such Intellectual Property does not infringe the Intellectual Property rights or moral or similar rights of any third party. (b)Adobe Systems. It is hereby expressly agreed that Adobe Systems shall be the sole and exclusive owner of all Intellectual Property rights in all work carried out by Sykes US (or on behalf of Sykes US) in the provision of the Services including but not limited to copyright in reports, manuals, electronic files and technical notes authored by Sykes US, copyright and database rights in any and all databases created or updated and copyright and related rights in any and all software developed by Sykes US in the performance of Services, to the extent that such software is bespoke software commissioned from Sykes US by Adobe Systems and charged to Adobe Systems. Where Adobe Systems has funded such software development, Sykes US shall only be entitled to use such software for the exclusive benefit of Adobe Systems during the Contract Term, and any transitional period provided in Clause 14.6(a). In the event Sykes US develops any other software under this Agreement for the benefit of Adobe Systems and other Sykes US clients, the parties shall agree how, if at all, the development costs of such software shall be apportioned. In any event, Adobe Systems shall own all intellectual property in such software and shall not be limited in any way to use, sub-license and reproduce such software. Sykes US hereby assigns as legal and beneficial owner to Adobe Systems, by way of future assignation any and all such Intellectual Property rights which are capable of future assignation and on Adobe Systems' request shall assign as 10 -------------------------------------------------------------------------------- legal and beneficial owner all other such Intellectual Property rights. Sykes US shall procure the waiver by all persons involved in the creation or development of any such works of such moral or similar rights as such persons may from time to time have in or in relation to such works. Without prejudice to the foregoing, Sykes US undertakes to do all such things and execute (or procure the execution of) all such documents as Adobe Systems shall from time to time require in order to perfect Adobe Systems' title to same and obtain any applicable protections in Adobe Systems' name and to confirm such waivers including but not limited to procuring assignations and waivers in Adobe Systems' favor from contractors and consultants. Sykes US warrants and represents to Adobe Systems that it is entitled to assign such Intellectual Property to Adobe Systems and that such Intellectual Property does not infringe the Intellectual Property rights or moral or similar rights of any third party.     3.9  Hardware, Software and Systems   Sykes Asia, together with Sykes Europe, and Sykes US shall each ensure to Adobe Benelux and Adobe Systems, respectively, that it has available to it all hardware, software, including CCS, and other technical resources required from time to time for the provision of Services all of which shall be at the responsibility and risk of Sykes Asia, Sykes Europe and Sykes US, as appropriate, and Sykes Asia, Sykes Europe and Sykes US shall maintain and update the same to standards consistent with Sykes Asia's, Sykes Europe's and Sykes US' independent obligations to meet the Performance Standards and Performance Metrics stated in this Agreement. Without prejudice to the foregoing generality this shall include but not be limited to the personal computers, peripheral devices, equipment and software necessary to: (a)have and maintain for the Contract Term, access to any Adobe Database (or other database) Adobe Benelux or Adobe Systems deems necessary (acting reasonably) for Sykes Asia, Sykes Europe and Sykes US, as appropriate, to perform their obligations under this Agreement; (b)maintain facilities for the entry into and processing of data in connection with all relevant Adobe Databases and for all reporting required in terms of this Agreement; (c)invoice, process and validate payments of membership fees and renewal fees and Product charges in the provision of the Services; (d)maintain technical resources which make call monitoring of Services supplied to End Users possible; (e)maintain an electronic mail system compatible with that specified by Adobe Benelux or Adobe Systems, as appropriate (acting reasonably); and (f)maintain sufficient electronic ordering, processing and other facilities as are necessary for shipping technical support items to End Users and Members respectively; Without prejudice to the foregoing, Sykes Asia, Sykes Europe and Sykes US shall ensure that each shall have available to it the infrastructure identified in Part 4 of the Schedule and any and all specific hardware, software and technical resources in relation to each of the individual Services (which shall have no less than the functionality described in any applicable schedule or statement of work) and shall not make any material change to any specifications or configurations so described without Adobe Benelux' or Adobe Systems' prior written consent, as appropriate.     3.10  Management Teams and Reviews   (a)Adobe Benelux. Sykes Asia and Sykes Europe shall set up and maintain effective Management Teams primarily dedicated to Adobe Benelux. Sykes Asia and Sykes Europe shall ensure that the relevant members of the Management Teams shall attend and hold such meetings as Adobe Benelux shall from time to time reasonably require including but not 11 -------------------------------------------------------------------------------- limited to a quarterly business review (which will be held in the month following expiry of each Adobe Financial Quarter during the Contract Term) to review performance of the Services in the preceding quarter, problems encountered and to set goals and objectives and the other regular meetings scheduled in relation to Services. (b)Adobe Systems. Sykes US shall set up and maintain effective Management Teams primarily dedicated to Adobe Systems. Sykes US shall ensure that the relevant members of the Management Teams shall attend and hold such meetings as Adobe Systems shall from time to time reasonably require including but not limited to the QBR (which will be held in the month following expiry of each Adobe Financial Quarter during the Contract Term) and any other regular meetings as may be scheduled in relation to each of the Services.     3.11  Quality Control.  Sykes shall at all times comply with applicable quality control schedules and metrics in effect including, but not limited to, those performance parameters related to call waiting times, accuracy of issue logs or any order input, accuracy in responses to customer inquiries, including technical, and confirmation of orders. Sykes shall immediately report any quality and quality control issues to Adobe Benelux and/or Adobe Systems, as appropriate and shall provide quality status as reasonably requested by Adobe Benelux and/or Adobe Systems and at any scheduled meetings related to quality control. Any problems or issues related to quality control shall be addressed immediately and prompt status reports provided to Adobe Benelux and/or Adobe Systems upon request. Any breach in quality, as determined by Adobe in its sole discretion, shall be considered a material breach of this Agreement, and appropriate termination proceedings pursuant to Section 14 apply.     3.11.1  Adobe Benelux   In addition to any specific quality control mechanisms included from time to time in any Services Schedules and/or any applicable statement of work and without prejudice to the Performance Standards, Adobe Benelux shall be entitled: (a)upon twenty-four (24) hours' advance notice to Sykes Asia and Sykes Europe, to monitor responses to Incoming Requests (whether calls taken or e-mails or other written responses supplied or otherwise) and to analyze the quality and quantity of call logging; and (b)at any time(s) and as it deems appropriate to carry out written, telephone or other surveys of End Users and ASN Members as to their experience with Services provided to them.     3.11.2  Adobe Systems   In addition to any specific quality control mechanisms included from time to time in any Services Schedules and without prejudice to the Performance Standards, Adobe Systems shall be entitled: (a)upon twenty-four (24) hours' advance notice to Sykes US, to monitor responses to Incoming Requests (whether calls taken or e-mails or other written responses supplied or otherwise) and to analyze the quality and quantity of call logging; and (b)at any time(s) and as it deems appropriate to carry out written, telephone or other surveys of End Users and ASN Members as to their experience with Services provided to them.     3.12  Right of Audit.  Upon ten (10) days notice to Sykes Europe and/or Sykes Asia, Adobe Benelux shall have the right to inspect and audit all the relevant records of Sykes Europe and/or Sykes Asia, as appropriate, to ensure compliance with the terms of this Agreement. Similarly, upon ten (10) days' notice to Sykes US, Adobe Systems shall have the right to inspect and audit all the relevant records of Sykes US to ensure compliance with the terms of this Agreement. Any audit by Adobe Systems or Adobe Benelux shall be conducted only by a certified public accountant whose fee is paid by Adobe Systems or Adobe Benelux, as appropriate, and shall be 12 -------------------------------------------------------------------------------- conducted during regular business hours at Sykes Europe/Sykes Asia or Sykes US offices, as appropriate, and in such a manner as not to unreasonably interfere with normal business activities. 4.SERVICES     4.1  Services to be Supplied   Subject to the terms of this Agreement, Sykes Europe and Sykes Asia agree to provide Adobe Benelux with the Asia Services and Europe Services during the Contract Term at the prices set out in the Charge Schedule in accordance with the terms set out in the Schedule. Subject to the terms of this Agreement, Sykes US agrees to provide Adobe Systems with the North America Services during the Contract Term at the prices set out in the Charge Schedule in accordance with the terms set out in the appropriate Schedule and/or any applicable statement of work.     4.2  Recruitment, Training and Teams   Sykes Europe, Sykes Asia and Sykes US shall recruit CSRs and shall ensure that the Services Team for Adobe Benelux and Adobe Systems shall at all times meet the requirements in all material respects (which shall mean that there are no adverse or detrimental effects on the Performance Standards) in terms of numbers, structure and seniority. Sykes Europe, Sykes Asia and Sykes US shall ensure that all members of the Services Team undergo and satisfactorily complete the Training and without prejudice to the foregoing, that the Services Team is at all times adequately trained and resourced in accordance with Adobe Benelux' and Adobe Systems' needs and reasonable requirements from time to time. Sykes Europe, Sykes Asia and Sykes US shall monitor all CSRs and obtain training evaluations from such CSRs. Sykes Europe's, Sykes Asia's and Sykes US' compliance with this provision shall not relieve Sykes Europe, Sykes Asia and Sykes US of their independent obligations to achieve Performance Standards.     4.3  Performance Standards   Sykes Europe, Sykes Asia and Sykes US shall perform their respective Services to the Performance Standards set out in the Schedule. Sykes Europe, Sykes Asia and Sykes US further acknowledge and agree that a consistent failure to meet the standards, goals and objectives identified in the Performance Metrics shall be deemed to be a material breach of this Agreement as specified in Clause 14.3. 5.REMUNERATION [subject to charges schedule]     5.1  Invoicing   (a)Within nineteen (19) days of the end of each Adobe Financial Month during the Contract Term, Sykes Europe and Sykes Asia shall invoice Adobe Benelux and Sykes shall invoice US Adobe Systems for all work carried out in the previous Adobe Financial Month calculated as set out in the Charges Schedule. Such invoices shall clearly specify amounts due for each of the Services in accordance with the Performance Standards and the Charges Schedule. Unless otherwise requested by Adobe, invoices from Sykes Asia shall be submitted to Adobe Benelux billed in Philippine Pesos, invoices from Sykes Europe shall be submitted to Adobe Benelux billed in Pound Sterling, and invoices from Sykes US shall be submitted to Adobe Systems billed in US Dollars. Each invoice shall be accompanied by such supporting documentation and vouchers as Adobe Benelux or Adobe Systems may reasonably require. Except as provided in Clause 5.2, and further provided that such invoice is accurate and fully supported, Adobe Benelux and Adobe Systems, as appropriate, agree to pay each such invoice within sixty (60) days of the date of such invoice which for the avoidance of doubt shall be the date of the end of the relevant Adobe Financial Month. 13 -------------------------------------------------------------------------------- (b)Within nineteen (19) days of the end of each Adobe Financial Month, Sykes Europe, Sykes Asia and Sykes US shall also provide Adobe Benelux or Adobe Systems, as appropriate, with a written statement of the amounts received by Sykes Europe, Sykes Asia and Sykes US on behalf of Adobe Benelux or Adobe Systems, as appropriate, during the previous Adobe Financial Month from all sources in relation to Services provided. Sykes Europe, Sykes Asia and Sykes US shall each ensure that all sums received or receivable in this respect shall be payable to and paid to Adobe Benelux and Adobe Systems, as appropriate, and shall be paid into such nominated Adobe Benelux and Adobe Systems accounts, as appropriate, and as Adobe Benelux and Adobe Systems shall notify Sykes Europe, Sykes Asia and Sykes US, as appropriate, from time to time. In no event and under no circumstances shall Sykes Europe, Sykes Asia and Sykes US receive sums from any End Users or Members or in any other manner on its own account in relation to the Services but if for any reason any such sums are received, they shall be held in trust for Adobe Benelux or Adobe Systems, as appropriate, and immediately paid to Adobe Benelux or Adobe Systems in such manner as Adobe Benelux or Adobe Systems shall direct.     5.2  Withholding Payment   Without prejudice to its other rights hereunder neither Adobe Benelux nor Adobe Systems shall be obliged to make payment of any sums pursuant to Clause 5.1 if: (a)Sykes Europe, Sykes Asia or Sykes US has unreasonably refused or failed to perform any Services as and when requested by Adobe Benelux or Adobe Systems, as appropriate; or (b)Sykes Europe, Sykes Asia or Sykes US has failed to perform any or all of the Services in accordance with the Performance Metrics such that, in Adobe Benelux' or Adobe Systems' judgement, there has been or is likely to be a materially adverse effect on the Service(s) in question; or (c)any of the circumstances specified in Clause 14.3 has arisen.     5.3  No Expenses   Except as specifically provided herein Sykes Asia, Sykes Europe and Sykes US shall not be entitled to receive any remuneration or be reimbursed in respect of any expenses incurred by it in the performance of its duties hereunder.     5.4  VAT   Unless otherwise agreed by Adobe in writing, all payments due hereunder shall be exclusive of Value Added Tax or its equivalent and shall be made in US dollars.     5.5  Accounts and Records   (a)Sykes Asia, Sykes Europe and Sykes US shall each keep full, adequate and accurate books of account and other records reflecting the management, operation and financial results of the Services at its normal place of business. Such books and records shall, at all times, be kept in all material respects in accordance with good administrative, and secretarial practice and generally accepted accounting principles. Title to such books and records shall vest in Sykes Asia, Sykes Europe or Sykes US, as appropriate. (b)Such books of account and all relevant records shall be open upon reasonable prior notice during normal working hours and at reasonable intervals for inspection by a duly authorized representative or representatives of Adobe Benelux or Adobe Systems for the purpose of verifying the accuracy of all payments made or to be made by or to Adobe Benelux or Adobe Systems pursuant to this Clause 5. Provided that Adobe Benelux or Adobe Systems has access to all information necessary to verify the accuracy of all payments made to or to be 14 -------------------------------------------------------------------------------- made by Adobe Benelux or Adobe Systems, as appropriate, pursuant to this Clause 5, Sykes Asia, Sykes Europe and Sykes US shall not be obligated to provide Adobe Benelux or Adobe Systems, as appropriate, with access to records relating to their profitability in the provision of Services or access to any records containing their other client information. For the avoidance of doubt, where such records may contain Adobe Benelux or Adobe Systems information and information relating to other Sykes Asia, Sykes Europe and Sykes US clients, Sykes Asia, Sykes Europe and Sykes US shall provide Adobe Benelux or Adobe Systems, as appropriate, with properly redacted versions of such records.     5.6  Interest   Interest shall be payable on all sums which are due and payable hereunder to or by Adobe Benelux or Adobe Systems (other than amounts which are the subject of a bona fide dispute between the parties) from the due date for payment as specified herein until payment in full is made at the rate of 1.5% per month or the maximum rate permitted by law, whichever is lower.     5.7  Review   Without prejudice to the other provisions of this Clause 5 but subject to the provisions of Clause 5.8, the parties agree that the Charges Schedule shall be reviewed by the parties on an annual basis with the first such review occurring one (1) year after the Effective Date. Such reviews shall be conducted in order to ensure that the Charges Schedule is competitive. If, following any such review, the parties are not able to agree a new Charges Schedule, the last Charges Schedule shall remain in force until the next review subject to this Clause 5. It is acknowledged and agreed between the parties that, notwithstanding each such review, there is no obligation on Adobe Benelux or Adobe Systems to instruct Sykes Asia, Sykes Europe and Sykes US, as appropriate, to provide Adobe Benelux or Adobe Systems with any Service during the Contract Term.     5.8  Most Favorable Terms   If at any time during the Contract Term Sykes Asia, Sykes Europe and Sykes US or any Sykes Associated Company provides services similar to the Services or any of them to any third party on terms which are more favourable in respect of such services than the terms provided herein then the parties agree that the terms applying to provision of such Services hereunder shall at the request of Adobe Benelux or Adobe Systems, as appropriate, be amended to provide for such favourable terms but nothing contained in this Clause 5.8 shall oblige Sykes Asia, Sykes Europe and Sykes US to disclose the identity of any such third party. Sykes Asia, Sykes Europe and Sykes US shall be bound to appropriately inform Adobe Benelux or Adobe Systems immediately if any such circumstances arise. 6.CLIENT GROUP MANAGER In order for Adobe Benelux and Adobe Systems to monitor and review the appropriate Services, Sykes Asia, Sykes Europe and Sykes US undertake and agree to appoint one individual to be primarily responsible to Adobe for the Services who shall be the Client Group Manager. The Client Group Manager shall meet with such of Adobe Benelux' or Adobe Systems' management, as appropriate, and, as Adobe Benelux or Adobe Systems shall deem necessary, no less frequently than once each month during the Contract Term, or more frequently if this is required by the relevant Performance Standard or by Adobe Benelux or Adobe Systems at any time during the Contract Term. In addition, Sykes Asia, Sykes Europe and Sykes US undertake and agree to appoint a separate service manager for each or any of the Services, if requested by Adobe Benelux or Adobe Systems. For the avoidance of doubt this Clause 6 is without prejudice to any other managing structure requirement or reporting requirement specified in any Performance Standards or Performance Metrics or elsewhere in this Agreement. 15 -------------------------------------------------------------------------------- 7.RISK AND INSURANCE     7.1  Adobe Benelux and Adobe Systems Property   Sykes Asia, Sykes Europe and Sykes US agree that all property of Adobe Benelux or Adobe Systems to be held in their possession or under their control pursuant to this Agreement shall be held at the risk and liability of Sykes Asia, Sykes Europe and Sykes US, as appropriate, notwithstanding that title to such property shall at all times remain with Adobe Benelux or Adobe Systems, as appropriate.     7.2  Insurance   Sykes Asia, Sykes Europe and Sykes US shall obtain and maintain Commercial General Liability (including Products and Completed Operations coverage and Contractual Liability Coverage), Workers' Compensation and Employers Liability according to statute and Professional Indemnity insurance policies with limits of not less than [*] for each of such policies and All Risk Property Coverage with limits covering no less than the full value of all Adobe Property and Inventory. All insurance policies must be written through insurers rated no less than A- by AM Best and must be Admitted in the location being insured. Coverage must be affected in respect of Vendor's liabilities hereunder both during the Contract Term and for a period of five years after its expiry or termination. For as long as such insurance is required as aforesaid, upon request by Adobe, Sykes Europe, Sykes Asia and Sykes US shall submit to Adobe certificates of insurance evidencing all relevant insurance policies which will be provided at least 30 days prior to renewal or material change in coverage; such evidence of payment of premiums (including payment receipts) as Adobe shall reasonably require in respect of such insurance to show that it has been obtained and renewed. Adobe shall be named Additional Insured under all liability policies. All policies will be primary and non-contributing and will provide waivers of subrogation for Adobe. 8.CONFLICT OF INTEREST AND PUBLICITY     8.1  Good faith   Each party undertakes at all times to perform its obligations and exercise its rights hereunder with the utmost good faith (which includes in the case of Adobe Benelux and Adobe Systems the right to assign).     8.2  Press Releases   The parties agree that neither of them shall make any press release or originate any other publicity regarding this Agreement or the Services or make any announcement or publication whatsoever which involves the name of the other party without the prior written consent of the other party hereto. Without prejudice to the foregoing generality, neither party shall at any time without the prior written consent of the other party make or cause or give permission to any employee or any third party to make any untrue or misleading statement in relation to Sykes Asia, Sykes Europe and Sykes US, any Sykes Associated Company, Adobe Benelux and/or Adobe Systems, nor in particular after the termination of this Agreement represent or cause or permit any representation to be made that Sykes Asia, Sykes Europe or Sykes US is connected with Adobe Benelux and/or Adobe Systems in relation to the provision of the Services save as required by law or as is publicly available. 9.CONFIDENTIALITY     9.1  Confidential Information and Materials   (a)For the purposes of this Agreement, "Confidential Information" shall mean any and all technical and non-technical information in any form, including patent, trade secret and proprietary information, techniques, sketches, drawings, models, inventions, know-how, processes, apparatus, equipment, algorithms, software programs, software source documents, and formulae related to current, future and proposed products and services of 16 -------------------------------------------------------------------------------- Adobe Benelux or Adobe Systems, as appropriate, and includes, without limitation, its respective information concerning research, experimental work, development, design details and specifications, engineering, financial information, procurement requirements, purchasing, manufacturing, customer lists, business forecasts, sales and merchandising, and marketing plans and information. Without prejudice to the foregoing generality, "Confidential Information" shall also include any and all information contained in any and all Adobe Databases to which Sykes Asia, Sykes Europe or Sykes US may have access under this Agreement. (b)For the purposes of this Agreement, "Confidential Materials" shall mean all tangible materials containing Confidential Information including, without limitation, all written or printed documents and computer disks, tapes or CD-ROMs, whether machine or user readable, all PDF (portable document format) files and databases containing any Confidential Information.     9.2  Property of Adobe Benelux and Adobe Systems   All Confidential Information and/or Confidential Materials, and any Intellectual Property rights embodied therein, shall remain the sole and exclusive property of Adobe Benelux or Adobe Systems, as appropriate hereunder. Upon termination or expiry of this Agreement, all Confidential Materials, including any copies thereof which Adobe Benelux or Adobe Systems has authorized Sykes Asia, Sykes Europe and Sykes US to make, as appropriate, shall be returned to Adobe Benelux or Adobe Systems, as appropriate, immediately.     9.3  Restrictions   Sykes Asia, Sykes Europe and Sykes US agree that it shall not make use of, disseminate or in any way disclose the Confidential Information or the Confidential Materials to any person, firm, business, company or organization, except to the extent necessary to strictly comply with its obligations hereunder and only to those individuals who sign the Non-Disclosure Agreement provided by Adobe. For the avoidance of doubt, (a) Sykes Asia, Sykes Europe and Sykes US shall each not be entitled to use the Confidential Information and/or the Confidential Materials for any purpose other than to the extent strictly necessary to comply with its obligations hereunder. Sykes Asia, Sykes Europe and Sykes US shall each not circulate (by fax, electronic mail or any other method) any of the Confidential Materials to any End User and (b) the Confidential Materials are provided to Sykes Asia, Sykes Europe and Sykes US to use as a resource in providing the Services and Sykes Asia, Sykes Europe and Sykes US shall each not publish any of the Confidential Materials.     9.4  Degree of Care   Without prejudice to any other obligation under this Agreement, Sykes Asia, Sykes Europe and Sykes US agree that it shall treat all Confidential Information and all Confidential Materials with the same degree of care as it accords to its own confidential information, and Sykes Asia, Sykes Europe and Sykes US each represent that it uses best efforts to protect its confidential information. Sykes Asia, Sykes Europe and Sykes US may each disclose the Confidential Information and the Confidential Materials only to their employees who have signed a nondisclosure agreement to such effect and who have a need to know such Confidential Information and/or need to use such Confidential Materials and who have previously agreed in writing to be bound by the terms and conditions of this Agreement as they relate to Confidential Information and Confidential Materials.     9.5  Care of Confidential Information   Adobe Benelux and Adobe Systems each agree to treat as confidential any information which is proprietary to Sykes Asia, Sykes Europe and Sykes US and is made available to Adobe Benelux and Adobe Systems during the Contract Term at Adobe Benelux' and Adobe Systems' request, and to 17 -------------------------------------------------------------------------------- ensure that all appropriate precautions are in place to ensure that all such confidential information is treated as confidential by it, its officers and employees. Sykes Asia, Sykes Europe and Sykes US each agree to treat as confidential any information which is proprietary to Adobe Benelux and Adobe Systems and is made available to Sykes Asia, Sykes Europe or Sykes US during the Contract Term and to ensure that all appropriate precautions are in place to ensure that all such confidential information is treated as confidential by it, its officers and employees, and not limited to procedures for securing such Confidential Information in separate and locked locations as may be appropriate. The foregoing obligation shall cease when the said information enters the public domain, provided that this was not the result of a breach of the foregoing obligation by the recipient party of the information. Adobe Benelux and Adobe Systems each reserves the right to disclose information provided by Sykes Asia, Sykes Europe and Sykes US, as appropriate, in the event of any legal or administrative authority in any relevant jurisdiction so requesting such information, as well as in the event of any proceedings, either legal or administrative, in order to preserve Adobe Benelux' or Adobe Systems' interests PROVIDED THAT Adobe Benelux or Adobe Systems shall use all reasonable efforts to ensure that Sykes Asia, Sykes Europe and Sykes US, as appropriate, is notified before such disclosure (if possible) or immediately thereafter. 10.SYKES ASIA, SYKES EUROPE AND SYKES US UNDERTAKINGS     10.1  Undertakings   Sykes Asia, Sykes Europe and Sykes US each hereby agree that during the Contract Term each will: (a)require all employees and independent contractors to sign any confidentiality agreement, as may be provided by Adobe, prior to any access to Adobe proprietary or Confidential Information; and shall perform background investigations to include, at a minimum, criminal checks, both felony and misdemeanors and appropriate social security verification; (b)shall not allow unauthorized employees, contractors or visitors access to Adobe proprietary or Confidential Information or controlled-access areas; (c)shall maintain visitor logs for any controlled access areas containing Adobe proprietary or Confidential Information and/or other high risk assets materials, as may be identified by Adobe from time to time, such logs available for review by Adobe upon request; (d)take such action in relation to its employees, agents and sub-contractors as Adobe Benelux or Adobe Systems may from time to time reasonably require in order to secure the effective performance by Sykes Asia, Sykes Europe and Sykes US of its respective obligations hereunder; (e)without prejudice to the obligations contained in Clause 3.9 of this Agreement, ensure that all systems, equipment, machinery and/or software employed by Sykes Asia, Sykes Europe and Sykes US for provision of their respective Services shall be of adequate quality for the performance of such Services and shall ensure that they are well maintained and shall ensure that all payments due to third parties in respect thereof whether by way of maintenance or otherwise shall be timeously paid save in the case of any bona fide dispute; (f)not, to the best of its knowledge and belief, make any illegal use of any software licensed from any third party in the performance of Services; (g)not use Adobe Benelux' or Adobe Systems' trade marks, trade names, service marks or logo(s) (except as expressly permitted hereunder in relation to the Services) without obtaining appropriate Adobe Benelux' or Adobe Systems' prior written consent; (h)not sub-contract its performance of any or all of the Services to any third party or appoint an agent without Adobe Benelux' or Adobe Systems' prior written consent and such consent 18 -------------------------------------------------------------------------------- shall only be given inter alia (i) on the basis that Sykes Asia, Sykes Europe and Sykes US each remain entirely liable for the acts and omissions of each such sub-contractor or agent and (ii) provided that each such sub-contractor or agent expressly agrees to assign to Adobe Benelux or Adobe Systems, as appropriate, or such party(ies) as Adobe Benelux or Adobe Systems, as appropriate, may designate all Intellectual Property that the sub-contractor or agent may create or develop in its provision of the Service(s) on like terms to those contained in Clause 3.8; (i)perform the Services in conformity with all local laws in the territories covered by this Agreement, including but not limited to those in the area of data protection, taxation, privacy, competition and advertising; (j)without prejudice to Clause 10.1(i), in collecting, processing, recording, storing, registering, disclosing, transferring and using data and in maintaining records, comply fully with any applicable privacy protection regulations, data protection regulations and other applicable laws. Without limiting the generality of the foregoing, Sykes Asia, Sykes Europe and Sykes US shall each make all appropriate registrations and shall each apply for all appropriate authorisations, approvals, and/or licences so as to enable an inspection and/or audit as may be appropriate or the transfer of the data to Adobe Benelux or Adobe Systems, as appropriate, and any third party(ies) designated by Adobe Benelux or Adobe Systems, as appropriate, and their corresponding holding and use by Adobe Benelux or Adobe Systems and any third party(ies) designated by Adobe Benelux or Adobe Systems for any purposes specified by Adobe Benelux or Adobe Systems, as appropriate, and insofar as permitted under the applicable privacy protection regulations and the applicable data protection regulations. Sykes Asia, Sykes Europe and Sykes US shall each defend, indemnify and hold Adobe Benelux and Adobe Systems and its successors, officers, directors and employees and all third party(ies) designated by Adobe Benelux or Adobe Systems, as appropriate, harmless against any and all costs, expenses, liabilities, losses, damages, injunctions, interdicts, suits, actions, fines, penalties, claims, proceedings and demands of every kind or nature (including but not limited to reasonable legal fees) made against or incurred by the indemnified party in respect of claims by any person whose data are registered, or by any government entity enforcing privacy regulations, data protection regulations or any other applicable laws, or any other party based on any regulations or any other applicable laws in connection with the data collected, processed, stored, registered, disclosed, maintained or transferred by Sykes Asia, Sykes Europe or Sykes US or in connection with the use by Adobe Benelux or Adobe Systems or any other party(ies) designated by Adobe Benelux or Adobe Systems, as appropriate, of such data provided that Adobe Benelux or Adobe Systems has complied with its obligations under applicable data protection regulations and any other relevant regulations in respect of such data. Sykes Asia, Sykes Europe and Sykes US' obligations of indemnification shall survive the expiry or termination of this Agreement.     10.2  Third Parties   For the purposes of this Clause 10, "third party" shall include, without limitation, any Sykes Associated Company.     10.3  Facility Certification   Unless otherwise approved by Adobe, any Services by Sykes Europe, Sykes Asia and Sykes US from call or fulfillment centers shall be provided at the Europe Call Center Facility, Asia Call Center Facility and North America Call Center Facility, respectively. Each call center facility shall comply with any standards and specification provided herein or otherwise agreed to by the parties from time to time. The North America Call Center Facility shall be certified by Sykes US to comply with the COPC-2000 technical support standard by [*]. Sykes further agrees that the Europe Call Center 19 -------------------------------------------------------------------------------- Facility, Asia Call Center Facility and any other international site supporting Adobe Benelux' technical support business shall comply with the COPC-2000 technical support standard and any other international technical support standard, as agreed to by Sykes and Adobe Benelux, by [*]. Sykes Europe, Sykes Asia and Sykes US, as appropriate, shall be compliant to the customer metrics and reporting requirements, available at www.copc.com, by January 1, 2000. 11.LIABILITY     11.1  Errors or Omissions   Sykes Asia, Sykes Europe and Sykes US each agree to indemnify and hold harmless Adobe Benelux and Adobe Systems, as appropriate, and its successors, officers, directors and employees from all and any costs, expenses, liabilities, losses, damages, injunctions, interdicts, suits, actions, fines, penalties, claims, proceedings and demands of every kind or nature (including but not limited to Adobe Benelux' and Adobe Systems' reasonable legal fees) made against or incurred by the indemnified party as a result of misrepresentation, wilful or negligent act, error or omission on the part of Sykes Asia, Sykes Europe and Sykes US, its employees or sub-contractors arising out of or in any way connected with Sykes Asia's, Sykes Europe's and Sykes US' performance of the Services.     11.2  Data Corruption   Without prejudice to their obligations hereunder, Sykes Asia, Sykes Europe and Sykes US each shall take all reasonable steps in the performance of their respective Services to secure that any data (which is made available to and/or processed by Sykes Asia, Sykes Europe and Sykes US) and the Adobe Benelux or Adobe Systems networks do not suffer from any corruption, deterioration or alteration or addition to them (other than as specifically provided for in terms of this Agreement) or the generation of any errors, defects or malfunctions therein caused by: (a)the use or failure of use by Sykes Asia, Sykes Europe and Sykes US of any code, data, media, material, firmware, or software at any time during the Contract Term; or (b)any computer instruction, circuitry, "virus", "worm", "Trojan horse" or "logic bomb" (as these words are generally understood as at the Effective Date within the computer industry) or any other technological means whose purpose is to disrupt, damage or interfere with Adobe Benelux' or Adobe Systems' use, as appropriate, of its computer and/or telecommunications facilities, or any other similar matter or thing resulting from such use or failure as specified in Clause 11.2(a) which comes into existence or is introduced during the Contract Term.     11.3  Other Liabilities   Without prejudice to the provisions of Clause 11.1 Sykes Asia, Sykes Europe and Sykes US each hereby agree to defend, indemnify and hold harmless Adobe Benelux and Adobe Systems and its successors, officers, directors and employees from all and any costs, expenses, liabilities, losses, damages, injunctions, interdicts, suits, actions, fines, penalties, claims, proceeding and demands of every kind or nature (including but not limited to Adobe Benelux' and Adobe Systems' reasonable legal fees) made against or incurred by the indemnified party arising from: (a)the misuse by Sykes Asia, Sykes Europe or Sykes US of any Adobe Database to which it may have access hereunder or of any part thereof: and/or (b)any failure by Sykes Asia, Sykes Europe or Sykes US to carry out any or all of their respective Services strictly in accordance with its obligations in this Agreement and/or in respect of any negligent act or omission of Sykes Asia, Sykes Europe or Sykes US in the provision of any or all of their respective Services. 20 --------------------------------------------------------------------------------     11.4  Notification of Claims   If any action or claim shall be brought against Adobe Benelux or Adobe Systems in respect of which indemnity may be sought from Sykes Asia, Sykes Europe or Sykes US under this Agreement, Adobe Benelux or Adobe Systems shall promptly notify Sykes Asia, Sykes Europe and Sykes US, as appropriate, in writing, specifying the nature of the action and the total monetary amount sought or other such relief as is sought therein. Adobe Benelux and Adobe Systems shall co-operate with Sykes Asia, Sykes Europe and Sykes US, as appropriate, at Sykes Asia, Sykes Europe and Sykes US' expense, as appropriate, in all reasonable respects in connection with the defense of any such action. Sykes Asia, Sykes Europe and Sykes US each undertakes to conduct all proceedings or negotiations in connection therewith, assume the defense thereof, and shall also undertake all other required steps or proceedings to settle or defend any such action, including the employment of counsel which shall be satisfactory to Adobe Benelux and Adobe Systems (acting reasonably), and payment of all expenses. Adobe Benelux and Adobe Systems shall have the right to employ separate counsel and participate in the defense thereof. As part of the indemnity contained in this Agreement, Sykes Asia, Sykes Europe and Sykes US shall reimburse Adobe Benelux and Adobe Systems upon demand for any payments made or loss suffered by it, based upon the judgement of any court of competent jurisdiction or pursuant to a bona fide compromise or settlement of claims, demands or actions, in respect of any damages to which the foregoing relates.     11.5  No Indemnity   Nothing in this Agreement shall render Adobe Systems or Adobe Benelux liable to indemnify Sykes Asia, Sykes Europe, Sykes US or any third party in respect of any liability of any kind incurred by Sykes Asia, Sykes Europe, Sykes US or any third party.     11.6  Survival of Terms   The indemnities given by Sykes Asia, Sykes Europe or Sykes US pursuant to this Clause 11 shall survive the termination or expiry of this Agreement however caused.     11.7  Maximum Liability   Subject to the provisions of Clause 11.8, the maximum individual aggregate liability of Sykes US separately, Sykes Europe or Sykes Asia, under this Agreement or otherwise (whether or not caused by the negligence of Sykes Asia, Sykes Europe or Sykes US, its employees or sub-contractors) arising out of or connected with the provision or purported provision of or failure in the provision of their respective Services to Adobe Benelux or Adobe Systems, as appropriate, including the indemnities given hereunder, but specifically excluding any breach or breaches by Sykes Asia, Sykes Europe or Sykes US of any obligation to collect, remit or pay to Adobe Benelux or Adobe Systems, as appropriate, any sums owed them by Sykes Asia, Sykes Europe or Sykes US or any third party in connection with the Services (in which case their liability shall be unlimited), shall in no circumstances be greater than US$[*].     11.8  No Exclusion for Death/Personal Injury   Neither party excludes or limits its liability for death or personal injury to the extent only that the same arises as a direct result of the negligence of that party or its employees.     11.9  Exclusion for Adobe Benelux or Adobe Systems Default   Sykes Asia, Sykes Europe and Sykes US each expressly exclude and/or limits its liability hereunder to the extent that such liability arises by reason of any default (whether wilful or negligent) by Adobe Benelux or Adobe Systems, as appropriate, in the performance of its obligations hereunder. 21 -------------------------------------------------------------------------------- 12.ADOBE BENELUX OR ADOBE SYSTEMS SUPPORT     12.1  Technical Information   Provided all necessary security is in place prior to any access, Adobe Benelux and Adobe Systems each agrees to make available to Sykes Asia, Sykes Europe or Sykes US, as appropriate, all information, technical knowledge, product sales information, documentation and support which may be reasonably required by Sykes Asia, Sykes Europe and Sykes US to provide their respective Services but that on the understanding that Sykes Asia, Sykes Europe and Sykes US shall be deemed to have the expertise and ability of a reasonably skilled provider of services similar to their respective Services. Adobe Benelux and Adobe Systems shall, as appropriate, ensure that Sykes Asia, Sykes Europe and Sykes US each have access to all necessary networks and Adobe Databases for the purpose of providing their respective Services hereunder. For the avoidance of doubt, any and all information provided by Adobe Benelux or Adobe Systems to Sykes Asia, Sykes Europe or Sykes US, as appropriate hereunder, shall be deemed to be Confidential Information of Adobe Benelux or Adobe Systems, as appropriate.     12.2  License of Products   Without prejudice to the other provisions hereof, Adobe Benelux and Adobe Systems each undertakes and agrees to grant or procure for Sykes Asia, Sykes Europe and/or Sykes US, as appropriate, a non-exclusive, non-transferable, royalty-free limited license to use such number of copies of each Adobe Product as Adobe Benelux or Adobe Systems may deem necessary for Sykes Asia, Sykes Europe or Sykes US, as appropriate, to perform each of the Services PROVIDED THAT Sykes Asia, Sykes Europe or Sykes US each shall not use any Adobe Product for any purpose other than the performance of the relevant Service for which the relevant license is granted, and further provided that (without prejudice to Clause 13) Sykes Asia, Sykes Europe and Sykes US each shall at all times comply with the terms and conditions of Adobe Benelux' or Adobe Systems' End User licence agreement for such Adobe Products. 13.PERMITTED USES AND INTELLECTUAL PROPERTY RIGHTS     13.1  Restriction   Sykes Asia, Sykes Europe and Sykes US each agree not to translate any Adobe Product into another computer language, in whole or in part. Sykes Asia, Sykes Europe and Sykes US each shall not make copies or make media translations of any Adobe Product including without limitation any user documentation supplied herewith in whole or in part without appropriate Adobe Benelux or Adobe Systems prior written approval. Sykes Asia, Sykes Europe and Sykes US each agree that if, for any reason, it comes into possession of any source code or portion thereof for any Adobe Product not provided by Adobe Benelux or Adobe Systems or its licensors as a part of an Adobe Product it shall not use or disclose such source code and it shall immediately deliver all copies of such source code to Adobe Benelux or Adobe Systems, as appropriate. Nothing contained in this Agreement shall be interpreted so as to exclude or prejudice the rights (if any) of Sykes Asia, Sykes Europe and Sykes US or any End User under the European Directive on the Legal Protection of Computer Programs (as implemented in the relevant jurisdiction) with respect to the Adobe Products.     13.2  Safeguarding Products   Sykes Asia, Sykes Europe and Sykes US agree to take all reasonable action to safeguard the Products while in its possession against all probable or foreseeable risks or wrongful obtaining by others and shall take such security measures as are reasonably necessary for those purposes.     13.3  Adobe's Intellectual Property   (a)Sykes Asia, Sykes Europe and Sykes US acknowledge that the structure, organization and code of the Adobe Products are proprietary to Adobe Systems, its licensors and suppliers, 22 -------------------------------------------------------------------------------- and that the Products, including but not limited to any manuals and marketing materials, are the Intellectual Property of Adobe Systems, its licensors and suppliers. Adobe Systems, its licensors and/or suppliers retain exclusive ownership of the Intellectual Property rights vested in the Products and any and all trade marks licensed to Sykes Asia, Sykes Europe and Sykes US, as appropriate, in accordance with Clause 3.7 (the "Trade Marks") and Sykes Asia, Sykes Europe and Sykes US each shall take all reasonable measures to protect the Intellectual Property rights of Adobe Systems, its licensors and suppliers in the Products and the Trade Marks including but not limited to providing such assistance and taking such measures as are reasonably requested by Adobe Systems from time to time. (b)Except as provided herein, Sykes Asia, Sykes Europe and Sykes US is not granted any rights to any Intellectual Property or any other rights, franchises or licences with respect to the Trade Marks. Without prejudice to the foregoing, Sykes Asia, Sykes Europe and Sykes US each acknowledge and agree that any and all Intellectual Property rights in and to any Adobe Database to which Sykes Asia, Sykes Europe or Sykes US may have access hereunder are and shall remain the Intellectual Property of Adobe Benelux, Adobe Systems, its licensors and/or suppliers. Sykes Asia, Sykes Europe or Sykes US each hereby assign any and all present and future Intellectual Property rights, if any, in Sykes Asia's, Sykes Europe's and Sykes US' updates of the Adobe Databases and any authoring, localization or translation by Sykes Asia, Sykes Europe or Sykes US of any items(s) contained in or entered into any Adobe Database to which Sykes Asia, Sykes Europe or Sykes US has access under this Agreement or any data contained therein, to Adobe Systems. Sykes Asia, Sykes Europe and Sykes US each shall procure waivers of all moral or similar rights which may from time to time subsist in relation to such updates and other works. At any time upon first request, Sykes Asia, Sykes Europe and Sykes US shall take all steps, sign all documents and otherwise fully co-operate with Adobe to secure a binding transfer and waiver of all such rights to Adobe Systems or Adobe Benelux, as requested, all on like terms to those contained in Clause 3.8. (c)For the avoidance of doubt, all rights of any nature in the Sales and Registration Database (other than Sykes Asia's, Sykes Europe's and Sykes US' or any third party's rights in the underlying software and file and database structures) shall belong to Adobe Benelux or Adobe Systems, as appropriate. Such rights include, but are not limited to database rights and the right to regard such database and all data contained therein as confidential information. Should Adobe Benelux or Adobe Systems wish at any time to relocate, duplicate or transfer the Sales and Registration Database to a location within their own network, Sykes Asia, Sykes Europe and Sykes US, as appropriate, undertake fully and effectively to co-operate with any such relocation, duplication and/or transfer as required by Adobe Benelux or Adobe Systems on such terms as the parties shall agree.     13.4  Intellectual Property Infringement   (a)Subject to the limitations set forth in this Clause 13.4 and Clause 13.5, Adobe Benelux or Adobe Systems, depending on in which country the claim arises, shall defend and indemnify Sykes Asia, Sykes Europe or Sykes US with respect to all claims, suits or proceedings with respect to any claim that any Adobe Product delivered to Sykes Asia, Sykes Europe or Sykes US by Adobe Benelux or Adobe Systems, as appropriate, in order to allow Sykes Asia, Sykes Europe or Sykes US to fulfill its obligations hereunder infringes any patent, trade mark or copyright provided, however, that (i) Sykes Asia, Sykes Europe or Sykes US promptly notifies Adobe Benelux or Adobe Systems, as appropriate, in writing of such claim, suit or proceeding (ii) Sykes Asia, Sykes Europe or Sykes US gives Adobe Benelux or Adobe Systems, as appropriate, the right to control and direct the investigation, preparation, defense and settlement of any such claim, suit or proceeding (iii) Sykes Asia, Sykes Europe 23 -------------------------------------------------------------------------------- and Sykes US makes no admission of liability, (iv) Sykes Asia, Sykes Europe and Sykes US gives assistance and full co-operation for the defense of same as requested at Adobe Benelux' or Adobe Systems' expense, as appropriate, and further provided that their liability with respect to portions of the Adobe Products provided by or licensed from third parties will be limited to the extent that Adobe Benelux or Adobe Systems is indemnified by such third parties, and (v) the indemnification is limited only of copyrights, trademarks and patents registered or issued in the United States, Switzerland, Australia and European Union countries. Adobe Benelux and Adobe Systems, as appropriate, shall pay any resulting damages, costs and expenses finally awarded or as a result of a settlement made by Adobe Benelux or Adobe Systems to a third party but Adobe Benelux and Adobe Systems are not and shall not be liable for such amounts or for settlements incurred by Sykes Asia, Sykes Europe or Sykes US without its written authorization. If such claim, suit or proceeding has occurred or in Adobe Benelux' or Adobe Systems' opinion is likely to occur, Adobe Benelux or Adobe Systems may at its election and expense either obtain for Sykes Asia, Sykes Europe or Sykes US, as appropriate, the right to continue performing their respective Services with regard to such allegedly infringing Adobe Product, replace or modify the Adobe Product so it is not infringing or remove such Adobe Product from this Agreement; (b)The provisions of the indemnity set out in Clause 13.4(a) shall not apply with respect to any instances of alleged infringement based upon or arising out of the use of Adobe Products other than as strictly permitted under this Agreement or in any manner for which the Adobe Products were not designed, or for use of the Adobe Products for other than the uses designated by Adobe Benelux or Adobe Systems, for use of any Adobe Product which has been modified by Sykes Asia, Sykes Europe or Sykes US, as appropriate, or any third party (except to the extent such modifications are authorized and approved in writing by Adobe Benelux or Adobe Systems, as appropriate, or expressly permitted hereunder) or for use of any Adobe Products in connection with or in combination with any equipment, devices or software which have not been supplied by Adobe Benelux or Adobe Systems (if such infringement or claim could have been avoided by use of the Adobe Products with other equipment, devices or software). Notwithstanding any other provisions hereof, the indemnity set out in Clause 13.4(a) shall not apply with respect to any infringement based on Sykes Asia's, Sykes Europe's and Sykes US' activities occurring subsequent to its receipt of notice of any claimed infringement unless Adobe Benelux or Adobe Systems shall have given Sykes Asia, Sykes Europe or Sykes US, as appropriate, written permission to continue to use the relevant Adobe Product; (c)THE FOREGOING CLAUSES 13.4(a) AND (b) STATE THE SOLE AND EXCLUSIVE REMEDY OF SYKES ASIA, SYKES EUROPE OR SYKES US AND THE ENTIRE LIABILITY AND OBLIGATION OF ADOBE, ITS LICENSORS AND SUPPLIERS WITH RESPECT TO INFRINGEMENT OR CLAIMS OF INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHT BY THE PRODUCTS OR ANY PART THEREOF. 14.TERM AND TERMINATION     14.1  Term   Notwithstanding the date or dates of execution hereof, this Agreement shall be deemed to be effective as of the Effective Date and subject to the provisions of Clause 17.2 shall continue for the Contract Term whereupon it shall automatically expire. There shall be no automatic renewals of this Agreement. This Agreement may only be renewed by the written agreement of both parties. 24 --------------------------------------------------------------------------------     14.2  Termination   A party shall have the right at all times by giving notice in writing to the other appropriate party to terminate this Agreement forthwith on the occurrence of any of the following events: (a)if the other party commits a breach of any of the terms of this Agreement and fails to remedy the same within 14 days of written notice from the first party requesting remedy of such material or persistent breach and so that for this purpose a breach by any employee, agent or sub-contractor of either party of any of the terms of this Agreement shall be deemed to be a breach by that party; (i)for the avoidance of doubt, if a party commits a material or persistent breach which is not remedied pursuant to Clause 14.2(a)(i) then the other party shall be entitled to rescind this Agreement and/or seek damages from the party in breach; (ii)for the purposes of this Clause 14.2, "persistent breach" shall mean breaches which in their cumulative effect materially affect the performance of the relevant party's obligations; (iii)for the further avoidance of doubt, it is acknowledged and agreed that a material or persistent breach in the provision of any one (or more) of the Services shall entitle the party not in breach to terminate this Agreement. (b)if the other party is deemed unable to pay its debts (within the meaning of section 123(1) of the Insolvency Act 1986), or if an application for an administration order in relation to it is presented to the Court, or if any steps are taken by it with a view to proposing any kind of composition or arrangement involving its creditors generally (or any class of them), or if any administrative or other receiver or any manager of it or any of its property is appointed, or if any diligence, distress, execution or other process is levied, enforced or sued out against it or its assets and not discharged within 21 days, or if any meeting is convened, resolution passed, petition presented or order made for its winding up, or if an order is made or resolution passed or other action taken for suspension of payments, protection from creditors or bankruptcy of it, or if a liquidator, trustee or similar office is appointed in respect of it, or all or part of its assets (or if any similar event occurs in relation to either party in any jurisdiction outside the United Kingdom); (c)if either party shall be guilty of conduct tending to bring the other party and/or any associated company of the other (associated with Adobe or a Sykes Associated Company respectively) into disrepute; (d)for the purposes of this Clause 14.2, where the party in question is Sykes Asia, Sykes Europe or Sykes US, the party shall include any Sykes Associated Company which is involved in providing its respective Services or any of them whether under sub-contract or otherwise or any other sub-contractor whether or not such sub-contractor is registered in its geographic region.     14.3  Material Breach by Sykes Asia, Sykes Europe or Sykes US   It is hereby acknowledged and agreed that the following shall amount to a material breach of a term of this Agreement by Sykes Asia, Sykes Europe or Sykes US, such that Adobe Benelux or Adobe Systems, as appropriate, would be entitled to terminate this Agreement pursuant to Clause 14.2 (a): (a)where Adobe Benelux or Adobe Systems requests any Service in accordance with the provisions hereof and specifies in such request that the end implementation date for provision of the specific Service is linked to a Product which is specified by Adobe Benelux 25 -------------------------------------------------------------------------------- or Adobe Systems (acting reasonably) as being important and Sykes Asia, Sykes Europe or Sykes US fails to meet that end implementation date; or (b)where Adobe Benelux or Adobe Systems requests any Service in accordance with the provisions hereof and specifies in such request that the end implementation date for provision of the specific Service is linked to any campaign specified by Adobe Benelux or Adobe Systems (acting reasonably) as being important and Sykes Asia, Sykes Europe or Sykes US fails to meet that end implementation date; or (c)where Sykes Asia, Sykes Europe or Sykes US is in breach of any obligation of confidentiality imposed on it pursuant to this Agreement or is in breach of any security which is put in place at the request of Adobe Benelux or Adobe Systems, as appropriate, which in Adobe Benelux' or Adobe Systems' view (acting reasonably) has a significant adverse effect on Adobe Benelux' or Adobe Systems' business, as appropriate; or (d)where Sykes Asia, Sykes Europe or Sykes US has knowingly or negligently injured Adobe Benelux' or Adobe Systems' name or damaged Adobe Benelux' or Adobe Systems' goodwill; or (e)where Sykes Asia, Sykes Europe or Sykes US has used or misused Adobe Benelux' or Adobe Systems' name or any or its trade names, trade marks, service marks or logos other than as expressly provided in this Agreement; or (f)where Sykes Asia, Sykes Europe or Sykes US has knowingly or negligently used unlicensed third party software or has allowed any Product to be used other than as specified under this Agreement so far as is within its respective control; or (g)without prejudice to Part 2 of the Schedule where Sykes Asia, Sykes Europe or Sykes US has failed to meet any or all of the Performance Standards; or (h)where Sykes Asia, Sykes Europe or Sykes US has, in Adobe Benelux' or Adobe Systems' opinion, consistently failed to meet the standards, goals and targets identified in its respective Performance Metrics; and, for the avoidance of doubt, time will be of the essence in meeting the various dates specified in paragraphs (a) and (b) of this Clause 14.3. For the avoidance of doubt (i) meeting its respective Performance Standards by Sykes Asia, Sykes Europe or Sykes US shall not he conclusive of Sykes Asia, Sykes Europe or Sykes US, as appropriate, being in compliance with its obligations under this Agreement (other than its obligations to meet its relevant Performance Standards) and (ii) the making of any and all deductions which may be applied by Sykes Asia, Sykes Europe or Sykes US in terms of this Agreement shall be without prejudice to any and all other rights which Adobe Benelux or Adobe Systems, as appropriate, may have in respect of any breach including hut not limited to the right to terminate this Agreement.     14.4  Change of Control   Adobe Systems or Adobe Benelux shall be entitled to terminate this Agreement if (i) there is a change in the persons or entities who control 50% or more of the voting security or equity interests of Sykes Asia, Sykes Europe or Sykes US or (ii) in the event of a sale by Sykes Asia, Sykes Europe or Sykes US of 75% or more of its business which is involved in providing the Services.     14.5  Termination for Convenience   Notwithstanding the provisions of Clauses 3.1 and 14.1 of this Agreement, Adobe Systems and/or Adobe Benelux may terminate this Agreement at any time without cause and without judicial intervention and without prejudice to the rights and obligations of the parties which have accrued as at the date of termination upon one hundred twenty (120) days' prior written notice to the other party by 26 -------------------------------------------------------------------------------- registered mail with notice of receipt. Notwithstanding the provisions of Clauses 3.1 and 14.1 of this Agreement, Sykes Europe, Sykes Asia and/or Sykes US may terminate this Agreement at any time without cause and without judicial intervention and without prejudice to the rights and obligations of the parties which have accrued as at the date of termination upon [*] prior written notice to the other party by registered mail with notice of receipt.     14.6  Consequences of Termination   (a)On termination or expiry of this Agreement for any reason Sykes Asia, Sykes Europe or Sykes US will liaise with Adobe Benelux or Adobe Systems, as appropriate, making available for such purposes such Sykes Asia, Sykes Europe and Sykes US liaison staff as Adobe Benelux or Adobe Systems, as appropriate, may reasonably require and acting in good faith to ensure mutually satisfactory handover of the performance of the Services to Adobe Benelux or Adobe Systems, as appropriate, or to a replacement contractor(s). The period of liaison will commence as soon as notices have been given of termination of this Agreement (or the Agreement expires, as the case may be) and will continue for a maximum period of three months after termination or expiry unless otherwise agreed. (b)Sykes Asia, Sykes Europe and Sykes US each agrees that at the time of termination or expiry of this Agreement it will render all assistance (including that specified in paragraph (a) above), provide all documentation and undertake all actions to the extent necessary to effect an orderly assumption of the Services by Adobe Benelux or Adobe Systems, as appropriate, or by replacement contractor(s), subject to agreeing with Adobe Benelux or Adobe Systems, as appropriate, a fee for its reasonable costs and expenses in so doing without prejudice to any rights of Adobe Benelux or Adobe Systems, as appropriate, to claim damages in the event of termination arising from any breach of this Agreement by Sykes Asia, Sykes Europe and Sykes US. Without prejudice to the foregoing, Sykes Asia, Sykes Europe and Sykes US shall do all things required to transfer the Sales and Registration Database and all data contained therein to Adobe Benelux or Adobe Systems, as appropriate, or its replacement contractors, as above. (c)Each party undertakes to return to the other party upon termination or expiry of this Agreement any equipment, software, documentation, information or other materials belonging to the other party. Without prejudice to the foregoing generality, Sykes Asia, Sykes Europe and Sykes US each shall deliver immediately to Adobe Benelux or Adobe Systems, as appropriate, all Confidential Information and/or Confidential Materials in its possession including but not limited to any and all copies of Adobe Databases and all registration cards. After any such delivery to Adobe of Confidential Information and/ or Confidential Materials in its possession, Sykes Asia, Sykes Europe and Sykes US each shall destroy all and any electronic records in its possession or on its network and shall provide written certification to Adobe to such effect. (d)For the avoidance of doubt, until this Agreement expires or is terminated (including during any notice period), Sykes Asia, Sykes Europe and Sykes US shall continue to provide the Services in accordance with the terms of this Agreement including, without limitation, Clause 2.3 and the Performance Standards.     14.7  Survival of Terms   Termination or expiry of this Agreement shall not affect the obligations of the parties in terms of Clauses 2.1, 2.3, 3.8, 5.2, 5.3, 5.5, 7, 8.2, 9, 10.1(i), 11, 13, 14.6, 14.7, 14.8, 14.9, 14.10, 15, 16, 18, 20 and 21 of this Agreement which shall continue notwithstanding termination or expiry. 27 --------------------------------------------------------------------------------     14.8  Accrued Rights   Termination or expiry of this Agreement shall not affect the rights of either party accrued against the other up to the date of termination.     14.9  Other Rights   Each party's right of termination as herein provided shall be without prejudice to any other rights and remedies it may have under this Agreement.     14.10  No Compensation   Each party understands that the rights of termination or expiry hereunder are absolute. Without prejudice to any right to claim damages for breach of contract, neither party shall incur any liability whatsoever for any other damage, loss or expenses of any kind (with the exception of damage, loss or expense which is the result of wilful misconduct or gross negligence of such party's senior managerial personnel) suffered or incurred by the other arising from or incidental to any termination of this Agreement by such party or any expiry hereof which complies with the terms of the Agreement whether or not such party is aware of any such damage, loss or expenses in such circumstances. In particular, without in any way limiting the foregoing, neither party shall be entitled to any damages on account of prospective profits or anticipated sales. Where applicable, Sykes Asia, Sykes Europe or Sykes US each hereby irrevocably agree to waive the benefit of any law or regulation providing compensation to it arising from the termination or expiry or failure to renew this Agreement. Sykes Asia, Sykes Europe or Sykes US each also agree to indemnify and hold harmless Adobe Benelux and Adobe Systems, as appropriate, from any and all claims for compensation asserted by Sykes Asia's, Sykes Europe's or Sykes US' employees and sub-contractors. 15.RESTRICTIONS     15.1  Fair and Reasonable   Sykes Asia, Sykes Europe and Sykes US acknowledge that in the course of this Agreement it is likely to obtain knowledge of Adobe Benelux' or Adobe Systems' trade secrets and other Confidential Information and will have dealings with certain of the customers and suppliers of Adobe Benelux and Adobe Systems and that it is fair and reasonable for Adobe Benelux and Adobe Systems to seek to protect its interests by the provisions of this Clause.     15.2  Non-Solicitation   All parties hereby agree that (without prejudice to any other duty implied by law) they will not (whether alone or jointly with or as principal, manager, employee, partner, agent or consultant of or for any other person, firm or company): (a)at any time during the Contract Term and/or any transitional period described in Clause 14.6 (a), without the prior consent of the other party, endeavour to entice away from the other party or knowingly employ or offer employment to any person who is then, or has been during the Contract Term, a director, employee, consultant or agent of the other party; or (b)for a period of one (1) year after the termination or expiry of this Agreement, without the prior consent of the other party, endeavour to entice away from the other party or knowingly employ or offer employment to any person who is then a director, employee, consultant or agent of the other party: or (c)at any time do or say anything likely to be calculated to lead any person, firm or company to breach any contract with the other party or withdraw from the other party any rights of import, supply, distribution or agency now enjoyed by it. 28 -------------------------------------------------------------------------------- 16.GENERAL     16.1  Entire Agreement   This Agreement constitutes the entire agreement and understanding between the parties hereto relating to the subject matter hereof and this Agreement cancels, terminates and supersedes any prior agreement or understanding relating to the subject matter hereof including but not limited to the statements of work agreed by the parties prior to the Effective Date. The relationship between the parties is as herein described and no partnership, joint venture or agency relationship save as provided herein shall be deemed to subsist between the parties and neither shall have the power to bind the other or to pledge the credit of the other. Sykes Asia, Sykes Europe and Sykes US each shall not say or do anything that might lead any third party to believe that Sykes Asia, Sykes Europe or Sykes US is acting as the agent of Adobe Benelux or Adobe Systems (except insofar as is required in the proper performance of the Services hereunder).     16.2  No Variation   None of the provisions of this Agreement may be varied, waived, extended or modified except expressly in writing and signed by all of the parties hereto.     16.3  No Waiver   Any omission by any party to exercise any right or remedy available to that party under the terms of this Agreement shall not be taken to signify acceptance of the event giving rise to the right to exercise such right or remedy and shall be without prejudice to the rights of any party which may arise in the future.     16.4  Severability   Any provisions of this Agreement which in any way contravene the law of any state or region in which this Agreement is effective shall in such state or region to the extent of such contravention of laws be deemed severable and shall not invalidate any other provision or provisions of this agreement. Without prejudice to the foregoing, where practicable, the parties hereto shall negotiate with a view to replacing any such severed provisions with enforceable provisions to the satisfaction of both parties.     16.5  Set-Off   Adobe Benelux and Adobe Systems, will be entitled to set off all sums due to Sykes Asia, Sykes Europe or Sykes US, as appropriate, pursuant to this Agreement against all sums due by Sykes Asia, Sykes Europe or Sykes US to Adobe Benelux or Adobe Systems. 17.FORCE MAJEURE     17.1  Definition   For the purpose of this Agreement "Force Majeure" shall be deemed to be any cause affecting the performance of this Agreement arising from or attributable to acts, events, omissions or accidents beyond the reasonable control of the party failing to perform and without limiting the generality thereof shall include the following: (a)strikes, lock-outs or other industrial action (other than insofar as these involve the party claiming Force Majeure); (b)civil commotion, riot, invasion, war threat or preparation for war; (c)fire, explosion, storm, flood, earthquake, subsidence, epidemic or other natural physical disaster; 29 -------------------------------------------------------------------------------- (d)impossibility of the use of railways, shipping, aircraft, motor transport or other means of public or private transport; (e)political interference with the normal operations of any party.     17.2  Suspension   If any party to this Agreement is prevented or delayed in the performance of any of its obligations under this Agreement by Force Majeure, and if such party gives written notice thereof to its respective other party specifying the matters constituting Force Majeure, together with such evidence as it reasonably can give and specifying the period for which it is estimated that such prevention or delay will continue then the party in question shall be excused the performance or the punctual performance as the case may be as from the date of such notice for as long as such cause of prevention or delay shall continue up to a period of [*] from the date of service of the said written notice and upon expiry of the said period of [*] either party may by written notice to the other summarily terminate this Agreement without prejudice to the then accrued rights of each party hereunder;     17.3  Non-Payment not Force Majeure   For the avoidance of doubt any failure by Sykes Asia, Sykes Europe or Sykes US to supply the Services due to any non-payment by Sykes to any of its vendors shall not constitute a "Force Majeure" under this Clause. In such circumstances Sykes Asia, Sykes Europe or Sykes US, as appropriate, shall be required to make arrangements such that it is able to provide its Services. 18.ASSIGNMENT Sykes Asia, Sykes Europe or Sykes US shall not be entitled to assign, sub-contract or sub-license any or all of its rights or obligations hereunder without the prior written consent of Adobe Benelux or Adobe Systems, as appropriate; provided such assignment is to a Sykes Associated Company and it shall be conditioned, inter alia, on Adobe's reasonable belief that the performance of the respective Services as originally undertaken by Sykes Asia, Sykes Europe or Sykes US shall not be adversely affected by the proposed assignment, sub-contract or sublicense. Adobe Benelux' or Adobe Systems' rights and obligations under this Agreement in whole or in part, may be assigned by Adobe. 19.NOTICES Save as otherwise expressly provided, all notices and notifications permitted or required under this Agreement shall be in writing and shall be delivered in person or by reputable international courier service to the respective addresses set out on the first page hereof and shall be deemed duly served: (a)in the case of a notice delivered personally, at the time of delivery; and (b)in the case of a notice delivered by courier, on the date of delivery shown in the business records of the courier. 20.CHOICE OF LAW AND SUBMISSION TO JURISDICTION This Agreement shall be governed in all respects by the laws of the United States of America and the State of California excluding the application of its conflict of laws and/or rules. The Parties agree that the United Nations Convention on Contracts for the International Sale of Goods is specifically excluded from application to this Agreement. 21.INJUNCTION It is understood and agreed that notwithstanding any other provisions of this Agreement, a breach by Sykes Asia, Sykes Europe or Sykes US of Clauses 3.7, 3.8, 9.1 to 9.4 and 13.1 to 13.3 of this Agreement will cause Adobe Benelux or Adobe Systems, as appropriate, irreparable damage for which recovery of money, damages and/or specific implement or any other remedy would be inadequate, and that Adobe Benelux or Adobe Systems shall therefore be entitled to obtain an injunction to protect Adobe Benelux' or Adobe Systems' rights, as appropriate, under this Agreement in addition to any and all remedies available at law in any jurisdiction. 30 --------------------------------------------------------------------------------     IN WITNESS WHEREOF these presents consisting of this and the preceding      (  ) pages together with the Schedule annexed hereto are executed in duplicate as follows       ADOBE BENELUX Adobe Systems Benelux B.V.   SYKES EUROPE Sykes Europe Limited /s/ Harold L. Covert -------------------------------------------------------------------------------- Authorized Signature   /s/ Scott J. Bendert -------------------------------------------------------------------------------- Authorized Signature Harold L. Covert -------------------------------------------------------------------------------- Printed Name   Scott J. Bendert -------------------------------------------------------------------------------- Printed Name EVP and CFO -------------------------------------------------------------------------------- Title   Sr. VP and Director -------------------------------------------------------------------------------- Title 1/28/00 -------------------------------------------------------------------------------- Date   January 26, 2000 -------------------------------------------------------------------------------- Date ADOBE SYSTEMS Adobe Systems Benelux B.V.   SYKES ASIA Sykes Asia Pacific /s/ Graham K. Freeman -------------------------------------------------------------------------------- Authorized Signature   /s/ Scott J. Bendert -------------------------------------------------------------------------------- Authorized Signature Graham K. Freeman -------------------------------------------------------------------------------- Printed Name   Scott J. Bendert -------------------------------------------------------------------------------- Printed Name Sr. VP WWSS -------------------------------------------------------------------------------- Title   Sr. VP and Director -------------------------------------------------------------------------------- Title 1/28/00 -------------------------------------------------------------------------------- Date   January 26, 2000 -------------------------------------------------------------------------------- Date     SYKES US     /s/ Scott J. Bendert -------------------------------------------------------------------------------- Authorized Signature     Scott J. Bendert -------------------------------------------------------------------------------- Printed Name     Sr. VP—Finance & CFO -------------------------------------------------------------------------------- Title     January 26, 2000 -------------------------------------------------------------------------------- Date 31 -------------------------------------------------------------------------------- SCHEDULE PART 1 ASN SERVICES Services As provided in the Agreement and as may be more particularly detailed in a statement of work, Sykes Asia, Sykes Europe and Sykes US shall provide their respective Asia Services, Europe Services and North America Services which shall comprise the following services and those detailed in the schedule or statement of work: (a)handling the issue, receipt and processing of applications for memberships of ASN Members and renewals of such memberships; (b)handling the receipt and processing of all fees and charges in connection with Services; (c)processing refunds where necessary in connection with Services; (d)dealing with general inquiries regarding Services; (e)generating Internet passwords for new relevant members; (f)assembling, storing and dispatching SDK Kits; (g)handling all invoicing in connection with Services; (h)handling mailings and upgrade mailings to ASN Members as and when required by Adobe Benelux or Adobe Systems; (i)issuing welcome kits to new ASN Members; (j)issuing application/information kits to prospective ASN Members who request them; (k)assisting as required by Adobe Benelux or Adobe Systems from time to time in the organization of training seminars; (l)providing agreed information and data that will allow Adobe Benelux or Adobe Systems to have a clear understanding of how the Services are operating and what trends are apparent; (m)providing such support and guidance as Adobe Benelux or Adobe Systems may from time to time reasonably require on new initiatives to improve and introduce new services for ASN Members. Availability Sykes Asia, Sykes Europe and Sykes US shall ensure that their CSRs are available to accept Incoming Requests on all Working Days between 9 a.m. and 5 p.m. local working time and that calls will be answered in their appropriate language. Performance Standards Sykes Asia, Sykes Europe and Sykes US shall meet their respective Performance Standards for the provision of their respective Services as may be detailed in the appropriate schedule or statement of work. Sykes Asia, Sykes Europe and Sykes US shall report on its performance in relation to the Performance Standards in arrears on the Tuesday of the following week or the first Tuesday of the following Adobe Financial Month, as the case may be. Reporting 2 -------------------------------------------------------------------------------- SCHEDULE PART 2 CHARGES SCHEDULE WW Technical Support General Services Agreement (Pricing) will be inserted here when agreed. 3 -------------------------------------------------------------------------------- SCHEDULE PART 3 WW Technical Support Statement of Work will be appended here when finalized. 4 -------------------------------------------------------------------------------- QuickLinks SCHEDULE PART 1 ASN SERVICES SCHEDULE PART 2 CHARGES SCHEDULE SCHEDULE PART 3

EXHIBIT 10.40 MASTER AGREEMENT FOR STANDBY LETTERS OF CREDIT TERMS AND CONDITIONS General Electric Capital Corporation 201 High Ridge Road Stamford, CT 06927                 The undersigned ("Applicant") will require, from time to time, Standby Letters of Credit. General Electric Capital Corporation ("GE Capital") will, upon Applicant's application therefor, and to the extent such application is approved by GE Capital in its sole discretion, issue Standby Letters of Credit or arrange for the issuance thereof through an indirect wholly-owned subsidiary of GE Capital. Each Credit will be governed by and interpreted in accordance with the following terms and conditions. Capitalized terms shall have the meanings accorded them in Section 9, Definitions, below.             1.          Payment Terms.                            In addition to all commissions, charges, fees and expenses payable in connection with Credits pursuant to the Credit Agreement (including, without limitation the Letter of Credit Fee, as defined in the Credit Agreement), Applicant agrees to pay to GE Capital on demand, at GE Capital's office located at 201 High Ridge Road, Stamford, Connecticut 06927 or at such other address or account as may be designated in writing by GE Capital, in Dollars, in immediately available funds: (i) each amount paid by GE Capital under any Credit (which payment is permitted or required under this Agreement, ISP 98 or applicable law) in Dollars or in the event that the Credit permits Drafts under such Credit to be payable in a currency other than Dollars, the Dollar Equivalent of each amount so drawn; (ii) interest on each amount (or the Dollar Equivalent thereof) so drawn for each day from the date of payment of the relevant Draft to and including the date of payment in full of such amount by Applicant to GE Capital, at the rate specified in the Credit Agreement; and (iii) any and all commissions and charges of, and any and all costs and expenses incurred by, GE Capital and its subcontractors or agents in relation to the Credits and all Drafts thereunder. A schedule of commissions and charges is attached hereto as Annex I. If a Credit provides for sight payment, reimbursement by Applicant is due on the day on which GE Capital pays on the applicable Draft. All payments by Applicant hereunder shall be made without withholding, deduction or set-off and shall be made free and clear of taxes.             2.           Security Interest.                            To secure the payment and performance of all Obligations (including, without limitation, Letter of Credit Obligations), the Applicant hereby grants to Agent a security interest in the following, including, without limitation, the unqualified right to the possession and disposal of all property shipped under or in connection with each Credit, whether released to the Applicant under security agreements or otherwise, and also in and to all shipping documents, documents of                      title, or Drafts drawn under each Credit and in and to all other property owned by the Applicant, in or coming into GE Capital's possession or custody, and in any deposit balances now or hereafter held by a bank as custodian for GE Capital for the Applicant's account, together with the proceeds of each and all of the foregoing, until the Termination Date (subject to reinstatement as provided in the Loan Documents). The grant of a security interest in the preceding sentence supplements, rather than limits or supersedes, any grant of a security interest by Applicant in the Loan Documents. If GE Capital honors any presentation, demand or Draft and Applicant fails to reimburse GE Capital therefor in accordance with the terms of the Credit Agreement, GE Capital may assert its rights of subrogation under applicable law, whether GE Capital's honor satisfies all or only part of the underlying obligation. The Applicant must, on reasonable notice, cooperate with GE Capital in its assertion of the Applicant's rights against the Beneficiary, the Beneficiary's rights against the Applicant, and any other rights that GE Capital may have by subrogation or assignment. Such cooperation shall include without limitation the prompt return of all Drafts, documents, instruments and statements in Applicant's possession that were presented by or on behalf of Beneficiary in connection with any draw under a Credit. Subject to the terms of the Credit Agreement and the terms of Section 8(b) below, the Applicant agrees to make upon demand such cash deposits with GE Capital as GE Capital may require to further secure Applicant's Letter of Credit Obligations.             3.          Administration of Credit.                            (a)           Applicant will promptly examine a copy of each Credit (and any proposed amendments thereto) sent to Applicant, as well as all other instruments and documents delivered to Applicant from time to time in connection with such Credit, and, in the event Applicant has any claim of non-compliance with the instructions or of any discrepancy or other irregularity or any objection to any action taken or proposed to be taken by GE Capital with respect to any Credit, Applicant will notify GE Capital thereof in writing within three business days after its receipt of a copy of such Credit, any amendments thereto, or such instruments or documents or notice of any such proposed action, and Applicant will conclusively be deemed to have waived any such claim against GE Capital and its subcontractors, servicers and agents or any defense to payment of GE Capital, its subcontractors or agents, unless such notice is given as aforesaid. This Section 3(a) is intended to substitute three business days for the "not unreasonable time period" set forth in Rule 5.09 of ISP 98.                            (b)           Neither GE Capital nor any of its agents, subcontractors or servicers shall be responsible for, and neither GE Capital's powers and rights hereunder nor Applicant's obligations shall be affected by: (i) any act or omission pursuant to Applicant's instructions; (ii) any other act or omission of GE Capital or its subcontractors, servicers, agents or employees other than any such arising from its or their gross negligence or willful misconduct; (iii) the validity, accuracy or genuineness of Drafts, documents or required statements, even if such Drafts, documents or statements should in fact prove to be in any or all respects invalid, inaccurate, fraudulent or forged (and notwithstanding that Applicant shall have notified GE Capital thereof); (iv) failure of any Draft to bear any reference or adequate reference to the applicable Credit; (v) errors, omissions, interruptions or delays in transmission of delivery of any messages however sent and whether or not in code or otherwise; (vi) any act, default, omission, insolvency or failure in business of any other person (including any agent, subcontractor or employee) or any consequences arising from                  causes beyond GE Capital's control; (vii) any acts or omissions of any Beneficiary of any Credit or transferee of any Credit, if transferable; (viii) any act or omission of GE Capital required or permitted under any (1) law or practice to which a Credit is subject (including ISP 98), (2) applicable order, ruling or decree of any court, arbitrator or governmental agency, (3) a published statement or interpretation on a matter of law or practice (including ISP 98); (ix) honor or other recognition of a presentation or demand that includes forged or fraudulent documents or that is otherwise affected by the fraudulent, bad faith, or illegal conduct of the Beneficiary or other person (excluding GE Capital, its subcontractors, servicers and agents and their respective employees), including payment to a person who forges the signature of a Beneficiary or the signature of an assignee of a Credit's proceeds, (x) honor of a presentation without regard to any nondocumentary condition(s) in the Credit, regardless of whether Rule 4.11 of ISP 98 applies, or (xi) dishonor of any presentation that does not strictly comply with the terms of the applicable Credit or that is fraudulent, forged or otherwise not entitled to be honored. Without limiting the generality of the foregoing, GE Capital may (1) act in reliance on any oral, telephone, telegraphic, electronic, facsimile or written request, notice, or instruction believed in good faith to be from or have been authorized by the Applicant, (2) receive, accept or pay as complying with the terms of a Credit any Drafts or other documents, otherwise in order, which are signed by or issued to any person or entity acting as the representative of, or in the place of, the party in whose name such Credit provides that any Drafts or other documents should be drawn or issued and (3) waive its stipulation that the bank nominated in the applicable Credit shall accept or pay the Drafts, and GE Capital may then accept presentations of Drafts and documents for payment directly.                            (c)           Subject to GE Capital's obtaining any necessary consent from the Beneficiary or other third party, GE Capital may for Applicant's account at any time (i) treat a Credit as governed by the law of the place where GE Capital or the Beneficiary is located, notwithstanding a choice of law provision in the Credit, and, in case of conflict, treat the law as prevailing over practice in such place or vice versa; (ii) shorten or lengthen the examination period; (iii) specify or amend a specified place or manner of receiving a presentation, effecting honor, or giving notice of dishonor; or (iv) discount an accepted Draft or deferred obligation incurred under the Credit.                            (d)           Unless GE Capital is enjoined by a court of competent jurisdiction, GE Capital may assume that any Beneficiary or other presenter acts in good faith and that any presentation or other demand is nonfraudulent.                            (e)           Unless the Credit specifically permits and GE Capital specifically agrees, GE Capital need not check the authenticity or authority of any purported Beneficiary signature, even if in other transactions the Beneficiary is a customer or its signature is otherwise known to GE Capital.                            (f)           Unless specifically committed to do so in a writing signed by GE Capital, GE Capital need not consent to any amendment of a Credit. GE Capital may, without authorization from or notice to Applicant, send a notice of non-extension to the Beneficiary under a Credit if it provides for automatic extension. Any notice of dishonor given by GE Capital within six business days after presentation of documents to GE Capital shall not be deemed to be unreasonable. This Section 3(d) is intended to substitute six business days for the three business days set forth in Rule 5.01a of ISP 98.                (g)          Notwithstanding any waiver by Applicant of discrepancies in Drafts, documents or required statements, GE Capital acting alone has the right in its sole judgement, to decline to approve any discrepancies and to refuse payment on that basis under any Credit issued hereunder.                            (h)          GE Capital may not assign its rights and delegate its duties hereunder, except that GE Capital may assign its rights and delegate its duties hereunder to any subsidiary of GE Capital, in each case without consent of but with prior notice to Applicant; provided that such assignment and delegation does not diminish Applicant's rights or increase Applicant's duties hereunder.                            (i)           No Credit shall be issued hereunder providing for the acceptance of time Drafts or the incurrence of deferred payment undertakings.                            (j)            Notwithstanding any provision herein contained to the contrary, if Applicant approves the issuance of a Credit requiring payment of a Draft on the same day on which such Draft is presented, GE Capital shall be entitled to honor such Draft without review or examination by Applicant and Applicant waives all defenses to reimbursement thereof based on irregularities that may have been revealed by Applicant's review or examination.             4.   Letter of Credit Text; Extensions, Increases and Modifications of Credit.                            (a)         Applicant is responsible for preparing or approving the text of each Credit as issued by GE Capital and as received by the Beneficiary. GE Capital's recommendation or drafting of text or GE Capital's use or non-use or refusal to use text submitted by Applicant shall not affect Applicant's ultimate responsibility for the final text and its receipt by the Beneficiary. Applicant is responsible for the effect, or lack of effect under ISP 98, Rule 4.11 or applicable law, of a provision in any Credit that requires GE Capital to verify facts rather than examine documents or that fails to identify the documents to which the provision applies.                                          Applicant is responsible for including suitable provisions in the underlying agreement that permit Applicant to review the text of the Credit as received by the Beneficiary and that describe the circumstances under which: a drawing under the Credit may be made, Credit proceeds may be applied to the underlying agreement, and part or all of those proceeds may be returned. Applicant accepts the risk that the text of the Credit is consistent with the underlying obligation, suitable for Applicant's purposes, and received by the Beneficiary in time to permit the Beneficiary and Applicant to review the Credit and to request any desired amendments.                            (b)        Each Applicant agrees that GE Capital may at any time and from time to time, in its discretion, by agreement with one or more other Applicants (whether or not such Applicant shall have been appointed as the "Agent Applicant" in the Joint Signature Agreement contained in the Application): a) further finance or refinance any transaction under any Credit; b) renew, extend or change the time of payment or the manner, place or terms of payment of any of the Obligations; c) settle or compromise any of the Obligations or subordinate the payment thereof to the payment of any other debts of or claims against any Applicant which may at the time be due or owing to GE Capital; or d) release any Applicant or any Guarantor or any Collateral, or modify the terms under which such Collateral is held, or forego any right of setoff, or modify or amend in any way this Agreement or any Credit, or give any waiver or consent under this Agreement; all in such manner and on such terms as GE Capital may deem proper and without notice or further assent from such Applicant. In any such event, such Applicant shall remain bound by such event and this Agreement after giving effect to such event, and the Obligations under this Agreement shall be continuing obligations in respect of any transaction so financed or refinanced and, in either case, if the Obligations are contingent, may be treated by GE Capital as due and payable for their maximum face amount.             5.      Reserve Requirements and Similar Costs.                                            If GE Capital is now or hereafter becomes subject to any reserve, special deposit or similar requirement against assets of, deposits with, or for the account of, or credit extended by, GE Capital, or any other condition is imposed upon GE Capital which imposes a cost upon GE Capital, and the result, in the determination of GE Capital is to increase the cost to GE Capital of maintaining a Credit or paying or funding the payment of any Draft thereunder, or to reduce the amount of any sum received or receivable, directly or indirectly, by GE Capital hereunder, Applicant will pay to GE Capital upon demand such amounts required to compensate GE Capital for such increased cost or reduction. In making the determinations contemplated hereunder, GE Capital may make such estimates, assumptions, allocations and the like which GE Capital in good faith determines to be appropriate, but GE Capital's selection thereof, and GE Capital determinations based thereon, shall be final and binding and conclusive upon Applicant.             6.      Possession of Property by Applicant.                                            If the Applicant accepts or retains possession of documents, goods or other property, if any, covered by a Credit, prior to GE Capital's review of such documents, then all discrepancies and other irregularities of said documents shall be deemed waived by the Applicant, and GE Capital is authorized and directed to pay any Drafts drawn or purporting to be drawn upon such Credit.             7.      Partial Shipments.                            (a)           Except as otherwise expressly stated in any Credit (i) partial shipments may be made under such Credit, and GE Capital may honor the relative Drafts without inquiry regardless of any apparent disproportion between the quantity shipped and the amount of the relative Draft and the total amount of such Credit and the total quantity to be shipped under such Credit, and (ii) if such Credit specifies shipments in installments within stated periods and the shipper fails to ship in any designated period, shipments of subsequent installments may nevertheless be made in their respective designated periods and GE Capital may honor the relative Drafts.             8.      Events of Default, Remedies; Pre-funding.                            (a)           If any Event of Default has occurred and is continuing, other than an Event of Default specified in Sections 8.1(g) or 8.1(h) of the Credit Agreement, GE Capital as issuer hereunder and in its capacity as Agent under the Credit Agreement may pursue any of the remedies provided for in the Loan Documents, including without limitation declaring that all of the Obligations (including any such Obligations hereunder that may be contingent and not matured) are immediately due and payable. If an Event of Default under Section 8.1(g) or Section 8.1(h)] of the Credit Agreement has occurred, the Obligations shall automatically be due and payable.                            (b)           Without limiting the generality of the foregoing, Applicant agrees that if: i) any Default or Event of Default shall have occurred and be continuing; ii) GE Capital at any time and for any reason deems itself to be insecure or the risk of non-payment or non-performance of any of the Obligations to have increased; or iii) in the event that a Credit is denominated in a currency other than Dollars, GE Capital determines that such currency is unavailable or that the transactions contemplated by this Agreement are unlawful or contrary to any regulations to which GE Capital or any agent, servicer or subcontractor of GE Capital may be subject or that due to currency fluctuations the Dollar Equivalent of the amount of a Credit exceeds the amount of Dollars that GE Capital in its sole judgment expected to be its maximum exposure under such Credit, then Applicant will upon demand pay to GE Capital an amount equal to the undisbursed portion, if any, of such Credit, and such amount shall be held as additional Collateral for the payment of all Letter of Credit Obligations, and after the expiration hereof, to the extent not applied to the Letter of Credit Obligations, shall be returned to Applicant (unless otherwise provided in the Credit Agreement or any other Loan Document).             9.      Definitions.                                            As used herein, the following terms shall have the following meanings:                                            "Agent" shall have the meaning given such term in the Credit Agreement.                                  "Agreement" shall mean, collectively, this Agreement [each Application for Standby Letter of Credit entered into between GE Capital and Applicant, the Joint Signature Agreement and the Authorization and Agreement of Account Party appended hereto], as the same may be amended, modified, supplemented or restated from time to time.                                            "Applicant" shall mean the person or entity executing this Agreement as Applicant; provided that if two or more persons or entities shall have executed this Agreement as Applicant or as Joint Applicant, the terms "Applicant" and "Applicants" shall mean each and all of such persons and entities, individually and collectively, except that, if the term "Applicant" is preceded by the word "any" or "each" or a word or words of similar import, such terms shall be deemed to refer to each of such persons or entities, individually.                                            "Beneficiary" shall mean, as to any Credit, the beneficiary of that Credit.                                            "Collateral" shall have the meaning given such term in the Credit Agreement.                                            "Credit" shall mean a Standby Letter of Credit issued by GE Capital upon Applicant's request of GE Capital, as the same may be amended and supplemented from time to time, and any and all renewals, increases, extensions and replacements thereof and therefor.                                            "Credit Agreement" shall mean the Credit Agreement, dated as of December 31, 1998 among the Applicant, the other credit parties signatory thereto, the lenders signatory thereto   from time to time and GE Capital as agent and as lender, as such Credit Agreement may be amended, modified, supplemented or restated from time to time.]                                            "Default" shall have the meaning given such term in the Credit Agreement.                                            "Dollar Equivalent" shall mean: a) the number of Dollars that is equivalent to an amount of a currency other than Dollars, determined by applying the selling rate of First Union National Bank, First Union Bank International or another bank of comparable size selected by GE Capital; or b) in the event that GE Capital shall not at the time be offering such a rate, the amount of Dollars that GE Capital, in its sole judgment, specifies as sufficient to reimburse or provide funds to GE Capital in respect of amounts drawn or drawable under a Credit; in either case as and when determined by GE Capital.                                            "Dollars" shall mean lawful currency of the United States of America.                                            "Draft" shall mean any Draft (sight or time), receipt, acceptance, cable or other written demand for payment.                                            "Event of Default" shall have the meaning given such term in the Credit Agreement.                                            "Guarantor" shall have the meaning given such term in the Credit Agreement.                                            "Letter of Credit Obligations" shall have the meaning given such term in the Credit Agreement.                                            "Loan Documents" shall have the meaning given such term in the Credit Agreement.                                            "Obligations" shall have the meaning given such term in the Credit Agreement.                                            "Termination Date" shall have the meaning given such term in the Credit Agreement.             10.      Expenses; Indemnification.                                            Except for claims, liabilities, losses, costs and expenses arising out of or related to the gross negligence, willful misconduct or breach of this Agreement by GE Capital, directly or through its subcontractors, servicers, agents or employees, applicant agrees to reimburse GE Capital and its subcontractors, servicers and agents upon demand for and to indemnify and hold GE Capital harmless from and against all claims, liabilities, losses, costs and expenses ("Indemnified Liabilities") including attorneys' fees and disbursements, incurred or suffered by GE Capital and its subcontractors, servicers and agents in connection with this Agreement or any Credit. Such Indemnified Liabilities shall include, but not be limited to, all such Indemnified Liabilities incurred or suffered by GE Capital and its subcontractors, servicers and agents in connection with (a) GE Capital's exercise of any right or remedy granted to it hereunder or under the Loan Documents, (b) any claim and the prosecution or defense thereof arising out of or in any way connected with this Agreement including, without limitation, as a result of any act or omission by a Beneficiary, (c) the collection or enforcement of the Obligations, and (d) any of the events or circumstances referred to in paragraph 3(b) hereof, including any defense by GE Capital in an action in which Applicant obtains an injunction against presentation or honor of any Draft. None of GE Capital or any subcontractor, servicer or agent of GE Capital shall be liable to Applicant for any special, indirect, consequential or punitive damages arising with respect to any Credit. Applicant must in all instances mitigate damages claimed against GE Capital or any subcontractor, servicer or agent arising with respect to any Credit. If GE Capital honors a Draft or presentation under a Credit for which Applicant claims it is not obligated to reimburse GE Capital, Applicant shall nonetheless pay to GE Capital the amount paid by GE Capital, without prejudice to Applicant's claims against GE Capital to recover fees and costs paid by Applicant with respect to the honored presentation plus any direct damages resulting therefrom which Applicant is unable to avoid or reduce. Applicant's prevailing in an action based on forgery or fraud of the Beneficiary or other presenter does not relieve Applicant from its obligation to pay GE Capital's costs and expenses in contesting the entry or maintenance of injunctive relief.             11.      Licenses; Insurance.                                            If any Credit assures payment for goods to be imported, the Applicant shall procure or cause the Beneficiaries of each Credit to procure promptly any necessary import and export or other licenses for import or export or shipping of any goods referred to in or pursuant to such Credit and to comply and to cause the Beneficiaries to comply with all foreign and domestic governmental regulations in regard to the shipment and warehousing of such goods or otherwise relating to or affecting such Credit, including governmental regulations pertaining to transactions involving designated foreign countries or their nationals, and to furnish such certificates in that respect as GE Capital may at any time require, and to keep such goods adequately covered by insurance in amounts, with carriers and for such risks as shall be satisfactory to GE Capital, and to cause GE Capital's interest to be endorsed thereon, and to furnish GE Capital on demand with evidence thereof. Should the insurance upon said goods for any reason be unsatisfactory to GE Capital, GE Capital may, at its expense, obtain insurance satisfactory to it.             12.      No Waivers of Rights Hereunder; Rights Cumulative.                                              No delay by GE Capital in exercising any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right preclude other or further exercises thereof or the exercise of any other right. No waiver or amendment of any provision of this Agreement shall be enforceable against GE Capital unless in writing and signed by an officer of GE Capital, and unless it expressly refers to the provision affected, any such waiver shall be limited solely to the specific event waived. All rights granted GE Capital hereunder shall be cumulative and shall be supplementary of and in addition to those granted or available to GE Capital under the Loan Documents or applicable law and nothing herein shall be construed as limiting any such other right.             13.      Continuing Agreement; Termination.                                            This Agreement shall continue in full force and effect until the Termination Date (subject to reinstatement, as provided in the Loan Documents).   14.      Performance Standards.                                            Notwithstanding any provision to the contrary herein, GE Capital reserves the right to decline (i) any request made by the Applicant for the issuance of a Credit or (ii) any instruction provided by the Applicant if, in its discretion, GE Capital determines that the issuance of such Credit or the carrying out of such instruction contravenes GE Capital's customary procedures or policy, ISP 98 or any applicable law, rule or regulation.             15.      Governing Law; Jurisdiction; Certain Waivers.                            (a)           This Agreement shall be governed by and interpreted and enforced in accordance with the laws of the State of New York, and with respect to all security interests granted in connection herewith, GE Capital shall have the rights and remedies of a secured party under applicable law, including but not limited to the Uniform Commercial Code of New York. This Agreement supplements the Loan Documents, including those provisions relating to Letter of Credit Obligations and, except as expressly provided herein to the contrary, this Agreement does not supersede the Loan Documents.                            (b)           APPLICANT AGREES THAT ALL ACTIONS AND PROCEEDINGS RELATING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT SHALL BE LITIGATED ONLY IN COURTS LOCATED WITHIN THE STATE OF NEW YORK AND THAT SUCH COURTS ARE CONVENIENT FORUMS THEREFOR, AND APPLICANT SUBMITS TO THE PERSONAL JURISDICTION OF SUCH COURTS.                            (c)           Applicant waives personal service of process upon it and consents that any such service of process may be made by certified or registered mail, return receipt requested, directed to Applicant at its address last specified for notices hereunder, and service so made shall be deemed completed two (2) days after the same shall have been so mailed.                            (d)           APPLICANT WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BETWEEN IT AND GE CAPITAL AND WAIVES THE RIGHT TO ASSERT IN ANY ACTION OR PROCEEDING WITH REGARD TO THIS AGREEMENT OR ANY OF THE OBLIGATIONS ANY OFFSETS WHICH IT MAY HAVE.                            (e)           Each Credit and this Agreement shall be subject to the International Standby Practices, International Chamber of Commerce Publication No. 590 ("ISP 98") and the same are incorporated herein by reference. Applicant is responsible for knowing applicable letter of credit law and practice, including ISP 98. Solely for purposes of interpreting the ISP 98's application to this Agreement and Credits issued hereunder, GE Capital shall be deemed to be a "bank" as such term is used in ISP 98. To the extent permitted by applicable law, this Agreement shall prevail in case of a conflict with applicable law or ISP 98, and ISP 98 shall prevail in case of a conflict with applicable law.             16.      Notices.                                            Any notice to GE Capital shall be effective only if in writing or by authenticated teletransmission acceptable to GE Capital, as applicable, directed to the attention of and received by GE Capital. Any notice to or demand on Applicant, or, if more than one Applicant executes this Agreement, the Agent Applicant, shall be binding on all Applicants and shall be effective when made to Applicant, or if more than one Applicant executes this Agreement, the Agent Applicant, by mail, telegraph, facsimile, telephone or otherwise, in the case of mailed, telegraphed or cabled notices, to the address appearing below such Applicant's signature or at such other address as may hereafter be specified in a notice designated as a notice of change of address under this paragraph, and in the case of telephonic or facsimile notices, to the telephone number of such Applicant appearing below Applicant's signature. Any requirements under applicable law of reasonable notice by GE Capital to Applicant of any event shall be met if notice is given to Applicant or Agent Applicant, as the case may be, in the manner prescribed above at least two days before (a) the date of such event or (b) the date after which such event will occur.             17.      Applicant Status.                                           The person identified in this Agreement as Applicant represents and warrants, except as otherwise provided in this Agreement, that:                            (a)          it acts for itself and/or its subsidiaries and affiliates and for no other person in requesting issuance of each Credit for its account;                            (b)          it may be identified in each Credit as the "applicant," "account party" or "customer" at whose request and on whose instruction and for whose account the Credit is issued;                            (c)           it alone (acting through its officers) may authorize GE Capital to issue, amend, pay, or otherwise act under any Credit; and                            (d)           it alone has standing to enforce this Agreement or otherwise to assert the rights and remedies of an applicant, including without limitation, to sue for any injunction against honor of any Credit.             18.      General.                            (a)            If this Agreement is executed by two or more Applicants, they shall be jointly and severally liable hereunder, and all provisions hereof regarding the Collateral shall apply to the Obligations and Collateral of any or all of them.                            (b)           This Agreement shall be binding upon the heirs, executors, administrators, assigns and successors of each of the Applicant(s) and shall inure to the benefit of and be enforceable by GE Capital and its respective successors, permitted transferees and permitted assigns.                            (c)           Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof in that jurisdiction or affecting the validity or enforceability of such provision in any other jurisdiction.                            (d)           This Agreement shall be deemed to be a "Loan Document" for all purposes under the Credit Agreement.                 (e)           This Agreement may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement.             Date:             Name of Applicant:       SCOTT TECHNOLOGIES, INC. GENERAL ELECTRIC CAPITAL CORPORATION --------------------------------------------------------------------------------                   By By: -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Name:  Douglas A. Dimond Name:   -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Title:     Assistant Treasurer Title:   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   Address of Applicant:               ONE CHAGRIN HIGHLANDS       --------------------------------------------------------------------------------       2000 AUBURN DRIVE, SUITE 400       --------------------------------------------------------------------------------       BEACHWOOD, OHIO 44122       --------------------------------------------------------------------------------       Fax No.: (216) 360-9102       --------------------------------------------------------------------------------       ANNEX I                          The Applicant agrees to pay the following fees with respect to the Credits:                          1.           upon issuance thereof, (a) 0.25% per annum of the amount of the Credit plus (b) $150;                          2.           upon any amendment which increases the amount or extends the term thereof, 0.25% per annum of such increased amount or, in the case of the term extension, 0.25% of the amount of the Credit;                          3.           upon any other amendment thereof, $125;                          4.           upon the Evergreen Renewal thereof, (c)  0.25% per annum of the amount of the Credit plus (d $150;                          5.           upon the drawing/document examination thereof, $250; and                          6.           with respect to any other activity related to such Credit, the standard fees and charges of GE Capital for such activity.          

QuickLinks -- Click here to rapidly navigate through this document SECOND AMENDMENT TO STOCK RESTRICTION AGREEMENT     This Second Amendment to Stock Restriction Agreement (the "Second 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 Ronald T. Burr ("Founder"). All capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Stock Restriction Agreement by and between the Company and Founder dated as of September 11, 1998 and the Amendment to Stock Restriction Agreement by and between the Company and Founder dated as of April 8, 1999 (the "Amendment" and, as amended, the "Agreement").     WHEREAS, the Company and Founder desire to modify certain terms of the Agreement.     NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1.Paragraph 1 of the Amendment to the Agreement shall be replaced in its entirety with the following: "Section 2(c) of the Agreement is hereby amended by adding the following language to the end of such paragraph: "Nothwithstanding the foregoing, the Repurchase Right shall automatically lapse with respect to all shares of Unvested Stock in the event Founder is Involuntarily Terminated." 2.In the event Founder is Involuntarily Terminated, each option to purchase the Company's Common Stock and each restricted stock grant then held by Founder shall automatically vest in full (subject to any vesting deferrals provided in any restricted stock grant), and any such option shall remain in effect for a one (1) year period following the date of termination. Founder shall be deemed "Involuntarily Terminated" for the purpose of this Agreement if (i) the Company or any successor to the Company terminates Founder's employment without cause in connection with or following a Corporate Transaction or Change in 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 Founder's title or responsibilities (it being deemed to be a decrease in title and/or responsibilities if Founder is not offered the same position with the Company or its successor as well as the acquiring and ultimate parent entity, if any, following the Corporate Transaction or Change of Control that Founder held prior to the Corporate Transaction or Change in Control), (b) a decrease in pay and/or benefits from those provided by the Company immediately prior to the Corporate Transaction or Change in Control, or (c) a requirement that Founder re-locate out of the greater Los Angeles metropolitan area. 3.If Founder is Involuntarily Terminated, the Company (or its successor, as the case may be) shall pay to Founder, on the date of termination, a severance payment in an amount equal to four times Founder's base salary and annual bonus, payable in one lump sum, subject to withholding as may be required by law. 4.For the eighteen (18) month period following the termination of Founder's employment with the Company (the "Noncompetition Period"), Founder 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 Second Amendment. 5.Company and Founder agree that, for the purposes of damages to the Company with respect to any breach of Section 4 above, the value of Founder'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 Founder 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 Founder'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 Founder 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 Founder. 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 Second Amendment shall be deemed incorporated into the Agreement and, except as specifically modified by this Second Amendment, the Agreement shall remain unchanged and in full force and effect. The Agreement shall remain in effect for a four (4) year period from the date hereof and shall be binding upon successors and assigns.     In witness whereof, the parties have executed this Second Amendment to be effective as of the first date written above.               NETZERO, INC.               By:   /s/ MARK R. GOLDSTON    -------------------------------------------------------------------------------- Mark R. Goldston Chief Executive Officer               FOUNDER         /s/ RONALD T. BURR    -------------------------------------------------------------------------------- Ronald T. Burr -------------------------------------------------------------------------------- QuickLinks SECOND AMENDMENT TO STOCK RESTRICTION AGREEMENT

QuickLinks -- Click here to rapidly navigate through this document PROMISSORY NOTE Secured by Deed of Trust $465,625   October 23, 2000 Monrovia, California     FOR VALUE RECEIVED, the receipt and sufficiency of which is acknowledged, Andrew F. Pollet ("Maker"), hereby promises to pay to STAAR Surgical Company, or order ("Holder"), at the address designated on the signature page of this Note, or at such other place as Holder may designate by written notice to Maker, the principal sum hereinbelow described ("Principal Amount"), together with interest thereon, in the manner and at the times provided and subject to the terms and conditions described herein.     1.  Principal Amount.       The Principal Amount means the sum of four hundred sixty-five thousand six hundred twenty-five dollars ($465,625).     2.  Interest.       Interest on the Principal Amount from time-to-time remaining unpaid shall accrue from the date of this Note at the lower of: (i) the rate of seven percent (7%) per annum, compounded annually; or (ii) at the lowest rate that may accrue without causing the imputation of interest under the Internal Revenue Code. Interest shall be computed on the basis of a three hundred sixty (360) day year and a thirty (30) day month.     3.  Payment of Principal and Interest.       Subject to paragraph 8, below, Maker shall pay the Principal Amount and all accrued and unpaid interest on the Principal Amount and all other indebtedness due under this Note on June 1, 2005.     4.  Security/Release of Security.       Maker shall pledge as security for the repayment of all sums payable under this Note the real property commonly known as 10934 Alto Court, Oak View, California. Maker has executed and recorded a deed of trust dated September 5, 2000 evidencing Holder's security interest in the real property. If, for a period of fifteen (15) consecutive days, the fair market value of the real property falls below all sums unpaid under this Note and the unpaid balance of all promissory notes or other obligations secured thereby, then Maker will be required to transfer to Holder, upon receipt of Holder's written request, additional security, in any form acceptable to Holder, in an amount equal to the difference between all sums due under this Note and such other notes or obligations and the fair market value of the real property.     5.  Prepayments.       Maker shall have the right to prepay any portion of the Principal Amount without prepayment penalty or premium or discount.     6.  Manner of Payments/Crediting of Payments.       Payments of any amount required hereunder shall be made in lawful money of the United States or in such other property as Holder, in its sole and absolute discretion, may accept, without deduction or offset, and shall be credited first against accrued but unpaid late charges, if any, thereafter against accrued but unpaid interest, if any, and thereafter against the unpaid balance of the Principal Amount. 1 --------------------------------------------------------------------------------     7.  Interest on Delinquent Payments.       Any payment under this Note not paid when due shall bear interest at the same rate and method as interest is charged on the Principal Amount from the due date until paid.     8.  Acceleration Upon Default.       At the option of Holder, all or any part of the indebtedness of Maker hereunder shall immediately become due and payable, irrespective of any agreed maturity date, upon the happening of any of the following events of default:     (a) If any part of the Principal Amount and/or interest thereon under this Note are not paid when due, provided, however, Maker shall be entitled to a grace period of ten (10) days following written notice of such event of default to cure said event of default;     (b) If Maker shall breach any non-monetary condition or obligation imposed on Maker pursuant to the terms of this Note, provided, however, that if any such breach is reasonably susceptible of being cured, Maker shall be entitled to a grace period of thirty (30) days following written notice of such event of default to cure;     (c) If Maker shall make an assignment for the benefit of creditors;     (d) If a custodian, trustee, receiver, or agent is appointed or takes possession of substantially all of the property of Maker;     (e) If Maker shall be adjudicated bankrupt or insolvent or admit in writing Maker's inability to pay Maker's debts as they become due;     (f)  If Maker shall apply for or consent to the appointment of a custodian, trustee, receiver, intervenor, liquidator or agent of Maker, or commence any proceeding related to Maker under any bankruptcy or reorganization statute, or under any arrangement, insolvency, readjustment of debt, dissolution, or liquidation law of any jurisdiction, whether now or hereafter in effect;     (g) If any petition is filed against Maker under the Bankruptcy Code and either (A) the Bankruptcy Court orders relief against Maker, or (B) such petition is not dismissed by the Bankruptcy Court within thirty (30) days of the date of filing; or     (h) If any attachment, execution, or other writ is levied on substantially all of the assets of Maker and remains in effect for more than five (5) days. Maker shall notify Holder immediately if any event of default which is described in sub-paragraph (c) through sub-paragraph (h), above, occurs.     9.  Collection Costs and Attorneys' Fees.       Maker agrees to pay Holder all costs and expenses, including reasonable attorneys' fees, paid or incurred by Holder in connection with the collection or enforcement of this Note or any instrument securing payment of this Note, including without limitation, defending the priority of such instrument or conducting a trustee sale thereunder. In the event any litigation is initiated concerning the enforcement, interpretation or collection of this Note, the prevailing party in any proceeding shall be entitled to receive from the non-prevailing party all costs and expenses including, without limitation, reasonable attorneys' and other fees incurred by the prevailing party in connection with such action or proceeding.     10.  Notice.       Any notice to either party under this Note shall be given by personal delivery or by express mail, Federal Express, DHL or similar airborne/overnight delivery service, or by mailing such notice by first class or certified mail, return receipt requested, addressed to such party at the address set forth below, 2 -------------------------------------------------------------------------------- or to such other address as either party from time to time may designate by written notice. Notices delivered by overnight delivery service shall be deemed delivered the next business day following consignment for such delivery service. Mailed notices shall be deemed delivered and received in accordance with this provision three (3) days after deposit in the United States mail.     11.  Usury Compliance.       All agreements between Maker and Holder are expressly limited, so that in no event or contingency whatsoever, whether by reason of the consideration given with respect to this Note, the acceleration of maturity of the unpaid Principal Amount and interest thereon, or otherwise, shall the amount paid or agreed to be paid to Holder for the use, forbearance, or detention of the indebtedness which is the subject of this Note exceed the highest lawful rate permissible under the applicable usury laws. If, under any circumstances whatsoever, fulfillment of any provision of this Note shall involve transcending the highest interest rate permitted by law which a court of competent jurisdiction deems applicable, then the obligations to be fulfilled shall be reduced to such maximum rate, and if, under any circumstances whatsoever, Holder shall ever receive as interest an amount that exceeds the highest lawful rate, the amount that would be excessive interest shall be applied to the reduction of the unpaid Principal Amount under this Note and not to the payment of interest, or, if such excessive interest exceeds the unpaid balance of the Principal Amount under this Note, such excess shall be refunded to Maker. This provision shall control every other provision of all agreements between Maker and Holder.     12.  Jurisdiction; Venue.       This Note shall be governed by, interpreted under and construed and enforced in accordance with the laws of the State of California. Any action to enforce payment of this Note shall be filed and heard solely in Los Angeles County, California.     13.  Replacement Note.       This Note replaces and supersedes that certain Promissory Note in the amount of $753,625 executed by Maker in favor of Holder on June 2, 2000.     MAKER:         /s/ ANDREW F. POLLET    -------------------------------------------------------------------------------- Andrew F. Pollet     MAKER'S ADDRESS:     c/o 10900 Wilshire Boulevard, Suite 500 Los Angeles, California 90024     HOLDER'S ADDRESS:     STAAR SURGICAL COMPANY 1911 Walker Avenue Monrovia, California 91016 Attn.: Chief Financial Officer 3 -------------------------------------------------------------------------------- QuickLinks PROMISSORY NOTE Secured by Deed of Trust

EXHIBIT 10.1 PAPER WAREHOUSE, INC. 1997 STOCK OPTION AND COMPENSATION PLAN (AS AMENDED AND RESTATED AS OF JUNE 12, 2001)   1. Purpose.  The purpose of the 1997 Stock Option and Compensation Plan, as amended and restated as of June 12, 2001 (the “Plan”) of Paper Warehouse, Inc. (the “Company”) is to increase shareholder value and to advance the interests of the Company by furnishing a variety of economic incentives (“Incentives”) designed to attract, retain and motivate employees.  Incentives may consist of opportunities to purchase or receive shares of Common Stock, $.03 par value, of the Company (“Common Stock”), monetary payments or both on terms determined under this Plan.  The Plan shall constitute an amendment and restatement of the Company’s existing 1997 Stock Option and Compensation Plan, as amended and restated as of June 11, 1999 (the “1999 Restatement”) and the Company’s 1997 Stock Option and Compensation Plan (the “Original 1997 Plan”, with the 1999 Restatement and the Original 1997 Plan collectively referred to as the “Former Plans”) and as such shall supersede and replace the Former Plans.  The Former Plans shall be deemed outstanding, however, only to the extent necessary to determine the terms and conditions of any such offers to purchase the Company’s Common Stock or other rights previously granted under the Former Plans.         2. Administration.  The Plan shall be administered by the compensation committee (the “Committee”) of the Board of Directors of the Company.  The Committee shall consist of not less than two directors of the Company and shall be appointed from time to time by the Board of Directors of the Company.  Each member of the Committee shall be a non-employee director within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934 (“Non-Employee Directors”), and the regulations promulgated thereunder (the “1934 Act”).  The Board of Directors of the Company may from time to time appoint members of the Committee in substitution for, or in addition to, members previously appointed, and may fill vacancies, however caused, in the Committee.  The Committee shall select one of its members as its chairman and shall hold its meetings at such times and places as it shall deem advisable.  A majority of the Committee’s members shall constitute a quorum.  All action of the Committee shall be taken by the majority of its members.  Any action may be taken by a written instrument signed by majority of the members and actions so taken shall be fully effective as if it had been made by a majority vote at a meeting duly called and held.  The Committee may appoint a secretary, shall keep minutes of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable.  The Committee shall have complete authority to award Incentives under the Plan, to interpret the Plan, and to make any other determination which it believes necessary and advisable for the proper administration of the Plan.  The Committee’s decisions and matters relating to the Plan shall be final and conclusive on the Company and its participants.     3. Eligible Employees.  Participants (including, officers, non-employee directors, consultants and independent contractors) shall become eligible to receive Incentives under the Plan when designated by the Committee.  Employees may be designated individually or by groups or categories (for example, by pay grade) as the Committee deems appropriate.  Participation by officers of the Company and any performance objectives relating to such officers must be approved by the Committee.  Participation by others and any performance objectives relating to others may be approved by groups or categories (for example, by pay grade) and authority to designate participants who are not officers and to set or modify such targets may be delegated.         4. Types of Incentives.  Incentives under the Plan may be granted in any one or a combination of the following forms:  (a) incentive stock options and non-statutory stock options (section 6); (b) stock appreciation rights (“SARs”) (section 7); (c) stock awards (section 8); (d) restricted stock (section 8); (e) performance shares (section 9); and (f) cash awards (section 10).         5. Shares Subject to the Plan.           5.1. Number of Shares.  Subject to adjustment as provided in Section 11.6, the number of shares of Common Stock which may be issued under the Plan shall not exceed 666,667 shares of Common Stock.           5.2. Cancellation.  To the extent that cash in lieu of shares of Common Stock is delivered upon the exercise of a SAR pursuant to Section 7.4, the Company shall be deemed, for purposes of applying the limitation on the number of shares, to have issued the greater of the number of shares of Common Stock which it was entitled to issue upon such exercise or on the exercise of any related option.  In the event that a stock option or SAR granted hereunder expires or is terminated or canceled unexercised as to any shares of Common Stock, such shares may again be issued under the Plan either pursuant to stock options, SARs or otherwise.  In the event that shares of Common Stock are issued as restricted stock or pursuant to a stock award and thereafter are forfeited or reacquired by the Company pursuant to rights reserved upon issuance thereof, such forfeited and reacquired shares may again be issued under the Plan, either as restricted stock, pursuant to stock awards or otherwise.  The Committee may also determine to cancel, and agree to the cancellation of, stock options in order to make a participant eligible for the grant of a stock option at a lower price than the option to be canceled.           5.3. Type of Common Stock.  Common Stock issued under the Plan in connection with stock options, SARs, performance shares, restricted stock or stock awards, may be authorized and unissued shares.         6. Stock Options.  A stock option is a right to purchase shares of Common Stock from the Company.  Each stock option granted by the Committee under this Plan shall be subject to the following terms and conditions:           6.1. Price.  The option price per share shall be determined by the Committee, subject to adjustment under Section 11.6.           6.2. Number.  The number of shares of Common Stock subject to the option shall be determined by the Committee, subject to adjustment as provided in Section 11.6.  The number of shares of Common Stock subject to a stock option shall be reduced in the same proportion that the holder thereof exercises a SAR if any SAR is granted in conjunction with or related to the stock option.           6.3. Duration and Time for Exercise.  Subject to earlier termination as provided in Section 11.4, the term of each stock option shall be determined by the Committee but shall not exceed ten years and one day from the date of grant.  Each stock option shall become exercisable at such time or times during its term as shall be determined by the Committee at the time of grant.  No stock option may be exercised during the first twelve months of its term.  Except as provided by the preceding sentence, the Committee may accelerate the exercisability of any stock option.  Subject to the foregoing and with the approval of the Committee, all or any part of the shares of Common Stock with respect to which the right to purchase has accrued may be purchased by the Company at the time of such accrual or at any time or times thereafter during the term of the option.           6.4. Manner of Exercise.  A stock option may be exercised, in whole or in part, by giving written notice to the Company, specifying the number of shares of Common Stock to be purchased and accompanied by the full purchase price for such shares.  The option price shall be payable in United States dollars upon exercise of the option and may be paid by cash; uncertified or certified check; bank draft; by delivery of shares of Common Stock in payment of all or any part of the option price, which shares shall be valued for this purpose at the Fair Market Value on the date such option is exercised; by instructing the Company to withhold from the shares of Common Stock issuable upon exercise of the stock option shares of Common Stock in payment of all or any part of the option price, which shares shall be valued for this purpose at the Fair Market Value or in such other manner as may be authorized from time to time by the Committee.  Prior to the issuance of shares of Common Stock upon the exercise of a stock option, a participant shall have no rights as a shareholder.           6.5. Incentive Stock Options.  Notwithstanding anything in the Plan to the contrary, the following additional provisions shall apply to the grant of stock options which are intended to qualify as Incentive Stock Options (as such term is defined in Section 422A of the Internal Revenue Code of 1986, as amended):             (a) The aggregate Fair Market Value (determined as of the time the option is granted) of the shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any participant during any calendar year (under all of the Company’s plans) shall not exceed $100,000.             (b) Any Incentive Stock Option certificate authorized under the Plan shall contain such other provisions as the Committee shall deem advisable, but shall in all events be consistent with and contain all provisions required in order to qualify the options as Incentive Stock Options.             (c) All Incentive Stock Options must be granted within ten years from the earlier of the date on which this Plan was adopted by the Board of Directors or the date this Plan was approved by the shareholders.             (d) Unless sooner exercised, all Incentive Stock Options shall expire no later than 10 years after the date of grant.             (e) The option price for Incentive Stock Options shall be not less than the Fair Market Value of the Common Stock subject to the option on the date of grant.             (f) No Incentive Stock Options shall be granted to any participant who, at the time such option is granted, would own (within the meaning of Section 422A of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the employer corporation, or of its parent or subsidiary corporation, unless such Incentive Stock Option is granted with a per share price to be paid by the participant upon exercise of such option of not less than 110% of the Fair Market Value of one share of Common Stock on the date of grant and such option is not exercisable after five years from its date of grant.         7. Stock Appreciation Rights.  A SAR is a right to receive, without payment to the Company, a number of shares of Common Stock, cash or any combination thereof, the amount of which is determined pursuant to the formula set forth in Section 7.4.  A SAR may be granted (a) with respect to any stock option granted under this Plan, either concurrently with the grant of such stock option or at such later time as determined by the Committee (as to all or any portion of the shares of Common Stock subject to the stock option), or (b) alone, without reference to any related stock option.  Each SAR granted by the Committee under this Plan shall be subject to the following terms and conditions:           7.1. Number.  Each SAR granted to any participant shall relate to such number of shares of Common Stock as shall be determined by the Committee, subject to adjustment as provided in Section 11.6.  In the case of a SAR granted with respect to a stock option, the number of shares of Common Stock to which the SAR pertains shall be reduced in the same proportion that the holder of the option exercises the related stock option.           7.2. Duration.  Subject to earlier termination as provided in Section 11.4, the term of each SAR shall be determined by the Committee but shall not exceed ten years and one day from the date of grant.  Unless otherwise provided by the Committee, each SAR shall become exercisable at such time or times, to such extent and upon such conditions as the stock option, if any, to which it relates is exercisable.  No SAR may be exercised during the first twelve months of its term.  Except as provided in the preceding sentence, the Committee may in its discretion accelerate the exercisability of any SAR.           7.3. Exercise.  A SAR may be exercised, in whole or in part, by giving written notice to the Company, specifying the number of SARs which the holder wishes to exercise.  Upon receipt of such written notice, the Company shall, within 90 days thereafter, deliver to the exercising holder certificates for the shares of Common Stock or cash or both, as determined by the Committee, to which the holder is entitled pursuant to Section 7.4.           7.4. Payment.  Subject to the right of the Committee to deliver cash in lieu of shares of Common Stock (which, as it pertains to officers and directors of the Company, shall comply with all requirements of the 1934 Act), the number of shares of Common Stock which shall be issuable upon the exercise of a SAR shall be determined by dividing:             (a) the number of shares of Common Stock as to which the SAR is exercised multiplied by the amount of the appreciation in such shares (for this purpose, the “appreciation” shall be the amount by which the Fair Market Value of the shares of Common Stock subject to the SAR on the exercise date exceeds (1) in the case of a SAR related to a stock option, the purchase price of the shares of Common Stock under the stock option or (2) in the case of a SAR granted alone, without reference to a related stock option, an amount which shall be determined by the Committee at the time of grant, subject to adjustment under Section 11.6); by             (b) the Fair Market Value of a share of Common Stock on the exercise date.           In lieu of issuing shares of Common Stock upon the exercise of a SAR, the Committee may elect to pay the holder of the SAR cash equal to the Fair Market Value on the exercise date of any or all of the shares which would otherwise be issuable.  No fractional shares of Common Stock shall be issued upon the exercise of a SAR; instead, the holder of the SAR shall be entitled to receive a cash adjustment equal to the same fraction of the Fair Market Value of a share of Common Stock on the exercise date or to purchase the portion necessary to make a whole share at its Fair Market Value on the date of exercise.         8. Stock Awards and Restricted Stock.  A stock award consists of the transfer by the Company to a participant of shares of Common Stock, without other payment therefor, as additional compensation for services to the Company.  A share of restricted stock consists of shares of Common Stock which are sold or transferred by the Company to a participant at a price determined by the Committee (which price shall be at least equal to the minimum price required by applicable law for the issuance of a share of Common Stock) and subject to restrictions on their sale or other transfer by the participant.  The transfer of Common Stock pursuant to stock awards and the transfer and sale of restricted stock shall be subject to the following terms and conditions:           8.1. Number of Shares.  The number of shares to be transferred or sold by the Company to a participant pursuant to a stock award or as restricted stock shall be determined by the Committee.           8.2. Sale Price.  The Committee shall determine the price, if any, at which shares of restricted stock shall be sold to a participant, which may vary from time to time and among participants and which may be below the Fair Market Value of such shares of Common Stock at the date of sale.           8.3. Restrictions.  All shares of restricted stock transferred or sold hereunder shall be subject to such restrictions as the Committee may determine, including, without limitation, any or all of the following:             (a) a prohibition against the sale, transfer, pledge or other encumbrance of the shares of restricted stock, such prohibition to lapse at such time or times as the Committee shall determine (whether in annual or more frequent installments, at the time of the death, disability or retirement of the holder of such shares, or otherwise);             (b) a requirement that the holder of shares of restricted stock forfeit, or (in the case of shares sold to a participant) resell back to the Company at his cost, all or a part of such shares in the event of termination of his employment during any period in which such shares are subject to restrictions;             (c) such other conditions or restrictions as the Committee may deem advisable.                           8.4. Escrow.  In order to enforce the restrictions imposed by the Committee pursuant to Section 8.3, the participant receiving restricted stock shall enter into an agreement with the Company setting forth the conditions of the grant.  Shares of restricted stock shall be registered in the name of the participant and deposited, together with a stock power endorsed in blank, with the Company.  Each such certificate shall bear a legend in substantially the following form:           The transferability of this certificate and the shares of Common Stock represented by it are subject to the terms and conditions (including conditions of forfeiture) contained in the 1997 Stock Option and Compensation Plan of Paper Warehouse, Inc., as amended and restated as of June 12, 2001 (the “Company”), and an agreement entered into between the registered owner and the Company.  A copy of the Plan and the agreement is on file in the office of the secretary of the Company.             8.5. End of Restrictions.  Subject to Section 11.5, at the end of any time period during which the shares of restricted stock are subject to forfeiture and restrictions on transfer, such shares will be delivered free of all restrictions to the participant or to the participant’s legal representative, beneficiary or heir.           8.6. Shareholder.  Subject to the terms and conditions of the Plan, each participant receiving restricted stock shall have all the rights of a shareholder with respect to shares of stock during any period in which such shares are subject to forfeiture and restrictions on transfer, including without limitation, the right to vote such shares.  Dividends paid in cash or property other than Common Stock with respect to shares of restricted stock shall be paid to the participant currently.         9. Performance Shares.  A performance share consists of an award which shall be paid in shares of Common Stock, as described below.  The grant of performance share shall be subject to such terms and conditions as the Committee deems appropriate, including the following:           9.1. Performance Objectives.  Each performance share will be subject to performance objectives for the Company or one of its operating units to be achieved by the end of a specified period.  The number of performance shares granted shall be determined by the Committee and may be subject to such terms and conditions as the Committee shall determine.  If the performance objectives are achieved, each participant will be paid in shares of Common Stock or cash.  If such objectives are not met, each grant of performance shares may provide for lesser payments in accordance with formulas established in the award.           9.2. Not Shareholder.  The grant of performance shares to a participant shall not create any rights in such participant as a shareholder of the Company, until the payment of shares of Common Stock with respect to an award.           9.3. No Adjustments.  No adjustment shall be made in performance shares granted on account of cash dividends which may be paid or other rights which may be issued to the holders of Common Stock prior to the end of any period for which performance objectives were established.           9.4. Expiration of Performance Share.  If any participant’s employment with the Company is terminated for any reason other than normal retirement, death or disability prior to the achievement of the participant’s stated performance objectives, all the participant’s rights on the performance shares shall expire and terminate unless otherwise determined by the Committee.  In the event of termination of employment by reason of death, disability, or normal retirement, the Committee, in its own discretion, may determine what portions, if any, of the performance shares should be paid to the participant.         10. Cash Awards.  A cash award consists of a monetary payment made by the Company to a participant as additional compensation for his services to the Company.  Payment of a cash award will normally depend on achievement of performance objectives by the Company or by individuals.  The amount of any monetary payment constituting a cash award shall be determined by the Committee in its sole discretion.  Cash awards may be subject to other terms and conditions, which may vary from time to time and among participants, as the Committee determines to be appropriate.     11. General.           11.1. Effective Date.  Each of the Former Plans and the Plan became effective upon their approval by the affirmative vote of the holders of a majority of the voting power of the shares of the Company’s Common Stock present and entitled to vote at a meeting of its shareholders.  Unless approved within one year after the date the Former Plans and the Plan, as applicable, were adopted by the board of directors, the Former Plans or the Plan, as applicable, shall not be effective for any purpose.  The effective date of the Original 1997 Plan shall also be the effective date of this Plan.           11.2. Duration.  The Plan shall remain in effect until all Incentives granted under the Plan have either been satisfied by the issuance of shares of Common Stock or the payment of cash or been terminated under the terms of the Plan and all restrictions imposed on shares of Common Stock in connection with their issuance under the Plan have lapsed.  No Incentives may be granted under the Plan after the tenth anniversary of the date the Plan is approved by the shareholders of the Company.           11.3. Non-Transferability of Incentives.  No stock option, unless otherwise permitted by the Committee in the stock option agreement of the holder, SAR, restricted stock or performance award may be transferred, pledged or assigned by the holder thereof (except, in the event of the holder’s death, by will or the laws of descent and distribution to the limited extent provided in the Plan or in the Incentive) and the Company shall not be required to recognize any attempted assignment of such rights by any participant.  During a participant’s lifetime, an Incentive may be exercised only by him or by his guardian or legal representative.           11.4. Effect of Termination of Employment or Death.  In the event that a participant ceases to be an employee of the Company for any reason, including death, any Incentives may be exercised or shall expire at such times as may be determined by the Committee.           11.5. Additional Condition.  Notwithstanding anything in this Plan to the contrary:  (a) the Company may, if it shall determine it necessary or desirable for any reason, at the time of award of any Incentive or the issuance of any shares of Common Stock pursuant to any Incentive, require the recipient of the Incentive, as a condition to the receipt thereof or to the receipt of shares of Common Stock issued pursuant thereto, to deliver to the Company a written representation of present intention to acquire the Incentive or the shares of Common Stock issued pursuant thereto for his own account for investment and not for distribution; and (b) if at any time the Company further determines, in its sole discretion, that the listing, registration or qualification (or any updating of any such document) of any Incentive or the shares of Common Stock issuable pursuant thereto is necessary on any securities exchange or under any federal or state securities or blue sky law, or that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with the award of any Incentive, the issuance of shares of Common Stock pursuant thereto, or the removal of any restrictions imposed on such shares, such Incentive shall not be awarded or such shares of Common Stock shall not be issued or such restrictions shall not be removed, as the case may be, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company.           11.6. Adjustment.  In the event of any merger, consolidation or reorganization of the Company with any other corporation or corporations, there shall be substituted for each of the shares of Common Stock then subject to the Plan, including shares subject to restrictions, options, or achievement of performance share objectives, the number and kind of shares of stock or other securities to which the holders of the shares of Common Stock will be entitled pursuant to the transaction.  In the event of any recapitalization, stock dividend, stock split, combination of shares or other change in the Common Stock, the number of shares of Common Stock then subject to the Plan, including shares subject to restrictions, options or achievements of performance shares, shall be adjusted in proportion to the change in outstanding shares of Common Stock.  In the event of any such adjustments, the purchase price of any option, the performance objectives of any Incentive, and the shares of Common Stock issuable pursuant to any Incentive shall be adjusted as and to the extent appropriate, in the discretion of the Committee, to provide participants with the same relative rights before and after such adjustment.           11.7. Incentive Plans and Agreements.  Except in the case of stock awards or cash awards, the terms of each Incentive shall be stated in a plan or agreement approved by the Committee.  The Committee may also determine to enter into agreements with holders of options to reclassify or convert certain outstanding options, within the terms of the Plan, as Incentive Stock Options or as non-statutory stock options and in order to eliminate SARs with respect to all or part of such options and any other previously issued options.           11.8. Withholding.             (a) The Company shall have the right to withhold from any payments made under the Plan or to collect as a condition of payment, any taxes required by law to be withheld.  At any time when a participant is required to pay to the Company an amount required to be withheld under applicable income tax laws in connection with a distribution of Common Stock or upon exercise of an option or SAR, the participant may satisfy this obligation in whole or in part by electing (the “Election”) to have the Company withhold from the distribution shares of Common Stock having a value up to the amount required to be withheld.  The value of the shares to be withheld shall be based on the Fair Market Value of the Common Stock on the date that the amount of tax to be withheld shall be determined (“Tax Date”).             (b) Each Election must be made prior to the Tax Date.  The Committee may disapprove of any Election, may suspend or terminate the right to make Elections, or may provide with respect to any Incentive that the right to make Elections shall not apply to such Incentive.  An Election is irrevocable.             (c) If a participant is an officer or director of the Company within the meaning of Section 16 of the 1934 Act, then an Election is subject to the following additional restrictions:               (1) No Election shall be effective for a Tax Date which occurs within six months of the grant of the award, except that this limitation shall not apply in the event death or disability of the participant occurs prior to the expiration of the six-month period.                 (2) The Election must be made either six months prior to the Tax Date or must be made during a period beginning on the third business day following the date of release for publication of the Company’s quarterly or annual summary statements of sales and earnings and ending on the twelfth business day following such date.             11.9. No Continued Employment or Right to Corporate Assets.  No participant under the Plan shall have any right, because of his or her participation, to continue in the employ of the Company for any period of time or to any right to continue his or her present or any other rate of compensation.  Nothing contained in the Plan shall be construed as giving an employee, the employee’s beneficiaries or any other person any equity or interests of any kind in the assets of the Company or creating a trust of any kind or a fiduciary relationship of any kind between the Company and any such person.             11.10. Deferral Permitted.  Payment of cash or distribution of any shares of Common Stock to which a participant is entitled under any Incentive shall be made as provided in the Incentive.  Payment may be deferred at the option of the participant if provided in the Incentive.             11.11. Amendment of the Plan.  The Board may suspend or terminate the Plan or any portion thereof at any time, and may amend the Plan from time to time in such respects as the Board may deem advisable in order that Incentives under the Plan will conform to any change in applicable laws or regulations or in any other respect the Board may deem to be in the best interests of the Company; provided, however, that no amendments to the Plan will be effective without approval of the shareholders of the Company if shareholder approval of the amendment is then required pursuant to Section 422 of the Code or the rules of any stock exchange or NASDAQ or similar regulatory body.  No termination, suspension or amendment of the Plan may adversely affect any outstanding Incentive without the consent of the affected participant; provided, however, that this sentence will not impair the right of the Committee to take whatever action it deems appropriate under Sections 2, 11.6 and 11.12 of the Plan.             11.12. Immediate Acceleration of Incentives.  Notwithstanding any provision in this Plan or in any Incentive to the contrary, (a) the restrictions on all shares of restricted stock award shall lapse immediately, (b) all outstanding options and SARs will become exercisable immediately, and (c) all performance shares shall be deemed to be met and payment made immediately, if subsequent to the date that the Plan is approved by the Board of Directors of the Company, any of the following events occur unless otherwise determined by the Board of Directors and a majority of the Continuing Directors (as defined below):               (1) any person or group of persons becomes the beneficial owner of 30% or more of any equity security of the Company entitled to vote for the election of directors;               (2) a majority of the members of the Board of Directors of the Company is replaced within the period of less than two years by directors not nominated and approved by the Board of Directors; or             (3) the shareholders of the Company approve an agreement to merge or consolidate with or into another corporation or an agreement to sell or otherwise dispose of all or substantially all of the Company’s assets (including a plan of liquidation).               For purposes of this Section 11.12, beneficial ownership by a person or group of persons shall be determined in accordance with Regulation 13D (or any similar successor regulation) promulgated by the Securities and Exchange Commission pursuant to the 1934 Act.  Beneficial ownership of more than 30% of an equity security may be established by any reasonable method, but shall be presumed conclusively as to any person who files a Schedule 13D report with the Securities and Exchange Commission reporting such ownership.  If the restrictions and forfeitability periods are eliminated by reason of provision (1), the limitations of this Plan shall not become applicable again should the person cease to own 30% or more of any equity security of the Company.               For purposes of this Section 11.12, “Continuing Directors” are directors (a) who were in office prior to the time any of provisions (1), (2) or (3) occurred or any person publicly announced an intention to acquire 20% or more of any equity security of the Company, (b) directors in office for a period of more than two years, and (c) directors nominated and approved by the Continuing Directors.             11.13. Definition of Fair Market Value.  For purposes of this Plan, the “Fair Market Value” of a share of Common Stock at a specified date shall, unless otherwise expressly provided in this Plan, be the amount which the Committee determines in good faith to be 100% of the fair market value of such a share as of the date in question; provided, however, that notwithstanding the foregoing, if such shares are listed on a U.S. securities exchange or are quoted on the NASDAQ National market System (“NASDAQ”), then Fair Market Value shall be determined by reference to the last sale price of a share of Common Stock on such U.S. securities exchange or NASDAQ on the applicable date.  If such U.S. securities exchange or NASDAQ is closed for trading on such date, or if the Common Stock does not trade on such date, then the last sale price used shall be the one on the date the Common Stock last traded on such U.S. securities exchange or NASDAQ.  

                    Exhibit 10.19 July, 28 2000   FIFTH AMENDMENT TO CREDIT AGREEMENT This fifth amendment to credit agreement (this “Amendment”) is made and entered into as of July 28, 2000, by and among U.S. BANK NATIONAL ASSOCIATION, a national banking association (“U.S. Bank”), and MACKIE DESIGNS INC., a Washington corporation (“Borrower”). R E C I T A L S: A.      On or about June 18, 1998, U.S. Bank and Borrower entered into that certain credit agreement (together with all amendments, supplements, exhibits, and modifications thereto, the “Credit Agreement”) whereby U.S. Bank agreed to extend certain credit facilities to Borrower.  U.S. Bank and Borrower have entered into four amendments to the Credit Agreement. B.       Borrower has requested U.S. Bank to (1) increase the amount of the Revolving Loan to $7,500,000, and (2) increase the sublimit for the issuance of Letters of Credit.  The purpose of this Amendment is to set forth the terms and conditions upon which U.S. Bank will grant Borrower’s requests. NOW, THEREFORE, in consideration of the mutual covenants and conditions set forth herein, the parties agree as follows: ARTICLE I. AMENDMENT The Credit Agreement, as well as all of the other Loan Documents, are hereby amended as set forth herein.  Except as specifically provided for herein, all of the terms and conditions of the Credit Agreement and each of the other Loan Documents shall remain in full force and effect throughout the terms of the Loans, as well as any extensions or renewals thereof.   ARTICLE II.          DEFINITIONS As used herein, capitalized terms shall have the meanings given to them in the Credit Agreement, except as otherwise defined herein, or as the context otherwise requires. ARTICLE III.         MODIFICATIONS TO REVOLVING LOAN 3.1     Loan Commitment Section 2.1 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:           Subject to and upon the terms and conditions set forth herein and in reliance upon the representations, warranties, and covenants of Borrower contained herein or made pursuant hereto, U.S. Bank will make Fundings to Borrower from time to time during the period ending on April 30, 2002 the (“Commitment Period”), but such Fundings (together with any outstanding Letters of Credit) shall not exceed, in the aggregate principal amount at any one time outstanding, $7,500,000 (the “Revolving Loan”).  Borrower may borrow, repay, and reborrow hereunder either the full amount of the Revolving Loan or any lesser sum. 3.2     Renewal Revolving Note Concurrently with the execution of this Amendment, Borrower shall execute and deliver to U.S. Bank a renewal promissory note in the form attached hereto as Exhibit A (“Renewal Revolving Note”) which shall continue to evidence the Revolving Loan.  The Revolving Note and all previous renewals thereof shall be marked “Renewed” and retained by U.S. Bank until the Revolving Loan is paid in full and U.S. Bank’s commitment to advance Fundings thereunder is terminated. 3.3     Revolving Loan Fee Concurrently with the execution of this Amendment, Borrower shall pay U.S. Bank a nonrefundable loan fee for the Revolving Loan in the amount of $2,343. 3.4     Letters of Credit Section 2.7(a) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:           (a)      Subject to and upon the terms and conditions set forth herein and in reliance upon the representations, warranties, and covenants of Borrower contained herein or made pursuant hereto, U.S. Bank will issue standby and commercial letters of credit (the “Letters of Credit”) for the benefit of Borrower in forms acceptable to U.S. Bank from time to time during the Commitment Period.  The expiration date of any Letter of Credit shall not extend beyond October 31, 2002.  The maximum aggregate amount of outstanding Letters of Credit plus the aggregate outstanding amount of principal and interest on the Revolving Loan shall not exceed, at any one time, $7,500,000.           ARTICLE IX.         CONDITIONS PRECEDENT The modifications set forth in this Amendment shall not be effective unless and until the following conditions have been fulfilled to U.S. Bank’s satisfaction: (a)      U.S. Bank shall have received this Amendment and the Renewal Revolving Note duly executed and delivered by the parties hereto. (b)      Borrower shall have paid the loan fees provided for in this Amendment. (c)      There shall not exist any Default or Event of Default under the Credit Agreement or any other Loan Document. (d)      All representations and warranties of Borrower contained in the Credit Agreement or otherwise made in writing in connection therewith or herewith shall be true and correct and in all material respects have the same effect as though such representations and warranties had been made on and as of the date of this Amendment. ARTICLE X.          GENERAL PROVISIONS 5.1     Representations and Warranties Borrower hereby represents and warrants to U.S. Bank that as of the date of this Amendment, there exists no Default or Event of Default.  All representations and warranties of Borrower contained in the Credit Agreement and the Loan Documents, or otherwise made in writing in connection therewith, are true and correct as of the date of this Amendment.  U.S. Bank acknowledges the disclosure by Borrower of the existence of the case entitled The Travelers Insurance Company v. Eastern Acoustic Works, Inc., et al vs. Eastern Acoustic Works, Inc., Superior Court Department, Worcester Massachusetts, Civil Action No. 97-0922-B, and agrees that neither the existence of such case nor the results of any trial or any pending motions in such case will be deemed a violation of any warranty or representation given by Borrower or Eastern Acoustic Works, Inc. either in this Agreement or any other agreement or documentation given in connection herewith.  Borrower acknowledges and agrees that all of Borrower’s Indebtedness to U.S. Bank is payable without offset, defense, or counterclaim. 5.2     Security All Loan Documents evidencing U.S. Bank’s security interest in the Collateral shall remain in full force and effect, and shall continue to secure, without change in priority, the payment and performance of the Loans, as amended herein, and any other Indebtedness owing from Borrower to U.S. Bank. 5.3     Guaranty The parties hereto agree that each Guaranty shall remain in full force and effect and continue to guarantee the repayment of the Loans to U.S. Bank as set forth in such Guaranty.   5.4     Payment of Expenses Borrower shall pay on demand all costs and expenses of U.S. Bank incurred in connection with the preparation, negotiation, execution, and delivery of this Amendment, including, without limitation, reasonable attorneys’ fees incurred by U.S. Bank. 5.5     Survival of Credit Agreement The terms and conditions of the Credit Agreement and each of the other Loan Documents shall survive until all of Borrower’s obligations under the Credit Agreement are satisfied in full. 5.6     Year 2000 Borrower has reviewed and assessed its business operations and computer systems and applications to address the “year 2000 problem” (that is, that computer applications and equipment used by Borrower, directly or indirectly through third parties, may have been or may be unable to properly perform date-sensitive functions before, during and after January 1, 2000).  Borrower represents and warrants that the year 2000 problem has not resulted in and to the best knowledge of Borrower will not result in a material adverse change in Borrower’s business condition (financial or otherwise), operations, properties or prospects or ability to repay U.S. Bank.  Borrower agrees that this representation and warranty will be true and correct on and shall be deemed made by Borrower on each date Borrower requests any Funding under this Agreement or Revolving Note or delivers any information to U.S. Bank.  Borrower will promptly deliver to U.S. Bank such information relating to this representation and warranty as U.S. Bank requests from time to time. 5.7     Counterparts This Amendment may be executed in one or more counterparts, each of which shall constitute an original agreement, but all of which together shall constitute one and the same agreement. 5.8     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 remainder of this page intentionally left blank.] IN WITNESS WHEREOF, U.S. Bank and Borrower have caused this Amendment to be duly executed by their respective duly authorized signatories as of the date first above written.   MACKIE DESIGNS INC.   By_____________________________________ : Name:________________________________   Title:_________________________________       U.S. BANK NATIONAL ASSOCIATION     By_____________________________________                 Ann B. Caldwell, Vice President REAFFIRMATION OF GUARANTY AND COLLATERAL DOCUMENTS Each of the undersigned hereby:  (a) acknowledges that it has read the foregoing Fifth Amendment to Credit Agreement, (b) reaffirms its obligations under the Guaranty and the Security Agreement and other collateral documents evidencing security interests granted by the undersigned to U.S. Bank to secure the obligations of Borrower to U.S. Bank, (c) agrees that its Guaranty guarantees and its Security Agreement secures the repayment of the Loans as amended by the foregoing Fifth Amendment to Credit Agreement, and (d) acknowledges that its obligations pursuant to its Guaranty and the Security Agreement are enforceable without defense, offset, or counterclaim.   MACKIE DESIGNS MANUFACTURING INC.   By______________________________________   Name:  ____________________________   Title:  _____________________________   EASTERN ACOUSTIC WORKS, INC.   By______________________________________ : Name:  ____________________________   Title:  _____________________________   BLACKSTONE TECHNOLOGIES, INC., a Massachusetts corporation   By______________________________________ : Name:  ____________________________   Title:  _____________________________   SIA SOFTWARE COMPANY, INC., a New York corporation   By_____________________________________   Name:  ____________________________   Title:  _____________________________   RENEWAL REVOLVING NOTE $7,500,000 July 28, 2000 For value received, the undersigned, MACKIE DESIGNS INC. (“Borrower”), promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION (“U.S. Bank”), at 1420 Fifth Avenue, Seattle, Washington 98101, or such other place or places as the holder hereof may designate in writing, the principal sum of Seven Million Five Hundred Thousand Dollars ($7,500,000) or so much thereof as advanced by U.S. Bank in lawful, immediately available money of the United States of America, in accordance with the terms and conditions of that certain credit agreement dated June 18, 1998, by and between Borrower and U.S. Bank (together with all supplements, exhibits, amendments and modifications thereto, including the fifth amendment to credit agreement of even date herewith, the “Credit Agreement”).  Borrower also promises to pay interest on the unpaid principal balance hereof, commencing as of the first date of an advance hereunder, in like money in accordance with the terms and conditions, and at the rate or rates provided in the Credit Agreement. Borrower and all endorsers, sureties, and guarantors hereof jointly and severally waive presentment for payment, demand, notice of nonpayment, notice of protest, and protest of this Note, and all other notices in connection with the delivery, acceptance, performance, default, dishonor, or enforcement of the payment of this Note except such notices as are specifically required by this Note or by the Credit Agreement, and they agree that the liability of each of them shall be unconditional without regard to the liability of any other party and shall not be in any manner affected by any indulgence, extension of time, renewal, waiver, or modification granted or consented to by U.S. Bank.  Borrower and all endorsers, sureties, and guarantors hereof, if any, (1) consent to any and all extensions of time, renewals, waivers, or modifications that may be granted by U.S. Bank with respect to the payment or other provisions of this Note and the Credit Agreement; (2) consent to the release of any property now or hereafter securing this Note with or without substitution; and (3) agree that additional makers, endorsers, guarantors, or sureties may become parties hereto without notice to them and without affecting their liability hereunder. This Note is a renewal of the Revolving Note referred to in the Credit Agreement and as such is entitled to all of the benefits and obligations specified in the Credit Agreement, including but not limited to any Collateral and any conditions to making advances hereunder.  Terms defined in the Credit Agreement are used herein with the same meanings.  Reference is made to the Credit Agreement for provisions for the repayment of this Note and the acceleration of the maturity hereof.  

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.23 AMENDMENT NO. 1 TO THE PLACER CAPITAL CO. 1999 STOCK OPTION PLAN     The Placer Capital Co. 1999 Stock Option Plan (the "PCC Plan") of Placer Capital Co. ("PCC"), a wholly-owned subsidiary of the Company, is hereby amended as follows effective September 18, 2001: 1.A definition of the term "Affiliate" be, and it hereby is, added to the Plan to read as follows: "Affiliate" shall mean any corporation, partnership or limited liability company which controls, is controlled by, or is under common control with, the Company. A corporation, partnership or limited liability company that attains the status of an Affiliate on a date after the adoption of the Plan shall be considered an Affiliate commencing as of such date." 2.Each reference in the Plan to the term "Subsidiary" prior to this amendment is changed to refer to the term "Affiliate". -------------------------------------------------------------------------------- QuickLinks Exhibit 10.23 AMENDMENT NO. 1 TO THE PLACER CAPITAL CO. 1999 STOCK OPTION PLAN

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10M INDEMNITY AGREEMENT     THIS AGREEMENT is made as of «Indemnity_Agreement_Date» by and between Precision Castparts Corp., an Oregon corporation (Company), and «FirstName» «Initial» «LastName» (Indemnitee), «DirectorOfficer» of the Company. RECITALS     A.  It is essential to the Company to retain and attract as directors and officers the most capable persons available.     B.  The increase in corporate litigation subjects directors and officers to expensive litigation risks at the same time that the availability and coverage of directors' and officers' liability insurance has been reduced.     C.  It is now and always has been the express policy of the Company to indemnify its directors and officers so as to provide them with the maximum possible protection permitted by law.     D.  The bylaws of the Company require indemnification of the directors and officers of the Company to the fullest extent permitted by the Oregon Business Corporation Act (Act). The Act expressly provides that the indemnification provisions set forth in the Act are not exclusive, and thereby contemplates that contracts may be entered into between the Company and members of the board of directors and officers with respect to indemnification of directors and officers.     E.  Indemnitee does not regard the protection available under the Company's bylaws and insurance adequate in the present circumstances, and may not be willing to serve or continue to serve as a director or officer without adequate protection, and the Company wants Indemnitee to serve in that capacity.     NOW, THEREFORE, the Company and Indemnitee agree as follows:     1.  Services to the Company.  Indemnitee will serve or continue to serve, at the will of the Company, as a director or officer of the Company for so long as Indemnitee is duly elected or appointed or until 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 Company or otherwise and whether of a civil, criminal, administrative or investigative nature, during the threat or pendency of which Indemnitee is or was a director or officer of the Company or is or was serving at the request of the Company as a director, officer, 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, expense of investigations, judicial or administrative proceedings or appeals, attorneys' fees and disbursements and any expenses of establishing a right to indemnification under Section 11 of this Agreement, but shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.     (c) References to "other enterprise" shall include employee benefit plans; references to "fines" shall include any excise tax assessed with respect to any employee benefit plan; reference to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company 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 best interest of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement.     3.  Indemnity in Third-Party Proceedings.  The Company 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 Company to procure a judgment in its favor) against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with the 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 Company and, in the case of a criminal proceeding, in addition, had no reasonable cause to believe that Indemnitee's conduct was unlawful.     4.  Indemnity in Proceedings by or in the Right of the Company.  The Company 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 Company to procure a judgment in its favor against all Expenses actually and reasonably incurred by Indemnitee in connection with the defense or settlement of the 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 Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that any court in which the 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, the Company shall indemnify Indemnitee against all Expenses incurred in connection therewith.     6.  Additional Indemnification.       (a) Notwithstanding any limitation in Sections 3, 4 or 5, the Company shall indemnify Indemnitee to the fullest extent permitted by law 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 Company to procure a judgment in its favor) against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with the Proceeding. No indemnity shall be made under this Section 6(a) on account of Indemnitee's conduct which constitutes a breach of Indemnitee's duty of loyalty to the Company or its shareholders or is an act or omission not in good faith or which involves intentional misconduct or a knowing violation of the law.     (b) Notwithstanding any limitation in Sections 3, 4, 5 or 6(a), the Company shall indemnify Indemnitee to the fullest extent permitted by law 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 Company to procure a judgment in its favor) against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with the Proceeding.     (c) For purposes of Sections 6(a) and 6(b), the meaning of the phrase "to the fullest extent permitted by law" shall include, but not be limited to:      (i) to the fullest extent permitted by the provision of the Act that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the Act, and 2 --------------------------------------------------------------------------------     (ii) to the fullest extent authorized or permitted by any amendments to or replacements of the Act adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers and directors.     7.  Exclusions.  Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:     (a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision;     (b) for any transaction from which Indemnitee derived an improper personal benefit;     (c) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law;     (d) if a court having jurisdiction in the matter shall finally determine that such indemnification is not lawful under any applicable statute or public policy (and, in this respect, both the Company and Indemnitee have been advised that the Securities and Exchange Commission believes that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication); or     (e) in connection with any Proceeding (or part of any Proceeding) initiated by Indemnitee, or any Proceeding by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Company is expressly required by law to make the indemnification, (ii) the Proceeding was authorized by the Board of Directors of the Company, (iii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law, or (iv) Indemnitee initiated the Proceeding pursuant to Section 11 of this Agreement and Indemnitee is successful in whole or in part in the Proceeding.     8.  Advances of Expenses.  The Company shall pay the Expenses incurred by Indemnitee in any Proceeding in advance at the written request of Indemnitee, if Indemnitee:     (a) furnishes the Company a written affirmation of the Indemnitee's good faith belief that Indemnitee is entitled to be indemnified by the Company under this Agreement; and     (b) furnishes the Company a written undertaking to repay the advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company. Advances shall be made without regard to Indemnitee's ability to repay the Expenses and without regard to Indemnitee's ultimate entitlement to indemnification under the other provisions of this Agreement.     9.  Notification and Defense of Claim.  Not later than thirty (30) days after receipt by Indemnitee of notice of the commencement of any Proceeding, Indemnitee will, if a claim in respect of the Proceeding is to be made against the Company under this Agreement, notify the Company of the commencement of the Proceeding. The omission to notify the Company will not relieve the Company from any liability which it may have to Indemnitee otherwise than under this Agreement. With respect to any Proceeding as to which Indemnitee notifies the Company of the commencement:     (a) The Company will be entitled to participate in the Proceeding at its own expense.     (b) Except as otherwise provided below, the Company may, at its option and jointly with any other indemnifying party similarly notified and electing to assume such defense, assume the defense of the Proceeding, with legal counsel reasonably satisfactory to the Indemnitee. Indemnitee shall have the right to use separate legal counsel in the Proceeding, but the Company shall not be 3 -------------------------------------------------------------------------------- liable to Indemnitee under this Agreement, including Section 8 above, for the fees and expenses of separate legal counsel incurred after notice from the Company of its assumption of the defense, unless (i) Indemnitee reasonably concludes that there may be a conflict of interest between the Company and Indemnitee in the conduct of the defense of the Proceeding or (ii) the Company does not use legal counsel to assume the defense of such Proceeding. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which Indemnitee shall have made the conclusion provided for in (i) above.     (c) If two or more persons who may be entitled to indemnification from the Company, including the Indemnitee, are parties to any Proceeding, the Company may require Indemnitee to use the same legal counsel as the other parties. Indemnitee shall have the right to use separate legal counsel in the Proceeding, but the Company shall not be liable to Indemnitee under this Agreement, including Section 8 above, for the fees and expenses of separate legal counsel incurred after notice from the Company of the requirement to use the same legal counsel as the other parties, unless the Indemnitee reasonably concludes that there may be a conflict of interest between Indemnitee and any of the other parties required by the Company to be represented by the same legal counsel.     (d) The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without its written consent, which shall not be unreasonably withheld. Indemnitee shall permit the Company to settle any Proceeding the defense of which it assumes, except that the Company shall not settle any action or claim in any manner which would impose any penalty or limitation on Indemnitee without Indemnitee's written consent, which may be given or withheld in Indemnitee's sole discretion.     10.  Procedure Upon Application for Indemnification.  Any indemnification under Sections 3, 4, 5 or 6 of this Agreement shall be made no later than 90 days after receipt of the written request of Indemnitee for indemnification and shall not require that a determination be made in accordance with the Act by the persons specified in the Act that indemnification is required under this Agreement. However, unless it is ordered by a court in an enforcement action under Section 11 of this Agreement, no such indemnification shall be made if a determination is made within such 90-day period by (a) the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the Proceeding, or (b) independent legal counsel in a written opinion (which counsel shall be appointed if a quorum is not obtainable), that the Indemnitee is not entitled to indemnification under this Agreement.     11.  Enforcement.  The Indemnitee may enforce any right to indemnification or advances granted by this Agreement to Indemnitee in any court of competent jurisdiction if (a) the Company denies the claim for indemnification or advances, in whole or in part, or (b) the Company does not dispose of the claim within 90 days of a written request for indemnification or advances. Indemnitee, in the enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting the claim. It shall be a defense to any such enforcement action (other than an action brought to enforce a claim for advancement of Expenses pursuant to Section 8 above, if Indemnitee has tendered to the Company the required affirmation and undertaking) that Indemnitee is not entitled to indemnification under this Agreement, but the burden of proving this defense shall be on the Company. Neither a failure of the Company (including its Board of Directors or its shareholders) to make a determination prior to the commencement of the enforcement action that indemnification of Indemnitee is proper in the circumstances, nor an actual determination by the Company (including its Board of Directors or its shareholders) that indemnification is improper shall be a defense to the action or create a presumption that Indemnitee is not entitled to indemnification under this Agreement or otherwise. The termination of any 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 is not entitled to indemnification under this Agreement or otherwise. 4 --------------------------------------------------------------------------------     12.  Partial Indemnification.  If Indemnitee is entitled under any provisions of this Agreement to indemnification by the Company for some or part of the Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in the investigation, defense, appeal or settlement of any Proceeding but not, however, for the total amount, the Company shall indemnify Indemnitee for the portion of the Expenses, judgments, fines and amounts paid in settlement to which Indemnitee is entitled.     13.  Nonexclusivity and Continuity of Rights.  The indemnification provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under the 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 and as to action in other capacity while holding office. The indemnification under this Agreement shall continue as to Indemnitee even though Indemnitee ceases to be a director or officer and shall inure to the benefit of the heirs and personal representatives of Indemnitee.     14.  Severability.  If this Agreement or any portion of it is invalidated on any ground by any court of competent jurisdiction, the Company shall indemnify Indemnitee as to Expenses, judgments, fines and amounts paid in settlement with respect to any Proceeding to the full extent permitted by any applicable portion of this Agreement that is not invalidated or by any other applicable law.     15.  Subrogation.  In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee. Indemnitee shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.     16.  Modification and Waiver.  No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both parties. No waiver of any of the provisions of this Agreement shall constitute a waiver of any other provisions of this Agreement (whether or not similar) nor shall any waiver constitute a continuing waiver, unless expressly stated in any waiver.     17.  Notices.  All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (a) upon delivery if delivered by hand to the party to whom the notice or other communication shall have been directed or (b) if mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: (i)If to Indemnitee, at the address indicated on the signature page of this Agreement. (ii)If to the Company to Precision Castparts Corp. Executive Office, Suite 440 4650 SW Macadam Portland, Oregon 97201 Attention: Chief Executive Officer     or to any other address as may have been furnished to Indemnitee by the Company.     18.  Counterparts.  The parties may execute this Agreement in two counterparts, each of which shall constitute the original.     19.  Applicable Law.  This Agreement shall be governed by and construed in accordance with the law of the state of Oregon.     20.  Successors and Assigns.  This Agreement shall be binding upon the Company and its successors and assigns. 5 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written. PRECISION CASTPARTS CORP.   INDEMNITEE By:       By:         -------------------------------------------------------------------------------- «Signing_Officer_Name» «Signing_Officer_Title»       -------------------------------------------------------------------------------- «FirstName» «Initial» «LastName» «Address1» «City», «State» «PostalCode» 6 -------------------------------------------------------------------------------- QuickLinks INDEMNITY AGREEMENT RECITALS

Exhibit 10.12 Building 4 SECOND AMENDMENT TO LEASE                  This SECOND AMENDMENT TO LEASE (this "Amendment") is dated as of this 13th day of October, 2000, by and between CORPORATE TECHNOLOGY CENTRE ASSOCIATES LLC, a California limited liability company ("Landlord"), and REDBACK NETWORKS INC ., a Delaware corporation ("Tenant"). RECITALS                  A.      Landlord and Tenant entered into a Lease October 27, 1999 as amended by that certain First Amendment to Lease dated November ___, 1999 (the "Lease"), for premises (the "Premises") with a street address of 350 Holger Way, San Jose, California, and more particularly described in the Lease;                  B.      Landlord and Tenant now desire to amend the Lease on the terms and conditions set forth herein. Capitalized terms used in this Amendment and not otherwise defined shall have the meanings assigned to them in the Lease. AGREEMENT                  NOW THEREFORE , for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:                  1.       Security Deposit. The amount of the Security Deposit set forth in Article 1 of the Lease is hereby changed to $1,682,754.00.                  2.       Base Monthly Rent. Commencing on January 1, 2001, the Base Monthly Rent set forth in Article 1 shall be changed as follows:                  The term "Base Monthly Rent" shall mean the following:   Months *Rent/SF/Month/NNN       1/1/01-2/28/01 $2.90               *Commencing with March 1, 2001 and on March 1 of each year thereafter, Base Monthly Rent shall be increased at a rate of 3.0% per annum compounded.                  3.       Ratification. The Lease, as amended by this Amendment, is hereby ratified by Landlord and Tenant and Landlord and Tenant hereby agree that the Lease, as so amended, shall continue in full force and effect.                  4.       Miscellaneous.                             (a)       Voluntary Agreement. The parties have read this Amendment and on the advice of counsel they have freely and voluntarily entered into this Amendment.                             (b)       Attorney's Fees. If either party commences an action against the other party arising out of or in connection with this Amendment, the prevailing party shall be entitled to recover from the losing party reasonable attorney's fees and costs of suit.                             (c)       Successors. This Amendment shall be binding on and inure to the benefit of the parties and their successors.                             (d)       Counterparts. This Amendment may be signed in two or more counterparts. When at least one such counterpart has been signed by each party, this Amendment shall be deemed to have been fully executed, each counterpart shall be deemed to be an original, and all counterparts shall be deemed to be one and the same agreement.                 IN WITNESS WHEREOF , Landlord and Tenant have executed this Amendment as of the date first written above. LANDLORD :             CORPORATE TECHNOLOGY CENTRE ASSOCIATES LLC , a California limited liability company             By: Corporate Technology Centre Partners LLC a California limited liability company Its Manager             By:         Menlo Equities LLC a California limited liability company Its Managing Member             By:        Menlo Equities, Inc. Its Managing Member             By: -------------------------------------------------------------------------------- Henry D. Bullock President             TENANT :             REDWORKS NETWORKS , INC ., a Delaware corporation             By: -------------------------------------------------------------------------------- Title: --------------------------------------------------------------------------------     By: -------------------------------------------------------------------------------- Title: --------------------------------------------------------------------------------

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.42 ASSET PURCHASE AND LICENSE AGREEMENT     This ASSET PURCHASE AND LICENSE AGREEMENT (the "Agreement") is made effective and entered into as of September 19, 2001 (the "Effective Date"), by and between InterMune, Inc. ("InterMune"), a corporation organized and existing under the laws of the State of Delaware, and Eli Lilly and Company ("Lilly"), a corporation organized and existing under the laws of the State of Indiana. InterMune and Lilly are sometimes referred to herein individually as a "Party" and collectively as "Parties." RECITALS     WHEREAS, subject to the terms and conditions set forth in this Agreement, Lilly and InterMune desire to enter into an agreement pursuant to which (i) Lilly will sell or license to InterMune, and InterMune will purchase or license from Lilly, certain product inventory, technology and certain rights thereto and regulatory documents owned by Lilly, and (ii) InterMune will assume certain liabilities associated with the rights and assets transferred herein, each in accordance with the terms and conditions set forth herein.     NOW, THEREFORE, in consideration of the foregoing, the covenants and premises contained in this Agreement, and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, Lilly and InterMune agree as follows: ARTICLE 1 DEFINITIONS     For purposes of this Agreement, the following terms will have the meanings set forth below: 1.1"Affiliate" means, with respect to a Party, any Person (or Persons) directly or indirectly Controlling, Controlled by, or under common Control with, such Party. 1.2"Applicable Laws" means all applicable laws, ordinances, rules and regulations of any kind whatsoever of any governmental or regulatory authority, including, without limitation, all laws, ordinances, rules and regulations promulgated by the FDA. 1.3"Application for Marketing Authorization" means, with respect to Product, (i) in the United States, a New Drug Application filed with the FDA pursuant to 21 U.S.C. Section 357 and 21 C.F.R. Section 314 ("NDA"), and (ii) in any country other than the United States, an application or set of applications for marketing approval comparable to an NDA necessary to make and sell Product commercially in such country. 1.4"Calendar Quarter" means the three month period ending on March 31, June 30, September 30 or December 31. The initial Calendar Quarter will be deemed to begin on the Closing Date and end on the first to occur in 2001 of September 30 or December 31. 1.5"Calendar Year" means the twelve (12) month period ending on December 31st. The initial Calendar Year will be deemed to begin on the Closing Date and end on December 31, 2001. 1.6"Closing Date" has the meaning set forth in Section 7.3(a), below. 1.7"Competing Product" means any compound or product [*.] 1.8"Compound" means any compound claimed in a Licensed Patent. 1.9"Confidential Information" means information received (whether disclosed in writing, machine readable form, orally or by observation) by one Party (the "Receiving Party") from the other Party [*] 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. 1 -------------------------------------------------------------------------------- (the "Disclosing Party") that the Receiving Party: (i) has a reasonable basis to believe is confidential to the Disclosing Party, (ii) is indicated in writing by the Disclosing Party to be confidential, or (iii) is information that the Receiving Party received pursuant to the activities contemplated by Section 6.1(a), below, unless in each case such information:     (a) was known to the Receiving Party or to the public prior to the Disclosing Party's disclosure, as demonstrated by contemporaneous written records;     (b) became known to the public, after the Disclosing Party's disclosure hereunder, other than through a breach of the confidentiality provisions of this Agreement by the Receiving Party or any Person to whom such Receiving Party disclosed such information;     (c) was subsequently disclosed to the Receiving Party by a Person having a legal right to disclose, without any restrictions, such information or data; or     (d) was developed by the Receiving Party independent of the Disclosing Party's Confidential Information. 1.10"Control," "Controlling," "Controlled By" or "Under Common Control With" means the direct or indirect ability or power to direct or cause the direction of management policies of a Person or otherwise direct the affairs of such Person, whether through ownership of equity, voting securities, beneficial interest, by contract or otherwise. 1.11"Damages" means any and all costs, losses, claims, demands for payment, threatened government enforcement actions, liabilities, fines, penalties, expenses, court costs and reasonable fees and disbursements of counsel, consultants and expert witnesses incurred by a Party hereto or its Affiliates (including interest which may be imposed in connection therewith). 1.12"Data Exclusivity Period" means, with respect to a country, the period of time (if any) beginning on the date of the first Regulatory Approval by the FDA (or, in countries other than the United States, an equivalent regulatory agency) during which the FDA (or, if applicable, such equivalent regulatory agency) prohibits reference, without the consent of the owner of an Application for Marketing Authorization or Regulatory Approval package, to the clinical and other data that relates to the Product and that is contained in such Application for Marketing Approval or Regulatory Approval package and that is not published or publicly available outside of such Application or Regulatory Approval package. 1.13"European Union" or "EU" means Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Liechtenstein, Luxembourg, The Netherlands, Norway, Portugal, Spain, Sweden, the United Kingdom, Switzerland and those additional countries that hereafter become members (whether voting or nonvoting) or are allowed to participate in the European Union. 1.14"Excluded Liabilities" means:     (a) any Damages arising out of any claims by the FDA or any other government entity or regulatory body that Lilly has failed to fulfill Lilly's regulatory obligations under the Regulatory Documents prior to the Closing Date (unless such Damages arise out of any action or inaction on the part of InterMune); and     (b) any Damages arising out of any claim by a Third Person relating to Compound or Product arising out of or relating to events occurring prior to the Closing Date (unless such Damages arise out of any action or inaction on the part of InterMune); and     (c) any Obligations (as defined in Section 10.1, below) arising out of a claim of a Third Person relating to Compound or Product arising out of or relating to events occurring prior to the [*] 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. 2 -------------------------------------------------------------------------------- Closing Date (unless such Obligations arise out of any action or inaction on the part of InterMune). 1.15"FDA" means the United States Food and Drug Administration, any comparable agency in any Foreign Jurisdiction, and any successor agency or entity to any of the foregoing that may be established hereafter. 1.16"Field" means [*] 1.17"Foreign Jurisdiction" means any jurisdiction other than the United States. 1.18"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, Section 7A of the Clayton Act, 15 U.S.C. §18a, as amended, and any comparable law of any Foreign Jurisdiction. 1.19"Indication" means Regulatory Approval of, approval by the FDA of a submission made by InterMune under 21 CFR §99.201, or InterMune's sales and promotion of Product which leads to the treatment of additional diseases [*] Such additional Indications may include, but not be limited to, [*] 1.20"Initial Product" means a form of Product that has been used by Lilly through the Closing Date, i.e., oritavancin, which both Parties currently contemplate will be the form of Product to be first commercialized by InterMune. 1.21"InterMune Technology" means any inventions, ideas, conceptions or reductions-to-practice, patentable or not, information, works and/or data that are generated, identified, discovered, created and/or made by InterMune, its employees or a Third Person contracted by or otherwise controlled by InterMune [*] and [*] 1.22"Licensed Patents" means those United States and foreign patent applications (including provisional applications) and patents listed in Exhibit A attached hereto and all patents and patent applications relating to the [*] and:     (a) all divisions and continuations of these applications, all patents issuing from such applications, divisions and continuations, and any reissues, reexaminations and extensions of all such patents; and     (b) any continuations-in-part, any divisions and continuations of these continuations-in-part, any patents issuing from such continuations-in-part, divisions and continuations, and any reissues, reexaminations and extensions of all such patents, in each case to the extent that they contain one or more claims directed to the invention or inventions disclosed in the patent applications and patents listed in Exhibit A. The Licensed Patents will not include any subject matter described or disclosed in subsection (b), above, to the extent such subject matter [*] above, which was filed on or before the Closing Date. 1.23"Licensed Technology" means all tangible or intangible know-how, trade secrets, inventions (whether or not patentable), data, analytical reference materials and methods and all confidential or proprietary chemical substances, assays and technical information which has been developed, created, made, used or acquired by Lilly on or before the Closing Date to the extent such technology is reasonably necessary, useful for or used in connection with the use or manufacture of the Compound or Product; provided, however, that Licensed Technology will exclude any and all subject matter described or claimed in Licensed Patents. 1.24"Major Market" means [*] [*] 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. 3 -------------------------------------------------------------------------------- 1.25"Net Sales" means, with respect to the Product, the gross amount invoiced by a Permitted Seller of the Product, less:     (a) [*     (b) *     (c) *] Such amounts will be determined from books and records maintained in accordance with GAAP, consistently applied. In determining Net Sales of Product made by InterMune in a Foreign Jurisdiction, InterMune's then current standard procedures and methodology, including InterMune's then current exchange rate methodology of foreign currency sales into United States Dollars, a copy of which is attached hereto as Schedule 1.23, will be consistently applied. No deductions will be made for [*] whether they are [*] or [*] by the Permitted Seller. 1.26"Permitted Seller" means InterMune and its Affiliates and any permitted assignee, licensee or sublicensee having the right to sell Product hereunder. 1.27"Person" means a natural person, a corporation, a partnership, a trust, a joint venture, a limited liability company, any governmental authority or any other organization. 1.28"Phase III Clinical Trial" means a large scale clinical trial conducted in accordance with current good clinical practices and designed to determine the clinical efficacy and safety of the Product for Regulatory Approval purposes. 1.29"Product" means any final form pharmaceutical composition or preparation, in any dosage strength or size, containing Compound as an active pharmaceutical ingredient that may, pursuant to Applicable Laws, be manufactured, marketed and sold upon Regulatory Approval or otherwise, together with all expansions, improvements and modifications thereon, and which, but for the license granted herein, the manufacture, use, sale, offer for sale or importation of which in the Territory would infringe or contribute to the infringement of a Valid Claim under the Licensed Patents. Notwithstanding the foregoing, any references in this Agreement to "Product manufacturing" or the "manufacture" or "manufacturing" of Product means Product that was manufactured for use in clinical trials and not for commercial use. 1.30"Product Data Package" will include the following information and data regarding the Compound or Product: (i)  Regulatory Documents, (ii) pre-clinical and clinical development protocols, data and reports, (iii) development technical reports, (iv) toxicology reports, (v) development history reports, and (vi) such other information and data specifically identified in Exhibit B attached hereto. Exhibit B represents a complete listing of the information and data included in the Product Data Package, as such term is used in this Agreement; provided, however, that although [*] relating to the Compound or Product are intentionally not listed in Exhibit B, such [*] are included in the Product Data Package and will be made available, [*] by Lilly to InterMune to the extent needed to facilitate the transfer of manufacturing know-how as described in Section 6.1(a), below. 1.31"Product Inventory" means the [*] and Product that Lilly owns as of the Closing Date. The Product Inventory is listed in Exhibit C. 1.32"Regulatory Approval" means (i) in the United States, approval by the FDA of an Application for Marketing Authorization and satisfaction of any related applicable FDA registration and notification requirements (if any) and (ii) in a Foreign Jurisdiction, approval by regulatory authorities having jurisdiction over such country of a single Application or set of Applications for Marketing Authorization; provided, however, that with respect to Japan only, Regulatory Approval means the above-described regulatory approval and approval by Japan's pricing authorities. [*] 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. 4 -------------------------------------------------------------------------------- 1.33"Regulatory Documents" means:     (a) United States Investigational New Drug No. 51,292, dated August 12, 1996 (the "U.S. IND");     (b) United Kingdom CTX No. 00006/0359/B, approved February 17, 2000; [*] 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. 5 --------------------------------------------------------------------------------     (c) Spanish CTA No. 99-044, dated November 23, 1999; and     (d) Canadian Investigational New Drug No. H4QMCARRD, dated November 16, 1998; and     (e) all amendments and supplements related to the documents listed in (a), (b), (c) and (d), above. 1.34"Representatives" of a Party means: (i) that Party's agents, contractors, employees, officers, directors, consultants and advisors, (ii) its Affiliates, and (iii) the agents, contractors, employees, officers, directors, consultants and advisors of its Affiliates. 1.35"Royalty Term" means, with respect to each country in which the Product is sold:     (a) if no Valid Claim exists in such country, [*] from the date of first commercial sale of Product in such country, or if a Valid Claim exists in such country, the period of time from the Closing Date until the expiration in such country of the last-to-expire Licensed Patent with a Valid Claim; and     (b) if there is a [*] in such country for Product after the expiration of the applicable time period in (a), above, the period of time until [*] in such country. 1.36"Territory" means the entire world. 1.37"Third Person" means a Person that is not a Party to this Agreement or an Affiliate of a Party to this Agreement. 1.38"Valid Claim" means a claim of an issued and unexpired Licensed Patent in a country which: (i) but for this Agreement, would preclude the sale or other disposition of Product by InterMune or another Permitted Seller, (ii) has not been revoked or held unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and (iii) has not been abandoned, disclaimed or admitted to be invalid or unenforceable through reissue, disclaimer or otherwise. ARTICLE 2 CONSIDERATION     In consideration of (i) InterMune's purchase of the Product Data Package, the Product Inventory and the Regulatory Documents as set forth in this Agreement, and (ii) the licenses granted by Lilly to InterMune under the Licensed Patents and the Licensed Technology as set forth in this Agreement, InterMune will pay the following amounts to Lilly: 2.1InterMune's Payment Upon the Closing Date.  On the Closing Date, InterMune will pay to Lilly the non-refundable sum of Fifty Million Dollars ($50,000,000) by Federal Reserve electronic wire transfer in immediately available funds to an account designated by Lilly. 2.2Milestone Payments for Product. Within thirty (30) days of InterMune and/or its Permitted Sellers achieving a milestone event listed below with respect to the Product, InterMune will pay the [*] 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. 5 -------------------------------------------------------------------------------- below-specified non-creditable and non-refundable fee to Lilly by Federal Reserve electronic wire transfer in immediately available funds to an account designated by Lilly. Milestone Event --------------------------------------------------------------------------------   Payment -------------------------------------------------------------------------------- [*   * *   * *   * *   * *   * *   * *   * *   * *   * *   * *   * *   * *   * 2.3Royalty Payment Calculation.  InterMune will pay Lilly a royalty (a "Royalty Payment") during the Royalty Term based upon Net Sales of Product during each Calendar Year. Except as set forth in Section 2.3(b) and (c), below, the following royalty percentages will apply:     (a)  Royalties on Net Sales.   Net Sales of Product During a Calendar Year --------------------------------------------------------------------------------   Royalty Percentage on Net Sales of Product -------------------------------------------------------------------------------- [*   * *   *]     (b)  Lilly Right to Reduce Royalty Percentages.  During the period beginning March 1, 2002 and ending April 1, 2003, Lilly will have the right to require InterMune to pay to Lilly the sum of Fifteen Million Dollars ($15,000,000) (the "Royalty Reduction Payment") in exchange for Lilly's agreeing to reduce each of the two (2) royalty percentages set forth in Section 2.3(a), above, by [*] To exercise this right, Lilly will give written notice (the "Royalty Reduction Notice") to InterMune at least thirty (30) days prior to the end of the applicable Calendar Quarter of Lilly's desire to receive the Royalty Reduction Payment. Upon receipt of the Royalty Reduction Notice, InterMune will arrange to pay the Royalty Reduction Payment to Lilly by [*] designated or approved by Lilly. InterMune will make the Royalty Reduction Payment on or before the last business day of the applicable Calendar Quarter. Upon Lilly's receipt of the Royalty Reduction Payment, the royalty percentages described above will be reduced as described herein automatically with no further notice or action required on any party's part. The royalty percentages on Net Sales of Product sold in the following Calendar Quarter and thereafter will be computed using these reduced royalty percentages.     (c)  InterMune Right to Reduce Royalty Percentages.  Subject to Section 2.3(e), below, [*] InterMune will have the right to require Lilly to reduce each of the royalty percentages applicable pursuant to Section 2.3(a), above, by [*] by [*] pursuant to [*] designated or approved by Lilly. To exercise this right, InterMune will give written notice (the "InterMune Royalty Reduction Notice") to Lilly of InterMune's desire to [*] at least thirty (30) days prior to the end of the applicable Calendar Quarter. The InterMune Royalty Reduction Notice must specify the InterMune Royalty Reduction [*] date, which date must be on or before the last business day of the applicable Calendar Quarter. Upon Lilly's [*] the royalty percentages described above will be reduced as [*] 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. 6 -------------------------------------------------------------------------------- described herein automatically with no further notice or action required on any party's part. The royalty percentages on Net Sales of Product sold in the following Calendar Quarter and thereafter will be computed using these reduced royalty percentages.     (d)  Third Person Offsets.  InterMune may credit against the Royalty Payments it owes Lilly [*] of any royalties InterMune must pay to any Third Person on the Product (i) pursuant to any licenses [*] to practice the licenses set forth in Article 3, or (ii) resulting from any litigation (including the settlement thereof) under Section 6.13 or 6.14, below; provided, however, the Royalty Payments will not be reduced to less than the percentage set forth in Section 2.3(e), below.     (e)  Minimum Royalty Payment.  Notwithstanding anything in this Article 2 to the contrary, in no event will the Royalty Payment set forth in this Section 2.3 be reduced below [*] 2.4Royalty Payment.  InterMune will pay to Lilly the Royalty Payment within [*] of the end of each Calendar Quarter, without regard to whether any Permitted Seller's customer has actually paid InterMune. For purposes of this Section 2.4, a Net Sale of Product will be deemed to have been made as of the date of shipment of the Product to the Permitted Seller's customer, without regard to whether its customer has actually paid InterMune. All payments to Lilly pursuant to this Section 2.4 will be made by InterMune by an electronic funds transfer system designated or approved by Lilly unless otherwise instructed by Lilly.     (a)  Payment of Tiered Royalties.  In calculating Royalty Payments payable in accordance with Section 2.3(a), above, Net Sales occurring during a specific Calendar Year will be aggregated at the end of each Calendar Quarter during such year, and the applicable royalty percentage(s) will be applied to that portion of the Net Sales that occurred during the most recently completed Calendar Quarter.     [*] 2.5Quarterly Report.  Within [*] days after the end of each Calendar Quarter, InterMune will furnish Lilly a written report detailing: (i) the Net Sales of Product for the previous Calendar Quarter, broken down by country and between InterMune and any Permitted Sellers, (ii) the Royalty Payment that is due and payable, and (iii) the basis for calculating such Royalty Payment. InterMune will mail such reports to the attention of: [*] 2.6Taxes.  If laws or regulations require the withholding of taxes on any Royalty Payment due Lilly, InterMune will deduct such taxes from the Royalty Payment and remit the tax to the proper tax authority. InterMune will provide Lilly with proof of payment within thirty (30) days after payment. InterMune will cooperate fully and promptly in pursuing a refund of such tax, if such refund is appropriate in Lilly's determination. 2.7Late Payments.  Any amounts not paid by InterMune when due under this Agreement and which are not subject to a good faith dispute will be subject to interest from and including the date payment is due through and including the date upon which Lilly has collected the funds in accordance herewith at a rate equal to the lesser of (i) the sum of [*] plus the prime rate of interest quoted in the Money Rates section of the Wall Street Journal, calculated daily on the basis of a three hundred sixty (360) day year, or (ii) the maximum interest rate allowed by law. 2.8No Excuse.  Notwithstanding Section 12.14, InterMune will not be excused from or relieved of its obligations to pay the amounts described in this Article 2 by any claimed or actual event of force majeure, commercial or other impracticability or impossibility, or frustration of essential purpose. 2.9Currency of Payment.  All payments to be made under this Agreement will be made in U.S. Dollars. [*] 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. 7 -------------------------------------------------------------------------------- 2.10Financial Audits.  InterMune will keep full and accurate books and records relating to the performance required of it under this Agreement. Lilly will have the right, during regular business hours and upon reasonable advance notice, to have such books and records of InterMune audited no more than one (1) time per Calendar Year so as to verify the accuracy of the information previously reported to Lilly. Lilly will, for purposes of such audit, utilize only the services of an independent certified public accounting firm selected by Lilly and approved by InterMune, such approval not to be unreasonably withheld. Such audit may cover the two (2) Calendar Years preceding the date of the request for such audit. Notwithstanding the foregoing, no audit of InterMune pursuant to this Section 2.10 will cover any period of time preceding the Closing Date. Such accountants will keep confidential any information obtained during such audit and will report to Lilly only their conclusions. The cost of such audit will be borne by Lilly; however, if such audit reveals that the information previously reported to Lilly deviates by [*] or more from that revealed by the audit, the cost of the audit will be borne by InterMune. Within thirty (30) days after both Parties have received a copy of an audit report, InterMune or Lilly, as appropriate, will compensate the other Party for payment errors or omissions revealed by the audit. InterMune will include in all sublicenses granted in accordance herewith, and any other agreements enabling a Third Person to be a Permitted Seller, an audit provision substantially similar to the foregoing requiring such Permitted Seller to keep full and accurate books and records relating to the Product and granting Lilly the right to have an independent public accounting firm audit the accuracy of the information reported by the sublicensee in connection therewith. 2.11Compulsory License.  If a Third Person obtains a Compulsory License (as defined below) in a specific country, then Lilly will promptly notify InterMune thereof. If the royalty percentage(s) payable by the grantee of the Compulsory License is less than the royalty percentage(s) applicable in such country as set forth in Section 2.3, above, then such royalty percentage(s) will be reduced to the royalty percentage(s) under such Compulsory License for so long as sales of Product are made pursuant to the Compulsory License. "Compulsory License" means a compulsory license under the Licensed Patents obtained by a Third Person through the order, decree or grant of a competent governmental authority authorizing such Third Person to manufacture, use, sell, offer for sale or import the Product in a specific country. ARTICLE 3 ASSIGNMENT AND LICENSE OF RIGHTS 3.1Assignment of the Product Data Package, the Product Inventory and the Regulatory Documents to InterMune.  Subject to the terms and conditions set forth herein, as of the Closing Date, Lilly hereby assigns, sells, conveys, transfers and delivers to InterMune, and InterMune accepts, Lilly's entire right, title and interest in and to the Product Data Package, the Product Inventory and the Regulatory Documents. Such assignment notwithstanding, InterMune hereby grants to Lilly the limited right to retain one (1) copy of the information and data comprising the Product Data Package and to use such information and data solely for internal research purposes. 3.2Grant of License to InterMune under Licensed Patents.  Subject to the terms and conditions set forth herein, as of the Closing Date and thereafter during the term of this Agreement, Lilly hereby grants to InterMune, and InterMune accepts, under the Licensed Patents, a royalty-bearing, exclusive (even as to Lilly, except as expressly provided in the following sentence) license in the Field, with a right to sublicense only as set forth in Section 3.4, below, to make, have made, use, offer to sell, sell and import Product in the Territory. Such license is exclusive even as to Lilly except that Lilly hereby retains a right under the Licensed Patents to [*] 3.3Grant of License to InterMune under Licensed Technology.  Subject to the terms and conditions set forth herein, as of the Closing Date and thereafter during the term of this Agreement, Lilly hereby grants to InterMune, and InterMune accepts, under the Licensed Technology, an exclusive [*] 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. 8 -------------------------------------------------------------------------------- (even as to Lilly) license in the Field, with a right to sublicense only as set forth in Section 3.4, below, to make, have made, use, offer to sell, sell and import Product in the Territory. 3.4Sublicenses.  The licenses granted herein by Lilly to InterMune pursuant to Section 3.2 and 3.3 will not be sublicensed by InterMune without the prior written consent of Lilly, which consent will not be unreasonably withheld. InterMune will [*] pursuant to this Section 3.4 [*] InterMune will remain liable for Royalty Payments as a result of Net Sales made by a Permitted Seller pursuant to a sublicense or license permitted pursuant to this Section 3.4. 3.5Excluded Assets.  Anything herein to the contrary notwithstanding, InterMune will have no right, title or interest in or to the trademarks "ELI LILLY AND COMPANY" and "LILLY" and any variation thereof, and any other rights in or to such names. 3.6Right of First Negotiation.  If, during the term of this Agreement, (i) InterMune desires to [*], or (ii) a Third Person initiates such discussions with InterMune and InterMune is interested in entertaining such discussions (both (i) and (ii) are collectively referred to as a "Business Opportunity"), then InterMune will promptly notify Lilly in writing thereof, with such notice containing all reasonable available information necessary for a potential licensee or commercialization partner to evaluate the Business Opportunity. Within thirty (30) days of Lilly's receipt of the written notice, Lilly will respond to InterMune in writing regarding Lilly's interest in the Business Opportunity. If Lilly indicates interest in pursuing the Business Opportunity, the Parties will negotiate in good faith to enter into a definitive agreement. If Lilly and InterMune are unable, other than through the fault of InterMune, to enter into a definitive agreement [*] InterMune will be free to execute such Business Opportunity with another Person [*] Notwithstanding anything in this Agreement to the contrary, any Business Opportunity entered into by InterMune with another Party will be subject to Lilly's rights under this Agreement, including, without limitation, Lilly's right to receive the Royalty Payments. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF LILLY 4.1Intellectual Property.  Lilly represents and warrants that the Product delivered in accordance herewith has been manufactured by Lilly using solely the Licensed Patents and the Licensed Technology (collectively, the "Intellectual Property"). 4.2Ownership of Intellectual Property.  Lilly represents and warrants that (i) either Lilly or an Affiliate of Lilly is the owner of the Intellectual Property, and (ii) Lilly or its Affiliates can and have the right to license the Intellectual Property to InterMune hereunder without the consent of any Third Person. 4.3Claims Related to Use of Intellectual Property.  Lilly represents and warrants that there are no pending or, to Lilly's knowledge, threatened claims against Lilly asserting that any of the activities of Lilly relating to the Intellectual Property or the conduct of the activities contemplated herein by the Parties relating to the Intellectual Property infringes or violates the rights of Third Persons. 4.4Notice to Third Persons.  Lilly represents and warrants that Lilly has not given any notice to any Third Persons asserting infringement by such Third Persons upon any of the Intellectual Property. 4.5Rights Granted to Third Persons.  Lilly represents and warrants that Lilly has not executed or granted to any Third Person, directly or indirectly, or entered into any agreement for, any license or other right to make, use, offer to sell, sell or import the Product in the Territory. 4.6Product Inventory.  Lilly is assigning, conveying, transferring and delivering the Product Inventory to InterMune "AS IS." Notwithstanding the foregoing, Lilly hereby represents and warrants that [*] 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. 9 -------------------------------------------------------------------------------- the Product Inventory manufactured by or for Lilly that will be provided to InterMune hereunder was manufactured and packaged in compliance with all relevant Applicable Laws. 4.7Regulatory Documents.  Lilly represents and warrants that: (i) Lilly has furnished InterMune with access to a complete copy of the U.S. IND, (ii) Lilly is and was, at all times prior to the Closing Date, the lawful holder of all rights under the Regulatory Documents, (iii) Lilly has complied in all material respects with Applicable Laws relating to the Regulatory Documents, (iv) the Regulatory Documents have been accepted by, and nothing has come to Lilly's attention which has, or reasonably should have, led Lilly to believe that the Regulatory Documents are not in good standing with relevant regulatory authorities, (v) Lilly has filed with the relevant regulatory authorities all required notices, supplemental applications and annual or other reports, including adverse experience reports, with respect to the Regulatory Documents, and (vi) to Lilly's knowledge, there is no pending or overtly threatened action by relevant regulatory authorities that would have a material adverse effect on the Regulatory Documents. Except for the representation and warranty contained in this Section 4.7, InterMune has had full and adequate opportunity to review and evaluate the U.S. IND, InterMune is relying upon its own judgment and experience in connection with the Regulatory Documents, and Lilly is assigning, conveying, transferring and delivering the Regulatory Documents to InterMune "AS IS." 4.8.Product Data Package and Manufacturing Information.  Lilly represents and warrants that the Product Data Package listed in Exhibit B is true and complete, [*], subject to Section 1.30, above. Except for the representation and warranty contained in this Section 4.8, InterMune has had full and adequate opportunity to review and evaluate the Product Data Package, except for Lilly's batch records and manufacturing tickets. InterMune is relying upon its own judgment and experience in connection with the Product Data Package, and Lilly is assigning, conveying, transferring and delivering the Product Data Package to InterMune "AS IS." Lilly further represents and warrants that it is transferring to InterMune as part of the Product Data Package all of the manufacturing information in Lilly's tangible possession as of the Closing Date that was necessary for, and used by Lilly in, the development and manufacture of the Compound or Product by Lilly. 4.9Organization and Standing.  Lilly represents and warrants that Lilly is a corporation duly organized, validly existing and in good standing under the laws of the State of Indiana. 4.10Power and Authority.  Lilly represents and warrants that (i) Lilly has all requisite corporate power and authority to execute, deliver and perform this Agreement and the other agreements and instruments to be executed and delivered by it pursuant hereto and thereto and to consummate the transactions contemplated herein and therein, and (ii) the execution, delivery and performance of this Agreement by Lilly does not, and the consummation of the transactions contemplated hereby will not, violate any provisions of Lilly's organizational documents, bylaws, any law or regulation applicable to Lilly, or any agreement, mortgage, lease, instrument, order, judgment or decree to which Lilly is a party or by which Lilly is bound. 4.11Corporate Action; Binding Effect.  Lilly represents and warrants that (i) Lilly has duly and properly taken all action required by law, its organizational documents or otherwise, to authorize the execution, delivery and performance of this Agreement and the other instruments to be executed and delivered by it pursuant hereto and thereto and the consummation of the transactions contemplated hereby and thereby, and (ii) this Agreement has been duly executed and delivered by Lilly and constitutes, and the other instruments contemplated hereby when duly executed and delivered by Lilly will constitute, legal, valid and binding obligations of Lilly enforceable against it in accordance with its respective terms, except as enforcement may be affected by bankruptcy, insolvency or other similar laws and by general principles of equity. [*] 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. 10 -------------------------------------------------------------------------------- 4.12Governmental Approval.  Lilly represents and warrants that no consent, approval, waiver, order or authorization of, or registration, declaration or filing with, any governmental authority or any other Third Person is required in connection with the execution, delivery and performance of this Agreement, or any agreement or instrument contemplated by this Agreement, by Lilly or the performance by Lilly of its obligations contemplated hereby and thereby other than (i) the filings required of both Parties pursuant to the HSR Act and any other applicable notification requirement of any Foreign Jurisdiction and (ii) the notification of transfer of clinical trials letters that need to be provided to each of the FDA, the Medicines Control Agency in the United Kingdom, the Therapeutic Products Directorate of Canada, the Agencia Española del Medicamento in Spain, and any other appropriate regulatory authorities to transfer the respective Regulatory Documents to InterMune. 4.13Brokerage.  Lilly represents and warrants that no broker, finder or similar agent has been employed by or on behalf of Lilly, and no Person with which Lilly has had any dealings or communications of any kind is entitled to any brokerage commission, finder's fee or any similar compensation in connection with this Agreement or the transactions contemplated hereby. 4.14Not Debarred.  Lilly represents and warrants that Lilly is not debarred and has not and will not use in any capacity the services of any Person debarred under subsections 306(a) or (b) of the Generic Drug Enforcement Act of 1992 (the "GDE Act"). 4.15Litigation.  Lilly represents and warrants that there are no pending or, to Lilly's knowledge, threatened judicial, administrative or arbitral actions, claims, suits or proceedings pending as of the date hereof against Lilly or its Affiliates which, either individually or together with any other, will have a material adverse effect on the ability of Lilly to perform its obligations under this Agreement or any agreement or instrument contemplated hereby or on the ability of InterMune to develop or commercialize the Compound or Product as contemplated by the Parties. 4.16Material Contracts.  Lilly represents and warrants that Schedule 4.16 lists all of the material contracts and agreements relating to the Compound or Product to which Lilly is, as of the Closing Date, bound. 4.17Survival Period.  The representations and warranties contained in this Article 4 [*] associated with such representations and warranties will [*] 4.18Implied Warranties.  EXCEPT AS EXPRESSLY PROVIDED IN THIS ARTICLE 4, LILLY MAKES NO REPRESENTATION OR WARRANTY AS TO THE PRODUCT, THE LICENSED PATENTS, THE LICENSED TECHNOLOGY, THE PRODUCT DATA PACKAGE OR THE REGULATORY DOCUMENTS, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, AND LILLY SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED OR STATUTORY WARRANTIES, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY, WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE AND WARRANTY OF NON-INFRINGEMENT. Without limiting the foregoing, InterMune acknowledges that it has not and is not relying upon any implied warranty of merchantability, fitness for a particular purpose, non-infringement, or upon any representation or warranty whatsoever as to the future prospects (financial, regulatory or otherwise), or the likelihood of commercial success of the Product after the date of this Agreement. 4.19No Third-Person Patent Infringement.  Lilly represents and warrants that, to Lilly's knowledge, there is no patent issued to a Third Person as of the Closing Date that would be infringed by any of the activities contemplated herein by the Parties. 4.20Lilly Research and Development Program.  Lilly represents and warrants that as of the Closing Date it does not have a research or development program in place or planned involving [*] [*] 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. 11 -------------------------------------------------------------------------------- ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF INTERMUNE 5.1Organization and Standing.  InterMune represents and warrants that InterMune is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 5.2Power and Authority.  InterMune represents and warrants that (i) InterMune has all requisite corporate power and authority to execute, deliver and perform this Agreement and the other agreements and instruments to be executed and delivered by it pursuant hereto and thereto and to consummate the transactions contemplated herein and therein, and (ii) the execution, delivery and performance of this Agreement by InterMune does not, and the consummation of the transactions contemplated hereby will not, violate any provisions of InterMune's organizational documents, bylaws, any law or regulation applicable to InterMune, or any agreement, mortgage, lease, instrument, order, judgment or decree to which InterMune is a party or by which InterMune is bound. 5.3Corporate Action; Binding Effect.  InterMune represents and warrants that (i) InterMune has duly and properly taken all action required by law, its organizational documents or otherwise, to authorize the execution, delivery and performance of this Agreement and the other instruments to be executed and delivered by it pursuant hereto and thereto and the consummation of the transactions contemplated hereby and thereby, and (ii) this Agreement has been duly executed and delivered by InterMune and constitutes, and the other instruments contemplated hereby when duly executed and delivered by InterMune will constitute legal, valid and binding obligations of InterMune enforceable against it in accordance with its respective terms, except as enforcement may be affected by bankruptcy, insolvency or other similar laws and by general principles of equity. 5.4Governmental Approval.  InterMune represents and warrants that no consent, approval, waiver, order or authorization of, or registration, declaration or filing with, any governmental authority or any other Third Person is required in connection with the execution, delivery and performance of this Agreement, or any agreement or instrument contemplated by this Agreement, by InterMune or the performance by InterMune of its obligations contemplated hereby and thereby other than the filings required of both Parties pursuant to the HSR Act. 5.5Brokerage.  [*] InterMune represents and warrants that no broker, finder or similar agent has been employed by or on behalf of InterMune, and no Third Person with which InterMune has had any dealings or communications of any kind is entitled to any brokerage commission, finder's fee or any similar compensation in connection with this Agreement or the transactions contemplated hereby. 5.6Not Debarred.  InterMune represents and warrants that InterMune is not debarred and has not and will not knowingly use in any capacity the services of any Person debarred under subsections 306(a) or (b) of the GDE Act. 5.7Litigation.  InterMune represents and warrants that there are no pending or, to InterMune's knowledge, threatened judicial, administrative or arbitral actions, claims, suits or proceedings pending as of the date hereof against InterMune which, either individually or together with any other, will have a material adverse effect on the ability of InterMune to perform its obligations under this Agreement or any agreement or instrument contemplated hereby. [*] 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. 12 -------------------------------------------------------------------------------- ARTICLE 6 ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES 6.1Transition Support.     (a)  Manufacturing.  After the Closing Date, Lilly and InterMune agree to work in good faith to complete the transfer of Product manufacturing know-how (as contained in the Licensed Technology) to InterMune (or to a Third Person selected by InterMune to manufacture Product on its behalf, provided that Lilly will not be required to provide two separate transfers of such know-how) by no later than [*] (the "Manufacturing Transition Period"). After the Closing Date, Lilly and InterMune agree to work together to schedule periodic shipments of Product Inventory and cell bank material (as set forth on Exhibit B); provided, however, that Lilly will have completed the shipment of (i) the Product Inventory by no later than [*] and (ii) the cell banks by no later than [*] All such shipments by Lilly to InterMune will be [*] During the Manufacturing Transition Period, Lilly will provide InterMune with (x) copies of any Licensed Technology that is reduced to writing (or available in electronic form), and (y) access, during normal business hours and upon reasonable advance notice, to appropriate Lilly process development and manufacturing personnel to discuss the transfer of manufacture from Lilly to InterMune; provided, however, that within thirty (30) days after the Closing Date InterMune will appoint a representative to serve as manufacturing transfer liaison, and Lilly will only be obligated to coordinate manufacturing transfer activities with this liaison (and not directly with any representative of a Third Person selected by InterMune to manufacture Product on its behalf). Except as set forth in Section 6.1(c) below, such access to Lilly personnel during the Manufacturing Transition Period is [*] but is limited to a total of [*] Lilly person hours. For the period beginning on [*] Lilly will provide to InterMune, upon InterMune's written request, up to an additional [*] Lilly person hours to assist in the activities contemplated in this Section 6.1(a). InterMune agrees promptly to pay Lilly (1) an amount equal to [*] for each such hour of services provided by Lilly, and (2) the expenses set forth in Section 6.1(c) below. After [*] Lilly will consider in good faith any further requests by InterMune to provide assistance hereunder. Nothing contained in this Section 6.1(a) will be construed as a guaranty by Lilly that InterMune will be able to manufacture Product in commercial quantities. If InterMune is not able, through no fault of Lilly, to (i) complete any or all of the transfer of Product manufacturing know-how during the Manufacturing Transition Period, or (ii) accept delivery of the Product Inventory and/or the cell banks, then Lilly will not be deemed to be in breach of such obligations and will not be liable to InterMune for failure to so perform.     (b)  Regulatory and Clinical.  Lilly and InterMune agree to work in good faith to complete the transfer of the Product Data Package to InterMune no later than [*] after the Closing Date (the "Regulatory Transition Period"); provided, however, that Lilly will provide InterMune with the completed development history reports by no later than [*] During the Regulatory Transition Period, Lilly will provide InterMune with (i) copies of the Product Data Package (in either electronic or written form), and (ii) access, during normal business hours and upon reasonable advance notice, to appropriate Lilly clinical and regulatory personnel to discuss interpretation of the clinical trial results, to consult on current and future clinical trials, and to consult on medical, clinical pharmacology, PK support, and toxicology/ADME matters. Except as set forth in Section 6.1(c) below, such access to Lilly personnel during the Regulatory Transition Period is at no cost to InterMune, but is limited to a total of [*] Lilly person hours; provided, however, that upon the reasonable request of InterMune, Lilly personnel will [*] and the Lilly personnel time associated with attending such meetings will not count against the aforementioned [*] hour limitation. During the ninety (90) day period beginning on the date the Regulatory Transition Period expires, Lilly will provide to InterMune, upon InterMune's written request, up to an [*] Lilly person hours to assist in the activities contemplated in this Section 6.1(b). InterMune agrees promptly to pay Lilly (i) an amount equal to [*] for each such hour of services provided by Lilly, [*] 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. 13 -------------------------------------------------------------------------------- and (ii) the expenses set forth in Section 6.1(c), below. After the expiration of this second ninety (90) day period, Lilly will consider in good faith any further requests by InterMune to provide assistance hereunder. Nothing contained in this Section 6.1(b) will be construed as a guaranty by Lilly that InterMune will obtain Regulatory Approval for the Product.     (c)  Payment of Expenses.  InterMune will reimburse Lilly, within thirty (30) days of receipt of a Lilly invoice (together with proper supporting documentation), [*] of Lilly personnel who travel to InterMune facilities, upon InterMune's request, to provide manufacturing and regulatory transition support under this Section 6.1. 6.2Governmental Filings.  Lilly and InterMune each agree to prepare and file whatever filings, requests or applications are required to be filed with any governmental authority in connection with the transfer of rights in Article 3 of this Agreement and to cooperate with one another as reasonably necessary to accomplish the foregoing including, without limitation, (i) the filings required of both Parties pursuant to the HSR Act, and (ii) the notification of transfer of clinical trial letters that need to be provided to each of the FDA, the Medicines Control Agency in the United Kingdom, the Therapeutic Products Directorate of Canada, the Agencia Española del Medicamento in Spain, and any other appropriate regulatory authorities to transfer the respective Regulatory Documents to InterMune. InterMune will deliver to Lilly the information submission described in (ii), above, on or before the Closing Date. 6.3Compliance with Law.  InterMune will comply with all Applicable Laws relating to its development, manufacture, distributing, marketing, promotion, selling, importing and exporting of the Product. InterMune agrees and acknowledges that as holder of the Regulatory Documents it will have sole responsibility for, among other things, adverse event reporting and all other regulatory reporting and Regulatory Document maintenance obligations. 6.4Expenses.  Lilly and InterMune will each bear their own direct and indirect expenses incurred in connection with the negotiation and preparation of this Agreement and, except as set forth in this Agreement, the performance of the obligations contemplated hereby. 6.5Development and Commercialization Plans.  Copies of InterMune's Product development plan (the "Development Plan") and Product commercialization plan (the "Commercialization Plan") are attached hereto as Exhibits D and E, respectively. 6.6Diligence.  After the Closing Date, InterMune has sole responsibility for all aspects of developing, obtaining Regulatory Approval for, manufacturing and commercializing the Initial Product throughout the Territory. InterMune will devote Commercially Reasonable Efforts (as defined in the following sentence) to obtain and maintain Regulatory Approval for the Initial Product in a specific country consistent with the Development Plan or to commercialize Initial Product in a specific country consistent with the Commercialization Plan. For purposes of this section only, "Commercially Reasonable Efforts" means the level of effort, expertise and resources required to commercialize Product that a similarly situated biopharmaceutical company would typically devote to a product of similar marketing potential, profit potential or strategic value, based on conditions then prevailing. If Lilly believes that InterMune is not devoting Commercially Reasonable Efforts for the Initial Product in any country, Lilly will notify InterMune in writing detailing its specific concerns and recommendations, and the Parties will meet within [*] of such written notice to discuss such concerns and recommendations. After the last of such meeting(s), InterMune will have [*] to devote its Commercially Reasonable Efforts as set forth above. If InterMune subsequently defaults and does not devote Commercially Reasonable Efforts for the Initial Product in any country, Lilly will have the right to terminate the licenses granted in this Agreement to InterMune for such specific country pursuant to Section 9.1(c), below, [*] and InterMune will grant to Lilly an exclusive license to all rights, InterMune Technology and data that are useful and necessary for Lilly to obtain (or maintain) Regulatory Approval to commercialize the Initial Product in such country. [*] 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. 14 -------------------------------------------------------------------------------- 6.7Publicity.  The Parties agree that no publicity release or announcement concerning the transactions contemplated hereby will be issued without the advance written consent of the other, except as such release or announcement may be required by law, in which case the Party making the release or announcement will, before making any such release or announcement, afford the other Party a reasonable opportunity to review and comment upon such release or announcement. Notwithstanding the above, on the Effective Date (or such later date as agreed to by the Parties) InterMune may issue the press release set forth at Schedule 6.7, attached hereto. Notwithstanding anything in this Section 6.7 and Article 8 to the contrary, each Party may make filings that are required by Applicable Laws to the Securities and Exchange Commission (and any applicable securities exchanges) that discuss the subject matter of this Agreement or otherwise make reference to the other Party in any way whatsoever; provided, however, that such Party provides the other Party with no less than [*] provided further, however, that, such Party will use reasonable efforts to obtain confidential treatment by such security exchanges with respect thereto. 6.8Cooperation.  If either Party becomes engaged in or participates in any investigation, claim, litigation or other proceeding with any Third Person, including the FDA, relating in any way to the Product, the other Party will cooperate in all reasonable respects with such Party in connection therewith, including, without limitation, using its reasonable efforts to make available to the other such employees who may be helpful with respect to such investigation, claim, litigation or other proceeding, provided that, for purposes of this provision, reasonable efforts to make available any employee will be deemed to mean providing a Party with reasonable access to any such employee at no cost for a period of time not to exceed twenty-four (24) hours (e.g., three (3) eight (8) -hour business days). Thereafter, any such employee will be made available for such time and upon such terms and conditions (including, but not limited to, compensation) as the Parties may mutually agree. 6.9Conflicting Rights.  Neither Party will grant any right to any Third Person which would violate the terms of or conflict with the rights granted by such Party to the other Party pursuant to this Agreement. 6.10Deemed Breach of Covenant.  Neither Lilly nor InterMune will be deemed to be in breach of this Agreement to the extent such Party's breach is the result of any action or inaction on the part of the other Party. 6.11Intellectual Property Maintenance.  Licensed Patents shall be filed, prosecuted and maintained worldwide by a third-party patent counsel acceptable to InterMune and Lilly. InterMune shall have the ultimate responsibility for and control over such matters and shall bear all expenses incurred in filing, prosecuting and maintaining Licensed Patents. InterMune or its designee shall keep Lilly fully informed of the filing, prosecution and maintenance of Licensed Patents, and shall furnish to Lilly copies of documents relevant to any such efforts in advance with sufficient time for Lilly to review and provide comments on such documents, and shall use its reasonable efforts to incorporate the comments and suggestions of Lilly. InterMune shall not, without providing Lilly with prior written notice and sufficient time for Lilly to review and provide comment, [*] To the extent that Lilly does not agree with any such action that is desired by InterMune, in the case of a patent application affected by such action, Lilly may file and assume control of any divisional or continuation of the patent application that Lilly wishes to pursue at Lilly's sole expense, provided that InterMune may retain control of the parent patent application so affected. Lilly shall provide InterMune with any assistance reasonably necessary to support the filing, prosecution or maintenance of Licensed Patents. If InterMune decides to allow any Licensed Patent that is an International Patent Application (filed under the Patent Cooperation Treaty) or regional patent application (filed under the applicable regional patent convention treaty) pending as of the Closing Date to lapse without entry of the national phase in one or more countries designated in such application, or if InterMune wishes to abandon or allow to lapse any Licensed Patent that is a national patent application or patent pending or in force as of the Closing Date, InterMune shall notify Lilly in writing not less than sixty (60) days prior to taking such action, and InterMune shall thereby surrender to Lilly its rights under the patent or patent application in the country or countries so affected and Lilly may assume control of the same at Lilly's sole expense. [*] 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. 15 -------------------------------------------------------------------------------- 6.12No Fiduciary Relationship.  The Parties hereby expressly agree and acknowledge that they do not intend to create any type of fiduciary relationship as a result of the Intellectual Property maintenance provisions set forth in Section 6.11, above. Without limitation or condition of the foregoing, Lilly agrees to provide InterMune's agent with any and all powers of attorney and other instruments necessary for InterMune to conduct the filing, prosecution or maintenance of the License Patents as provided in Section 6.11, above, and Lilly acknowledges that any such power of attorney will make InterMune's agent an attorney-in-fact for Lilly with respect to the matter specified in the power of attorney or other instrument but will not create an attorney/client relationship or any other fiduciary relationship between Lilly an InterMune's agent. Lilly shall promptly inform InterMune as to all matters that come to Lilly's attention that may affect the preparation, filing, prosecution, or maintenance of the Licensed Patents, including without limitation any prior art of which Lilly or any representative of Lilly knows or has reason to know is material to the preparation, filing, prosecution, or maintenance of the Licensed Patents, provided that Lilly will have no obligation beyond that required of Lilly under 37 CFR §1.56 with respect to U.S. patent applications and that Lilly will have obligations of corresponding scope with respect to foreign patent applications as required under foreign patent regulations. 6.13Enforcement of Intellectual Property Rights.     (a)  Right to Seek Relief.  Each Party will promptly notify the other of any infringement or suspected infringement which may come to its notice of any intellectual property rights relating to the Product, including, without limitation, the Licensed Technology, and will provide such other Party with any information with respect thereto. If a Third Person infringes any [*] the Licensed Patents or the Licensed Technology, InterMune will have the first right (but not the obligation) to pursue any and all injunctive relief, and any or all compensatory and other remedies and relief (collectively, "Remedies"), against such Third Person. Should InterMune determine not to pursue Remedies with respect to any such intellectual property within [*] after receipt of written notice from Lilly requesting InterMune to do so, then Lilly will have the right (but not the obligation) to pursue Remedies against such Third Person; provided, however, that such written notice from Lilly to InterMune must prominently state that InterMune must take action on the subject matter contained within the notice within [*] of InterMune's receipt thereof.     (b)  Assistance and Cooperation.  If a Party pursues Remedies hereunder, the other Party will use all reasonable efforts to assist and cooperate with the Party pursuing such Remedies. Each Party will bear its own costs and expenses relating to such pursuit. Any damages or other amounts collected will be distributed, [*] to the Party that pursued Remedies to cover its costs and expenses and[*] the other Party to cover its costs and expenses, if any, relating to the pursuit of such Remedies; any remaining amount will [*] 6.14Infringement of Third Person Rights.  If a Third Person institutes a patent, trade secret or other infringement suit against InterMune, a permitted sublicensee or a Permitted Seller during the term of this Agreement, alleging that the manufacture, marketing, sale or use of the Product infringes one or more patent or other intellectual property rights held by such Third Person, then InterMune will have the first right (but not the obligation), at its sole expense, to assume direction and control of the defense of such claims except to the extent such suit [*] in which event Lilly will have the first right (but not the obligation), at its sole expense, to assume direction and control of the defense of such claims. Should InterMune or Lilly, as applicable, determine not to pursue the defense of a particular claim within [*] after notice from the other Party requesting InterMune or Lilly, as applicable, to do so, then the other Party will have the right (but not the obligation), at its sole expense, to assume direction and control of such claims. InterMune will not have the right to settle or otherwise dispose of any such claim [*] without the consent of Lilly, which consent will not be unreasonably withheld. [*] 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. 16 -------------------------------------------------------------------------------- 6.15No Liens.  InterMune will keep the Licensed Patents and the Licensed Technology free from all liens and encumbrances. 6.16Debarment.  If at any time a Party uses in any capacity the services of any Person debarred under subsections 306(a) or (b) of the GDE Act, such Party will immediately notify the other Party thereof. 6.17Product Inventory.  InterMune will use the Product Inventory for conducting clinical trials only and not for any commercialization purposes whatsoever. InterMune acknowledges that Lilly will not be able to supply any additional quantities of Product other than that set forth on Exhibit C. 6.18Competing Product.  During the term of this Agreement, InterMune agrees that it will not, directly or indirectly, participate in the commercialization of a Competing Product; provided, however, that InterMune may develop and commercialize the Compound for more than one Product. 6.19InterMune Technology.  InterMune will be the sole owner of the InterMune Technology, subject to Section 6.6, above, and Section 9.2(a)(iv), below. 6.20Covenant Not to Sue.  [*] will not sue InterMune or any licensee of InterMune for any in infringement of any patent or other rights of [*] that may arise from the use, manufacture, sale, offer for sale or importation in the Territory by InterMune or any licensee of InterMune of any product [*] ARTICLE 7 CONDITIONS PRECEDENT TO THE CLOSING; CLOSING DATE 7.1Conditions Precedent to InterMune's Obligations.  Subject to waiver as set forth in Section 12.3, below, all obligations of InterMune to close the transactions contemplated under this Agreement are subject to the fulfillment or satisfaction of each of the following conditions precedent:     (a)  Representations and Warranties True as of the Closing Date.  The representations and warranties of Lilly contained in this Agreement and in any schedule, certificate or document delivered by Lilly to InterMune pursuant to the provisions hereof will have been true on the date hereof and will be true on the Closing Date with the same effect as though such representations and warranties were made as of such date.     (b)  Compliance with this Agreement.  Lilly will have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or by the Closing Date.     (c)  Closing Certificate.  InterMune will have received a certificate from Lilly, executed by an officer of Lilly, certifying in such detail as InterMune may reasonably request that the conditions specified in Sections 7.1(a) and 7.1(b), above, have been fulfilled and certifying that Lilly has obtained all consents and approvals required by Section 7.1(e), below.     (d)  No Threatened or Pending Litigation.  On the Closing Date, no suit, action or other proceeding, or injunction or final judgment relating thereto, will, to Lilly's knowledge, be threatened or be pending before any court or governmental or regulatory official, body or authority in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby, and no investigation that might result in any such suit, action or proceeding will be pending or, to Lilly's knowledge, threatened.     (e)  Consents and Approvals.  Lilly will have either received notice from the Federal Trade Commission or the U.S. Department of Justice and each comparable governmental agency in each [*] 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. 17 -------------------------------------------------------------------------------- Foreign Jurisdiction (collectively referred to herein as the "Competition Authority") of early termination of the waiting period provided by the HSR Act or such waiting period will have expired with no further action required or sought by the Competition Authority on the part of Lilly. 7.2Conditions Precedent to Lilly's Obligations.  Subject to waiver as set forth in Section 12.3, below, all obligations of Lilly to close the transactions contemplated under this Agreement are subject to the fulfillment or satisfaction of each of the following conditions precedent:     (a)  Representations and Warranties True as of the Closing Date.  The representations and warranties of InterMune contained in this Agreement and in any schedule, certificate or document delivered by InterMune to Lilly pursuant to the provisions hereof will have been true on the date hereof and will be true on the Closing Date with the same effect as though such representations and warranties were made as of such date.     (b)  Compliance with this Agreement.  InterMune will have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or by the Closing Date.     (c)  Closing Certificate.  Lilly will have received a certificate from InterMune, executed by an officer of InterMune, certifying in such detail as Lilly may reasonably request that the conditions specified in Sections 7.2(a) and 7.2(b), above, have been fulfilled and certifying that InterMune has obtained all consents and approvals required by Section 7.2(e), below.     (d)  No Threatened or Pending Litigation.  On the Closing Date, no suit, action or other proceeding, or injunction or final judgment relating thereto, will, to InterMune's knowledge, be threatened or be pending before any court or governmental or regulatory official, body or authority in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby, and no investigation that might result in any such suit, action or proceeding will be pending or, to InterMune's knowledge, threatened.     (e)  Consents and Approvals.  InterMune will have either received notice from the Competition Authority of early termination of the waiting period provided by the HSR Act or such waiting period will have expired with no further action required or sought by the Competition Authority on the part of InterMune. 7.3Closing Date.     (a) Subject to Section 7.3(b), below, the closing of the transactions contemplated by this Agreement will take place at 10:00 a.m., Indianapolis time, on the third (3rd) business day following the later of (i) the date on which the last required FTC notice of the early termination of the waiting period provided by the HSR Act or such applicable waiting periods have expired with no further action required of either Party, and (ii) the day on which the last of the certificates required by Sections 7.1(c) and 7.2(c) has been delivered by one Party to the other or on such other date as may be mutually agreed upon in writing by the Parties (the "Closing Date") at the offices of Eli Lilly and Company, Lilly Corporate Center, Indianapolis, Indiana. Each Party hereby agrees to use its commercially reasonable best efforts to deliver the certificate described herein to the other in a timely manner.     (b) If the closing of the transactions contemplated hereby will not have taken place on or before [*] after the Effective Date, or such later date as will be mutually agreed to in writing by Lilly and InterMune, because the conditions described in Sections 7.1 and/or 7.2, above, have not been satisfied or waived, then Lilly and InterMune agree to discuss in good faith which substantive terms set forth in this Agreement or any document attached hereto need to be modified as a result [*] 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. 18 -------------------------------------------------------------------------------- of the delay in such closing; provided, however, that neither Party will have an obligation to agree to such modification. Each Party hereby agrees to use commercially reasonable best efforts to consummate the transactions contemplated herein, as modified, on or before the [*] after the Effective Date; provided, however, that if the Parties are unable to close the transactions contemplated hereby within [*] after the Effective Date, or such later date as is mutually agreed to in writing by Lilly and InterMune, then any Party that is not in material default of its obligations under this Agreement (including its obligation to deliver the certificates described in Sections 7.1(c) in the case of Lilly and 7.2(c) in the case of InterMune) may terminate this Agreement upon written notice to the other and each may pursue such other remedies as are available to it at law, in equity or under this Agreement. If neither Party is then in default of its obligations under this Agreement upon delivery of such termination notice, then this Agreement will terminate and neither Party will have liability to the other with respect to such termination. In all other circumstances, the parties may each pursue such remedies as are available to it at law, in equity or under this Agreement. ARTICLE 8 CONFIDENTIALITY 8.1Confidential Information.  The Parties agree that, at all times during the term of this Agreement and for a ten (10)-year period following its expiration or earlier termination, the Receiving Party will keep completely confidential, will not publish or otherwise disclose and will not use directly or indirectly for any purpose other than as contemplated by this Agreement any such Confidential Information of the Disclosing Party, whether such Confidential Information was received by the Receiving Party prior to, on or after the Effective Date. 8.2Disclosure.  Subject to Section 8.1, above, each Party may disclose and, with respect only to Section 8.2(g), below, use, Confidential Information to the extent that such disclosure and, with respect only to Section 8.2(g), below, use, is:     (a) made in response to a valid order or subpoena of a court of competent jurisdiction or other governmental body of a country or any political subdivision thereof of competent jurisdiction; provided, however, that the Receiving Party will first have given notice to the Disclosing Party and given the Disclosing Party a reasonable opportunity to quash such order or subpoena and to obtain a protective order requiring that the Confidential Information and documents that are the subject of such order or subpoena be held in confidence by such court or governmental body or, if disclosed, be used only for purposes for which the order or subpoena was issued; provided further, however, that if a disclosure order or subpoena is not quashed or a protective order is not obtained, the Confidential Information disclosed in response to such court or governmental order or subpoena will be limited to that information that is legally required to be disclosed in such response to such court or governmental order or subpoena;     (b) otherwise required by law, in the opinion of legal counsel to the Receiving Party as expressed in an opinion letter in form and substance reasonably satisfactory to the Disclosing Party, which will be provided to the Disclosing Party at least twenty-four (24) hours prior to the Receiving Party's disclosure of the Confidential Information pursuant to this Section 8.2;     (c) made by the Receiving Party to the governmental or regulatory authority as required to obtain or maintain marketing approval for the Product, provided that reasonable effort will be taken to ensure confidential treatment of such information;     (d) made by the Receiving Party to a Third Person as may be necessary or useful in connection with the manufacture, development and commercialization of the Product, provided that the Receiving Party will in each case obtain from the proposed Third Person recipient a written confidentiality agreement containing confidentiality obligations no less onerous than those set forth in this Section; [*] 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. 19 --------------------------------------------------------------------------------     (e) made by the Receiving Party to a United States or foreign tax authority;     (f)  made by the Receiving Party to its Representatives; provided, however, that: (i) each such Representative has a need to know such Confidential Information for purposes of this Agreement, (ii) the Receiving Party informs each Representative receiving Confidential Information of its confidential nature, and (iii) the Receiving Party will be responsible for any breach of this Section 8 by any of its Representatives to the same extent as if the breach were by the Receiving Party; and     (g) made by InterMune or any Representative of InterMune in the filing or publication of patents or patent applications relating to Licensed Patents, Licensed Technology, InterMune Technology or any invention relating to a Compound, including, without limitation, any method of use or manufacture of such Compound, conceived or reduced to practice by InterMune and/or any Representative of InterMune and or any permitted sublicensee of InterMune, to the extent such use or disclosure in the filing or publication of the patent or patent application is reasonably necessary for support of the patent or patent application. 8.3Notification.  The Receiving Party will notify the Disclosing Party immediately, and cooperate with the Disclosing Party as the Disclosing Party may reasonably request, upon the Receiving Party's discovery of any loss or compromise of the Disclosing Party's Confidential Information. 8.4Remedies.  Each Party agrees that the unauthorized use or disclosure of any Confidential Information by the Receiving Party in violation of this Agreement or any other agreement forming a part of this transaction will cause severe and irreparable damage to the Disclosing Party. In the event of any violation of this Article 8, the Receiving Party agrees that the Disclosing Party will be authorized and entitled to obtain from any court of competent jurisdiction injunctive relief, whether preliminary or permanent, without the necessity of proving irreparable harm or monetary damages, as well as any other relief permitted by applicable law. The Receiving Party agrees to waive any requirement that the Disclosing Party post bond as a condition for obtaining any such relief. The rights provided in the immediately preceding sentences will be cumulative and in addition to any other rights or remedies that may be available to Disclosing Party. Nothing in this Section is intended, or should be construed, to limit a Party's right to preliminary and permanent injunctive relief or any other remedy for a breach of any other provision of this Agreement. ARTICLE 9 TERMINATION 9.1Termination.  Anything herein to the contrary notwithstanding, this Agreement may be terminated as follows:     (a)  Expiration.  The term of this Agreement will begin upon the Closing Date and, unless sooner terminated under this Article 9, will continue in full force and effect on a country-by-country basis in the Territory until InterMune and its Permitted Sellers have no remaining Royalty Payment obligations in a specific country under Section 2.3, above. Upon expiration of the Agreement in any country pursuant to this Section, InterMune will have: (i) a fully paid-up, perpetual, irrevocable, exclusive (except as reserved by Lilly under Section 3.2, above) license in the Field with the unrestricted right to grant sublicenses under the Licensed Patents to make, use, offer to sell, sell and import Product in such country, and (ii) a fully paid-up, perpetual, irrevocable, exclusive license in the Field with the right to sublicense subject to Section 3.4, above, under the Licensed Technology to make, have made, use, offer to sell, sell and import Product in such country.     (b)  Termination for Insolvency.  Each Party may immediately terminate this Agreement by providing written notice to the other Party if the other Party is declared insolvent or bankrupt by a court of competent jurisdiction, or a voluntary petition of bankruptcy is filed in any court of competent jurisdiction by the other Party, or the other Party makes or executes any assignment for the benefit of creditors. [*] 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. 20 --------------------------------------------------------------------------------     (c)  Termination for Default.  Either Party may terminate this Agreement because of a material breach or material default of this Agreement by the other Party by giving the other Party prior written notice thereof, specifying in reasonable detail the alleged material breach or material default, and if such alleged material breach or material default continues unremedied for a period of [*] with respect to monetary breaches or defaults after the date of receipt of the notification, or [*] with respect to non-monetary material breaches or material defaults after the date of receipt of the notification or, if the non-monetary material breach or material default reasonably cannot be corrected or remedied within [*] then if the defaulting Party has not in good faith commenced remedying said material breach or material default within said [*] and be diligently pursuing completion of same, then such Party may immediately terminate this Agreement by again providing written notification to the defaulting Party. This Section 9.1(c) will not be exclusive and will not be in lieu of any other remedies available to a Party hereto for any breach or default hereunder on the part of the other Party. Notwithstanding the foregoing, to the extent a material breach or material default of this Agreement by InterMune affects InterMune's performance and Lilly's rights under this Agreement as it relates to one or more jurisdictions, but not all jurisdictions, Lilly may terminate this Agreement in accordance with this Section 9.1(c) as to the affected jurisdiction or jurisdictions only, and in such case this Agreement will remain in full force and effect with respect to the jurisdictions not so affected. 9.2Rights Upon Termination under Section 9.1.     (a)  Lilly's Rights Upon Termination for Insolvency or Default of InterMune.  If Lilly terminates this Agreement under Section 9.1 (b) or (c), above, then the following will take effect:      (i)  Reversion of Licensed Patents and Licensed Technology.  All rights under the Licensed Patents and the Licensed Technology granted by Lilly to InterMune pursuant to Article 3, above, will terminate and all rights granted therein will immediately revert to Lilly with no further notice or action required on Lilly's behalf; provided, however, that if the termination relates only to a specific country, then only the licenses pertaining to such country will revert to Lilly hereunder.     (ii)  Reversion of Product Data Package and Regulatory Documents.  The ownership of the Product Data Package and the Regulatory Documents will immediately revert back to Lilly with no further notice or action required on Lilly's behalf, excepting any notifications of transfer of ownership of such Regulatory Documents to Lilly that may be required by the controlling regulatory authority; provided, however, that if the termination relates only to a specific country, then only the Product Data Package and the Regulatory Documents pertaining to such country will revert to Lilly hereunder. Within [*] after the effective date of termination, InterMune will arrange, at its expense, and with the reasonable assistance of the appropriate and necessary Lilly personnel, to [*] In addition to the above, InterMune will also provide to Lilly within such [*] period any [*] after the Closing Date if [*] would [*]     (iii)  Reversion of Patent Maintenance Responsibilities.  Upon the effective date of the termination of this Agreement, the sole responsibility for preparing, filing, prosecuting and maintaining the Licensed Patents and the Licensed Technology will revert back to Lilly with no further notice or action required on Lilly's behalf; provided, however, that if the termination relates only to a specific country, then only the patent maintenance obligations pertaining to such country will revert to Lilly hereunder. In such case, InterMune will maintain its patent responsibilities for all other Licensed Patents and Licensed Technology.     (iv)  Non-Exclusive License and Access to InterMune Technology.       (A)  Initial Product.  InterMune will grant to Lilly a non-exclusive, world-wide, [*] license, with a right to sublicense, under InterMune Technology to the extent that it relates to Lilly's ability to make, have made, use, offer to sell, sell and import the Initial Product solely in, and for use in, the country or countries in which InterMune's rights to the Initial Product were so terminated. In addition to the license granted under this [*] 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. 21 -------------------------------------------------------------------------------- Section, InterMune also agrees to provide Lilly, at Lilly's expense, reasonable access and reference to, copies of, and use of InterMune Technology, [*] and if Lilly so requests, the [*] to the extent [*] to make, use, offer to sell, sell and import the Initial Product in, and for use in, such country or countries.     (B)  Other Products.  InterMune will also grant to Lilly a non-exclusive, world-wide license, with a right to sublicense, under InterMune Technology to the extent that it relates to Lilly's ability to make, have made, use, offer to sell, sell and import any other Products (namely, any Products other than Initial Product) solely in, and for use in, the country or countries in which InterMune's rights to the Initial Product were so terminated. Such license shall be [*] In addition to the license granted under this Section, InterMune also agrees to provide Lilly, at Lilly's expense, reasonable access and reference to, copies of, and use of InterMune Technology, [*] to the extent [*] to make, use, offer to sell, sell and import such other Products in, and for use in, such country or countries.     (v)  Disposition of Product Inventory Upon Termination.  If Lilly terminates this Agreement after InterMune has obtained a Regulatory Approval for the Initial Product, InterMune will offer to sell to Lilly or its designee, at InterMune's cost as determined by InterMune's records (maintained in accordance with GAAP, consistently applied) for the six (6) months prior to the termination, InterMune's inventory of the Initial Product existing on the date of termination ("InterMune Product Inventory"). InterMune will be entitled to finish manufacturing any work-in-process into the Initial Product, and such newly made Initial Product will be considered InterMune Product Inventory hereunder. If termination of this Agreement relates only to a specific country, the provisions of this Subsection are applicable only to InterMune's Initial Product inventories for the country where such termination occurred.     (b)  InterMune Rights Upon Termination for Insolvency or Default of Lilly.  If InterMune terminates this Agreement under Section 9.1 (b) or (c), above, then (i) the licenses under the Licensed Patents and the Licensed Technology granted by Lilly to InterMune pursuant to Article 3, above, will, unless otherwise terminated pursuant to the terms of this Agreement, remain in full force and effect, and (ii) InterMune's diligence obligations under Section 6.6, above, will terminate. If the termination contemplated in this Section 9.2(b) is due to the default of Lilly, then in addition to the provisions of (i) and (ii), above, [*] set forth in [*] above, will be [*] and [*] 9.3Termination of Sublicenses.  If Lilly terminates this Agreement under Sections 9.1(b) or (c), above, and InterMune has granted sublicenses in accordance herewith, Lilly agrees to continue such terminated sublicensee's license with respect to the Licensed Patents and/or Licensed Technology on terms and conditions [*] from the date of termination unless such sublicensee was in breach of this Agreement or its sublicense with InterMune on the date of such termination, in which event Lilly may terminate such sublicense immediately. 9.4Continuing Obligations.  Termination of this Agreement for any reason will not relieve the Parties of any obligation accruing prior thereto and will be without prejudice to the rights and remedies of either Party with respect to any antecedent breach of the provisions of this Agreement. Without limiting the generality of the foregoing and in addition to the foregoing and the rights upon termination set forth in Section 9.2, no termination of this Agreement, whether by lapse of time or otherwise, will serve to terminate the rights and obligations of the Parties hereto with respect to this Agreement as it relates to the jurisdiction(s) for which this Agreement has not been terminated, and, with respect to those jurisdictions terminated, the rights and obligations of the Parties hereto under Sections 6.7, 6.8, 6.14, 9.2, 9.3 and 9.4 and Articles 2, 8, 10, 11 and 12, and such obligations will survive any such termination. 9.5Non-Exclusive Remedies.  The remedies set forth in this Article 9 or elsewhere in this Agreement will be in addition to, and will not be to the exclusion of, any other remedies available to the Parties at law, in equity or under this Agreement. [*] 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. 22 -------------------------------------------------------------------------------- ARTICLE 10 ASSUMPTION OF LIABILITIES BY INTERMUNE 10.1Assumption of Liabilities by InterMune.  Except as otherwise provided in this Agreement, InterMune hereby assumes and agrees to bear and be responsible for and to perform and satisfy all responsibilities, duties (including, without limitation, compliance with all Applicable Laws), obligations, claims, Damages, liabilities, burdens and problems of any nature whatsoever that arise out of or relate to events occurring after the Closing Date (collectively, the "Obligations") associated directly or indirectly with InterMune's ownership, licensing, operation and/or use of the Licensed Patents, the Licensed Technology, the Product Data Package and the Regulatory Documents, as well as those associated directly or indirectly with the development, manufacturing, distributing, marketing, promoting or selling of the Product that arise out of or relate to events occurring after the Closing Date, including, without limitation, all recalls, all warranty claims and all product liability claims (without regard to the nature of the causes of action alleged or theories of recovery asserted) arising out of or relating to events occurring in connection with Product sold after the Closing Date, except for those Obligations with respect to which Lilly is providing indemnification pursuant to the provisions of Section 11.1 of this Agreement, which Obligations will remain the responsibility of Lilly as set forth herein. All of the foregoing liabilities are hereinafter collectively referred to as the "Assumed Liabilities." Notwithstanding the foregoing, InterMune will not be deemed to, and does not, assume the Excluded Liabilities. ARTICLE 11 INDEMNIFICATION; INSURANCE 11.1Indemnification by Lilly.  Lilly will indemnify, defend and hold InterMune (and its Affiliates, and its and its Affiliates' directors, officers and employees) harmless from and against any and all Damages incurred or suffered by InterMune (and its directors, officers and employees) to the extent caused by or arising out of or in connection with:     (a) any breach of any representation or warranty made by Lilly in this Agreement;     (b) any failure to perform duly and punctually any covenant, agreement or undertaking on the part of Lilly contained in this Agreement; or     (b) any Excluded Liabilities; except to the extent that such Damages are due to the negligence, gross negligence or willful misconduct of InterMune, its Affiliates, or its or its Affiliates' employees, agents or contractors. 11.2Indemnification by InterMune.  InterMune will indemnify, defend and hold Lilly (and its Affiliates and its and its Affiliates' directors, officers and employees) harmless from and against any and all Damages incurred or suffered by Lilly (and its directors, officers and employees) to the extent caused by or arising out of or in connection with:     (a) any breach of any representation or warranty made by InterMune in this Agreement;     (b) any failure to perform duly and punctually any covenant, agreement or undertaking on the part of InterMune contained in this Agreement;     (c) any Assumed Liabilities;     (d) the practice of the Licensed Patents and Licensed Technology by InterMune, its Affiliates, and any permitted sublicensees;     (e) the handling, possession, development, marketing, distribution, promotion, sale or use of the Product by InterMune or a Permitted Seller after the Closing Date including, but not limited to, any Third Person claim alleging breach of any express or implied warranties of merchantability or fitness for a particular purpose or asserting strict liability, except to the extent such Damage is caused by a breach of this Agreement by Lilly; or [*] 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. 23 --------------------------------------------------------------------------------     (f)  InterMune's failure to comply in all material respects with Applicable Laws in connection with the performance of its obligations hereunder; except to the extent that such Damages are due to the negligence, gross negligence or willful misconduct of Lilly, its Affiliates or its or its Affiliates' employees, agents or contractors. 11.3Notice and Opportunity To Defend.  Promptly after receipt by a Party hereto of notice of any claim which could give rise to a right to indemnification pursuant to Section 11.1 or 11.2, above, such Party (the "Indemnified Party") will give the other Party (the "Indemnifying Party") written notice describing the claim in reasonable detail. The failure of an Indemnified Party to give notice in the manner provided herein will not relieve the Indemnifying Party of its obligations under this Article 11, except to the extent that such failure to give notice materially prejudices the Indemnifying Party's ability to defend such claim. The Indemnifying Party will have the right, at its option, to compromise or defend, at its own expense and by its own counsel, any such matter involving the asserted liability of the Party seeking such indemnification; provided, however, that the Indemnifying Party may do so under a reservation of rights with respect to the obligation to indemnify. If the Indemnifying Party will undertake to compromise or defend any such asserted liability, it will promptly (and in any event not less than ten (10) days after receipt of the Indemnified Party's original notice) notify the Indemnified Party in writing of its intention to do so, and the Indemnified Party agrees to cooperate fully with the Indemnifying Party and its counsel in the compromise or defend against any such asserted liability. All reasonable costs and expenses incurred in connection with such cooperation will be borne by the Indemnifying Party subject to the Indemnifying Party's reservation of rights. If the Indemnifying Party elects not to compromise or defend the asserted liability, fails to notify the Indemnified Party of its election to compromise or defend as herein provided, fails to admit its obligation to indemnify under this Agreement with respect to the claim, or, if in the reasonable opinion of the Indemnified Party, the claim could result in the Indemnified Party becoming subject to injunctive relief or relief other than the payment of money damages that could materially adversely affect the ongoing business of the Indemnified Party in any manner, the Indemnified Party will have the right, at its option, to pay, compromise or defend such asserted liability by its own counsel and its reasonable costs, expenses, and any payment made therewith will be included as part of the indemnification obligation of the Indemnifying Party hereunder, subject to the Indemnifying Party's reservation of rights. Notwithstanding the foregoing, neither the Indemnifying Party nor the Indemnified Party may settle or compromise any claim without consent of the other; provided, however, that consent to settlement or compromise will not be unreasonably withheld. In any event, the Indemnified Party and the Indemnifying Party may participate, at their own expense, in the defense of such asserted liability. If the Indemnifying Party chooses to defend any claim, the Indemnified Party will make available to the Indemnifying Party any books, records or other documents within its control that are necessary or appropriate for such defense; provided, however, any such books, records or other documents within the control of the Indemnified Party which are made available to the Indemnifying Party hereunder will be held in strict confidence by the Indemnifying Party and will be disclosed by the Indemnified Party to the Indemnifying Party only to the extent that such books, records or other documents relate to the claim. Notwithstanding anything to the contrary in this Section 11.3, (a) the Party conducting the defense of a claim will (1) keep the other Party informed on a reasonable and timely basis as to the status of the defense of such claim (but only to the extent such other Party is not participating jointly in the defense of such claim), and (2) conduct the defense of such claim in a prudent manner, and (b) the Indemnifying Party will not cease to defend, settle or otherwise dispose of any claim without the prior written consent of the Indemnified Party (which consent will not be unreasonably withheld). 11.4Indemnification Payment Obligation.  Neither Party will incur any indemnification obligations under this Article 11 until [*] at which time [*] such Damages will be covered. The provisions of [*] 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. 24 -------------------------------------------------------------------------------- this Section will not limit or otherwise affect the obligations of any Indemnifying Party under any other Section. 11.5Indemnification Payment Adjustments.  The amount of any Damages for which indemnification is provided under this Article 11 will be reduced by the insurance proceeds received and any other amount recovered, if any, by the Indemnified Party with respect to any Damages; provided, however, that the foregoing will not under any circumstances reduce the Damages for which either Party is obligated to indemnify the other to the extent the insurance proceeds received result from a self-insurance program; provided further, however, that an Indemnified Party will not be subject to an obligation to pursue an insurance claim relating to any Damages for which indemnification is sought hereunder. To the extent the preceding sentence is applicable, if any Indemnified Party will have received any payment pursuant to this Article 11 with respect to any Damages and will subsequently have received insurance proceeds or other amounts with respect to such Damages, then such Indemnified Party will pay to the Indemnifying Party an amount equal to the difference (if any) between (a) the sum of the amount of those insurance proceeds or other amounts received and the amount of the payment by such Indemnifying Party pursuant to this Article 11 with respect to such Damages and (b) the amount necessary to fully and completely indemnify and hold harmless such Indemnified Party from and against such Damages; provided, however, that in no event will such Indemnified Party have any obligation pursuant to this sentence to pay to such Indemnifying Party an amount greater than the amount of the payment by such Indemnifying Party pursuant to this Article 11 with respect to such Damages. 11.6Indemnification Payment.  Upon the final determination of liability and the amount of the indemnification payment under this Article 11, the Indemnifying Party will pay to the Indemnified Party, within ten (10) business days after such determination, the amount of any claim for indemnification made hereunder. 11.7Limitation of Liability.  IN NO EVENT WILL EITHER PARTY BE LIABLE FOR INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL (INCLUDING LOST PROFITS) OR PUNITIVE DAMAGES, HOWEVER CAUSED OR UPON ANY THEORY OF LIABILITY (INCLUDING A PARTY'S OR ITS AFFILIATES' OWN NEGLIGENCE, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OR THE NEGLIGENCE, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF A PARTY'S OR A PARTY'S AFFILIATES' EMPLOYEES, AGENTS OR CONTRACTORS), ARISING OUT OF THIS AGREEMENT OR THE PERFORMANCE OF, OR THE FAILURE TO PERFORM, ANY OBLIGATION(S) SET FORTH HEREIN. 11.8Insurance.  InterMune will maintain at its own expense, [*] to Lilly, full insurance coverage for InterMune, written on a per occurrence basis, which will [*] including, without limitation, errors and omissions insurance encompassing claims relating to InterMune's performance of its obligations under this Agreement and comprehensive general liability insurance for claims for damages arising from bodily injury (including death) and property damages arising out of acts or omissions of InterMune, [*] Minimum limits of such insurance (not [*]) will be [*] Maintenance of such insurance coverage will not relieve InterMune of any responsibility under this Agreement for damage in excess of insurance limits or otherwise. InterMune will provide Lilly with a certificate from the insurer(s), evidencing such insurance coverage and the insurer's agreement to notify Lilly [*] such insurance coverage. 11.9Survival.  Each Indemnified Party's rights under Article 11 will not be deemed to have been waived or otherwise affected by such Indemnified Party's waiver of the breach of any representation, warranty, agreement or covenant contained in or made pursuant this Agreement, unless such waiver expressly and in writing also waives any or all of the Indemnified Party's right under Article 11. [*] 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. 25 -------------------------------------------------------------------------------- ARTICLE 12 MISCELLANEOUS 12.1   Successors and Assigns.  This Agreement will be binding upon and will inure to the benefit of the Parties hereto and their respective successors and assigns; provided, however, that neither Lilly nor InterMune may assign this Agreement without the prior written consent of the other, which consent may not be unreasonably withheld or delayed. No assignment of this Agreement or of any rights hereunder will relieve the assigning Party of any of its obligations or liability hereunder. 12.2   Notices.  Unless otherwise stated in this Agreement as to the method of delivery, all notices or other communications required or permitted to be given hereunder will be in writing and will be deemed to have been duly given if delivered by hand, courier, facsimile or if mailed first class, postage prepaid, by registered or certified mail, return receipt requested (such notices will be deemed to have been given on the date delivered in the case of hand delivery or delivery by courier, on the date set forth in the confirmation sheet in the case of facsimile delivery, and on the date of post mark in the case of delivery by mail) as follows:     If to Lilly, as follows:         Eli Lilly and Company     Lilly Corporate Center     Indianapolis, Indiana 46285     Facsimile: [*]     Attn: Executive Vice President, Pharmaceutical Products     With a copy to:         Eli Lilly and Company     Lilly Corporate Center     Indianapolis, Indiana 46285     Facsimile: [*]     Attn: General Counsel     If to InterMune, as follows:         InterMune, Inc.     3280 Bayshore Boulevard     Brisbane, California 94005     Facsimile: [*]     Attn: Senior Vice President of Corporate Development     With a copy to:         InterMune, Inc.     3280 Bayshore Boulevard     Brisbane, California 94005     Facsimile: [*]     Attn: General Counsel     or in any case to such other address or addresses as hereafter will be furnished in a written notice as provided in this Section 12.2 by any Party hereto to the other Party. [*] 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. 26 -------------------------------------------------------------------------------- 12.3   Waiver.  Any term or provision of this Agreement may be waived at any time by the Party entitled to the benefit thereof only by a written instrument executed by such Party. No delay on the part of Lilly or InterMune in exercising any right, power or privilege hereunder will operate as a waiver thereof, nor will any waiver on the part of either Lilly or InterMune of any right, power or privilege hereunder operate as a waiver of any other right, power or privilege hereunder nor will any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. 12.4   Entire Agreement.  This Agreement, including the exhibits and schedules attached hereto and the certificates delivered in connection herewith and therewith constitute the entire agreement between the Parties with respect to the subject matter hereof and supersede all prior agreements or understandings of the Parties relating thereto, including that certain Confidential Disclosure Agreement, dated as of August 1, 2001. 12.5   Amendment.  This Agreement may be modified or amended only by written agreement of the Parties hereto signed by authorized representatives of the Parties. 12.6   Counterparts.  This Agreement may be executed in any number of counterparts, each of which will be deemed an original but all of which together will constitute a single instrument. 12.7   Governing Law.  This Agreement will be governed and construed in accordance with the laws of the State of New York excluding any choice of law rules that may direct the application of the law of another state. 12.8   Captions.  All section titles or captions contained in this Agreement and in any exhibit, schedule or certificate referred to herein or annexed to this Agreement are for convenience only, will not be deemed a part of this Agreement and will not affect the meaning or interpretation of this Agreement. 12.9   No Third-Person Rights.  No provision of this Agreement will be deemed or construed in any way to result in the creation of any rights or obligation in any Person not a Party to this Agreement. 12.10   Construction.  This Agreement will be deemed to have been drafted by both Lilly and InterMune and will not be construed against either Party as the draftsperson hereof. 12.11   Appendices, Exhibits, Schedules and Certificates.  Each appendix, exhibit, schedule and certificate attached hereto is incorporated herein by reference and made a part of this Agreement. 12.12   No Joint Venture.  Nothing contained herein will be deemed to create any joint venture or partnership between the Parties hereto, and, except as is expressly set forth herein, neither Party will have any right by virtue of this Agreement to bind the other Party in any manner whatsoever. 12.13   Severability.  If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective while this Agreement remains in effect, the legality, validity and enforceability of the remaining provisions will not be affected thereby. [*] 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. 27 -------------------------------------------------------------------------------- 12.14   Change of Control.  If InterMune believes that any Third Person has made a good faith offer to acquire Control of InterMune, and if such Third Person potential acquirer has a [*] in place, then InterMune will promptly notify Lilly thereof and will arrange a meeting among the Third Person potential acquirer, InterMune and Lilly. At such meeting the Third Person potential acquirer and InterMune will discuss in detail the effect, if any, of the possible acquisition on the future sales and marketing of the Initial Product. If Lilly, in its reasonable, good faith judgment after due consideration of all information provided by InterMune and/or such Third Person potential acquirer, believes that its financial interest in the Initial Product would be materially adversely impacted by such acquisition then Lilly will notify InterMune in writing within ten (10) business days of the last of such meetings, that in the event of the closing of such acquisition, Lilly intends [*] by written notice as set forth in the following sentence. If, notwithstanding [*] the closing of the potential acquisition [*] will have the right, in [*] this Agreement [*] and Lilly will be entitled to the rights, and InterMune (or the acquiring corporation) will be bound by the obligations, set forth in [*] above. 12.15   Force Majeure.  If either Party is prevented from complying, either totally or in part, with any of the terms or provisions set forth herein by reason of force majeure, including, by way of example and not of limitation, fire, flood, explosion, storm, strike, lockout or other labor dispute, riot, war, rebellion, accidents, acts of God, acts of governmental agencies or instrumentalities, failure of suppliers or any other similar or dissimilar cause, in each case to the extent beyond its reasonable control, said Party will provide written notice of same to the other Party. Said notice will be provided within [*] of the occurrence of such event and will identify the requirements of this Agreement or such of its obligations as may be affected, and, subject to Section 2.8, to the extent so affected, said obligations will be suspended during the period of such disability. The Party prevented from performing hereunder will use reasonable efforts to remove such disability and will continue performance whenever such causes are removed. The Party so affected will give to the other Party a good faith estimate of the continuing effect of the force majeure condition and the duration of the affected Party's nonperformance. If the period of any previous actual nonperformance of Lilly because of Lilly force majeure conditions plus the anticipated future period of Lilly nonperformance because of such conditions will exceed an aggregate of [*], InterMune may terminate this Agreement immediately by written notice to Lilly. If the period of any previous actual nonperformance of InterMune because of InterMune force majeure conditions plus the anticipated future period of InterMune nonperformance because of such conditions will exceed an aggregate of [*], Lilly may terminate this Agreement immediately by written notice to InterMune. When such circumstances as those contemplated herein arise, the Parties will discuss in good faith, what, if any, modification of the terms set forth herein may be required in order to arrive at an equitable solution. 12.16   Independent Contractors. It is understood and agreed that the Parties are independent contractors and are engaged in the operation of their own respective businesses, and neither Party is to be considered the agent of the other Party for any purpose whatsoever. Neither Party will have any authority to enter into any contracts, assume any obligations, create any liability, nor make any warranties or representations for or on behalf of the other Party. [*] 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. 28 -------------------------------------------------------------------------------- 12.17   Dispute Resolution.  If any dispute arises relating to this Agreement, prior to instituting any lawsuit, arbitration or other dispute resolution process on account of such dispute, the Parties will attempt in good faith to settle such dispute first by negotiation and consultation between themselves, including referral of such dispute to the Chief Executive Officer of InterMune and the Executive Vice President, Pharmaceutical Products, of Lilly. If said executives are unable to resolve such dispute or agree upon a mechanism to resolve such dispute within sixty (60) days of the first written request for dispute resolution under this Section 12.17, the Parties may then either consider other forms of alternative dispute resolution as a means of resolving any such dispute or institute litigation and seek such remedies as may be available.       [*] 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. 29 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.     ELI LILLY AND COMPANY     By:   /s/ JOHN C. LECHLEITER            --------------------------------------------------------------------------------     Printed Name:   John C. Lechleiter         --------------------------------------------------------------------------------     Title:   Executive Vice President         --------------------------------------------------------------------------------     INTERMUNE, INC.     By:   /s/ JOHN J. WULF            --------------------------------------------------------------------------------     Printed Name:   John J. Wulf         --------------------------------------------------------------------------------     Title:   Sr. Vice President & Corporate Development         -------------------------------------------------------------------------------- [*] 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. 30 -------------------------------------------------------------------------------- Asset Purchase and License Agreement by and between Eli Lilly and Company and InterMune, Inc. Schedule 1.23 InterMune's Exchange Rate Methodology     All payments to be made under this Agreement shall be made in U.S. Dollars. For those sales involving Product which occur outside the United States, the Royalty Payments due on such sales will be calculated on the basis of the local currency sales figures translated into United States Dollars according to InterMune's then current standard currency translation methodology. The methodology employed by InterMune shall be that methodology used by InterMune in the translation of its foreign currency operating results for external reporting and shall be consistent with United States GAAP. [*] 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. 31 -------------------------------------------------------------------------------- Asset Purchase and License Agreement by and between Eli Lilly and Company and InterMune, Inc. Schedule 4.6 Material Contracts [*] [*] 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. 32 -------------------------------------------------------------------------------- Asset Purchase and License Agreement by and between Eli Lilly and Company and InterMune, Inc. Schedule 6.7 Press Release Date: August 20, 2001—Final Draft C For Release: Immediately Refer to:   (317) 276-5795—Terra L. Fox (Lilly)     (415) 466-2269—Tim Lynch (InterMune)     (212) 362-1200—Lilian Stern (Stern Investor Relations for InterMune)     (415) 746-3220—Steve Cragle (Edelman Public Relations for InterMune) Lilly Licenses Oritavancin Antibiotic to InterMune InterMune To Acquire Worldwide Rights To Develop, Manufacture and Commercialize Product With Broad Treatment Potential     INDIANAPOLIS, Ind., and BRISBANE, Calif. —- Eli Lilly and Company (NYSE: LLY) and InterMune, Inc. (NASDAQ: ITMN) announced today that InterMune has acquired rights to oritavancin from Lilly. Oritavancin is a semi-synthetic glycopeptide antibiotic in development for the treatment of a broad range of resistant gram-positive bacterial infections.     The agreement provides InterMune with exclusive worldwide rights to develop, manufacture and commercialize oritavancin. Upon closing, Lilly will receive a $50 million payment related to completion of certain near-term activities by the companies. Lilly will also receive significant milestone and royalty payments upon successful development and commercialization by InterMune. The transaction is expected to close next month upon approval by the U.S. Federal Trade Commission under the Hart-Scott-Rodino Act.     "Licensing oritavancin to InterMune will allow Lilly to maximize the full potential of this innovative compound while the company redirects its internal resources to other late-stage pipeline opportunities," said John C. Lechleiter, Ph.D., executive vice president, pharmaceutical products and corporate development for Lilly. "InterMune is an ideal partner as it has a strong focus in the development and commercialization of infectious disease products."     "Oritavancin adds another major Phase III product to InterMune's growing pipeline," said W. Scott Harkonen, M.D., president and chief executive officer of InterMune. "The market opportunity for oritavancin is significant due to the increasing problem of drug resistance in difficult-to-treat diseases. We are pleased to have the opportunity to complete the clinical development of oritavancin and bring this potential breakthrough treatment to market."     Oritavancin is in Phase III clinical trials for the treatment of complicated skin and skin-structure infections, in Phase II for bacteremia and may be effective against other serious gram-positive bacterial infections, including those resistant to conventional antibiotics. Oritavancin's novel mechanism of action kills harmful and resistant strains of bacteria unlike other agents that merely suppress them. These gram-positive bacterial infections in the aggregate affect more than seven million patients worldwide in the hospital setting alone. [*] 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. 33 --------------------------------------------------------------------------------     InterMune is developing and commercializing innovative products for the treatment of serious pulmonary and infectious diseases and cancer. InterMune markets its lead product, Actimmune®, for the treatment of chronic granulomatous disease (CGD) and severe, malignant osteopetrosis. InterMune is currently conducting a Phase III clinical trial with Actimmune® for the treatment of idiopathic pulmonary fibrosis (IPF). InterMune is also conducting or planning clinical trials of Actimmune® for the treatment of multidrug-resistant tuberculosis (MDR TB), atypical mycobacterial infections, ovarian cancer, cryptococcal meningitis, cystic fibrosis, liver fibrosis and non-Hodgkin's lymphoma. InterMune recently acquired rights to Infergen®, which is marketed in the United States and Canada for the treatment of chronic hepatitis C infections. InterMune also markets Amphotec® worldwide for the treatment of invasive aspergillosis.     Lilly, a leading innovation-driven corporation, is developing a growing portfolio of best-in-class pharmaceutical products by applying the latest research from its own worldwide laboratories and from collaborations with eminent scientific organizations. Headquartered in Indianapolis, Ind., Lilly provides answers—through medicines and information—for some of the world's most urgent medical needs. Additional information about Lilly is available at www.lilly.com.     Except for the historical information contained herein, this press release contains certain forward-looking statements by InterMune concerning the possible development and commercial benefits of novel products for use against human disease that involve risks and uncertainties. All forward-looking statements and other information included in this press release are based on information available to InterMune as of the date hereof, and InterMune assumes no obligation to update any such forward-looking statements or information. InterMune's actual results could differ materially from those described in InterMune's forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under the heading "Risk Factors" and the risks and factors discussed in InterMune's most recent periodic reports (i.e., 10-K, 10K/A, 10-Q, and 8-K) filed with the SEC. In sum, these significant risks include, but are not limited to: the uncertainty of success of InterMune's efforts in research, development, commercialization, product acceptance, third-party manufacturing and capital raising; the uncertain, lengthy and expensive regulatory process; uncertainties associated with obtaining and enforcing patents important to its business; being an early-stage company and relying on third-party payors' reimbursement policies; competition from other products; and product liability lawsuits. # # # [*] 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. 34 -------------------------------------------------------------------------------- Asset Purchase and License Agreement by and between Eli Lilly and Company and InterMune, Inc. Exhibit A Licensed Patents [*] [*] 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. 35 -------------------------------------------------------------------------------- Asset Purchase and License Agreement by and between Eli Lilly and Company and InterMune, Inc. Exhibit B Product Data Package Regulatory 1.United States investigational new drug application (IND) #51,292 2.[*] Medical     The study reports and all related documents for the following completed clinical pharmacology studies: ARRA   Safety and Pharmacokinetics of Single Intravenous Doses of LY333328 Diphosphate in Healthy Volunteers ARRK   Safety and Pharmacokinetics of Single Intravenous Doses of LY333328 Diphosphate in Healthy Volunteers ARRB   Safety and Pharmacokinetics of Multiple Intravenous Doses of LY333328 Diphosphate in Healthy Volunteers ARRN   Effect of Multiple Intravenous Doses of LY333328 on the QTc Interval in Healthy Subjects ARRO   Effect of Single Intravenous Doses of LY333328 on the QTc Interval in Healthy Subjects 101N   Bioanalytical Clinical Report: Investigation of Safety and Pharmacokinetics after Single Intravenous Infusion of LY333328 Diphosphate in Healthy Adult Male Volunteers. The Determination of LY333328 in Human Plasma Using LC/MS/MS Detection (Japanese Study)     Final study reports and related study documents (including investigators' files, clinical trial SAS data sets, case report forms, and protocols) from the following completed clinical studies: ARRL   LY333328 in Patients with Skin/Skin-Structure Infections ARRC   LY333328 Dose Escalation in Patients with Gram-Positive Bacteremia ARRD   LY333328 vs. Vancomycin in Skin/Skin-Structure Infections     Investigators' files and related study documents (including clinical trial SAS data sets of data to date, case report forms, and protocols) from the following active clinical studies: ARRM   LY333328 Dose Finding in Subjects with S aureus Bacteremia ARRI   LY333328 Versus Vancomycin in Complicated Skin/Skin-Structure Infections [*] 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. 36 -------------------------------------------------------------------------------- Toxicology [* -------------------------------------------------------------------------------- *] [* -------------------------------------------------------------------------------- *] [*] 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. 37 -------------------------------------------------------------------------------- [* -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- *] -------------------------------------------------------------------------------- [*] 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. 38 -------------------------------------------------------------------------------- [* -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- *] -------------------------------------------------------------------------------- [*] 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. 39 -------------------------------------------------------------------------------- [* -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 3. *] [*] 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. 40 -------------------------------------------------------------------------------- Asset Purchase and License Agreement by and between Eli Lilly and Company and InterMune, Inc. Exhibit C 1.Product Inventory [* *] 2.A.otientalis Cell Banks [* *] [*] 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. 41 -------------------------------------------------------------------------------- Asset Purchase and License Agreement by and between Eli Lilly and Company and InterMune, Inc. Exhibit D Development Plan Overview [*] [*] 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. 42 -------------------------------------------------------------------------------- [*] [*] 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. 43 -------------------------------------------------------------------------------- Asset Purchase and License Agreement by and between Eli Lilly and Company and InterMune, Inc. Exhibit E Commercialization and Marketing Plan COMMERCIAL ACTIVITY: [*] [*] 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. 44 -------------------------------------------------------------------------------- QuickLinks ASSET PURCHASE AND LICENSE AGREEMENT RECITALS ARTICLE 1 DEFINITIONS ARTICLE 2 CONSIDERATION ARTICLE 3 ASSIGNMENT AND LICENSE OF RIGHTS ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF LILLY ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF INTERMUNE ARTICLE 6 ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES ARTICLE 7 CONDITIONS PRECEDENT TO THE CLOSING; CLOSING DATE ARTICLE 8 CONFIDENTIALITY ARTICLE 9 TERMINATION ARTICLE 10 ASSUMPTION OF LIABILITIES BY INTERMUNE ARTICLE 11 INDEMNIFICATION; INSURANCE ARTICLE 12 MISCELLANEOUS Asset Purchase and License Agreement by and between Eli Lilly and Company and InterMune, Inc. Schedule 1.23 InterMune's Exchange Rate Methodology Asset Purchase and License Agreement by and between Eli Lilly and Company and InterMune, Inc. Schedule 4.6 Material Contracts Asset Purchase and License Agreement by and between Eli Lilly and Company and InterMune, Inc. Schedule 6.7 Press Release Lilly Licenses Oritavancin Antibiotic to InterMune Asset Purchase and License Agreement by and between Eli Lilly and Company and InterMune, Inc. Exhibit A Licensed Patents Asset Purchase and License Agreement by and between Eli Lilly and Company and InterMune, Inc. Exhibit B Product Data Package Asset Purchase and License Agreement by and between Eli Lilly and Company and InterMune, Inc. Exhibit C Asset Purchase and License Agreement by and between Eli Lilly and Company and InterMune, Inc. Exhibit D Development Plan Overview Asset Purchase and License Agreement by and between Eli Lilly and Company and InterMune, Inc. Exhibit E Commercialization and Marketing Plan COMMERCIAL ACTIVITY

TABLE OF CONTENTS Exhibit 10.12 EXECUTION COPY -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- U.S. $250,000,000 THREE-YEAR CREDIT AGREEMENT Dated as of April 30, 2001 Among CNA FINANCIAL CORPORATION as Borrower THE BANKS NAMED HEREIN as Banks SALOMON SMITH BARNEY INC. as Advisor, Sole Arranger and Book Manager FLEET NATIONAL BANK as Syndication Agent THE CHASE MANHATTAN BANK as Documentation Agent and CITIBANK, N.A. as Administrative Agent -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   T A B L E   O F   C O N T E N T S TABLE OF CONTENTS ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. SECTION 1.02. Computation of Time Periods. SECTION 1.03. Accounting Terms. ARTICLE 2 AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The Advances. SECTION 2.02. Making the Advances. SECTION 2.03. Certain Fees. SECTION 2.04. Reduction and Extensions of the Commitments. SECTION 2.05. Repayment. SECTION 2.06. Interest. SECTION 2.07. Additional Interest on Eurodollar Rate Advances. SECTION 2.08. Interest Rate Determinations; Changes in Rating Systems. SECTION 2.09. Voluntary Conversion and Continuation of Advances. SECTION 2.10. Prepayments of Advances. SECTION 2.11. Increased Costs. SECTION 2.12. Illegality. SECTION 2.13. Payments and Computations. SECTION 2.14. Taxes. SECTION 2.15. Set-Off; Sharing of Payments, Etc. SECTION 2.16. Right to Replace a Lender. SECTION 2.17. Evidence of Indebtedness. ARTICLE 3 CONDITIONS OF LENDING SECTION 3.01. Conditions Precedent to Initial Borrowing. SECTION 3.02. Conditions Precedent to Each Borrowing. ARTICLE 4 REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower. ARTICLE 5 COVENANTS OF THE BORROWER SECTION 5.01. Covenants. ARTICLE 6 EVENTS OF DEFAULT SECTION 6.01. Events of Default. ARTICLE 7 THE ADMINISTRATIVE AGENT SECTION 7.01. Authorization and Action. SECTION 7.02. Administrative Agent's Reliance, Etc. SECTION 7.03. Citibank and Affiliates. SECTION 7.04. Lender Credit Decision. SECTION 7.05. Indemnification. SECTION 7.06. Successor Administrative Agent. SECTION 7.07. Advisor, Sole Arranger and Book Manager, Syndication Agent and Documentation Agent. ARTICLE 8 MISCELLANEOUS SECTION 8.01. Amendments, Etc. SECTION 8.02. Notices, Etc. SECTION 8.03. No Waiver; Remedies. SECTION 8.04. Costs, Expenses and Indemnification. SECTION 8.05. Binding Effect. SECTION 8.06. Assignments and Participations. SECTION 8.07. Governing Law; Submission to Jurisdiction. SECTION 8.08. Severability. SECTION 8.09. Execution in Counterparts. SECTION 8.10. Survival. SECTION 8.11. Waiver of Jury Trial. SECTION 8.12. Confidentiality. SECTION 8.13. Nonliability of Lenders. SECTION 8.14. Existing Credit Agreement. SCHEDULES SCHEDULE I - Banks and Commitments SCHEDULE II - Existing Liens EXHIBITS EXHIBIT A - Form of Notice of Borrowing EXHIBIT B - Form of Assignment and Acceptance EXHIBIT C - Form of Opinion of Counsel of the Borrower EXHIBIT D - Form of Opinion of Special New York Counsel to the Administrative Agent EXHIBIT E - Form of Compliance Certificate of Borrower Three Year Credit Agreement [c63821ex10-12.htm] No. 364-Day Credit Agreement [c63821ex10-13.htm] -------------------------------------------------------------------------------- TABLE OF CONTENTS -------------------------------------------------------------------------------- TABLE OF CONTENTS           CREDIT AGREEMENT dated as of April 30, 2001 among CNA FINANCIAL CORPORATION, a corporation organized under the laws of Delaware (the “Borrower”), the banks (each a “Bank” and, collectively, the “Banks”) listed on the signature pages hereof, and CITIBANK, N.A., a national banking association, as administrative agent (in such capacity, the “Administrative Agent”).           The Borrower has requested that the Lenders (as hereinafter defined) make loans to it in an aggregate principal amount not exceeding $250,000,000 at any one time outstanding for the general corporate purposes of the Borrower (including to support the Borrower's commercial paper program and to finance Acquisitions), and the Lenders are prepared to make such loans upon the terms and conditions hereof.  Accordingly, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS           SECTION 1.01.  Certain Defined Terms.  As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):           “Acquisition” means any transaction, or any series of related transactions, consummated after the date of this Agreement, by which the Borrower and/or any of its Subsidiaries (i) acquires any Person or all or substantially all of the assets of any Person, whether through the purchase of assets, merger or otherwise, (ii) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) control of at least a majority of Voting Stock of another Person or (iii) directly or indirectly acquires control of a 50% ownership interest in any partnership, joint venture or other entity, or of any general partnership (or equivalent) interest in any such entity.           “Administrative Questionnaire” means an administrative questionnaire in a form supplied by the Administrative Agent.           “Advance” means an advance by a Lender to the Borrower as part of a Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance.           “Affiliate” means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person.           “Aggregate Specified Indebtedness” means the aggregate Specified Indebtedness of the Borrower and its Subsidiaries determined on a Consolidated basis in accordance, subject to the provisos of the definition of Specified Indebtedness, with GAAP; provided that Qualifying SPV Indebtedness of all Qualifying SPVs (and Contingent Obligations of the Borrower and its Subsidiaries which are not Qualifying SPVs in respect of such Qualifying SPV Indebtedness) shall only be included in the calculation of Aggregate Specified Indebtedness at any time to the extent that it constitutes Qualifying SPV Net Indebtedness at such time.           “Anniversary Date” has the meaning specified in Section 2.04(b)(i). -------------------------------------------------------------------------------- TABLE OF CONTENTS           “Annual Statement” means the annual statutory financial statement of any Insurance Subsidiary required to be filed with the insurance commissioner (or similar authority) of its jurisdiction of incorporation, which statement shall be in the form required by such Insurance Subsidiary's jurisdiction of incorporation or, if no specific form is so required, in the form of financial statements recommended by the NAIC to be used for filing annual statutory financial statements and shall contain the type of information recommended by the NAIC to be disclosed therein, together with all exhibits or schedules filed therewith.           “Applicable Facility Fee Rate” means, for any Rating Level Period, the rate set forth below opposite the reference to such Rating Level Period: Rating Level Period -------------------------------------------------------------------------------- Applicable Facility Fee Rate -------------------------------------------------------------------------------- Rating Level 1 Period 0.100% Rating Level 2 Period 0.125% Rating Level 3 Period 0.150% Rating Level 4 Period 0.175% Rating Level 5 Period 0.250% Each change in the Applicable Facility Fee Rate resulting from a Rating Level Change shall be effective on the effective date of such Rating Level Change.           “Applicable Lending Office” means, with respect to any Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance.           “Applicable Margin” means:           (a)      for any Advance that is a Base Rate Advance, 0.000% per annum; and           (b)      for any Advance that is a Eurodollar Rate Advance for any Rating Level Period, the rate set forth below opposite the reference to such Rating Level Period: Rating Level Period -------------------------------------------------------------------------------- Applicable Margin (p.a.) -------------------------------------------------------------------------------- Rating Level 1 Period 0.325% Rating Level 2 Period 0.375% Rating Level 3 Period 0.475% Rating Level 4 Period 0.575% Rating Level 5 Period 0.750% Each change in the Applicable Margin resulting from a Rating Level Change shall be effective on the effective date of such Rating Level Change.           “Applicable Utilization Fee Rate” means, for any Rating Level Period, the rate set forth below opposite the reference to such Rating Level Period: Rating Level Period -------------------------------------------------------------------------------- Applicable Utilization Fee Rate -------------------------------------------------------------------------------- Rating Level 1 Period 0.125% Rating Level 2 Period 0.125% Rating Level 3 Period 0.125% Rating Level 4 Period 0.125% Rating Level 5 Period 0.125% Each change in the Applicable Utilization Fee Rate resulting from a Rating Level Change shall be effective on the effective date of such Rating Level Change.           “Assignment and Acceptance” means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the form of Exhibit B hereto.           “Base Rate” means, for any period, a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the highest of:           (a)      the rate of interest announced publicly by Citibank in New York, New York from time to time as Citibank's base rate; and           (b)      1/2 of one percent per annum above the Federal Funds Rate for such period. -------------------------------------------------------------------------------- TABLE OF CONTENTS           “Base Rate Advance” means an Advance which bears interest at rates based upon the Base Rate.           “Bloomberg Page BBAL” means the display designated as page “BBAL” on the Bloomberg Service or, if unavailable, such other page as may replace page “BBAL” on that service or such other service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association Interest Settlement Rates for U.S. dollar deposits.           “Borrowing” means a borrowing consisting of simultaneous Advances of the same Type made by each of the Lenders pursuant to Section 2.01.           “Business Day” means a day of the year on which banks are not required or authorized to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advance, on which dealings are carried on in the London interbank market.           “CAC” means Continental Assurance Company, an Illinois insurance company.           “Capitalized Lease” of a Person means any lease of Property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with GAAP.           “Capitalized Lease Obligations” of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with GAAP.           “CCC” means Continental Casualty Company, an Illinois insurance company.           “Change in Control” means Loews shall cease to own beneficially and of record, free and clear of all Liens, other encumbrances, or voting agreements, restrictions or trusts of any kind at least 51% of the outstanding shares of capital stock of the Borrower on a fully diluted basis and shares representing the right to elect a majority of the directors of the Borrower; provided, however, that a Change in Control shall not be deemed to have occurred at any time (a) Loews owns more of the capital stock of the Borrower than any other Person (including Persons acting in concert with such Person), (b) Loews owns beneficially and of record, free and clear of all Liens, other encumbrances or voting agreements, restrictions or trusts of any kind at least 35% of the outstanding shares of capital stock of the Borrower on a fully diluted basis and (c) a majority of the members of the Borrower's Board of Directors are officers or designees of Loews or the Borrower or any Significant Subsidiary. -------------------------------------------------------------------------------- TABLE OF CONTENTS           “Chase” means The Chase Manhattan Bank.           “CIC” means Continental Insurance Company, a New Hampshire insurance company.           “Citibank” means Citibank, N.A., a national banking association.           “Code” means the Internal Revenue Code of 1986, as amended from time to time.           “Commitment” has the meaning specified in Section 2.01(a).           “Commitment Termination Date” means April 30, 2004 or, in the case of any Lender whose Commitment is extended pursuant to Section 2.04(b), the date to which such Commitment is extended; provided in each case that if any such date is not a Business Day, the relevant Commitment Termination Date of such Lender shall be the immediately preceding Business Day.  When the term “Commitment Termination Date” is used herein without reference to any particular Lender, such term shall, in such instance, be deemed to be a reference to the latest Commitment Termination Date of any of the Lenders then in effect hereunder.           “Consolidated” refers to the consolidation of accounts of the Borrower and its Subsidiaries in accordance with GAAP.           “Consolidated Net Worth” means, at any date of determination, the amount of consolidated common and preferred shareholders' equity of the Borrower and its Subsidiaries, determined as at such date in accordance with GAAP; provided, however, that unrealized appreciation and depreciation of securities which are classified as available for sale and are subject to FASB 115 shall be excluded when computing Consolidated Net Worth; provided further that for purposes of calculating Consolidated Net Worth, such calculation shall (a) include Qualifying SPV Net Asset Value of all Qualifying SPVs in lieu of Qualifying SPV Asset Value for such Qualifying SPVs and (b) subtract Qualifying SPV Net Indebtedness of all Qualifying SPVs in lieu of Qualifying SPV Indebtedness for such Qualifying SPVs.           “Contingent Obligation” of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the financial obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement, take-or-pay contract or application for a Letter of Credit, but excluding (a) the endorsement of instruments for deposit or collection in the ordinary course of business and (b) obligations incurred by any Insurance Subsidiary in the ordinary course of its financial guaranty or other business. -------------------------------------------------------------------------------- TABLE OF CONTENTS           “Continuation”, “Continue” and “Continued” each refers to a continuation of Eurodollar Rate Advances from one Interest Period to the next Interest Period pursuant to Section 2.09(b).           “Controlled Group” means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code.           “Convert”, “Conversion” and “Converted” each refers to a conversion of Advances of one Type into Advances of the other Type pursuant to Section 2.08 or Section 2.09(a).           “Default” means an event that, with notice or lapse of time or both, would become an Event of Default.           “Domestic Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Domestic Lending Office” in the Administrative Questionnaire of such Bank or in the Assignment and Acceptance pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent.           “Effective Date” means the earliest date as of which the conditions precedent to effectiveness set forth in Section 3.01 shall have been satisfied or waived.           “Eligible Assignee” means:           (a)      a Lender and any Affiliate of such Lender (excluding any such Affiliate primarily engaged in the insurance or mutual fund business);           (b)      a commercial bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $1,000,000,000;           (c)      a savings bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $500,000,000;           (d)      a commercial bank organized under the laws of any other country which is a member of the OECD or a political subdivision of any such country, and having total assets in excess of $1,000,000,000; and           (e)      a finance company or other financial institution or fund (whether a corporation, partnership or other Person, but excluding any corporation, partnership or other Person primarily engaged in the insurance or mutual fund business) which is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business, and having total assets in excess of $500,000,000. -------------------------------------------------------------------------------- TABLE OF CONTENTS           “Environmental Law” means any federal, state or local governmental law, rule, regulation, order, writ, judgment, injunction or decree relating to pollution or protection of the environment or the treatment, storage, disposal, release, threatened release or handling of Hazardous Materials, including, without limitation, Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act, the Hazardous Materials Transportation Act, the Clean Water Act, the Toxic Substances Control Act, the Clean Air Act, the Safe Drinking Water Act, the Atomic Energy Act and the Federal Insecticide, Fungicide and Rodenticide Act, in each case, as amended from time to time.           “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder.           “Eurocurrency Liabilities” has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.           “Eurodollar Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Eurodollar Lending Office” in the Administrative Questionnaire of such Lender or in the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent.           “Eurodollar Rate” means, for any Interest Period for each Eurodollar Rate Advance, the rate per annum (rounded upward, if necessary, to the nearest whole multiple of 1/16 of 1% per annum) appearing on Bloomberg Page BBAL as of 11:00 A.M. (London time) on the date (as to any Interest Period, the “Determination Date”) that is two Business Days before the first day of such Interest Period, as LIBOR for a period equal to such Interest Period.  In the event that Bloomberg Page BBAL shall cease to report such LIBOR or, in the reasonable judgement of the Majority Lenders, shall cease to accurately reflect such LIBOR, then the “Eurodollar Rate” with respect to such Interest Period for such Eurodollar Rate Advance shall be the rate per annum equal to the average of the rate per annum at which deposits in U.S. dollars are offered by the principal office of each of the Reference Banks in London, England to leading banks in the London interbank market at 11:00 A.M. (London time) on the Determination Date in an amount substantially equal to such Reference Bank's Eurodollar Rate Advance comprising part of the related Borrowing and for a period equal to such Interest Period.  The Eurodollar Rate for any Interest Period for each Eurodollar Rate Advance shall be determined by the Administrative Agent on the basis of the applicable rate appearing on Bloomberg Page BBAL as aforesaid (or the applicable rates furnished to and received by the Administrative Agent from the Reference Banks) on the Determination Date for such Interest Period, subject, however, to the provisions of Section 2.08. -------------------------------------------------------------------------------- TABLE OF CONTENTS           “Eurodollar Rate Advance” means an Advance which bears interest at rates based upon the Eurodollar Rate.           “Eurodollar Rate Reserve Percentage” of any Lender for any Interest Period for any Eurodollar Rate Advance means the reserve percentage applicable during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for such Lender with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period.           “Events of Default” has the meaning specified in Section 6.01.           “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.           “Excluded Representations” means the representations and warranties set forth in clause (v) of  Section 4.01(e) and in Section 4.01(f).           “Existing Credit Agreement” means the Amended and Restated Credit Agreement dated as of July 26, 1996 among the Borrower, the lenders party thereto and The First National Bank of Chicago, as administrative agent, as amended and/or restated through the date hereof.           “Existing Commitment Termination Date” has the meaning specified in Section 2.04(b)(i).           “Exposure” means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Advances.           “Facility Fee” has the meaning specified in Section 2.03(a).           “Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a 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 the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.           “Fleet” means Fleet National Bank.           “GAAP” means generally accepted accounting principles in the United States of America as in effect from time to time.           “Governmental Authority” means the federal government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government including, without limitation, any board of insurance, insurance department or insurance commissioner.           “Hazardous Materials” means (a) petroleum or petroleum products, natural or synthetic gas, asbestos in any form that is or could become friable, and radon gas, (b) any substances defined as or included in the definition of “hazardous substances”, “hazardous wastes”, “hazardous materials”, “extremely hazardous wastes”, “restricted hazardous wastes”, “toxic substances”, “toxic pollutants”, “contaminants” or “pollutants”, or words of similar meaning and regulatory effect, under any Environmental Law and (c) any other substance exposure to which is regulated under any Environmental Law.           “Hostile Acquisition” means an Acquisition that has not been approved by the board of directors of the target company prior to the commencement of a tender offer, proxy contest or the like in respect thereof.           “Indebtedness” of a Person means, without duplication, such Person's (a) obligations for borrowed money, (b) obligations representing the deferred purchase price of Property or services (excluding accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (c) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from Property now or hereafter owned or acquired by such Person, (d) obligations which are evidenced by notes, acceptances, or similar instruments, (e) Capitalized Lease Obligations, (f) net Rate Hedging Obligations, (g) Contingent Obligations, (h) obligations for which such Person is obligated pursuant to or in respect of a Letter of Credit and (i) repurchase obligations or liabilities of such Person with respect to accounts, notes receivable or securities sold by such Person (but excluding the obligations -------------------------------------------------------------------------------- TABLE OF CONTENTS of any Insurance Subsidiary in respect of the repurchase of securities pursuant to Repurchase Agreements or the lending of securities pursuant to securities lending arrangements, in each case, entered into in the ordinary course of business).           “Insurance Regulatory Authority” means, for the Borrower or any Insurance Subsidiary, the insurance department or similar administrative authority or agency located in the state in which the Borrower or such Insurance Subsidiary is domiciled.           “Insurance Subsidiary” means a Subsidiary of the Borrower which is engaged in any insurance business. -------------------------------------------------------------------------------- TABLE OF CONTENTS           “Interest Period” means, with respect to any Eurodollar Rate Advance, the period beginning on the date such Eurodollar Rate Advance is made or Continued, or Converted from a Base Rate Advance, and ending on the last day of the period selected by the Borrower pursuant to the provisions below.  The duration of each Interest Period shall be one, two, three or six months, as the Borrower may, upon notice received by the Administrative Agent not later than 12:00 P.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select; provided that:           (i)       the Borrower may not select any Interest Period for any Lender that ends after the Commitment Termination Date in effect for such Lender;           (ii)      each Interest Period that begins 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           (iii)     whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day.           “Invested Assets” means, as of the end of any calendar year, the sum of total investments, cash and cash equivalents, accrued investment income and receivables for securities sold, all calculated consistently with the calculation of such items in the audited consolidated balance sheet of the Borrower and its Subsidiaries for such calendar year.           “Lenders” means the Banks listed on the signature pages hereof and each Person that shall become a party hereto pursuant to Sections 8.06(a), (b) and (c).           “Letter of Credit” of a Person means a letter of credit or similar instrument which is issued upon the application of such Person or upon which such Person is an account party or for which such Person is in any way liable.           “LIBOR” means the rate at which deposits in U.S. dollars are offered to leading banks in the London interbank market.           “License” means any license, certificate of authority, permit or other authorization which is required to be obtained from the Governmental Authority in connection with the operation, ownership or transaction of insurance business.           “Lien” means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement having substantially the same effect as a lien, including, without limitation, the lien or retained security title of a conditional vendor. -------------------------------------------------------------------------------- TABLE OF CONTENTS           “Loews” means Loews Corporation, a Delaware corporation.           “Majority Lenders” means, at any time, Lenders having Exposures and unused Commitments representing more than 50% of the sum of the total Exposures and unused Commitments at such time.           “Margin Stock” means margin stock within the meaning of Regulation U.           “Material Adverse Effect” means a material adverse effect on (i) the business, condition (financial or otherwise), results of operations or prospects of the Borrower and its Subsidiaries, taken as a whole, (ii) the legality, validity or enforceability of this Agreement or (iii) the ability of the Borrower to pay and perform its obligations hereunder.           “Moody's” means Moody's Investors Service, Inc. and its successors.           “Moody's Rating” means, at any time, the rating of the Borrower's unsecured, unguaranteed senior long-term debt obligations then outstanding most recently announced by Moody's.           “Multiemployer Plan” means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement to which the Borrower or any member of the Controlled Group is a party to which more than one employer is obligated to make contributions.           “Municipal Bond” means direct obligations of, and obligations for which the timely payment of principal of and interest is fully and expressly guaranteed by, any state, local government, municipality or other political subdivision of any state of the United States of America.           “NAIC” means the National Association of Insurance Commissioners or any successor thereto, or in lieu thereof, any other association, agency or other organization performing advisory, coordination or other like functions among insurance departments, insurance commissions and similar Governmental Authorities of the various states of the United States of America toward the promotion of uniformity in the practices of such Governmental Authorities.           “Notice of Borrowing” has the meaning specified in Section 2.02(a).           “OECD” means the Organization for Economic Cooperation and Development.           “PBGC” means the Pension Benefit Guaranty Corporation or any successor.           “Permitted Securitization Transaction” shall mean any Securitization Transaction provided that the aggregate “capital”, facility limit or other principal equivalent amount of such Securitization Transactions which the Borrower and its Subsidiaries may enter into (measured in the case of revolving Securitization Transactions by the maximum capital, facility limit or other principal equivalent amount which may be outstanding at any time) shall not exceed at any time 10 percent of the Invested Assets of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP as of the end of the preceding calendar year. -------------------------------------------------------------------------------- TABLE OF CONTENTS           “Person” means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof.           “Plan” means an employee pension benefit plan, as defined in Section 3(2) of ERISA, maintained, sponsored or contributed to by the Borrower or any of its Subsidiaries or, with respect to such a plan that is subject to Title IV of ERISA, by any member of the Controlled Group.           “Property” of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person.           “Qualifying SPV” means any Person which is formed by the Borrower as a special purpose entity for the primary purpose of holding Qualifying SPV Assets in the ordinary course of investment activities and issuing Indebtedness secured by such Qualifying SPV Assets.           “Qualifying SPV Asset Value” means the fair market value of all Qualifying SPV Assets.           “Qualifying SPV Assets” means Municipal Bonds and other financial assets which are owned by a Qualifying SPV.           “Qualifying SPV Indebtedness” means Indebtedness for borrowed money of all Qualifying SPVs.           “Qualifying SPV Net Asset Value” means, at any time of calculation, the excess, if any, at such time of (a) Qualifying SPV Asset Value over (b) Qualifying SPV Indebtedness.           “Qualifying SPV Net Indebtedness” means, at any time of calculation, the excess, if any, at such time of (a) Qualifying SPV Indebtedness over (b) Qualifying SPV Asset Value.           “Quarterly Statement” means the quarterly statutory financial statement of any Insurance Subsidiary required to be filed with the insurance commissioner (or similar authority) of its jurisdiction of incorporation, which statement shall be in the form required by such Insurance Subsidiary's jurisdiction of incorporation or, if no specific form is so required, in the form of financial statements recommended by the NAIC to be used for filing quarterly statutory financial statements and shall contain the type of information recommended by the NAIC to be disclosed therein, together with all exhibits or schedules filed therewith. -------------------------------------------------------------------------------- TABLE OF CONTENTS           “Rate Hedging Obligations” of a Person means any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants, and (b) any and all cancellations, buybacks, reversals, terminations or assignments of any of the foregoing.           “Rating Level Change” means a change in the Moody's Rating or the Standard & Poor's Rating (other than as a result of a change in the rating system of such rating agency) that results in the change from one Rating Level Period to another, which Rating Level Change shall be effective on the date on which the relevant change in such rating is first announced by Moody's or Standard & Poor's, as the case may be.           “Rating Level Period” means a Rating Level 1 Period, a Rating Level 2 Period, a Rating Level 3 Period, a Rating Level 4 Period or a Rating Level 5 Period; provided that:           (i)  “Rating Level 1 Period” means a period during which the Moody's Rating is at or above A2 or the Standard & Poor's Rating is at or above A;           (ii)  “Rating Level 2 Period” means a period that is not a Rating Level 1 Period during which the Moody's Rating is at or above A3 or the Standard & Poor's Rating is at or above A-;           (iii)  “Rating Level 3 Period” means a period that is not a Rating Level 1 Period or a Rating Level 2 Period during which Moody's Rating is at or above Baa1 or the Standard & Poor's Rating is at or above BBB+;           (iv)  “Rating Level 4 Period” means a period that is not a Rating Level 1 Period, a Rating Level 2 Period or a Rating Level 3 Period during which the Moody's Rating is at or above Baa2 or the Standard & Poor's Rating is at or above BBB; and -------------------------------------------------------------------------------- TABLE OF CONTENTS           (v)  “Rating Level 5 Period” means a period that is not a Rating Level 1 Period, a Rating Level 2 Period, a Rating level 3 Period or a Rating Level 4 Period, during which the Moody's Rating is at or above Baa3 and the Standard & Poor's Rating is at or above BBB-; and provided further that if the Moody's Rating and the Standard & Poor's Rating differ by more than one rating level, then the Rating Level Period shall be one Rating Level Period higher than the Rating Level Period resulting from the application of the lower of such ratings (for which purpose Rating Level Period 1 is the highest Rating Level Period and Rating Level 5 is the lowest Rating Level Period).           “Receivables” means accounts receivable, premiums, reinsurance payments or other present or future rights to payment.           “Receivables Related Assets” shall mean in connection with any Securitization Transaction the collective reference to (a) any rights arising under the documentation governing or relating to such Receivables covered by such Securitization Transaction (including rights in respect of Liens securing such Receivables and other credit support in respect of such Receivables), (b) any proceeds of such Receivables and any lockboxes or accounts in which such proceeds are deposited, (c) spread accounts and other similar accounts (and any amounts on deposit therein) established in connection with such securitization or asset-backed financing and (d) any warranty, indemnity, dilution and other intercompany claim arising out of the documentation evidencing such securitization or asset-backed financing.           “Reference Banks” means the principal London offices of Citibank, Chase and Fleet.           “Register” has the meaning specified in Section 8.06(d).           “Regulations T, U and X” means Regulations T, U and X issued by the Board of Governors of the Federal Reserve System, as from time to time amended.           “Reportable Event” means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC has by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided, however, that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code.           “Repurchase Agreements” means reverse repurchase arrangements with respect to securities and financial instruments. -------------------------------------------------------------------------------- TABLE OF CONTENTS           “Responsible Officer” of the Borrower means the Chief Executive Officer, the Treasurer, the Secretary, any Executive Vice President, any Senior Vice President, any Group Vice President, any Vice President or any Director of the Borrower.           “SAP” means the accounting procedures and practices prescribed or permitted by the applicable Insurance Regulatory Authority.           “Securitization Transaction” means any transaction in which the Borrower or any of its Subsidiaries sells or otherwise transfers an interest in Receivables and Receivables Related Assets to (i) a special purpose entity that borrows against such Receivables and Receivables Related Assets or (ii) sells such Receivables and Receivables Related Assets to one or more third party purchasers.           “Significant Insurance Subsidiary” means any Significant Subsidiary which is an Insurance Subsidiary.           “Significant Subsidiary” of a Person means a “significant subsidiary” as defined in Rule 1-02(w) of Regulation S-X of the Securities and Exchange Commission (17 CFR Part 210).  Unless otherwise expressly provided, all references herein to a “Significant Subsidiary” shall mean a Significant Subsidiary of the Borrower.           “Single Employer Plan” means a Plan subject to Title IV of ERISA maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group, other than a Multiemployer Plan.           “Specified Indebtedness” means (a) Indebtedness for money borrowed and (b) Contingent Obligations in respect of Indebtedness for money borrowed, excluding such Contingent Obligations incurred by any Insurance Subsidiary in the ordinary course of its financial guaranty or other business; provided that there shall be included in any computation of Specified Indebtedness described in (b) the entire principal amount of the Contingent Obligation; provided further that Specified Indebtedness shall not include (i) Indebtedness for money borrowed or (ii) Contingent Obligations, in each case, incurred in connection with any Permitted Securitization Transaction.           “Standard & Poor's” means Standard & Poor's Ratings Service, presently a division of The McGraw-Hill Companies, Inc., and its successors.           “Standard & Poor's Rating” means, at any time, the rating of the Borrower's unsecured, unguaranteed senior long-term debt obligations then outstanding most recently announced by Standard & Poor's.           “Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership, limited liability company or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership, limited liability company or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. -------------------------------------------------------------------------------- TABLE OF CONTENTS           “Substantial Portion” means, with respect to the Property of the Borrower and its Subsidiaries, Property which represents more than 10% of the consolidated assets of the Borrower and its Subsidiaries as would be shown in the consolidated statements of the Borrowers and its Subsidiaries as at the beginning of the twelve-month period ending with the month in which such determination is made.           “Surplus as Regards Policyholders” means, with respect to any Insurance Subsidiary at any time, the surplus as regards policyholders of such Insurance Subsidiary,  as determined in accordance with SAP as at the last day of the fiscal quarter of the Borrower ending on or most recently ended prior to such date.           “Termination Event” means, with respect to a Plan which is subject to Title IV of ERISA, (a) a Reportable Event, (b) the withdrawal of the Borrower or any other member of the Controlled Group from such Plan during a plan year in which the Borrower or any other member of the Controlled Group was a “substantial employer” as defined in Section 4001(a)(2) of ERISA or was deemed such under Section 4068(f) of ERISA, (c) the termination of such Plan, the filing of a notice of intent to terminate such Plan or the treatment of an amendment of such Plan as a termination under Section 4041 of ERISA or (d) the institution by the PBGC of proceedings to terminate such Plan, in each case which could reasonably be expected to have a Material Adverse Effect.           “Type” refers to whether an Advance is a Base Rate Advance or a Eurodollar Rate Advance.           “Unfunded Liabilities” means the amount (if any) by which the present value of all vested and unvested accrued benefits under a Single Employer Plan exceeds the fair market value of assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans using the PBGC actuarial assumptions utilized for purposes of determining the current liability for purposes of such valuation.           “Utilization Fee” has the meaning specified in Section 2.03(b).           “Voting Stock” means, for any Person at any time, the outstanding securities of such Person entitled to vote generally in an election of directors of such Person.           “Wholly-Owned Subsidiary” of a Person means (a) any Subsidiary all of the outstanding voting securities of which (other than directors' qualifying shares) shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (b) any partnership, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a “Wholly-Owned Subsidiary” shall mean a Wholly-Owned Subsidiary of the Borrower. -------------------------------------------------------------------------------- TABLE OF CONTENTS           SECTION 1.02.  Computation of Time Periods.  In this Agreement in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” mean “to but excluding”.           SECTION 1.03.  Accounting Terms.  All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles or statutory accounting principals, as the case may be, consistent with those applied in the preparation of the financial statements referred to in Section 4.01(e). ARTICLE 2 AMOUNTS AND TERMS OF THE ADVANCES           SECTION 2.01.  The Advances.           (a)      Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make Advances to the Borrower from time to time on any Business Day during the period from the Effective Date until the Commitment Termination Date in an aggregate amount not to exceed at any time outstanding the amount set opposite such Lender's name on Schedule I hereto or, if such Lender has entered into an Assignment and Acceptance, set forth for such Lender in the Register, as such amount may be reduced pursuant to Section 2.04(a) (such Lender's “Commitment”).           (b)      Each Borrowing and each Conversion or Continuation thereof (i) shall (except as otherwise provided in Sections 2.08(f) and (g)) be in an aggregate amount not less than $10,000,000 or an integral multiple of $1,000,000 in excess thereof and (ii) shall consist of Advances of the same Type (and, if such Advances are Eurodollar Rate Advances, having the same Interest Period) made, Continued or Converted on the same day by the Lenders ratably according to their respective Commitments.  Within the limits of each Lender's Commitment, the Borrower may from time to time borrow, prepay pursuant to Section 2.10(b) and reborrow under this Section 2.01.           SECTION 2.02.  Making the Advances.           (a)  (i)  Each Borrowing shall be made on notice, given not later than 12:00 P.M. (New York City time) on the third Business Day prior to the date of such Borrowing (in the case of a Borrowing consisting of Eurodollar Rate Advances) or given not later than 12:00 P.M. (New York City time) on the Business Day of such Borrowing (in the case of a Borrowing consisting of Base Rate Advances), by the Borrower to the Administrative Agent, which shall give to each Lender prompt notice thereof. -------------------------------------------------------------------------------- TABLE OF CONTENTS           (ii)      Each such notice of a Borrowing (a “Notice of Borrowing”) shall be in writing in substantially the form of Exhibit A hereto, specifying therein the requested (i) date of such Borrowing, (ii) Type of Advances comprising such Borrowing, (iii) aggregate amount of such Borrowing, and (iv) in the case of a Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for each such Advance.           (iii)     Each Lender shall, before 1:00 P.M. (New York City time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at its address referred to in Section 8.02, in same day funds, such Lender's ratable portion of such Borrowing; provided that, with respect to a Borrowing of a Eurodollar Rate Advance, no Lender having a Commitment Termination Date prior to the last day of the initial Interest Period for such Eurodollar Rate Advance shall participate in such Borrowing.           (iv)     After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article 3, the Administrative Agent will make such funds available to the Borrower at the Administrative Agent's aforesaid address.           (b)      Anything in subsection (a) above to the contrary notwithstanding, the Borrower may select Eurodollar Rate Advances for any Borrowing only in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof.           (c)      Each Notice of Borrowing shall be irrevocable and binding on the Borrower.  In the case of any Borrowing which the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, cost or expense (excluding loss of profit) reasonably incurred by such Lender as a result of any failure to make such Borrowing (including, without limitation, as a result of any failure to fulfill, on or before the date specified in such Notice of Borrowing, the applicable conditions set forth in Article 3) and the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing.  A certificate as to the amount of such losses, costs and expenses, submitted to the Borrower and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error.           (d)      Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's ratable portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with subsection (a) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount.  If and to the extent that such Lender shall not have so made such ratable portion available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand (but without duplication) such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to Advances comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate.  If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender's Advance as part of such Borrowing for purposes of this Agreement (and such Advance shall be deemed to have been made by such Lender on the date on which such amount is so repaid to the Administrative Agent). -------------------------------------------------------------------------------- TABLE OF CONTENTS           (e)      The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve the other Lenders of their obligations hereunder to make an Advance on the date of such Borrowing, and no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing.           (f)       Notwithstanding anything in this Agreement to the contrary, no Lender whose Commitment Termination Date falls prior to the last day of any Interest Period for any Eurodollar Rate Advance (a “Terminating Lender”) shall participate in such Advance.  Without limiting the generality of the foregoing, no Terminating Lender shall (i) participate in a Borrowing of any Eurodollar Rate Advance having an initial Interest Period ending after such Lender's Commitment Termination Date, (ii) have any outstanding Eurodollar Rate Advance Continued for a subsequent Interest Period if such subsequent Interest Period would end after such Lender's Commitment Termination Date or (iii) have any outstanding Base Rate Advance Converted into a Eurodollar Rate Advance if such Eurodollar Rate Advance would have an initial Interest Period ending after such Lender's Commitment Termination Date.  If any Terminating Lender has outstanding a Eurodollar Rate Advance that cannot be Continued for a subsequent Interest Period pursuant to clause (ii) above or has outstanding a Base Rate Advance that cannot be Converted into a Eurodollar Rate Advance pursuant to clause (iii) above, such Lender's ratable share of such Eurodollar Rate Advance (in the case of said clause (ii)) shall be repaid by the Borrower on the last day of its then current Interest Period and such Lender's ratable share of such Base Rate Advance (in the case of said clause (iii)) shall be repaid by the Borrower on the day on which the Advances of Lenders unaffected by said clause (iii) are so Converted.           SECTION 2.03.  Certain Fees.           (a)      Facility Fee.  The Borrower agrees to pay to the Administrative Agent for the account of each Lender a facility fee (the “Facility Fee”) on the average daily amount (whether used or unused) of such Lender's Commitment from the date hereof (in the case of each Bank) and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender (in the case of each such Lender) until the Commitment Termination Date of such Lender at a rate per annum equal to the Applicable Facility Fee Rate.  The Facility Fee shall be payable quarterly in arrears on the last Business Day of each March, June, September and December and, for each Lender, on the Commitment Termination Date of such Lender. -------------------------------------------------------------------------------- TABLE OF CONTENTS           (b)      Utilization Fee.  For each day on which the aggregate principal amount of Advances outstanding exceeds 50% of the aggregate Commitments, the Borrower agrees to pay to the Administrative Agent for the account of each Lender a utilization fee (the “Utilization Fee”) on the aggregate principal amount of the Advances of such Lender outstanding on such day at a rate per annum equal to the Applicable Utilization Fee Rate.  The Utilization Fee will be payable in respect of each Advance on each date on which interest is payable on such Advance, as specified in Section 2.06(a) hereof.           (c)      Administrative Agent's Fee.  The Borrower agrees to pay to the Administrative Agent, for the Administrative Agent's own account, an administrative agency fee at the times and in the amounts heretofore agreed between the Borrower and the Administrative Agent.           SECTION 2.04.  Reduction and Extensions of the Commitments.           (a)      Commitment Reductions.           (i)       The Commitment of each Lender shall be automatically reduced to zero on the Commitment Termination Date of such Lender.           (ii)      In addition, the Borrower shall have the right, upon at least three Business Days' notice to the Administrative Agent, to terminate in whole or reduce ratably in part the unused portions of the respective Commitments of the Lenders; provided that the aggregate amount of the Commitments of the Lenders shall not be reduced to an amount which is less than the aggregate principal amount of the Advances then outstanding; and provided further that each partial reduction shall be in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof.  Once reduced or terminated, the Commitments may not be reinstated.           (b)      Commitment Extensions.           (i)       The Borrower may, by notice to the Administrative Agent (which shall promptly notify the Lenders) not more than 60 days and not less than 45 days prior to each anniversary of the date hereof (each such date, an “Anniversary Date”), request that each Lender extend such Lender's Commitment Termination Date to the date falling one year after the Commitment Termination Date then in effect for such Lender hereunder (the “Existing Commitment Termination Date”).           (ii)      Each Lender, acting in its sole and individual discretion, shall, by notice to the Administrative Agent given not more than 30 days immediately prior to such Anniversary Date but in any event no later than the date (the “Notice Date”) 20 days prior to such Anniversary Date, advise the Administrative Agent whether or not such Lender agrees to such extension (and each Lender that determines not to so extend its Commitment Termination Date (a “Non-Extending Lender”) shall notify the Administrative Agent (which shall notify the other Lenders) of such fact promptly after such determination (but in any event no later than the Notice Date) and any Lender that does not so advise the Administrative Agent on or before the Notice Date shall be deemed to be a Non-Extending Lender.  The election of any Lender to agree to such extension shall not obligate any other Lender to so agree. -------------------------------------------------------------------------------- TABLE OF CONTENTS           (iii)     The Administrative Agent shall notify the Borrower of each Lender's determination under this Section 2.04(b) no later than the date 15 days prior to such Anniversary Date (or, if such date is not a Business Day, on the next preceding Business Day).           (iv)     The Borrower shall have the right on or before any Existing Commitment Termination Date to replace each Non-Extending Lender with, and add as “Lenders” under this Agreement in place thereof, one or more Eligible Assignees (each, an “Additional Commitment Lender”) with the approval of the Administrative Agent (which approval shall not be unreasonably withheld), each of which Additional Commitment Lenders shall have entered into an agreement in form and substance satisfactory to the Borrower and the Administrative Agent pursuant to which such Additional Commitment Lender shall, effective as of the Existing Commitment Termination Date in effect for each Non-Extending Lender, undertake a Commitment (and, if any such Additional Commitment Lender is already a Lender, its Commitment shall be in addition to such Lender's Commitment hereunder on such date); provided that prior to replacing any Non-Extending Lender with any Additional Commitment Lender, the Borrower shall have given each Lender which has agreed to extend its Commitment Termination Date an opportunity to increase its Commitment by all or a portion of the Non-Extending Lenders' Commitments.           (v)      If (and only if) the total of the Commitments of the Lenders that have agreed so to extend their Commitment Termination Date and the additional Commitments of the Additional Commitment Lenders shall be more than 50% of the aggregate amount of the Commitments in effect immediately prior to an Anniversary Date, then, effective as of the such Anniversary Date, the Commitment Termination Date of each Extending Lender and of each Additional Commitment Lender shall be extended to the date falling one year after the Existing Commitment Termination Date in effect for such Extending Lenders and such Additional Commitment Lenders (except that, if such date is not a Business Day, such Commitment Termination Date as so extended shall be the next preceding Business Day) and each Additional Commitment Lender shall thereupon become a “Lender” for all purposes of this Agreement.           (vi)     Notwithstanding the foregoing, the extension of the Commitment Termination Date pursuant to this Section 2.04(b) shall be effective with respect to any Lender only if: -------------------------------------------------------------------------------- TABLE OF CONTENTS             (x)      no Default or Event of Default shall have occurred and be continuing on (i) the date of the notice requesting such extension, (ii) the applicable Anniversary Date or (iii) the Existing Commitment Termination Date and the representations and warranties set forth in Section 4.01 shall be true and correct on and as of each of said dates as if made on and as of said dates; and           (y)      the Borrower shall have paid in full all amounts owing to each Non-Extending Lender hereunder on or before the Commitment Termination Date in effect for each such Non-Extending Lender.           SECTION 2.05.  Repayment.  The Borrower shall repay the then unpaid principal amount of each Advance made by each Lender, and each Advance made by such Lender shall mature, on the Commitment Termination Date of such Lender.           SECTION 2.06.  Interest.           (a)      Ordinary Interest.  The Borrower shall pay interest on the unpaid principal amount of each Advance made by each Lender, from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum:           (i)       Base Rate Advances.  While such Advance is a Base Rate Advance, a rate per annum equal to the Base Rate in effect from time to time plus the Applicable Margin for Base Rate Advances as in effect from time to time, payable quarterly in arrears on the last Business Day of each March, June, September and December and on the date such Base Rate Advance shall be Converted or paid in full.           (ii)      Eurodollar Rate Advances.  While such Advance is a Eurodollar Rate Advance, a rate per annum for each Interest Period for such Advance equal to the sum of the Eurodollar Rate for such Interest Period plus the Applicable Margin for Eurodollar Rate Advances as in effect from time to time, payable on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day which occurs at three-month intervals after the first day of such Interest Period, and on each date on which such Eurodollar Rate Advance shall be Continued, Converted or paid in full.           (b)      Default Interest.  Notwithstanding the foregoing, if any Event of Default shall have occurred and be continuing, the Borrower shall pay interest on:           (i)       the unpaid principal amount of each Advance owing to each Lender, payable on demand (and in any event in arrears on the dates referred to in Section 2.06(a)(i) or (a)(ii) above), at a rate per annum equal at all times to two percent (2%) per annum above the rate per annum required to be paid on such Advance pursuant to said Section 2.06(a)(i) or (a)(ii), as applicable; provided that if such Event of Default shall be continuing at the end of any Interest Period for any Eurodollar Rate Advance, such Advance shall forthwith be Converted to a Base Rate Advance bearing interest as aforesaid in this Section 2.06(b)(i); and -------------------------------------------------------------------------------- TABLE OF CONTENTS           (ii)      the amount of any interest, fee or other amount payable hereunder that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable on demand (and in any event in arrears on the date such amount shall be paid in full), at a rate per annum equal at all times to two percent (2%) per annum above the rate per annum required to be paid on Base Rate Advances pursuant to Section 2.06(a)(i) above.           SECTION 2.07.  Additional Interest on Eurodollar Rate Advances.  The Borrower shall pay to each Lender additional interest on the unpaid principal amount of each Eurodollar Rate Advance of such Lender, from the date of such Advance until such principal amount is paid in full, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) the Eurodollar Rate for each Interest Period for such Advance from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such Lender for such Interest Period, payable on each date on which interest is payable on such Advance.  Such additional interest shall be determined by such Lender and notified to the Borrower through the Administrative Agent.           SECTION 2.08. Interest Rate Determinations; Changes in Rating Systems.           (a)      Each Reference Bank agrees, upon the request of the Administrative Agent, to furnish to the Administrative Agent timely information for the purpose of determining each Eurodollar Rate.  If any one or more of the Reference Banks shall not furnish such timely information to the Administrative Agent for the purpose of determining any such interest rate, the Administrative Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks (subject to the provisions set forth in the definition of “Eurodollar Rate” in Section 1.01 and to clause (c) below).           (b)      The Administrative Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rates determined by the Administrative Agent for the purposes of Section 2.06.           (c)      If (1) fewer than two Reference Banks furnish timely information to the Administrative Agent for determining the Eurodollar Rate for any Interest Period for any Eurodollar Rate Advances and (2) the relevant rates do not appear on Bloomberg Page BBAL,           (i)       the Administrative Agent shall forthwith notify the Borrower and the Lenders that the interest rate cannot be determined for such Eurodollar Rate Advances for such Interest Period,           (ii)      each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance, and -------------------------------------------------------------------------------- TABLE OF CONTENTS           (iii)     the obligation of the Lenders to make or Continue, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist.           (d)      If, with respect to any Eurodollar Rate Advances, the Majority Lenders notify the Administrative Agent showing calculations in reasonable detail that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Majority Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Borrower and the Lenders, whereupon:           (i)       each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance, and           (ii)      the obligation of the Lenders to make or Continue, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower and such Lenders that the circumstances causing such suspension no longer exist.           (e)      If the Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of “Interest Period” in Section 1.01, the Administrative Agent will forthwith so notify the Borrower and the Lenders and such Advances will automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances.           (f)       On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $10,000,000, such Advances shall automatically Convert into Base Rate Advances.           (g)      Upon the occurrence and during the continuance of any Event of Default, (x) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (y) the obligation of the Lenders to make or Continue, or to Convert Advances into, Eurodollar Rate Advances shall be suspended.           (h)      If the rating system of either Moody's or Standard & Poor's shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, the Borrower and the Administrative Agent (on behalf of the Lenders) shall negotiate in good faith to amend the references to specific ratings in this Agreement to reflect such changed rating system or the non-availability of ratings from such rating agency (provided that any such amendment to such specific ratings shall in no event be effective without the approval of the Majority Lenders). -------------------------------------------------------------------------------- TABLE OF CONTENTS           SECTION 2.09.  Voluntary Conversion and Continuation of Advances.           (a)      Optional Conversion.  The Borrower may on any Business Day, upon notice given to the Administrative Agent not later than 12:00 P.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Sections 2.08 and 2.12, Convert all or any portion of the outstanding Advances of one Type comprising part of the same Borrowing into Advances of the other Type; provided that (i) any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in an amount not less than the minimum amount specified in Section 2.02(b) and (ii) in the case of any such Conversion of a Eurodollar Rate Advance into a Base Rate Advance on a day other than the last day of an Interest Period therefor, the Borrower shall reimburse the Lenders in respect thereof pursuant to Section 8.04(c).  Each such notice of a Conversion shall, within the restrictions specified above, specify (x) the date of such Conversion, (y) the Advances to be Converted, and (z) if such Conversion is into Eurodollar Rate Advances, the duration of the initial Interest Period for each such Advance.  Each notice of Conversion shall be irrevocable and binding on the Borrower.           (b)      Continuations.  The Borrower may, on any Business Day, upon notice given to the Administrative Agent not later than 12:00 P.M. (New York City time) on the third Business Day prior to the date of the proposed Continuation and subject to the provisions of Sections 2.08 and 2.12, Continue all or any portion of the outstanding Eurodollar Rate Advances comprising part of the same Borrowing for one or more Interest Periods; provided that (i) Eurodollar Rate Advances so Continued and having the same Interest Period shall be in an amount not less than the minimum amount specified in Section 2.02(b) and (ii) in the case of any such Continuation on a day other than the last day of an Interest Period therefor, the Borrower shall reimburse the Lenders in respect thereof pursuant to Section 8.04(c).  Each such notice of a Continuation shall, within the restrictions specified above, specify (x) the date of such Continuation, (y) the Eurodollar Rate Advances to be Continued and (y) the duration of the initial Interest Period (or Interest Periods) for the Eurodollar Rate Advances subject to such Continuation.  Each notice of Continuation shall be irrevocable and binding on the Borrower.           SECTION 2.10.  Prepayments of Advances.           (a)      The Borrower shall have no right to prepay any principal amount of any Advances other than as provided in subsection (b) below.           (b)      The Borrower may, on notice given not later than 12:00 P.M. (New York City time) on the second Business Day prior to the date of the proposed prepayment of Advances (in the case of an Eurodollar Rate Advances) or given not later than 12:00 P.M. (New York City time) on the Business Day of the proposed prepayment of Advances (in the case of Base Rate Advances), stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the outstanding principal amounts of the Advances comprising part of the same Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the principal amount prepaid; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount not less than $10,000,000 or integral multiples of $1,000,000 in excess thereof and (y) in the case of any such prepayment of a Eurodollar Rate Advance on a day other than the last day of an Interest Period therefor, the Borrower shall reimburse the Lenders in respect thereof pursuant to Section 8.04(c). -------------------------------------------------------------------------------- TABLE OF CONTENTS           SECTION 2.11.  Increased Costs.           (a)      If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements included in the Eurodollar Rate Reserve Percentage) in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Advances, then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost.  A certificate as to the amount of such increased cost, submitted to the Borrower and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error.           (b)      If any Lender determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type, then, upon demand by such Lender (with a copy of such demand to the Administrative Agent), the Borrower shall immediately pay to the Administrative Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's commitment to lend hereunder.  A certificate as to such amounts submitted to the Borrower and the Administrative Agent by such Lender shall be conclusive and binding for all purposes, absent manifest error.           SECTION 2.12.  Illegality.  Notwithstanding any other provision of this Agreement, if any Lender shall notify the Administrative Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender or its Eurodollar Lending Office to perform its obligations hereunder to make or Continue Eurodollar Rate Advances or to fund or otherwise maintain Eurodollar Rate Advances hereunder, (i) the obligation of such Lender to make or Continue, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist and (ii) each Eurodollar Rate Advance of such Lender shall convert into a Base Rate Advance at the end of the then current Interest Period for such Eurodollar Rate Advance. -------------------------------------------------------------------------------- TABLE OF CONTENTS           SECTION 2.13.  Payments and Computations.           (a)      The Borrower shall make each payment hereunder without set-off or counterclaim not later than 12:00 P.M. (New York City time) on the day when due in U.S. dollars to the Administrative Agent at its address referred to in Section 8.02 in same day funds.  The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal, interest, Facility Fee or Utilization Fee ratably (other than amounts payable pursuant to Section 2.02(c), 2.11, 2.14 or 8.04(c)) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement.  Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 8.06(d), from and after the effective date specified in such Assignment and Acceptance, the Administrative Agent shall make all payments hereunder in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves.           (b)      All computations of interest based on Citibank's base rate shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be, for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable.  All computations of interest based on the Eurodollar Rate or the Federal Funds Rate and of the Facility Fee and the Utilization Fee shall be made by the Administrative Agent, and all computations of interest pursuant to Section 2.07 shall be made by a Lender, on the basis of a year of 360 days, for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fee is payable.  Each determination by the Administrative Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error.           (c)      Whenever any payment hereunder would be due on a day other than a Business Day, such due date shall be extended to the next succeeding Business Day, and any such extension of such due date shall in such case be included in the computation of payment of interest, Facility Fee or Utilization Fee, as the case may be; provided however that if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day.           (d)      Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender.  If and to the extent that the Borrower shall not have so made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate. -------------------------------------------------------------------------------- TABLE OF CONTENTS           SECTION 2.14.  Taxes.           (a)      Any and all payments by the Borrower hereunder shall be made, in accordance with Section 2.13, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Administrative Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender or the Administrative Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Lender, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”).  If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender or the Administrative Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.14) such Lender or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law.           (b)      In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement (hereinafter referred to as “Other Taxes”).           (c)      The Borrower will indemnify each Lender and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes and Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.14) paid by such Lender or the Administrative Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted.  This indemnification shall be made within 30 days from the date such Lender or the Administrative Agent (as the case may be) makes written demand therefor.  A certificate as to the amount of such Taxes and Other Taxes, submitted to the Borrower and the Administrative Agent by such Lender, shall be conclusive and binding (as between the Borrower, the Lenders and the Administrative Agent) for all purposes, absent manifest error.           (d)      Within 30 days after the date of any payment of Taxes, the Borrower will furnish to the Administrative Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing payment thereof or other proof of payment of such Taxes reasonably satisfactory to the relevant Lender(s).  If no Taxes are payable in respect of any payment hereunder, upon the request of the Administrative Agent the Borrower will furnish to the Administrative Agent, at such address, a statement to such effect with respect to each jurisdiction designated by the Administrative Agent. -------------------------------------------------------------------------------- TABLE OF CONTENTS           (e)      Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement (in the case of each Bank) and on the date of the Assignment and Acceptance pursuant to which it becomes a Lender (in the case of each other Lender), and from time to time thereafter if requested in writing by the Borrower (but only so long as such Lender remains lawfully able to do so), shall provide the Borrower with Internal Revenue Service form W-8BEN or W-8ECI, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States.  If the form provided by a Lender at the time such Lender first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from “Taxes” as defined in Section 2.15(a).           (f)       For any period with respect to which a Lender has failed to provide the Borrower with the appropriate form described in Section 2.14(e) (other than if such failure is due to a change in law occurring subsequent to the date on which a form originally was required to be provided, or if such form otherwise is not required under the first sentence of subsection (e) above), such Lender shall not be entitled to indemnification under Section 2.14(a) or (c) with respect to Taxes imposed by the United States; provided however that should a Lender become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as the Lender shall reasonably request to assist the Lender to recover such Taxes.           (g)      Any Lender claiming any additional amounts payable pursuant to this Section 2.14 shall use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Applicable Lending Office(s) if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter accrue and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender.           SECTION 2.15.  Set-Off; Sharing of Payments, Etc.           (a)  Without limiting any of the obligations of the Borrower or the rights of the Lenders hereunder, if the Borrower shall fail to pay when due (whether at stated maturity, by acceleration or otherwise) any amount payable by it hereunder or under any Note each Lender may, without prior notice to the Borrower (which notice is expressly waived by it to the fullest extent permitted by applicable law), set off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final, in any currency, matured or unmatured) and other obligations and liabilities at any time held or owing by such Lender or any branch or agency thereof to or for the credit or account of the Borrower.  Each Lender shall promptly provide notice of such set-off to the Borrower, provided that failure by such Lender to provide such notice shall not give the Borrower any cause of action or right to damages or affect the validity of such set-off and application. -------------------------------------------------------------------------------- TABLE OF CONTENTS           (b)  If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Advances made by it (other than pursuant to Section 2.02(c), 2.11, 2.14 or 8.04(c)) in excess of its ratable share of payments on account of the Advances obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Advances made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided however that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered.  The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.15 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation.           SECTION 2.16.  Right to Replace a Lender.  If the Borrower is required to make any additional payment pursuant to Section 2.11 or 2.14 to any Lender or if any Lender's obligation to make or Continue, or to Convert Advances into, Eurodollar Rate Advances shall be suspended pursuant to Section 2.12 (in each case, such Lender being an “Affected Person”), the Borrower may elect, if such amounts continue to be charged or such suspension is still effective, to replace such Affected Person as a party to this Agreement; provided that, no Default or Event of Default shall have occurred and be continuing at the time of such replacement; and provided further that, concurrently with such replacement, (i) another financial institution which is an Eligible Assignee and is reasonably satisfactory to the Borrower and the Administrative Agent shall agree, as of such date, to purchase for cash the Advances of the Affected Person pursuant to an Assignment and Acceptance and to become a Lender for all purposes under this Agreement and to assume all obligations (including all outstanding Advances) of the Affected Person to be terminated as of such date and to comply with the requirements of Section 8.06 applicable to assignments, and (ii) the Borrower shall pay to such Affected Person in same day funds on the day of such replacement all interest, fees and other amounts then due and owing to such Affected Person by the Borrower hereunder to and including the date of termination, including without limitation payments due such Affected Person under Section 2.11 and 2.14.           SECTION 2.17.  Evidence of Indebtedness.  (a)  Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Advance made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. -------------------------------------------------------------------------------- TABLE OF CONTENTS           (b)  The Administrative Agent shall maintain accounts in which it shall record (i) the date, amount, Type, interest rate and duration of Interest Period (if applicable) of each Advance made hereunder, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof.           (c)  The entries made in the accounts maintained pursuant to clause (a) or (b) of this Section 2.17 shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Advances in accordance with the terms of this Agreement. ARTICLE 3 CONDITIONS OF LENDING           SECTION 3.01.  Conditions Precedent to Initial Borrowing.  The obligation of each Lender to make an Advance on the occasion of the initial Borrowing is subject to the condition precedent that the Administrative Agent shall have received the following, each (unless otherwise specified below) dated the Effective Date, in form and substance satisfactory to the Administrative Agent and (except for the items in clauses (a), (b), (c) and (d)) in sufficient copies for each Lender:           (a)      Certified copies of (x) the charter and by-laws of the Borrower, (y) the resolutions of the Board of Directors of the Borrower authorizing and approving this Agreement and the transactions contemplated hereby, and (z) all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement.           (b)      A certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign this Agreement and the other documents to be delivered hereunder.           (c)      A certificate from the Secretary of State of the State of Delaware dated a date reasonably close to the date hereof as to the good standing of and charter documents filed by the Borrower.           (d)      A favorable opinion of Jonathan D. Kantor, Esq., in-house counsel to the Borrower, substantially in the form of Exhibit C hereto. -------------------------------------------------------------------------------- TABLE OF CONTENTS           (e)      A favorable opinion of Milbank, Tweed, Hadley & McCloy LLP, special New York counsel to the Administrative Agent, substantially in the form of Exhibit D hereto.           (f)       A certificate of a Responsible Officer of the Borrower certifying that (i) no Default or Event of Default as of the date thereof has occurred and is continuing, and (ii) the representations and warranties contained in Section 4.01 are true and correct on and as of the date thereof as if made on and as of such date.           (g)      Evidence of (x) the termination of the commitment of each lender and (y) the payment by the Borrower of all amounts whatsoever payable to each of the lenders, in each case under the Existing Credit Agreement.           (h)      Such other approvals, opinions and documents relating to this Agreement and the transactions contemplated hereby as the Administrative Agent or any Lender may, through the Administrative Agent, reasonably request.           SECTION 3.02.  Conditions Precedent to Each Borrowing.  The obligation of each Lender to make an Advance on the occasion of each Borrowing (including the initial Borrowing) shall be subject to the further conditions precedent that on the date of such Borrowing the following statements shall be true (and each of the giving of the applicable Notice of Borrowing and the acceptance by the Borrower of the proceeds of such Borrowing shall constitute a representation and warranty by the Borrower that on the date of such Borrowing such statements are true):           (a)      the representations and warranties contained in Section 4.01 (not including, in the case of any Borrowing after the initial Borrowing, the Excluded Representations) are true and correct in all material respects on and as of the date of such Borrowing, before and after giving effect to such Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; and           (b)      No Event of Default or event, which, with the giving of notice or the passage of time or both, would be an Event of Default, has occurred and is continuing, or would result from such Borrowing or from the application of the proceeds. ARTICLE 4 REPRESENTATIONS AND WARRANTIES           SECTION 4.01.  Representations and Warranties of the Borrower.  The Borrower represents, warrants and agrees as follows:           (a)      The Borrower and each of its Significant Subsidiaries (i) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, (ii) is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed and where, in each case, failure so to qualify and be in good standing could have a Material Adverse Effect and (iii) has all requisite corporate power and authority to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. -------------------------------------------------------------------------------- TABLE OF CONTENTS           (b)      The execution, delivery and performance by the Borrower of this Agreement are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene the Borrower's charter, by-laws or other organizational documents, (ii) contravene any contractual restriction binding on the Borrower or (iii) violate any law, rule or regulation (including, without limitation, the Securities Act of 1933 and the Exchange Act and the regulations thereunder, and Regulations U and X issued by the Board of Governors of the Federal Reserve System, each as amended from time to time), or order, writ, judgment, injunction, decree, determination or award.  The Borrower is not in violation of any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or in breach of any contractual restriction binding upon it, except for such violation or breach which would not have a Material Adverse Effect.           (c)      No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required (other than those which have been obtained) for the due execution, delivery and performance by the Borrower of this Agreement.           (d)      This Agreement is a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with their respective terms.           (e)      (i) if available on or prior to the date hereof, the Borrower shall have heretofore furnished to each of the Lenders its unaudited Consolidated balance sheet and statements of earnings, equity and cash flows as at and for the three-month period ended March 31, 2001, and such financial statements fairly present, in all material respects, the Consolidated financial condition and results of operations of the Borrower and its Subsidiaries as at the date thereof and for such three-month period, all in accordance with GAAP (subject, in the case of such financial statements as at March 31, 2001, to normal year-end audit adjustments), (ii) the Borrower has heretofore furnished to each of the Lenders its audited Consolidated balance sheet and statements of earnings, equity and cash flows as at and for the fiscal year ended December 31, 2000, and such financial statements fairly present, in all material respects, the Consolidated financial condition and results of operations of the Borrower and its Subsidiaries as at the date thereof and for such fiscal year, all in accordance with GAAP;  (iii) if available on or prior to the date hereof, the Borrower shall have heretofore furnished to each of the Lenders the Quarterly Statement as of March 31, 2001, of each of CAC, CCC and CIC, as filed, in each case, with the applicable Insurance Regulatory Authority, and such Statements present fairly, in all material respects, such condition and affairs as of such date, in accordance with SAP; (iv) the Borrower has heretofore furnished to each of the Lenders the Annual Statement of each of CAC, CCC and CIC for the fiscal year ended December 31, 2000, as filed, in each case, with the applicable Insurance Regulatory Authority, and such Annual Statements present fairly, in all material respects, the financial condition of CAC, CCC and CIC, as applicable, as at, and the results of operations for the fiscal year ended December 31, 2000, in accordance with SAP as in effect on December 31, 2000; and (v) since December 31, 2000, there has been no material adverse change in the business, condition (financial or otherwise) results of operations or prospects of the Borrower and its Subsidiaries, taken as a whole. -------------------------------------------------------------------------------- TABLE OF CONTENTS           (f)       Other than as disclosed in filings of the Borrower with the Securities and Exchange Commission, there is no action pending or threatened in writing or proceeding affecting the Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator which (i) is reasonably likely to have a Material Adverse Effect or (ii) purports to affect this Agreement or the transactions contemplated hereby.           (g)      The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Advance will be used for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock.  The Borrower is, and after applying the proceeds of each Advance, will be in compliance with its obligations under Section 5.01(b).  If requested by any Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement in conformity with the requirements of Federal Reserve Form U-1 referred to in Regulation U, the statements made in which shall be such, in the opinion of each Lender, as to permit the transactions contemplated hereby in accordance with Regulation U.  No portion of any Advance under this Agreement shall be used by the Borrower in violation of Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System or any other Regulation of such Board, as in effect on the date or dates of such Advance and such use of proceeds.           (h)      The Borrower is not an “investment company”, or a Person “controlled by” an “investment company”, as such terms are defined in the Investment Company Act of 1940, as amended.           (i)       All information that has been made available by the Borrower or any of its representatives to the Administrative Agent or any Lender in connection with the negotiation of this Agreement was, on or as of the dates on which such information was made available, complete and correct in all material respects and did not contain any untrue statement of a material fact or omit to state a fact necessary to make the statements contained therein not misleading in light of the time and circumstances under which such statements were made.  All financial projections that have been prepared by the Borrower and made available to the Administrative Agent or any Lender in connection with the negotiation of this Agreement have been prepared in good faith based upon reasonable assumptions.  There is no fact known to the Borrower (other than matters of a general economic nature) that has had, or could reasonably be expected to have, a Material Adverse Effect and that has not been disclosed herein or in such other documents, certificates and statements furnished to the Lenders for use in connection with the transactions contemplated by this Agreement. -------------------------------------------------------------------------------- TABLE OF CONTENTS           (j)       Neither the Borrower nor any other member of the Controlled Group maintains, or is obligated to contribute to, any Multiemployer Plan or has incurred, or is reasonably expected to incur, any withdrawal liability to any Multiemployer Plan. Each Plan complies in all material respects with all applicable requirements of law and regulations, except where noncompliance would not have a Material Adverse Effect. Neither the Borrower nor any member of the Controlled Group has, with respect to any Plan, failed to make any material contribution or pay any material amount required under Section 412 of the Code or Section 302 of ERISA or the terms of such Plan. The Borrower has not engaged in any prohibited transaction (as defined in Section 4975 of the Code or Section 406 of ERISA) in connection with any Plan which may reasonably be expected to have a Material Adverse Effect. Within the last five years neither the Borrower nor any member of the Controlled Group has engaged in a transaction which resulted in a Single Employer Plan with an Unfunded Liability being transferred out of the Controlled Group. No Termination Event has occurred or is reasonably expected to occur with respect to any Plan which is subject to Title IV of ERISA.           (k)      The Borrower and each of its Subsidiaries is in compliance with all laws, statutes, rules, regulations and orders binding on or applicable to the Borrower (including, without limitation, all Environmental Laws), its Subsidiaries and all of their respective properties, except to the extent failure to so comply could not (either individually or in the aggregate) reasonably be expected to have a Material Adverse Effect.           (l)       There is no indenture, agreement or other contractual arrangement to which the Borrower or any Significant Subsidiary is a party that, directly or indirectly, prohibits or restrains, or has the effect of prohibiting or restraining, or imposing any condition upon, the declaration or payment of dividends or other distributions on any class of stock of any Subsidiary of the Borrower, other than such prohibitions, restraints and conditions which are disclosed in filings of the Borrower with the Securities and Exchange Commission. ARTICLE 5 COVENANTS OF THE BORROWER           SECTION 5.01.  Covenants.  During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing:         (a)      Financial Reporting.  The Borrower will furnish to the Lenders: -------------------------------------------------------------------------------- TABLE OF CONTENTS (i)       As soon as practicable and in any event within 120 days after the close of each of its fiscal years, an audit report which is not qualified as to going concern or access or in any other material respect and which is certified by independent certified public accountants, acceptable to the Lenders, prepared in accordance with GAAP on a consolidated basis for itself and its Subsidiaries, including balance sheets as of the end of such period and related income and cash flow statements accompanied by a certificate of said accountants that, in the course of the examination necessary for their certification of the foregoing, they have obtained no knowledge of any Default or Event of Default in respect of Section 5.01(m) or (n), or if, in the opinion of such accountants, any Default or Event of Default in respect of Section 5.01(m) or (n) shall exist, stating the nature and status thereof. (ii)      As soon as practicable and in any event within 75 days after the close of each quarterly period (other than the fourth quarterly period) of each of its fiscal years, for itself and its Subsidiaries, a consolidated unaudited balance sheet as at the close of each such period and consolidated income and cash flow statements for the period from the beginning of such fiscal year to the end of such quarter, all certified by its chief financial officer. (iii)     Together with the financial statements required by clauses (i) and (ii), a compliance certificate in substantially the form of Exhibit E hereto signed by the chief financial officer of the Borrower showing the calculations necessary to determine compliance with the financial covenants contained in this Agreement and stating that no Default or Event of Default exists, or if any Default or Event of Default exists, stating the nature and status thereof. (iv)     Upon the earlier of (i) ten (10) days after the regulatory filing date or (ii) 75 days after the close of each of the first three fiscal quarters of each fiscal year of each Significant Insurance Subsidiary, copies of the Quarterly Statement of such Significant Insurance Subsidiary, certified by such officers as shall be required by SAP of such Significant Insurance Subsidiary, all such statements to be prepared in accordance with SAP consistently applied through the period reflected therein. (v)      Upon the earlier of (i) fifteen days after the regulatory filing date or (ii) 90 days after the close of each fiscal year of each Significant Insurance Subsidiary, copies of the Annual Statement of such Significant Insurance Subsidiary for such fiscal year, as certified by such officers as shall be required by SAP for such Significant Insurance Subsidiary and prepared on the NAIC annual statement blanks (or such other form as shall be required by the jurisdiction of incorporation of each such Insurance Subsidiary), all such statements to be prepared in accordance with SAP consistently applied throughout the periods reflected therein. -------------------------------------------------------------------------------- TABLE OF CONTENTS (vi)     As soon as available and only to the extent such an audited statement is required to be prepared by any Governmental Authority, a copy of the audited annual statement of each of CCC and CAC on a consolidated basis and CIC on a combined basis (with the other Insurance Subsidiaries in the same insurance pool) for the preceding year, as certified by such officers as shall be required by SAP for such entities and prepared on the form as shall be required by the jurisdictions in which they are filed, all such statements to be prepared in accordance with SAP consistently applied throughout the periods reflected therein and to be certified by independent certified public accountants of recognized national standing reasonably acceptable to the Administrative Agent. (vii)    Within 150 days after the close of each of its fiscal years, annual statutory statements for the Borrower's Insurance Subsidiaries on a consolidated or combined basis, certified by such officers as shall be required by SAP, such statements to be prepared in accordance with SAP consistently applied throughout the periods reflected therein. (viii)    As soon as possible and in any event within 20 days after the Borrower knows that any Termination Event has occurred with respect to any Plan, a statement, signed by the chief financial officer of the Borrower, describing said Termination Event and the action which the Borrower proposes to take with respect thereto. (ix)     Promptly upon the filing thereof, copies of all registration statements and annual, quarterly, monthly or other regular reports which the Borrower or any of its Significant Insurance Subsidiaries files with the Securities and Exchange Commission or any securities exchange. (x)      Such other information (including, without limitation, non-financial information) as the Administrative Agent or any Lender may from time to time reasonably request.           (b)      Use of Proceeds.  The Borrower will, and will cause each Subsidiary to, use the proceeds of the Advances for general corporate purposes (including to support the commercial paper program of the Borrower and to finance Acquisitions); provided that the Borrower will not use any of the proceeds of any Advance for the purpose of financing a Hostile Acquisition; provided further that neither the Administrative Agent nor any Lender shall have any responsibility as to the use of any such proceeds. -------------------------------------------------------------------------------- TABLE OF CONTENTS           (c)      Certain Notices.  The Borrower will give prompt notice in writing to the Administrative Agent and the Lenders of (i) the occurrence of any Default or Event of Default, (ii) any other development, financial or otherwise, relating specifically to the Borrower which could reasonably be expected to have a Material Adverse Effect, (iii) the receipt of any notice from any Governmental Authority of the expiration without renewal, revocation or suspension of, or the institution of any proceedings to revoke or suspend, any License now or hereafter held by any Significant Insurance Subsidiary which is required to conduct insurance business in compliance with all applicable laws and regulations, other than such expiration, revocation or suspension which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, (iv) the receipt of any notice from any Governmental Authority of the institution of any disciplinary proceedings against or in respect of any Significant Insurance Subsidiary, or the issuance of any order, the taking of any action or any request for an extraordinary audit for cause by any Governmental Authority which, if adversely determined, could reasonably be expected to have a Material Adverse Effect, (v) any judicial or administrative order limiting or controlling the insurance business of any Significant Insurance Subsidiary (and not the insurance industry generally) which has been issued or adopted and which could reasonably be expected to have a Material Adverse Effect or (vi) any change in the rating of the unsecured, unguaranteed senior long-term debt obligations of the Borrower by Moody's or S&P.           (d)      Conduct of Business.  The Borrower will, and will cause each Significant Subsidiary to, do all things necessary (if applicable) to remain duly incorporated, validly existing and in good standing as a domestic corporation in its jurisdiction of incorporation and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted except where such failure to remain in good standing or to maintain such authority may not reasonably be expected to have a Material Adverse Effect. The Borrower will cause each Significant Insurance Subsidiary to (a) carry on or otherwise be associated with the business of a licensed insurance carrier and (b) do all things necessary to renew, extend and continue in effect all Licenses which may at any time and from time to time be necessary for such Significant Insurance Subsidiary to operate its insurance business in compliance with all applicable laws and regulations; provided, however, that any such Significant Insurance Subsidiary may withdraw from one or more states as an admitted insurer, change the state of its domicile or fail to keep in effect any License if such withdrawal, change or failure is in the best interests of the Borrower and such Significant Insurance Subsidiary and could not reasonably be expected to have a Material Adverse Effect.           (e)      Taxes.  The Borrower will, and will cause each Subsidiary to, pay when due all material taxes, assessments and governmental charges and levies upon it or its income, profits or Property, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside.           (f)       Insurance.  The Borrower will, and will cause each Significant Subsidiary to, maintain with financially sound and reputable insurance companies insurance on all or substantially all of its Property, or shall maintain self-insurance, in such amounts and covering such risks as is consistent with sound business practice for Persons in substantially the same industry as the Borrower or such Subsidiary, and the Borrower will furnish to any Lender upon request full information as to the insurance carried. -------------------------------------------------------------------------------- TABLE OF CONTENTS           (g)      Compliance with Laws.  The Borrower will, and will cause each Subsidiary to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject (including ERISA and applicable Environmental Laws), except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect.           (h)      Maintenance of Properties.  The Borrower will, and will cause each Significant Subsidiary to, do all things necessary to maintain, preserve, protect and keep its Property in good repair, working order and condition, and make all necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times, except where the failure to so maintain, preserve, protect and repair could not reasonably be expected to have a Material Adverse Effect.           (i)       Inspection.  The Borrower will, and will cause each Subsidiary to, permit the Administrative Agent and the Lenders (coordinated through the Administrative Agent), by their respective representatives and agents, to inspect any of the Property, corporate books and financial records of the Borrower and each Subsidiary, to examine and make copies of the books of accounts and other financial records of the Borrower and each Subsidiary, and to discuss the affairs, finances and accounts of the Borrower and each Subsidiary with, and to be advised as to the same by, their respective officers upon reasonable notice and at such reasonable times and intervals as the Lenders may designate.           (j)       Merger.  The Borrower will not, nor will it permit any Significant Subsidiary to, merge or consolidate with or into any other Person, except that (a) a Significant Subsidiary may merge into the Borrower or a Wholly Owned Subsidiary and (b) the Borrower or any Significant Subsidiary may merge or consolidate with any other Person provided that the Borrower or such Significant Subsidiary shall be the continuing or surviving corporation and, prior to and after giving effect to such merger or consolidation, no Default or Event of Default shall exist.           (k)      Sale of Assets.  The Borrower will not, nor will it permit any Subsidiary to, lease, sell or otherwise dispose of a Substantial Portion of Property of the Borrower and its Subsidiaries on a Consolidated basis to any other Person(s) in any twelve month period; provided, however, that Subsidiaries shall be permitted to sell assets for fair market value in arm's-length transactions (as determined, in transactions out of the ordinary course of business, by the Board of Directors of the selling Subsidiary acting in good faith). -------------------------------------------------------------------------------- TABLE OF CONTENTS           (l)       Liens.  The Borrower will not, nor will it permit any Subsidiary to, create, incur, or suffer to exist any Lien in or on the Property of the Borrower or any of its Subsidiaries, except:     (i)       Liens for taxes, assessments or governmental charges or levies on its Property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are not material and are paid promptly upon receipt of notice of nonpayment, or are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with generally accepted principles of accounting shall have been set aside on its books;     (ii)      Liens imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than 60 days past due or which are being contested in good faith by appropriate proceedings and for which adequate reserves shall have been set aside on its books;     (iii)     Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation, including, without limitation, statutory deposits under applicable insurance laws;     (iv)     Utility easements, building restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interfere with the use thereof in the business of the Borrower or the Subsidiaries;     (v)  Liens existing on the Closing Date and, in the case of Liens upon Property of the Borrower, described in Schedule II hereto;     (vi)  Liens upon the Property of Insurance Subsidiaries incurred in the ordinary course of their business;     (vii)  Liens on Qualifying SPV Assets securing Qualifying SPV Indebtedness, which Qualifying SPV Assets shall have a fair market value not in excess of 25% of the fair market value of the Invested Assets of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP as of the end of the preceding calendar year;     (viii)  Liens on Receivables and Receivables Related Assets in connection with Permitted Securitization Transactions; and     (ix)  Other Liens securing Indebtedness for borrowed money (including Qualifying SPV Indebtedness) not exceeding at any time $500,000,000 in aggregate principal amount. -------------------------------------------------------------------------------- TABLE OF CONTENTS             (m)     Consolidated Capitalization.  The Borrower will maintain at all times a ratio of (a) Aggregate Specified Indebtedness to (b) the sum of (i) Aggregate Specified Indebtedness plus (ii) Consolidated Net Worth of not greater than 0.35 to 1.0.           (n)      Insurance Company Surplus.  The Borrower shall cause the combined Surplus as Regards Policyholders of CCC on a consolidated basis and CIC on a combined basis (with the other Insurance Subsidiaries in the same insurance pool) to be at all times at least equal to $4.5 billion.           (o)      Limitation on Qualifying SPV Assets.  The Borrower will not at any time permit the aggregate fair market value of all Qualifying SPV Assets at such time to exceed 25% of the fair market value of the Invested Assets of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP as of the end of the preceding calendar year. ARTICLE 6 EVENTS OF DEFAULT           SECTION 6.01.  Events of Default.  If any of the following events (“Events of Default”) shall occur and be continuing:           (a)      The Borrower shall fail to pay any principal of any Advance when the same becomes due and payable; or the Borrower shall fail to pay any interest on any Advance or any Facility Fee or Utilization Fee or any other amount payable hereunder when due and such failure remains unremedied for three Business Days; or           (b)      Any representation or warranty made by the Borrower herein or by the Borrower (or any of its officers) in connection with this Agreement shall prove to have been incorrect in any material respect when made or deemed made; or           (c)      (i) The Borrower shall fail to perform or observe any term, covenant or agreement contained in Sections 5.01(b), (c)(i), (j), (k), (l), (m) or (n) or (ii) the Borrower shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed, and such failure remains unremedied for 30 days after notice thereof shall have been given to the Borrower by the Administrative Agent or the Administrative Agent on behalf of any Lender; or           (d)      The Borrower or any of its Subsidiaries shall fail to pay any principal of any other Indebtedness of the Borrower which is outstanding in an aggregate principal amount of at least $20,000,000, or its equivalent in other currencies (in this clause (d) called “Material Indebtedness”), in the aggregate when the same becomes due and payable (whether at scheduled maturity, by required prepayment, acceleration, demand or otherwise); or any other event shall occur or condition shall exist under any agreement or instrument relating to any Material Indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of any Material Indebtedness, or to require the same to be prepaid or defeased (other than by a regularly required payment); or -------------------------------------------------------------------------------- TABLE OF CONTENTS           (e)      The Borrower or any of its Significant Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower or any of its Significant Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against the Borrower or any of its Significant Subsidiaries, such proceeding shall remain undismissed or unstayed for a period of 60 days; or the Borrower or any of its Significant Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (e) (provided that, for purposes of this subsection (e); or           (f)       In connection with the actual or alleged insolvency of any of CAC, CCC or CIC or any other Insurance Subsidiary, any Insurance Regulatory Authority shall appoint a rehabilitator, receiver, custodian, trustee, conservator or liquidator or the like (collectively, a “conservator”) for CAC, CCC, CIC or such other Insurance Subsidiary, or cause possession of all or any substantial portion of the property of CAC, CCC, CIC or such other Insurance Subsidiary to be taken by any conservator (or any Insurance Regulatory Authority shall commence any action to effect any of the foregoing); or           (g)      A Change in Control shall occur; or           (h)      The Borrower or any of its Subsidiaries shall fail within 30 days to pay, bond or otherwise discharge any judgment or order for the payment of money, either singly or in the aggregate, in excess of $20,000,000, which is not stayed on appeal or otherwise being appropriately contested in good faith; or           (i)       The Borrower shall terminate, or the PBGC shall institute proceedings under Title IV of ERISA to terminate, or to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer, any Single Employer Plan having Unfunded Liabilities in excess of $20,000,000; -------------------------------------------------------------------------------- TABLE OF CONTENTS then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrower, declare the obligation of each Lender to make Advances to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrower, declare the Advances, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Advances, 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; provided, however, that in the event of an Event of Default with respect to the Borrower of the kind referred to in clause (e) above or with respect to any of CAC, CCC or CIC of the kind referred to in clause (f) above, (A) the obligation of each Lender to make Advances shall automatically be terminated and (B) the Advances, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. ARTICLE 7 THE ADMINISTRATIVE AGENT           SECTION 7.01.  Authorization and Action.  Each Lender hereby appoints and authorizes the Administrative Agent to take such action as administrative agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto.  As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement or collection of the Advances), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders; provided, however, that the Administrative Agent shall not be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement or applicable law.  The Administrative Agent agrees to give to each Lender prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement.           SECTION 7.02.  Administrative Agent's Reliance, Etc.  Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable to the Lenders for any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct.  Without limitation of the generality of the foregoing, the Administrative Agent: (i) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable to the Lenders for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (ii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement; (iii) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the Borrower or to inspect the property (including the books and records) of the Borrower or any of its Subsidiaries; (iv) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; and (v) shall incur no liability to the Lenders under or in respect of this Agreement by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. -------------------------------------------------------------------------------- TABLE OF CONTENTS           SECTION 7.03.  Citibank and Affiliates.  With respect to its Commitment and the Advances made by it, Citibank shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Administrative Agent; and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated, include Citibank in its individual capacity.  Citibank and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, any of its Subsidiaries and any Person who may do business with or own securities of the Borrower or any such Subsidiary, all as if Citibank were not the Administrative Agent and without any duty to account therefor to the Lenders.           SECTION 7.04.  Lender Credit Decision.  Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement.  Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement.           SECTION 7.05.  Indemnification.  The Lenders agree to indemnify the Administrative Agent (to the extent not reimbursed by the Borrower), ratably according to the respective amounts of their Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Administrative Agent under this Agreement, provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements found in a final-non-appealable judgment by a court of competent jurisdiction to have resulted from the Administrative Agent's gross negligence or willful misconduct.  Without limiting the foregoing, each Lender agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that the Administrative Agent is not reimbursed for such expenses by the Borrower. -------------------------------------------------------------------------------- TABLE OF CONTENTS           SECTION 7.06.  Successor Administrative Agent.  The Administrative Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause by the Majority Lenders.  Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Administrative Agent that, unless a Default or Event of Default shall have occurred and then be continuing, is reasonably acceptable to the Borrower.  If no successor Administrative Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having total assets of at least $1,000,000,000.  Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement.  After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article 7 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement.           SECTION 7.07.  Advisor, Sole Arranger and Book Manager, Syndication Agent and Documentation Agent.   The Advisor, Sole Arranger and Book Manager, the Syndication Agent and the Documentation Agent named on the cover page of this Agreement, in their capacities as such, shall have no obligation, responsibility or required performance hereunder and shall not become liable in any manner hereunder to any party hereto. ARTICLE 8 MISCELLANEOUS           SECTION 8.01.  Amendments, Etc.  No amendment or waiver of any provision of this Agreement, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Borrower and the Majority Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following:  (a) increase or extend the Commitments of such Lenders, (b) reduce the principal of, or interest on, the Notes or any fees (other than the Administrative Agent's fee referred to in Section 2.03(c)) or other amounts payable hereunder, (c) postpone any date fixed for any payment of principal of, or interest on, the Advances or any fees (other than the Administrative Agent's fee referred to in Section 2.03(c)) or other amounts payable hereunder, (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Advances, or the number of Lenders, which shall be required for the Lenders or any of them to take any action hereunder or (e) amend this Section 8.01; provided further that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Administrative Agent under this Agreement.  This Agreement and the agreement referred to in Section 2.03(c) constitute the entire agreement of the parties with respect to the subject matter hereof and thereof. -------------------------------------------------------------------------------- TABLE OF CONTENTS           SECTION 8.02.  Notices, Etc.  All notices and other communications provided for hereunder shall be in writing (including telecopier) and mailed, telecopied or delivered by hand:         (a)      if to the Borrower: CNA Financial Corporation CNA Plaza Chicago, Illinois 60685 Attention:  Treasurer, 23 South Telephone No.:  312-822-4161 Telecopier No.:  312-755-3692         (b)      if to the Administrative Agent: Citibank, N.A. Two Penns Way, Suite 200 New Castle, Delaware  19720 Attention:  Lee Ocasil Telephone No.:  302-894-6065 Telecopier No.:  302-894-6120           (c)      if to any Lender, at the Domestic Lending Office specified in the Administrative Questionnaire of such Lender; or, as to the Borrower or the Administrative Agent, at such other address as shall be designated by such party in a written notice to the other parties and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Administrative Agent.  All such notices and communications shall be deemed to have been duly given or made (i) in the case of hand deliveries, when delivered by hand, (ii) in the case of mailed notices, three Business Days after being deposited in the mail, postage prepaid, and (iii) in the case of telecopier notice, when transmitted and confirmed during normal business hours (or, if delivered after the close of normal business hours, at the beginning of business hours on the next Business Day), except that notices and communications to the Administrative Agent pursuant to Article 2 or 7 shall not be effective until received by the Administrative Agent. -------------------------------------------------------------------------------- TABLE OF CONTENTS           SECTION 8.03.  No Waiver; Remedies.  No failure on the part of any Lender or the Administrative Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right.  The remedies herein provided are cumulative and not exclusive of any remedies provided by law.           SECTION 8.04.  Costs, Expenses and Indemnification.           (a)      The Borrower agrees to pay and reimburse on demand all reasonable costs and expenses of the Administrative Agent and the Arranger in connection with the preparation, execution, delivery, administration, modification and amendment of this Agreement and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent with respect thereto and with respect to advising the Administrative Agent as to its rights and responsibilities under this Agreement.  The Borrower further agrees to pay on demand all costs and expenses, if any (including, without limitation, reasonable counsel fees and expenses of the Administrative Agent and each of the Lenders), incurred by the Administrative Agent or any Lender in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement and the other documents to be delivered hereunder, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of rights under this Section 8.04(a).  Such reasonable fees and out-of-pocket expenses shall be reimbursed by the Borrower upon presentation to the Borrower of a statement of account, regardless of whether this Agreement is executed and delivered by the parties hereto or the transactions contemplated by this Agreement are consummated.           (b)      The Borrower hereby agrees to indemnify the Administrative Agent, Salomon Smith Barney Inc., each Lender and each of their respective Affiliates and their respective officers, directors, employees, agents, advisors and representatives (each, an “Indemnified Party”) from and against any and all direct claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and disbursements of counsel), joint or several, that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or relating to any investigation, litigation or proceeding or the preparation of any defense with respect thereto arising out of or in connection with or relating to this Agreement or the transactions contemplated hereby or thereby or any use made or proposed to be made with the proceeds of the Advances, whether or not such investigation, litigation or proceeding is brought by the Borrower, any of its shareholders or creditors, an Indemnified Party or any other Person, or an Indemnified Party is otherwise a party thereto, and whether or not any of the conditions precedent set forth in Article 3 are satisfied or the other transactions contemplated by this Agreement are consummated, except to the extent such direct claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. -------------------------------------------------------------------------------- TABLE OF CONTENTS           The Borrower hereby further agrees that no Indemnified Party shall have any liability (whether direct or indirect, in contract, tort or otherwise) to the Borrower for or in connection with or relating to this Agreement or the transactions contemplated hereby or thereby or any use made or proposed to be made with the proceeds of the Advances, except to the extent such liability is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct.           (c)      If any payment of principal of, or Conversion or Continuation of, any Eurodollar Rate Advance is made other than on the last day of an Interest Period for such Advance as a result of any optional or mandatory prepayment, acceleration of the maturity of the Advances pursuant to Section 6.01 or for any other reason, the Borrower shall pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses (other than loss of profit) which it may reasonably incur as a result of such payment, Continuation or Conversion and the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance.  A certificate as to the amount of such losses, costs and expenses, submitted to the Borrower and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error.           SECTION 8.05.  Binding Effect.  This Agreement shall become effective when it shall have been executed by the Borrower and the Administrative Agent and when the Administrative Agent shall have been notified by each Bank that such Bank has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent and each Lender and their respective successors and permitted assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders.           SECTION 8.06.  Assignments and Participations.           (a)      Each Lender may, with notice to and the consent of the Administrative Agent and, unless an Event of Default shall have occurred and be continuing, the Borrower (such consents not to be unreasonably withheld), assign to one or more banks or other entities all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Advances owing to it); provided that:           (i)       each such assignment shall be of a constant, and not a varying, percentage of all rights and obligations of the assigning Lender under this Agreement,           (ii)      except in the case of an assignment by a Lender to one of its Affiliates or to another Lender, the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event (unless the Borrower and the Administrative Agent otherwise agree) be less than the lesser of (x) such Lender's Commitment hereunder and (y) $10,000,000 or an integral multiple of $1,000,000 in excess thereof, -------------------------------------------------------------------------------- TABLE OF CONTENTS           (iii)     each such assignment shall be to an Eligible Assignee,           (iv)     the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, and           (v)      the parties to each such assignment (other than the Borrower) shall deliver to the Administrative Agent a processing and recordation fee of $3,000. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto).           (b)      By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows:  (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Administrative Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to take such action as administrative agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. -------------------------------------------------------------------------------- TABLE OF CONTENTS           (c)      Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, the Administrative Agent shall, if such Assignment and Acceptance has been completed (and the Borrower and the Administrative Agent shall have consented to the relevant assignment) and is in substantially the form of Exhibit B hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower.           (d)      The Administrative Agent shall maintain at its address referred to in Section 8.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of each of the Lenders and, with respect to Lenders, the Commitment of, and principal amount of the Advances owing to, each such Lender from time to time (the “Register”).  The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for the purposes of this Agreement.  The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.           (e)      Each Lender may sell participations to one or more Persons (excluding any Persons primarily engaged in the insurance or mutual fund business) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Advances owing to it); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, (iv) in any proceeding under the Federal Bankruptcy Code in respect of the Borrower, such Lender shall remain and be, to the fullest extent permitted by law, the sole representative with respect to the rights and obligations held in the name of such Lender (whether such rights or obligations are for such Lender's own account or for the account of any participant) and (v) no participant under any such participation agreement shall have any right to approve any amendment or waiver of any provision of this Agreement, or to consent to any departure by the Borrower therefrom, except to the extent that any such amendment, waiver or consent would (x) reduce the principal of, or interest on, the Notes, in each case to the extent the same are subject to such participation, or (y) postpone any date fixed for the payment of principal of, or interest on, the Advances, in each case to the extent the same are subject to such participation.           (f)       Any Lender may, in connection with any permitted assignment or participation or proposed assignment or participation pursuant to this Section 8.06 and subject to the provisions of Section 8.12, disclose to the assignee or participant or proposed assignee or participant any information relating to the Borrower or any of its Subsidiaries or Affiliates furnished to such Lender by or on behalf of the Borrower. -------------------------------------------------------------------------------- TABLE OF CONTENTS           (g)      Notwithstanding any other provision set forth in this Agreement, any Lender may at any time, without the consent of the Administrative Agent or the Borrower, create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System.           (h)      Notwithstanding any other provision set forth in this Agreement, any Lender may at any time, without the consent of the Administrative Agent or the Borrower, assign to an Affiliate of such Lender (excluding any Affiliate of such Lender primarily engaged in the insurance or mutual fund business) all or any portion of its rights (but not its obligations) under this Agreement.           SECTION 8.07.  Governing Law; Submission to Jurisdiction.  This Agreement shall be governed by, and construed in accordance with, the law of the State of New York.  The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in New York City for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby.  The Borrower irrevocably waives, to the fullest extent permitted by applicable law, any objection that 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 8.08.  Severability.  In case any provision in this Agreement shall be held to be invalid, illegal or unenforceable, such provision shall be severable from the rest of this Agreement, as the case may be, and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.           SECTION 8.09.  Execution in Counterparts.  This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.  Any counterpart hereof may be executed and delivered via telecopier, and each such counterpart so executed and delivered shall have the same force and effect as an originally executed and delivered counterpart hereof.           SECTION 8.10.  Survival.  The obligations of the Borrower under Sections 2.02(c), 2.07, 2.11, 2.14 and 8.04, and the obligations of the Lenders under Section 7.05, shall survive the repayment of the Advances and the termination of the Commitments.  In addition, each representation and warranty made, or deemed to be made by any Notice of Borrowing, herein or pursuant hereto shall survive the making of such representation and warranty, and no Lender shall be deemed to have waived, by reason of making any Advance, any Default or Event of Default that may arise by reason of such representation or warranty proving to have been false or misleading, notwithstanding that such Lender or the Administrative Agent may have had notice or knowledge or reason to believe that such representation or warranty was false or misleading at the time such extension of credit was made. -------------------------------------------------------------------------------- TABLE OF CONTENTS           SECTION 8.11.  Waiver of Jury Trial.  EACH OF THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.           SECTION 8.12.  Confidentiality.  Each Lender agrees to hold any confidential information which it may receive from the Borrower or any of its Subsidiaries or Affiliates pursuant to this Agreement in confidence and for use in connection with this Agreement, including without limitation, for use in connection with its rights and remedies hereunder, except for disclosure (a) to other Lenders and their respective Affiliates, (b) to legal counsel, accountants, and other professional advisors to such Lender, (c) to regulatory officials, (d) as requested pursuant to or as required by law, regulation, or legal process, (e) in connection with any legal proceeding to which such Lender is a party and (f) to a proposed assignee or participant permitted under Section 8.06 which shall have agreed in writing for the benefit of the Borrower and its Subsidiaries and Affiliates to keep such disclosed confidential information confidential in accordance with this Section.           SECTION 8.13.  Nonliability of Lenders.  The relationship between the Borrower and the Lenders and the Administrative Agent shall be solely that of borrower and lender. Neither the Administrative Agent nor any Lender shall have any fiduciary responsibilities to the Borrower. Neither the Administrative Agent nor any Lender undertakes any responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower's business or operations. -------------------------------------------------------------------------------- TABLE OF CONTENTS          SECTION 8.14.  Existing Credit Agreement.  On the Effective Date, the commitment of each lender under the Existing Credit Agreement shall automatically terminate. 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.   Borrower       CNA FINANCIAL CORPORATION       By /s/ DONALD P. LOFE JR. --------------------------------------------------------------------------------      Name: Donald P. Lofe Jr.      Title: Group Vice President Corporate Finance       Administrative Agent       CITIBANK, N.A.,   as Administrative Agent       By --------------------------------------------------------------------------------      Name:      Title:       Banks       CITIBANK, N.A.       By --------------------------------------------------------------------------------      Name:      Title:           -------------------------------------------------------------------------------- TABLE OF CONTENTS   FLEET NATIONAL BANK       By______________      Name:      Title: -------------------------------------------------------------------------------- TABLE OF CONTENTS     THE CHASE MANHATTAN BANK       By______________      Name:      Title: -------------------------------------------------------------------------------- TABLE OF CONTENTS     BANK OF AMERICA, N.A.       By______________      Name:      Title: -------------------------------------------------------------------------------- TABLE OF CONTENTS     BANK ONE NA       By______________      Name:      Title: -------------------------------------------------------------------------------- TABLE OF CONTENTS     MELLON BANK, N.A.       By______________      Name:      Title:   -------------------------------------------------------------------------------- TABLE OF CONTENTS     WELLS FARGO BANK, NATIONAL ASSOCIATION       By______________      Name:      Title: -------------------------------------------------------------------------------- TABLE OF CONTENTS     THE BANK OF TOKYO – MITSUBISHI, LTD.,     CHICAGO BRANCH       By______________      Name:      Title: -------------------------------------------------------------------------------- TABLE OF CONTENTS     THE NORTHERN TRUST COMPANY       By______________      Name:      Title: -------------------------------------------------------------------------------- TABLE OF CONTENTS     WACHOVIA BANK, N.A.       By______________      Name:      Title: -------------------------------------------------------------------------------- TABLE OF CONTENTS     FIRSTAR BANK, N.A.       By______________      Name:      Title:   -------------------------------------------------------------------------------- TABLE OF CONTENTS   SCHEDULE I Banks and Commitments Bank -------------------------------------------------------------------------------- Commitment -------------------------------------------------------------------------------- Citibank, N.A. $35,000,000 Fleet National Bank $30,000,000 The Chase Manhattan Bank $30,000,000 Bank of America, N.A. $22,500,000 Bank One, N.A. $22,500,000 Mellon Bank, N.A. $22,500,000 Wells Fargo Bank, N.A. $22,500,000 The Bank of Tokyo –   Mitsubishi Ltd.,   Chicago Branch $17,500,000 The Northern Trust Company $17,500,000 Wachovia Bank, N.A. $17,500,000 Firstar Bank N.A. -------------------------------------------------------------------------------- $12,500,000 -------------------------------------------------------------------------------- Total $250,000,000   -------------------------------------------------------------------------------- TABLE OF CONTENTS   SCHEDULE II Existing Liens None -------------------------------------------------------------------------------- TABLE OF CONTENTS   EXHIBIT A NOTICE OF BORROWING Citibank, N.A., as Administrative   Agent for the Lenders parties   to the Credit Agreement   referred to below Two Penns Ways, Suite 200 New Castle, Delaware  19720 Attention:  Lee Ocasil [Date] Ladies and Gentlemen:           The undersigned, CNA Financial Corporation (the “Borrower”), refers to the Three-Year Credit Agreement, dated as of April 30, 2001 (as from time to time amended, the “Credit Agreement”, the terms defined therein being used herein as therein defined), among the undersigned, certain Lenders parties thereto and Citibank, N.A., as Administrative Agent for said Lenders, and hereby gives you notice, irrevocably, pursuant to Section 2.02 of the Credit Agreement that the undersigned hereby requests a Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to such Borrowing (the “Proposed Borrowing”) as required by Section 2.02(a) of the Credit Agreement:           (i)       The Business Day of the Proposed Borrowing is ______ _, ______.           (ii)      The Type of Advances initially comprising the Proposed Borrowing is [Base Rate Advances] [Eurodollar Rate Advances].           (iii)     The aggregate amount of the Proposed Borrowing is $___________.           [(iv)    The initial Interest Period for each Advance made as part of the Proposed Borrowing is ______ month[s]].1 -------------------------------------------------------------------------------- 1         For Eurodollar Rate Advances only.           The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Borrowing:           (a)      the representations and warranties contained in Section 4.01 (not including, in the case of a Borrowing after the initial Borrowing, the Excluded Representations) are correct in all material respects, before and after giving effect to the Proposed Borrowing and to the application of the proceeds therefrom, as though made on and as of such date;           (b)      no event has occurred and is continuing, or would result from such Proposed Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or, to the best of the undersigned's knowledge, a Default.     Very truly yours,       CNA FINANCIAL CORPORATION       By_____________      Title:   -------------------------------------------------------------------------------- TABLE OF CONTENTS   EXHIBIT B ASSIGNMENT AND ACCEPTANCE Dated ____________ __, _____           Reference is made to the Three-Year Credit Agreement dated as of April 30, 2001 (as from time to time amended, the “Credit Agreement”) among CNA Financial Corporation, a Delaware corporation (the “Borrower”), the Lenders (as defined in the Credit Agreement) and Citibank, N.A., as Administrative Agent for the Lenders (the “Administrative Agent”).  Terms defined in the Credit Agreement are used herein with the same meaning.           _____________ (the “Assignor”) and _____________ (the “Assignee”) agree as follows:           1.       The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, that interest in and to all of the Assignor's rights and obligations under the Credit Agreement as of the date hereof which represents the percentage interest specified on Schedule 1 of all outstanding rights and obligations under the Credit Agreement, including, without limitation, such interest in the Assignor's Commitment and the Advances owing to the Assignor.  After giving effect to such sale and assignment, the Assignee's Commitment and the amount of the Advances owing to the Assignee will be as set forth in Schedule 1.           2.       The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto.           3.       The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.01 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Administrative Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the Administrative Agent to take such action as administrative agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender; [and] (vi) specifies as its Domestic Lending Office (and address for notices) and Eurodollar Lending Office the offices set forth beneath its name on the signature pages hereof [and (vii) attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Credit Agreement or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty].1 -------------------------------------------------------------------------------- 1         If the Assignee is organized under the laws of a jurisdiction outside the United States. -------------------------------------------------------------------------------- TABLE OF CONTENTS           4.       Following the execution of this Assignment and Acceptance by the Assignor and the Assignee and the consent of the Borrower, it will be delivered to the Administrative Agent for acceptance and recording by the Administrative Agent.  The effective date of this Assignment and Acceptance shall be the date of acceptance thereof by the Administrative Agent, unless otherwise specified on Schedule 1 hereto (the “Effective Date”).           5.       Upon such acceptance and recording by the Administrative Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement.           6.       Upon such acceptance and recording by the Administrative Agent, from and after the Effective Date, the Administrative Agent shall make all payments under the Credit Agreement in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest, Facility Fee and Utilization Fee with respect thereto) to the Assignee.  The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Effective Date directly between themselves. -------------------------------------------------------------------------------- TABLE OF CONTENTS           7.       This Assignment and Acceptance shall be governed by, and construed in accordance with, the law of the State of New York.           IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed by their respective officers thereunto duly authorized, as of the date first above written, such execution being made on Schedule 1 hereto. -------------------------------------------------------------------------------- TABLE OF CONTENTS   SCHEDULE 1 to ASSIGNMENT AND ACCEPTANCE Percentage assigned to Assignee _______________% Assignee's Commitment              $______________ Aggregate outstanding principal   amount of Advances assigned   $______________ Effective Date (if other than   date of acceptance by   Administrative Agent)* __________ __, _____       [NAME OF ASSIGNOR], as Assignor       By_______________         Title:   -------------------------------------------------------------------------------- TABLE OF CONTENTS     [NAME OF ASSIGNEE], as Assignee       By_______________      Title:       Domestic Lending Office:       Eurodollar Lending Office: *        This date should be no earlier than the date of acceptance by the Administrative Agent. Accepted this ____ day   of _______, _____ CITIBANK, N.A., as   Administrative Agent By__________   Title: CONSENTED TO: CNA FINANCIAL CORPORATION By__________   Title: -------------------------------------------------------------------------------- TABLE OF CONTENTS   EXHIBIT C [Form of Opinion of Counsel of the Borrower]                                                                                                                                            [date] To the Banks party to the   Credit Agreement referred to   below Citibank, N.A., as Administrative   Agent Two Penns Way, Suite 200 New Castle, Delaware  19720 Ladies and Gentlemen:           I have acted as counsel to CNA Financial Corporation (the “Borrower”) in connection with the Three-Year Credit Agreement (the “Credit Agreement”) dated as of April 30, 2001, among the Borrower, the lenders named therein and Citibank, N.A., as Administrative Agent, providing for loans to be made by said lenders to the Borrower in an aggregate principal amount not exceeding $250,000,000.  Terms defined in the Credit Agreement are used in this opinion letter as defined therein.  This opinion letter is being delivered pursuant to Section 3.01(d) of the Credit Agreement.           In rendering the opinion expressed below, I, or attorneys under my supervision, have examined the following agreements, instruments and other documents:           (a)      the Credit Agreement; and           (b)      such corporate records of the Borrower and such other documents as I have deemed necessary as a basis for the opinions expressed below.           In my examination, I have assumed the genuineness of all signatures (other than those of the Borrower), the authenticity of all documents submitted to me as originals and the conformity with authentic original documents of all documents submitted to me as copies.  When relevant facts were not independently established, I have relied upon certificates of governmental officials and appropriate representatives of the Borrower and upon representations made in or pursuant to the Credit Agreement.           In rendering the opinions expressed below, I have assumed, with respect to all of the documents referred to in this opinion letter, that (except, to the extent set forth in the opinions expressed below, as to the Borrower): -------------------------------------------------------------------------------- TABLE OF CONTENTS (i)       such documents have been duly authorized by, have been duly executed and delivered by, and constitute legal, valid, binding and enforceable obligations of, all of the parties to such documents; (ii)       all signatories to such documents have been duly authorized; and (iii)      all of the parties to such documents are duly organized and validly existing and have the power and authority (corporate or other) to execute, deliver and perform such documents.           Based upon and subject to the foregoing and subject also to the comments and qualifications set forth below, and having considered such questions of law as I have deemed necessary as a basis for the opinions expressed below, I am of the opinion that:           1.       The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.           2.       The Borrower has all requisite corporate power to execute and deliver, and to perform its obligations and to incur liabilities under, the Credit Agreement.           3.       The execution, delivery and performance by the Borrower of, and the incurrence by the Borrower of liabilities under, the Credit Agreement has been duly authorized by all necessary corporate action on the part of the Borrower.           4.       The Credit Agreement has been duly executed and delivered by the Borrower.           5.       The Credit Agreement constitutes the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights of creditors generally and except as the enforceability of the Credit Agreement is subject to the application of general principles of equity (regardless of whether considered in a proceeding in equity or at law), including, without limitation, (a) the possible unavailability of specific performance, injunctive relief or any other equitable remedy and (b) concepts of materiality, reasonableness, good faith and fair dealing.           6.       No authorization, approval or consent of, and no filing or registration with, any governmental or regulatory authority or agency of the United States of America or the State of New York is required on the part of the Borrower for the execution, delivery or performance by the Borrower of, or for the incurrence by the Borrower of any liabilities under, the Credit Agreement. -------------------------------------------------------------------------------- TABLE OF CONTENTS           7.       The execution, delivery and performance by the Borrower of, and the consummation by the Borrower of the transactions contemplated by, the Credit Agreement do not and will not (a) violate any provision of the charter or by-laws of the Borrower, (b) violate any applicable law, rule or regulation of the United States of America (including, without limitation, Regulations T, U and X issued by the Board of Governors of the Federal Reserve System, as amended) or the State of New York, (c) violate any order, writ, injunction or decree of any court or governmental authority or agency or any arbitral award applicable to the Borrower and its Subsidiaries of which I have knowledge (after due inquiry) or (d) result in a breach of, constitute a default under, require any consent under, or result in the acceleration or required prepayment of any indebtedness pursuant to the terms of, any agreement or instrument of which I have knowledge (after due inquiry) to which the Borrower and its Subsidiaries is a party or by which any of them is bound or to which any of them is subject, or result in the creation or imposition of any Lien upon any property of the Borrower pursuant to the terms of any such agreement or instrument.           8.       Other than as disclosed in filings of the Borrower with the Securities and Exchange Commission, I have no knowledge (after due inquiry) of any legal or arbitral proceedings, or any proceedings by or before any governmental or regulatory authority or agency, now pending or threatened against or affecting the Borrower or any of its Subsidiaries or any of their respective Properties that, if adversely determined, could have a Material Adverse Effect.           9.       The Borrower is not an “investment company”, or a Person “controlled by” an “investment company”, as such terms are defined in the Investment Company Act of 1940, as amended.           The foregoing opinions are subject to the following comments and qualifications:           (a)      The enforceability of Section 8.04(b) of the Credit Agreement may be limited by laws limiting the enforceability of provisions exculpating or exempting a party from, or requiring indemnification of a party for, its own action or inaction, to the extent such action or inaction involves gross negligence, recklessness or willful or unlawful conduct.           (b)      The enforceability of provisions in the Credit Agreement to the effect that terms may not be waived or modified except in writing may be limited under certain circumstances.           (c)      I express no opinion as to (i) the effect of the laws of any jurisdiction in which any Lender is located (other than the State of New York) that limit the interest, fees or other charges such Lender may impose, (ii) Section 2.15 of the Credit Agreement, (iii) the second sentence of Section 8.07 of the Credit Agreement, insofar as such sentence relates to the subject matter jurisdiction of the United States District Court for the Southern District of New York to adjudicate any controversy related to the Credit Agreement, (iv) the waiver of inconvenient forum set forth in Section 8.07 of the Credit Agreement with respect to proceedings in the United States District Court for the Southern District of New York and (v) Section 8.08 of the Credit Agreement. -------------------------------------------------------------------------------- TABLE OF CONTENTS             The foregoing opinions are limited to matters involving the Federal laws of the United States, the law of the State of New York and the General Corporation Law of the State of Delaware, and I do not express any opinion as to the laws of any other jurisdiction.           At the request of the Borrower, this opinion letter is, pursuant to Section 3.01(d) of the Credit Agreement, provided to you by me in my capacity as Counsel of the Borrower and may not be relied upon by any Person for any purpose other than in connection with the transactions contemplated by the Credit Agreement without, in each instance, my prior written consent.                                                   Very truly yours,   -------------------------------------------------------------------------------- TABLE OF CONTENTS           EXHIBIT D [Form of Opinion of Special New York Counsel to the Administrative Agent]                        [date] To the Banks party to the   Credit Agreement referred to   below Citibank, N.A., as Administrative   Agent 399 Park Avenue New York, New York  10043 Ladies and Gentlemen:           We have acted as special New York counsel to Citibank, N.A. (the “Administrative Agent”), as Administrative Agent, in connection with the Three-Year Credit Agreement dated as of April 30, 2001 (the “Credit Agreement”) among CNA Financial Corporation (the “Borrower”), the lenders named therein and the Administrative Agent, providing for loans to be made by said lenders to the Borrower in an aggregate principal amount not exceeding $250,000,000.  Terms defined in the Credit Agreement are used herein as defined therein.  This opinion is being delivered pursuant to Section 3.01(e) of the Credit Agreement.           In rendering the opinions expressed below, we have examined the Credit Agreement.  In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity with authentic original documents of all documents submitted to us as copies.           In rendering the opinions expressed below, we have assumed, with respect to the Credit Agreement, that: (i)       the Credit Agreement has been duly authorized by, have been duly executed and delivered by, and (except to the extent set forth in the opinions below as to the Borrower) constitutes legal, valid, binding and enforceable obligations of, all of the parties thereto; (ii)      all signatories to the Credit Agreement have been duly authorized; and (iii)     all of the parties to the Credit Agreement are duly organized and validly existing and have the power and authority (corporate or other) to execute, deliver and perform the Credit Agreement.           -------------------------------------------------------------------------------- TABLE OF CONTENTS           Based upon and subject to the foregoing and subject also to the comments and qualifications set forth below, and having considered such questions of law as we have deemed necessary as a basis for the opinions expressed below, we are of the opinion that the Credit Agreement constitutes the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights of creditors generally and except as the enforceability of the Credit Agreement is subject to the application of general principles of equity (regardless of whether considered in a proceeding in equity or at law), including, without limitation, (a) the possible unavailability of specific performance, injunctive relief or any other equitable remedy and (b) concepts of materiality, reasonableness, good faith and fair dealing.           The foregoing opinions are subject to the following comments and qualifications:           (a)      The enforceability of Section 8.04(b) of the Credit Agreement may be limited by laws limiting the enforceability of provisions exculpating or exempting a party from, or requiring indemnification of a party for, its own action or inaction, to the extent such action or inaction involves gross negligence, recklessness or willful or unlawful conduct.           (b)      The enforceability of provisions in the Credit Agreement to the effect that terms may not be waived or modified except in writing may be limited under certain circumstances.           (c)      We express no opinion as to (i) the effect of the laws of any jurisdiction in which any Lender is located (other than the State of New York) that limit the interest, fees or other charges such Lender may impose, (ii) Section 2.15 of the Credit Agreement, (iii) the second sentence of Section 8.07 of the Credit Agreement, insofar as such sentence relates to the subject matter jurisdiction of the United States District Court for the Southern District of New York to adjudicate any controversy related to the Credit Agreement, (iv) the waiver of inconvenient forum set forth in Section 8.07 of the Credit Agreement with respect to proceedings in the United States District Court for the Southern District of New York and (v) Section 8.08 of the Credit Agreement.           The foregoing opinions are limited to matters involving the Federal laws of the United States and the law of the State of New York, and we do not express any opinion as to the laws of any other jurisdiction. -------------------------------------------------------------------------------- TABLE OF CONTENTS           This opinion letter is, pursuant to Section 3.01(e) of the Credit Agreement, provided to you by us in our capacity as special New York counsel to the Administrative Agent and may not be relied upon by any Person for any purpose other than in connection with the transactions contemplated by the Credit Agreement without, in each instance, our prior written consent.                                         Very truly yours, WFC [File No. 26653-37500]   -------------------------------------------------------------------------------- TABLE OF CONTENTS   EXHIBIT E COMPLIANCE CERTIFICATE   To:     The Lenders parties to the           Credit Agreement Described Below           This Compliance Certificate is furnished pursuant to that certain Three-Year Credit Agreement dated as of April 30, 2001 (as amended, modified, renewed or extended from time to time, the “Agreement”) among the Borrower, the banks named therein, Salomon Smith Barney Inc., as Advisor, Sole Arranger and Book Manager, Fleet National Bank as Syndication Agent, The Chase Manhattan Bank, as Documentation Agent and Citibank, N.A., as Administrative Agent for the Lenders.  Unless otherwise defined herein, capitalized terms used in this Compliance Certificate have the meanings ascribed thereto in the Agreement.           THE UNDERSIGNED HEREBY CERTIFIES THAT:           1.       I am the duly elected Chief Financial Officer of the Borrower;           2.       I have reviewed the terms of the Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Borrower and its Subsidiaries during the accounting period covered by the attached financial statements;           3.       The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes a Default or an Event of Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate, except as set forth below; and           4.       Schedule I attached hereto sets forth financial data and computations evidencing the Borrower's compliance with certain covenants of the Agreement, all of which data and computations are true, complete and correct. Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Borrower has taken, is taking, or proposes to take with respect to each such condition or event:                                                                                                                                           -------------------------------------------------------------------------------- TABLE OF CONTENTS The foregoing certifications, together with the computations set forth in Schedule I hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this ___  day of_________, 20__.                                                                                                                                  -------------------------------------------------------------------------------- TABLE OF CONTENTS SCHEDULE I TO COMPLIANCE CERTIFICATE Schedule of Compliance as of with Provisions of Sections 5.01(m), 5.01(n) and 5.01(o) of the Agreement   1. Section 5.01(m) - Consolidated Capitalization     A.        Aggregate Specified Indebtedness $__________   B.         Consolidated Capitalization     (i)         Aggregate Specified Indebtedness $__________   (ii)        Consolidated Net Worth $__________   (iii)       Sum of (i) and (ii) $__________   C.        Ratio of A to B ____:1.0   D.        Permitted Ratio Not greater than 0.35:1.0               Complies ____   Does Not Comply _____   2. Section 5.01(n) - Insurance Company Surplus as Regards Policyholders     A.        Surplus as Regards Policyholders of Continental Casualty Company (on a consolidated basis): $__________   B.         Surplus as Regards Policyholders of Continental Insurance Company (on a combined, without duplication, basis with the other Insurance Subsidiaries in the same insurance pool): $__________   C.        Total of A and B: $__________   D.        Minimum Combined Surplus as Regards Policyholders per Covenant $4,500,000,000               Complies ____   Does Not Comply _____         3. Section 5.01(o) - Limitation on Qualifying SPV Assets           A.       Aggregate Fair Market Value of Invested Assets of Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP as of the end of the preceding calendar year. $________         B.       Aggregate Fair Market Value of Qualifying SPV Assets $________         C.       Ratio of B over A as a Percentage _________%         D.       Permitted Percentage Not greater than 25%         Complies ____   Does Not Comply _____   -------------------------------------------------------------------------------- TABLE OF CONTENTS EXECUTION COPY Exhibit 10.13 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- U.S. $250,000,000 364-DAY CREDIT AGREEMENT Dated as of April 30, 2001 Among CNA FINANCIAL CORPORATION as Borrower THE BANKS NAMED HEREIN as Banks SALOMON SMITH BARNEY INC. as Advisor, Sole Arranger and Book Manager FLEET NATIONAL BANK as Syndication Agent THE CHASE MANHATTAN BANK as Documentation Agent and CITIBANK, N.A. as Administrative Agent -------------------------------------------------------------------------------- --------------------------------------------------------------------------------

AMENDMENT NO. 3 TO EMPLOYMENT AGREEMENT AND AMENDMENT NO. 3 TO CHANGE OF CONTROL AGREEMENT                      This Amendment No. 3 to Employment Agreement and Amendment No. 3 to Change of Control Agreement is made as of the 31st day of October, 2000, by and between Stewart Enterprises, Inc., a Louisiana corporation (the "Company"), and William E. Rowe (the "Employee"). W I T N E S S E T H:                     WHEREAS, the Company has entered into an Employment Agreement with the Employee dated as of August 1, 1995, which has been previously amended two times (as amended, the "Employment Agreement");                     WHEREAS, the Company has entered into a Change of Control Agreement with the Employee dated as of December 5, 1995, which has been previously amended two times (as amended, the "Change of Control Agreement"); and                     WHEREAS, the Company and the Employee have agreed to an extension of the terms of the Employment Agreement and the Change of Control Agreement, as set forth herein.                     NOW, THEREFORE, for and in consideration of the continued employment of Employee by the Company and the payment of wages, salary and other compensation to Employee by the Company, the parties hereto agree as follows, effective October 31, 2000;                     Section 1.    Except as expressly amended herein, all of the terms and provisions of the Employment Agreement and Change of Control Agreement shall remain in full force and effect.                     Section 2.     Article I, Section 2 of the Employment Agreement is hereby amended to read in its entirety as follows: > >             Employment Term. The term of this Agreement (the "Employment > > Term") shall commence on the Agreement Date and shall continue through > > October 31, 2001, subject to any earlier termination of Employee's status as > > an employee pursuant to this Agreement.                     Section 3.     Article II, Section 2.1(a) of the Change of Control Agreement is hereby amended to read in its entirety as follows: > >             2.1     Employment Term and Capacity after Change of Control. > > (a) If a Change of Control occurs on or before October 31, 2001, then the > > Employee's employment term (the "Employment Term") shall continue through > > the second anniversary of the Change of Control, subject to any earlier > > termination of Employee's status as an employee pursuant to this Agreement.                     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and signed as of the date indicated above.     STEWART ENTERPRISES, INC. By:  /s/ James W. McFarland                              James W. McFarland            Compensation Committee Chairman       EMPLOYEE:    /s/   William E. Rowe                                                     William E. Rowe

  Exhibit 10.1 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF BED BATH & BEYOND INC. (Under Section 805 of the Business Corporation Law)          It is certified that:          1.     The name of the corporation is BED BATH & BEYOND INC. The name under which the corporation was originally formed is B & B TEXTILE CORPORATION.          2.     The original Certificate of Incorporation of the corporation was filed by the Department of State of the State of New York on October 5, 1971.          3.     Paragraph (a) of Article Fourth of the Certificate of Incorporation is amended as follows to increase the number of shares from the presently authorized 350,000,000 shares of common stock, par value $.01 per share, to 900,000,000 shares of common stock, par value $.01 per share. The 1,000,000 shares of preferred stock, par value $.01 per share, shall remain unchanged.          "(a) Authorized Classes of Stock: The total number of shares which the corporation shall have the authority to issue is 901,000,000 of which 900,000,000 shares are designated Common Stock, par value $.01 per share (“Common Stock”), and 1,000,000 shares are designated Preferred Stock, par value $.01 per share (“Preferred Stock”)”.          4.     The amendment of the Certificate of Incorporation was authorized first by vote of the Board of Directors of the corporation and then by the vote of the holders of a majority of all outstanding shares entitled to vote theron.          IN WITNESS WHEREOF, we have subscribed this document on July 26, 2001 and do hereby affirm, under the penalties of perjury, that the statements contained herein have been examined by us and are true and correct.                 /s/ Steven H. Temares     --------------------------------------------------------------------------------     STEVEN H. TEMARES, President           /s/ Warren Eisenberg     --------------------------------------------------------------------------------     WARREN EISENBERG, Secretary -12-

EXHIBIT 10.29 STOCK REPURCHASE AGREEMENT Julius S. Burns This Stock Repurchase Agreement (the "Agreement") is made and entered into as of the 28th day of April, 2000, by and between Merchants Metals Holding Company, a Delaware corporation (the "Company"), and the person named on the signature page hereto (the "Stockholder"). WHEREAS, the Stockholder has agreed to purchase the number of shares of Class C Common Stock, par value $.01 per share, of the Company, as designated on the signature page hereto (the "Purchased Common Stock"); and WHEREAS, as a condition to its agreement to sell the Purchased Common Stock to the Stockholder, the Company is requiring the Stockholder to execute and deliver this Agreement, whereby the number of shares of the Purchased Common Stock designated on the signature page hereto (the "Repurchase Shares") are subject to this Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Grant of Repurchase Option to the Company. The Stockholder hereby grants to the Company (or its designee) the right to repurchase the Repurchase Shares on the terms and subject to the conditions described in this Agreement. Except as otherwise provided in this Section 1, if, at any time on or prior to the fourth anniversary of the date of the issuance of the Repurchase Shares to the Stockholder, the Stockholder shall cease to be employed by the Company or one or more of its subsidiaries for the reasons described in Section 2 (a "Termination Event"), then the Company (or its designee) shall have the option (the "Repurchase Option") to purchase all or a portion of the Repurchase Shares in accordance with the provisions of Section 2 of this Agreement. If the Company (or its designee) desires to exercise the Repurchase Option, it shall give written notice of such exercise (the "Exercise Notice") to the Stockholder (or his personal representative in the event of his death) within 180 days following the occurrence of the Termination Event. The Exercise Notice shall indicate the number of the Repurchase Shares to be repurchased by the Company. The Exercise Notice also shall indicate the repurchase price, as calculated in accordance with Section 2 of this Agreement, to be paid for the Repurchase Shares to be repurchased and shall indicate the date (the "Repurchase Date") (which shall not be later than 60 days following the date of the Exercise Notice, but may be extended for a period necessary for an appraiser to determine Fair Market Value as set forth in Section 2) on which the Repurchase Shares identified in such Exercise Notice will be repurchased. On the Repurchase Date, the Stockholder (or his personal representative in the event of his death) will be obligated to sell, and the Company (or its designee) will be obligated to purchase (subject, in the case of the Company, to the receipt of any applicable lender approvals and subject to the availability of adequate legal surplus), the Repurchase Shares to which the Exercise Notice relates, at the repurchase price calculated in accordance with Section 2 of this Agreement. The Repurchase Option shall expire 180 days following the occurrence of a Termination Event for any Repurchase Shares with respect to which an Exercise Notice has not been delivered by such date. 2. Repurchase Price and Vesting. Unless otherwise accelerated pursuant to this Section 2, ownership in the following Repurchase Shares shall vest with the Stockholder in the portions and on the dates as follows: (1) 10,000 of the Repurchase Shares on the Issuance Date (defined below); (2) an additional 2,125 of the Repurchase Shares on the day after the first anniversary of the Issuance Date; (3) an additional 2,125 of the Repurchase Shares on the day after the second anniversary of the Issuance Date; (4) an additional 2,125 of the Repurchase Shares on the day after the third anniversary of the Issuance Date; and (5) an additional 2,125 of the Repurchase Shares on the day after the fourth anniversary of the Issuance Date. If the Stockholder's employment is terminated on or before the fourth anniversary of the Issuance Date (i) by the Stockholder, or (ii) by the Company for Cause, the Company may repurchase the Vested Shares for the Fair Market Value thereof and the Unvested Shares for a price of $1.00 per share. If the Stockholder's employment is terminated on or before the fourth anniversary of the Issuance Date (i) due to the Stockholder's death or disability, or (ii) by the Company without Cause, all of the Repurchase Shares shall become Vested Shares upon such event and the Company may repurchase the Vested Shares for the Fair Market Value thereof. As used in this Agreement, (i) "Cause" means conduct by the Stockholder (A) resulting in a conviction of, or plea of nolo contendre to, a felony, (B) constituting material breach of, or continued gross neglect of his duties or responsibilities under, the terms of his employment with the Company or any of its Subsidiaries, (C) constituting fraud, dishonesty in connection with his employment, competition with the Company or any of its subsidiaries, or unauthorized use of any trade secret or other confidential information of the Company or any of its subsidiaries, or (D) constituting the failure to properly perform his duties in the reasonable good faith judgment of the Board of Directors of the Company; provided, however, the Company shall give Stockholder written notice of any actions alleged to constitute Cause under clause (B) or (D) above, and the Stockholder shall have a reasonable opportunity (as specified by the Board of Directors) to cure any such alleged Cause, (ii) "Issuance Date" means the date of the purchase of the Repurchase Shares by the Stockholder, (iii) "Unvested Shares" means the shares of Repurchase Stock not vested pursuant to this Section 2 by the date of the Termination Event, and (iv) "Vested Shares" means the shares of Repurchase Stock vested pursuant to this Section 2 on or by the date of the Termination Event. Also, as used in this Agreement, "Fair Market Value" of Vested Shares means the fair market value of such Vested Shares as determined by mutual agreement of the Board of Directors of the Company and the Stockholder. If within 15 days after the date of the Exercise Notice, such parties are unable to agree on such Fair Market Value, the Fair Market Value shall be determined by an independent appraiser mutually selected by the Board of Directors of the Company and the Stockholder. If such parties are unable to agree upon an appraiser within 30 days after the date of the Exercise Notice, the Board of Directors of the Company, on the one hand, and the Stockholder, on the other hand, shall each select an independent appraiser. Those two appraisers shall then select a third independent appraiser. That third independent appraiser shall determine the Fair Market Value, and such determination shall be binding upon the parties hereto. 3. Restrictions on Transfer. The Stockholder agrees not to sell, assign, transfer, pledge hypothecate, make gifts of or in any manner whatsoever dispose of or encumber (any such transfer or disposition being hereinafter referred to as a "Transfer") the Repurchase Shares, except by will or by the laws of descent and distribution at any time prior to the fourth anniversary of the Issuance Date, unless such Transfer is in accordance with the terms and provisions of this Agreement. The Stockholder may not effect a Transfer of any of the Repurchase Shares other than (i) with the consent of the Company (as evidenced by a resolution duly adopted by at least a majority of the members of the Board of Directors of the Company), (ii)  in connection with a business combination transaction approved by the Board of Directors of the Company, (iii) in connection with a "change in control" transaction involving a transfer or series of transfers to any person or group of related persons, not affiliated with the then existing stockholders of the Company, of the capital stock of the Company which results in the holder(s) thereof becoming entitled to elect a majority of the members of the Board of Directors of the Company, (iv) in connection with a public offering of the Company's capital stock in which the Stockholder is permitted to participate by the Company or (v) pursuant to the Repurchase Option. Notwithstanding the foregoing, the Stockholder may effect a Transfer of the Repurchase Shares if the Repurchase Option has expired according to its terms. Any purported Transfer in violation of this Agreement shall be null and void and of no force and effect. 4. Certificate Legend; Transferees Bound. The Stockholder agrees that the certificate(s) representing the Repurchase Shares will bear a legend indicating that the Repurchase Shares are subject to this Agreement. Any transferee(s) of the Repurchase Shares will be fully bound by the provisions of this Agreement, and the Repurchase Shares, in the hands of any such transferee(s), will be subject to the Repurchase Option provided herein. 5. Governing Law. This Agreement shall be governed by the internal laws of the State of Delaware (without giving effect to principles of conflict of laws). 6. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original but all of which together shall constitute one `and the same instrument. IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement as of the date first above written. MERCHANTS METALS HOLDING COMPANY By: /s/ Thomas F. McWilliams Thomas F. McWilliams Director STOCKHOLDER: /s/ Julius S. Burns Julius S. Burns Purchased Common Stock: 18,500 shares of Class C Common Stock, par value $0.01 per share, of the Company Repurchase Shares: 18,500 shares of Purchased Common Stock

DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS OF PMA CAPITAL CORPORATION (Amended and Restated November 1, 2000) -------------------------------------------------------------------------------- ARTICLE I.   DEFINITIONS The following are defined terms wherever they appear in the Plan.         1.1   "Administrator" shall mean the person, or committee, appointed by the President and Chief Executive Officer of PMA Capital, and charged with responsibility for administration of the Plan.         1.2   "Board of Directors" or "Board" shall mean the Board of Directors of PMA Capital.         1.3   "Business Day" shall mean any day during which trades occur on the Nasdaq Stock Market.         1.4   "Change of Control" means a change of control of PMA Capital 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") whether or not PMA Capital is then subject to such reporting requirements; provided that, without limitation, such a Change of Control shall be deemed to occur if:         (a)   Any "person" (as such term is used in Section 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 PMA Capital representing more than 50% of the combined voting power of PMA Capital's voting 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 PMA Capital; or         (c)   At any time individuals who were either nominated for election by PMA Capital's Board of Directors or were elected by PMA Capital's Board of Directors cease for any reason to constitute at least a majority of the members of the Board of Directors of PMA Capital.         1.5   "PMA Capital Common Stock" or "Common Stock"or "Stock" shall mean the Class A Common Stock of PMA Capital, par value of five dollar ($5.00) per share.         1.6   "Committee" shall mean the Compensation Committee of the Board of Directors of PMA Capital, or the successor to such committee. 1 --------------------------------------------------------------------------------         1.7   "Deferral Election" shall mean the instrument executed by a Participant which specifies amounts and items of compensation to be deferred into the Deferred Compensation Account.         1.8   "Deferred Compensation Account" shall mean the separate bookkeeping account established under the Plan for each Participant, as described in Section 3.1.         1.9   "Director" shall mean any individual serving on the Board who is not an employee of PMA Capital or any of its subsidiaries or affiliates.         1.10  "Participant" shall mean each individual who as a Director of PMA Capital participates in the Plan in accordance with the terms and conditions of the Plan.         1.11  "Payment Election" shall mean the instrument executed by a Participant which specifies the method of payment of deferred compensation.         1.12  "PMA Capital" shall mean PMA Capital Corporation.         1.13  "Plan" shall mean the Deferred Compensation Plan for Non-Employee Directors of PMA Capital, as it may be amended or restated from time to time by the Board of Directors.         1.14  "Termination of Service" shall mean termination of services as a Director of PMA Capital, including but not limited to termination by retirement, death or disability.         1.15  "Unforeseeable Emergency" shall mean a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (as defined in section 152(a) of the Internal Revenue Code of 1986, as amended) of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.         1.16  "Valuation Date" shall mean the close of business on the last business day of each month. 2 -------------------------------------------------------------------------------- ARTICLE II.   PARTICIPATION         2.1   Eligibility to Participate in the Plan.         The individuals who are eligible to participate in the Plan are those persons who serve as Directors of PMA Capital and who are not also employees of PMA Capital.         2.2   Participation in the Plan.                (a)   A Participant may elect to defer receipt of all or a portion of the annual Board retainer fee and Board and Board committee attendance fees, and such other compensation for services as a Director as are specified by the Administrator.                (b)   The election to defer is made by delivering a properly executed Deferral Election to the Administrator. The Deferral Election shall specify the item or items of compensation to be deferred, and the amount of such compensation to be deferred. The election for payment of compensation deferred is made by delivering a properly executed Payment Election to the Administrator. The Payment Election shall specify the method by which such deferred compensation is to be paid, and the date or dates for payment of such deferred compensation.                (c)   An election to defer compensation must be filed by the Participant prior to the commencement of a calendar year during which such compensation will be paid.                (d)   Notwithstanding Section 2.2(c), an election to defer compensation made by an individual who subsequently begins active service as a Director of PMA Capital that is filed prior to the date upon which such active service begins, shall be effective according to Section 2.2(e)(2), below.                (e)   An election to defer compensation is effective: (1) for the calendar year beginning after the election, and for subsequent calendar years, unless modified or revoked; or, (2) if Section 2.2(d) applies, for the remainder of the first year of active service, as of the first day of active service, and for subsequent calendar years, unless modified or revoked.         2.3   Elections Pertaining to Payments.                (a)    No payments may be made or commence under the Plan until the later of (1) at least six (6) months elapses after a Termination of Service occurs or (2) the first day of the first calendar year following the date the Payment Election is filed with the Administrator, except as provided in Sections 4.2, 4.3 and 4.4 below.                (b)    In executing a Payment Election, the Participant shall elect among the following methods of payment:                     (1)   Lump sum payment, or 3 --------------------------------------------------------------------------------                     (2)    Periodic Payments —the payments shall be made at least annually, (but no more frequently than monthly) over a period not to exceed fifteen (15) years.                (c)    The balance of a Participant's Deferred Compensation Account shall be paid, in all events, no later than January of the fifteenth year following Termination of Service.                (d)    If there is not in effect as of Participant's Termination of Service a valid Payment Election, the Participant's Deferred Compensation Account shall be paid in a lump sum.         All payments under the Plan shall be in cash only and no Participant shall have any right to obtain payment in any other form.         2.4   Modification of Elections Pertaining to Payments.         A Participant may request modification of his existing Payment Election at any time before a Termination of Service. The Board shall consider any such modification request and may grant or deny the request, in its discretion, which decision shall be final and binding on the Participant. In determining whether the request should be allowed, the Board may consider the Participant's financial needs, including any changed circumstances, as well as the projected financial needs of PMA Capital. If the Board determines that the request should be allowed, the requested modifications shall be made. The Participant shall effect the modifications through execution of a new Payment Election, which shall constitute the only Payment Election which is outstanding and effective.         2.5   Reduction or Termination of Future Deferral.                (a)    A Participant may elect to reduce or to revoke his deferral of compensation into his Deferred Compensation Account, but such election shall have effect only prospectively. A Participant shall effect an election to reduce his deferral of compensation by execution of a new Deferral Election, which shall constitute the only Deferral Election which is outstanding and effective on a prospective basis. A Participant shall effect an election to revoke his deferral of compensation into his Deferred Compensation Account by informing the Administrator in writing. Only one election to reduce and one election to revoke may be made under this Section 2.5 by each Participant in a calendar year.                (b)    An election to reduce or to revoke deferral of compensation under Section 2.5(a) above shall become effective on the later of (1) the first day of the first calendar year following the date on which the election to reduce or revoke is made or (2) on the first day of the calendar month following receipt of such election by the Administrator except in the case of an Unforeseeable Emergency under the circumstances described below in Section 4.2. 4 -------------------------------------------------------------------------------- ARTICLE III.  COMPENSATION DEFERRED         3.1   Deferred Compensation Account.         A Deferred Compensation Account shall be established as a bookkeeping account for each Director when the Director becomes a Participant. Compensation deferred by a Participant under the Plan shall be credited to the Deferred Compensation Account on the date such compensation would otherwise have been paid to the Participant. Hypothetical income on deferred compensation shall be credited to the Deferred Compensation Account as provided in Section 3.3, below.         3.2   Balance of Deferred Compensation Account.         The balance credited to each Participant's Deferred Compensation Account shall include compensation deferred by the Participant, plus hypothetical income, dividends and gains credited with respect to hypothetical investments. Losses from hypothetical investments shall reduce the amount credited to the Participant's Deferred Compensation Account balance. The balance credited to each Participant's Deferred Compensation Account shall be determined as of each Valuation Date.         3.3   Hypothetical Investment.                (a)    Compensation deferred under the Plan which would have been paid in cash shall be assumed to be invested, without charge, in one or more hypothetical investment vehicles. The hypothetical investment vehicles shall be specified from time to time by the Administrator, except that a hypothetical Common Stock investment vehicle shall be available. With respect to such hypothetical investments other than the hypothetical Common Stock investment vehicle, which is discussed in Section 3.3(b) below:                     (1)    Cash compensation deferred shall be deemed to earn investment returns under the hypothetical investment vehicle. The Administrator shall credit such income to the Participant's Deferred Compensation Account, pursuant to Section 3.4 below.                     (2)    The Committee, in its sole discretion, may provide Plan Participants with options for one or more additional hypothetical investment vehicles for investment of cash compensation deferred under the Plan, with respect to which:                          (A) A Participant may modify his election of a hypothetical investment and may make any transfers between and among hypothetical investments, through a written request to the Administrator, provided that,                          (B) Only one such modification or transfer shall be allowed during any calendar quarter;                          (C) Any such modification or transfer shall be effective in the second calendar month following receipt of the request by the Administrator; and 5 --------------------------------------------------------------------------------                          (D) Such modifications and transfers will be in accordance with rules and procedures adopted by the Administrator.                (b)    Compensation deferred under the Plan and credited as a bookkeeping entry to the Participant's Deferred Compensation Account may be deemed to be invested, hypothetically and without charge, in shares of hypothetical Common Stock. Shares of hypothetical Common Stock shall be subject to adjustment in order to reflect Common Stock dividends, splits, and reclassifications. Except in the event of a Change of Control, amounts credited to the Participant's Deferred Compensation Account and deemed invested in hypothetical Common Stock must remain so invested, and no other hypothetical investment vehicle available hereunder may be substituted therefor until the January following the Participant's Termination of Service. Thereafter, changes to the deemed hypothetical investment in Common Stock may be made only in accordance with Section 3.3(a) above; provided that all such changes occurring within six months after the Participant's Termination of Service shall be subject to approval by the Administrator to ensure compliance with Section 16 of the Securities Exchange Act of 1934.                (c)    Amounts equal to cash dividends which would have been paid on shares of Common Stock shall be deemed paid on whole shares of hypothetical Common Stock in the Participant's Deferred Compensation Account. Such amounts shall be deemed reinvested in shares of hypothetical Common Stock in the Participant's Deferred Compensation Account.                (d)    In the event of a Change of Control, the Committee shall provide Participants with the option for investment in at least one hypothetical investment vehicle, the annual income earned on which must be not less than 50 basis points over the Ten-Year Constant Treasury Maturity Yield as reported by the Federal Reserve Board, based upon the November averages for the preceding year.         3.4   Time of Hypothetical Investment.                (a)    The balance of each Participant's Deferred Compensation Account shall be deemed hypothetically invested on each Valuation Date, and income shall accrue on such balance upon such date, from the previous Valuation Date.                (b)    Compensation which would have been paid in cash shall be deemed invested in the Participant's Deferred Compensation Account on the Valuation Date next following such hypothetical investment or credit.                (c)    Compensation hypothetically invested in Common Stock shall be deemed invested in shares of Common Stock as of the date such compensation otherwise would have been payable to the Participant. The number of shares of Common Stock in which compensation is deemed hypothetically invested in the Deferred Compensation Account shall be determined by reference to the average of the high and low price as reported on the Nasdaq Stock Market for the day that the said compensation otherwise would have been payable to the Participant (or the next Business Day, if such day is not a Business Day) provided, that in absence of such information, the Common Stock value shall be determined by the Committee. 6 --------------------------------------------------------------------------------         3.5   Statement of Account.         The Administrator shall provide each Participant a statement of his Deferred Compensation Account at least annually. ARTICLE IV.   PAYMENT OF DEFERRED COMPENSATION         4.1   Payment of Deferred Compensation.                (a)    The Administrator shall make payments measured by the hypothetical amounts credited to the Participant's Deferred Compensation Account in accordance with the Participant's Payment Election.                (b)    Compensation deferred under the Plan shall be paid to the Participant in cash pursuant to Section 4.1(a).         4.2.   Unforeseeable Emergency Payment.         Notwithstanding any other provision of the Plan, if the Board, after consideration of a Participant's application, determines that the Participant has an Unforeseeable Emergency of such a substantial nature that immediate payment of compensation deferred under the Plan is warranted, the Board in its sole and absolute discretion may direct that a payment equal to all or a portion of the balance of the Participant's Deferred Compensation Account be paid to the Participant in cash. The amount of any such distribution shall be limited to the amount deemed necessary by the Board to alleviate or remedy the Unforeseeable Emergency. The payment shall be made in a manner and at the time specified by the Board. A Participant receiving an Unforeseeable Emergency payment is deemed to have revoked his election for deferral of compensation under the Plan, as of the time of Unforeseeable Emergency payment. Any subsequent deferral of compensation under the Plan shall require that the Participant execute a new Deferral Election, subject to terms of Section 2.2(e)(1) hereof. The circumstances that will constitute an Unforeseeable Emergency will depend upon the facts of each case, but, in any case, payment may not be made to the extent that such hardship is or may be relieved:                (a)    Through reimbursement or compensation by insurance or otherwise;                (b)    By liquidation of the Participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship; or                (c)    By cessation of deferrals under the Plan.         Examples of what are not considered to be Unforeseeable Emergencies include the need to send a Participant's child to college or the desire to purchase a home.         4.3   Certain Accelerated Payments. 7 --------------------------------------------------------------------------------                (a)    If a Participant terminates service as a Director under circumstances which are such that the Board deems it in the best interest of PMA Capital that payment of the Participant's Deferred Compensation Account be accelerated, then the Board, upon its own motion and in its sole discretion, may direct that the Participant's Deferred Compensation Account be paid to him immediately in a lump sum.                (b)    If, as a result of substantial and unforeseen changes affecting (1) the business of PMA Capital, or (2) the operation or administration of the Plan, the Board, upon its own motion and sole discretion, determines that the interests of the Participant and of PMA Capital are best served through accelerated payment of the Participant's Deferred Compensation Account, the Board on its own motion and in its sole discretion may direct that the Participant's Deferred Compensation Account balances be paid to him immediately in a lump sum.                (c)    A Participant who is not entitled to payment of his Deferred Compensation Account under any other provision of Article IV may make a written request to the Board for an accelerated payment of his entire Deferred Compensation Account balance. If the Board receives such a request, it shall make a final valuation of the Participant's Deferred Compensation Account and pay ninety percent (90%) of the Deferred Compensation Account balance to the Participant. The Participant shall forfeit the remaining ten percent (10%) of his Deferred Compensation Account balance to PMA Capital.         4.4   Payments of a Deceased Participant's Account                (a)    If a Participant dies before his entire Deferred Compensation Account has been paid to him, the Administrator shall pay an amount equal to the amount credited to the Deferred Compensation Account in a single lump sum payment to the person(s) or trust(s) designated in writing by the Participant as his beneficiary(ies) under the Plan. The Administrator is authorized to establish rules and procedures for designations of beneficiaries and shall have the sole discretion to make determinations regarding the existence and identity of beneficiaries and the validity of beneficiary designations.                (b)    Notwithstanding Section 4.4(a), the Administrator shall make payment pursuant to Section 4.4(a), as soon as administratively feasible, in a single lump sum payment to the Participant's estate if:                     (1)    The Participant dies without having a valid beneficiary designation in effect;                     (2)    The Participant's designated beneficiary has predeceased him;                     (3)    The Participant's designated beneficiary cannot be found after what the Administrator determines, in his sole discretion, has been a reasonably diligent search; or                     (4)    The Administrator determines, in his sole discretion, that a payment in such form is in the best interest of PMA Capital. 8 -------------------------------------------------------------------------------- ARTICLE V.   GENERAL PROVISIONS         5.1   Participant Requests         A Participant shall take no part in any decision pertaining to a request by such Participant under Sections 2.4, 4.2, and 4.3 hereof.         5.2   Participant's Rights Unsecured.         This Plan is intended to be an unfunded plan for the benefit of Participants. No Participant shall have any property interest whatsoever in any specific assets of PMA Capital. No action taken pursuant to the provisions of this Plan shall create or be construed to create a trust of any kind or a fiduciary relationship between PMA Capital and the Participant, the Participant's designated beneficiaries, or any other person. To the extent that any person acquires a right to receive payments from PMA Capital under this Plan, such right shall be no greater than the right of any unsecured general creditor of PMA Capital or of any successor company which assumes the liabilities of PMA Capital. The Board may, however, in the event of a Change of Control of PMA Capital or for administrative reasons, fully fund the Plan by means of a contribution to a "rabbi" trust selected by the Administrator.         5.3   Assignability.                (a)    No right to receive payments hereunder shall be transferable or assignable by a Participant. Any attempted assignment or alienation of payments hereunder shall be void and of no force or effect. No such payment, prior to receipt thereof pursuant to the provisions of the Plan, shall be in any manner liable for, or subject to, the debts, contracts, liabilities, engagements or torts of the Participant.                (b)    Notwithstanding Section 5.3(a), if a Participant is indebted to PMA Capital at any time when payments are to be made by PMA Capital to the Participant under the provisions of the Plan, PMA Capital shall have the right to reduce the amount of payment to be made to the Participant (or the Participant's beneficiary) to the extent of such indebtedness. Any election by PMA Capital not to reduce such payment shall not constitute a waiver of its claim for such indebtedness.         5.4   Administration.         Except as otherwise provided herein, the Plan shall be administered by the Administrator who shall have the authority to adopt rules and regulations for carrying out the Plan, and who shall interpret, construe and implement the provisions of the Plan. 9 --------------------------------------------------------------------------------         5.5   Amendment.         The Plan may be amended, restated, modified, or terminated by the Board of Directors, except that Section 3.3(d) of the Plan may not be amended or modified following a Change of Control without the consent of the Participant. No amendment, restatement, modification, or termination shall reduce the dollar value of a Participant's Deferred Compensation Account balance as of the Valuation Date immediately preceding such action.         5.6   Correction of Errors and Inconsistencies.         The Committee upon its own motion, or at the request of the Administrator or of a Participant, shall have the authority to effect consistency among deferral elections, payment elections, or hypothetical investment with respect to amounts deferred by a Participant under the Plan, so as to avoid or rectify difficulties in Plan administration. In no event shall such action by the Committee reduce the dollar value of a Participant's Deferred Compensation Account balance as of the Valuation Date immediately preceding such action, nor shall the Committee take any action inconsistent with Section 3.3(b) hereof. The Committee may take such action with respect to a Participant's Deferred Compensation Account, regardless of whether such Participant may continue as a Director of PMA Capital, or whether he may have terminated service as a Director of PMA Capital.         5.7   Compliance with Section 16.         If the Administrator determines that, in order to comply with Section 16 of the Securities Exchange Act of 1934, as amended, it is necessary for the Board rather than the Committee to take any action which the Plan authorizes the Committee to take, the Administrator shall request the Board to do so.         5.8    Withholding/Employment Taxes.         As required by applicable tax law, PMA Capital may withhold, deduct and adjust a Participant's Deferred Compensation Account for all amounts necessary to satisfy any federal, state or other governmental withholding taxes arising directly or indirectly in connection with the Plan or any deferral hereunder whether under current or future tax laws.         5.9   No Liability for Interpretation and Administration of Plan.         No officer, director, or member of PMA Capital shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan unless attributable to willful misconduct or fraud. To the extent coverage is not provided by any applicable insurance policy, PMA Capital hereby agrees to indemnify the Administrator and to hold him harmless against any and all liability for his acts, omissions and conduct and for the acts, omissions and conduct of his duly appointed agents made in good faith pursuant to the provisions of the Plan, including, without limitation, any out-of-pocket expenses reasonably incurred in the defense of any claim relating thereto; provided, however, that he shall not voluntarily assume or admit any liability, nor, except at his own cost, shall he make any payment, assume any obligations or incur any expense without the prior written consent of PMA Capital. 10 --------------------------------------------------------------------------------         5.10   Incapacity of Recipient.         If PMA Capital finds that any person to whom any payment is payable under this Plan is unable to take care of his or her affairs because of illness or accident, any payment due (unless a prior claim therefor has been made by a duly appointed guardian, committee or other legal representative) may be paid to the intended recipient's spouse, child, parent, brother or sister, or any other person deemed by PMA Capital to have incurred expense for the person otherwise entitled to payment, in such manner and proportions as PMA Capital may determine. Any such payments, to the extent thereof, shall be a complete discharge of PMA Capital's obligation under this Plan.         5.11   Construction.         The masculine gender where appearing in the Plan shall be deemed to include the feminine gender. The singular shall be deemed to include the plural and the plural the singular.         5.12   Successors and Heirs.         The Plan and any properly executed elections hereunder shall be binding upon PMA Capital and the Participants, and upon any assignee or successor in interest to PMA Capital and upon the heirs, legal representatives and beneficiaries of any Participant         5.13   Governing Law.         This Plan shall be governed by the laws of the Commonwealth of Pennsylvania and by applicable Federal law. Adopted by Board of Directors:     November 3, 1999 Amended by Board of Directors:   November 1, 2000 11 --------------------------------------------------------------------------------

ORION DIVERSIFIED TECHNOLOGIES, INC. 53 WEST HILLS ROAD HUNTINGTON STATION, NY 11746 July 25, 2001 David Sackler, Syosset, New York Dear Mr. Sackler: Enclosed herewith please find, Resolution of the Board dated July 25, 2001. You are hereby relieved of the duties of President Pro temp, and you are requested to refrain from taking any actions for or on behalf of Orion Diversified Technologies, Inc. You are further informed that any losses arising from your filing Form 15 with the SEC without Board Resolution constitutes an ultra vires act, which is prohibited by law. Sincerely, By:/s/Joseph Petito Joseph Petito Enc. cc: Frank Hariton, Esq. Steven Bloom, CPA Robert Anthony, SEC Roger Bernhammer, Continental Stock Transfer

EX: 10.2 SPECIAL SEPARATION AGREEMENT       This SPECIAL SEPARATION AGREEMENT (“Agreement”) is entered into as of this 19 day of June, 2000, by and between First National Bank (the “Company”) and Charles J. Dolezal (the “Executive”) and is guaranteed by National Bancshares Corp. (the “Parent Company”).       WHEREAS, the Executive is presently in the employ of the Company as President and Chief Executive Officer of the Company; and       WHEREAS, the Company has determined that it is desirable to obtain from the Executive certain protections with respect to non-disclosure, non-interference and noncompetition; and       WHEREAS, the Company has determined that it is desirable to agree at this time to provide the Executive with severance benefits under certain circumstances after a Change in Control has occurred in order that the Executive may more fully focus his current efforts on expanding the Company’s business and profits without concern for his personal security in the event of a Change in Control;       WHEREAS, the Company and the Executive desire to set forth in a written agreement the terms and provisions of these protections; and       WHEREAS, the Parent Company desires to guarantee the benefits payable under this Agreement;       NOW THEREFORE, in consideration of the foregoing, the mutual covenants and agreements set forth in this Agreement, the Company and the Executive agree as follows:   -------------------------------------------------------------------------------- Section 1. Definitions       1.1 Affiliate. The term “Affiliate” shall mean any entity controlling, controlled by or under common control with the Company, including, but not limited to, divisions and subsidiaries of the Company.       1.2 Cause. The term “Cause” shall include:   a.   a breach of the Executive’s obligations under Section 5 hereof; or     b.   the indictment of the Executive for, conviction of the Executive for, or written confession of the Executive to a misdemeanor or felony against the Company or any of its Affiliates, employees or customers, including but not limited to embezzlement or embezzlement of customer account assets, but excluding any such misdemeanor or felony related to an automobile accident.       1.3 Change in Control. The term “Change in Control” shall include:   a.   the first purchase of shares pursuant to a tender offer or exchange (other than a tender offer or exchange by the Parent Company) for twenty-five percent (25%) or more of the Parent Company’s common stock of any class and any securities convertible into such common stock;     b.   the receipt by the Parent Company of a Schedule 13D or other advice after the date of execution of this Agreement indicating that a person is the “beneficial owner” (as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934) of twenty-five percent (25%) or more of the Parent Company’s common stock of any class or any securities 3 convertible in such common stock calculated as provided in paragraph (d) of said Rule 13d-3; 2 --------------------------------------------------------------------------------   c.   the date of approval by stockholders of the Parent Company of an agreement providing for any consolidation or merger of the Parent Company in which the Parent Company will not be the continuing or surviving corporation or pursuant to which shares of capital stock, of any class or any securities convertible into such capital stock, of the Parent Company would be converted into cash, securities, or other property, other than a merger of the Parent Company in which the holders of common stock of all classes of the Parent Company immediately prior to the merger would own in excess of fifty percent (50%) of the common stock of the surviving corporation immediately after the merger;     d.   the date of the approval by stockholders of the Parent Company of any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Parent Company or the Company;     e.   the adoption of any plan or proposal for the liquidation (but not a partial liquidation) or dissolution of the Company or the Parent Company;     f.   any transaction whereby the Company ceases to be a wholly owned subsidiary of the Parent Company;     g.   any sequence of events whereby the individuals who constitute the Board of Directors of the Parent Company as of the date of this Agreement (“Incumbent Directors”) together with individuals whose election or nomination for election by the Parent Company’s shareholders was approved by a majority of the Incumbent Directors do not constitute at least seventy-five percent (75%) of the then current Board of Directors of the Parent Company; or 3 --------------------------------------------------------------------------------   h.   such other event as the Outside Committee Members shall, in their sole and absolute discretion, deem to be a “Change in Control.”       1.4 Company. The term “Company” shall mean First National Bank or any successor corporation or business organization which shall assume the obligations of the Company under Agreement.       1.5 Confidential Information. The term “Confidential Information” shall mean any and all information (excluding information in the public domain) which relates to the business of the Company and its Affiliates, including without limitation all information relating to the identity and/or location of all past, present and prospective customers of the Company and its Affiliates, strategic plans, financial plans, financial information, computer programs, information concerning pricing and pricing policies, marketing techniques, and methods and manner of operations.       1.6 Good Reason. The term “Good Reason” shall include:   a.   any reduction in either the current base salary or the annual bonus of the Executive;     b.   any material reduction in the employee benefits and fringe benefits of the Executive;     c.   any material reduction in the position, office or title of the Executive;     d.   the Executive ceases to have the powers, perquisites, responsibilities or duties commensurate with being the President and Chief Executive Officer of a bank of comparable size to the Company;     e.   the Executive ceases to report to the Board of Directors of the Bank; or 4 --------------------------------------------------------------------------------   f.   the principal place of employment of the Executive is relocated to any location which is outside of a twenty (20) mile radius of the current main office of the Company in Orrville, Ohio.       1.7 Outside Committee Members. The term “Outside Committee Members” shall mean members of the Executive Committee of the Board of Directors of the Company who are not employees of the Company or an Affiliate; provided, however, that in the event of a Change in Control, “Outside Committee Members” shall mean those same individuals who were Outside Committee Members immediately prior to such Change in Control.       1.8 Parent Company. The term “Parent Company” shall mean National Bancshares Corp. or any successor corporation or business organization which shall assume the obligations of the Parent Company under Agreement.       1.9 Protection Period. The term “Protection Period” shall mean the thirty-six (36) month period after a Change in Control occurs.       1.10 Successor. The term “Successor” will include any person, firm, corporation or business entity which acquires all or substantially all of the assets or succeeds to the business of the Company. Section 2. Employment Terminations Which Qualify For Severance Benefits       2.1 Termination by the Company Other Than For Cause. In the event the Company terminates the Executive’s employment within the Protection Period other than for Cause, the Executive will be entitled to receive the Severance Benefits set forth in Section 4 hereof.       2.2 Voluntary Termination by the Executive With Good Reason. In the event the Executive terminates his employment within the Protection Period with Good Reason, the 5 -------------------------------------------------------------------------------- Executive will be entitled to receive the Severance Benefits set forth in Section 4 hereof. In order to terminate employment in accordance with this Section 2.2, an Executive must give sixty (60) days advance written notice of his impending termination of employment to the Company, specify the reason for such termination in such notice and provide the Company with an opportunity to correct the situation which he feels necessitates his termination of employment with Good Reason under this Section 2.2. Section 3. Employment Terminations Which Do Not Qualify For Severance Benefits       3.1 Termination by the Company Outside the Protection Period. In the event the Company terminates the Executive’s employment outside the Protection Period, the Executive will not be entitled to receive the Severance Benefits set forth in Section 4 hereof. The Executive shall, however, comply with the provisions of Section 5 hereof. The Company may, in its sole discretion, provide some form or amount of severance benefits to the Executive in such circumstances as the Company shall, in its sole discretion, determine.       3.2 Voluntary Termination by the Executive Outside the Protection Period. In the event the Executive terminates his employment outside the Protection Period, the Executive will not be entitled to receive the Severance Benefits set forth in Section 4 hereof. The Executive shall, however, comply with the provisions of Section 5 hereof.       3.3 Termination by the Company For Cause. In the event the Company terminates the Executive’s employment for Cause (whether before or after a Change in Control), the Executive will not be entitled to receive the Severance Benefits set forth in Section 4 hereof. The Executive shall, however, comply with the provisions of Section 5 hereof. Cause will be determined by the Outside Committee Members in the exercise of good faith and reasonable judgment. 6 --------------------------------------------------------------------------------       3.4 Voluntary Termination by the Executive Other Than For Good Reason. In the event the Executive terminates his employment other than for Good Reason (whether before or after a Change in Control), the Executive will not be entitled to receive the Severance Benefits set forth in Section 4 hereof. The Executive shall, however, comply with the provisions of Section 5 hereof. Section 4. Severance Benefits       In the event that the Company shall terminate the employment of the Executive as described in Section 2.1 hereof, or in the event the Executive terminates his employment as described in Section 2.2 hereof, the Company will, in lieu of any other severance which may otherwise be payable:   a.   Continue to pay to the Executive, for the thirty-six (36) months following his termination of employment, his monthly base salary at the rate in effect as of the date of such termination in accordance with the Company’s normal payroll practices.     b.   Pay to the Executive, with respect to each December 31 on which payments are made pursuant to subsection a. above, a bonus in a cash lump sum. Each such yearly bonus shall equal the bonus paid to the Executive in the year prior to his termination of employment. Each such yearly bonus will be paid to the Executive on the same day as bonuses, if any, are paid to the executives of the Company who are still employed with the Company. If bonuses are not paid to the executives of the Company who are still employed with the Company at the time a bonus is to be paid, such bonus will be paid to the Executive on the first anniversary of the most recent date bonuses were paid to executives of the 7 --------------------------------------------------------------------------------       Company or, if such anniversary has already occurred at the time the Executive terminates employment, on the next subsequent anniversary of said date.     c.   Throughout the thirty-six (36) months following his termination of employment, continue the normal fringe benefits and perquisites being provided to the Executive immediately prior to his termination of employment, including but not limited to life insurance and health care benefits coverage, in the same amounts and at the same cost to the Executive as was applicable prior to the Change in Control; provided, however, that in the event the Executive begins to receive comparable fringe benefits and perquisites (determined at the sole discretion of the Outside Committee Members) from a subsequent employer during such period, the Company may immediately terminate such fringe benefits and perquisites. Coverage under the Company’s health care benefits plan will be in lieu of health care continuation under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) for periods such coverage is in effect under this Agreement.     d.   Pay to the Executive in cash an amount equal to the matching and discretionary contributions which would have been made by the Company under any qualified and nonqualified 401(k), profit sharing, savings or retirement plan of the Company or an Affiliate during the period described in paragraph a of this Section 4 if the Executive made 401 (k) contributions and the Company made matching and discretionary contributions during such period at the same rate as the Executive and the Company made such contributions during the twelve (12) month period immediately prior to the Change of Control. Such amounts 8 --------------------------------------------------------------------------------       shall be paid to the Executive on the same days that the salary is payable to him under paragraph a. above.     e.   Pay for the costs of outplacement services actually used by the Executive; provided, however, that the total fee paid for such services will be limited to an amount equal to ten percent (10%) of the Executive’s annual base salary rate as of the effective date of his termination of employment.     f.   Continue to be obligated to pay when due all other benefits to which the Executive has a vested right according to the provisions of any applicable retirement or other benefit plan or program. Section 5. Covenants       5.1 Disclosure or Use of Information. The Executive will at all times during and after the period of his employment by the Company keep and maintain the confidentiality of all Confidential Information and will not at any time either directly or indirectly use such Confidential Information for his own benefit or otherwise divulge, disclose or communicate such Confidential Information to any person or entity in any manner whatsoever other than employees or agents of the Company or its Affiliates who have a need to know such Confidential Information and then only to the extent necessary to perform their responsibilities on behalf of the Company or its Affiliates.       5.2 Co-operation. During the term of his employment and for a period of five (5) years following his termination of employment, the Executive will not attempt to induce any employee of the Company or an Affiliate to terminate his or her employment with the Company or an Affiliate nor will he take any action with respect to any of the customers of the Company and its Affiliates which would have or might be likely to have an adverse effect upon the 9 -------------------------------------------------------------------------------- business of the Company and its Affiliates. Executive hereby agrees not to make any statement or take any action, directly or indirectly, that will disparage or discredit the Company and its Affiliates, their Officers, Directors of the Company, their employees or any of their products or services, or in any way damage their reputation or ability to do business or conduct their affairs. Executive agrees that subsequent to his termination of employment he will, in conjunction with a Company request, reasonably cooperate with the Company in connection with transition matters, disputes and litigation matters upon reasonable notice, at reasonable times, and will be paid or reimbursed for reasonable expenses incurred by the Executive relating to such matters.       5.3 Non-Competition. The Executive agrees that, in the event his employment with the Company terminates prior to a Change in Control for any reason, he will not for one year after his date of termination of employment, directly or indirectly, work or otherwise perform services for a financial institution or any affiliate of a financial institution which has a branch or location within a twenty (20) mile radius of any branch or location of the Company or any entity which was an Affiliate during the period the Executive was employed by the Company; except that the Executive may work or perform services for such a financial institution provided that his place of employment is outside of a twenty (20) mile radius of any branch or location of the Company or any such Affiliate and provided further that the Executive does not have any direct or indirect control, oversight, supervision or involvement with the operations which are conducted by any of the branches or locations which are within a twenty (20) mile radius of any branch or location of the Company or any Affiliate and does not have any customer contact or solicit customers, potential customers or business located within a twenty (20) mile radius of any branch or location of the Company or any Affiliate. This provision will have no force or effect if the employment of the Executive terminates subsequent to a Change in Control. 10 --------------------------------------------------------------------------------       The Executive understands that the foregoing restrictions of this Section 5.3 may limit his ability to engage in certain business pursuits, but acknowledges that the protections of this Agreement for the Executive justify such restrictions. The Executive acknowledges that he understands the effect of the provisions of this Section 5.3, that he has had reasonable time to consider the effect of these provisions, and that he was encouraged to and had an opportunity to consult an attorney with respect to these provisions. The Company and the Executive consider the restrictions contained in this Section 5.3 to be reasonable and necessary. Nevertheless, if any aspect of these restrictions is found to be unreasonable or otherwise unenforceable by a Court of competent jurisdiction, the parties intend for such restrictions to be modified by such Court so as to be reasonable and enforceable and, as so modified by the Court, to be fully enforced.       5.4 Injunctive Relief. In the event of a breach or threatened breach of any of the provisions of this Section 5 by the Executive, the Executive and the Company agree that the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions thereof. In addition, the Company will be entitled to pursue such other remedies at law or in equity as it deems appropriate. Section 6. Miscellaneous       6.1 Successors. This Agreement is personal to the Executive and will not be assignable by him without the prior written consent of the Outside Committee Members. This Agreement will be assigned or transferred to and will be binding upon and inure to the benefit of any Successor of the Company.       6.2 Entire Agreement. This Agreement supersedes any prior agreements or understandings, oral or written, between the Executive and the Company with respect to the subject matter hereof and constitutes the entire agreement of the parties with respect thereto. 11 --------------------------------------------------------------------------------       6.3 Administration. The provisions of this Agreement shall be administered by the Outside Committee Members. The Outside Committee Members shall have the sole discretion to make all determinations which may be necessary or advisable for the administration of this Agreement. Any action expressed from time to time by a vote at a meeting, or expressed in writing, after notice to all Outside Committee Members, may be done by a majority of the Outside Committee Members; and such action shall have the same effect for all purposes as if assented to by all the Outside Committee Members.       6.4 Appeals Procedure. Any disputes arising under this Agreement with regard to any determination made by the Company or the Outside Committee Members under this Agreement, including but not limited to any dispute with regard to the denial of Severance Benefits to the Executive, may be appealed to the Outside Committee Members by the Executive. The Executive, or any authorized representative of the Executive, may upon written notice to the Outside Committee Members within sixty (60) days after any such determination or denial request a review by the Outside Committee Members of any such determination or denial. Such review may be made by written briefs submitted by the Executive and the Outside Committee Members or at a hearing, or by both, as shall be deemed necessary by the Outside Committee Members. Any hearing shall be held in the Corporate Headquarters of the Company, unless the Outside Committee Members shall specify otherwise. The date and time of any such hearing shall be designated by the Outside Committee Members upon not less than seven (7) days’ notice to the Executive unless the Executive accepts shorter notice. The Outside Committee Members shall make every effort to schedule the hearing on a day and at a time which is convenient to the Executive. The Outside Committee Members may, in their sole discretion, establish such rules of procedure as it may deem necessary or advisable for the 12 -------------------------------------------------------------------------------- conduct of any such review or of any such hearing. After the review has been completed, the Outside Committee Members shall render a decision in writing, a copy of which shall be sent to the Executive. In rendering their decision, the Outside Committee Members shall have full power and discretion to interpret this Agreement, to resolve ambiguities, inconsistencies and omissions, to determine any question of fact, to determine the right to Severance Benefits, and the amount of Severance Benefits, if any, payable to, the Executive in accordance with the provisions of this Agreement. Such decision shall set forth the specific reason or reasons for the decision and the specific provisions of this Agreement upon which the decision is based. There shall be no further appeal from a decision rendered by a quorum of the Outside Committee Members. Any determination made by the Outside Committee Members as a result of an appeal shall be final and binding in all respects upon the Company, the Parent Company and the Executive.       6.5 Modification. This Agreement will not be varied, altered, modified, canceled, changed, or in any way amended except by mutual agreement in a written instrument executed by either two (2) officers of the Company on behalf of the Board of Directors of the Company or, in the event a Change in Control has occurred, by the Outside Committee Members, and by the Executive, or by their legal representatives.       6.6 Tax Withholding. The Company may withhold from any benefits payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling.       6.7 Governing Law. To the extent not preempted by federal law, the provisions of this Agreement will be construed and enforced in accordance with the laws of the State of Ohio. 13 --------------------------------------------------------------------------------       6.8 Section 280(G) Limit. Notwithstanding anything contained in this Agreement to the contrary, in the event the Company experiences a change described in Section 280G(b)(2)(A)(i) of the Internal Revenue Code, the amounts payable to the Executive under this Agreement which are contingent on such change shall not exceed an amount which; when added to the present value of all other amounts which are payable to him under other plans and programs of the Company, shall cause the total present value of all such amounts to equal one dollar ($1.00) less than three (3) times the base amount (as described in Section 280G(b)(3) of the Internal Revenue Code.)       If the Internal Revenue Service subsequently asserts that the amounts payable to the Executive under this Agreement give rise to an excise tax under Section 4999 of the Internal Revenue Code and the Executive co-operates with the Company in appealing the determination of the Internal Revenue Service through whatever level of administrative or judicial appeals is deemed appropriate by the Company, the Company shall indemnify the Executive for all costs of challenging the determination that the excise tax applies to payments hereunder including any administrative costs, court costs, attorney fees, and accounting fees, whether incurred by the Company or incurred by the Executive.       6.9 Reimbursement of Legal Fees. In the event that the Executive brings an action in a court of law to enforce any provision of this Agreement and prevails in such action in any respect, the Company shall reimburse the Executive for his attorney fees and expenses and any other fees and expenses incurred by the Executive in connection with such cause of action or in connection with the enforcement of this Agreement against the Company.       IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement as of the day and year first above written. 14 -------------------------------------------------------------------------------- First National Bank By: /s/ Charles J. Dolezal       The Parent Company hereby guarantees the benefits payable under this Agreement as of the day and year first above written. National Bancshares Corp. By: /s/ John W. Kropf And: /s/ James F. Woolley 15 -------------------------------------------------------------------------------- Exhibit 10.2 Special Separation Agreement Kenneth R. VanSickle, Sr. Vice President, Chief Loan Officer of the Company entered into an identical agreement on June 14, 2000. Two executive officers of the Company, not named in the Executive Compensation table of the Company’s proxy, also entered into this agreement on June 14 and June 16, 2000. Mr. Dolezal’s and Mr Van Sickle’s agreements have a three-year term and provide for benefits equal to three-year’s pay. The agreements for the two executive officers for the Company, not named in the Executive Compensation table of the Company’s proxy, have a two-year term and provide for benefits equal to two years’s pay.  

EXHIBIT 10.05 Robert S. Islinger 14616 Eby Overland Park, Kansas 66221 Dear Bob: January 23, 2001 This letter replaces Bill Skinner's December 19th offer letter. On behalf of Egghead.com I am pleased to offer you the position of Sr. Vice President of Marketing, reporting to me in my role as President & CEO. You will start working with us during February 2001 on some date mutually agreed upon between you and I. Your cash compensation package will have three components during your first year at Egghead. Your annual base salary will be $225,000 paid in 26 increments over the course of the year. You will receive a $50,000 sign-on bonus, payable as a lump sum within your first 30 days of employment. Finally, your first year's bonus will be guaranteed at $100,000, and paid in equal installments during the beginning of July 2001 and the beginning of January 2002. From 2002 onward, your cash compensation package will have two components. Effective upon your first anniversary with Egghead you will receive a $30,000 increase in your base salary, taking it from $225,000 to $255,000. During 2002 you will begin participation in Egghead's Sr. Management Bonus Program, which will have a payout target of 55% of your base salary for 2002 only. In subsequent years your Sr. Management Bonus Program payout target will be 40% of your base salary. You will begin accruing vacation at the rate of 3 weeks per year on your first day of work. In the event that you are involuntarily terminated, except for a Termination for Cause as defined below, you will be paid 6 months of base salary in a lump sum within 30 days of your termination date. Further, if you voluntarily terminate within six months following the close of a Change of Control transaction as defined below, because your duties, responsibilities, or compensation is materially diminished, or the location of your office is changed by more than 50 miles, you will be paid 6 months base salary in a lump sum within 30 days of your termination date. You will receive an option to purchase 275,000 shares of Egghead common stock, subject to board approval. This stock will vest monthly over a four-year period after a six-month "cliff". Your stock option price will be based upon the closing price of Egghead.com stock the workday prior to the commencement of your employment with us. Many of the costs associated with your relocation to the Vancouver area will be paid directly or reimbursable as stated in the enclosed and amended Relocation Policy. Egghead will provide to you upon request a loan of up to $300,000 to aid in purchasing a home on the following terms: Loan must commence within 1 year of your employment start date Loan period is for 5 calendar years from commencement Loan is at the minimum IRS rate as of the time of origination Loan is payable as follows: Loan can be prepaid at any time Accrued interest payable not less frequently than quarterly 50% of any net proceeds of sale of Egghead.com stock will be used to pay down loan during the loan term Principal payable upon the earlier of (a) end of loan term, (b) sale of property, or (c) within 2 years if employment is terminated without cause by Egghead, but in no event later than 5 calendar years from commencement, or (d) immediately if employment ends for any other reason. Loan to be secured by 2nd interest in property purchased A formal loan note and associated documentation will be drawn up and executed prior to origination of the loan. Egghead provides employees a wide array of benefits including a company matched 401K plan and an Employee Stock Purchase Plan. Most of these benefits, including health care benefits will begin on the first day of your employment. You will be required to sign a standard Employee Inventions and Assignment Agreement and an Acknowledgement and Receipt of Egghead.com's Employee Handbook. Your employment will at all times be "at will", which means that you or Egghead can terminate your employment at any time with or without cause. There will be no express or implied agreements to the contrary. Please sign and return a copy of this letter to indicate your acceptance of our offer. This offer is contingent on the completion of reference checks and a background check. If you have any questions, please feel free to call bill or me. or any other member of the executive staff. This offer expires if not signed and returned by Friday, January 26, 2001. You may fax it to me on (650) 473 6990. Sincerely, /s/ Jeff Sheahan Jeff Sheahan President & CEO I accept this job offer as described above: Signature: /s/ Robert Islinger Date:01/31/01 Definition of Termination for Cause: The company's termination of an executive's employment for (I) willful failure or refusal without proper cause, to substantially perform his duties as an employee of the company; (ii) the executive's conviction for any criminal act, except that a misdemeanor conviction shall not constitute "Termination for Cause" unless it shall have involved misappropriate use of funds or property, fraud, or other similar activity which bears directly upon the executive's ability to perform faithfully his duties as an employee of the Company. The executive shall have an opportunity to appeal such termination to the board of directors of the company. Definition of Change of Control Transaction: (i) a merger or consolidation in which the voting shares of the Corporation immediately before the merger or consolidation do not represent, or are not converted into shares representing, a majority of the voting poser of the surviving corporation; (ii) a transfer of shares representing more than 50% of the voting power of the Corporation to a single entity or person or group of related entities or persons; or (iii) a sale of substantially all of the assets of the Corporation. --------------------------------------------------------------------------------

-------------------------------------------------------------------------------- EXHIBIT 10.60 February 8, 2001 Ultramar Diamond Shamrock Corporation 6000 N. Loop 1604 W. San Antonio, TX 78249 Attention: Steve Blank, Vice President and Treasurer Dear Ladies and Gentlemen:      The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and conditions of the Transaction entered into between us on the Trade Date specified below (the “Transaction”). This Confirmation constitutes a “Confirmation” as referred to in the ISDA Master Agreement specified below.      This Confirmation supplements, forms part of, and is subject to, the ISDA Master Agreement dated as of November 1, 1996, as amended and supplemented from time to time (the “Agreement”), between Morgan Guaranty Trust Company of New York, London Branch (“Seller”) and Ultramar Diamond Shamrock Corporation, a Delaware corporation (“Purchaser”). All provisions contained in the Agreement govern this Confirmation except as expressly modified below. ARTICLE 1 PURCHASE OF THE STOCK      Section 1.01. Purchase of the Stock. Subject to the terms and conditions of this Confirmation, the Purchaser agrees to purchase from the Seller, and the Seller agrees to sell to the Purchaser, on February 8, 2001 or on such other Business Day as the Purchaser and the Seller shall otherwise agree (the “Trade Date”), 10,000,000 shares (the “Number of Shares”) of the Purchaser’s common stock, $.01 par value per share (“Common Stock”), for a purchase price equal to $32.29 per share (the “Initial Purchase Price”); provided that if the Seller is unable to borrow or otherwise acquire a number of shares of Common Stock equal to the Number of Shares for delivery to the Seller on the Initial Settlement Date, the Number of Shares shall be reduced to such number of shares of Common Stock that the Seller is able to borrow or otherwise acquire. The Initial Purchase Price shall be subject to adjustment and such adjusted amounts will be payable as provided in Article 3 hereof.      Section 1.02. Commission. The Purchaser hereby agrees to pay to J.P. Morgan Securities Inc. a commission equal to $.04 per share in connection with the Purchaser's purchase of the Number of Shares (the “Commission”). --------------------------------------------------------------------------------      Section 1.03. Delivery And Payment. On the third Business Day immediately following the Trade Date (such third Business Day, the “Initial Settlement Date”), the Seller shall deliver the Number of Shares to the Purchaser, upon payment by the Purchaser to the Seller of an amount equal to the product of (x) the sum of the Commission and the Initial Purchase Price and (y) the Number of Shares, payable in immediately available funds by wire transfer to the account of the Seller specified to the Purchaser no later than one Business Day prior to the Initial Settlement Date.      Section 1.04. Conditions To Seller’s Obligations. The Seller’s obligation to deliver the Number of Shares to the Purchaser on the Initial Settlement Date is subject to the condition that (a) the representations and warranties made by the Purchaser in this Agreement shall be true and correct at and as of the date hereof and the Initial Settlement Date and (b) Seller shall have received an opinion of the counsel for the Purchaser, substantially to the effect set forth in Exhibit C. ARTICLE 2 DEFINITIONS      Section 2.01. Definitions. (a) As used in this Confirmation, the following terms shall have the following meanings:      “Adjustment Amount” means with respect to (i) any Interim Adjustment Date, the Interim Adjustment Amount and (ii) the Expiration Date, the Purchaser Adjustment Amount.      “Adjustment Date” means any Interim Adjustment Date or the Expiration Date.      “Adjustment Period” means, for any Adjustment Date, the period from and including the later of (i) the Trade Date and (ii) any Interim Adjustment Date prior to such Interim Adjustment Date, to and excluding such Adjustment Date; provided that if such Adjustment Date is the Expiration Date, the Expiration Date shall be included in the Adjustment Period.      “Adjustment Settlement Date” means the third Business Day following any Interim Adjustment Date; provided that if the Purchaser elects pursuant to Section 3.02(b) to deliver Payment Shares, the Adjustment Settlement Date shall be (i) the Trading Day immediately after the day on which the Seller informs the Purchaser of the number of Payment Shares required to be delivered pursuant to Section 3.02(b), (ii) the date the Purchaser delivers cash instead of Payment Shares pursuant to Section 3.02(b)(ii) or (iii) if the Seller shall have elected pursuant to Section 3.05 to require the Purchaser to comply with the Registration Procedures contained in Exhibit B, the Registered Share Delivery Date (as defined in clause (a) of Exhibit B). 2 --------------------------------------------------------------------------------      “Agreement” has the meaning set forth in the second paragraph hereto.      “Affiliated Purchaser” means any “affiliated purchaser” (as such term is defined in Rule 10b-18) of Purchaser.      “Alternative Termination Delivery Unit” means (i) in the case of a Termination Event (other than a Merger Event) or Event of Default (as defined in the Agreement), one share of Common Stock and (ii) in the case of a Merger Event, a unit consisting of the number or amount of each type of property received by a holder of one share of Common Stock in such Merger Event; provided that if such Merger Event involves a choice of consideration to be received by holders of the Common Stock, an Alternative Termination Delivery Unit shall be deemed to include the amount of cash received by a holder who had elected to receive the maximum possible amount of cash as consideration for his shares.      “Averaging Period” means the period from (but excluding) the Final Discretionary Purchase Date until (and including) Expiration Date.      “Bankruptcy Code” has the meaning set forth in Section 9.06.      “Blackout Period” has the meaning set forth in Section 4.02(c).      “Borrow Cost” means, for any date, the LIBOR Rate minus the Rebate Rate.      “Business Day” means any day on which the Exchange is open for trading.      “close of business” means, with respect to any Business Day, the close of trading in the regular session of the Exchange on such day.      “Closing Price” shall mean with respect to shares of Common Stock, the closing sale price per share (or if no closing price is reported, the reported last sale price) of such Common Stock as reported in the composite transactions for the principal United States securities exchange on which such Common Stock is then listed or, if such Common Stock is not listed on a United States securities exchange, the average of the last reported independent bid and offer prices per share of such Common Stock as reported in the composite transactions for the principal United States market quotation system on which such Common Stock is then admitted for trading; provided that if the hours of trading on such exchange or quotation system are extended past 4:00 p.m., “Closing Price” shall mean the last such reported prices at or prior to 4:00 p.m. or such other time as the parties shall otherwise agree.      “Commission” has the meaning set forth in Section 1.02. 3 --------------------------------------------------------------------------------      “Common Stock” has the meaning set forth in Section 1.01.      “Confirmation” has the meaning set forth in the first paragraph hereto.      “Contract Period” means the period from (and including) the Trade Date until (and including) the Expiration Date.      “Daily Share Purchase Amount” means, for any Purchase Date, the number of shares of Common Stock purchased by Seller pursuant to Section 4.01(a) or (b). For the avoidance of doubt, the Daily Share Purchase Amount for any day that is not a Purchase Date in the Contract Period shall be zero.      “Default Notice Day” has the meaning set forth in Section 7.02.      “Deficit Amount” means an amount equal to (i) the value of any shares of Common Stock or Alternative Termination Delivery Units not delivered on a date when otherwise deliverable hereunder as a result of provisos limiting deliveries to the number of Maximum Delivery Shares and any authorized but unissued shares of Common Stock not reserved for Other Transactions (such value to be equal to the value ascribed to such shares or units in determining how many such shares or units were originally required to be delivered), minus (ii) the amount of any cash paid and the value determined pursuant to Section 3.04(b) of any shares or units previously delivered with respect to such Deficit Amount pursuant to Section 3.04 plus (ii) interest on each amount calculated pursuant to clause (i), accruing and compounding daily at a rate equal to the LIBOR Rate plus 200 basis points, as calculated by the Seller, from and including the date when the corresponding shares or units would otherwise have been required to be delivered to but excluding the date upon which the corresponding portion of the Deficit Amount is paid or delivered in full.      “Deficit Share Delivery Date” means the third Business Day following the determination of the value of the Deficit Shares by the Seller pursuant to Section 3.04(b).      “Deficit Shares” has the meaning set forth in Section 3.04(a).      “Discretionary Purchase Period” means the period from (and including) the Trade Date to (and including) the Final Discretionary Purchase Date.      “Excess Borrow Cost” means, for any date which is not a Purchase Date, an amount, so long as such amount is greater than zero, calculated in accordance with the following formula: 4 -------------------------------------------------------------------------------- (RS x IPP x ((ORR - RR) x FVFI) / 360 where RS = the Remaining Shares as of such date; IPP = the Initial Purchase Price; ORR = the Rebate Rate for the Purchase Date immediately preceding such date; RR = the Rebate Rate as of such date; FVFI = the Future Value Factor for such day; provided that "n" in the definition thereof shall be the number of calendar days from, but excluding, such day, to and including the Expiration Date.      “Exchange” means the New York Stock Exchange.      “Exchange Act” means the Securities Exchange Act of 1934, as amended.      “Expiration Date” means the Trading Day on which the Remaining Shares equal zero.      “Extended Settlement Date” means an Adjustment Settlement Date or the Final Settlement Date, as applicable, in each case as extended pursuant to the provisos in the definitions thereof.      “Federal Funds Rate” means, for any day, the rate on such day for Federal Funds, as published by Telerate on page 129, titled Federal Funds Rate, under the column, “Open”; provided, that if any such day is not a New York Banking Day, the Federal Funds Rate for such day shall be the Federal Funds Rate for the immediately preceding New York Banking Day.      “Final Adjustment Period” means the period from and including the later of (i) the Trade Date or (ii) the last Interim Adjustment Date prior to the Expiration Date, to and including the Expiration Date.      “Final Discretionary Purchase Date” means the date 200 Trading Days following the Trade Date; provided that such date shall be extended by a number of Trading Days equal to the number of Trading Days for which purchases of Common Stock by the Seller are suspended pursuant to Section 4.02.      “Final Settlement Date” means the third Business Day following the Expiration Date; provided that if the Purchaser elects pursuant to Section 3.01(b) to deliver Payment Shares, the Final Settlement Date shall be the Trading Day immediately after (i) the day on which the Seller informs the Purchaser of the number of Payment Shares required to be delivered pursuant to Section 3.01(b), (ii) the date the Purchaser delivers cash instead of Payment Shares pursuant to Section 3.02(a)(ii) or (iii) if the Seller shall have elected pursuant to Section 3.05 to require the Purchaser to comply with the Registration Procedures contained in Exhibit B, the Registered Share Delivery Date (as defined in clause (a) of Exhibit B). 5 --------------------------------------------------------------------------------      “Future Value Factor” means, on any day, an amount calculated according to the following formula: 1 + ILIBOR x n/360 where ILIBOR = the Interpolated LIBOR Rate for such day; and N = the number of calendar days from, but excluding, such day, to, and including, the earlier of (i) the first Interim Adjustment Date following such day or (ii) the Expiration Date.      “Indemnified Person” has the meaning set forth in Section 9.02.      “Indemnifying Person” has the meaning set forth in Section 9.02.      “Initial Purchase Price” has the meaning set forth in Section 1.01.      “Initial Settlement Date” has the meaning set forth in Section 1.03.      “Interest Adjustment Amount” means, for any Purchase Date in the Contract Period, an amount (which may be positive or negative) calculated according to the following formula: (SP-IPP) x FFR x DSA x n/360 where SP = the Settlement Price per Share for such Purchase Date; IPP = the Initial Purchase Price; FFR = the Federal Funds Rate for such Purchase Date; DSA = the Daily Share Purchase Amount for such Purchase Date; and n = the number of calendar days in the period commencing on (but excluding) the third Trading Day immediately following such day and ending on (and including) the earlier of the third Trading Day immediately following (i) the first Interim Adjustment Date following such day or (ii) the Expiration Date. 6 --------------------------------------------------------------------------------      For the avoidance of doubt, the Interest Adjustment Amount shall be zero for any day that is not a Purchase Date.      “Interim Adjustment Amount” means, for any Interim Adjustment Date, an amount equal to (i) the sum of the Settlement Prices for all Purchase Dates during the corresponding Adjustment Period, minus (ii) the applicable Strike Price multiplied by the sum of the Daily Share Purchase Amounts for all Purchase Dates occurring during the corresponding Adjustment Period.      “Interim Adjustment Date” means any date occurring prior to the Expiration Date that is specified as such by the Seller pursuant to Section 3.02.      “Interim Adjustment Trigger” means, for any date, the Interim Adjustment Amount as of such date, calculated as if such date were an Interim Adjustment Date, divided by the Closing Price for the Trading Day immediately preceding such date.      “Interpolated LIBOR Rate” means, for any day, the LIBOR rate for deposits in U.S. dollars for the period commencing on (but excluding) such day and ending on (and including) the earlier of the next Interim Adjustment Date or the Expiration Date, as determined in good faith by the Seller by an interpolation of published LIBOR rates for the relevant period, as such rates are published on Telerate page 3750 as of 11:00 a.m., London time on such day (or such other page as may replace that page on that service, or such other service as may be nominated by the Seller as the information vendor, for the purpose of displaying rates comparable to LIBOR); provided that if any such day is not a London Banking Day, the LIBOR Rate for such day shall be the LIBOR Rate for the immediately succeeding London Banking Day.      “LIBOR Rate” means, for any day, the LIBOR rate for deposits in U.S. dollars for the one month period commencing on such day, as such rates are published on Telerate page 3750 as of 11:00 a.m., London time on such day (or such other page as may replace that page on that service, or such other service as may be nominated by the Seller as the information vendor, for the purpose of displaying rates comparable to LIBOR); provided that if any such day is not a London Banking Day, the LIBOR Rate for such day shall be the LIBOR Rate for the immediately succeeding London Banking Day.      “London Banking Day” means any day on which dealings in U.S. dollar deposits are transacted in the London interbank market. 7 --------------------------------------------------------------------------------      “Maximum Delivery Shares” means, for any date, 150,000,000 shares of Common Stock, minus the net number of shares of Common Stock delivered by the Purchaser to the Seller in respect of this Transaction on or prior to such date, plus the net number of shares of Common Stock delivered by the Seller to the Purchaser in respect of this Transaction on or prior to such date, minus the portion of the Maximum Delivery Shares allocated on or prior to such date to other transactions between the parties pursuant to a provision similar to the following proviso in any agreement relating to any such other transaction (in each case subject to appropriate adjustments to the Maximum Delivery Shares in the event of a Potential Adjustment Event (as such term is defined in the 1996 ISDA Equity Derivatives Definitions), a Merger Event or any adjustment of the type described in Section 8.02); provided that the Purchaser may, if the number of Maximum Delivery Shares is insufficient to permit complete settlement of this Transaction, allocate additional shares of Common Stock to the Maximum Delivery Shares for this Transaction from the then-applicable Maximum Delivery Shares (however described), if any, of all other outstanding transactions (including, without limitation, shares of Common Stock reserved for issuance upon the exercise of options) relating to shares of Common Stock entered into between the Purchaser and the Seller on or prior to the date of such allocation, notwithstanding any provision to the contrary in any agreement relating to any such other transaction, as determined by the Seller.      “Merger Event” has the meaning set forth in Section 7.01(d).      “Nationalization” has the meaning set forth in Section 7.01(e).      “New York Banking Day” means any day other than a Saturday, a Sunday, a legal holiday or a day on which banking institutions are authorized or required by law or regulation to close in The City of New York.      “Number of Shares” has the meaning set forth in Section 1.01.      “Obligations” has the meaning set forth in Section 9.02.      “Other Transactions” means any existing commitments of the Purchaser or any affiliate (other than this Transaction) with respect to delivery of shares of Common Stock within the meaning of Paragraph 16 of EITF Issue No. 00-19, “Determination of Whether Share Settlement is Within Control of the Issuer for Purposes of Applying Issue No. 96-13” that the Purchaser or any of its affiliates enters into from time to time, in each case where the Purchaser or its affiliate has the right to net share settle such transaction or commitment with shares of Common Stock. 8 --------------------------------------------------------------------------------      “Payment Shares” has the meaning set forth in Section 3.01(b).      “Private Placement Price” means the per share or per unit value of any securities determined as set forth in Section 3.03(c).      “Private Securities” has the meaning set forth in Section 3.03(a).      “Purchase Date” means any Trading Day during the Contract Period on which the Seller purchases Common Stock pursuant to Section 4.01(a) or Section 4.01(b).      “Purchased Shares” mean, at any date, the sum of the Daily Share Purchase Amounts for all Purchase Dates occurring prior to such date.      “Purchaser” has the meaning set forth in the second paragraph hereto.      “Purchaser Adjustment Amount” means an amount equal to (i) the sum of the Settlement Prices for all Purchase Dates during the Final Adjustment Period, minus (ii) the Strike Price multiplied by the sum of the Daily Share Purchase Amounts for all Purchase Dates during the Final Adjustment Period, plus (iii) the sum of the Excess Borrow Costs for each date during the Contract Period that is not a Purchase Date.      “Rebate Rate” shall mean, as of any date, the volume weighted average of the daily interest rates, expressed on a per annum basis, that the Seller or an affiliate, or counterparty to a hedging transaction with the Seller or such affiliate, earns on all funds posted as margin or deposited as collateral against market borrowings of Common Stock on an overnight basis in relation to this Transaction. For the avoidance of doubt, the Rebate Rate may be a negative number if such interest rate is zero and an additional fee is paid to the lender of Common Stock.      “Regulation M” means Regulation M under the Exchange Act.      “Registration Notice Date” has the meaning set forth in Section 3.05.      “Registration Threshold” has the meaning set forth in Section 3.06.      “Registration Trigger Amount” has the meaning set forth in Section 3.06.      “Remaining Shares” means, for any date, a number of shares of Common Stock equal to the greater of (x) zero and (y) the Number of Shares minus the Purchased Shares as of the opening of the Exchange on such date. 9 --------------------------------------------------------------------------------      “Rule 10b-18” means Rule 10b-18 promulgated under the Exchange Act (or any successor rule thereto).      “SEC” means the Securities and Exchange Commission.      “Securities Act” means the Securities Act of 1933, as amended.      “Seller” has the meaning set forth in the second paragraph hereto.      “Seller Adjustment Amount” means an amount equal to (i) the Strike Price multiplied by the sum of the Daily Share Purchase Amounts for all Purchase Dates during the Final Adjustment Period, minus (ii) the sum of the Settlement Prices for all Purchase Dates during the Final Adjustment Period, minus (iii) the sum of the Excess Borrow Costs for each date during the Contract Period which is not a Purchase Date.      “Seller Payment Share Purchase Period” has the meaning set forth in Section 3.01(d).      “Settlement Date” means, as applicable, the Adjustment Settlement Date or the Final Settlement Date.      “Settlement Interest” means interest on the applicable Adjustment Amount at a rate per annum equal to the LIBOR Rate for the applicable Adjustment Date, for the period from and including the applicable Adjustment Date to but excluding the applicable Settlement Date or other date when the applicable Adjustment Amount is paid.      “Settlement Price” means, for any Purchase Date, the total price paid by Seller for shares of Common Stock purchased pursuant to Section 4.01(a) or Section 4.01(b).      “Settlement Price per Share” means, for any Purchase Date, the Settlement Price for such Purchase Date, divided by the Daily Share Purchase Amount for such Purchase Date.      “Share Deficit Notice Date” has the meaning set forth in Section 3.04(a).      “Share De-listing Event” has the meaning set forth in Section 7.01(c).      “Shelf Registration Request” has the meaning set forth in Section 3.06.      “Strike Adjustment Amount” means an amount (which may be positive or negative), with respect to any Adjustment Date, equal to (i) the sum of the Strike Adjustment Amount Calculations for each day in the related Adjustment Period, divided by (ii) the sum of the Daily Share Purchase Amounts for each Purchase Date occurring during such Adjustment Period. 10 --------------------------------------------------------------------------------      “Strike Adjustment Amount Calculation” means, for any date, the amount (which may be positive or negative) equal to difference between:      (1) zero, or if such date is a Purchase Date, an amount calculated according to the following formula: (RS x IPP x ((LIBOR - BC - .80%) x FVFI) - Int. Adj. ---------------------------------------------------------------- 360      and (2) zero, or if such date is the first day on which the Common Stock trades ex-dividend on the Exchange in respect of a particular dividend payment date (such day, an “Ex-Dividend Date”), an amount calculated according to the following formula: (RS1x DA x FVF) where RS = the Remaining Shares for the third immediately preceding Trading Day; provided that if such third day is prior to the Trade Date, RS shall be equal to zero; IPP = the Initial Purchase Price; BC = the Borrow Cost; FVFI = the Future Value Factor for such day; LIBOR = the LIBOR Rate for such day; Int. Adj. = the Interest Adjustment Amount for such day; RS1 = the Remaining Shares on such Ex-Dividend Date; DA = the dividend amount per share with respect to the dividend related to such Ex-Dividend Date, except that such amount shall not include the extent to which dividends are paid to the Purchaser pursuant to Section 8.01; and FVF = the Future Value Factor for the related dividend payment date.      “Strike Price” means, with respect to an Interim Settlement Date or the Final Settlement Date, an amount equal to the sum of (A) the Initial Purchase Price plus (B) the Strike Adjustment Amount with respect to such Interim Settlement Date or Final Settlement Date, as the case may be. 11 --------------------------------------------------------------------------------      “Successor Exchange” has the meaning set forth in Section 7.01(c).      “Termination Amount” has the meaning set forth in Section 7.03.      “Termination Price” means the value of an Alternative Termination Delivery Unit to the Seller (determined as provided in Section 3.03).      “Termination Settlement Date” has the meaning set forth in Section 7.03.      “Trade Date” has the meaning set forth in Section 1.01.      “Trading Day” means any day (i) other than a Saturday, a Sunday or a day on which the Exchange is not open for business, (ii) during which trading of any securities of the Purchaser on any national securities exchange has not been suspended and (iii) during which there has not been, in the Seller’s judgment, a material limitation in the trading of Common Stock or any options contract or futures contract related to the Common Stock.      “Transaction” has the meaning set forth in the first paragraph hereto. ARTICLE 3 ADJUSTMENT OF INITIAL PURCHASE PRICE      Section 3.01. Purchase Price Adjustment. (a) On the Final Settlement Date,             (i)     if the Purchaser Adjustment Amount is greater than zero, as an adjustment to the Initial Purchase Price, the Purchaser shall pay to the Seller the Purchaser Adjustment Amount plus Settlement Interest in the manner provided in clause (b) of this Section 3.01; and             (ii)     if the Seller Adjustment Amount is greater than zero, as an adjustment to the Initial Purchase Price, the Seller shall pay to the Purchaser the Seller Adjustment Amount in the manner provided in clause (c) of this Section 3.01.   (b)             (i)     Payment of the Purchaser Adjustment Amount, if any, plus Settlement Interest shall be in cash or validly issued shares of Common Stock (“Payment Shares”), as the Purchaser shall elect, which binding election shall be made at least five scheduled Trading Days prior to the Expiration Date and communicated to the Seller in writing; provided that the Purchaser shall not have the right to elect payment in Payment Shares unless (A) the representations and warranties made by Purchaser to the Seller in Section 5.01 (including without limitation, the representation and warranty in clause (b) thereof) are true and correct as of the date the Seller makes such election, as if made on such date, and (B) the Purchaser has not taken any action that would make unavailable (x) the exemption set forth in Section 4(2) of the Securities Act, for the sale of any Payment Shares by the Purchaser to the Seller or (y) an exemption from the registration requirements of the Securities Act reasonably acceptable to the Seller for resales of Payment Shares by the Seller. If the Purchaser fails to make such election prior to such day, it shall be deemed to have elected settlement in cash. 12 --------------------------------------------------------------------------------             (ii)     Notwithstanding any election by the Purchaser to make payment in Payment Shares, at any time prior to the time the Seller (or any affiliate of Seller) has contracted to resell such Payment Shares, the Purchaser may deliver in lieu of such Payment Shares an amount in cash equal to the Purchaser Adjustment Amount plus Settlement Interest, in the manner set forth in Section 3.01(e).             (iii)     If the Purchaser elects to pay any Purchaser Adjustment Amount in Payment Shares, then on the Final Settlement Date, the Purchaser shall deliver to the Seller a number of Payment Shares equal to the quotient of (A) Purchaser Adjustment Amount plus Settlement Interest divided by (B) the Private Placement Price (determined in accordance with Section 3.03(c)); provided that Purchaser shall not be required to deliver Payment Shares in excess of the number of Maximum Delivery Shares except to the extent that the Purchaser has at such time authorized but unissued shares of Common Stock not reserved for Other Transactions.      (c) Payment of the Seller Adjustment Amount, if any, shall be in cash or Payment Shares, as the Purchaser shall elect, which such binding election shall be made at least five Trading Days prior to the Expiration Date and communicated to the Seller in writing. If the Purchaser fails to make such election prior to such day, it shall be deemed to have elected settlement in cash.      (d) If the Purchaser elects to receive the Seller Adjustment Amount in Payment Shares then (x) the Seller shall, beginning on the first Trading Day following the Expiration Date and ending when the Seller shall have satisfied its obligations under this clause (the “Seller Payment Share Purchase Period”), purchase (subject to the provisions of Section 4.01(d) and Section 4.02 hereof) shares of Common Stock with an aggregate value (which such value shall be determined by the prices at which the Seller purchases such shares plus a commission of $.04 per share) equal to the Seller Adjustment Amount and (y) the Seller shall deliver such shares of Common Stock to the Purchaser on the settlement dates relating to such purchases. 13 --------------------------------------------------------------------------------      (e) If the Purchaser elects to receive the Seller Adjustment Amount in cash or to pay the Purchaser Adjustment Amount in cash, then payment of the Purchaser Adjustment Amount plus Settlement Interest shall be made by wire transfer of immediately available U.S. dollar funds on the Final Settlement Date.      Section 3.02. Interim Purchase Price Adjustment. (a)If on any date the Interim Adjustment Trigger is equal to or greater than 3% of the total number of shares of Common Stock outstanding on such date, then at any time after such date, the Seller shall have the right to declare any scheduled Trading Day to be an “Interim Adjustment Date” upon notice to the Purchaser.      (b)             (i)     On any Adjustment Settlement Date, the Purchaser shall pay the corresponding Interim Adjustment Amount plus Settlement Interest in either cash or Payment Shares, as the Purchaser shall elect, which binding election shall be made no later than the Trading Day following the Interim Adjustment Date and communicated to the Seller in writing; provided that the Purchaser shall not have the right to elect payment in Payment Shares unless (A) the representations and warranties made by Purchaser to the Seller in Section 5.01 (including without limitation, the representation and warranty in clause (b) thereof) are true and correct as of the date the Seller makes such election, as if made on such date, and (B) the Purchaser has not taken any action that would make unavailable (x) the exemption set forth in Section 4(2) of the Securities Act, for the sale of any Payment Shares by the Purchaser to the Seller or (y) an exemption from the registration requirements of the Securities Act reasonably acceptable to the Seller for resales of Payment Shares by the Seller. If the Purchaser fails to make such election prior to such day, it shall be deemed to have elected settlement in cash.             (ii)     Notwithstanding any election by the Purchaser to make payment in Payment Shares, at any time prior to the time the Seller (or any affiliate of Seller) has contracted to resell such Payment Shares, the Purchaser may deliver in lieu of such Payment Shares an amount in cash equal to the Interim Adjustment Amount plus Settlement Interest.             (iii)     If the Purchaser elects to pay any Interim Adjustment Amount in Payment Shares, then on the Adjustment Settlement Date, the Purchaser shall deliver to the Seller a number of Payment Shares equal to the quotient of (A) such Interim Adjustment Amount plus Settlement Interest divided by (B) the Private Placement Price (determined in accordance with Section 3.03(c)); provided that Purchaser shall not be required to deliver Payment Shares in excess of the number of Maximum Delivery Shares, except to the extent that the Purchaser has at such time authorized but unissued shares of Common Stock not reserved for Other Transactions. 14 --------------------------------------------------------------------------------      (c) If the Purchaser elects to pay the Interim Adjustment Amount in cash, payment of such Interim Adjustment Amount plus Settlement Interest shall be made by wire transfer of immediately available U.S. dollar funds on the Adjustment Settlement Date.      Section 3.03. Determination of Private Placement Price, Payment Shares and Alternative Termination Delivery Units. If Purchaser elects to deliver Payment Shares pursuant to Section 3.01(b) or 3.02(b) or Alternative Termination Delivery Units pursuant to Section 7.02(a), promptly following the relevant Interim Adjustment Date, the Expiration Date or the Early Termination Date, as the case may be:      (a) The Purchaser shall afford the Seller, and any potential buyers of the Payment Shares (or, in the case of alternative termination settlement, Alternative Termination Delivery Units) (collectively, the “Private Securities”) designated by the Seller a reasonable opportunity to conduct a due diligence investigation with respect to the Purchaser customary in scope for private offerings of such type of securities (including, without limitation, the availability of senior management to respond to questions regarding the business and financial condition of the Purchaser and the right to have made available to them for inspection all financial and other records, pertinent corporate documents and other information reasonably requested by them), and the Seller (or any such potential buyer) shall be satisfied in all material respects with the results of such due diligence investigation of the Purchaser.      (b) The Purchaser shall enter into an agreement (a “Private Placement Agreement”) with the Seller (or any affiliate of the Seller designated by the Seller) providing for the purchase and resale by the Seller (or such affiliate) in a private placement (or other transaction exempt from registration under the Securities Act) of the Private Securities, which agreement shall be on commercially reasonable terms and in form and substance reasonably satisfactory to the Seller (or such affiliate), and (without limitation of the foregoing) shall: (i) contain customary conditions, and customary undertakings, representations and warranties (to the Seller or such affiliate, and if requested by the Seller or such affiliate, to potential purchasers of the Private Securities); (ii) contain indemnification and contribution provisions in connection with the potential liability of the Seller and its affiliates relating to the resale by the Seller (or such affiliate) of the Private Securities; 15 -------------------------------------------------------------------------------- (iii) provide for the delivery of related certificates and representations, warranties and agreements of the Purchaser, including those necessary or advisable to establish and maintain the availability of an exemption from the registration requirements of the Securities Act for resales of the Private Securities by the Seller (or such affiliate); (iv) provide for the delivery to the Seller (or such affiliate) of customary opinions (including, without limitation, opinions relating to the due authorization, valid issuance and fully paid and non-assessable nature of the Private Securities, the availability of an exemption from the Securities Act for resales of the Private Securities by the Seller (or such affiliate), and the lack of material misstatements and omissions in the Purchaser's filings under the Exchange Act); and (v) provide for the payment by the Purchaser of all fees and expenses in connection with such sale and resale, including all fees and expenses of counsel for the Seller or such affiliate.      (c) The Seller shall determine the Private Placement Price (or, in the case of alternative termination settlement, the Termination Price) in its discretion by commercially reasonable means, which may include (without limitation): (i) basing such price on indicative bids from investors, (ii) taking into account any factors that are customary in pricing private sales and any and all risks and costs in connection with the resale of the Private Securities by the Seller (or any affiliate of the Seller designated by the Seller), including, without limitation, a reasonable placement fee or spread to be retained by the Seller (or such affiliate); and (iii) in the case of alternative termination settlement, adding to such price interest on the Termination Amount, as the case may be, at a per annum rate equal to the LIBOR rate for the date the Private Placement Price is determined plus 200 basis points, for the period from and including the Early Termination Date to but excluding the Termination Settlement Date.      (d) The Seller shall notify the Purchaser of the number of Private Securities required to be delivered by the Seller and the Private Placement Price (or, in the case of alternative termination settlement, the Termination Price) by 6:00 p.m. on the day such price is determined. 16 --------------------------------------------------------------------------------      (e) The Purchaser agrees not to take or cause to be taken any action that would make unavailable either (i) the exemption set forth in Section 4(2) of the Securities Act, for the sale of any Private Securities by the Purchaser to the Seller or (ii) an exemption from the registration requirements of the Securities Act reasonably acceptable to the Seller for resales of Private Securities by the Seller.      (f) The Purchaser expressly agrees and acknowledges that the public disclosure of all material information relating to the Purchaser is within the Purchaser’s control and that the Purchaser shall promptly so disclose all such information during the period from and including any Adjustment Date to and including the corresponding Extended Settlement Date.      Section 3.04 Continuing Obligation To Deliver Shares. If a Deficit Amount exists at any time, the Purchaser shall, to the extent that the Purchaser has at such time authorized but unissued shares of Common Stock not reserved for Other Transactions, promptly notify the Seller thereof (the date of such notice, a “Share Deficit Notice Date”) and shall deliver to the Purchaser a number of shares of Common Stock (“Deficit Shares”) equal to the quotient of (i) the Deficit Amount divided by (ii) the per share value of the Deficit Shares (determined as provided below); provided that the Purchaser may, at its election, pay any Deficit Amount to the Seller (or any affiliate of the Seller designated by the Seller) in cash.      (b) If the Purchaser delivers Deficit Shares pursuant to Section 3.04(a), the provisions of Section 3.03 shall apply, mutatis mutandis, except that:             (i)     each reference to “Interim Adjustment Date”, “Adjustment Date”and “Early Termination Date”, as applicable, shall be deemed to be a reference to “Share Deficit Notice Date”;             (ii)      the definition of “Private Securities” shall be deemed to include the “Deficit Shares”;             (iii)     each reference to “Extended Settlement Date”or “Termination Settlement Date” shall be deemed to be a reference to “Deficit Share Delivery Date”;             (iv)      each reference to “Adjustment Amount” or “Termination Amount” shall be deemed to be a reference to “Deficit Amount”; and             (v)      each reference to “Private Placement Price” shall be deemed to be a reference to “the value of the Deficit Shares”. 17 --------------------------------------------------------------------------------      (c) On each Deficit Share Delivery Date, the Purchaser shall deliver to the Seller the Deficit Shares for such Deficit Share Delivery Date.      (d) The Purchaser agrees to use its best efforts to cause the number of authorized but unissued shares of Common Stock to be increased to an amount sufficient to permit the Purchaser to fulfill its obligations under this Section 3.04.      Section 3.05. Registration Option. Notwithstanding anything to the contrary in this Agreement, if the Purchaser elects to deliver Payment Shares pursuant to Section 3.01(b) or 3.02(b), Deficit Shares pursuant to Section 3.04(a) or Alternative Termination Units pursuant to Section 7.02(a), the Seller shall have the right to require the Purchaser to use its best efforts to comply with the Registration Procedures set forth in Exhibit B by delivery of written notice to the Purchaser at any time following the date of delivery of the Purchaser’s election to deliver Payment Shares or Alternative Termination Delivery Units (the date of delivery of such notice by the Seller, the “Registration Notice Date”).      Section 3.06. Registration Statement Trigger. If on any date the Interim Adjustment Trigger is equal to or greater than 2% of the total number of shares of Common Stock outstanding on such date (the “Registration Threshold”), the Seller shall have the right to request (the “Shelf Registration Request”) that the Purchaser (and upon such request the Purchaser shall) use its best efforts to, as promptly as possible, file a Registration Statement (as defined in clause (b) of Exhibit B) for an offering, to be made on a continuous basis pursuant to Rule 415 (or any similar or successor rule), if available, under the Securities Act, covering the public resale by the Seller of Registered Securities (as defined in clause (b) of Exhibit B); provided that no such filing shall be required pursuant to this Section 3.06 if the Purchaser shall have filed a similar registration statement with unused capacity at least equal to the Registration Trigger Amount, and such registration statement has been declared by the SEC on or prior to the date the Shelf Registration Request is made and no stop order is in effect with respect to such registration statement as of the date the Shelf Registration Request is made. Such Registration Statement shall cover the sale of Common Stock in an amount at least equal to 200% of the Interim Adjustment Amount used in the calculation of the Interim Adjustment Trigger on the date the Interim Adjustment Trigger equals or exceeds the Registration Threshold (the “Registration Trigger Amount”). The Purchaser shall use its best efforts to cause such Registration Statement to be declared effective by the SEC as promptly as possible. ARTICLE 4 MARKET PURCHASES      Section 4.01. Purchases By The Seller. From time to time during the Discretionary Purchase Period, the Seller shall purchase, in its discretion and subject to Section 4.02, shares of Common Stock, not to exceed, in the aggregate, the Number of Shares. 18 --------------------------------------------------------------------------------      (b) If the aggregate number of shares of Common Stock purchased by the Seller pursuant to Section 4.01(a) during the Discretionary Purchase Period is less than the Number of Shares, then on each Trading Day during the Averaging Period, the Seller shall, subject to Section 4.02, use its reasonable efforts to purchase a number of shares of Common Stock at least equal to 50% of the number of shares of Common Stock that could be purchased (exclusive of block purchases) on such Trading Day by or for the Purchaser of an Affiliated Purchaser pursuant to the limitations imposed by clauses (b)(2), (b)(3), (b)(4) and (c) of Rule 10b-18; provided that the number of shares of Common Stock purchased on any Trading Day shall not exceed the Remaining Shares.      (c) Promptly following each week during the Contract Period, the Seller shall notify the Purchaser of the Daily Share Purchase Amount and the Settlement Price for each Purchase Date during the previous five Trading Days.      (d) It is understood that during the Contract Period and during any Seller Payment Share Purchase Period, the Seller will purchase shares of Common Stock pursuant to this Agreement. The timing of such purchases by the Seller, the price paid per share of Common Stock pursuant to such purchases and the manner in which such purchases are made, including without limitation whether such purchases are made on any securities exchange or privately, shall be within the discretion of the Seller. The Seller and the Purchaser each agree that the Seller shall use reasonable efforts to make all purchases of Common Stock in a manner that would comply with the limitations set forth in clauses (b)(2), (b)(3), (b)(4) and (c) of Rule 10b-18 as if such rule were applicable to such purchases. For this reason, the Purchaser shall, at least one day prior to the first day of the Contract Period, notify the Seller of the total number of shares of Common Stock purchased in Rule 10b-18 purchases of blocks by or for the Purchaser or any of its Affiliated Purchasers during each of the four calendar weeks preceding such day (“Rule 10b-18 purchase” and “blocks” each being used as defined in Rule 10b-18), which notice shall be substantially in the form set forth as Exhibit A hereto.      Section 4.02. Suspension Of Purchases. If the Seller, in its discretion, determines that it is appropriate with regard to any legal, regulatory or self-regulatory requirements or related policies and procedures (whether or not such requirements, policies or procedures are imposed by law or have been voluntarily adopted by the Seller) for the Seller to refrain from purchasing Common Stock on any Trading Day during (i) the Contract Period or (ii) any Seller Payment Share Purchase Period, the Seller shall not purchase Common Stock hereunder on such Trading Day. If such Trading Day is during (i) the Averaging Period or (ii) any Seller Payment Share Purchase Period, the Seller shall notify the Purchaser upon the exercise of the Seller’s rights pursuant to this Section 4.01(a) and shall subsequently notify the Purchaser on the day the Seller believes that the Seller may resume purchasing Common Stock. The Seller shall not communicate to the Purchaser the reason for the Seller’s exercise of its rights pursuant to this Section 4.01(a). 19 --------------------------------------------------------------------------------      (b) If the Purchaser shall have elected to deliver Payment Shares pursuant to Section 3.02(b), the Seller shall refrain from purchasing Common Stock in connection with this Transaction during the period from and including the date the Purchaser makes such election to and including the Adjustment Settlement Date.      (c) Prior to the opening of trading on the Exchange on any Trading Day, the Purchaser may, by telephonic notice (which telephonic notice shall be followed immediately by written notice) to the Seller, designate a number of consecutive Trading Days as a “Blackout Period.” The Purchaser agrees to provide such notice whenever the Purchaser comes in possession of any material nonpublic information regarding the Purchaser. Any notice provided under this Section 4.02(c) shall not specify, and the Purchaser shall not otherwise communicate to the Seller, the reason for the Purchaser’s declaration of a Blackout Period. Upon receipt of notice of the commencement of any Blackout Period, Seller shall immediately cease making any purchases of Common Stock in connection with this Transaction until the Blackout Period has ended, and the Seller’s obligations to purchase Common Stock pursuant to Section 4.01(b) or to deliver Common Stock with respect to a settlement hereunder shall be suspended during the duration of such Blackout Period. The Purchaser may designate no more than two Blackout Periods and the aggregate number of days of all Blackout Periods designated pursuant to this Section shall not exceed five Trading Days. The Purchaser agrees that for every Trading Day during the Contract Period, other than a Trading Day during a Blackout Period designated pursuant to this Section 4.01(c), the representation and warranty made by the Purchaser to the Seller in Section 6(b) shall be true and correct on each such Trading Day, as if made on such Trading Day.      (d) The Purchaser agrees that neither the Purchaser nor any of its affiliates or agents shall make any distribution (as defined in Regulation M) of Common Stock, or any security for which the Common Stock is a reference security (as defined in Regulation M), on any Trading Day during the Contract Period or any Seller Payment Share Purchase Period.      (e) If, as set forth in this Section 4.02, there is a suspension of a day on which the Seller is obligated to make purchases or deliveries of stock in settlement of this Transaction, the Seller shall make appropriate adjustments to the terms of this Transaction as it deems commercially reasonable, in its sole discretion.      Section 4.03. Purchases Of Common Stock By The Purchaser. The Purchaser shall not, and shall cause its affiliates and affiliated purchasers (each as defined in Rule 10b-18) not to, directly or indirectly (including by means of a derivative instrument) enter into any transaction to purchase any shares of Common Stock during the Contract Period and thereafter until all payments or deliveries of shares of Common Stock pursuant to Section 3.01 above or Section 7.02 below have been made. 20 -------------------------------------------------------------------------------- ARTICLE 5 REPRESENTATIONS, WARRANTIES AND AGREEMENTS      Section 5.01. Representations, Warranties And Agreements Of The Purchaser. The Purchaser represents and warrants to, and agrees with, the Seller that:      (a) Solvency. (i) The assets of the Purchaser at their fair valuation exceed the liabilities of the Purchaser, including contingent liabilities; (ii) the capital of the Purchaser is adequate to conduct the business of the Purchaser; and (iii) to the best of its knowledge, the Purchaser has the ability to pay its debts and obligations as such debts mature and does not intend to, or believes that it will, incur debt beyond its ability to pay as such debts mature.      (b) Disclosure. On the date hereof, the reports and other documents filed by the Purchaser with the Commission pursuant to the Exchange Act when considered as a whole (with the more recent such reports and documents deemed to amend inconsistent statements contained in any earlier such reports and documents), do not contain any untrue statement of a material fact or any omission of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading. The Purchaser is not, as of the date hereof, in possession of any material nonpublic information regarding the Purchaser.      (c) Nature of Shares Delivered. Any shares of Common Stock or Alternative Termination Delivery Units delivered to the Seller pursuant to this Agreement, when delivered, shall have been duly authorized and shall be duly and validly issued, fully paid and nonassessable and free of preemptive or similar rights, and such delivery shall pass title thereto free and clear of any liens or encumbrances.      (d) No Facilitation of Distribution. The Purchaser is not entering into this Confirmation to facilitate a distribution of the Common Stock (or any security convertible into or exchangeable for Common Stock) or in connection with a future issuance of securities.      (e) No Manipulation. The Purchaser is not entering into this Confirmation to create actual or apparent trading activity in the Common Stock (or any security convertible into or exchangeable for Common Stock) or to manipulate the price of the Common Stock (or any security convertible into or exchangeable for Common Stock). 21 --------------------------------------------------------------------------------      (f) Required Filings. Purchaser has made and will make all required filings with the SEC, any securities exchange or any other regulatory body with respect to the Transaction contemplated hereby.      (g) Regulation M. The Purchaser is not on the date hereof engaged in a distribution, as such term is used in Regulation M.      (h) Board Authorization. The Purchaser is entering into this Transaction in connection with its share repurchase program, which was approved by its board of directors and publicly announced, solely for the purposes stated in such board resolution and public disclosure. There is no internal policy of the Purchaser, whether written or oral, that would prohibit the Purchaser from entering into any aspect of this Transaction, including, but not limited to, the purchases of shares of Common Stock to be made pursuant hereto.      SECTION 5.02. Additional Representations, Warranties And Agreements. The Purchaser and Seller represent and warrant to, and agree with, each other that:      (a) Agency. Each party acknowledges that J.P. Morgan Securities Inc. has acted as agent on behalf of the Seller in effecting this Transaction. Each party acknowledges that J.P. Morgan Securities Inc. shall have no liability to either party under this Agreement.      (b) Non-Reliance. Each party has entered into this Transaction solely in reliance on its own judgment. Neither party has any fiduciary obligation to the other party relating to this Transaction. In addition, neither party has held itself out as advising, or has held out any of its employees or agents as having the authority to advise, the other party as to whether or not the other party should enter into this Transaction, any subsequent actions relating to this Transaction or any other matters relating to this Transaction. Neither party shall have any responsibility or liability whatsoever in respect of any advice of this nature given, or views expressed, by it or any such persons to the other party relating to this Transaction, whether or not such advice is given or such views are expressed at the request of the other party. Purchaser has conducted its own analysis of the legal, accounting, tax and other implications of this Transaction and consulted such advisors, accountants and counsel as it has deemed necessary. ARTICLE 6 ADDITIONAL COVENANTS      Section 6.01. Purchaser’s Further Assurances. The Purchaser hereby agrees with the Seller that the Purchaser shall cooperate with the Seller, and execute and deliver, or use its best efforts to cause to be executed and delivered, all such other instruments, and to obtain all consents, approvals or authorizations of any person, and take all such other actions as the Seller may reasonably request from time to time, consistent with the terms of this Confirmation, in order to effectuate the purposes of this Confirmation and the Transaction contemplated hereby. 22 --------------------------------------------------------------------------------      Section 6.02. Seller’s Further Assurances. The Seller hereby agrees with the Purchaser that the Seller shall cooperate with the Purchaser, and execute and deliver, or use its best efforts to cause to be executed and delivered, all such other instruments, and to obtain all consents, approvals or authorizations of any person, and take all such other actions as the Purchaser may reasonably request from time to time, consistent with the terms of this Confirmation, in order to effectuate the purposes of this Confirmation and the Transaction contemplated hereby.      Section 6.03. Maximum Deliverable Number Of Shares Of Common Stock. The Purchaser shall not permit the sum of (i) the number of Maximum Delivery Shares plus (ii) the aggregate maximum share amounts for all Other Transactions plus (iii) the aggregate number of shares expressly reserved for any other use (including, without limitation, shares of Common Stock reserved for issuance upon the exercise of options or convertible debt), in each case whether expressed as caps or as numbers of shares reserved or otherwise, to exceed at any time the number of authorized but unissued shares of Common Stock. ARTICLE 7 TERMINATION      Section 7.01. Additional Termination Events. (a) An Additional Termination Event shall occur in respect of which the Purchaser is the sole Affected Party and this Transaction is the sole Affected Transaction if, on any day, Seller determines, in its sole discretion, that it is unable or it is impracticable to establish or maintain a hedge of its position in respect of the Transaction (including, without limitation, any hedging transaction that may be unwound or the cost of which to Seller may increase because Seller’s counterparty determines that it is impracticable to establish or maintain a hedge of its position in respect of its hedging transaction with Seller).      (b) An Additional Termination Event shall occur in respect of which the Purchaser is the sole Affected Party and this Transaction is the sole Affected Transaction if (i) a Share De-listing Event occurs; (ii) a Merger Event occurs; (iii) the Closing Price shall be equal to or less than $20; (iv) the rating accorded the Purchaser’s long-term unsecured and unsubordinated indebtedness is downgraded to or below BB+ by Standard & Poor’s Rating Group (“S&P”) or to or below Ba1 by Moody’s Investor Services, Inc. (“Moody’s”), or either S&P or Moody’s ceases to rate such indebtedness; or (v) a Nationalization occurs.      (c) A “ Share De-listing Event” means that at any time during the period from and including the Trade Date to and including the later of the Final Settlement Date or the Extended Settlement Date, the Common Stock ceases to be listed on the Exchange for any reason (other than a Merger Event) and are not immediately re-listed, as of the date of such de-listing, on another U.S. national securities exchange (a “Successor Exchange”), provided that it shall not constitute an Additional Termination Event if the Common Stock is immediately re-listed on a Successor Exchange upon its de-listing from the Exchange, and the Successor Exchange shall be deemed to be the Exchange for all purposes. In addition, in such event, the Seller shall make any adjustments it deems necessary to the terms of the Transaction. 23 --------------------------------------------------------------------------------      (d) A “Merger Event” means the public announcement (by the Purchaser or otherwise) at any time during the period commencing on the Trade Date and ending on the Expiration Date of any (i) planned reclassification or change of the Common Stock that will, if consummated, result in a transfer of more than 20% of the outstanding shares of Common Stock, (ii) planned consolidation, amalgamation or merger of the Purchaser with or into another entity (other than a consolidation, amalgamation or merger in which the Purchaser will be the continuing entity and which does not result in any such reclassification or change of more than 20% of such shares outstanding), (iii) other takeover offer for the shares of Common Stock that is aimed at resulting in a transfer of more than 20% of such shares of Common Stock (other than such shares owned or controlled by the offeror) or (iv) irrevocable commitment to any of the foregoing.      (e) A “Nationalization” means that all or substantially all of the outstanding shares of Common Stock or assets of the Purchaser are nationalized, expropriated or are otherwise required to be transferred to any governmental agency, authority or entity.      Section 7.02. Consequences Of Additional Termination Events. (a) In the event of the occurrence or effective designation of an Early Termination Event under the Agreement, cash settlement, as set forth in Section 7.02(b), shall apply; provided that if the Termination Amount is payable by the Purchaser, the Purchaser may elect (which election shall be binding) to have alternative termination settlement, as described in Section 7.03, apply by delivery of written notice to the Seller on the Trading Day immediately following the Purchaser’s receipt of a notice (as required by Section 6(d) of the Agreement following the designation of an Early Termination Date in respect of this Transaction or in respect of all transactions under the Agreement) setting forth the amounts payable by the Purchaser with respect to such Early Termination Date (the date of such delivery, the “Default Notice Day”) ; provided that the Purchaser shall not have the right to elect alternative termination settlement unless (A) the representations and warranties made by Purchaser to the Seller in Section 5.01 (including without limitation, the representation and warranty in clause (b) thereof) are true and correct as of the date the Seller makes such election, as if made on such date, and (B) the Purchaser has not taken any action that would make unavailable (x) the exemption set forth in Section 4(2) of the Securities Act, for the sale of any Alternative Termination Delivery Units by the Purchaser to the Seller or (y) an exemption from the registration requirements of the Securities Act reasonably acceptable to the Seller for resales of Alternative Termination Delivery Units by the Seller. Notwithstanding the foregoing, at any time prior to the time the Seller (or any affiliate of Seller) has contracted to resell the property to be delivered upon alternative termination settlement, the Purchaser may deliver in lieu of such property an amount in cash equal to the Termination Amount in the manner set forth in Section 6(d) of the Agreement. 24 --------------------------------------------------------------------------------      (b) If cash settlement applies in respect of an Early Termination Date, Section 6 of the Agreement shall apply and notwithstanding any election made to the contrary in the Agreement, “Loss” (as such term is defined in the Agreement) shall apply.      Section 7.03. Alternative Termination Settlement. If the Purchaser elects alternative termination settlement in respect of an Early Termination Date, in lieu of payment of the amount payable in respect of this Transaction pursuant to Section 6(d)(ii) of the Agreement (the “Termination Amount”), the Purchaser shall, as soon as directed by the Seller after the Default Notice Day, deliver to the Seller a number of Alternative Termination Delivery Units equal to the quotient of (A) the Termination Amount divided by (B) the Termination Price; providedthat if such quotient exceeds the number of Maximum Delivery Shares, the number of shares of Common Stock or other securities comprising the aggregate Alternative Termination Delivery Units shall be equal to the number of Maximum Delivery Shares, except to the extent that the Purchaser has at such time authorized but unissued shares of Common Stock not reserved for Other Transactions; and provided further that if the Seller notifies the Purchaser that delivery of the Alternative Termination Delivery Units would, in the reasonable judgment of counsel for the Seller, present legal or regulatory issues for the Seller that would not arise in connection with the delivery of a lesser number of Alternative Termination Delivery Units, the Alternative Termination Delivery Units shall be delivered over time, on dates and in amounts that will not, in the reasonable judgment of counsel for the Seller, present such issues.      Section 7.04. Notice Of Default. If an Event of Default occurs in respect of the Purchaser, the Purchaser will, promptly upon becoming aware of it, notify the Seller specifying the nature of such Event of Default. ARTICLE 8 ADJUSTMENTS      Section 8.01. Extraordinary Cash Dividends. In the event the Purchaser declares an extraordinary cash dividend during the Contract Period, on the ex-dividend date for such extraordinary cash dividend the Purchaser shall pay the Seller an amount equal to the product of (i) the per-share amount of such extraordinary cash dividend multiplied by (ii) the Remaining Shares as of such ex-dividend date. 25 --------------------------------------------------------------------------------      Section 8.02. Other Dilution Adjustments. In the event of any corporate event involving the Purchaser or the Common Stock not specifically addressed in Section 8.01 or Section 7.01(d) above (including, without limitation, a spin-off, a stock split, stock dividend, bankruptcy, insolvency, reorganization, rights offering or recapitalization) or in the event that the Seller, in its good faith judgment, determines that the adjustments described in Section 8.01 and Section 7.01(d) above will not result in an equitable adjustment of the terms of the Transaction described herein, the terms of the Transaction (including, without limitation, the Initial Purchase Price and the Strike Price) described herein shall be subject to adjustment by the Seller as in the exercise of its good faith judgment it deems appropriate under the circumstances. ARTICLE 9 MISCELLANEOUS      Section 9.01. Successors And Assigns.All covenants and agreements in this Confirmation made by or on behalf of either of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not.      Section 9.02. Purchaser Indemnification. (a) Purchaser (the “Indemnifying Party”) agrees to indemnify and hold harmless Seller and its officers, directors, employees, affiliates, advisors, agents and controlling persons (each, an “Indemnified Person”) from and against any and all losses, claims, damages and liabilities, joint or several (collectively, “Obligations”), to which an Indemnified Person may become subject arising out of or in connection with this Confirmation or any claim, litigation, investigation or proceeding relating thereto, regardless of whether any of such Indemnified Person is a party thereto, and to reimburse, within 30 days, upon written request, each such Indemnified Person for any reasonable legal or other expenses incurred in connection with investigating, preparation for, providing evidence for or defending any of the foregoing, provided, however, that the Indemnifying Party shall not have any liability to any Indemnified Person to the extent that such Obligations (i) are finally determined by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnified Person (and in such case, such Indemnified Person shall promptly return to the Indemnifying Party any amounts previously expended by the Indemnifying Party hereunder) or (ii) are trading losses incurred by the Seller as part of its purchases or sales of shares of Common Stock pursuant to this Confirmation (unless the Purchaser has breached any agreement, term or covenant herein). 26 --------------------------------------------------------------------------------      (b) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to this Section 9.02, the Indemnified Person shall promptly notify the Indemnifying Party in writing and the Indemnifying Party, upon request of the Indemnified Person, shall retain counsel satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Party and the Indemnified Person shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the Indemnifying Party and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Indemnifying Party shall not, in respect of the legal expenses of any Indemnified Person in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such Indemnified Persons and that all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by the Seller. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Party agrees to indemnify the Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested an Indemnifying Party to reimburse the Indemnified Person for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the Indemnifying Party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (x) such settlement is entered into more than 30 days after receipt by such Indemnifying Party of the aforesaid request and (y) such Indemnifying Party shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Party shall, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding.      Section 9.03. Assignment And Transfer. Notwithstanding the Agreement, Seller may assign (i) any of its rights or duties hereunder to any one or more of its affiliates or (ii) the right to receive Payment Shares to any third party, without the prior written consent of the Purchaser. 27 --------------------------------------------------------------------------------      Section 9.04 Non-confidentiality. Seller and Purchaser hereby acknowledge and agree that each is authorized to disclose every aspect of this Agreement and the transactions contemplated hereby to any and all persons, without limitation of any kind, and there are no express or implied agreements, arrangements or understandings to the contrary.      Section 9.05. Unenforceability And Invalidity. To the extent permitted by law, the unenforceability or invalidity of any provision or provisions of this Confirmation shall not render any other provision or provisions herein contained unenforceable or invalid.      Section 9.06. Securities Contract. The parties hereto recognize that the Seller is a “financial institution” within the meaning of Section 101(22) of Title 11 of the United States Code (the “Bankruptcy Code”). The parties hereto further recognize that this Confirmation is a “securities contract,” as such term is defined in Section 741(7) of the Bankruptcy Code, entitled to the protection of Sections 362(b)(6) and 555 of the Bankruptcy Code.      Section 9.07. No Collateral, Netting Or Setoff. Notwithstanding any provision of the Agreement, or any other agreement between the parties, to the contrary, the obligations of the Purchaser hereunder are not secured by any collateral. Obligations under this Transaction shall not be netted, recouped or set off (including pursuant to Section 6 of the Agreement) against any other obligations of the parties, whether arising under this Agreement, under any other agreement between the parties hereto, by operation of law or otherwise, and no other obligations of the parties shall be netted, recouped or set off (including pursuant to Section 6 of the Agreement) against obligations under this Transaction, whether arising under this Agreement, under any other agreement between the parties hereto, by operation of law or otherwise, and each party hereby waives any such right of setoff, netting or recoupment. 28 --------------------------------------------------------------------------------      Please confirm that the foregoing correctly sets forth the terms of our agreement by executing the copy of this Confirmation enclosed for that purpose and returning it to us. Yours sincerely, J.P. Morgan Securities Inc., as agent for Morgan Guaranty Trust Company of New York, London Brance   By: /s/ Stephen L. Roti —————————————— Name: Stephen L. Roti Title: Vice President Confirmed as of the date first above written: Ultramar Diamond Shamrock Corporation   By: /s/ Stephen L. Roti —————————————— Name: Stephen L. Roti Title: Vice President -------------------------------------------------------------------------------- EXHIBIT A [Letterhead of Counterparty] Morgan Guaranty Trust Company of New York c/o J.P. Morgan Securities Inc. 60 Wall Street, 2nd Floor New York, New York 10260 Re:     Accelerated Purchase of Equity Securities Ladies and Gentlemen:      In connection with our entry into the Confirmation dated as of February 8, 2001 (the “Confirmation”) to the ISDA Master Agreement dated as of November 1, 1996, as amended and supplemented from time to time (the “Agreement”), we hereby represent that set forth below is the total number of shares of our common stock purchased by or for us or any of our affiliated purchasers in Rule 10b-18 purchases of blocks (all defined in Rule 10b-18 under the Securities Exchange Act of 1934) during the four full calendar weeks immediately preceding the first day of the Contract Period (as defined in the Agreement).      We understand that you will use this information in calculating trading volume for purposes of Rule 10b-18. Yours truly yours, Ultramar Diamond Shamrock Corporation   By: —————————————— Name: Title: A-1 -------------------------------------------------------------------------------- EXHIBIT B REGISTRATION PROCEDURES      If the Seller has elected pursuant to Section 3.05 to require the Purchaser to comply with the Registration Procedures contained in this Exhibit B with respect to any Payment Shares, any Deficit Shares or any Alternative Termination Delivery Units, the following provisions shall apply:      (a) On the later of (i) the third Business Day following the applicable Adjustment Date, Share Deficit Notice Date or the Default Notice Date, as the case may be, and (ii) the date on which the Registration Statement is declared effective by the SEC (the “Registered Share Delivery Date”), the Purchaser shall deliver to the Seller a number of Payment Shares (or in the case of alternative termination settlement, Alternative Termination Delivery Units) that will be registered for resale in the manner set forth below (the “Subject Securities”) equal to the quotient of (A) the applicable Adjustment Amount or the Termination Amount, as the case may be, divided by (B) the Closing Price on the Trading Day immediately prior to the applicable Registered Share Delivery Date or such other number of Subject Securities as Seller may in its good faith discretion may estimate would have a value approximately equal to the Adjustment Amount, Deficit Amount or Termination Amount, as the case may be; provided that Purchaser shall not be required to deliver Subject Securities in excess of the number of Maximum Delivery Shares, except to the extent that the Purchaser has at such time authorized but unissued shares of Common Stock not reserved for Other Transactions.      (b) Promptly following the Registration Notice Date, the Purchaser shall file with the SEC a registration statement (“Registration Statement”) covering the public resale by the Seller of the Subject Securities, any Make-Whole Securities (as defined below) and any Deficit Shares (collectively, the “Registered Securities”) on a continuous or delayed basis pursuant to Rule 415 (or any similar or successor rule), if available, under the Securities Act; provided that no such filing shall be required pursuant to this paragraph (b) if the Purchaser shall have filed a similar registration statement with unused capacity at least equal to the applicable Adjustment Amount or Termination Amount, as the case may be, and such registration statement has been declared by the SEC on or prior to the Registration Notice Date and no stop order is in effect with respect to such registration statement as of the Registration Notice Date. The Purchaser shall use its best efforts to have such Registration Statement declared effective by the SEC as promptly as possible.      (c) Promptly following the Registration Notice Date, the Purchaser shall afford the Seller a reasonable opportunity to conduct a due diligence investigation with respect to the Purchaser customary in scope for underwritten offerings of equity securities (including, without limitation, the availability of senior management to respond to questions regarding the business and financial condition of the Purchaser and the right to have made available to the Seller for inspection all financial and other records, pertinent corporate documents and other information reasonably requested the Seller), and the Seller shall be satisfied in all material respects with the results of such due diligence investigation of the Purchaser. B-1 --------------------------------------------------------------------------------      (d) From the effectiveness of the Registration Statement until all Registered Securities have been sold by the Seller, the Purchaser shall, at the request of the Seller, make available to the Seller a printed prospectus relating to the Registered Securities in form and substance (including, without limitation, any sections describing the plan of distribution) satisfactory to the Seller (a “Prospectus”, which term shall include any prospectus supplement thereto), in such quantities as the Seller shall reasonably request.      (e) The Purchaser shall use its best efforts to prevent the issuance of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any Prospectus and, if any such order is issued, to obtain the lifting thereof as soon thereafter as is possible. If the Registration Statement, the Prospectus or any document incorporated therein by reference contains a misstatement of a material fact or omits to state a material fact required to be stated therein or necessary to make any statement therein not misleading, the Purchaser shall as promptly as practicable file any required document and prepare and furnish to the Seller a reasonable number of copies of such supplement or amendment thereto as may be necessary so that the Prospectus, as thereafter delivered to the purchasers of the Registered Securities will not contain a misstatement of a material fact or omit to state a material fact required to be stated therein or necessary to make any statement therein not misleading.      (f) On or prior to the Registered Share Delivery Date, the Purchaser shall enter into an agreement (a “Transfer Agreement”) with the Seller (or any affiliate of the Seller designated by the Seller) in connection with the public resale of the Registered Securities, substantially similar to underwriting agreements customary for underwritten offerings of equity securities, in form and substance satisfactory to the Seller (or such affiliate), which Transfer Agreement shall (without limitation of the foregoing):             (i)     contain provisions substantially similar to those contained in such underwriting agreements relating to the indemnification of, and contribution in connection with the liability of, the Seller and its affiliates,             (ii)     provide for delivery to the Seller (or such affiliate) of customary opinions (including, without limitation, opinions relating to the due authorization, valid issuance and fully paid and non-assessable nature of the Registered Securities and the lack of material misstatements and omissions in the Registration Statement, the Prospectus and the Purchaser’s filings under the Exchange Act); and B-2 --------------------------------------------------------------------------------             (iii)     provide for the payment by the Purchaser of all fees and expenses in connection with such resale, including all registration costs and all fees and expenses of counsel for the Seller (or such affiliate).      (g) On the applicable Adjustment Date, Share Deficit Notice Date or the Default Notice Date, as the case may be, a balance (the “Settlement Balance”) shall be established with an initial balance equal to the applicable Adjustment Amount or the Termination Amount, as the case may be. Over the 20 Trading Days immediately following the Registered Share Delivery Date, Seller shall have the right to sell any amount of the Subject Securities, in its discretion. On each of the ten Trading Days immediately following 20th Trading Day after the Registered Share Delivery Date, the Seller shall sell approximately equal amounts of Subject Securities which remain unsold on that date.      (h) At the end of each day upon which sales have been made, the Settlement Balance shall be (i) reduced by an amount equal to the aggregate proceeds received by the Seller upon the sale of such Subject Securities (including without limitation any Subject Securities sold pursuant to paragraph (h)), and (ii) increased by an amount equal to the Seller’s funding cost with respect to the then-current Settlement Balance (calculated at a rate per annum equal to the LIBOR Rate for such day).      (i) If, on any date, the Settlement Balance has been reduced to zero but not all of the Subject Securities have been sold, no additional Subject Securities shall be sold and the Seller shall promptly deliver to the Purchaser (i) any remaining Subject Securities and (ii) if the Settlement Balance has been reduced to an amount less than zero, an amount in cash equal to the absolute value of the Settlement Balance.      (j) If, on any date, all of the Subject Securities have been sold and the Settlement Balance has not been reduced to zero, the Purchaser shall promptly deliver to the Seller an additional number of Payment Shares or Alternative Termination Delivery Units (the “Make-Whole Securities”) equal to (i) the Settlement Balance as of such date divided by (ii) the Closing Price on the Trading Day immediately preceding the date such Make-Whole Securities are delivered. This clause (i) shall be applied successively until the Settlement Balance is reduced to zero. Notwithstanding the foregoing, the Purchaser shall not be required to deliver Make-Whole Securities in excess of the number of Maximum Delivery Shares, except to the extent that the Purchaser has at such time authorized but unissued shares of Common Stock not reserved for Other Transactions.      (k) Notwithstanding the foregoing and subject to applicable law, the Seller may elect to terminate at any time the Registration Procedures described in this Exhibit B, in which case the provisions of Section 3.03 shall apply as if the Seller had never elected to require the Purchaser to comply with the Registration Procedures contained in this Exhibit B; provided that if such termination occurs after the Registered Share Delivery Date, Section 3.03(c) shall not apply and paragraphs (h), (i)and (j) of this Exhibit B shall continue to be applicable. B-3 --------------------------------------------------------------------------------      (l) If the number of shares of Common Stock covered by the Registration Statement is less than the number of Registered Securities required to be delivered pursuant to clause (a) or (j) hereof, the Purchaser shall, at the request of the Seller, file additional registration statement(s) to register the sale of all Registered Securities required to be delivered to the Seller.      (m) The Purchaser shall cooperate with the Seller and use its best efforts to take any other action necessary to effect the intent of the Registration Procedures set forth in this Exhibit B. B-4 -------------------------------------------------------------------------------- EXHIBIT C OPINION OF COUNSEL TO PURCHASER 1. Purchaser is duly incorporated and validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation. 2. The Purchaser has all corporate power to enter into this Agreement and to consummate the transactions contemplated hereby and to deliver the Common Stock in accordance with the terms hereof. This Agreement has been duly authorized and validly executed and delivered by the Purchaser and constitutes a valid and legally binding obligation of the Purchaser enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent transfer and other laws affecting creditors’ generally from time to time in effect and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 3. The execution and delivery by the Purchaser of, and the performance by the Purchaser of its obligations, under this Agreement and the consummation of the transactions herein contemplated, and, do not conflict with or violate (x) any provision of the certificate of incorporation or by-laws of the Purchaser, (y) any order or judgment of any court or governmental agency or body having jurisdiction over the Purchaser or any of the Purchaser’s assets or (z) any material contractual restriction binding on or affecting the Purchaser or any of its assets. 4. All governmental and other consents that are required to have been obtained by the Purchaser with respect to performance, execution and delivery of this Agreement have been obtained and are in full force and effect and all conditions of any such consents have been complied with, other than such consents which, if not obtained, will not individually or in the aggregate have a material adverse effect on the Purchaser or on the ability of the Purchaser to complete the transactions contemplated by this Agreement. C-1

Exhibit 10.27   ESI   SENIOR EXECUTIVE SEVERANCE PAY PLAN     ESI provides a Senior Executive Severance Plan (the "Severance Plan") for the Chairman, President and Chief Executive Officer of ESI.   The Severance Plan supersedes any previous severance plan or plans for this individual.   The Severance Plan benefits include:   (a) severance pay in an amount equal to the lower of:         (I) 24 months' base salary         (II) base salary for the number of months remaining between the termination of employment and normal retirement date, or         (III) two times the individual's total annual compensation during the year immediately preceding the individual's termination, and       (b) continued participation in ESI's employee benefit plans (except for short-term or long-term disability plans and  the Business Travel Accident Plan) during the period that the individual receives severance pay.   The Chairman, President and Chief Executive Officer will be entitled to severance benefits under the Severance Plan  unless their employment is terminated by ESI:   (a) for cause     (b) on or after their normal retirement date or,     (c) as a result of:       (I) acceptance of employment, or refusal of comparable employment with a purchaser of ESI.         (II) voluntary resignation         (III) voluntary retirement         (IV) failure to return from an approved leave of absence, including a medical leave of absence         (V) death         (VI) disability   The severance pay benefits under the Severance Plan will be offset/diminished by the amount of any other severance or separation compensation that the participant receives from ESI and requires that the Chairman, President and Chief Executive Officer refrain from competing with ESI business activities during the term of the severance payout and complies with conduct guidelines in the Employee Handbook.  Severance payments would normally be made semi-monthly over the scheduled term of such payments, but ESI has the option to make such payments in the form of a single lump-sum payment discounted to present value.     Ÿ ESI may determine a need for a retention payment in addition to this Severance Plan         Ÿ If the Chairman, President and Chief Executive Officer is rehired by ESI while receiving severance benefits under the Severance Plan, all payments will cease as of the rehire date; and if ESI paid this person a lump-sum payment of severance benefits and ESI the rehire was prior to the date that severance benefits would have ceased, the Chairman, President and Chief Executive Officer must reimburse ESI for a percentage of the severance benefits determined by dividing the number of weeks during which the severance benefits would have been paid out if such benefits had not been paid out in a lump sum into the number of weeks remaining in such period as of the person's rehire date.         Ÿ The Chairman, President and Chief Executive Officer may only receive severance benefits under one ESI severance plan.  

Exhibit 10.14(b) OUTSIDE DIRECTOR STOCK OPTION AGREEMENT (PURSUANT TO THE TERMS OF THE CONTINENTAL AIRLINES, INC. INCENTIVE PLAN 2000)   This STOCK OPTION AGREEMENT (this "Option Agreement") is between Continental Airlines, Inc., a Delaware corporation ("Company"), and _______________________ ("Optionee"), and is dated as of the date set forth immediately above the signatures below. 1. Grant of Option. The Company hereby grants to Optionee the right, privilege and option as herein set forth (the "Option") to purchase up to five thousand (5,000) shares (the "Shares") of Class B common stock, $.01 par value per share, of Company ("Common Stock"), in accordance with the terms of this Option Agreement. The Shares, when issued to Optionee upon the exercise of the Option, shall be fully paid and nonassessable. The Option is granted pursuant to and to implement in part the Continental Airlines, Inc. Incentive Plan 2000 (as amended and in effect from time to time, the "Plan") and is subject to the provisions of the Plan, which is hereby incorporated herein and is made a part hereof, as well as the provisions of this Option Agreement. Optionee agrees to be bound by all of the terms, provisions, conditions and limitations of the Plan and this Option Agreement. All capitalized terms have the meanings set forth in the Plan unless otherwise specifically provided. All references to specified paragraphs pertain to paragraphs of this Option Agreement unless otherwise provided. The Option is not intended to qualify as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 2. Option Term. Subject to earlier termination as provided herein, the Option shall terminate on __________________. The period during which the Option is in effect is referred to as the "Option Period". 3. Option Exercise Price. The exercise price (the "Option Price") of the Shares subject to the Option shall be $_________ per Share (which is the Market Value per Share on the date hereof). 4. Vesting. The total number of Shares subject to this Option shall vest immediately upon the grant hereof. 5. Method of Exercise. To exercise the Option, Optionee shall deliver an irrevocable written notice to Company (to the attention of the Secretary of the Company) stating the number of Shares with respect to which the Option is being exercised together with payment for such Shares. Payment shall be made (i) in cash or by check acceptable to Company, (ii) in nonforfeitable, unrestricted shares of Company's Common Stock owned by Optionee at the time of exercise of the Option having an aggregate market value (measured by the Market Value per Share) at the date of exercise equal to the aggregate exercise price of the Option being exercised or (iii) by a combination of (i) and (ii). In addition, at the request of Optionee, and to the extent permitted by applicable law and subject to Paragraph 15, the Option may be exercised pursuant to a "cashless exercise" arrangement with any brokerage firm approved by the Administrator or its delegate under which arrangement such brokerage firm, on behalf of Optionee, shall pay to Company the exercise price of the Options being exercised, and Company, pursuant to an irrevocable notice from Optionee, shall promptly after receipt of the exercise price deliver the shares being purchased to such firm. 6. Termination of Board Service. The Option shall terminate on, and may not be exercised after the earlier of (i) the date that is one year after termination of Optionee's service on the Board for any reason and (ii) the expiration of the Option Period. 7. Reorganization of Company and Subsidiaries. The existence of the Option shall not affect in any way the right or power of Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in Company's capital structure or its business, or any merger or consolidation of Company or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Shares or the rights thereof, or the dissolution or liquidation of Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. 8. Adjustment of Shares. In the event of stock dividends, spin-offs of assets or other extraordinary dividends, stock splits, combinations of shares, recapitalizations, mergers, consolidations, reorganizations, liquidations, issuances of rights or warrants and similar transactions or events involving Company, appropriate adjustments shall be made to the terms and provisions of this Option, in the same manner as is provided for adjustments to the terms and provisions of the warrants issued by Company to Air Canada and to Air Partners, L.P. under the Warrant Agreement dated as of April 27, 1993. 9. No Rights in Shares. Optionee shall have no rights as a stockholder in respect of Shares until such Optionee becomes the holder of record of such Shares. 10. Certain Restrictions. By exercising the Option, Optionee agrees that if at the time of such exercise the sale of Shares issued hereunder is not covered by an effective registration statement filed under the Securities Act of 1933 ("Act"), Optionee will acquire the Shares for Optionee's own account and without a view to resale or distribution in violation of the Act or any other securities law, and upon any such acquisition Optionee will enter into such written representations, warranties and agreements as Company may reasonably request in order to comply with the Act or any other securities law or with this Option Agreement. 11. Shares Reserved. Company shall at all times during the Option Period reserve and keep available such number of Shares as will be sufficient to satisfy the requirements of this Option. 12. Nontransferability of Option. The Option granted pursuant to this Option Agreement is not transferable other than by will, the laws of descent and distribution or by qualified domestic relations order. The Option will be exercisable during Optionee's lifetime only by Optionee or by Optionee's guardian or legal representative. No right or benefit hereunder shall in any manner be liable for or subject to any debts, contracts, liabilities, or torts of Optionee. 13. Amendment and Termination. No amendment or termination of the Option shall be made by the Board or the Administrator at any time without the written consent of Optionee. No amendment or termination of the Plan will adversely affect the rights, privileges and option of Optionee under the Option without the written consent of Optionee. 14. No Guarantee of Board Service. The Option shall not confer upon Optionee any right with respect to continuance of service on the Board, nor shall it interfere in any way with any right to terminate Optionee's Board service at any time. 15. Withholding of Taxes. Company shall have the right to (i) make deductions from the number of Shares otherwise deliverable upon exercise of the Option 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 tax withholding obligations. 16. No Guarantee of Tax Consequences. Neither Company nor any subsidiary nor the Administrator makes any commitment or guarantee that any federal or state tax treatment will apply or be available to any person eligible for benefits under the Option. 17. Severability. In the event that any provision of the Option shall be held illegal, invalid, or unenforceable for any reason, such provision shall be fully severable, but shall not affect the remaining provisions of the Option, and the Option shall be construed and enforced as if the illegal, invalid, or unenforceable provision had never been included herein. 18. Electronic Delivery and Signatures. Optionee hereby consents and agrees to electronic delivery of any Plan documents, proxy materials, annual reports and other related documents. If the Company establishes procedures for an electronic signature system for delivery and acceptance of Plan documents (including documents relating to any programs adopted under the Plan), Optionee hereby consents to such procedures and agrees that his or her electronic signature is the same as, and shall have the same force and effect as, his or her manual signature. Optionee consents and agrees that any such procedures and delivery may be effected by a third party engaged by the Company to provide administrative services related to the Plan, including any program adopted under the Plan. 19. Governing Law. The Option shall be construed in accordance with the laws of the State of Texas to the extent federal law does not supersede and preempt Texas law. ******** IN WITNESS WHEREOF, the parties have entered into this Option Agreement as of the ____ day of ____________. "COMPANY" CONTINENTAL AIRLINES, INC. By Order of the Administrator   By: Name: Title:   "OPTIONEE"   ________________________________________ Name:

Exhibit 10.39 FIFTH AMENDMENT TO CREDIT AGREEMENT   This FIFTH AMENDMENT TO CREDIT AGREEMENT (the "Fifth Amendment") dated as of April 27, 2001, among PERFORMANCE FOOD GROUP COMPANY, a Tennessee corporation (the "Borrower"), the lenders parties to the Credit Agreement referred to below (the "Lenders"), and FIRST UNION NATIONAL BANK, as administrative agent (the "Administrative Agent") for the Lenders thereunder. PRELIMINARY STATEMENTS: The Borrower, the Lenders and the Administrative Agent have entered into a Credit Agreement dated as of March 5, 1999 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"; the terms defined therein being used herein as therein defined unless otherwise defined herein). The Borrower has informed the Administrative Agent and the Lenders that it needs an increase in availability from $10,000,000 to $20,000,000 for the issuance of standby letters of credit under the terms of the Credit Agreement. In addition, the Borrower has informed the Administrative Agent that, from time to time in the ordinary course of its business, it needs to obtain trade letters of credit (collectively, "Trade L/C's") and has requested permission under the Credit Agreement in order to be able to do so. The Administrative Agent and the Required Lenders are, on the terms and conditions stated below, willing to grant the request of the Borrower to amend the Credit Agreement, and the Borrower and the Required Lenders have agreed to amend the Credit Agreement as hereinafter set forth. Section 1. Fifth Amendment to Credit Agreement. The Credit Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 2, hereby amended as follows: (a) Amendment of Definition. The definitions of "Debt" and "L/C Commitment" in Section 1.1 of the Credit Agreement are hereby deleted in their entirety and the following definitions shall be inserted in lieu thereof: "Debt" means, with respect to the Borrower and its Subsidiaries at any date and without duplication, the sum of the following calculated on a Consolidated basis in accordance with GAAP: (a) all liabilities, obligations and indebtedness for borrowed money including but not limited to obligations evidenced by bonds, debentures, notes or other similar instruments of the Borrower or any Subsidiary thereof, (b) all obligations to pay the deferred purchase price of property or services of the Borrower or any Subsidiary thereof, including without limitation all obligations under non-competition agreements but excluding (i) trade payables and Trade L/C's arising in the ordinary course of business and (ii) all amounts payable under any earn-out agreement unless any such earn-out payment is payable in cash and has been deemed earned and required to be included on the financial statements of the Borrower or any Subsidiary thereof in accordance with GAAP, (c) all obligations of the Borrower or any Subsidiary thereof as lessee under Capital Leases, (d) all Debt of any other Person secured by a Lien on any asset of the Borrower or any Subsidiary thereof, (e) all Guaranty Obligations of the Borrower or any Subsidiary thereof (excluding any Guaranty Obligations on account of trade payables and Trade L/C's arising in the ordinary course of business), (f) all obligations, contingent or otherwise, of the Borrower or any Subsidiary thereof relative to the face amount of letters of credit, whether or not drawn, including without limitation any Reimbursement Obligation, and banker's acceptances issued for the account of the Borrower or any Subsidiary thereof (excluding Trade L/C's arising in the ordinary course of business), (g) all obligations of the Borrower or any Subsidiary thereof to redeem, repurchase, exchange, defease or otherwise make payments in respect of capital stock or other securities of the Borrower or any Subsidiary thereof, (h) all obligations incurred by the Borrower or any Subsidiary thereof pursuant to Hedging Agreements, and (i) although the parties acknowledge that asset securitization facilities that comply with Section 10.6(e) may not constitute indebtedness of the Borrower under GAAP, nevertheless, solely for purposes of determining compliance with the terms of this Agreement, all asset securitization facilities, including the Receivables Purchase Facility, shall be treated as Debt. "L/C Commitment" means the lesser of (a) Twenty Million Dollars ($20,000,000) and (b) the Aggregate Commitment. (b) Addition of Definitions. Section 1.1 of the Credit Agreement is amended by the addition of the following defined terms (in alphabetical order): "Fifth Amendment to Credit Agreement" means the Fifth Amendment to Credit Agreement, dated as of April 27, 2001, and effective as provided therein, by and among the Borrower, the Lenders party thereto, and the Administrative Agent. "Trade L/C's" means, collectively, the trade letters of credit issued and outstanding from time to time to support the obligations of the Borrower or any of its Subsidiaries, contingent or otherwise, incurred in the ordinary course of business of the Borrower or such Subsidiary. (c) Amendment to Section 10.4. Section 10.4 of the Credit Agreement is hereby amended as follows: (i) by deleting the word "and" at the end of clause (e); (ii) by deleting the period at the end of clause (f) and inserting "; and" in lieu thereof; and (iii) by inserting a new clause (g) to read in its entirety as set forth below: (g) investments by the Borrower or any of its Subsidiaries in a Wholly-Owned Subsidiary formed in connection with establishing and maintaining the Receivables Purchase Facility. Section 2. Conditions of Effectiveness. This Fifth Amendment shall become effective when, and only when the Administrative Agent shall have received counterparts of this Fifth Amendment executed by the Borrower, the Administrative Agent and the Required Lenders or, as to any of the Lenders, advice satisfactory to the Administrative Agent that such Lenders have executed this Fifth Amendment and the Administrative Agent shall have additionally received all of the following documents, each document (unless otherwise indicated) being dated the date of receipt thereof by the Administrative Agent (which date shall be the same for all such documents), in form and substance satisfactory to the Administrative Agent: (a) Authorization and Approval Documents. Certified copies of (i) the resolutions of Board of Directors of the Borrower approving this Fifth Amendment and (ii) all documents, evidencing other necessary corporate action and governmental approvals, if any, with respect to this Fifth Amendment, the matters contemplated hereby and thereby; (b) Certificate of Incumbency. A certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names and true signatures of its officers authorized to sign this Fifth Amendment and other documents to be delivered hereunder; (c) Fees, Costs Expenses and Taxes. All fees, costs, expenses and taxes set forth in Section 5 of this Fifth Amendment; and (d) Other Documents. Any other documents or instruments reasonably requested by the Administrative Agent in connection with the execution of this Fifth Amendment. Section 3. Representations and Warranties of the Borrower. The Borrower represents and warrants as follows: (a) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction indicated at the beginning of this Fifth Amendment. (b) The execution, delivery and performance by the Borrower of this Fifth Amendment and the Loan Documents, as amended hereby, to which it is or is to be a party are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action and do not contravene (i) the Borrower's charter or by-laws, (ii) Applicable Law or any contractual restriction binding on or affecting the Borrower, except to the extent a breach of such contractual restriction would not have a Material Adverse Effect. (c) No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of this Fifth Amendment or any of the Loan Documents, as amended hereby, to which it is or is to be a party. (d) This Fifth Amendment and each of the other Loan Documents, as amended hereby, to which the Borrower is a party constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar state or federal debtor relief laws from time to time in effect which affect the enforcement of creditors' rights in general and the availability of equitable remedies. (e) The representations and warranties made by the Borrower pursuant to Article VI of the Credit Agreement, are true and correct with the same effect as if made on and as of the date hereof, except for any representation and warranty made as of an earlier date, which such representation and warranty shall remain true and correct as of such earlier date. (f) No Default or Event of Default shall have occurred and be continuing under the Credit Agreement on the date hereof except to the extent remedied by this Fifth Amendment. Section 4. Reference to and Effect on the Loan Documents. (a) Upon the effectiveness of this Fifth Amendment, on and after the date hereof each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended hereby. (b) Except as specifically amended above, the Credit Agreement, the Notes, and all other Loan Documents, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. (c) The execution, delivery and effectiveness of this Fifth Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. Section 5. Fees, Costs, Expenses and Taxes. The Borrower agrees to pay on demand all costs and expenses of the Administrative Agent in connection with the preparation, execution, delivery, administration, modification and amendment of this Fifth Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent with respect thereto and with respect to advising the Administrative Agent as to its rights and responsibilities hereunder and thereunder. The Borrower further agrees to pay on demand all costs and expenses, if any (including, without limitation, reasonable counsel fees and expenses), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Fifth Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of rights under this Section 5. In addition, the Borrower shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Fifth Amendment and the other instruments and documents to be delivered hereunder, and agrees to save the Administrative Agent and each Lender harmless from and against any and all liabilities with respect to or resulting from any delay or omission to pay such taxes. Section 6. Execution in Counterparts. This Fifth Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Section 7. Governing Law. This Fifth Amendment shall be governed by, and construed in accordance with, the laws of the State of North Carolina, without reference to the conflicts or choice of laws principles thereof. Section 8. Fax Transmission. A facsimile, telecopy or other reproduction of this Fifth Amendment may be executed by one or more parties hereto, and an executed copy of this Fifth Amendment may be delivered by one or more parties hereto by facsimile or similar instantaneous electronic transmission device pursuant to which the signature of or on behalf of such party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any party hereto, all parties hereto agree to execute an original of this Fifth Amendment as well as any facsimile, telecopy or other reproduction hereof.   [Signature Pages Follow] IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. PERFORMANCE FOOD GROUP COMPANY, as Borrower [CORPORATE SEAL] By: Name: Title:     FIRST UNION NATIONAL BANK, as Administrative Agent and Lender By: Name: Title:   BANK OF AMERICA N.A., as Lender By: Name: Title:   THE CHASE MANHATTAN BANK, as Lender By: Name: Title:   BANK ONE, N.A. (f/k/a THE FIRST NATIONAL BANK OF CHICAGO), as Lender By: Name: Title:       HIBERNIA NATIONAL BANK, as Lender By: Name: Title:  

Exhibit 10.33(r)   AMENDMENT No. 18 TO PURCHASE AGREEMENT GPJ-003/96     This Amendment No. 18 ("Amendment 18") dated as of November 17, 2000 is between EMBRAER - Empresa Brasileira de Aeronautica S.A. ("EMBRAER") and Continental Express, Inc. ("BUYER" ), collectively hereinafter referred to as the "PARTIES", and relates to Purchase Agreement No. GPJ-003/96, as amended from time to time together with its Attachments, (collectively referred to as the "BASE Agreement") and, Letter Agreements GPJ-004/96 dated August 5, 1996 and GPJ-004A/96 dated August 31, 1996 as amended from time to time (collectively referred to with this Amendment No. 18 and the BASE Agreement as the "EMB-145 Purchase Agreement") for the purchase of up to two hundred and twenty five (225) new EMB-145 aircraft (the "AIRCRAFT"). This Amendment 18 sets forth the further agreement between EMBRAER and BUYER relative to the delivery dates in 2001. All terms defined in the EMB-145 Purchase Agreement shall have the same meaning when used herein and in case of any conflict between this Amendment 18 and the EMB-145 Purchase Agreement, this Amendment 18 shall control. NOW, THEREFORE, for good and valuable consideration, which is hereby acknowledged, EMBRAER and BUYER hereby agree as follows: Item "a" of Article 5 - DELIVERY, of the EMB-145 Purchase Agreement, is hereby amended to read in its entirety as follows: AIRCRAFT : Subject to payment in accordance with Article 4 hereof and compliance with the conditions of this Agreement, the AIRCRAFT shall be made available for delivery by EMBRAER to BUYER in F.A.F. (Fly Away Factory) condition, at São José dos Campos, State of São Paulo, Brazil, according to the following schedule: a.1. 2000 LR AIRCRAFT Deliveries LR Aircraft LR Aircraft Contractual Delivery Dates LR Aircraft LR Aircraft Contractual Delivery Dates 65th June 09, 2000 73rd August 24, 2000 66th June 21, 2000 74th August 31, 2000 67th June 28,2000 75th September 14, 2000 68th July 07, 2000 76th September 20, 2000 69th July 14, 2000 77th September 25, 2000 70th July 21, 2000 78th November 09, 2000 71st August 10, 2000 79th December 14, 2000 72nd August 17, 2000         a.2. 2001 LR AIRCRAFT Deliveries [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 2. All other terms and conditions of the EMB-145 Purchase Agreement, which are not specifically amended by this Amendment 18, shall remain in full force and effect without any change. IN WITNESS WHEREOF, EMBRAER and BUYER, by their duly authorized officers, have entered into and executed this Amendment 18 to the EMB-145 Purchase Agreement to be effective as of the date first written above. EMBRAER - Empresa Brasileira CONTINENTAL EXPRESS, INC. de Aeronautica S.A.   By : /s/ Frederico Fleury Curado By : /s/ Fred S. Cromer Name : Frederico Fleury Curado Name : Fred S. Cromer Title : Executive Vide President Title : VP & CFO By : /s/ Flavio Rimoli Name : Flavio Rimoli Title : Director of Contracts Date: Nov. 17, 2000 Date: Nov. 10, 2000 Place : S. J. Campos - Brazil Place : Houston, Texas Witness: /s/ Jose Luis D. Molina Witness: /s/ Amy K. Sedano Name : Jose Luis D. Molina Name : Amy K. Sedano

Craig Parenzan Termination Agreement Termination Agreement between the Company and Craig Parenzan made as part of his hiring process:   If you are terminated by the Company without cause during your first two years of employment, you will receive a severance payment of 2 times your base salary. If you are terminated without cause during your third year of employment, you will receive a severance payment of 1.5 times your base salary. If you are terminated after that time without cause, you will receive a severance payment of 75% of your base salary. In addition, under any of these scenarios you will receive a prorata portion of your target management incentive plan payout. "Cause" and "Constructive Termination Without Cause" shall be defined as follows: Cause:     For purposes of this Agreement, Executive's employment may be terminated for "cause" if (i) Executive is convicted of a felony (ii) in the reasonable determination of the Board, Executive has committed an intentional act of fraud, embezzlement, or theft in connection with Executive's duties in the course of his employment with the Company, or engaged in gross mismanagement or gross negligence in the course of his employment with the Company or (iii) Executive intentionally breached his obligations under this Agreement, including inattention to or neglect of duties and shall not have remedied such breach within 30 days after receiving written notice from the Board specifying the details thereof, provided, however, that in any case under this clause (iii) the act or failure to act by Executive is materially harmful to the business of the Company. For purposes of this Agreement, an act or omission on the part of the Executive shall be deemed "intentional" only if was done by Executive in bad faith, not merely an error in judgment and without reasonable belief that the act or omission was in the best interest of the Company. Constructive Termination Without Cause   For purposes of this Agreement, resignation by Executive for good reason ("Constructive Termination Without Cause") shall mean a termination of Executive's employment at his initiative following the occurrence, without Executive's written consent, of (i) a material diminution in Executive's duties, responsibilities, authority, or status, or a failure of Executive to have a position reporting directly to the President/CEO or to the Board (ii) a reduction to any amount of Executive's Base Salary, (iii) the assignment to Executive of duties or obligations which are materially inconsistent with the duties, responsibilities, authority, or status of his position as Senior Vice President or which materially impair Executive's ability to function in his then current position, or (iv) a failure of the Company to comply with any of the materials terms of this Agreement Letter.

-------------------------------------------------------------------------------- EXHIBIT 10.21 October 3, 2000 Thomas M. Delaplane c/o Dreyer’s Grand Ice Cream, Inc. 5929 College Avenue Oakland, CA 94618   Re:    Amendment to Secured Promissory Notes Dear Mr. Delaplane: This letter will confirm the agreement by Dreyer’s Grand Ice Cream, Inc. (“Dreyer’s”) to amend item (iii) in the first paragraph of the two Secured Promissory Notes executed by you in favor of Dreyer’s in the principal amounts of $95,000 and $186,000, dated October 5, 1998 and December 18, 1998, respectively (collectively, the “Notes” and individually each a “Note”). Item (iii) in the first paragraph of each of the Notes which currently reads “(iii) the second anniversary date of this Note.” is hereby amended by Dreyer’s as of the date of this letter to read “(iii) the fourth anniversary date of this Note.” Very Truly Yours, Dreyer’s Grand Ice Cream, Inc. By: /s/William C.Collett —————————————— William C. Collett Title:  Treasurer

<DOCUMENT> <TYPE> EX-10.1 <TEXT> <HTML> Exhibit 10.1           AMENDED AND RESTATED AGREEMENT AND PLAN OF RECAPITALIZATION     dated as of     March 25, 1994     among        UAL CORPORATION     and   AIR LINE PILOTS ASSOCIATION, INTERNATIONAL and   INTERNATIONAL ASSOCIATION OF MACHINISTS AND AEROSPACE WORKERS               TABLE OF CONTENTS           ARTICLE I THE RECAPITALIZATION Page Section 1.1  The Recapitalization 1 Section 1.2 Reclassification of Old Shares 1 Section 1.3 Redemption 2 Section 1.4 Pricing of Specified Securities 2 Section 1.5 Surrender and Exchange 4 Section 1.6 Other Issuances 7 Section 1.7 Stock Options 12 Section 1.8 Convertible Company Securities 13 Section 1.9 Form of Recapitalization Consideration 13 Section 1.10 Addition ESOP Shares 14 Section 1.11 Underwriting Alternative 15         ARTICLE II THE COMPANY AND UNITED Page Section 2.1 Certificate of Incorporation 16 Section 2.2 Bylaws 16 Section 2.3 Directors and Officers 17 Section 2.4 United 17         ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY Page Section 3.1 Corporate Existence and Power 17 Section 3.2 Corporate Authorization 18 Section 3.3 Governmental Authorization 18 Section 3.4 Non-Contravention 19 Section 3.5 Capitalization 19 Section 3.6 Subsidiaries 20 Section 3.7 Securities and Exchange Commission ("SEC") Filings 21 Section 3.8 Financial Statements 21 Section 3.9 Disclosure Documents 21 Section 3.10 Absence of Certain Changes 22 Section 3.11 Finders' Fees 22 Section 3.12 Board Action 22 Section 3.13 Securities 22 Section 3.14 Opinion of Financial Advisers 22 Section 3.15 Vote Required 23 Section 3.16 Limitations 23 Section 3.17 Compliance with Status Quo 23 Section 3.18 Rights Agreement 23         ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE UNIONS Page Section 4.1 Existence and Power 23 Section 4.2 Authorization 23 Section 4.3 Governmental Authorization 23 Section 4.4 Non-Contravention 24 Section 4.5 Disclosure Documents 24 Section 4.6 Finders' Fees 24 Section 4.7 Limitations 24         ARTICLE V COVENANTS OF THE COMPANY Page Section 5.1 Conduct of the Company 24 Section 5.2 Stockholder Meeting; proxy Material 26 Section 5.3 Access 26 Section 5.4 Other Potential Transactions 27 Section 5.5 Notices of Certain Events 27 Section 5.6 Amendment of Rights Agreement 27 Section 5.7 Employee Benefit Plans 28 Section 5.8 Labor Agreements 28 Section 5.9 Solvency Letter 29 Section 5.10 Other Transaction Documents 29 Section 5.11 Certain Agreements 29         ARTICLE VI COVENANTS OF EACH UNION Page Section 6.1 Confidentiality 30 Section 6.2 Labor Agreements 31 Section 6.3 No Public Director Nominations 31 Section 6.4 Independent Director Vacancies 31         ARTICLE VII COVENANTS OF EACH OF THE UNIONS AND THE COMPANY Page Section 7.1 Best Efforts 32 Section 7.2 Certain Filings 32 Section 7.3 Participation 32         ARTICLE VIII CONDITIONS TO THE RECAPITALIZATION Page Section 8.1 Conditions to the Obligations of Each Party 33 Section 8.2 Conditions to the Obligations of Each of the Unions 34 Section 8.3 Conditions to the Obligations of the Company 34         ARTICLE IX TERMINATION Page Section 9.1 Termination 35 Section 9.2 Termination of Status Quo 36 Section 9.3 Effect of Termination 36         ARTICLE X MISCELLANEOUS Page Section 10.1 Notices 37 Section 10.2 Survival 38 Section 10.3 Amendments; No Waivers 39 Section 10.4 Fees and Expenses; Indemnification 39 Section 10.5 Successors and Assigns 42 Section 10.6 Governing Law 42 Section 10.7 Counterparts; Effectiveness 42 Section 10.8 Parties in Interest 42 Section 10.9 Specific Performance 42 Section 10.10 Entire Agreement 43   SCHEDULES       Schedule 1.1 Restated Certificate of Incorporation of the Company Schedule 1.3(a) Deposit Agreement Schedule 1.3(b) Officers' Certificate Regarding Indenture for the Debentures Schedule 1.6(a)(i) Trust Agreement for the ESOP Trust Schedule 1.6(a)(ii) ESOP Schedule 1.6(a)(iii) Supplemental ESOP Schedule 1.6 (a)(iv) Trust Agreement for the Supplemental ESOP Trust Schedule 1.6(d) ESOP Stock Purchase Agreement and Amendment Schedule 1.6(m) Class I Preferred Stock Subscription Agreement Schedule 1.6(n) Class Pilot MEC Preferred Stock Subscription Agreement Schedule 1.6(o) Class IAM Preferred Stock Subscription Agreement Schedule 1.6(p)(i) Class SAM Preferred Stock Subscription Agreement Schedule 1.6(p)(ii) SAM Director Selection Process Schedule 1.10 Adjusted Percentage Table Schedule 2.2 Restated Bylaws of the Company Schedule 2.3(i) Directors of the Company Resigning at Effective Time Schedule 2.3(ii) New Directors of the Company Schedule 2.4 Provision to be Inserted in United Air Lines, Inc. Certificate Schedule 3.2(i) UAL 1981 Incentive Stock Program Amendment Schedule 3.2(ii) UAL 1988 Restricted Stock Plan Amendment Schedule 3.2(iii) UAL Incentive Compensation Plan Amendment Schedule 3.4 Contraventions and Conflicts Schedule 3.6(c) CRS Company Disclosure Schedule 3.17 Status Quo Matters Schedule 3.18 Rights Amendment Schedule 5.1(i) Conduct of the Company Schedule 5.1(ii) IAM Job Security Provisions Schedule 5.1(iii) Existing Employee Stock Purchase Policies of the Company Schedule 5.8(i) ALPA Collective Bargaining Agreement Schedule 5.8(ii) IAM Collective Bargaining Agreement Schedule 5.8(iii) Employment Terms for Employees Performing the Functions of the Company's Salaried and Management Employees Schedule 5.9 Solvency Letter Schedule 5.10(i) Class I Preferred Stock Shareholders Agreement Schedule 5.10(ii) Class SAM Director Shareholders Agreement Schedule 5.10(iii) First Refusal Agreement Schedule 6.1 Confidentiality Statement                                   AMENDED AND RESTATED AGREEMENT AND PLAN OF RECAPITALIZATION AGREEMENT AND PLAN OF RECAPITALIZATION, dated as of March 25, 1994, as amended and restated (the "Agreement"), among UAL Corporation, a Delaware corporation (the "Company"), Air Line Pilots Association, International ("ALPA"), pursuant to its authority as the collective bargaining representative for the crafts or class of pilots employed by United Air Lines, Inc., a Delaware corporation and a wholly owned subsidiary of the Company ("United"), and International Association of Machinists and Aerospace Workers ("IAM" and, together with ALPA, the "Unions"), pursuant to its authority as the collective bargaining representative for the crafts or classes of mechanics and related employees, ramp and stores employees, food service employees, dispatchers and security officers employed by United.     In consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows:     ARTICLE I   THE RECAPITALIZATION   SECTION 1.1   The Recapitalization.   Pursuant to Section 242 of the General Corporation Law of the State of Delaware ("Delaware Law"), as soon as practicable after satisfaction or, to the extent permitted hereunder, waiver of all conditions set forth in Article VIII, the Company will file an amended and restated certificate of incorporation in form and substance as set forth on Schedule 1.1 (the "Restated Certificate") with the Secretary of State of the State of Delaware. Except as otherwise provided herein, the transactions contemplated by this Agreement (collectively, the "Recapitalization") shall become effective at such time as the Restated Certificate is duly filed with the Secretary of State of the State of Delaware or at such later time as may be mutually agreed upon by the Company and each of the Unions and as is specified in the Restated Certificate (the "Effective Time").     SECTION 1.2    Reclassification of Old Shares. (a) At the Effective Time, subject to Section 1.5(f), each share of common stock, par value $5.00 per share, of the Company ("Common Stock") outstanding immediately prior to the Effective Time, including each share of vested and unvested restricted stock issued pursuant to the UAL 1988 Restricted Stock Plan, together with each share of Common Stock held by the Company as treasury stock or owned by any wholly-owned subsidiary of the Company which is not cancelled immediately prior to the Effective Time pursuant to Section 1.2(b) (each of the foregoing being referred to herein as an "Old Share"), shall, without any further action on the part of the holder thereof, be reclassified (the "Reclassification") as, and converted into:     (i) 0.5 of a share of common stock, par value $0.01 per share, of the Company (the "New Shares") having the rights, powers and privileges described in the Restated Certificate; and     (ii) one one-thousandth of a share of Series D Redeemable Preferred Stock of the Company, without par value (the "Redeemable Preferred Stock"), having the rights, powers and privileges described in the Restated Certificate.     If the Underwriting Alternative (as defined in Section 1.11 hereof) has been elected and consummated with respect to the Depositary Shares (as defined), the Series A Debentures (as defined) and/or the Series B Debentures (as defined), the terms of the Redeemable Preferred Stock will be modified as provided in the Restated Certificate.     (b) Each Old Share held by the Company as treasury stock or owned by any wholly-owned subsidiary of the Company immediately prior to the Effective Time (the "Treasury Shares"), up to a maximum of 1,000,000 Treasury Shares (the "Retained Treasury Shares"), shall be reclassified and converted in accordance with Section 1.2(a), with all Treasury Shares in excess of 1,000,000 being surrendered for cancellation immediately prior to the Effective Time and no payment shall be made with respect thereto. Immediately following the Effective Time, the Company and each of its wholly owned Subsidiaries (as defined in Section 3.6) shall surrender for cancellation the Redeemable Preferred Stock received upon Reclassification of the Retained Treasury Shares and no payment shall be made in respect thereof.     SECTION 1.3   Redemption.   Following the Effective Time, all outstanding shares of Redeemable Preferred Stock shall, to the extent of funds legally available therefor and subject to the provisions of the Restated Certificate, be redeemed immediately after issuance according to the terms thereof (the "Redemption"). Pursuant to the Redemption, the holders of Redeemable Preferred Stock, if any, shall be entitled to receive, in respect of each one one-thousandth of a share of Redeemable Preferred Stock, subject to the terms thereof and Section 1.5(f):     (i) $25.80 in cash; (ii) either (a) depositary shares (the "Depositary Shares") representing interests in $31.10 liquidation preference of Series B Preferred Stock of the Company, without par value (the "Public Preferred Stock"), or (b) if the Underwriting Alternative with respect to the Depositary Shares is consummated, a cash payment equal to the Depositary Share Proceeds Amount (as defined);     (iii) either (a) $15.55 principal amount of Series A Senior Unsecured Debentures due 2004 of United issued as provided below (the "Series A Debentures") or (b) if the Underwriting Alternative with respect to the Series A Debentures is consummated, a cash payment equal to the Series A Debenture Proceeds Amount (as defined); and     (iv) either (a) $15.55 principal amount of Series B Senior Unsecured Debentures due 2014 of United issued as provided below (the "Series B Debentures" and, together with the Series A Debentures, collectively, the "Debentures") or (b) if the Underwriting Alternative with respect to the Series B Debentures is consummated, a cash payment equal to the Series B Debenture Proceeds Amount (as defined).     The Depositary Shares shall be issued pursuant to a Deposit Agreement substantially in the form set forth on Schedule 1.3(a) (the "Deposit Agreement"). The Depositary Shares shall be issued only in denominations of $25.00 of liquidation preference and integral multiples thereof. The Public Preferred Stock shall have the rights, powers and privileges described in the Restated Certificate, which shall include a per share liquidation preference of $25,000. The Debentures shall be issued pursuant to the Indenture, dated as of July 1, 1991, between United arid the Bank of New York, and the Officers' Certificate (the "Officers' Certificate") in form and substance as set forth on Schedule 1.3(b) (collectively, the "Indenture"). Such Indenture shall be qualified under the Trust Indenture Act of 1939, and the rules and regulations promulgated thereunder (the "TIA"). The Debentures shall be issued only in denominations of $100 and integral multiples thereof or, if the Underwriting Alternative with respect to either series of Debentures is consummated at or prior to the Effective Time and the Company so elects, denominations of $1,000 and integral multiple thereof, in which case conforming changes shall be made to this Agreement and the attachments hereto to take into account such greater denominations with respect to such series.     SECTION 1.4   Pricing of Specified Securities. (a) The parties have agreed that the respective interest and dividend rates that would be required to be applied to the Debentures and the Public Preferred Stock, respectively, in order for the Debentures and the Depositary Shares to trade at 100% of aggregate principal amount (in the case of the Debentures) or at 100% of aggregate liquidation preference (in the case of the Depositary Shares) (collectively "par") as of the close of business, New York time, on the Trading Day (as defined below) immediately preceding the date hereof (assuming for such purpose that the Debentures and the Depositary Shares were fully distributed on such date) would be as follows (the "Initial Pricing"): Series A Dentures--9.00%, Series B Debentures,--9.70% and Public Preferred Stock-10.25%. Each of the Series A Debentures, the Series B Debentures and the Public Preferred Stock is referred to herein as a "Specified Security" and, collectively, as the "Specified Securities."     (b) On the Trading Day immediately preceding the Announcement Date, CS First Boston Corporation ("First Boston") (in consultation with Lazard Freres & Co. ("hazard")) on behalf of the Company and Keilin & Bloom (or such other investment banking firm as may be reasonably selected by the Unions) on behalf of the Unions (the "Primary Banking Firms") shall seek to mutually determine the interest or dividend rates, as applicable (the "Applicable Rate"), that each of the Specified Securities should bear in order for such Specified Security (in the case of the Debentures) or the Depositary Shares (in the case of the Public Preferred Stock) to trade at par as of the close of business, New York time, on the Trading Day immediately preceding the Announcement Date, assuming both that an Underwriting Alternative with respect thereto had and had not been elected and further assuming in each such case that such Specified Security or Depositary Shares, as the case may be, were fully distributed on such Trading Day. If the Primary Banking Firms agree on the Applicable Rate with respect to a Specified Security, such Specified Security shall bear such rate and such rate shall be the Applicable Rate with respect to such Specified Security. If the Primary Banking Firms are unable to agree on the Applicable Rate with respect to a Specified Security, then (i) Salomon Brothers Inc, or such other firm as agreed in writing by the Primary Banking Firms (the "Deadlock Firm"), shall render its opinion, on the Trading Day immediately preceding the Announcement Date, as to the Applicable Rate with respect to such Specified Security or Securities, and (ii) the Applicable Rate with respect to such Specified Security or Securities shall be the average of the two closest rates specified in the opinions of the Primary Banking Firms and the Deadlock Firm, rounded to the nearest one one-hundredth of a percent in the case of the interest rate for the Debentures and to the nearest one one-hundredth of a percent in the case of the dividend rate for the Public Preferred Stock; provided however, that, in no event shall the Applicable Rate with respect to the Specified Securities exceed (x) in the case of the Series A Debentures, 10.125%; (y) in the case of the Series B Debentures, 10.825%; and (z) in the case of the Public Preferred Stock, 11.375% (the "Maximum Pricing").     (c) On the Announcement Date, the Company shall issue a press release setting forth the Applicable Rate for each of the Specified Securities, which press release shall be distributed to major wire services and news agencies, and shall confirm that the Company Stockholder Meeting (as defined in Section 5.2) will be held as scheduled, and shall contain such other information as may be mutually agreed upon by the Company and the Unions.     (d) "Announcement Date" shall mean a Trading Day which shall be not fewer than five calendar days nor greater than ten calendar days preceding the date of the Company Stockholder Meeting, such date to be disclosed to the Unions not fewer than ten calendar days prior thereto. "Trading Day" shall mean a day on which the New York Stock Exchange. Inc. ("NYSE") is open for the transaction of business.     (e) The parties agree that the Initial Pricing of the Debentures (and the Maximum Pricing for the Debentures) was based on, and the Applicable Rates will be based on, the assumption that the Debentures will not be callable prior to their respective stated maturities. The parties further agree that the Unions may request, not less than seven days prior to the Announcement Date, that, in the event that the Underwriting Alternative is not consummated with respect to either or both series of Debentures, either or both of the series of Debentures shall be callable prior to stated maturity. If so requested, immediately following the establishment of the Applicable Rates and prior to the Announcement Date, an additional procedure (based on the procedure set forth in Section 1.4(b)) shall be implemented whereby the Primary Banking Firms shall establish the incremental increase in pricing resulting from the addition of the call feature on either or both of the series of Debentures, as the case may be, above the Applicable Rate, with any disagreement to be resolved in accordance with the procedures set forth in Section 1.4(b) involving the Deadlock Firm; provided however, that the Unions may withdraw the request for a call feature at any time up to the issuance of the press release in accordance with subsection 1.4(c).     (f) Notwithstanding any provision of this Agreement or the Schedules or Exhibits hereto to the contrary, if the Underwriting Alternative with respect to the Depositary Shares or either series of Debentures is consummated, (i) with respect to the securities that are subject to the Underwriting Alternative, the Company and United, in consultation with the underwriters, may set the record dates and payment dates (quarterly and semiannually, respectively) for the Public Preferred Stock (to which the Depositary Shares relate) and the Debentures, may select a regular interest payment date in the year 2004 as the maturity date for the Series A Debentures and may set a regular interest payment date in the year 2014 as the maturity date for the Series B Debentures and (ii) the following provisions of this subsection 1.4(f), with respect to the securities that are subject to the Underwriting Alternative, shall be null and void. If the Company causes a regular quarterly dividend to be paid on both the Public Preferred Stock and the Prior Preferred Stock (as defined below) in respect of any regular quarterly dividend payment date, then the Company shall cause the quarterly record date (and corresponding dividend payment date) for the payment of such dividend on the Public Preferred Stock to be the same as the quarterly record date (and corresponding dividend payment date) for the payment of such dividend on the Series A 6.25% Convertible Preferred Stock of the Company (the "Prior Preferred Stock"). With respect to a regular quarterly dividend payment date for the Public Preferred Stock and the Prior Preferred Stock that coincides with a regular semi-annual interest payment date for the Debentures, if the Company causes (i) a regular quarterly dividend to be paid on the Public Preferred Stock or the Prior Preferred Stock, or both, in respect of any such quarterly dividend payment date and (ii) a regular semi-annual installment of interest to be paid on the Debentures in respect of such regular semi-annual interest payment date, then the Company shall cause the semi-annual record date (and corresponding interest payment date) for such payment of interest on the Debentures to be the same as the quarterly record date (and corresponding dividend payment date) for the payment of such dividend on the Public Preferred Stock or the Prior Preferred Stock or both, as the case may be.     SECTION 1.5    Surrender and Exchange. (a) Prior to the Effective Time, the Company shall enter into an agreement (the "Exchange Agent Agreement") with First Chicago Trust Company of New York, as exchange agent (the "Exchange Agent"), for the purpose of exchanging certificates representing Old Shares for the Recapitalization Consideration (defined below). The Company will make available to the Exchange Agent, as needed, in trust for the benefit of holders of Old Shares, the Recapitalization Consideration (as defined herein) to be distributed in respect of the Old Shares (without regard to Section 1.5(f)). The cash portion of the Recapitalization Consideration shall be invested by the Exchange Agent as directed by the Company (so long as such directions do not impair the rights of holders of Old Shares), in direct obligations of the United States, obligations for which the full faith and credit of the United States is pledged to provide for the payment of principal and interest, commercial paper rated of the highest quality by Moody's Investors Services, Inc. and Standard & Poor's Corporation or certificates of deposit issued by a commercial bank having at least $10,000,000,000 in assets (collectively, "Permitted Securities"), and any net earnings with respect thereto shall be paid to the Company. The Exchange Agent shall, pursuant to irrevocable instructions, make the distributions referred to in Section 1.5(b) and the Recapitalization Consideration held by the Exchange Agent shall not be used for any other purpose. As soon as practicable after the Effective Time, the Company will send, or cause the Exchange Agent to send and otherwise make available, to each holder of Old Shares at the Effective Time a letter of transmittal, in form reasonably satisfactory to the Unions and the Company, for use in such exchange. Such letter of transmittal shall advise such holder of the effectiveness of the Recapitalization, whether or not any portion of the Underwriting Alternative has been consummated and, if consummated, the expected amount of the Proceeds Amount, and the procedures for surrendering to the Exchange Agent certificates representing Old Shares for exchange into Recapitalization Consideration and shall specify that the delivery shall be effected, and the risk of loss and title shall pass, only upon proper delivery of the certificates representing Old Shares to the Exchange Agent.     (b) Each holder of Old Shares that have been converted into New Shares and Redeemable Preferred Stock, upon surrender to the Exchange Agent of an Old Certificate or Certificates, together with a properly completed letter of transmittal covering such Old Shares, will be entitled to receive in respect of such Old Shares, subject to Section 1.5(f):     (i) a certificate or certificates representing 0.5 of a New Share for each Old Share formerly represented by such Old Certificate or Certificates in accordance with Section 1.2;     (ii) either (a) a depositary receipt or receipts representing Depositary Shares representing interests in $31.10 liquidation preference of Public Preferred Stock for each Old Share formerly represented by such Old Certificate or Certificates in respect of the Redemption or (b) if the Underwriting Alternative with respect to the Depositary Shares is consummated, a cash payment equal to the Depositary Share Proceeds Amount in respect of the Redemption;     (iii) either (a) $15.55 principal amount of Series A Debentures for each Old Share formerly represented by such Old Certificate or Certificates in respect of the Redemption or (b) if the Underwriting Alternative with respect to the Series A Debentures is consummated, a cash payment equal to the Series A Debenture Proceeds Amount in respect of the Redemption;     (iv) either (a) $15.55 principal amount of Series B Debentures for each Old Share formerly represented by such Old Certificate or Certificates in respect of the Redemption or (b) if the Underwriting Alternative with respect to the Series B Debentures is consummated, a cash payment equal to the Series B Debenture Proceeds Amount in respect of the Redemption; and     (v) a cash payment of $25.80 for each Old Share formerly represented by such Old Certificate or Certificates in respect of the Redemption (the cash and/or securities distributed pursuant to clauses (i) through (v), collectively, the "Recapitalization Consideration").     Until so surrendered, each Old Certificate or Certificates formerly representing Old Shares shall, after the Effective Time, represent for all purposes only the right to receive such Recapitalization Consideration.     (c) If any portion of the Recapitalization Consideration is to be paid to a person other than the registered holder of the Old Shares formerly represented by the Old Certificate or Certificates so surrendered in exchange therefor, it shall be a condition to such payment that the Old Certificate or Certificates so surrendered shall be properly endorsed or otherwise be iii proper form for transfer and that the person requesting such payment shall pay to the Exchange Agent any transfer or other taxes required as a result of such payment to a person other than the registered holder of such Old Shares or establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable.     (d) In the event any Old Certificate or Certificates shall have been lost, stolen or destroyed, upon the making of an affidavit to that fact by the person claiming such certificate to be lost, stolen or destroyed, the Company will issue in exchange for such lost, stolen or destroyed Old Certificate or Certificates the Recapitalization Consideration deliverable in respect thereof in accordance with this Article I. When authorizing such issue of the Recapitalization Consideration in exchange therefor, the Company may, in its discretion and as a condition precedent to the issuance there, require the person claiming ownership of such lost, stolen or destroyed Old Certificate or Certificates to give the Company a bond in such sum as it may direct, or otherwise indemnify the Company in a manner satisfactory to it, against any claim that may be made against the Company with respect to the Old Certificate or Certificates alleged to have been lost, stolen or destroyed.     (e) After the Effective Time, there shall be no further registration of transfers of Old Shares. If, after the Effective Time, Old Certificate or Certificates are presented to the Company or its transfer agent, such Old Certificate or Certificates shall be canceled and exchanged for the Recapitalization Consideration provided for, and in accordance with the procedures set forth, in this Article I. All Recapitalization Consideration to be distributed pursuant to this Section 1.5, if unclaimed on the first anniversary of the Effective Time, shall be released and paid by the Exchange Agent to the Company, after which time persons entitled thereto may look, subject to applicable escheat and other similar laws, only to the Company for payment thereof.     (f) Notwithstanding anything to the contrary contained in this Agreement:     (i) No certificates, debentures or scrip representing fractional New Shares, depositary receipts representing fractional Depositary Shares (based upon each whole Depositary Share representing interests in $25 liquidation preference of Public Preferred Stock) or fractional Debentures shall be issued as part of the Recapitalization, and such fractional interests will not entitle the beneficial or record owner thereof to any rights of a stockholder or creditor of the Company.     (ii) As promptly as practicable following the Effective Time, the Exchange Agent shall determine the excess of (x) the number of whole New Shares into which all of the Old Shares will be reclassified and converted pursuant to Section 1.2 over (y) the aggregate number of whole New Shares to be distributed to holders of Old Shares pursuant to Section 1.5 (such excess being referred to herein as the "Excess New Shares"); and if the Underwriting Alternative has not been elected with respect to the Depositary Shares, the Series A Debentures and/or the Series B Debentures, as the case may be, or, if elected has not been consummated for any reason at or prior to the Effective Time, the Exchange Agent shall also determine, as appropriate, (I) the excess of (a) the number of whole Depositary Shares representing interests in shares of Public Preferred Stock issuable upon Redemption in accordance with Article FOURTH, Part I.D, Section 6 of the Restated Certificate with respect to the Redeemable Preferred Stock into which the Old Shares will be reclassified and converted pursuant to Section 1.2(a) over (b) the aggregate number of whole Depositary Shares representing interests in shares of Public Preferred Stock to be distributed to holders of Old Shares pursuant to Section 1.5 (such excess being referred to herein as the "Excess Depositary Shares"); (II) the excess of (a) the number of whole Series A Debentures issuable upon Redemption in accordance with Article FOURTH, Part I.D, Section 6 of the Restated Certificate with respect to the Redeemable Preferred Stock into which the Old Shares will be reclassified and converted pursuant to Section 1.2(a) over (b) the aggregate number of whole Series A Debentures to be distributed to holders of Old Shares pursuant to Section 1.5 (such excess being referred to herein as the "Excess Series A Debentures"); and/or (III) the excess of (a) the number of whole Series B Debentures issuable upon Redemption in accordance with Article FOURTH, Part I.D, Section 6 of the Restated Certificate with respect to the Redeemable Preferred Stock into which the Old Shares will be reclassified and converted pursuant to Section 1.2(a) over (b) the aggregate number of whole Series B Debentures to be distributed to holders of Old Shares pursuant to Section 1.5 (such excess being referred to herein as the "Excess Series B Debentures" and, together with the Excess New Shares, the Excess Depositary Shares and/or the Excess Series A Debentures, as applicable, collectively, the "Excess Securities"). As soon after the Effective Time as practicable taking into account market conditions based on consultations with the Company, the Exchange Agent, as agent for the holders of Old Shares, shall sell the Excess Securities at then prevailing prices on the principal national securities exchange, automated quotation system or other trading market (the "Applicable Exchange") on which the relevant Excess Securities are listed or admitted for trading (which shall be the NYSE in the case of the New Shares), all in the manner provided in paragraph (iii) of this Section.     (iii) The sale of the Excess Securities by the Exchange Agent shall be executed on an Applicable Exchange through one or more member firms of such Applicable Exchange and shall be executed in round lots to the extent practicable. Until the net proceeds of such sale or sales have been distributed to the holders of Old Shares, the Exchange Agent will hold such proceeds in trust for the holders of Old Shares (the "Excess Securities Trust"). Until distributed as provided below, the Excess Securities Trust shall be invested, as directed by the Company, in Permitted Securities and any net earnings with respect thereto shall be paid to the Company. The Company shall pay all commissions, transfer taxes and other out-of-pocket transaction costs, including the expenses and compensation of the Exchange Agent, incurred in connection with such sale of the Excess Securities. The Exchange Agent shall determine the portion of the Excess Securities Trust to which each holder of Old Shares shall be entitled, if any, by (w) multiplying the amount of the aggregate net proceeds comprising the Excess Securities Trust attributable to the sale of Excess New Shares by a fraction, the numerator of which is the amount of the fractional New Share interest to which such holder of Old Shares would be entitled but for the application of Section 1.5(f)(i) and the denominator of which is the aggregate amount of fractional New Share interests to which all holders of Old Shares would be entitled but for the application of Section 1.5(f)(i); and if the Underwriting Alternative has not been elected with respect to the Depositary Shares, the Series A Debentures and/or the Series B Debentures, as the case may be, or, if elected has not been consummated for any reason at or prior to the Effective Time, as appropriate, by (x) multiplying the amount of the aggregate net proceeds comprising the Excess Securities Trust attributable to the sale of Excess Depositary Shares by a fraction, the numerator of which is the amount of the fractional Depositary Share interest to which such holder of Old Shares would be entitled but for the application of Section 1.5(t)(i) and the denominator of which is the aggregate amount of fractional Depositary Share interests to which all holders of Old Shares would be entitled but for the application of Section 1.5(f)(i); (y) multiplying the amount of the aggregate net proceeds comprising the Excess Securities Trust attributable to the sale of Excess Series A Debentures by a fraction, the numerator of which is the amount of the fractional Series A Debenture interest to which such holder of Old Shares would be entitled but for the application of Section 1.5(f)(i) and the denominator of which is the aggregate amount of fractional Series A Debenture interests to which all holders of Old Shares would be entitled but for the application of Section 1.5(f)(i); and (z) multiplying the amount of the aggregate net proceeds comprising the Excess Securities Trust attributable to the sale of Excess Series B Debentures by a fraction, the numerator of which is the amount of the fractional Series B Debenture interest to which such holder of Old Shares would be entitled but for the application of Section 1.5(f)(i) and the denominator of which is the aggregate amount of fractional Series B Debenture interests to which all holders of Old Shares would be entitled but for the application of Section 1.5(f)(i).     (iv) As soon as practicable after the determination of the total amount of cash, if any, to be paid to holders of Old Shares in lieu of any fractional New Share and, if applicable, Depositary Share interests, Series A Debenture interests and/or Series B Debenture interests, the Exchange Agent shall make available such amounts to such holders of Old Shares; provided, however, that such amounts shall be paid to each holder of Old Shares only upon surrender of such holder's Old Certificate or Certificates together with a properly completed and duly executed letter of transmittal and any other required documents. All cash in lieu of fractional interests to be paid pursuant to this Section 1.5(f), if unclaimed on the first anniversary of the Effective Time, shall be released and paid by the Exchange Agent to the Company, after which time persons entitled thereto may look, subject to applicable escheat and other similar laws, only to the Company for payment thereof.     (g) No interest shall be paid or accrued on any portion of the Recapitalization Consideration or cash in lieu of fractional interests. No dividends or other distributions declared or made after the Effective Time with respect to New Shares with a record date after the Effective Time shall be paid to the holder of any unsurrendered Old Certificate or Certificates with respect to the New Shares such holder is entitled to receive until the holder of such Old Certificate or Certificates shall surrender the same in accordance with this Section 1.5 and unless such holder is a record holder of such New Shares on such record date.     Section 1.6    Other Issuances. In conjunction with the consummation of the Recapitalization, the Company shall issue the shares described in this Section 1.6.     (a) During the 69 months following the Effective Time, the "Final Number" (as defined in subsection (b)) of shares of convertible preferred stock described below (the "ESOP Convertible Preferred Stock") shall be (i) issued to State Street Bank and Trust Company, a Massachusetts business trust, as trustee (the "ESQP Trustee") under a trust to be created pursuant to the Employee Stock Ownership Trust Agreement between the Company and the ESOP Trustee in form and substance as set forth on Schedule 1.6(a) (i) (the "ESOP Trust") and to be established for the benefit of certain employees of the Company and its Subsidiaries participating in the UAL Corporation Employee Stock Ownership Plan in form and substance as set forth on Schedule 1.6(a) (ii) (the "ESOP") and, to the extent not so issued, (ii) credited as book entry credits to the accounts of certain employees of the Company and its Subsidiaries participating in the UAL Corporation Supplemental ESOP in form and substance as set forth on Schedule 1.6(a) (iii) (the "Supplemental ESOP" and together with the ESOP, collectively, the "ESOPs") and in certain circumstances issued to the ESOP Trustee under a trust (the "Supplemental ESOP Trust" and together with the ESOP Trust, collectively, the "ESOP Trusts") to be created pursuant to the Supplemental ESOP Trust Agreement between the Company and the ESOP Trustee in form and substance as set forth on Schedule 1.6(a)(iv).     (b) The number of shares of ESOP Convertible Preferred Stock to be so issued and credited as contemplated by subsection (a) shall initially be 17,675,345, which is equal to the product of (i) 0.5, (ii) 55/45ths, (iii) the "Fully Diluted Old Shares" immediately prior to the Effective Time, and (iv) 0.9999. The "Fully Diluted Old Shares" immediately prior to the Effective Time shall equal 28,926,185. The total number of shares of ESOP Convertible Preferred Stock to be so issued and credited is subject to increase (in accordance with Section 1.10) up to an amount equal to the sum of (i) 17,675,345 plus (ii) the Additional Shares (as defined in Section 1.10). Such total number of shares, including to the extent, if any, so increased, is referred to as the "Final Number."     (c) The ESOP Convertible Preferred Stock shall consist of (i) Class 1 ESOP Convertible Preferred Stock, par value $0.01 per share, of the Company, with a fixed dollar dividend in a dollar amount (the "Dollar Amount") that is equal to 7.00%, or such lesser percentage that may be agreed to by the Company and the ESOP Trustee prior to the Effective Time, of the per share price at which the Class 1 ESOP Preferred Stock is issued to the ESOP Trustee at the Effective Time (the "Initial Price"), and having the rights, powers and privileges set forth in the Restated Certificate (the "ESOP Preferred"), and (ii) Class 2 ESOP Convertible Preferred Stock, par value $0.01 per share, of the Company having the rights, powers and privileges set forth in the Restated Certificate (the "Supplemental ESOP Preferred").     (d) At the Effective Time, the Company shall issue to the ESOP Trustee in accordance with a stock purchase agreement and amendment in form and substance as.set forth on Schedule 1.6(d) (as so amended, the "ESOP Stock Purchase Agreement"), a number of shares of ESOP Preferred (the "Initial Shares") equal to the Year 1 Release Shares (as defined), divided by the Year 1 Decimal (as defined).     (i) The term "Year 1 Release Shares" shall mean the product of     (x) 17,675,345, (y) a fraction (the "First Year Fraction") having a numerator equal to the number of days from the Effective Time to December 31, 1994 and a denominator equal to 2,099 (which approximates the number of days in the 69 months after the Effective Time), and     (z) 0.7815 (the "Class 1 Decimal").     (ii) The term "Year 1 Decimal" shall mean one minus the product of     (xx) the Dollar Amount as a percentage (expressed as a decimal) of the Initial Price and     (yy) 5.25.     The Year 1 Release Shares shall be released from the ESOP suspense account and allocated to the accounts of ESOP participants as of December 31, 1994. The balance of the Initial Shares (the "Year 1 Remaining Shares") shall be released from the ESOP suspense account and allocated to the accounts of ESOP participants in level installments for each full plan year (and prorated for the quarter ending March 31, 2000) in the period from January 1, 1995 through March 31, 2000.     As of December 31, 1994, there shall be credited to the accounts of Supplemental ESOP participants a number of shares of Supplemental ESOP Preferred equal to the product of     (aa) 17,675,345,     (bb) the First Year Fraction, and     (cc) one minus the Class 1 Decimal.     (e) At or about the 365th day following the Effective Time (the "Measuring Date") and at or about the next four following anniversaries of the Measuring Date (each a "Measuring Date Anniversary"), the Company shall negotiate in good faith with the ESOP Trustee to reach an agreement under which the Company shall issue to the ESOP Trustee shares of ESOP Preferred at an agreed-upon price per share (for each applicable plan year, the "Purchase Price"). If such agreement is reached within 30 days of the Measuring Date or within 30 days of any Measuring Date Anniversary, then, within five days thereafter, the Company shall sell to the ESOP Trustee, and the ESOP Trustee shall purchase from the Company, pursuant to an agreement substantially in the form of Exhibit B to the ESOP Stock Purchase Agreement, a number of shares of ESOP Preferred (with respect to each such year, the "Subsequent Shares"), which number of shares shall equal, for each such plan year, the Subsequent Year Release Shares (as defined) divided by the Subsequent Year Decimal (as defined).     (i) The term "Subsequent Year Release Shares" shall mean, for each such plan year, the excess of     (xx) the product of     (A) 12/69ths of the Final Number and     (B) the Class 1 Decimal, over     (yy) the number of Year I Remaining Shares and Subsequent Year Remaining Shares (as defined below) (collectively, "Tail Shares") scheduled to be released in such plan year. (ii) The term "Subsequent Year Decimal" shall be calculated separately for each such plan year and shall mean one minus the product of     (yy) a fraction (expressed as a decimal) having a numerator equal to the Dollar Amount and a denominator equal to the Purchase Price for the plan year in question, and     (zz) the number of years and fractional years from the end of the plan year for which such shares are being issued to March 31, 2000.     The Subsequent Year Release Shares for each such plan year shall be released from the ESOP suspense account and allocated to the accounts of ESOP participants as of the end of such plan year. The balance of the Subsequent Shares for such plan year (the "Subsequent Year Remaining Shares") shall be released from the ESOP suspense account and allocated to the accounts of ESOP participants in level installments for each full plan year (and prorated for the quarter ending March 31, 2000) remaining in the period from the January 1 immediately following such plan year through March 31, 2000.     For each of the second through sixth plan years of the Supplemental ESOP, there shall be credited to the accounts of Supplemental ESOP participants shares of Supplemental ESOP Preferred equal to the product of (aa) tz/69ths of the Final Number and (bb) the decimal equal to one minus the Class 1 Decimal.     (f) Commencing not later than December 1, 1999, the Company shall negotiate in good faith with the ESOP Trustee to reach an agreement under which the Company shall issue to the ESOP Trustee shares of ESOP Preferred at an agreed.upon price (the "Purchase Price" for such year). If such agreement is reached, then on the first business day in the year 2000, the Company shall sell to the ESOP Trustee, and the ESOP Trustee shall purchase from the Company, pursuant to an agreement substantially in the form of Exhibit B to the ESOP Stock Purchase Agreement, a number of shares of ESOP Preferred ("Final Year Shares"), which number shall equal the excess of     (A) the product of     (xx) the Final Number, (yy) a fraction (the "Final Fraction") equal to one minus the sum of 20/23rds and the First Year Fraction, and     (zz) the Class 1 Decimal, over (B) the number of Tail Shares scheduled to be released in such plan year. For the seventh plan year of the Supplemental ESOP, there shall be credited to the accounts of Supplemental ESOP participants shares of Supplemental ESOP Preferred equal; to the product of (aa) the Final Number, (bb) the Final Fraction and (cc) a decimal equal to one minus the Class 1 Decimal.     (g) The Company may, with the consent of the Unions, which shall not be unreasonably withheld, make all or any part of the sales of ESOP Preferred to the ESOP Trustee described above at any earlier date or dates, provided that the timing and amount of the release of such shares to the accounts of employees in the ESOPs contemplated by subsections (d), (e) and (f) above shall not be altered by the different date or dates of the sales. If any sale of Subsequent Shares or Final Year Shares is not consummated in accordance with subsection (e) or (f) above (if not earlier consummated pursuant to this subsection (g)), a number of shares of Supplemental ESOP Preferred as is equal to the number of shares of ESOP Preferred not so sold shall be contributed to the ESOP (Part B) or credited to the accounts of participants in the Supplemental ESOP, as applicable. Such contribution or crediting shall be at such time or times such that the release (or crediting) of shares to the accounts of employees contemplated by subsections (d), (e) and (f) above shall not be altered. Notwithstanding anything to the contrary herein (other than the provisions of this subsection (g) relating to "catch-up" dividends), the aggregate number of shares of ESOP Convertible Preferred Stock issued, credited, or contributed under this Section 1.6 and Section 1.10 shall not exceed, or be less than, the Final Shares. In the event that fixed dividends on the ESOP Preferred attributable to a particular acquisition loan are not paid when initially due because the Company lacks sufficient earnings and profits, and such earnings and profits later become available, it is possible that such dividends (the "skipped dividends") may then be paid on a catch-up basis, to the ESOP Trustee at a time when such catch-up dividends (when added to other fixed dividends payable on shares attributable to such loan) exceed the principal and interest then payable on the loan to which such dividends relate. In that event, compliance with the rules applicable to the ESOP may require a portion of such catch-up dividends to be used to purchase New Shares rather than pay principal or interest on such acquisition loan. If such purchase causes the New Shares and ESOP Preferred allocated to participants in that year to exceed the number of shares that would have been allocable absent payment of the catch-up dividend, then, notwithstanding the provisions of Section 1.6, the parties agree that they shall negotiate in good faith to determine whether there is a manner in which the ESOP and the Supplemental ESOP can be amended so that, in subsequent years, allocations to participants can be reduced in a manner that results in participants achieving the same economic position that would have resulted if no such skipped dividends had occurred; and if the result described in the preceding clause of this sentence can be achieved without material detriment to any participant (in relation to the econonuc position such participant would have enjoyed had the skipped dividend not occurred) and without interference with the general objectives of the ESOP program, then the Company may, with the consent of the Unions as to the satisfaction of the standards set forth in this sentence, which shall not be unreasonably withheld, adopt appropriate amendments to this Agreement, the ESOP and Supplemental ESOP to effectuate the intent of this sentence. Achievement of the goal described in the preceding sentence may require issuance of fewer shares of ESOP Convertible Preferred Stock in future periods than would have otherwise been the case (because of the ESOP's unexpected early acquisition of New Shares). All disputes concerning whether the Unions reasonably withheld a consent in accordance with the provisions of this subsection (g) shall be resolved in accordance with the arbitration procedures described in Section 11.2(b)(ii)(G)-(J) of the ESOP.     (h) In consideration of each issuance by the Company of the shares of ESOP Preferred to the ESOP Trust, the ESOP Trustee, on behalf of the ESOP Trust, shall (y) pay to the Company an amount of cash equal to the aggregate par value of the shares of ESOP Preferred so issued and (z) execute and deliver a promissory note, in the aggregate principal amount equal to the aggregate ,.purchase price for the ESOP Preferred so issued less the amount paid pursuant to clause (y), in substantially the form set forth on Exhibit A to the ESOP Stock Purchase Agreement (each, an "ESOP Note").     (i) In addition, the Company shall also issue and contribute to the ESOP Trust at the Effective Time:     (x) One (1) share of Class P ESOP Voting Junior Preferred Stock, par value 50.01 per share, of the Company having the rights, powers and privileges set forth in the Restated Certificate (the "Class P Voting Preferred");     (y) One (1) share of Class M ESOP Voting Junior Preferred Stock, par value $0.01 per share, of the Company having the rights, powers and privileges set forth in the Restated Certificate (the "Class M Voting Preferred"); and     (z) One (1) share of Class S ESOP Voting Junior Preferred Stock, par value $0.01 per share, of the Company having the rights, powers and privileges set forth in the Restated Certificate (the "Class S Voting Preferred" and, together with the Class P Voting Preferred and the Class M Voting Preferred, collectively, the "ESOP Voting Preferred Stocks").     In consideration of the issuance by the Company of the ESOP Voting Preferred Stocks to the ESOP Trust pursuant to this subsection (i) and (if and to the extent so issued to the ESOP Trustee and if required by Delaware law) the issuance by the Company of the Supplemental ESOP Preferred pursuant to subsections (d), (e) and (f) or (g) above, the ESOP Trustee, on behalf of the ESOP Trust, shall pay to the Company an amount of cash equal to the aggregate par value of the shares of ESOP Voting Preferred Stocks and Supplemental ESOP Preferred so issued.     (j) In addition, the Company shall also issue and contribute to the Supplemental ESOP Trust (together with the ESOP Trust, the "ESOP Trusts"), at the times provided for in the Supplemental ESOP, an aggregate (to give effect to the 0.5 Common Stock exchange ratio) of: .     (i) a number of shares of Class P Voting Preferred Stock equal to the product of (aa) 55/45ths, (bb) .4623, (cc) one half of the Fully Diluted Old Shares and (dd) .9999, minus one (1.0);     (ii) a number of shares of Class M Voting Preferred Stock equal to the product of (aa) 55/45ths, (bb) .3713, (cc) one half of the Fully Diluted Old Shares and (dd) .9999, minus one (1.0); and     (iii) a number of shares of Class S Voting Preferred Stock equal to the product of (aa) 55/45ths, (bb) .1664, (cc) one half of the Fully Diluted Old Shares and (dd) .9999, minus one (1.0).     If, pursuant to Section 1.10 and this Section 1.6, the Company is required to sell, contribute and/or credit on a book entry basis Additional Shares (as defined in Section 1.10(b)), then, ratably over the 69 months following the Effective Time, the Company shall also contribute to the ESOP Trust or the Supplemental ESOP Trust, as appropriate, an aggregate of:     (aa) a number of shares of Class P Voting Preferred Stock equal to the product of .4623 and the number of such Additional Shares:     (bb) a number of shares of Class M Voting Preferred Stock equal to the product of .3713 and the number of Additional Shares; and     (cc) a number of shares of Class S Voting Preferred Stock equal to the product of .1664 and the number of Additional Shares.     (k) The Company shall not issue any shares of any class of ESOP Convertible Preferred Stock or ESOP Voting Preferred Stock (collectively the "ESOP Preferred Stocks" or "ESOP Preferred Stock") other than in accordance with the terms of Sections 1.6 and 1.10 hereof and the ESOPs.     (1) The ESOP program is designed to deliver equity ownership and voting power to the employee groups in pre-negotiated proportions and at a pre-negotiated pace. If and to the extent that, despite the best and cooperative efforts of the Unions and the Company, the tax qualified ESOP cannot be implemented in all material respects or the non-qualified Supplemental ESOP cannot be implemented in all material respects and without income tax (excluding the employee portion of FICA, FUTA and Medicare taxes) to participants prior to actual distributions being made, appropriate arrangements will be made to effectuate in all material respects the delivery of equity ownership and voting power in the agreed-upon proportions and at the agreed-upon pace and to accomplish the purposes contemplated by the ESOP program described in Schedules 1.6(a)(i)-(iv) and (d). As used herein, the phrase "appropriate arrangements" shall not (i) require the expenditure of any material amount of funds by the Company or the issuance of securities to the ESOP Trusts representing a greater proportion of the equity value or voting power of the Company than that contemplated by this Agreement or (ii) result in the diminution of the equity value or voting power of the New Shares held by the stockholders of the Company other than the ESOP Trusts.     (m) In accordance with subscription agreements in form and substance as set forth on Schedule 1.6(m) (the "Class I Preferred Stock Subscription Agreement"), the Company shall issue one (1) share of Class I Junior Preferred Stock, par value $0.01 per share, of the Company having the rights, powers and privileges set forth in the Restated Certificate (the "Class I Preferred") to each of the persons identified on Schedule 2.3(ii) as the initial "Independent Directors," provided that each initial Independent Director shall have paid to the Company an amount of cash equal to the par value of the share of Class I Preferred to be so issued.     (n) In accordance with a subscription agreement in form and substance as set forth on Schedule 1.6(n) (the "Class Pilot MEC Preferred Stock Subscription Agreement"), the Company shall issue one (1) share of Class Pilot MEC Junior Preferred Stock, par value $0.01 per share, of the Company having the rights, powers and privileges set forth in the Restated Certificate (the "Class Pilot MEC Preferred") to the United Air Lines Master Executive Council of ALPA (the "MEC"), provided that the MEC shall have paid to the Company an amount of cash equal to the aggregate par value of the share of Class Pilot MEC Preferred to be so issued.     (o) In accordance with a subscription agreement in form and substance as set forth on Schedule 1.6(o) (the "Class IAM Preferred Stock Subscription Agreement"), the Company shall issue one (1) share of Class IAM Junior Preferred Stock, par value $0.01 per share, of the Company having the rights, powers and privileges set forth in the Restated Certificate (the "Class IAM Preferred") to the IAM or its designee, provided that the IAM or such designee shall have paid to the Company an amount of cash equal to the aggregate par value of the share of Class IAM Preferred to be so issued.     (p) In accordance with a subscription agreement inform and substance asset forth on Schedule 1.6(p)(i) (the "Class SAM Preferred Stock Subscription Agreement"), the Company shall issue three (3) shares of Class SAM Junior Preferred Stock, par value $0.01 per share, of the Company having the rights, powers and privileges set forth in the Restated Certificate (the "Class SAM Preferred") as follows: (i) two (2) shares to the person identified as the Salaried and Management Director on Schedule 2.3(ii) or a replacement director identified in accordance with the nomination procedures in Schedule 1.6(p)(ii) (the "SAM Director), and (ii) one (1) share to an additional Class SAM stockholder, defined in Schedule 1.6(p)(i) as the Designated Stockholder, provided that such persons shall have paid to the Company an amount of cash equal to the aggregate par value of the shares of Class SAM Preferred to be so issued.     (q) If, due to limitations of Section 415 of the Internal Revenue Code or due to the issuance of Additional Shares, the respective Employee Groups (as defined in the ESOP) are prevented from reasonably achieving the contemplated allocations among and within their respective Employee Groups, the parties agree to cooperate to modify the Class 1 Decimal with respect to sales contemplated by Section 1.6(e) and Section 1.6(t) and to make appropriate conforming modifications to the ESOP, Supplemental ESOP and all related instruments if so requested by the Company, ALPA or the IAM. Such modifications shall maximize the Class 1 Decimal consistent with achieving with a high degree of certainty that the limits of the Internal Revenue Code Section 415(c)(6) shall not be exceeded (which condition regarding Section 415(c)(6) may be waived by ALPA).     SECTION 1.7    Stock Options.    Each employee stock option to purchase Old Shares granted under any employee stock option or compensation plan or arrangement of the Company outstanding immediately prior to the Effective Time (an "Option") shall remain outstanding upon and following consummation of the Recapitalization, and each such Option, whether or not then vested or exercisable immediately prior to the Effective Time, shall (i) if provided by the terms thereof (or if accelerated in accordance with the relevant plan) become fully vested and exercisable at the Effective Time and (ii) after the Effective Time represent the right to receive, until the expiration thereof and in accordance with its terms, in exchange for the aggregate exercise price for such Option, without interest, the Recapitalization Consideration with respect to each Old Share that such holder would have been entitled to receive had such holder exercised such Option in full immediately prior to the Effective Time. The Recapitalization Consideration issuable upon exercise of an Option shall be issued in the same proportion as holders of Old Shares would be entitled to receive their Recapitalization Consideration, but for fractional interests, among cash and New Shares and, if applicable, principal amount of Series A and Series B Debentures and Depositary Shares representing interests in the $25 liquidation preference of Public Preferred Stock, except that (i) if the Underwriting Alternative has not been consummated for any reason at of prior to the Effective Time with respect to the Depositary Shares, the Series A Debentures or the Series B Debentures, as the case may be, the total amount of each of Series A and Series B Debentures and Depositary Shares representing interests in the $25 liquidation preference of the Public Preferred Stock to be issued upon exercise of each such Option shall be rounded upwards to the nearest integral multiple of $100, $100 and $25, respectively (collectively, the "Option Adjustment"), and the amount of cash payable shall be reduced by a corresponding amount so that the holder does not receive fractional Depositary Shares, fractional Series A Debentures or fractional Series B Debentures (provided, however, if upon exercise of an Option the amount of cash to be received is less than the Option Adjustment, the total amount of each of Series A and Series B Debentures and Depositary Shares representing interests in the $25 liquidation preference of Public Preferred Stock shall be rounded downwards to the nearest integral multiple of $100, $100 and $25, respectively, and the amount of cash payable shall be increased by a corresponding amount so that the holder does not receive fractional Depositary Shares, fractional Series A Debentures or fractional Series B Debentures) and (ii) whether or not the Underwriting Alternative has been consummated at or prior to the Effective Time the total amount of New Shares issuable to each Option holder in respect of all Options held by such holder shall be rounded upwards to the nearest whole New Share. Except as specifically provided in this Section 1.7, the Company shall not make any other adjustments to the terms of the Options as a result of the issuance of the ESOP Preferred Stocks or the terms of the ESOP Preferred Stocks (including, without limitation, the dividend and conversion rights thereof).     SECTION 1.8    Convertible Company Securities.  Each share of the Prior Preferred Stock and each of the Air Wis Services, Inc. 73/4% Convertible Subordinated Debentures, due 2010, and Air Wis Services, Inc. 8 1/2% Convertible Subordinated Notes, due 1995 (collectively, the "Air Wis Convertible Debentures"), outstanding immediately prior to the Effective Time (each, a "Convertible Company Security") shall upon and following consummation of the Recapitalization remain outstanding, and each holder of any such Convertible Company Security shall thereafter have the right to receive, upon conversion, without interest, the Recapitalization Consideration with respect to each Old Share that such holder would have been entitled to receive had such holder converted such Convertible Company Security in full immediately prior to the Effective Time. The Recapitalization Consideration issuable upon conversion of a Convertible Company Security shall be issued in the same proportion as holders of Old Shares receive their Recapitalization Consideration, but for fractional interests, among cash and New Shares and, if applicable, principal amount of Series A and Series B Debentures and Depositary Shares representing interests in the $25 liquidation preference of Public Preferred Stock, except that (i) if the Underwriting Alternative has not been consummated for any reason at or prior to the Effective Time with respect to the Depositary Shares, the Series A Debentures or the Series B Debentures, as the case may be, the total amount of each of Series A and Series B Debentures and Depositary Shares to be issued upon conversion of the Convertible Company Security shall be rounded upwards to the nearest integral multiple of $100, $100 and $25, respectively, (collectively, the "Convertible Company Security Adjustment") and the amount of cash payable shall be reduced by a corresponding amount so that the holder does not receive fractional Depositary Shares representing interests in the $25 liquidation preference of Public Preferred Stock, fractional Series A Debentures or fractional Series B Debentures (provided, however; if upon conversion of a Convertible Company Security the amount of cash to be received is less than the Convertible Company Security Adjustment, the total amount of each of Series A and Series B Debentures and Depositary Shares representing interests in the $25 liquidation preference of Public Preferred Stock shall be rounded downwards to the nearest integral multiple of $100, $100 and $25, respectively, and the amount of cash payable shall be increased by a corresponding amount so that the holder does not receive fractional Depositary Shares, fractional Series A Debentures of fractional Series B Debentures) and (ii) whether or not the Underwriting Alternative has been consummated at of prior to the Effective Time the total amount of New Shares issuable to each holder of Convertible Company Securities in respect of all Convertible Company Securities held by such holder shall be rounded upwards to the nearest whole New Share. Except as specifically provided in this Section 1.8, the Company shall not make any other adjustments to the terms of the Convertible Company Securities as a result of the issuance of the ESOP Preferred Stocks or the terms of the ESOP Preferred Stocks (including, without limitation, the dividend and conversion rights thereof).     SECTION 1.9    Form of Recapitalization Consideration.  Notwithstanding anything in Section 1.7 or 1.8 to the contrary, if the holder of an Option or a Convertible Company Security exercises such Option or Convertible Company Security at any time after either series of Debentures or the Public Preferred Stock has been redeemed, retired or repaid in full (the securities redeemed, retired or repaid hereinafter referred to as the "Retired Securities"), the holder of such Option or Convertible Company Security shall not be entitled to receive any Retired Securities but shall receive in lieu thereof an amount of cash equal to the principal amount (without premium regardless of whether a premium is paid at the time of redemption, retirement or repayment in full) or liquidation preference (without the amount of accrued dividends regardless of whether accrued dividends were paid at the time of redemption, retirement or repayment in full), as the case may be, of or represented by the Retired Securities that such holder otherwise would have received in respect of the exercise of such Option or Convertible Company Security.     SECTION 1.10    Additional ESOP Shares.   (a) As soon as practicable after the Measuring Date, the Company shall (x) contribute shares of Supplemental ESOP Preferred Stock to Part B of the ESOP and (y) provide an allocation of shares of Supplemental ESOP Preferred Stock on a book entry basis in a manner consistent with the allocation under the Supplemental ESOP, such that the aggregate number of shares under (x) and (y) is equal to a fraction of the Additional Shares (as defined in Section 1.10(b) below), which fraction shall be the First Year Fraction. All such shares shall be Supplemental ESOP Preferred. To the extent permissible under the limitations imposed by the Internal Revenue Code, .the shares determined under this subsection (a) shall be contributed to Part B of the ESOP, and the remaining shares shall be allocated under the Supplemental ESOP.     (b) "Additional Shares" shall mean the number of shares of ESOP Convertible Preferred Stock determined as the excess of (A) the product of (w) a fraction, the numerator of which is the Adjusted Percentage (as defined in Section 1.10(c) below) at the close of business on the Measuring Date, and the denominator of which is the excess of one over such Adjusted Percentage (expressed as a decimal), (x) the Fully-Diluted Shares (as defined in Section 1.10(d) below) at the close of business on the Measuring Date, (y) a fraction, the numerator of which is one, and the denominator of which is the Conversion Rate (as defined in Article FOURTH, Part II, Section 6.1 of the Restated Certificate), and (z) .9999, over (B) 17,675,345 , provided that the number of Additional Shares shall not be less than zero.     (c) "Adjusted Percentage" shall mean that percentage set forth under the heading "Adjusted Percentage" on the table set forth on Schedule 1.10 that corresponds to the Average Closing Price (as defined in Section 1.10(e) below) set forth under the heading "Average Closing Price" on such table, provided that if the Average Closing Price falls between two entries on the table, the Adjusted Percentage shall be determined by a straight-line interpolation between the two entries in the "Adjusted Percentage" column that correspond to the next lowest and next highest entries in the "Average Closing Price" column, rounded to the nearest 0.00000001 %.     (d) "Fully-Diluted Shares" shall mean the sum of (i) the excess of (A) the aggregate number of New Shares outstanding immediately prior to the close of business on the Measuring Date over (B) the aggregate number of New Shares issued after the Effective Time other than upon exercise, conversion or exchange of Options or Convertible Company Securities, (ii) the aggregate number of New Shares issuable (whether or not from New Shares held in its treasury) upon the conversion of the Series A Preferred Stock outstanding immediately prior to the close of business on the Measuring Date, (iii) the aggregate number of New Shares issuable (whether or not from New Shares held in its treasury) upon the exercise, conversion or exchange immediately prior to the close of business on the Measuring Date of any other Convertible Company Securities with an exercise, conversion or exchange price equal to or less than the Old Share Equivalent Price (as defined in Section 1.10(t) below) and (iv) the aggregate number of New Shares that would be required to be issued by the Company (whether or not from New Shares held in its treasury) if all Options with an exercise price less than the Old Share Equivalent Price were exercised in full immediately prior to the close of business on the Measuring Date and the proceeds from such Option exercises are used by the Company to repurchase Recapitalization Consideration (in the open market at the Old Share Equivalent Price) to be delivered in connection with the Company's obligation to issue Recapitalization Consideration upon exercise of such Options.     (e) "Average Closing Price" shall mean the average of the product of (i) the Current Market Price (as defined in Section l.10(g) below) of a New Share for each Trading Day (as defined in Section 1.10(h) below) during the Measuring Period (as defined in Section 1.10(i) below) (or in case the New Shares are exchanged for or changed, reclassified or converted into stock, securities or other property (including cash or any combination thereof), whether or not of the Company, the Fair Market Value (as defined in Section 1.10(j) below) of such stock, securities or other property into which a New Share has been exchanged, changed, reclassified or converted) and (ii) the Conversion Rate in effect on such Trading Day.     (f) "Old Share Equivalent Price" shall mean the sum of (i) the product of (x) 0.5 and (y) the Average Closing Price of a New Share, (ii) either (a) the product of (x) 1.244 and (y) the average of the Current Market Price of a Depositary Share for each Trading Day during the Measuring Period or (b) if the Underwriting Alternative with respect to the Depositary Shares has been consummated, the Depositary Share Proceeds Amount, (iii) either (a) the product of (x) .1550 and (y) the average of the Current Market Price of a Series A Debenture for each Trading Day during the Measuring Period or (b) if the Underwriting Alternative with respect to the Series A Debentures has been consummated, the Series A Debenture Proceeds Amount, (iv) either (a) the product of (x) .1550 and (y) the average of the Current Market Price of a Series B Debenture for each Trading Day during the Measuring Period or (b) if the Underwriting Alternative with respect to the Series B Debentures has been consummated, the Series B Debenture Proceeds Amount and (v) $25.80.     (g) "Current Marker Price" of publicly traded New Shares or any other class or series of capital stock or other security of the Company or any other issuer for any day shall mean the last reported sales price, regular way on such day, or, if no sale takes place on such day, the average of the reported closing bid and asked prices on such day, regular way, in either case as reported on the New York Stock Exchange Composite Tape or, if such security is not listed or admitted for trading on the New York Stock Exchange, Inc. ("NYSE"), on the principal national securities exchange on which such security is listed or admitted for trading or quoted or, if not listed or admitted for trading or quoted on any national securities exchange, on the Nasdaq National Market, or, if such security is not quoted on such National Market, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or, if bid and asked prices for such security on such day shall not have been reported through NASDAQ, the average of the bid and asked prices on such day as furnished by any NYSE member firm regularly making a market in such security selected for such purpose by the Board of Directors of the Company.     (h) "Trading Day" shall mean any day on which the securities in question are traded on the NYSE, or if such securities are not listed or admitted for trading or quoted on the NYSE, on the principal national securities exchange on which such securities are listed or admitted, or if not listed or admitted for trading or quoted on any national securities exchange, on the Nasdaq National Market, or if such securities are not quoted on such National Market, in the applicable securities market in which the securities are traded.     (i) "Measuring Period" shall mean the period commencing on the day of the Effective Time and ending on the Measuring Date.     (j) "Fair Market Value" shall mean the average of the daily Current Market Prices of the security in question during the five (5) consecutive Trading Days before the earlier of the day in question and the "ex" date with respect to the issuance or distribution requiring such computation. The term "'ex' date," when used with respect to any issuance or distribution, means the first day on which the New Shares trade regular way, without the right to receive such issuance or distribution, on the exchange or in the market, as the case may be, used to determine that day's Current Market Price. With respect to any asset or security for which there is no Current Market Price, the Fair Market Value of such asset or security shall be determined in good faith by the Board of Directors of the Company.     SECTION 1.11 Underwriting Alternative. Prior to the date that is ten days after the date of the Company Proxy Statement, but at least seven days prior to the Announcement Date, the Company may elect to pursue the underwriting of (a) the Depositary Shares, (b) the Series A Debentures, (c) the Series B Debentures, or (d) any combination of the foregoing (referred to collectively herein as the "Underwriting Alternative"), provided that consummating an underwriting with respect to the Depositary Shares and/or either or both series of Debentures, as the case may be, shall be in lieu of issuing Depositary Shares or either or both such series of Debentures to holders ef Old Shares pursuant to Section 1.5 hereof, to holders of Options pursuant to Section 1.7 hereof and to holders of Convertible Company Securities pursuant to Section 1.8 hereof. If the Company elects the Underwriting Alternative, it may offer pursuant thereto approximately the amounts of Depositary Shares and/or Debentures which if the Underwriting Alternative were not elected would be issuable upon the exchange of all outstanding Old Shares in the Reclassification and upon exercise of Options and conversion of the Convertible Company Securities reasonably expected to be exchanged or converted in accordance with Sections 1.7 and 1.8 hereof (at the rate of $31.10 liquidation preference of Public Preferred Stock as represented by Depositary Shares, $15.55 principal amount of Series A Debentures and $15.55 principal amount of Series B Debentures per Old Share), which amounts shall be rounded up to produce aggregate amounts of Depositary Shares and Debentures of each series that are consistent with customary aggregate underwriting denominations. If it so elects to pursue the Underwriting Alternative, the Company shall use its best efforts to accomplish such underwritings, including selecting a managing underwriter or underwriters, filing registration statements with the SEC, and entering into a firm commitment underwriting agreement or agreements, provided, however, that the Company may elect to terminate the Underwriting Alternative at any time prior to the Effective Time. The Unions will cooperate and use their best efforts to facilitate the underwritings. The Underwriting Alternative will be effected in accordance with customary underwriting agreements which may reflect that, if the Company is advised by the managing underwriter or managing underwriters that the Public Preferred Stock (represented by Depositary Shares), Series A Debentures or Series B Debentures would be priced in excess of the Maximum Price applicable to such security (so that such security, if priced at the applicable Maximum Pricing, could only be sold at less than par), and is further advised that consistent with industry practice the Underwriting Alternative would be facilitated by the sale of such securities at or closer to par, the Company may reduce the amount of such securities to be sold and increase the dividend or interest rate above the applicable Maximum Pricing so that such securities may be sold at or closer to par, provided that the aggregate amount of dividends payable annually in respect of the Public Preferred Stock (represented by the Depositary Shares) to be sold, and the aggregate amount of interest payable annually in respect of either series of Debentures to be sold, that are priced above the applicable Maximum Pricing may not exceed the aggregate amount of dividends or interest payable annually in respect of such security at the applicable Maximum Pricing with respect to the amount of such securities as originally proposed to be offered. If the Underwriting Alternative with respect to the Depositary Shares and both series of Debentures is consummated, the amount of cash payable in respect of each Old Share shall equal the sum of (i) $25.80 per share and (ii) the gross proceeds (price to public without deducting any underwriting discount or other costs) received by the Company for each $31.10 liquidation preference of the Public Preferred Stock as represented by Depositary Shares in the appropriate underwriting (the "Depositary Share Proceeds Amount"), (iii) the gross proceeds (price to public without deducting any underwriting discount or other costs) received by United for each $15.55 principal amount of Series A Debentures in the appropriate underwriting (the "Series A Debenture Proceeds Amount") and (iv) the gross proceeds (price to public without deducting any underwriting discount or other costs) received by United for each $15.55 principal amount of Series B Debentures in the appropriate underwriting (the "Series B Debenture Proceeds Amount").     ARTICLE II   THE COMPANY AND UNITED   SECTION 2.1    Certificate of Incorporation.  As of the Effective Time, the certificate of incorporation of the Company shall be the Restated Certificate.     SECTION 2.2    Bylaws.    As of the Effective Time, the bylaws of the Company in effect immediately prior to the Effective Time shall be amended and restated in accordance with applicable law and the Restated Certificate, in form and substance as set forth in Schedule 2.2 (the "Restated Bylaws").     SECTION 2.3.   Directors and Officers.   Immediately prior to the Effective Time, the Company shall cause the persons identified on Schedule 2.3(i) to resign, as of the Effective Time, from the Board of Directors of the Company (which resignations, for purposes of all rights and benefits of such directors under all agreements, plans, policies and arrangements of the Company and United including those identified in the letter referred to in Section 5.11 hereof, shall be deemed to have occurred immediately following the Effective Time). From and after the Effective Time, until their successors are duly elected or appointed and qualified in accordance with applicable law, the Restated Certificate and the Restated Bylaws, or until their earlier death, resignation, disqualification or removal, the persons identified or described on Schedule 2.3(ii) shall constitute the entire Board of Directors of the Company (the "New Directors") and each shall serve in the classes and capacities identified in such Schedule. Except as provided in the two preceding sentences, or as otherwise provided in the Restated Certificate or in the Restated. Bylaws, the officers of the Company immediately prior to the Effective Time (other than the Chairman and Chief Executive Officer, the President and Chief Operating Officer and the Executive Vice-President-Corporate Affairs and General Counsel of the Company (the "Retiring Executives")) shall be the officers of the Company from and after the Effective Time until their successors are duly elected or appointed and qualified or until their earlier death, resignation, disqualification or removal. The Retiring Executives shall retire from all positions with the Company and the Subsidiaries held by them effective at or immediately prior to the Effective Time and such retirement shall be treated as set forth in separate letter agreements to be entered into at or prior to the Effective Time among each Retiring Executive, on the one hand, and the Company and United, on the other hand, substantially in the form and substance provided to the Unions prior to the date hereof. Other than the Retiring Executives, no other officer of the Company or United may be terminated for a period of six months following the Effective Time unless such termination shall be approved, specifically as to such officer, by at least two of the New Directors identified as "Outside Public Directors" in Schedule 2.3(ii) and the Chief Executive Officer of the Company following the Effective Time. At the Effective Time, Gerald Greenwald or such other person as shall be proposed by the Unions prior to the Effective Time (and not found unacceptable by the Company) shall be appointed by the Board of Directors, subject to his being ready, willing and able to serve, as Chief Executive Officer of the Company and United. Such person as shall be proposed by the Chief Executive Officer and the Unions following the Effective Time (and approved in accordance with the provisions of Article FIFTH, Section 3.6.2 of the Restated Certificate) shall be appointed by the Board of Directors, subject to his/her being ready, willing and able to serve, as Chief Operating Officer of the Company and United. From and after the Effective Time, subject to the fiduciary duties of the Board of Directors, until the Termination Date the Company shall cause (i) the Chief Executive Officer of the Company to also be one of the Board's nominees to serve as a Management Public Director (as defined in the Restated Certificate) and (ii) the Chief Executive Officer of the Company to also serve as the Chief Executive Officer of United.     SECTION 2.4    United.    The Company shall take all appropriate actions such that, as of the Effective Time, the certificate of incorporation of United shall be amended to include the provision set forth in Schedule 2.4 hereto.     ARTICLE III   REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to each of the Unions that: SECTION 3.1    Corporate Existence and Power.   The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all corporate power and authority and all governmental licenses, authorizations, consents and approvals required to own, operate and lease its assets and to carry on its business as now conducted except for licenses, authorizations, consents and approvals the absence of which would not have a Material Adverse Effect (as defined below). The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of the property owned or leased by it or the nature of its activities makes such qualification necessary, except for those jurisdictions where the failure to be so qualified would not have a Material Adverse Effect. For purposes of this Agreement, "Material Adverse Effect" means, individually or in the aggregate, any change or effect the consequence of which is materially adverse to (i) the condition (financial or otherwise), business, assets or results of operations of the Company and the Subsidiaries (as defined in Section 3.6), taken as a whole, from that in effect on the date of the Company's Annual Report on Form 10-K, dated March 11, 1994, for the fiscal year ended December 31, 1993, as amended by Form 10-K/A, dated March 15, 1994, as filed with the Securities and Exchange Commission and previously furnished to the Unions (the "1993 10-K") (except as otherwise specifically provided herein) or (ii) the Company's ability to effect any of the transactions constituting part of the Recapitalization, except for such changes or effects resulting from, or in connection with, (i) labor relations between the Company or its Subsidiaries, on the one hand, and employees represented by the Unions, on the other hand (including a strike or other disruption in the operations of the Company or its Subsidiaries, which shall not be regarded as a Material Adverse Effect) or (ii) matters disclosed in this Agreement or any Schedule, Exhibit or other attachment hereto. The Company has heretofore delivered to counsel to the Unions true and complete copies of the Company's Restated Certificate of Incorporation as currently in effect (the "Certificate of Incorporation"), bylaws and Rights Agreement (as defined in Section 3.5),:.each as currently in effect. There has been no change in or amendment of the Certificate of Incorporation or bylaws of the Company or, except as set forth in Section 5.6, the Rights Agreement since November 1, 1993. The Company is not in violation of any of the provisions of the Certificate of Incorporation or its bylaws.     SECTION 3.2    Corporate Authorization.   The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby are within the Company's corporate powers and, except for (w) any required approval by the Company's stockholders in connection with the consummation of the Shareholder Vote Matters (as defined in Section 5.2), (x) the approval by the Company's stockholders of amendments to each of the Company's 1981 Incentive Stock Program, 1988 Restricted Stock Plan and Incentive Compensation Plan, in form and substance as set forth on Schedule 3.2(i), Schedule 3.2(ii) and Schedule 3.2(iii), respectively (the "Company Plan Matters"), (y) the approval and ratification of the Company Plan Matters by the New Directors following the Effective Time and (z) approval by the Board of Directors of the Company of the filing of the Restated Certificate in accordance with the applicable provisions of Delaware Law, have been duly authorized by all necessary corporate action. Prior to the Effective Time, the Board of Directors of the Company shall approve the filing of the Restated Certificate in accordance with the applicable provisions of Delaware Law. This Agreement has been duly executed and delivered by the Company and, assuming due authorization, execution and delivery by each of the Unions, constitutes a legal, valid and binding agreement of the Company, enforceable against the Company in accordance with its terms. The Board of Directors of the Company has taken all necessary and appropriate actions so that the restrictions on "business combinations" contained in Section 203 of Delaware Law (i) will not apply with respect to or as a result of the Recapitalization, including, without limitation, the acquisition of the ESOP Preferred Stock by the ESOPs and (ii) will not apply prior to the Termination Date (as defined in Article FIFTH, Section 1.72 of the Restated Certificate) to "business combinations" (as defined in Section 203 of Delaware Law) involving the Company or any of its Subsidiaries, on the one hand, and the ESOP Trustee, the ESOPS or either of the Unions, on the other hand, which otherwise would be subject to Article FIFTH, Section 3.8 of the Restated Certificate. The Company has taken all appropriate action to establish each of the ESOPS effective not later than the Effective Time.     SECTION 3.3    Governmental Authorization.  The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby require no consent, approval, authorization or other action by or in respect of, or filing with or notification to, any governmental body, agency, official or authority other than (i) the filing of the Restated Certificate in accordance with Delaware Law; (ii) compliance with any applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"); (iii) compliance with any applicable requirements of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the "1933 Act"), the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "1934 Act") and the TIA; (iv) any applicable filings with the United States Department of Transportation ("DOT"); and (v) actions or filings the absence of which would not have a Material Adverse Effect.     SECTION 3.4    Non-Contravention.   Except as set forth on Schedule 3.4, the execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby do not and will not (i) contravene or conflict with the Certificate of Incorporation or bylaws of the Company, (ii) assuming compliance with the matters referred to in Section 3.3, contravene or conflict with or constitute a violation of any provision of any law, regulation, judgment, injunction, order or decree binding upon or applicable to the Company, any Subsidiary, or, to the knowledge of the Company, any of the CRS Companies (as defined in Section 3.6), (iii) constitute a default under or give rise to a right of termination, cancellation or acceleration (other than with respect to the acceleration of the exercisability of Options, the vesting of restricted stock of the Company or the payment of severance benefits) of any right or obligation of the Company, any Subsidiary or, to the knowledge of the Company, any of the CRS Companies, or to a loss of any benefit to which the Company, any Subsidiary or, to the knowledge of the Company, any of the CRS Companies, is entitled under. any provision of any agreement, contract or other instrument binding upon the Company, any Subsidiary or, to the knowledge of the Company, any of the CRS Companies, or any license, franchise, permit or other similar authorization held by the Company, any Subsidiary, or, to the knowledge of the Company, any of the CRS Companies, or (iv) result in the creation or imposition of any Lien (as defined below) on any asset of the Company, any Subsidiary, or, to the knowledge of the Company, any of the CRS Companies, which violations, defaults, rights of termination or Liens could have a Material Adverse Effect. For purposes of this Agreement, "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For purposes of the representations and warranties relating to the CRS Companies that are qualified by the knowledge of the Company, "knowledge of the Company" shall mean the knowledge of the executive officers of the Company, United and Covia Corporation. There are no (i) consents from holders of Options nor (ii) amendments to the terms of Options or compensation plans or arrangements, that are necessary to give effect to the transactions contemplated by Section 1.7.     SECTION 3.5    Capitalization.    The authorized capital stock of the Company is set forth in the Certificate of Incorporation of the Company and consists of (i) 125,000,000 Old Shares and (ii) 16,000,000 shares of Preferred Stock, without par value, of which 1,250,000 hive been designated as Series C Junior Participating Preferred Stock ("Junior Preferred Stock") and are reserved for issuance upon exercise of the Rights (as defined in the Rights Agreement dated as of December 11, 1986 between the Company and First Chicago Trust Company of New York (formerly Morgan Shareholder Services Trust Company), as amended (the "Rights Agreement")) and 6,000,000 have been designated as Prior Preferred Stock. As of March 22, 1994, there were outstanding (a) 24,570,539 Old Shares (including 119,643 unvested shares issued under the UAL 1988 Restricted Stock Plan), (b) 6,000,000 shares of Prior Preferred Stock (convertible into 3,833,866 Old Shares), (c) Rights to purchase 245,710 shares of Junior Preferred Stock, (d) Options to purchase an aggregate of 1,648,668 Old Shares (of which 13,927 have tandem stock appreciation rights held by former employees with an aggregate exercise price of $1,061,872.75 and of which Options 11,500 are held by ex-employees of the Company with vesting dates after the expiration of such Options pursuant to such ex-employees' severance agreements), and (e) $35,535,000 principal amount of Air Wis Convertible Debentures convertible into 140,134 Old Shares, of which $2,530,000 principal amount, convertible into 9,765 Old Shares, is held by Air Wis Services, Inc. All outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable. Except as set forth in this Section 3.5 and except for changes since March 1, 1994 resulting from the exercise of Options or the conversion of Convertible Company Securities, in each case outstanding on such date, there are outstanding no (w) shares of capital stock or other voting securities of the Company, (x) securities of the Company or any Subsidiary convertible into or exchangeable for shares of capital stock or voting securities of the Company, (y) options, subscriptions, warrants or other rights, agreements, arrangements or commitments of any character to acquire from the Company or any Subsidiary any capital stock, voting securities or securities convertible into or exchangeable or exercisable for capital stock or voting securities of the Company, or (z) obligations of the Company or any Subsidiary to issue any capital stock, voting securities or securities convertible into or exchangeable or exercisable for capital stock or voting securities of the Company (the items in clauses (w), (x), (y) and (z) being referred to collectively as the "Company Securities"). Except (i) as set forth above, (ii) for tax withholding and cashless exercise features of the Options and restricted stock, and (iii) for stock appreciation rights that do not become exercisable until September 1, 1994 and expire at the Effective Time, there are no obligations of the Company or any Subsidiary to repurchase, redeem or otherwise acquire any Company Securities or make any payments based upon the value of any Company Securities.     SECTION 3.6    Subsidiaries. (a) Each Subsidiary is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, has all corporate power and authority and all governmental licenses, authorizations, consents and approvals required to own, operate and lease its assets and to carry on its business as now conducted (except for those the absence of which would not have a Material Adverse Effect) and is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of the property owned or leased by it or the nature of its activities make such qualification necessary, except for those jurisdictions where failure to be so qualified would not have a Material Adverse Effect. For purposes of this Agreement, "Subsidiary" means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are directly or indirectly owned by the Company, but shall in no event include the CRS Companies. A list of Subsidiaries and their respective jurisdictions of incorporation previously has been delivered to counsel to the Unions by the Company. Nothing in this Section 3.6 or Section 5.1 shall be deemed to prohibit the merger or other consolidation of immaterial wholly-owned Subsidiaries with or into the Company or any of its wholly-owned Subsidiaries (Covia Corporation being deemed material for the purpose of this sentence).     (b) Except for director qualifying shares and similar securities, all of the outstanding capital stock of, or other ownership interests in, each Subsidiary is owned by the Company, directly or indirectly, free and clear of any Lien and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other ownership interests). Except for director qualifying shares and similar securities, there are outstanding no (i) securities of the Company or any Subsidiary convertible into or exchangeable for shares of capital stock or other voting securities or ownership interests in any Subsidiary or (ii) options, subscriptions, warrants or other rights, agreements, arrangements or commitments of any character to acquire from the Company or any Subsidiary, and no other obligation of the Company or any Subsidiary to issue, any capital stock, voting securities or other ownership interests in, or any securities convertible into or exchangeable or exercisable for any capital stock, voting securities or ownership interests in, any Subsidiary (the items in clauses (i) and (ii) being referred to collectively as the "Subsidiary Securities"). There are no outstanding obligations of the Company or any Subsidiary to repurchase, redeem or otherwise acquire any outstanding Subsidiary Securities or make any payments based upon the value of any Subsidiary Securities.     (c) Each of Apollo Travel Services Partnership, a Delaware general partnership ("ATS"), Galileo Japan Partnership, a Delaware general partnership ("GJP"), and Galileo International Partnership, a Delaware general partnership ("GIP" and, together with ATS and GJP, collectively, the "CRS Companies") is a general partnership formed under the laws of the State of Delaware, is validly existing and in good standing under the laws of Delaware, and has all partnership power and authority and all governmental licenses, authorizations, consents and approvals required to own, operate and lease its assets and to carry out its business as now conducted (except for those the absence of which would not have a Material Adverse Effect). The partnership agreement establishing each of the CRS Companies, together with _ all exhibits and amendments thereto has been provided to the Unions, and no Subsidiary that is party to either such partnership agreement is or has been in any manner in breach of, or in default under, any provision thereof, nor is the Company, United or any officer or director of either of them aware of any breach or default by any other party to either of such partnership agreements that would or could be reasonably expected to result in a Material Adverse Effect. Except as set forth on Schedule 3.6(c), all of the outstanding ownership interests held by Covia Corporation, a Delaware corporation and wholly owned Subsidiary, of the CRS Companies are free and clear of any Lien other than as set forth in the partnership agreement with respect to such entity.     SECTION 3.7    Securities and Exchange Commission ("SEC") Filings. (a) The Company has delivered to counsel for each of the Unions (i) its Annual Reports on Form 10-K for its fiscal years ended December 31, 1993, 1992 and 1991, without exhibits, (ii) all of its Quarterly Reports on Form 10-Q filed with the SEC since December 31, 1992, without exhibits, (iii) its proxy or information statements relating to meetings of, or actions taken without a meeting by, the stockholders of the Company since December 31, 1992 and (iv) all of its other reports, statements, schedules and registration statements filed with the SEC since December 31, 1992, without exhibits. The reports, statements and schedules referred to in the preceding sentence are all the documents (other than preliminary material and supplemental filings, excluding supplemental prospectuses) that the Company was required to file with the SEC since December 31, 1992. As of its filing date, all of such reports, statements and schedules,complied in all material respects with the requirements of the 1933 Act or the 1934 Act, as the case may be.     (b) As of its filing date, no such report, statement or schedule filed pursuant to the 1934 Act contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.     (c) No such registration statement, as amended or supplemented, if applicable, filed pursuant to the 1933 Act as of the date such statement or amendment became effective contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading.     SECTION 3.8    Financial Statements.   The audited consolidated financial statements of the Company included in its Annual Reports on Form 10-K and the unaudited consolidated interim financial statements included in its Quarterly Reports on Form 10-Q referred to in Section 3.7 have been prepared in accordance with generally accepted accounting principles consistently applied and fairly present (except as may be indicated in the notes thereto) the consolidated financial position -of the Company and its consolidated subsidiaries as of the dates thereof and their consolidated results of operations and cash flows for the periods then ended (subject to normal, immaterial year-end audit adjustments in the case of any unaudited interim financial statements).     SECTION 3.9.   Disclosure Documents. (a) Each document required to be filed by the Company with the SEC in connection with the transactions contemplated by this Agreement (the "Company Disclosure Documents"), including, without limitation, the proxy statement of the Company (the "Company Proxy Statement") (which also is the prospectus of the Company and United with respect to the New Shares, Depositary Shares, Public Preferred Stock, Redeemable Preferred Stock and Debentures to be issued in connection with the Recapitalization (the "Recapitalization Securities") and is to be included in the Registration Statement on Form S-4 (the "Registration Statement") to be filed with the SEC by the Company under the 1933 Act and in the Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3") to be filed with the SEC by the Company under the 1934 Act), and the registration statements to be filed with the SEC by the Company and United under the 1933 Act in connection with the underwriting described in Section 1.11 hereof (the "Underwriting Registration Statements") and any amendments or supplements to any of the foregoing documents will, when filed, when the Registration Statement and the Underwriting Registration Statements are declared effective by the SEC, at the time of the distribution thereof and at the time stockholders vote on the Shareholder Vote Matters comply as to form in all material respects with the applicable requirements of the 1933 Act and the 1934 Act.     (b) At the time the Company Proxy Statement and Schedule 13E-3 or any amendment or supplement thereto is first mailed to stockholders of the Company, and at the time such stockholders of the Company vote on the Shareholder Vote Matters, the Company Proxy Statement and Schedule 13E-3, as supplemented or amended, if applicable, will not be false or misleading with respect to any material fact, or omit to state any material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. At the time of the filing of the Registration Statement and the Underwriting Registration Statements and any amendment or supplement thereto, at the time the same are declared effective by the SEC, at the time of any distribution under the Registration Statement and the Underwriting Registration Statements, at the time the stockholders of the Company vote on the Shareholder Vote Matters and at the Effective Time, such Registration Statement and Underwriting Registration Statements, as so amended or supplemented, will not be false or misleading with respect to any material fact or omit to state any material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. At the time of the filing of any Company Disclosure Document other than the Company Proxy Statement, Schedule 13E-3, Registration Statement and the Underwriting Registration Statements and at the time of any distribution thereof, such Company Disclosure Document will not be false or misleading with respect to any material fact or omit to state any material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The representations and warranties contained in this Section 3.9(b) will not apply to statements included in or omissions from the Company Disclosure Documents based upon information furnished to the Company in writing by either Union specifically for use therein.     SECTION 3.10    Absence of Certain Changes.    Except as disclosed in SEC filings referred to in Section 3.7 filed prior to the date hereof, since December 31, 1993, there has been no event, and no state of circumstances has existed, that has had or will, or could reasonably be expected to, have a Material Adverse Effect.     SECTION 3.11    Finders' Fees.    Except for First Boston and Lazard, whose fees will be paid by the Company, and as specifically contemplated herein, there is no investment banker, broker or finder which has been retained by or is authorized to act on behalf of the Company, any Subsidiary or, to the knowledge of the Company, any CRS Company, who might be entitled to any fee or commission from the Company, either Union or any affiliate of either of them upon consummation of the transactions contemplated by this Agreement (other than in connection with the Underwriting Alternative), based upon arrangements made by or on behalf of the Company. .     SECTION 3.12.   Board Action.   The Board of Directors (i) has determined that the transactions contemplated hereby are fair to and in the best interest of the Company's stockholders, (ii) has approved the Reclassification, the Recapitalization and this Agreement, (iii) has approved the Company Plan Matters, subject to ratification by the Company's stockholders and the New Directors, and (iv) has resolved to recommend (subject to the provisions of Section 5.4) the approval and adoption of the Shareholder Vote Matters to the Company's stockholders at the Company Stockholder Meeting.     SECTION 3.13    Securities.   The Recapitalization Securities and the ESOP Preferred Stocks (and the New Shares into which the ESOP Preferred Stocks are convertible) to be issued pursuant to Sections 1.2, 1.3, 1.4, 1.6 and 1.10, when so issued in accordance with such Sections and the Registration Statement and the Underwriting Registration Statements, if applicable, will be duly authorized and validly issued and, in the case of such securities other than the Debentures, will be fully paid and nonassessable.     SECTION 3.14    Opinion of Financial Advisers.   The Company has received the respective oral opinions of First Boston and Lazard to the effect that, as of May 20, 1994, the consideration to be received in the Recapitalization by the Company's stockholders is fair to the Company's stockholders from a financial point of view, which opinions shall be confirmed in writing and delivered to each of the Unions promptly following receipt (the "Company Fairness Opinions").     SECTION 3.15    Vote Required.    The affirmative vote of a majority of the votes that holders of the outstanding Old Shares are entitled to cast is the only vote of the holders of any class or series of capital stock of the Company necessary to approve the Shareholder Vote Matters. The Shareholder Vote Matters are the only matters required to be approved by holders of capital stock of the Company in connection with the Recapitalization.     SECTION 3.16.   Limitations.    As of the date of this Agreement, the Company has no knowledge of any event or condition which would preclude it from taking any action necessary to consummate the transactions contemplated hereby.     SECTION 3.17.   Compliance with Status Quo.   The Company has complied in all material respects with its obligations contained in Sections 10 and 11 of that certain letter setting forth the principal terms of the Recapitalization, dated December 22, 1993, among the Company, the IAM and ALPA (the "Letter Agreement"), which apply to transactions entered into after December 22, 1993 and on or prior to March 15, 1994 (the "Status Quo Provisions"). Except as set forth on Schedule 3.17, neither the Company nor any of its Subsidiaries has taken any action that would have violated the Status Quo Provisions in any material respect had the Status Quo Provisions continued to remain in effect through the date hereof. Except as set forth on Schedule 5.1, the Company has not disclosed to the Unions any plans of the type referred to in Section 5.1 (e) since December 22, 1993.     SECTION 3.18    Rights Agreement.   The Board of Directors has taken all necessary action to amend the Rights Agreement, effective at or immediately prior to the Effective Time, in form and substance as set forth in Schedule 3.18 (the "Rights Amendment").         ARTICLE IV   REPRESENTATIONS AND WARRANTIES OF THE UNIONS Each Union hereby severally, and not jointly, represents and warrants to the Company that: SECTION 4.1    Existence and Power.   Such Union is, in the case of ALPA, an unincorporated association organized and maintained for purposes of a labor association and the duly authorized representative of pilots employed by United under the Railway Labor Act, as amended (the "RLA"), and, in the case of the 1AM, is an incorporated association organized and maintained for purposes of a labor organization and is the duly authorized representative of employees employed by United as mechanics and related employees, ramp and stores employees, food service employees, dispatchers, and security officers, and has all organizational powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted.     SECTION 4.2    Authorization.    The execution, delivery and performance by such Union of this Agreement and the consummation by such Union of the transactions contemplated hereby (including the applicable Labor Agreement) are within the organizational powers of such Union and have been duly authorized by all necessary organizational action of such Union. This Agreement has been duly executed and delivered by such Union and, assuming due authorization, execution and delivery by the Company and the other Union, constitutes a valid and binding agreement of such Union, enforceable against such Union in accordance with its terms.     SECTION 4.3    Governmental Authorization.   The execution, delivery and performance by such Union of this Agreement and the consummation by such Union of the transactions contemplated by this Agreement require no consent, approval, authorization or other action by or in respect of, or filing with or notification to, any governmental body, agency, official or authority other than (i) compliance with any applicable requirements of the HSR Act, (ii) any applicable filings with DOT, and (iii) actions or filings the absence of which would not, in the aggregate, have a material adverse effect on such Union or on the ability of such Union to perform its obligations under this Agreement.     SECTION 4.4    Non-Contravention   The execution, delivery and performance by such Union of this Agreement and the consummation by such Union of the transactions contemplated hereby do not and will not (i) contravene or conflict with the organizational documents of-such Union, (ii) assuming compliance with the matters referred to in Section 4.3, contravene or conflict with any provision of law, regulation, judgment, order or decree binding upon such Union or (iii) constitute a default under or give rise to any right of termination, cancellation or acceleration of any right or obligation of such Union or to a loss of any benefit to which such Union is entitled under any agreement, contract or other instrument binding upon such Union, which defaults, terminations, cancellations, accelerations or losses, could individually or in the aggregate have a material adverse effect on such Union or on the ability of such Union to perform its obligations under this Agreement.     SECTION 4.5.   Disclosure Documents.   The information with respect to such Union that such Union furnishes to the Company in writing specifically for use in any Company Disclosure Documents, taken as a whole, will not be false or misleading with respect to any material fact of omit to state any material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading (i) in the case of the Company Proxy Statement and the Schedule 13E-3, at the time it or any amendment or supplement thereto is first mailed to stockholders of the Company, and at the time the stockholders vote on adoption of the Shareholder Vote Matters, (ii) in the case of the Registration Statement and each of the Underwriting Registration Statements, at the time it or any amendment is filed and is declared effective by the SEC and is distributed and, in the case of the Registration Statement, at the time the stockholders vote on the Shareholder Vote Matters and at the Effective Time, and (iii) in the case of any other Company Disclosure Document, at the time of the filing thereof and at the time of any distribution thereof.     SECTION 4.6    Finders' Fees    Except as previously disclosed to the Company in writing (and such other persons that such Union may have selected after the date hereof whose fees will be paid by such Union or the Company, subject, in the case of payment by the Company, to the terms of the Fee Letter (as defined in Section 10.4)) or as otherwise contemplated hereby or by their engagement letters, there is no investment banker, broker, finder or other intermediary who might be entitled to any fee or commission from the Company, such Union or any affiliate of either of them upon consummation of the transactions contemplated by this Agreement based upon arrangements made by or on behalf of such Union.     SECTION 4.7.   Limitations.    As of the date of this Agreement, such Union has no knowledge of any event or conditions which would preclude it from taking any action necessary to consummate the transactions contemplated hereby.             ARTICLE V   COVENANTS OF THE COMPANY   The Company agrees that: SECTION 5.1    Conduct of the Company.   From the date hereof until the Effective Time, without the consent of the Unions, the Company and its Subsidiaries shall, except as specifically provided in Article 1, Section 5.4 and Section 9.1(dxii) or on Schedule 5.1(i) or other Schedules, Exhibits or attachments hereto, conduct their business in the ordinary course consistent with past practice and shall use their best efforts to preserve intact their business organizations and relationships with third parties and to keep available the services of their present officers and employees. Without limiting the generality of the foregoing, from the date hereof until the Effective Time, neither the Company nor any Subsidiary shall, without the prior written consent of the Unions, except as otherwise expressly provided in this Agreement:     (a) issue, sell, dispose of, pledge or otherwise encumber, or authorize or propose the issuance, sale, disposition, pledge or other encumbrance of, any Company Securities or Subsidiary Securities other than pursuant to the exercise of options outstanding as of December 22, 1993 (or issued in accordance with the restrictions contained in Letter Agreement) under the Company's 1981 Incentive Stock Program or the issuance of Rights in connection with the issuance of Old Shares upon exercise of such options, or, with respect to securities of Subsidiaries, to the Company;     (b) reclassify, combine, split, subdivide, redeem, purchase or otherwise acquire, or propose to purchase or otherwise acquire, any Company Securities or Subsidiary Securities, except repurchases of Company securities, (x) pursuant to employee stock purchase, stock option, stock grant or other employee arrangements or (y) pursuant to rules or requirements under the Employee Retirement Income Security Act of 1974, as amended;     (c) declare or pay any dividend or distribution on the Old Shares;     (d) (i) increase the compensation of any of its directors, officers or key employees, except in the ordinary course of business and consistent with past practice or pursuant to the terms of agreements or plans currently in effect; (ii) pay or agree to pay any pension, retirement allowance or other employee benefit that is either not required or specifically permissible by any existing plan, agreement or arrangement to any director, officer or key employee, other than in the ordinary course of business and consistent with past practice; (iii)'commit itself to any additional pension, profit-sharing, bonus, extra compensation, incentive, deferred compensation, stock purchase, stock option, stock appreciation right, group insurance, severance pay, retirement or other employee benefit plan, agreement or arrangement, or to any employment or consulting agreement with or for the benefit of any director, officer or key employee whether past or present, except in the ordinary course of business consistent with past practice; or (iv) except as required by applicable law, amend in any material respect any such plan, agreement or arrangement; provided that the foregoing shall not be deemed to restrict necessary and reasonable actions taken in connection with (aa) retention of personnel other than executive officers or (bb) promotions and new hires in the ordinary course of business consistent with past practice; provided, further. that nothing herein shall preclude the Company or any of its Subsidiaries from taking any action reasonably designed to permit any employee to realize vested benefits under any existing plan, agreement or arrangement referred to above;     (e) except in the ordinary course of business and consistent with past practice and except for refinancings or pursuant to existing plans of the Company disclosed to the Unions in writing prior to the date hereof (i) incur any material amount of long-term indebtedness for borrowed money or issue any material amount of debt securities (other than trade debt and commercial paper) or assume, guarantee or endorse the obligations of any other person except for obligations of wholly owned Subsidiaries; (ii) make any material loans, advances or capital contributions to, or investments in, any other person (other than to wholly owned Subsidiaries or customary loans or advances to employees in amounts not material to the maker of such loan or advance); or (iii) mortgage or pledge any of its material assets, tangible or intangible, or create or suffer to exist any lien thereupon, other than any purchase money mortgage or lien; or     (f) enter into any agreement or arrangement to do any of the foregoing.     In addition, except as specifically provided in Section 5.4 and Section 9.1(d)(ii), from the date hereof until the Effective Time, without the prior written consent of the Unions, the Company and its Subsidiaries shall not take any action (i) which would violate or be inconsistent with the job protection provisions set forth in Section 1 and Letters 94-1 and 94-2 of the ALPA Labor Agreement (as defined below) or the job protection provisions of the IAM Labor Agreement (as defined below) set forth on Schedule 5.1(ii) as if all references to the date of signing, the date of the ALPA and IAM Labor Agreements, the date of ratification or the date of closing in such Labor Agreements (including all references therein to July 1, 1994, when intended to be the date of closing of such Labor Agreements) referred to the date of this Agreement or (ii) which, either alone or together with any matters entered into from December 22, 1993 through the date hereof, would be subject to Article FIFTH, Sections 3.1 through 3.5 of the Restated Certificate or (iii) except as provided in Section 5.7, to alter or amend the terms of any of the Company's Board of Directors' resolutions or any of its policies, practices, procedures or employee benefit plans (as described on Schedule 5.l(iii)) in any manner which would adversely affect the right or ability of the employees of the Company or United directly or indirectly to purchase equity securities of the Company.     The Flight Kitchen severance package described in paragraph 26 of Exhibit E-2 to the Letter Agreement shall be restored and benefits described in that paragraph shall be provided as if the condition described in paragraph 26, section 5(a) of Exhibit E-2 had been fully complied with. Any Food Service Agreement employee who can demonstrate that his or her job status at United was adversely affected by his or her detrimental reliance on United's March 16, 1994 announcement cancelling the Flight Kitchen LPP's will be entitled to receive a remedy from United for his or her actual contractual damages, if any. Any disagreement regarding entitlement to or the nature of such remedy may be submitted to the United-IAM System Board of Adjustment.     SECTION 5.2    Stockholder Meeting; Proxy Material.   Subject to receipt by the Company of updated Company Fairness Opinions from First Boston and Lazard to the effect that, as of the date of the Company Proxy Statement, the consideration to be received in the Recapitalization by the Company's stockholders is fair to the Company's stockholders from a financial point of view, the Company shall cause a meeting of its stockholders (the "Company Stockholder Meeting") to be duly called and held as soon as reasonably practicable after the date on which the Registration Statement is declared effective by the SEC, for the purpose of voting on the approval and adoption of each of the Reclassification, the Restated Certificate, the election of four of the five initial Public Directors to the Board of Directors of the Company, the Recapitalization and the issuance of the ESOP Preferred Stock as part of the Recapitalization (such matters are collectively referred to as the "Shareholder Vote Matters") and the Company Plan Matters. The Shareholder Vote Matters shall be presented as a single proposal, or the effectiveness of each such matter shall be conditioned on the approval of all of such matters. Consistent with its obligations under Section 7.1, the Company shall be entitled to delay the Company Stockholder Meeting if the Company does not receive, as of the Announcement Date, updated Company Fairness Opinions from First Boston and Lazard to the effect that, as of the Announcement Date, the consideration to be received in the Recapitalization by the Company's stockholders is fair to the Company's stockholders from a financial point of view. Subject to Section 5.4, the directors of the Company shall recommend the approval and adoption of the Shareholder Vote Matters by the Company's stockholders and shall use its best efforts (as defined in Section 7.1) in soliciting such approval. Subject to Section 5.4, in connection with such meeting, the Company (i) will promptly prepare and file with the SEC, will use its best efforts to have cleared by the SEC and will, subject to the effectiveness of the Registration Statement, thereafter mail to its stockholders as promptly as practicable, the Company Proxy Statement (including the information required by the Schedule 13E-3) and all other proxy materials for such meeting, (ii) will use its best efforts to obtain the necessary approvals by its stockholders of the Shareholder Vote Matters and (iii) will otherwise comply with all legal requirements applicable to such meeting. A reasonable period of time prior to the initial filing of (or the filing of any amendment of supplement to) any of the Company Proxy Statement, the Registration Statement, the Underwriting Registration Statements, the Schedule 13E-3 or any other Company Disclosure Document, the Company shall provide to each of the Unions, in accordance with the notice provisions contained in Section 10.1, a copy of the same. The Company shall provide the Unions with a reasonable opportunity to review and comment on each of such documents prior to such filing with a view toward the production and filing of mutually acceptable documents, subject to (1) the Company's responsibilities under applicable securities laws and (2) other applicable legal requirements.     SECTION 5.3    Access. Subject to the absence of a material breach of Section 6.1, from the date hereof until the Effective Time, the Company will give each Union, its counsel, financial advisors, auditors and other designated representatives reasonable access following reasonable notice during normal business hours (which access shall be coordinated through a person designated by the Company, which person (or another authorized person) shall be available during normal business hours) to the offices, employees, properties, books and records of the Company and the Subsidiaries, will furnish, if reasonably requested, to each Union, its counsel, financial advisors, auditors and other authorized representatives such financial and operating data and other information in connection with the Agreement and the transactions contemplated hereby as such persons may reasonably request and will instruct the Company's officers, employees, counsel and financial advisors to cooperate reasonably with each Union and each Union's counsel, financial advisors, auditors and other designated representatives in their investigation of the business of the Company and the Subsidiaries and to take such steps as may be reasonably requested by each Union and such counsel, advisors, auditors and other representatives to assist them in connection with the transactions contemplated by this Agreement; provided that no investigation pursuant to this Section shall affect any representation, warranty, covenant or agreement made by the Company to each Union under this Agreement. Each Union, its counsel, financial advisors, auditors and other designated representatives shall conduct themselves under this Section 5.3 so as not to interfere with the day-to-day operations of the Company.     SECTION 5.4    Other Potential Transactions.   The Company shall not, directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with, or provide any information to, any corporation, partnership, person or other entity or group (other than the Unions or their advisors or the ESOP Trustee or its advisors) concerning any merger, sale of assets, sale of, or tender or exchange offer for, shares of capital stock or similar transaction, involving a change of control of the Company or all or substantially all of the assets of the Company (an "Acquisition"), except as set forth below. The Company may, directly or indirectly, furnish information and access, in each case in response to an unsolicited request therefor, to the same extent permitted by Section 5.3 hereof, to any corporation, partnership, person or other entity or group pursuant to appropriate confidentiality agreements, and may participate in discussions and negotiate with such entity or group concerning any such transaction, if the entire Board of Directors of the Company (the "Board") (and, to the extent a director is a participant in an alternative Acquisition, the disinterested members of the Board) determine in their good faith judgment, upon advice of independent legal and financial advisors (who may be the Company's regularly engaged independent legal and financial advisors), that such action is required by their fiduciary duties. In addition, the Company's officers and other appropriate personnel may take such steps as are necessary or appropriate to provide the Board with sufficient information to make an informed decision concerning the matters described in the previous sentence and, if the Board so determines that such actions are required by their fiduciary duties, the Company may direct its officers and other appropriate personnel to cooperate with and be reasonably available to consult with any such entity or group which were the subject of such determination. Nothing herein shall prevent the Board from taking, and disclosing to the Company's shareholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated under the 1934 Act with respect to any tender offer or from making such other disclosure to shareholders or taking such other action which, in the judgment of the Board, upon advice of such counsel, is required by law to discharge any fiduciary duty imposed thereby.     SECTION 5.5    Notices of Certain Events.   The Company shall notify each Union of, and provide to each Union all relevant details relating to, and documentation submitted to or by the Company in respect of, (i) any notice or other communication from any person alleging that the consent of such person is or may be required in connection with the transactions contemplated by this Agreement, (ii) any notice or other communication from any governmental or regulatory agency or authority in connection with the transactions contemplated by this Agreement and (iii) any proposal for, or contacts and expressions of interest relating to, an Acquisition or other matter contemplated by Section 5.4 and action taken by the Company in respect thereof.     SECTION 5.6    Amendment of Rights Agreement.   The Company shall amend the Rights Agreement, effective immediately prior to the Effective Time, in accordance with the Rights Amendment and to provide that each outstanding share of ESOP Convertible Preferred Stock following the Effective Time, as well as each Available Unissued ESOP Share (as defined in Article FIFTH, Section 1.5 of the Restated Certificate), shall have associated with it and represent that number of Rights (as defined in the Rights Agreement) as would be associated with the number of New Shares into which the relevant share of ESOP Convertible Preferred Stock is then convertible and to cause such Rights to be exercisable by, and to cause separate certificates representing such Rights to be distributed to, and be separately transferable by, holders of shares of ESOP Convertible Preferred Stock (and Available Unissued ESOP Shares) at the time and upon terms substantially the same as those applicable to the holders of New Shares.     SECTION 5.7    Employee Benefit Plans.   The Company shall take such action to amend, in form reasonably satisfactory to each Union, the directed account plans and 401(k) plans maintained by the Company or United for the benefit of employees, and shall take all other reasonable action, so as to permit investment of the funds held thereunder at the individual direction of the beneficiaries of such plans to purchase the Company's common stock, preferred stock, Depositary Shares and/or debt securities in the open market, subject to rules and regulations under the 1934 Act. The Company shall take such action to amend the stock purchase plans maintained by the Company or United for the benefit of employees so as to require the distribution of the consideration received upon redemption of the Redeemable Preferred Stock in accordance with Section 1.3 to be received by such plans in the Reclassification, or the cash proceeds from the sale thereof, to participants, subject to applicable law. Consistent with existing Company policy with respect to purchases of Old Shares, the aforementioned plan amendments to the directed account plans and the 401(k) plans, and the stock purchase plans, shall permit employees of the Company and United following the Effective Time to acquire, in addition to amounts held in the ESOPs, the following securities: (X) up to the lesser of (i) 30% of the outstanding New Shares held by persons other than the ESOPs and (ii) 20% of the aggregate number of outstanding New Shares and New Shares issuable upon conversion of the ESOP Preferred Stock outstanding or issuable to Sections 1.6 or 1.10 hereof (including Available Unissued ESOP Shares) and (Y) except with respect to the stock purchase plan, up to (i) 20% of the outstanding Depositary Shares, (ii) 20% of the outstanding principal amount of Series A Debentures and (iii) 20% of the outstanding principal amount of Series B Debentures; subject to the following additional limits: (A) no employee group of the Company or its Subsidiaries (which, for this purpose, shall mean employees represented by each of ALPA, the IAM, and the AFA (as defined in Section 7.3) and the Salaried and Management Employees (as defined in Section 5.8(b)) (each, an "Employee Group") may individually acquire more than 10% of the outstanding shares or amount of any class of securities referred to in clause (X) and (Y) above through such plans; (B) in the case of the directed account plans, no Employee Group may individually acquire more than 2% of the outstanding shares or amount of any such class of securities in any monthly subscription period through such plans; (C) no Employee Group may individually acquire more than 2% of the outstanding New Shares held by persons other than the ESOPs (in addition to New Shares received in the Reclassification) through such plans during the six month period beginning at the Effective Time; and (D) no New Shares may be acquired through such plans during the six month period ending on the last day of the Measuring Period, as defined in Section 1.10.     The Company shall not be required to expand the scope of any third party indemnity in a manner adverse to the Company in order to implement the amendments referred to in clause (Y) above.     SECTION 5.8    Labor Agreements. (a) The Company shall cause United, at the Effective Time, to execute and deliver new collective bargaining agreements (or amendments to existing collective bargaining agreements) with each of ALPA and the IAM, each in form and substance as set forth on Schedules 5.8(i) and 5.8(ii), respectively. The agreement set forth on Schedule 5.8(i) is referred to herein as the "ALPA Labor Agreement," the agreements set forth on Schedule 5.8(ii) are collectively referred to herein as the "IAM Labor Agreement" and the ALPA Labor Agreement and the IAM Labor Agreement are collectively referred to herein as the "Labor Agreements."     (b) The Company shall also establish and cause United to establish appropriate employment terms for the employees of the Company and United who perform the functions currently performed by the salaried and management employees of the Company and United (including any functions which such group of employees begin performing in the future) (the "Salaried and Management Employees"), in form and substance as set forth on Schedule 5.8(iii), effective at the Effective Time. From and after the date hereof, the Company shall provide the Unions and their respective counsel, financial advisors, auditors and other representatives with the access and information necessary to confirm the Company's continuing implementation of the provisions of this Section 5.8(b).     SECTION 5.9    Solvency Letter.   The Company has retained American Appraisal Associates (the "Appraiser") to provide, at or prior to the Effective Time, opinion in writing to the Company and the Board substantially similar to the letter set forth on Schedule 5.9 (the "Solvency Letter"). If the Solvency Letter is delivered to the effect that sufficient surplus is available to permit the consummation of the Recapitalization consistent with Delaware Law, the Board shall take all lawful and appropriate action, effective as at the Effective Time, to revalue the Company's assets and liabilities to permit the consummation of the Recapitalization in accordance with Delaware Law.     SECTION 5.10    Other Transaction Documents.   The Company hereby agrees that at the Effective Time it will execute the form of employment agreement (the "Employment Agreement") between the Company and Gerald Greenwald in the form attached to the agreement (the "Retention Agreement") between the Unions and Gerald Greenwald providing for his employment by the Company from and after the Effective Time on the terms set forth in the Employment Agreement. The Comply hereby agrees from and after execution by Gerald Greenwald of the Employment Agreement at the Effective Time to perform all of its obligations, whether or not due and owing, under the Employment Agreement. The Retention Agreement may not be amended without the written consent of the Company. A true and correct copy of the Retention Agreement (with the attached form of the Employment Agreement) has been delivered by the Unions to the Company. In addition, immediately prior to the Effective Time, the Company shall execute and deliver (or shall have theretofore executed and delivered) the following documents and agreements: the Officers' Certificate relating to the Indenture, the Deposit Agreement, the initial ESOP Stock Purchase Agreement, the ESOP Trusts, the Exchange Agent Agreement, the Rights Amendment, the Class I Preferred Stock Subscription Agreement, the Class Pilot MEC Preferred Stock Subscription Agreement, the Class IAM Preferred Stock Subscription Agreement, the Class SAM Preferred Stock Subscription Agreement, a shareholders agreement with the initial Independent Directors in form and substance as set forth on Schedule 5.10 (i) (the "Class I Preferred Stock Shareholders Agreement"), a shareholder agreement with the holders of the Class SAM Preferred Stock in form and substance as set forth on Schedule 5.10(ii), and a First Refusal Agreement between the Company, the Unions and the SAM Director, in form and substance as set forth on Schedule 5.10(iii) (collectively, the "Closing Agreements").     SECTION 5.11    Certain Agreements.   Without limiting in any respect the Company's and United's rights or obligations under any other agreement, arrangement or understanding to which it is a party, the Company specifically confirms, and shall cause United to confirm, their respective obligations under the employee and director benefit plans, agreements, policies and arrangements maintained by the Company and/or United or to which the Company and/or United is a party, in each case as in effect on the date hereof (subject to revision in accordance with Section 5.1), identified in a letter to the Unions dated the date hereof (the "Officer and Director Arrangements"); provided, that the provisions of this Section 5.11 (a) shall be subject to Section 5.1 prior to the Effective Time and (b) shall not restrict the Company's or United's ability to terminate, revise or replace any Officer and Directors Arrangements after the Effective Time so long as such action does not reduce or otherwise adversely affect rights of any beneficiary under any such Officers and Directors Arrangements that the Company or United is obligated to provide following the Effective Time without his or her consent.             ARTICLE VI   COVENANTS OF EACH UNION   Each Union agrees that:     SECTION 6.1    Confidentiality.     (a) Prior to the Effective Time and after any termination of this Agreement, each Union agrees that, except as provided herein, it will not at any time after its receipt of any Confidential Information (as defined below), directly or indirectly, divulge to any person or entity any of the Confidential Information or any information, report, analysis, compilation, study, interpretation, forecast, record or other material prepared by such Union or its Representatives (as defined below) (including, if maintained in some written or other form, in whatever form maintained, whether documentary, computer storage or otherwise) containing, in whole or in part, any Confidential Information. "Confidential Information" shall include all confidential written or oral information concerning the Company and the Subsidiaries furnished to such Union in connection with the transaction contemplated by this Agreement, except to the extent that such information does not include information which is or becomes (i) generally available to the public other than as a result of disclosure by a Union or its Representatives in violation of this Agreement, (ii) was available to a Union or one of its Representatives on a non-confidential basis prior to its disclosure to them by the Company or (iii) known or available to a Union or' its Representatives on a non-confidential basis from a source (other than the Company) who, insofar as is known to such Union or its Representatives after due inquiry, is not prohibited from transmitting the information to such Union or its Representatives by a contractual, legal or fiduciary duty. The term "person" shall be broadly interpreted to include, without limitation, any individual, corporation, company, unincorporated association, partnership, group or other entity.     (b) Each Union shall limit access to the Confidential Information to its officials and Representatives who in the reasonable judgment of such Union need to know the Confidential Information for purposes of participating in making decisions concerning, or advising it with respect to, the Confidential Information ("informed officials and Representatives"). Disclosure of Confidential Information may be made only to officers, directors, employees, accountants, counsel, consultants, advisors and agents of one of the Unions who executes a Confidentiality Statement (a "Representative"), in the form attached either to this Agreement as Schedule 6.1 or as an attachment to a confidentiality agreement between the Company and such Union entered into prior to the date hereof (a "Confidentiality Statement"). An executed original of each such Confidentiality Statement shall be provided to the Company by the Union obtaining it. Each Union and its Representatives tray discuss with the informed officials and Representatives of each other Union the Confidential Information which such Union has been provided pursuant to this Agreement or any prior confidentiality agreement between the Company afar such Union relating to the Confidential Information provided that such Confidential Information shall continue to be subject to this Agreement and any other applicable confidentiality agreement. In all events, each Union shall be responsible for any actions by its Representatives which are not in accordance with the provisions hereof and of any Confidentiality Statement executed by a Representative but shall not be responsible for such actions of any informed official or Representative of the other Union. ..     (c) In the event that a Union, its Representatives or anyone to whom a Union or its Representatives supply Confidential Information are requested or required through legal process (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand, any informal or formal investigation by any government or governmental agency or authority or otherwise) to disclose any Confidential Information, the Union will, upon learning of such request or requirement, (i) immediately notify the Company of the existence, terms and circumstances surrounding such a request, (ii) consult with the Company on the advisability of taking legally available steps to resist or narrow such request and (iii) if disclosure of such information is required, furnish only that portion of the Confidential Information which, in the opinion of the Union's legal counsel, it is legally compelled to disclose and cooperate with any action by the Company to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information.     (d) Except in respect of any Confidential Information that is in this Agreement (or may in the future be) the subject of an express representation by the Company, (i) neither the Company nor its employees, agents, affiliates or representatives (collectively hereinafter referred to as the "Company Representatives") makes any express or implied representation as to the accuracy or completeness of the Confidential Information and (ii) each Union and its Representatives agree that neither the Company nor any Company Representative shall have any liability to such Union or its Representatives resulting from the use by such Union or its Representatives of Confidential Information. So long as neither Union is in material breach of its obligations under this Section 6.1, nothing in this Section 6.1(d) is intended to limit Section 5.3.     (e) Each Union hereby acknowledges that it is aware, and that it will advise its Representatives who are informed in accordance with the terms of this Agreement, as to the matters which are the subject of this Agreement, that the United States securities laws prohibit any person who has received from an issuer material, non-public information concerning the matters which are the subject of this Agreement from purchasing or selling securities of such issuer due to the receipt of Confidential Information or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities due to the receipt of Confidential Information.     (f) Each Union expressly acknowledges that (i) the preservation of the confidentiality of the Confidential Information has highly important commercial significance for the Company and (ii) its unauthorized disclosure could have serious and irreparable adverse commercial, financial and legal consequences for the Company. It accordingly agrees that the Company shall be entitled to injunctive relief to prevent breaches of this Agreement and to specifically enforce the terms and provisions of this Section, in addition to any other remedy to which the Company may be entitled, at law or in equity or pursuant to this Agreement.     (g) Each Union and its Representatives hereby acknowledge that the Confidential Information is being furnished to them solely in connection with a review in connection with the transactions contemplated by this Agreement and analysis of the Company's business and financial condition and none of such Unions or their Representatives shall use the Confidential Information other than in connection with such review and analysis and potential responses thereto made directly to the Company (which may be discussed among and be made by the Unions). No right or license, express or implied, under any patent, copyright, trademark, trade secret, or other proprietary right in the Confidential Information is granted hereunder by United to a Union or its Representatives.     (h) Each Union will keep a record of the location of the Confidential Information. If the Agreement is terminated prior to the Effective Time, each Union agrees for itself and for its Representatives who reviewed the Confidential Information, to return to the Company or destroy all documents reflecting the Confidential Information and to certify in writing to the Company that such documents have been so returned or destroyed.     SECTION 6.2    Labor Agreements.   Such Union shall execute and deliver, at the Effective Time, the relevant Labor Agreement.     SECTION 6.3    No Public Director Nominations.   Such Union shall not, directly or indirectly, nominate or cause to be nominated any individual for election as an Outside- Public Director (as defined in Article FIFTH, Section 2.3 of the Restated Certificate) of the Company; provided, however, that any such nomination by an employee of the Company or United, acting in his or her individual capacity as a shareholder of the Company, shall not be deemed to violate this Section 6.3 so long as such nomination was not made with the advice, support, or assistance of any officer of such Union.     SECTION 6.4    Independent Director Vacancies.  The Unions agree to use their best efforts to cause any Independent Director vacancy resulting after the Effective Time promptly to be filled in accordance with Article FIFTH, Section 4.1.6 of the Restated Certificate.         ARTICLE VII   COVENANTS OF EACH OF THE UNIONS AND THE COMPANY The parties hereto agree that: SECTION 7.1    Best Efforts.   Subject to the terms and conditions of this Agreement, including Section 5.4, each party (a) will use its best efforts, and will cause all of its directors, officers and advisors retained by such party to use their best efforts, to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations that may be necessary or useful, to consummate the transactions contemplated by this Agreement and (b) will, and will cause its directors, officers and advisors retained by such party to, refrain from taking any actions detrimental to or inconsistent with the foregoing. In the event that any action, suit, proceeding or investigation relating hereto or to the transactions contemplated hereby is commenced, whether before or after the Effective Time, the parties hereto agree to cooperate and use their best efforts to defend against the same and respond thereto. As used in this Agreement, the term "best efforts" shall mean efforts of a type that a prudent person desirous of achieving a result would use in similar circumstances in seeking to achieve such result reasonably promptly in light of the Outside Termination Date (as defined in Section 9.1); provided, however, that a party required to use its best efforts under this Agreement will not be required to take actions that would not normally be taken by the parties in similar circumstances or that would result in a materially adverse change in the benefits intended to be conferred upon such party pursuant to this Agreement and the transactions contemplated hereby.     SECTION 7.2    Certain Filings.   The Company and each of the Unions shall cooperate with one another (a) in connection with any preparation of the Company Disclosure Documents, the Company Proxy Statement, the Schedule 13E-3, the Registration Statement and the Underwriting Registration Statements, (b) in determining whether any action by or in respect of, or filing with, any governmental body, agency, official or authority is required, or any actions, consents, approvals or waivers are required to be obtained from parties to any material contracts, permits, licenses and franchises, in connection with the consummation of the transactions contemplated by this Agreement and (c) in seeking any such actions, consents, approvals or waivers or making any such filings, furnishing information required in connection therewith or with the Company Disclosure Documents, the Company Proxy Statement, the Schedule 13E-3, the Registration Statement or the Underwriting Registration Statements, and seeking timely to obtain any such actions, consents, approvals or waivers. As soon as practicable after the date hereof, the Company shall, in accordance with Section 5.2, (a) file with the SEC the Company Proxy Statement, the Schedule 13E-3 and the Registration Statement, (b) obtain and furnish the information required to be included therein, (c) after consultation with each Union, respond promptly to comments made by the SEC with respect to the Company Proxy Statement, the Schedule 13E-3 and Registration Statement and any preliminary version thereof and (d) cause the Registration Statement to become effective and the Company Proxy Statement to be mailed to the Company's stockholders at the earliest practicable date. Prior to the effective date of the Registration Statement, the Company shall obtain all necessary state securities laws or "blue sky" permits and approvals required to carry out the Recapitalization and the transactions contemplated by this Agreement.     SECTION 7.3    Participation.    If,prior to the Effective Time, the Association of Flight Attendants ("AFA") agrees to provide, in the sole judgment of the Company, an investment equal to $416 million (present value in January 1994 dollars for a five year AFA mainline investment and a twelve year AFA Competitive Action Plan (as defined in Schedule 1.1) investment and assuming semi-annual payments, first period not discounted, and annual discount rate of 10%) then, provided that the parties hereto agree upon all aspects of the AFA's participation in the transactions contemplated hereby (e.g. governance provisions set forth in Schedule 1.1, ESOP provisions set forth in Section 1.6 and related schedules) other than the matters described in clauses (i) and (ii) below, the parties hereto shall revise all applicable documents such that (i) the employee investment period with respect to ALPA, IAM and salaried and management employees shall be reduced by nine months; and (ii) 12.62% of the ESOP Preferred Stock otherwise to be allocated to ALPA-represented employees, IAM-represented employees and Salaried and Management Employees (the "Allocated Shares") shall be made available for allocation to the AFA-represented employees, such that after such allocation, 40.4% of the Allocated Shares shall be allocated to ALPA-represented employees, 32.44% of the Allocated Shares shall be allocated to the IAM-represented employees, 14.54% of the Allocated Shares shall be allocated to the Salaried and Management Employees and 12.62% of the Allocated Shares shall be allocated to the AFA-represented employees.         ARTICLE VIII   CONDITIONS TO THE RECAPITALIZATION   SECTION 8.1    Conditions to the Obligations of Each Party.   The obligation of the Company to file the Restated Certificate at the Effective Time pursuant to Section 1.1 and the obligations of each of the Unions to enter into the Labor Agreements at the Effective Time are subject to the satisfaction of the following conditions: (i) the Shareholder Vote Matters shall have been approved and adopted by the stockholders of the Company in accordance with the Certificate of Incorporation and Bylaws of the Company and in accordance with Delaware Law;     (ii) any applicable waiting period under the HSR Act relating to the Recapitalization shall have expired or been terminated;     (iii) the Registration Statement shall have become effective under the 1933 Act and shall not be the subject of any stop order or governmental proceedings seeking a, stop order;     (iv) all material actions by or in respect of or filings with any governmental body, agency, official, or authority required to permit the consummation of the Recapitalization shall have been obtained;     (v) the New Shares issuable as part of the Recapitalization (including New Shares issuable upon conversion of the ESOP Preferred Stock and upon conversion of the Convertible Company Securities) shall have been authorized for listing on the NYSE subject to official notice of issuance;     (vi) there shall have been no change in Delaware Law enacted or any applicable decision of a court of competent jurisdiction decided after the date hereof and prior to the Effective Time that would cause the Restated Certificate or Restated Bylaws to fail to comply in any material respect with the applicable provisions of Delaware Law;     (vii) the ESOP Trustee shall have received the written opinion of Houlihan, Lokey, Howard & Zukin to the effect that, as of the Effective Time, the acquisition of the ESOP Preferred Stock pursuant to Section 1.6(d) hereof by the ESOPs is fair, from a financial point of view, to the ESOP participants;     (viii) the Board of Directors of the Company shall have received the Solvency Letter; and     (ix) (A) there shall not be instituted or pending any action, proceeding, application, claim, or counterclaim by any United States federal, state or local government or governmental authority or agency, including the DOT, before any court or governmental regulatory or administrative agency, authority or tribunal, which (x) restrains or prohibits or is reasonably likely to restrain or prohibit the making or consummation of, or is reasonably likely to recover material damages or other relief as a result of, the Recapitalization, or the receipt by holders of the Old Shares of the full amount of the Recapitalization Consideration, or restrains or prohibits or is reasonably likely to restrain or prohibit the performance of, or is reasonably likely to recover material damages or other relief as a result of, this Agreement or any of the transactions contemplated hereby or (y) prohibits or limits or seeks to prohibit or limit the ownership or operation by either Union, the ESOP Trustee, any of the ESOPs or any participant therein of all or any substantial portion of the capital stock, business or assets of the Company or any of its Subsidiaries or compels or seeks to compel either Union, the ESOP Trustee, any of the ESOPs or any participant therein to dispose of or hold separate aA or any substantial portion of the capital stock, business or assets of the Company or any of its Subsidiaries or imposes or seeks to impose any material limitation on the ability of either Union, the ESOP Trustee, any of the ESOPs or any participant therein, to conduct such business or own such assets, (B) there shall not have been instituted or be pending any action, proceeding, application, claim or counterclaim by any other person, before any such body, that is reasonably likely to result in any of the consequences referred to in clauses (A)(x) or (A)(y) above, and (C) there shall not be any United States federal, state or local statute, rule, regulation, decree, order or injunction promulgated, enacted, entered, or enforced by any United States federal, state or local government agency or authority or court, that has any of the effects referred to in clauses (A)(x) or (A)(y) above;     (x) all conditions to the obligations of the parties to the Closing Agreements to consummate such transactions shall have been satisfied or are capable of being satisfied concurrently upon the occurrence of the Effective Time;     (xi) the Closing Agreements shall be legal, valid and binding agreements of the Company and the other parties thereto from and after the Effective Time, enforceable against the Company and such other parties in accordance with their terms; and     (xii) Gerald Greenwald (or such other person as shall be proposed by the Unions prior to the Effective Time and not found unacceptable by the Company) shall be ready, willing and able to assume the office of Chief Executive Officer of the Company and United.     SECTION 8.2    Conditions to the Obligations of each of the Unions.    The obligations of each of the Unions to enter into the Labor Agreements at the Effective Time are subject to the satisfaction of the following further conditions:     (i) the Company shall have performed, both individually and collectively, in all material respects all of its covenants, agreements or other obligations hereunder required to be performed by it at or prior to the Effective Time; and     (ii) the representations and warranties of the Company set forth in this Agreement shall be true and correct, both individually and- collectively, in all material respects at and as of the Effective Time as if made at and as of such time; provided that the representations and warranties of the Company set forth in Section 3.10 and each representation and warranty of the Company set forth in this Agreement that is qualified by a "materiality" or similar standard (including, Material Adverse Effect), shall be true in all respects (taking into account all "materiality" and similar qualifications (including; Material Adverse Effect) contained in such representation or warranty) at and as of the Effective Time, as if trade at and as of such time.     SECTION 8.3    Conditions to the Obligations of the Company.   The obligation of the Company to file the Restated Certificate at the Effective Time pursuant to Section 1.1 is subject to the satisfaction of the following further conditions:     (i) Each Union shall have performed, both individually and collectively, in all material respects all of its covenants, agreements or other obligations hereunder required to be performed by it at or prior to the Effective Time;     (ii) the representations and warranties of the Unions set forth in this Agreement shall be true and correct, both individually and collectively, in all material respects at and as of the Effective Time as if made at and as of such time; provided that each representation and warranty of the Unions set forth in this Agreement that is qualified by a "materiality" or similar standard shall be true in all respects (taking into account all "materiality" and similar qualifications contained in such representation or warranty) at and as of the Effective Time, as if made at and as of such time;     (iii) the Board of Directors of the Company shall have received the written opinions of each of First Boston and Lazard, each dated as of the Announcement Date, confirming their earlier opinions, to the effect that the Recapitalization is fair from a financial point of view to the holders of Old Shares; and     (iv) the Labor Agreements shall have been executed and delivered by the Unions and shall be in full force and effect as of the Effective Time.     (v) the Board of Directors of the Company shall have received the written opinions of Skadden, Arps, Slate, Meagher & Flom to the effect that (A) when issued, all New Shares, all Depositary Shares and all shares of Public Preferred Stock represented thereby will be duly authorized, validly issued, fully paid and nonassessable, (B) the revaluation of the Company's and United's assets contemplated by Section 5.9 hereof may be effected in connection with the Recapitalization consistent with Delaware Law, (C) when issued, the Debentures will be validly issued and enforceable obligations of United, (D) the consummation of the transactions contemplated by Section 1.6(d) hereof will not result in a non-exempt prohibited transaction under Section 4975(c)(1) of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), or Section 406(a) of the Employee Retirement Income Security Act of 1974, (E) the Recapitalization and Reclassification will not result in the recognition of income, gain or loss to the Company for United States federal income tax purposes and (F) the contributions made by the Company to the ESOPs and, assuming the Company has sufficient earnings and profits, the dividends paid on the ESOP Preferred Stock that, in each case, are used to repay the debt evidenced by the ESOP Note issued in connection with the transactions contemplated by Section 1.6(d) hereof will be deductible under Section 404 of the Internal Revenue Code;     (vi) the Company shall have determined that it is reasonably likely to have sufficient earnings and profits such that, based on the opinion of counsel described in Section 8.3(v)(F) above, the dividends paid on the ESOP Preferred Stock that are used to repay the debt evidenced by the ESOP Note issued in connection with the transactions contemplated by Section 1.6(d) hereof are reasonably likely to be deductible under Section 404 of the Internal Revenue Code; and     (vii) the Company shall have determined that the Company will be reasonably likely to have sufficient surplus (whether revaluation surplus or earned surplus) or net profits under Delaware Law to permit the legal payment of dividends on the ESOP Preferred Stock and the Public Preferred Stock when due.                     ARTICLE IX           TERMINATION   SECTION 9.1    Termination.    This Agreement shall terminate and the Recapitalization shall be abandoned (notwithstanding any approval of the Shareholder Vote Matters by the stockholders of the Company, any legal action or otherwise) if the Effective Time shall not have occurred by 11:59 p.m. on August 31, 1994 (the "Outside Termination Time"). In addition, this Agreement may be terminated and the Recapitalization may be abandoned at any time prior to the Outside Termination Time and prior to the Effective Time (notwithstanding any approval of the Shareholder Vote Matters by the stockholders of the Company):     (a) by mutual written consent of each of the Unions and the Company; (b) by either of the Unions or the Company if (i) the stockholders of the Company shall not have approved the Shareholder Vote Matters at the Company Stockholder Meeting; or (ii) any court of competent jurisdiction in the United States or other United States federal, state or local governmental body shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the Recapitalization and such order, decree, ruling or other action shall have become final and nonappealable;     (c) by either Union if (i) the Board shall have withdrawn or modified in a manner materially adverse to such Union its approval or recommendation of the Recapitalization or the Shareholder Vote Matters or shall have recommended, or shall have failed to recommend against, another Acquisition, (ii) the Board shall have resolved to do any of the foregoing, (iii) the Company shall have breached, either individually or collectively, in any material respect any of its material representations, warranties, covenants or other agreements contained in this Agreement, (iv) any person shall have acquired "beneficial ownership" (as defined in the Rights Agreement) or the right to acquire beneficial ownership of, or any "group" (as such term is defined in Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) shall have been formed which beneficially owns, or has the right to acquire beneficial ownership of, more than 15% of the then outstanding Old Shares, or shall have become an "Acquiring Person" under the Rights Agreement, or (v) there shall have occurred a "Share Acquisition Date" or "Distribution Date" under the Rights Agreement; or     (d) by the Company if (i) either Union shall have breached, either individually or collectively, in any material respect any of its material representations, warranties, covenants or other agreements contained in this Agreement or (ii) the Board, in accordance with Section 5.4, shall have withdrawn or modified in a manner adverse to either Union its approval or recommendation of the Recapitalization or shall have recommended another Acquisition, or shall have resolved- to do any of the foregoing.     SECTION 9.2    Termination of Status Quo.    If the Effective Time shall not have occurred on or before the earlier of expiration of four months following the date of the filing by the Company of the preliminary Company Proxy Statement with the SEC and August 31, 1994, the Company may, by written notice to each of the Unions, terminate its obligations under Section 5.1 of this Agreement; provided that the Company's right to so terminate its obligations under Section 5.1 shall not be available in the event the Company's failure to fulfill any obligation under this Agreement has been the cause of or resuited in the failure of the Effective Time to occur on or before such date. In the event the Company elects to terminate its obligations under Section 5.1 in accordance with the preceding sentence, either of the Unions may terminate this Agreement.     SECTION 9.3    Effect of Termination.   Except as provided in the next sentence, if this Agreement is terminated pursuant to Section 9.1 or 9.2, this Agreement shall become void and of no effect with no liability on the part of any party hereto, except that the agreements contained in Sections 6.1, 9.3 and 10.4 shall survive the termination hereof. Notwithstanding the preceding sentence, if the failure of the Effective Time to occur on or prior to the Outside Termination Date results directly from either (i) a material breach of a specific material representation or warranty contained in this Agreement by one of the parties hereto under circumstances where the breaching party had actual knowledge at the date of this Agreement that such representation or warranty was materially false or misleading or (ii) a material breach of a specific material covenant (a breach described in clause (i) or (ii), as modified by proviso (A) hereto, being called a "Willful Breach"), and one of the other parties hereto has established, as determined by a court of competent jurisdiction, that such Willful Breach has occurred, the breaching party shall be liable to the other parties hereto for proximate and provable damages resulting from such Willful Breach (which shall include the reasonable fees and expenses of such non-breaching parties, including reasonable attorney's fees and expenses, incurred in connection with the transactions contemplated hereby other than in connection with any litigation or other dispute between or among parties hereto); provided (A) to the extent that the material breach of a specific material covenant is not determinable solely by an objective fact (e.g. any best efforts obligation or requirement of reasonableness) such breach shall be actionable hereunder only if the breaching party knew (or demonstrated reckless disregard for whether) its action or failure to act was in violation of such covenant; and (B) such calculation of damages shall not include consequential or punitive damages and shall be the sole and exclusive remedy of the non-breaching parties in the event of a Willful Breach. With respect to a Willful Breach, "knowledge" (or any corollary thereof) or "reckless disregard" shall mean the knowledge or reckless disregard of the senior executives or officials of the Company and United or the Unions, as the case may be, each of whom shall conclusively be deemed to have read this Agreement.             ARTICLE X       MISCELLANEOUS   SECTION 10.1    Notices.    All notices, requests and other communications to any party hereunder shall be in writing (including telex or similar writing) and shall be given,     if to ALPA, to:     UAL-MEC/ALPA 6400 Shafer Court Suite 700 Rosemont, IL 60018 Telephone: (708) 292-1700 Telecopy: (708) 292-1760     Attention: Captain Roger D. Hall     and copies to:,     Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, NY 10019 Telephone: (212) 373-3000 Telecopy: (212) 757-3990     Attention: Stuart I. Oran, Esq.     and to:     Cohen, Weiss and Simon 330 West 42nd Street New York, NY 10036 Telephone: (212) 563-4100 Telecopy: (212) 695-5436     Attention: Stephen Presser, Esq.     If to IAM, to:     International Association of Machinists and Aerospace Workers Machinists Building 1300 Connecticut Avenue Washington, D.C. 20036 Telephone: (202) 857-5200 Telecopy: (202) 331-9076 Attention: William L. Scheri     IAM Local 1487 321 Allerton Avenue San Francisco, CA 94080 Telephone: (415) 873-0662 Telecopy: (415) 873-1676     Attention: Ken Theide     and copies to:     Taylor Roth Bush & Geffner 3500 W. Olive, Suite 1100 Burbank, CA 91505 Telephone: (818) 973-3200 Telecopy: (818) 973-3201     Attention: Robert A. Bush, Esq.                 Lowenstein Sandler Kohl Fisher & Boylan 65 Livingston Avenue Roseland, New Jersey 07068 Telephone: (201) 992-8700 Telecopy: (201) 992-5820     Attention: Peter H. Ehrenberg, Esq.     If to the Company to:     UAL Corporation 1200 E. Algonquin Road Elk Grove Township, Illinois 60007 Telephone: (708) 956-2400 Telecopy: (708) 952-4683     Attention: Stephen M. Wolf and Lawrence M. Nagin, Esq. with a copy to:     Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, NY 10022 Telephone: (212) 735-3000 Telecopy: (212) 735-2000     Attention: Peter Allan Atkins, Esq.     or such other address or telecopy number as such party may hereafter specify for the purpose by notice to the other parties hereto. Each such notice, request or other communication shall be effective (i) if given by facsimile, when received by the addressee using the facsimile number specified in this Section, as evidenced by an automated confirmation receipt from the sending facsimile machine or (ii) if given by any other means, when delivered at the address specified in this Section.     SECTION 10.2    Survival.    The representations and warranties contained herein and in any certificate or other writing delivered pursuant hereto shall not survive the Effective Time. The agreements of the parties contained herein and in any certificate or other writing delivered pursuant hereto shall not survive the Effective Time unless expressly provided in such agreement (it being understood that, without limiting the survival of any other agreements contained herein the survival of which is expressly provided for in such agreement, the following agreements shall survive the Effective Time: Sections 1.2, 1.3, 1.5, 1.6, 1.7, 1.8, 1.9, 1.10, 2.3, 2.4, clause (iii) of the last sentence of Section 5.1, 5.7, 5.8(b), 5.10, 5.11, 6.3, 6.4, 10.2 and 10.4) (all such surviving agreements being referred to herein as the "Express Agreements"). Except with respect to any Collective Bargaining Agreement (as defined in the Restated Certificate) and the Express Agreements, from and after the consummation of each of the transactions contemplated to take place at or about the Effective Time, each of the parties hereto (in their capacities as such) fully releases, discharges, waives, and renounces (collectively "Releases") any and all claims, controversies, demands, rights, disputes and causes of action it may have had at or prior to the Effective Time against, and agrees not to initiate any suit, action or other proceeding involving, each of the other parties hereto, its officials, officers, directors, employees, accountants, counsel, consultants, advisors and agents and, if applicable, security holders relating to or arising out of this Agreement or the transactions contemplated hereby (including, but not limited to, matters contemplated under Section 5.11 and matters involving claims, controversies, demands, rights, disputes or cause of action based on securities laws, ERISA, common law tort theory or any other similar bodies of law); provided that the foregoing Releases shall not apply to any claims, controversies, demands, rights, disputes and causes of action arising from and after the Effective Time (and based on facts and circumstances arising from and after the Effective Time) under any of the documents, instruments or transactions entered into, filed or effected in connection with the Recapitalization (other than this Agreement, to the extent provided in this Section 10.2).     SECTION 10.3    Amendments; No Waivers. (a) Any provision of this Agreement may be amended or waived prior to the Effective Time (including, without limitation, an amendment to this Agreement to extend the Outside Termination Time) if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by the Company and each Union or in the case of a waiver, by the party against whom the waiver is to be effective; provided that no amendment to or waiver of an Express Agreement shall be effective against a person entitled to enforce such Express Agreement pursuant to Section 10.8 unless agreed to in writing by such person; and provided, further, that after the adoption of the Shareholder Vote Matters by the stockholders of the Company, no such amendment or waiver shall, without the further approval of such stockholders if and to the extent such approval is required by Delaware Law, alter or change (i) the amount or kind of consideration to be received in connection with the Recapitalization, (ii) any term of the Restated Certificate or (iii) any of the terms or conditions of this Agreement if such alteration or change would materially adversely affect the holders of any shares of capital stock of the Company.     (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.     SECTION 10.4    Fees and Expenses; Indemnification.     (a) Except as provided in the fee letter agreement, dated the date hereof, among the Company and the Unions (the "Fee Letter"), or hereafter agreed by the parties in writing or as set forth in this Section, all fees, costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such fee, cost or expense. The parties agree that the fees, costs and expenses of the Deadlock Firm and the Solvency Firm shall be paid by the Company. The Company represents and agrees that the fees of its principal financial and legal advisors to be incurred by the Company in connection with the transactions contemplated by this Agreement other than fees in connection with the underwriting described in Section 1.11 hereof shall not exceed $25 million.     (b) Upon the occurrence of a Triggering Event (as defined below), the Company shall promptly pay to or at the direction of the Unions any amounts the Company would otherwise have been required to pay pursuant to the Fee Letter had the Effective Time occurred at the time of the occurrence of such Triggering Event. Such amounts shall be exclusive of any amounts paid or payable pursuant to indemnification or contribution arrangements. For purposes of this paragraph (b), "Triggering Event" shall mean the occurrence of each of the following: (i)(A) following the public announcement of a proposal for an Acquisition, either the stockholders of the Company shall not have approved the Shareholder Vote Matters at the Company Stockholder Meeting or (B) the Board shall have withdrawn or modified in a manner materially adverse to the Unions its approval or recommendation of the Recapitalization or the Shareholder Vote Matters or shall have recommended, or failed to recommend against, another Acquisition; (ii) subsequent to the stockholder or Board action referred to in clause (i) above, this Agreement shall have been terminated by the Company pursuant to Sections 9.1(b)(i) or 9.1(d)(ii) or by either Union pursuant to Sections 9.1(b)(i) or 9.1(c)(i); and (iii) within 12 months of the termination of the Agreement in accordance with clause (ii) above, an Acquisition shall have been consummated.     (c) All amounts payable by the Company to either Union under this Section 10.4 shall be paid directly to such Union or directly to persons designated in writing by such Union as such Union may specify.     (d) To the extent that the Company shall make payments to, or on behalf of, either Union under this Section 10.4 and such Union is reimbursed by another source (or otherwise receives a refund of the amount paid), such Union shall return such amounts to the Company to the extent of such reimbursement (or refund).     (e) The Company (the "Indemnitor") shall indemnify the Unions, their controlling persons, and their respective directors, trustees, officers, partners, affiliates, agents, representatives, advisors and employees (a "Union Indemnified Person") against and hold each Union Indemnified Person harmless from any and all liabilities, losses, claims, damages, actions, proceedings, investigations or threats thereof (all of the foregoing, and including expenses (including reasonable attorneys' fees, disbursements and other charges) incurred in connection with the defense thereof, except as set forth below, being referred to as "Liabilities") based upon, relating to or arising out of the execution, delivery or performance of this Agreement or the transactions contemplated hereby (including, without limitation, the underwriting described in Section 1.11 hereof); provided, however, that the Indemnitor shall not be liable in any such case to the extent that any such Liability arises out of any inaccurate information supplied by any such Union Indemnified Person specifically for inclusion in the proxy materials related to such transactions or any other filings made by the Company or any Union Indemnified Person with any federal or state governmental agency in connection therewith (including without limitation the prospectuses relating to the underwriting described in Section 1.11 hereof) or if any such Liability is finally judicially determined, not subject to further appeal, to have resulted from bad faith, willful misconduct or negligence on such Union Indemnified Person's part. Notwithstanding anything to the contrary contained herein, "Liabilities" shall not include any losses, claims, damages or expenses (including attorneys' fees, disbursements and other charges) based upon, relating to or arising out of any action, claim, proceeding, investigation or threat thereof (i) brought by a Union against the other Union, (ii) brought by any employee of the Company or a subsidiary of the Company, as such, represented by a Union or any member of a Union (whether or not an employee of the Company or a subsidiary of the Company), in his or her capacity as such, if, and only if, the underlying action, claim, proceeding or threat is made against (1) his or her Union or (2) against the other Union, (iii) brought by any Union or any Union Indemnified Person against the Company or any controlling persons, directors, officers, partners, agents, representatives, advisors or employees of the Company (a "Company Related Person") or by the Company or any Company Related Person against any Union or Union Indemnified Person or (iv) which arise primarily as a result of acts by a Union Indemnified Person following the Effective Time.     (f) In connection with the Indemnitor's obligation to indemnify for expenses as set forth above in subsection (e) of this Section, the Indemnitor further agrees to reimburse each Union Indemnified Person for all such expenses (including reasonable attorneys' fees, disbursements and other charges) as they are incurred by such Union Indemnified Person, provided, however, that if a Union Indemnified Person is reimbursed hereunder for any such expenses, such reimbursement of expenses shall be refunded to the extent it is finally judicially determined, not subject to further appeal, that the Union Indemnified Person is not entitled to indemnification by reason of the proviso clause in the first sentence or the last sentence of subsection (e) of this Section. The Company shall not be required to reimburse any Union Indemnified Person for the reasonable attorney's fees, disbursements or other charges of more than one counsel (plus local counsel, if appropriate), or of more than one counsel (plus local counsel, if appropriate) for any one Union (together with Union Indemnified Persons who are controlling persons, directors, officers, partners, affiliates, agents, representatives, advisors and employees of such Union) who can be represented by common counsel so long as no conflict of interest or different or additional colorable defenses are reasonably believed by such Indemnified Persons to exist between or among them relative to the claims asserted.     (g) Promptly after receipt by a Union Indemnified Person of notice of any claim or the commencement of any action, proceeding or investigation in respect of which indemnity or reimbursement may be sought as provided in this Section, such Union Indemnified Person will notify the Indemnitor in writing of the receipt or commencement thereof, but the failure to so notify shall not relieve the Indemnitor from any obligation or liability which it may have pursuant to this Section or otherwise except to the extent that the Indemnitor is materially prejudiced thereby. In case any such action, proceeding or investigation is brought or threatened against a Union Indemnified Person, the Indemnitor will be entitled to participate therein and, to the extent that it may wish, to assume the defense thereof, with counsel selected by the Indemnitor and approved by the Union Indemnified Person (such approval not to be unreasonably withheld). After notice from the Indemnitor to such Union Indemnified Person of its election to assume the defense thereof, the Indemnitor will not be liable to such Union Indemnified Person for any legal expense subsequently incurred for services rendered by any other counsel retained by such Union Indemnified Person in connection with the defense unless such Union Indemnified Person, in the opinion of its counsel, has colorable defenses which are different from or in addition to defenses available to the Indemnitor or the Indemnitor has an interest which conflicts with the interests of such Union Indemnified Person and which makes separate representation advisable, in which event all legal expenses of such Union Indemnified Person (subject to the last sentence of subsection (f) above) shall continue to be paid by the Indemnitor. Notwithstanding. Section 10.4(f), the indemnification provided for in this Section 10.4 shall include reimbursement for all expenses (including reasonable attorneys' fees, disbursements and other charges) incurred by Union Indemnified Persons to enforce their rights under this Section 10.4. The Indemnitor shall not settle any action, claim, proceeding or investigation which is the subject of this Section 10.4 without the prior written approval of the Union Indemnified Person (such approval not to be unreasonably withheld), unless such settlement involves solely the payment of money and the Indemnitor is not contesting any right of a Union Indemnified Person to receive. indemnification hereunder. References to Union Indemnified Persons shall in all cases include the controlling persons, directors, officers, affiliates, agents, representatives, advisors and employees of each Union Indemnified Person.     (h) If the indemnification provided for in this Section 10.4 is finally judicially determined, not subject to further appeal, to be unavailable to a Union Indemnified Person, then the Indemnitor shall, in lieu of indemnifying such Union Indemnified Person, contribute to the amount paid or payable in respect of any Liability by such Union Indemnified Person in such proportion as shall be fair and equitable after taking into account the relative benefits received by the parties, the relative fault of the parties and such other equitable considerations as any court of competent jurisdiction shall determine. For purposes of the preceding sentence, the benefits received by a Union Indemnified Person that is an advisor shall not be deemed to exceed the amount of fees payable to such Union Indemnified Person. The rights accorded to the Indemnified Persons under this Section 10.4 shall be in addition to any rights that any Union Indemnified Person may have at common law, by separate agreement or otherwise.     (i) All rights to indemnification existing in favor of the present or former directors, officers, employees, fiduciaries and agents of the Company or any of its Subsidiaries (collectively, the "Company Indemnified Persons") as provided in the Company's Certificate of Incorporation or By-laws or other agreements or arrangements, or articles of incorporation or by-laws (or similar documents) or other agreements or arrangements of any Subsidiary as in effect as of the date hereof with respect to matters occurring at or prior to the Effective Time shall survive the Effective Time and shall continue in full force and effect. In addition, the Company shall provide, for a period of not less than six years following the Effective Time, for directors' and officers' liability insurance for the benefit of directors and officers of the Company immediately prior to the Effective Time with respect to matters occurring at or prior to the Effective Time by electing, in its sole discretion, one of the two alternatives set forth below (which election shall be reported to the Unions prior to the Effective Time): (i) maintain for a period of not less than six years following the Effective Time, the current policies of directors' and officers' liability insurance with respect to matters occurring at or prior to the Effective Time, provided that in satisfying its obligation under this clause (i), the Company shall not be obligated to pay premiums in excess of 150% of the amount per annum the Company paid for the policy year ending during calendar year 1994, which amount has been disclosed to the Unions or (ii) purchase, prior to the Effective Time, run-off coverage for the benefit of directors and officers of the Company immediately prior to the Effective Time for matters occurring at or prior to the Effective Time, which coverage shall provide for a separate insurance pool for such directors and officers of at least $75 million in coverage, provided, that in satisfying the obligations under this clause (ii), the Company shall not pay in excess of an amount set forth in a letter previously delivered by the Company to counsel to the Unions. The Company shall also maintain for a period of not less than six years following the Effective Time, the current fiduciaries' liability insurance with respect to matters occurring at or prior to the Effective Time.     SECTION 10.5   Successors and Assigns.   The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the written consent of the other parties hereto. In the event the Company or any of its successors, transferees or assigns (i) consolidates with or merges with or into any other person and shall not be the continuing or surviving entity of such consolidation or merger, (ii) transfers or conveys all or substantially all of its properties or assets to any transferee or (iii) engages in any similar transaction with any person, then, as a condition to the consummation of such transaction, proper provision shall be made so the successor, transferee or assignee of the Company pursuant to such transaction assumes the obligations of the Company set forth in each of the Express Agreements.     SECTION 10.6    Governing Law.    This Agreement shall be construed in accordance with and governed by the law of the State of Delaware, without regard to the conflicts of laws principles thereof. The parties agree that this Agreement (including the Schedules and other attachments hereto), other than Schedules 1.6(a)(i), 1.6(a)(ii), 1.6(a)(iii), 1.6(a)(iv), 5.8(i) and 5.8(ii) (to the extent such Schedules relate to employees of the Company and its Subsidiaries represented by the Unions), shall not be subject to the jurisdiction of any System Board of Adjustment under the Railway Labor Act.     SECTION 10.7    Counterparts; Efectiveness.   This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto.     SECTION 10.8   Parties in Interest.    This Agreement shall be binding upon and inure solely, other than the provisions of Section 10.4, to the-benefit of the parties hereto, and, except for the Express Agreements, nothing in the Agreement, express or implied, is intended to confer upon any other person any rights, benefits or remedies. With respect to the Express Agreements, the agreements set forth in the following Sections are for the benefit of, and may be enforced by, the following parties: Sections 1.2, 1.3, 1.5, 6.3 and 6.4: the holders of New Shares; Section 1.7: holders of Options; Section 1.8: holders of Company Convertible Securities; Sections 2.3 (other than the last sentence thereof) and 5.11: officers and directors of the Company prior to the Effective Time; the first sentence of Section 5.8(b): the ESOP Trustee; the first sentence of Section 5.10: Gerald Greenwald; Section 10.4(c)-(h): Union Indemnified Persons; and Section 10.4(i): Company Indemnified Persons.     SECTION 10.9    Specific Performance.   Prior to the Effective Time or the termination of this Agreement, the parties agree that in the event a Willful Breach is established by a court of competent jurisdiction, the other parties hereto shall be entitled to specific performance of the terms hereof which were the subject of such Willful Breach; provided, however, in no event shall such remedy of specific performance in any way extend or modify the Outside Termination Date. The parties acknowledge that in the event of a Willful Breach, irreparable damage would occur, no adequate remedy at law would exist and damages would be difficult to determine. No other remedy shall be available prior to the Effective Time or the termination of this Agreement except that the remedy of damages shall be available if such remedy (including the amount of damages) would be available after termination pursuant to the terms of Section 9.3 hereof.     SECTION 10.10    Entire Agreement.   Except as otherwise explicitly set forth in this Agreement, or in other writings signed concurrently herewith, this Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof.                             IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.     UAL CORPORATION     By  /S/   STEPHEN M. WOLF Name:  Stephen M. Wolf Title:  Chairman and Chief Executive Officer     AIR LINE PILOTS ASSOCIATION, INTERNATIONAL     By  /S/   ROGER D. HALL Name:  Roger D. Hall Title:   Chairman, UAL-MEC     INTERNATIONAL ASSOCIATION OF MACHINISTS AND AEROSPACE WORKERS     By  /S/   KEN THIEDE Name:    Ken Thiede Title:    President and General Chairman, District Lodge 141 </HTML> </TEXT> </DOCUMENT>          

EX-10.158 7 axysllc.htm ARTICLES FOR LLC Exhibit 10.158 [image9.gif] State of California Bill Jones Secretary of State LIMITED LIABILITY COMPANY ARTICLES OF ORGANIZATION File # This Space For Filing Use Only A $70.00 filing fee must accompany this form. IMPORTANT - Read instructions before completing this form. Name of the limited liability company (end the name with the words "Limited Liability Company," "Ltd. Liability Co.," or the abbreviations "LLC" or "L.L.C.") Axys 468 Littlefield LLC The purpose of the limited liability company is to engage in any lawful act or activity for which a limited liability company may be organized under the Beverly-Killea limited liability company act. Name the agent for service of process and check the appropriate provision below: David Riggs which is [ X ] an individual residing in California. Proceed to item 4. [  ] a corporation which has filed a certificate pursuant to section 1505. Proceed to item 5. If an individual, California address of the agent for service of process: Address: 180 Kimball Way City: South San Francisco State: CA Zip Code 94080 The limited liability company will be managed by: (check one) [  ] one manager [  ] more than one manager [X] limited liability company members Other matters to be included in this certificate may be set forth on separate attached pages and are made a part of this certificate. Other matters may include the latest date on which the limited liability company is to dissolve. Number of pages attached, if any: 0 Type of business of the limited liability company. (For informational purposes only) Real Estate Investments DECLARATION: It is hereby declared that I am the person who executed this instrument, which execution is my act and deed. Ravi Kotecha Signature of Organizer Type or Print name of Organizer May 3, 2001 Date -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SEC/STATE (REV. 12/99) FORM LLC-1 - FILING FEE $70.00 Approved by Secretary of State

EXHIBIT 10.7 Amendment No. 6 Dated July 17th, 2001 To The Agreement Between OCP and MPC Dated September 15th, 1991            This Amendment No. 6 to the Agreement is effective as of July 1st, 2001, between: OFFICE CHERIFIEN DES PHOSPHATES ("OCP") Angle route d'El Jadida et Bd de la Grande Ceinture - Casablanca MOROCCO on the one part , and : MISSISSIPPI PHOSPHATES CORPORATION (MPC) P.O. Box 848 Pascagoula, Mississippi, USA 39568-0848 on the other part .           WHEREAS, OCP and MPC are parties to that certain Agreement with an Effective Date of September 15th, 1991, for the sale and purchase of all MPC's requirements of phosphate rock at its Pascagoula Plant ("Agreement"); and           WHEREAS, the Agreement has been amended by Amendment No. 1 effective as of July 1st, 1992, Amendment No. 2 effective as of July 1st, 1993, Amendment No. 3 effective as of January 1st, 1995, Amendment No. 4 effective as of January 1st, 1997, and Amendment No 5 effective as of July 1st, 2000, and,           WHEREAS, OCP and MPC desire to amend the Agreement as hereinafter set forth;           NOW, THEREFORE, MPC and OCP hereby agree as follows:           1.     Article IV of the Agreement is hereby further amended by changing the second, third, fourth and fifth sentences of the definition of "Sales, General and Administrative Expense" to read in their entirety as follows: "Subject to the adjustments hereafter described, expenses shall include an annual payment of Two Million and 00/100 Dollars (US$ 2,000,000.00) to MCC for certain services to be provided by MCC to MPC. The annual payment by MPC to MCC for services shall be reduced by Two Million and 00/100 Dollars (US$ 2,000,000.00) with respect the Contract Year commencing on July 1st, 2001. Thereafter, with respect to subsequent Contract Year(s), the annual payment(s) may be increased by amounts not exceeding Two Million and 00/100 Dollars (US$ 2,000,000.00) in the aggregate. Payment of any such increases in the annual payment(s) to MCC for services and payments to OCP of the "2002 Category 1 Deferred Portion" (as defined in Sale Contract Addendum No. 11) shall be made in the same amounts and at the same time."           2.     Except as specifically set forth in this Amendment, all of the terms and conditions of the Agreement shall continue in full force and effect.           3.     All capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings set forth in the Agreement.           IN WITNESS WHEREOF, MPC and OCP have caused this Amendment No. 6 to be duly executed in duplicate originals as of the date first hereinabove written.           MADE OUT IN DUPLICATE ON JULY 17TH, 2001. MISSISSIPPI PHOSPHATES CORPORATION By:  /s/ Charles O. Dunn             CHARLES O. DUNN             PRESIDENT OFFICE CHERIFIEN DES PHOSPHATES By:  /s/ Idris Jettou             IDRIS JETTOU             DIRECTOR-GENERAL  

-------------------------------------------------------------------------------- EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (the “Agreement”), dated as of August 1, 2000 (the “Effective Date”), but effective as provided herein, is made and entered into by and between Ultramar Diamond Shamrock Corporation, a Delaware corporation (the “Company”), and Robert S. Shapard (the “Executive”). WHEREAS, the Executive is serving as Executive Vice President and Chief Financial Officer of the Company; and WHEREAS, the Company considers it in the best interests of its stockholders to foster the continued employment of certain key management personnel; and WHEREAS, the Company recognizes that, as is the case for most publicly held companies, the possibility of a Change in Control (as defined herein) exists; and WHEREAS, the Company wishes to assure itself of both present and future continuation of management in the event of a Change in Control; and WHEREAS, the Company wishes to continue to employ the Executive and the Executive is willing to continue to render services, both on the terms and subject to the conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the promises and of the mutual covenants herein contained, it is agreed as follows: 1. Employment.             1.1  The Company hereby agrees to continue to employ the Executive and the Executive hereby agrees to undertake employment with the Company upon the terms and conditions herein set forth.             1.2  Employment will be for a term commencing on the Effective Date and, subject to earlier expiration upon the Executive’s termination under Section 5, expiring three years from the Effective Date (the “Term”). Notwithstanding the previous sentence, this Agreement and the employment of the Executive will be automatically renewed and the Term extended, subject to Section 5, for successive one-year periods upon the terms and conditions set forth herein, commencing on the third anniversary of the Effective Date, and on each anniversary date thereafter, unless either party to this Agreement gives the other party, written notice (in accordance with Section 12.5) of such party’s intention to terminate this Agreement at least three months prior to the end of such initial or extended term. For purposes of this Agreement, any reference to the “Term”of this Agreement will include the original term and any extension thereof. -------------------------------------------------------------------------------- Shapard Employment Agreement Page 2 of 18 2. Position and Duties.             2.1  Position and Duties. During the Term, the Executive will serve as Executive Vice President and Chief Financial Officer of the Company, and will have such duties, functions, responsibilities and authority as are (i) consistent with the Executive’s position as Executive Vice President and Chief Financial Officer of the Company; or (ii) assigned to his office in the Company’s bylaws; or (iii) reasonably assigned to him by the Company’s Board of Directors (the “Board”).             2.2  Commitment. During the Term, the Executive will be the Company’s full-time employee and, except as may otherwise be approved in advance in writing by the Board, and except during vacation periods and reasonable periods of absence due to sickness, personal injury or other disability, the Executive will devote substantially all of his business time and attention to the performance of his duties to the Company. 3.      Place of Performance. In connection with his employment during the Term, unless otherwise agreed by the Executive, the Executive will be based at such location as may be determined by the Board. The Executive will undertake normal business travel on behalf of the Company. 4. Compensation and Related Matters. 4.1 Compensation and Benefits.                         (i) Annual Base Salary. During the Term of this Agreement, the Company will pay to the Executive an annual base salary of not less than $350,000, which annual base salary may be modified from time to time by the Board (or the Compensation Committee thereof) in its sole discretion, payable at the times and in the manner consistent with the Company’s general policies regarding compensation of executive employees. The Board may from time to time authorize such additional compensation to the Executive, in cash or in property, as the Board may determine in its sole discretion to be appropriate.                       (ii) Annual Incentive Compensation. If the Board (or the Compensation Committee thereof) authorizes any cash incentive compensation or approves any other management incentive program or arrangement, the Executive will be eligible to participate in such plan, program or arrangement under the general terms and conditions applicable to executive and management employees. Except as set forth in the proviso to the preceding sentence, nothing in this Section 4.1(ii) will guarantee to the Executive any specific amount of incentive compensation, or prevent the Board (or the Compensation Committee thereof) from establishing performance goals and compensation targets applicable only to the Executive. -------------------------------------------------------------------------------- Shapard Employment Agreement Page 3 of 18             4.2     Executive Benefits. In addition to the compensation described in Section 4.1, the Company will make available to the Executive and his eligible dependents, subject to the terms and conditions of the applicable plans, including without limitation the eligibility rules, including designation by the Compensation Committee, participation in all Company-sponsored employee benefit plans including all employee retirement income and welfare benefit policies, plans, programs or arrangements in which senior executives of the Company participate, including any stock option, stock purchase, stock appreciation, savings, pension, supplemental executive retirement or other retirement income or welfare benefit, short or long-term disability, and any other deferred compensation, incentive compensation, group and/or executive life, health, medical/hospital or other insurance (whether funded by actual insurance or self-insured by the Company), expense reimbursement or other employee benefit policies, plans, programs or arrangements or any equivalent successor policies, plans, programs or arrangements that may now exist or be adopted hereafter by the Company.             4.3 Expenses. The Company will promptly reimburse the Executive for all travel and other business expenses the Executive incurs in order to perform his duties to the Company under this Agreement in a manner commensurate with the Executive’s position and level of responsibility with the Company, and in accordance with the Company’s policy regarding substantiation of expenses. 5.            Termination. Notwithstanding the Term specified in Section 1.2, the termination of the Executive’s employment hereunder will be governed by the following provisions:              5.1      Death. In the event of the Executive’s death during the Term, the Company will pay to the Executive’s beneficiaries or estate, as appropriate, promptly after the Executive’s death, (i) the unpaid annual base salary to which the Executive is entitled, pursuant to Section 4.1, through the date of the Executive’s death, and (ii) for any earned but unused vacation days, to the extent and in the amounts, if any, provided under the Company’s usual policies and arrangements. This Section 5.1 will not limit the entitlement of the Executive’s estate or beneficiaries to any death or other benefits then available to the Executive under any life insurance, stock ownership, stock options, or other benefit plan or policy that is maintained by the Company for the Executive’s benefit.              5.2      Disability.                       (i) If the Company determines in good faith that the Executive has incurred a Disability (as defined below) during the Term, the Company may give the Executive written notice of its intention to terminate its obligations under this Agreement, which notice may, but need not, include a statement of the Company’s intent to terminate the Executive’s employment. In such event, the Company’s obligations under this Agreement, and the Executive’s employment (if applicable), will terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Termination Date”), provided that within the 30 days after such receipt, the Executive will not have returned to full-time performance of his duties. The Executive will continue to receive his annual base salary until the Disability Termination Date. The Executive will continue to receive benefits until the Disability Termination Date, provided that if the Company has not elected to terminate the Executive’s employment under this provision (but rather to terminate only its obligations under this Agreement), the Executive’s right to continue to receive benefits following the Disability Termination Date will be governed by the policies and procedures of the Company generally applicable to disabled employees. In that event, the Executive will be considered an “employee at will” following the Disability Termination Date, and either the Executive or the Company may thereafter terminate the Executive’s employment for any reason or for no reason, and the rights and obligations of the Executive and the Company upon such termination will be governed by the policies and procedures of the Company applicable to employees at will, and by applicable law. -------------------------------------------------------------------------------- Shapard Employment Agreement Page 4 of 18 In the event of the Executive’s disability, the Company will pay the Executive, promptly after the Disability Termination Date, (a) the unpaid annual base salary to which he is entitled, pursuant to Section 4.1, through the Disability Termination Date, (b) for any earned but unused vacation days, to the extent and in the amounts, if any, provided under the Company’s usual policies and arrangements, and (c) a lump sum in cash in an amount equal to 50% of his annual base salary at the Disability Termination Date. This Section 5.2 will not limit the entitlement of the Executive, the Executive’s estate or beneficiaries, to any disability or other benefits then available to the Executive under any disability insurance or other benefit plan or policy that is maintained by the Company for the Executive’s benefit; provided that (i) any amounts paid as base salary shall offset, on a dollar-for-dollar basis (but not below zero), the Company’s obligation to pay the Executive short-term disability benefits under any short-term disability plan, program or arrangement of the Company, in respect of the same period for which such base salary is paid, and (ii) any benefits paid pursuant to the Company’s long-term disability plan shall reduce, on a dollar-for-dollar basis (but not below zero), the Company’s obligation to pay the Executive base salary in respect of the same period for which such benefits are paid; provided, however, that any such offset or reduction shall not affect, or be affected by, the payment provided to be made in accordance with clauses (a), (b), or (c) of this Section 5.2(i); provided, however, that any such offset or reduction shall not affect, or be affected by, the payment provided to be made in accordance with clauses (a), (b), or (c) of this Section 5.2(i).                       (ii) For purposes of this Agreement, “Disability” will mean the Executive’s incapacity due to physical or mental illness to substantially perform his duties on a full-time basis for six consecutive months and within 30 days after a notice of termination is thereafter given by the Company the Executive will not have returned to the full-time performance of the Executive’s duties; provided, however, if the Executive disagrees with a determination to terminate him because of Disability, the question of the Executive’s disability will be subject to the certification of a qualified medical doctor agreed to by the Company and the Executive or, in the event of the Executive’s incapacity to designate a doctor, the Executive’s legal representative. In the absence of agreement between the Company and the Executive, each party will nominate a qualified medical doctor and the two doctors will select a third doctor, who will make the determination as to Disability. In order to facilitate such determination, the Executive will, as reasonably requested by the Company, (a) make himself available for medical examinations by a doctor in accordance with this Section 5.2(ii), and (b) grant the Company and any such doctor access to all relevant medical information concerning him, arrange to furnish copies of medical records to such doctor and use his best efforts to cause his own doctor to be available to discuss his health with such doctor. -------------------------------------------------------------------------------- Shapard Employment Agreement Page 5 of 18             5.3 Cause.                       (i) The Company may terminate the Executive’s employment hereunder for Cause (as defined below). In the event of the Executive’s termination for Cause, the Company will promptly pay to the Executive (or his representative) the unpaid annual base salary to which he is entitled, pursuant to Section 4.1, through the date the Executive is terminated and the Executive will be entitled to no other compensation, except for earned but unused vacation and other compensation as otherwise due to him under applicable law.                       (ii) For purposes of this Agreement, the Company will have “Cause” to terminate the Executive’s employment hereunder upon a finding by the Board that (a) the Executive committed an illegal act or acts that were intended to and did defraud the Company, (b) the Executive engaged in gross negligence or gross misconduct against the Company or another employee, or in carrying out his duties and responsibilities, or (c) the Executive materially breached any of the express covenants set forth in Section 9.1, 9.2 or 9.3. The Company will not have Cause unless and until the Company provides the Executive with written notice that the Company intends to terminate his employment for Cause. Such written notice will specify the particular act or acts, or failure to act, that is or are the basis for the decision to so terminate the Executive’s employment for Cause. The Employee will 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. The Executive’s employment by the Company automatically will be terminated under this Section 5.3 for Cause as of the receipt of the written notice from the Company or, if later, the date specified in such notice. A notice given under this Section 5.3 must set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment for Cause, and 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 will not be earlier than the date on which such notice is given in accordance with Section 12.5). Such notice must be given no later than 180 business days after a director of the Company (excluding the Executive, if applicable) first has actual knowledge of the events justifying the purported termination. -------------------------------------------------------------------------------- Shapard Employment Agreement Page 6 of 18             5.4  Termination.                       (i) Involuntary Termination. The Executive’s employment hereunder may be terminated by the Company for any reason by written notice as provided in Section 12.5. The Executive will be treated for purposes of this Agreement as having been involuntarily terminated by the Company other than for Cause if the Executive terminates his employment with the Company for any of the following reasons (each, a “Good Reason”) without the Executive’s written consent: (a) the Company has breached any material provision of this Agreement and within 30 days after notice thereof from the Executive, the Company fails to cure such breach; (b) a successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company fails to assume liability under the Agreement; (c) at any time after the Company has notified the Executive pursuant to Section 1.2 that the Company does not intend to renew the Agreement and the Executive’s employment at the end of the Term (including any previous renewals) (rather than to allow the Agreement automatically to renew); (d) a material reduction in the aggregate benefits described by Section 4.2 (other than stock based compensation) provided to the Executive, unless such decrease is required by law or is applicable to all employees of the Company eligible to participate in any employee benefit arrangement affected by such reduction; (e) a significant reduction in the Executive’s duties or the addition of duties, which in either case are materially inconsistent with the Executive’s title or position; or (f) a reduction in the Executive’s annual base salary.                       (ii) Voluntary Termination. The Executive may voluntarily terminate the Agreement at any time by notice to the Company as provided in Section 12.5. The Executive’s death or Disability (as defined in Section 5.2(ii)) during the term of the Agreement will constitute a voluntary termination of employment for purposes of eligibility for termination payments and benefits as provided in Section 5.5, but for no other purpose.             5.5  Termination Payments and Benefits.                       (i) Form and Amount. Upon Executive’s involuntary termination, other than for Cause, the Company shall:                           (a) subject to Section 5.5(iii), pay or provide Executive                               (1) his annual salary and benefits until the date of termination,                               (2) within five business days after any revocation period in the release described in Section 5.5(iii) has expired, a lump sum cash payment equal to three multiplied by the sum of (x) and (y), where (x) is Executive’s highest annual base salary in effect during the three years prior to his date of termination, and (y) is the highest annual incentive compensation earned by Executive during the three years prior to his termination; provided, however, that all amounts received by Executive pursuant to the Ultramar Diamond Shamrock Corporation Intermediate Incentive and Performance-Based Restricted Stock Plan shall not be considered “annual incentive compensation“for purposes of this Section 5.5(i)(a)(2), -------------------------------------------------------------------------------- Shapard Employment Agreement Page 7 of 18                               (3) three additional years of age and service credit under all Company-sponsored employee benefit plans, including all retirement income plans and welfare benefit plans, policies or programs or arrangements in which Executive participates, including any savings, pension, supplemental executive retirement or other retirement income or welfare benefit, short or long-term disability, and any other deferred compensation, group and/or executive life, health, retiree health, medical/hospital, or other insurance (whether funded by actual insurance or self-insured by the Company), expense reimbursement or other employee benefit plans, policies, programs or arrangements or any equivalent successor plans, policies, programs or arrangements that may not now exist or may be adopted hereafter by the Company (but only to the extent that eligibility, vesting, or the timing or amount of the benefit are dependent upon age and/or service); provided, however, that in the case of a qualified defined benefit pension plan, the present value of the additional benefit Executive would have accrued if he had been credited for all purposes with the three additional years of age and service under such plan as of his date of termination with the Company will be paid in a lump sum in cash within five business after any revocation period in the release described in Section 5.5(iii) has expired, with (i) in the event that Executive’s aforementioned involuntary termination occurs on or after a “Change in Control” of the Company, as defined in Section 6.2 (or prior to, but in anticipation of, such a “Change in Control”), such present value being determined using the interest rate and mortality table set forth in Section 4.1(m)(i) and 4.1(n)(i), respectively, of the Ultramar Corporation Supplemental Executive Retirement Plan (or any equivalent successor plan, policy, program or arrangement) (collectively, the “Ultramar SERP”) and (ii) in the event that Executive’s aforementioned involuntary termination occurs prior to such a “Change in Control” of the Company (other than such a termination in anticipation of such a “Change in Control”), such present value being determined using the interest rate and mortality table set forth in Section 4.1(m)(ii) and 4.1(n)(ii), respectively, of the Ultramar SERP, and further, provided, in crediting the three additional years of age and service for purposes of calculating current and unused vacation such additional years shall be applied in determining the amount of annual vacation to which Executive is entitled, but shall not be deemed to cause Executive to have earned three additional years worth of unused vacation,                               (4) within five business days after any revocation period in the release described in Section 5.5(iii) has expired, a lump sum cash payment equal to three times the maximum amount the Company could have contributed on behalf of Executive to all of the Company-sponsored qualified and nonqualified defined contribution retirement plans in which Executive participated for any of the three years ending on the date of the Executive’s termination of employment assuming that the executive made the maximum voluntary contributions thereto, -------------------------------------------------------------------------------- Shapard Employment Agreement Page 8 of 18                               (5) for a period of three years after the date of Executive’s termination of employment, the continuation of the employee welfare benefits set forth in Section 4.2 (other than short-term or long-term disability benefits), except as offset by benefits paid by other sources as set forth in Section 8.2, or as provided in Section 5.5(ii) (provided, however, that in the event that any such continued coverage is not permitted under the terms of any applicable welfare plan or policy, the Company shall provide Executive with the after-tax economic equivalent of any coverage foregone, such economic equivalent to be deemed to be no less than the total cost to Executive of obtaining such coverage on an individual basis and to be paid quarterly in advance without discount); and                           (b) provide the Executive with outplacement services for a period of one year commencing on the date his employment is terminated in accordance with the Company’s executive outplacement policy in effect at the time his employment is terminated or immediately prior to a Change in Control (if prior to his termination of employment), whichever is more generous.                       (ii) Maintenance of Benefits. During the period set forth in Section 5.5(i)(a)(5), the Company will use its best efforts to maintain in full force and effect for the continued benefit of the Executive all referenced benefits or will arrange to make available to the Executive benefits substantially similar to those that the Executive would otherwise have been entitled to receive if his employment had not been terminated. Such benefits will be provided to the Executive on the same terms and conditions (including employee contributions toward the premium payments) under which the Executive was entitled to participate immediately prior to his termination. Notwithstanding the above, if Executive’s continued participation in any of the benefits referenced in Section 5.5(i)(a)(5) would violate any applicable law or cause any benefit plan, policy or arrangement of the Company to fail to qualify for tax-favored status, the Company shall not be required to provide such benefit to Executive through the Company’s plans, policies or arrangements, but instead shall either (A) arrange to make a substantially similar benefit available to Executive at no cost to the Executive or (B) pay Executive a sufficient amount of cash to allow Executive to purchase, on an after-tax basis, a substantially similar benefit on the open market at no incremental cost to Executive.                       (iii) Release. No benefit will be paid or made available under Section 5.5(i)(a) unless the Executive first executes a release in the form attached as an exhibit to this Agreement, and (b) to the extent any portion of such release is subject to the seven-day revocation period prescribed by the Age Discrimination in Employment Act of 1967, as amended, or to any similar revocation period in effect on the date of termination of Executive’s employment, such revocation period has expired.                       (iv) Other Severance Benefits. Notwithstanding any provision of this Agreement to the contrary, Executive shall be entitled to receive the greater of (a) the termination payments and benefits provided under Section 5.5 of this Agreement, or (b) the termination payments and benefits provided by any other Company-sponsored plan, program or policy which has as its primary purpose the provision of severance benefits, but in no event shall Executive be eligible to receive termination payments and benefits provided under both this Agreement and any such plan, program or policy. -------------------------------------------------------------------------------- Shapard Employment Agreement Page 9 of 18 6.      Change in Control Provisions.             6.1 Impact of Change in Control. In the event of a “Change in Control“of the Company, as defined in Section 6.2, (i) the company will cause all cash benefits due under this Agreement to be secured by an irrevocable trust for the benefit of the Executive, the assets of which will be subject to the claims of the Company’s creditors, and will transfer to such trust cash and other property adequate to satisfy all of the expenses of the trust for at least five years after the Change in Control and any of the Company’s actual and potential cash obligations under this Agreement, (ii) if the Executive’s employment is involuntarily terminated without Cause after the Change in Control, (A) the covenants of Sections 9.1 and 10 will be inapplicable to the Executive, and (B) the covenant of Section 9.2 will expire on the third anniversary of the date of termination of the Executive’s employment, and (iii) the definition of Good Reason, as set forth in Section 5.4(i) above, will be expanded to include the following:                           (a) A good faith determination by the Executive that, as a result of the Change in Control and a change in circumstances thereafter significantly affecting his positions, including a change in the scope of business or other activities for which he was responsible, he has been rendered substantially unable to carry out, has been substantially hindered in the performance of, or has suffered a substantial reduction in, any of the authorities, powers, functions, responsibilities or duties attached to any of the Executive’s positions; the Executive’s determination will be presumed to have been made in good faith unless otherwise shown by the Company by clear and convincing evidence;                           (b) The relocation of the Company’s principal executive offices (but only if, immediately prior to the Change in Control, the Executive’s principal place of employment was at the Company’s principal executive offices), or requirement that the Executive have as his principal location of work any location that is, in excess of 50 miles from the location thereof immediately preceding the Change in Control or to travel away from his home or office significantly more often than that required immediately prior to the Change in Control; or                           (c) For any reason, or without reason, during the 30-day period immediately following the first anniversary of the first occurrence of a Change in Control. -------------------------------------------------------------------------------- Shapard Employment Agreement Page 10 of 18             6.2  Definition of Change in Control. For purposes of this Agreement, a “Change in Control“ will be deemed to occur if at any time during the term of the Agreement any of the following events will occur:                       (i) The Company is merged, consolidated or reorganized into or with another corporation or other legal person, and as a result of such merger, consolidation or reorganization, less than 50% of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of Voting Stock (as that term is hereafter defined) of the Company immediately prior to such transaction;                       (ii) The Company sells or otherwise transfers all or substantially all of its assets to any other corporation or other legal person, and as a result of such sale or transfer, less than 50% of the combined voting power of the then outstanding voting securities of such corporation or person are held in the aggregate by the holders of Voting Stock of the Company immediately prior to such sale;                       (iii) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”), disclosing that any person (as the term “person” is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term “beneficial owner” is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 20% or more of the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of Directors of the Company (“Voting Stock”);                       (iv) The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of the Company has or may have occurred or will or may occur in the future pursuant to any then-existing contract or transaction; or                       (v) If during the period of two consecutive years individuals who at the beginning of any such period constitute the Directors of the Company cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Company’s shareholders, of each Director of the Company first elected during such period was approved by a vote of at least two-thirds of the Directors of the Company then still in office who were Directors of the Company at the beginning of any such period (excluding for this purpose the election of any new Director in connection with an actual or threatened election or proxy contest). -------------------------------------------------------------------------------- Shapard Employment Agreement Page 11 of 18 Notwithstanding the foregoing provisions of Section 6.2(iii) or (iv) hereof, unless otherwise determined in a specific case by majority vote of the Board (or the Compensation Committee thereof), a “Change in Control” will not be deemed to have occurred for purposes of this Agreement solely because the Company, an entity in which the Company directly or beneficially owns 50% or more of the voting securities of such entity, any Company-sponsored employee stock ownership plan or any other employee benefit plan of the Company either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by it of shares of voting securities of the Company, whether in excess of 20% or otherwise, or because the Company reports that a change in control of the Company has or may have occurred or will or may occur in the future by reason of such beneficial ownership. 7. Certain Additional Payments by the Company:             (i) Anything in this Agreement to the contrary notwithstanding, if it is determined (as hereafter provided) 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 pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, stock appreciation right or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision thereto) by reason of being “contingent on a change in ownership or control” of the Company, within the meaning of Section 280G of the Code (or any successor provision thereto) or to any similar tax imposed by state or local law, or any interest or penalties with respect to such excise tax (such tax or taxes, together with any such interest and penalties, are hereafter collectively referred to as the “Excise Tax”), then the Executive will be entitled to receive an additional payment or payments (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 any 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. No Gross-Up Payment will be made with respect to the Excise Tax, if any, attributable to (a) any incentive stock option, as defined by Section 422 of the Code (“ISO”) granted prior to the execution of this Agreement (unless a comparable Gross-Up Payment has theretofore been made available with respect to such option), or (b) any stock appreciation or similar right, whether or not limited, granted in tandem with any ISO described in clause (a). -------------------------------------------------------------------------------- Shapard Employment Agreement Page 12 of 18             (ii) Subject to the provisions of Section 7(vi) hereof, all determinations required to be made under this Section 7, including whether an Excise Tax is payable by the Executive and the amount of such Excise Tax and whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, will be made by a nationally recognized firm of certified public accountants (the “Accounting Firm”) selected by the Executive in his sole discretion. The Executive will direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Company and the Executive within 15 calendar days after the Termination Date, if applicable, and any other such time or times as may be requested by the Company or the Executive. If the Accounting Firm determines that any Excise Tax is payable by the Executive, the Company will pay the required Gross-Up Payment to the Executive within five business days after receipt of such determination and calculations. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it will, at the same time as it makes such determination, furnish the Executive with an opinion that he has substantial authority not to report any Excise Tax on his federal, state, local income or other tax return. Any determination by the Accounting Firm as to the amount of the Gross-Up Payment will be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code (or any successor provision thereto) and the possibility of similar uncertainty regarding applicable state or local tax law at the time of any 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 (an “Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts or fails to pursue its remedies pursuant to Section 7(vi) hereof and the Executive thereafter is required to make a payment of any Excise Tax, the Executive will direct the Accounting Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and the Executive as promptly as possible. Any such Underpayment will be promptly paid by the Company to, or for the benefit of, the Executive within five business days after receipt of such determination and calculations.             (iii) The Company and the Executive will each provide the Accounting Firm access to and copies of any books, records and documents in the possession of the Company or the Executive, as the case may be, reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determination contemplated by Section 7(ii) hereof.             (iv) The federal, state and local income or other tax returns filed by the Executive will be prepared and filed on a consistent basis with the determination of the Accounting Firm with respect to the Excise Tax payable by the Executive. The Executive will make proper payment of the amount of any Excise Tax, and at the request of the Company, provide to the Company true and correct copies (with any amendments) of his federal income tax return as filed with the Internal Revenue Service and corresponding state and local tax returns, if relevant, as filed with the applicable taxing authority, and such other documents reasonably requested by the Company, evidencing such payment. If prior to the filing of the Executive’s federal income tax return, or corresponding state or local tax return, if relevant, the Accounting Firm determines that the amount of the Gross-Up Payment should be reduced, the Executive will within five business days pay to the Company the amount of such reduction. -------------------------------------------------------------------------------- Shapard Employment Agreement Page 13 of 18             (v) The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations contemplated by Sections 7(ii) and (iv) hereof will be borne by the Company. If such fees and expenses are initially advanced by the Executive, the Company will reimburse the Executive the full amount of such fees and expenses within five business days after receipt from the Executive of a statement therefor and reasonable evidence of his payment thereof.             (vi) The Executive will notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification will be given as promptly as practicable but no later than 10 business days after the Executive actually receives notice of such claim and the Executive will further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by the Executive). The Executive will not pay such claim prior to the earlier of (a) the expiration of the 30-calendar-day period following the date on which he gives such notice to the Company and (b) the date that any payment of amount 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, the Executive will:                       (1) provide the Company with any written records or documents in his possession relating to such claim reasonably requested by the Company;                       (2) take such action in connection with contesting such claim as the Company will reasonably request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Company;                       (3) cooperate with the Company in good faith in order effectively to contest such claim; and                       (4) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company will bear and pay directly all costs and expenses (including interest and penalties) incurred in connection with such contest and will indemnify and hold harmless the Executive, on an after-tax basis, for and against any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Section 7(vi), the Company will control all proceedings taken in connection with the contest of any claim contemplated by this Section 7(vi) and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided, however, that the Executive may participate therein at his own cost and expense) and may, at its option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company will determine; provided, however, that if the Company directs the Executive to pay the tax claimed and sue for a refund, the Company will advance the amount of such payment to the Executive on an interest-free basis and will indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of any such contested claim will be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive will be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. -------------------------------------------------------------------------------- Shapard Employment Agreement Page 14 of 18             (vii) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 7(vi) hereof, the Executive receives any refund with respect to such claim, the Executive will (subject to the Company’s complying with the requirements of Section 7(vi) hereof) promptly pay to the Company the amount of such refund (with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 7(vi) hereof, a determination is made that the Executive will not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial or refund prior to the expiration of 30 calendar days after such determination, then such advance will be forgiven and will not be required to be repaid and the amount of such advance will offset, to the extent thereof, the amount of Gross-Up Payment required to be paid pursuant to this Section 7. 8. Mitigation and Offset.             8.1 Executive’s right to receive when due the payments and other benefits provided for under and in accordance with the terms of this Agreement is absolute, unconditional and subject to no set-off, counterclaim or legal equitable defense. Any claim which the Company may have against Executive, whether for breach of this Agreement or otherwise, shall be brought in a separate action or proceeding and not part of any action or proceeding brought by Executive to enforce the rights against the Company under this Agreement.             8.2 Executive shall not have any duty to mitigate the amounts payable by the Company under this Agreement upon any termination of employment by seeking new employment following termination. All amounts payable pursuant to this Agreement shall be paid without reduction regardless of any amount of salary, compensation or other amounts which may be paid or payable to Executive as the result of Executive’s employment by another employer; provided, however, that Executive’s coverage under the Company’s welfare benefit plans will be reduced to the extent that Executive becomes covered under any comparable employee benefit plan made available by another employer and covering the same type of benefits. Executive shall report to the Company any such benefits actually received by him. 9. Competition; Confidentiality; Nonsolicitation.             9.1  (i) Subject to Section 6.1(ii), the Executive hereby covenants and agrees that during the Term and for one year following the Term he will not, without the prior written consent of the Company, engage in Competition (as defined below) with the Company. For purposes of this Agreement, if the Executive takes any of the following actions he will be engaged in “Competition,“ engaging in or carrying on, directly or indirectly, any enterprise, whether as an advisor, principal, agent, partner, officer, director, employee, stockholder, associate or consultant to any person, partnership, corporation or any other business entity, that is principally engaged in the business of refining and/or marketing oil or related products in States or Provinces in which the Company (or any division or segment thereof) has operations; provided, however, that “Competition“ will not include (a) the mere ownership of securities in any enterprise and exercise of rights appurtenant thereto or (b) participation in management of any enterprise or business operation thereof other than in connection with the competitive operation of such enterprise.                       (ii) Subject to Section 6.1(ii), the Executive hereby covenants and agrees that during the Term and for three years following the Term he will not assist a third party in preparing or making an unsolicited bid for the Company, engaging in a proxy contest with the Company, or engaging in any other similar activity.             9.2  During the Term, the Company agrees that it will disclose to Executive its confidential or proprietary information (as defined in this Section 9.2) to the extent necessary for Executive to carry out his obligations under this Agreement. Subject to Section 6.1(ii), the Executive hereby covenants and agrees that he will not, without the prior written consent of the Company, during the Term or thereafter disclose to any person not employed by the Company, or use in connection with engaging in Competition with the Company, any confidential or proprietary information of the Company. For purposes of this Agreement, the term “confidential or proprietary information“ will include all information of any nature and in any form that is owned by the Company and that is not publicly available or generally known to persons engaged in businesses similar or related to those of the Company. Confidential information will include, without limitation, the Company’s financial matters, customers, employees, industry contracts, and all other secrets and all other information of a confidential or proprietary nature. The foregoing obligations imposed by this Section 9.2 will cease if such confidential or proprietary information will have become, through no fault of the Executive, generally known to the public or the Executive is required by law to make disclosure (after giving the Company notice and an opportunity to contest such requirement). -------------------------------------------------------------------------------- Shapard Employment Agreement Page 15 of 18             9.3 The Executive hereby covenants and agrees that during the Term and for one year thereafter he will not attempt to influence, persuade or induce, or assist any other person in so persuading or inducing, any employee of the Company to give up, or to not commence, employment or a business relationship with the Company.             9.4 Executive acknowledges and agrees that the remedy at law available to the Company for breach of any of his post-termination obligations under Sections 9.1, 9.2 and 9.3 would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms. Accordingly, Executive acknowledges, consents and agrees that, in addition to any other rights or remedies which the Company may have at law, in equity or under this Agreement, upon adequate proof of his violation of any such provision of this Agreement, the Company will be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach, without the necessity of proof of actual damage. 10. Post-termination Assistance. Subject to Section 6.1(ii), the Executive agrees that after his employment with the Company has terminated he will provide, upon reasonable notice, such information and assistance to the Company as may reasonably be requested by the Company in connection with any audit, governmental investigation or litigation in which it or any of its affiliates is or may become a party; provided, however, that (i) the Company agrees to reimburse the Executive for any related out-of-pocket expenses, including travel expenses, and to pay the Executive reasonable compensation for his time based on his rate of annual salary at the time of termination and (ii) any such assistance may not unreasonably interfere with the then-current employment of the Executive. 11. Survival. The expiration or termination of the Term will not impair the rights or obligations of any party hereto that accrue hereunder prior to such expiration or termination, except to the extent specifically stated herein. In addition to the foregoing, the Executive’s covenants contained in Sections 9.1, 9.2, 9.3, and 10 and the Company’s obligations under Sections 5, 7, and 12.1 will survive the expiration or termination of Executive’s employment. 12. Miscellaneous Provisions.             12.1 Legal Fees and Expenses. Without regard to whether the Executive prevails, in whole or in part, in connection therewith, the Company will pay and be financially responsible for 100% of any and all attorneys’ and related fees and expenses incurred by the Executive in connection with any dispute associated with the interpretation, enforcement or defense of the Executive’s rights under this Agreement by litigation or otherwise; provided that, in regard to such dispute, the Executive has not acted in bad faith or with no colorable claim of success. All such fees and expenses will be paid by the Company as incurred by the Executive on a monthly basis upon an undertaking by the Executive to repay such advanced amounts if a court determines, in a decision against which no appeal may be taken or with respect to which the time period to appeal has expired, that he acted in bad faith or with no colorable claim of success. -------------------------------------------------------------------------------- Shapard Employment Agreement Page 16 of 18             12.2  Binding on Successors. This Agreement will be binding upon and inure to the benefit of the Company, the Executive and each of their respective successors, assigns, personal and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable.             12.3  Governing Law. This Agreement will be governed, construed, interpreted and enforced in accordance with the substantive laws of the State of Delaware, without regard to conflicts of law principles.             12.4  Severability. Any provision of this Agreement that is deemed invalid, illegal or unenforceable in any jurisdiction will, as to that jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions hereof in such jurisdiction or rendering that or any other provisions of this Agreement invalid, illegal, or unenforceable in any other jurisdiction. If any covenant should be deemed invalid, illegal or unenforceable because its scope is considered excessive, such covenant will be modified so that the scope of the covenant is reduced only to the minimum extent necessary to render the modified covenant valid, legal and enforceable.             12.5  Notices. For all purposes of this Agreement, all communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder will be in writing and will be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof confirmed), or five business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three business days after having been sent by a nationally recognized overnight courier service such as Federal Express, UPS, or Purolator, addressed to the Company, and to the Executive at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address will be effective only upon receipt.                       (i)  To The Company. If to the Company, addressed to the attention of the Chief Executive Officer at P.O. Box 696000, San Antonio, Texas 78269-6000, with a copy sent to the attention of the General Counsel at such address.                       (ii) To the Executive. If to the Executive, to him in care of the Company at the above address. -------------------------------------------------------------------------------- Shapard Employment Agreement Page 17 of 18             12.6  Counterparts. This Agreement may be executed in several counterparts, each of which will be deemed to be an original, but all of which together will constitute one and the same Agreement.             12.7  Entire Agreement. The terms of this Agreement are intended by the parties to be the final expression of their agreement with respect to the Executive’s employment by the Company and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Agreement will constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative or other legal proceeding to vary the terms of this Agreement.             12.8  Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, approved by the Company and signed by the Executive and the Company. Failure on the part of either party to complain of any action or omission, breach or default on the part of the other party, no matter how long the same may continue, will never be deemed to be a waiver of any rights or remedies hereunder, at law or in equity. The Executive or the Company may waive compliance by the other party with any provision of this Agreement that such other party was or is obligated to comply with or perform only through an executed writing; provided, however, that such waiver will not operate as a waiver of, or estoppel with respect to, any other or subsequent failure.             12.9  No Inconsistent Actions. The parties will not voluntarily undertake or fail to undertake any action or course of action that is inconsistent with the provisions or essential intent of this Agreement. Furthermore, it is the intent of the parties hereto to act in a fair and reasonable manner with respect to the interpretation and application of the provisions of this Agreement.             12.10  Headings and Section References. The headings used in this Agreement are intended for convenience or reference only and will not in any manner amplify, limit, modify or otherwise be used in the construction or interpretation of any provision of this Agreement. All section references are to sections of this Agreement, unless otherwise noted.             12.11  Indemnification. The Company will indemnify, defend and hold the Executive harmless, to the maximum extent permitted by law, from any and all claims, litigations, or suits arising out of the activities of the Executive reasonably taken in the performance of his duties hereunder, including all reasonable expenses and professional fees that may relate thereto. The Company agrees to use its best efforts to obtain a directors and officers liability insurance policy covering the Executive in a sufficient amount to provide such indemnification, and to maintain such policy during the Term (and for so long thereafter as is practicable in the circumstances taking into account the availability of such insurance).             12.12  Dialogue. Unless Executive otherwise consents by the execution of an instrument in writing that specifically refers to Section 12.12 of this Agreement, no claim or dispute arising out of or related to this Agreement or any other agreement, policy, plan, program or arrangement, including without limitation, any qualified or nonqualified retirement plan, stock option plan or agreement, or any other equity incentive plan in which Executive participated prior to his termination, shall be subject to the Company’s DialogueDispute Resolution Program. -------------------------------------------------------------------------------- Shapard Employment Agreement Page 18 of 18 IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and the year first above written. /s/ Robert S. Shapard —————————————— Robert S. Shapard ULTRAMAR DIAMOND SHAMROCK CORPORATION By: /s/ Jean Gaulin —————————————— TITLE  Chairman, President and CEO

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.38 GUITAR CENTER, INC. EMPLOYEE STOCK PURCHASE PLAN -------------------------------------------------------------------------------- GUITAR CENTER, INC. EMPLOYEE STOCK PURCHASE PLAN TABLE OF CONTENTS         Page -------------------------------------------------------------------------------- 1.   Definitions   1 2.   Stock Subject to the Plan   3 3.   Grant of Options   3 4.   Exercise of Options; Option Price   4 5.   Withdrawal from the Plan   5 6.   Termination of Employment   5 7.   Restriction upon Assignment   6 8.   No Rights of Stockholders until Shares Issued   6 9.   Changes in the Stock and Corporate Events; Adjustment of Options   6 10.   Use of Funds; No Interest Paid   7 11.   Dividends   7 12.   Amendment, Suspension or Termination of the Plan   8 13.   Administration by Committee; Rules and Regulations   8 14.   Designation of Subsidiary Corporations   9 15.   No Rights as an Employee   9 16.   Term; Approval by Stockholders   9 17.   Effect upon Other Plans   9 18.   Conditions to Issuance of Stock Certificates   9 19.   Notification of Disposition   10 20.   Notices   10 21.   Headings   10 i -------------------------------------------------------------------------------- GUITAR CENTER, INC. EMPLOYEE STOCK PURCHASE PLAN     Guitar Center, Inc., a Delaware corporation (the "Company"), hereby adopts the Guitar Center, Inc. Employee Stock Purchase Plan (the "Plan"), effective as of February 8, 2001.     The purposes of the Plan are as follows:     (1) To assist eligible employees of the Company and its Designated Subsidiary Corporations (as defined below) in acquiring stock ownership in the Company pursuant to a plan which is intended to qualify as an "employee stock purchase plan," within the meaning of Section 423(b) of the Code (as defined below); and     (2) To help such employees provide for their future security and to encourage them to remain in the employment of the Company and its Subsidiary Corporations.     1.  Definitions.  Whenever any of the following terms is used in the Plan with the first letter or letters capitalized, it shall have the following meaning unless the context clearly indicates to the contrary (such definitions to be equally applicable to both the singular and the plural forms of the terms defined):     (a) "Account" shall mean the account established for an Eligible Employee under the Plan with respect to an Offering Period.     (b) "Agent" shall mean the brokerage firm, bank or other financial institution, entity or person(s) engaged, retained, appointed or authorized to act as the agent of the Company or an Employee with regard to the Plan.     (c) "Authorization" shall mean an Eligible Employee's payroll deduction authorization with respect to an Offering Period provided by such Eligible Employee in accordance with Section 3(b).     (d) "Base Compensation" of an Eligible Employee shall mean the gross base compensation received by such Eligible Employee on each Payday as compensation for services to the Company or any Designated Subsidiary Corporation, excluding overtime payments, sales commissions, incentive compensation, bonuses, expense reimbursements, fringe benefits and other special-payments.     (e) "Board" means the Board of Directors of the Company.     (f)  "Code" means the Internal Revenue Code of 1986, as amended.     (g) "Committee" means the committee of the Board appointed to administer the Plan pursuant to Section 13.     (h) "Company" means Guitar Center, Inc., a Delaware corporation.     (i)  "Date of Exercise" of any Option means the date on which such Option is exercised, which shall be the last day of the Offering Period with respect to which the Option was granted, in accordance with Section 4(a) (except as provided in Section 9).     (j)  "Date of Grant" of any Option means the date on which such Option is granted, which shall be the first day of the Offering Period with respect to which the Option was granted, in accordance with Section 3(a).     (k) "Designated Subsidiary Corporation" means any Subsidiary Corporation designated by the Board in accordance with Section 14.     (l)  "Eligible Employee" means an Employee of the Company or any Designated Subsidiary Corporation: (i) who does not, immediately after the Option is granted, own (directly or through 1 -------------------------------------------------------------------------------- attribution) stock possessing five percent (5%) or more of the total combined voting power or value of all classes of Stock or other stock of the Company, a Parent Corporation or a Subsidiary Corporation (as determined under Section 423(b)(3) of the Code); (ii) whose customary employment is for more than twenty (20) hours per week; and (iii) whose customary employment is for more than five (5) months in any calendar year. For purposes of paragraph (i) above, the rules of Section 424(d) of the Code with regard to the attribution of stock ownership shall apply in determining the stock ownership of an individual, and stock which an Employee may purchase under outstanding options shall be treated as stock owned by the Employee. During a leave of absence meeting the requirements of Treasury Regulation Section 1.421-7(h)(2), an individual shall be treated as an Employee of the Company or Subsidiary Corporation employing such individual immediately prior to such leave.     (m) "Employee" shall mean an individual who renders services to the Company or a Subsidiary Corporation in the status of an "employee," within the meaning of Code Section 3401(c). "Employee" shall not include any director of the Company or a Subsidiary Corporation who does not render services to the Company or a Subsidiary Corporation in the status of an "employee," within the meaning of Code Section 3401(c).     (n) "Offering Period" shall mean each six-month offering period or such shorter or longer offering periods, as shall be established by the Committee in its discretion. Options shall be granted on the Date of Grant and exercised on the Date of Exercise, as provided in Sections 3(a) and 4(a), respectively.     (o) "Option" means an option to purchase shares of Stock granted under the Plan to an Eligible Employee in accordance with Section 3(a).     (p) "Option Price" means the option price per share of Stock determined in accordance with Section 4(b).     (q) "Parent Corporation" means any corporation, other than the Company, in an unbroken chain of corporations ending with the Company if, at the time of the granting of the Option, each of the corporations other than the Company 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.     (r) "Payday" means the regular and recurring established day for payment of Base Compensation to an Employee of the Company or any Subsidiary Corporation.     (s) "Plan" means this Guitar Center, Inc. Employee Stock Purchase Plan.     (t)  "Stock" means the shares of the Company's Common Stock, $.01 par value.     (u) "Subsidiary Corporation" means any corporation, other than the Company, in an unbroken chain of corporations beginning with the Company if, at the time of the granting of the Option, each of the corporations other than the last corporation in an 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.     2.  Stock Subject to the Plan.  Subject to the provisions of Section 9 hereof (relating to adjustments upon changes in the Stock) and Section 12 hereof (relating to amendments of the Plan), the Stock that may be sold pursuant to Options granted under the Plan shall not exceed in the aggregate Five Hundred Thousand (500,000) shares of Stock. The shares of Stock sold pursuant to Options granted under the Plan may be unissued shares or treasury shares of Stock, or shares of Stock bought on the Nasdaq National Market, or other market or stock exchange, or repurchased in private transactions, for purposes of the Plan. 2 --------------------------------------------------------------------------------     3.  Grant of Options.       (a) Option Grants. The Company shall grant Options under the Plan to all Eligible Employees in successive Offering Periods until the earlier of: (i) the date on which the number of shares of Stock available under the Plan have been sold, or (ii) the date on which the Plan is suspended or terminates. Each Employee who is an Eligible Employee on the first day of an Offering Period shall be granted an Option with respect to such Offering Period. The Date of Grant of such an Option shall be the first day of the Offering Period with respect to which such Option was granted. Each Option shall expire on the Date of Exercise immediately after the automatic exercise of the Option in accordance with Section 4(a), unless such Option terminates earlier in accordance with Section 5, 6 or 9. The number of shares of Stock subject to an Eligible Employee's Option shall equal the cumulative payroll deductions authorized by such Eligible Employee in accordance with subsection (b) for the Option Period (if any), divided by the Option Price; provided, however, that the number of shares of Stock subject to such Option shall not exceed Two Thousand (2,000) shares; and, provided, further, that the number of shares of Stock subject to such Option shall not exceed the number determined in accordance with subsection (c). The Company shall not grant an Option with respect to an Offering Period to any individual who is not an Eligible Employee on the first day of such Offering Period.     (b) Election to Participate; Payroll Deduction Authorization. Except as provided in subsection (d), an Eligible Employee shall participate in the Plan only by means of payroll deduction. Each Eligible Employee who elects to participate in the Plan with respect to an Offering Period shall deliver to the Company, not later than ten (10) days before the first day of the Offering Period, a completed and executed written payroll deduction authorization in a form prepared by the Committee (the "Authorization"). An Eligible Employee's Authorization shall give notice of such Eligible Employee's election to participate in the Plan for the next following Offering Period (and subsequent Offering Periods) and shall designate a whole percentage of such Eligible Employee's Base Compensation to be withheld by the Company or the Designated Subsidiary Corporation employing such Eligible Employee on each Payday during the Offering Period. An Eligible Employee may designate any whole percentage of Base Compensation which is not be less than one percent (1%) and not more than fifteen percent (15%). An Eligible Employee's Base Compensation payable during an Offering Period shall be reduced each Payday through payroll deduction in an amount equal to the percentage specified in the Authorization, and such amount shall be credited to such Eligible Employee's Account under the Plan. An Eligible Employee may change the percentage of Base Compensation designated in the Authorization, subject to the limits of this subsection (b), or may suspend the Authorization, at any time during the Offering Period, provided, that any such change or suspension shall become effective as promptly as reasonably practicable after receipt by the Company. Any Authorization shall remain in effect for each subsequent Offering Period, unless the Eligible Employee submits a new Authorization pursuant to this subsection (b), withdraws from the Plan pursuant to Section 5, ceases to be an Eligible Employee as defined in Section 1(l) or terminates employment as provided in Section 6.     (c) $25,000 Limitation. No Eligible Employee shall be granted an Option under the Plan which permits his or her rights to purchase shares of Stock under the Plan, together with other options to purchase shares of Stock or other stock under all other employee stock purchase plans of the Company, any Parent Corporation or any Subsidiary Corporation subject to the Section 423, to accrue at a rate which exceeds $25,000 of fair market value of such shares of Stock or other stock (determined at the time the Option or other option is granted) for each calendar year in which the Option is outstanding at any time. For purpose of the limitation imposed by this subsection, (i) the right to purchase shares of Stock or other stock under an Option or other option accrues when the Option or other option (or any portion thereof) first becomes exercisable during the calendar year, (ii) the right to purchase shares of Stock or other stock under an Option or other option accrues at the rate provided in the Option or other option, but in no case may 3 -------------------------------------------------------------------------------- such rate exceed $25,000 of the fair market value of such Stock or other stock (determined at the time such Option or other option is granted) for any one calendar year, and (iii) a right to purchase Stock or other stock which has accrued under an Option or other option may not be carried over to any Option or other option. This limitation shall be applied in accordance with Section 423(b)(8) of the Code and the Treasury Regulations thereunder.     (d) Leaves of Absence. During a leave of absence meeting the requirements of Treasury Regulation Section 1.421-7(h)(2), an Employee may continue to participate in the Plan by making cash payments to the Company on each Payday equal to the amount of the Employee's payroll deduction under the Plan for the Payday immediately preceding the first day of such Employee's leave of absence.     4.  Exercise of Options; Option Price.       (a) Option Exercise. Each Employee automatically and without any act on such Employee's part shall be deemed to have exercised such Employee's Option on the Date of Exercise to the extent that the balance then in the Employee's Account is sufficient to purchase, at the Option Price, whole shares of the Stock subject to the Option. Any amounts remaining in an Employee Account following the purchase of whose shares of Stock pursuant to the preceding sentence because such amounts were insufficient to purchase a whole share of the Stock shall be carried over and remain credited to the Employee Account.     (b) Option Price Defined. The option price per share of Stock (the "Option Price") to be paid by an Employee upon the exercise of the Employee's Option shall be equal to 85% of the lesser of: (i) the Fair Market Value of a share of Stock on the Date of Exercise and (ii) the Fair Market Value of a share of Stock on the Date of Grant. The Fair Market Value of a share of Stock as of a given date shall be: (A) the closing price of a share of Stock on the principal exchange on which the Stock is then trading, if any, on such date (or, if shares of Stock were not traded on such date, then on the next preceding trading day during which a sale occurred); (B) if the Stock is not traded on an exchange, but is quoted on Nasdaq or a successor quotation system, (I) the last sales price (if the Stock is then listed as a National Market Issue under the Nasdaq National Market), or (II) the mean between the closing representative bid and asked prices (in all other cases) for a share of Stock on such date (or, if shares of Stock were not traded on such date, then on the next preceding trading day during which a sale occurred) as reported by Nasdaq or such successor quotation system; (iii) if the Stock is not publicly traded on an exchange and not quoted on Nasdaq or a successor quotation system, the mean between the closing bid and asked prices for a share of Stock on such date (or, if shares of Stock were not traded on such date, then on the next preceding trading day during which a sale occurred), as determined in good faith by the Committee; or (iv) if the Stock is not publicly traded, the fair market value of a share of Stock established by the Committee acting in good faith.     (c) Book Entry/Share Certificates. As soon as practicable after the purchase of shares of Stock upon the exercise of an Option by an Employee, the Company shall issue the shares of Stock to such Employee and such shares shall be held in the custody of the Agent for the benefit of the Employee. The Company or the Agent shall make an entry on its books and records indicating that the shares of Stock purchased in connection with such exercise have been duly issued as of that date to such Employee. An Employee shall have the right at any time to request in writing a certificate or certificates for all or a portion of the whole shares of Stock purchased hereunder. Upon receipt of an Employee's written request for any such certificate, the Company shall (or shall cause the Agent to), as promptly as reasonably practicable after the date of such receipt, deliver any such certificate to the Employee. Nothing in this subsection (c) shall prohibit the sale or other disposition by an Employee of shares of Stock purchased hereunder. In the event the Company is required to obtain authority from any commission or agency to issue any certificate or 4 -------------------------------------------------------------------------------- certificates for all or a portion of the whole shares of Stock purchased hereunder, the Company shall seek to obtain such authority as soon as reasonably practicable.     (d) Pro Rata Allocations. If the total number of shares of Stock for which Options are to be exercised on any date exceeds the number of shares of Stock remaining unsold under the Plan (after deduction for all shares of Stock for which Options have theretofore been exercised), the Committee shall make a pro rata allocation of the available remaining shares of Stock in as nearly a uniform manner as shall be practicable and the balance of the amount credited to the Account of each Employee which has not been applied to the purchase of shares of Stock shall be paid to such Employee in one lump sum in cash within thirty (30) days after the Date of Exercise, without any interest thereon.     (e) Information Statement. The Company shall provide each Employee whose Option is exercised with an information statement in accordance with Section 6039(a) of the Code and the Treasury Regulations thereunder. The Company shall maintain a procedure for identifying certificates of shares of Stock sold upon the exercise of Options in accordance with Section 6039(b) of the Code.     5.  Withdrawal from the Plan.       (a) Withdrawal Election. An Employee may withdraw from participation under the Plan at any time, except that an Employee may not withdraw during the last ten (10) days of any Option Period or such other period as shall be established by the Committee in its discretion. An Employee electing to withdraw from the Plan must deliver to the Company a notice of withdrawal in a form prepared by the Committee (the "Withdrawal Election"), not later than ten (10) days prior to the Date of Exercise for such Option Period. Upon receipt of an Employee's Withdrawal Election, the Company or Subsidiary Corporation employing the Employee shall pay to the Employee the amount credited to the Employee's Account in one lump sum payment in cash, without any interest thereon, and subject to Section 4(c), the Company shall (or shall cause the Agent to) deliver to the Employee certificates for any whole shares of Stock previously purchased by the Employee, in either case as promptly as reasonably practicable following receipt of the Employee's Withdrawal Election. Upon receipt of an Employee's Withdrawal Election by the Company, the Employee shall cease to participate in the Plan and the Employee's Option for such Option Period shall terminate.     (b) Eligibility following Withdrawal. An Employee who withdraws from the Plan with respect to an Option Period, and who is still an Eligible Employee, may elect to participate again in the Plan for any subsequent Offering Period by delivering to the Company an Authorization pursuant to Section 3(b).     6.  Termination of Employment.       (a) Termination of Employment Other than by Death. If the employment of an Employee with the Company and any Designated Subsidiary Corporation terminates other than by death, the Employee's participation in the Plan automatically and without any act on the Employee's part shall terminate as of the date of the termination of the Employee's employment. As soon as practicable after such a termination of employment, the Company or Subsidiary Corporation employing the Employee shall pay to the Employee the amount credited to the Employee's Account in one lump sum payment in cash, without any interest thereon, and subject to Section 4(c), the Company shall (or shall cause the Agent to) deliver to the Employee certificates for any whole shares of Stock previously purchased by the Employee. Upon an Employee's termination of employment covered by this subsection, the Employee's Authorization and Option under the Plan shall terminate.     (b) Termination by Death. If the employment of an Employee is terminated by the Employee's death, the executor of the Employee's will or the administrator of the Employee's estate, by 5 -------------------------------------------------------------------------------- written notice to the Company, may request payment of the balance in the Employee's Account, in which event the Company or Subsidiary Corporation employing the Employee shall pay the amount credited to the Employee's Account in one lump sum payment in cash, without any interest thereon, and subject to Section 4(c), the Company shall (or shall cause the Agent to) deliver to the Employee's estate or beneficiary certificates for any whole shares of Stock previously purchased by the Employee as promptly as reasonably practicable after receiving such notice. Upon receipt of such notice, the Employee's Authorization and Option under the Plan shall terminate. If the Company does not receive such notice prior to the next Date of Exercise, the Employee's Option shall be deemed to have been exercised on such Date of Exercise.     7.  Restriction upon Assignment.  An Option granted under the Plan shall not be transferable other than by will or the laws of descent and distribution, and is exercisable during the Employee's lifetime only by the Employee. Except as provided in Section 6(b) hereof, an Option may not be exercised to any extent except by the Employee. The Company shall not recognize and shall be under no duty to recognize any assignment or alienation of the Employee's interest in the Plan, the Employee's Option or any rights under the Employee's Option.     8.  No Rights of Stockholders until Shares Issued.  With respect to shares of Stock subject to an Option, an Employee shall not be deemed to be a stockholder of the Company, and the Employee shall not have any of the rights or privileges of a stockholder, until such shares have been issued to the Employee or his or her nominee following exercise of the Employee's Option. No adjustments shall be made for dividends (ordinary or extraordinary, whether in cash securities, or other property) or distribution or other rights for which the record date occurs prior to the date of such issuance, except as otherwise expressly provided herein.     9.  Changes in the Stock and Corporate Events; Adjustment of Options.       (a) Subject to Section 9(c), in the event that the Committee, in its sole discretion, determines that any dividend or other distribution (whether in the form of cash, Stock, other securities, or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or exchange of Stock or other securities of the Company, issuance of warrants or other rights to purchase Stock or other securities of the Company, or other similar corporate transaction or event, affects the Stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to an Option, then the Committee shall, in such manner as it may deem equitable, adjust any or all of:     (i)  the number and kind of shares of Stock (or other securities or property) with respect to which Options may be granted (including, but not limited to, adjustments of the limitation in Section 3(a) on the maximum number of shares of Stock which may be purchased);     (ii) the number and kind of shares of Stock (or other securities or property) subject to outstanding Options; and     (iii) the exercise price with respect to any Option.     (b) Subject to Section 9(c), in the event of any transaction or event described in Section 9(a) or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate, or of changes in applicable laws, regulations, or accounting principles, the Committee, in its sole discretion, and on such terms and conditions as it deems appropriate, either by the terms of the Option or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Employee's request, is hereby authorized to take any one or more of the following actions whenever the 6 -------------------------------------------------------------------------------- Committee determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Option under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles:     (i)  To provide that all Options outstanding shall terminate without being exercised on such date as the Committee determines in its sole discretion;     (ii) To provide that all Options outstanding shall be exercised prior to the Date of Exercise of such Options on such date as the Committee determines in its sole discretion and such Options shall terminate immediately after such exercises;     (iii) To provide for either the purchase of any Option outstanding for an amount of cash equal to the amount that could have been obtained upon the exercise of such Option had such Option been currently exercisable, or the replacement of such Option with other rights or property selected by the Committee in its sole discretion;     (iv) To provide that such Option be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; and     (v) To make adjustments in the number and type of shares of Stock (or other securities or property) subject to outstanding Options, or in the terms and conditions of (outstanding Options, or Options which may be granted in the future.     (c) No adjustment or action described in this Section 9 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Plan to fail to satisfy the requirements of Section 423 of the Code. Furthermore, no such adjustment or action shall be authorized to the extent such adjustment or action would result in short-swing profits liability under Section 16 of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or violate the exemptive conditions of Rule 16b-3 unless the Committee determines that the Option is not to comply with such exemptive conditions. The number of shares of Common Stock subject to any Option shall always be rounded to the next whole number.     (d) The existence of the Plan and the Options granted hereunder shall not affect or restrict in any way the right or power of the Company or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Stock or the rights thereof of which are convertible into or exchangeable for Stock, or the dissolution or liquidation of the company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.     10.  Use of Funds; No Interest Paid.  All funds received or held by the Company under the Plan shall be included in the general funds of the Company free of any trust or other restriction and may be used for any corporate purpose. No interest will be paid to any Employee or credited to any Employee's Account with respect to such funds.     11.  Dividends.       (a) Cash dividends and other cash distributions received by the Agent with respect to Stock held in its custody hereunder will be credited to each Employee's Account in accordance with such Employee's interests in such Stock, and shall be applied, as soon as practicable after the receipt thereof by the Agent, to the purchase in the open market at prevailing market prices of the 7 -------------------------------------------------------------------------------- number of whole shares of Stock that may be purchased with such funds (after deductions of any bank service fees, brokerage charges, transfer taxes, and any other transaction fee, expense or cost payable in connection with the purchase of such shares of Stock and not otherwise paid by the Employer.)     (b) All purchases of shares of Stock made pursuant to this Section 11 will be made in the name of the Agent or its nominee, and shall be transferred and credited to the Account(s) of the Employees to which such dividends or other distributions were credited. Dividends paid in the form of shares of Stock will be allocated by the Agent, as and when received, with respect to Stock held in its custody hereunder to the Account of each Employee in accordance with such Employee's interests in such Stock. Property, other than Stock or cash, received by the Agent as a distribution on Stock held in its custody hereunder, shall be sold by the Agent for the accounts of Employees, and the Agent shall treat the proceeds of such sale in the same manner as cash dividends received by the Agent on Stock held in its custody hereunder.     12.  Amendment, Suspension or Termination of the Plan.  The Board may amend, suspend, or terminate the Plan at any time and from time to time, provided that approval by a vote of the holders of the outstanding shares of the Company's capital stock entitled to vote shall be required to amend the Plan to: (a) change the number of shares of Stock that may be sold pursuant to Options under the Plan, (b) alter the requirements for eligibility to participate in the Plan, or (c) in any manner that would cause the Plan to no longer be an "employee stock purchase plan" within the meaning of Section 423(b) of the Code.     13.  Administration by Committee; Rules and Regulations.       (a) Appointment of Committee. The Plan shall be administered by the Committee, which shall be composed of not less than two members of the Board, each of whom shall be a "non-employee director" within the meaning of Rule 16b-3 which has been adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Each member of the Committee shall serve for a term commencing on a date specified by the Board and continuing until the member dies, resigns or is removed from office by the Board. The Board or the Committee at its option may utilize the services of an agent to assist in the administration of the Plan, including establishing and maintaining an individual securities account under the Plan for each Employee or may delegate some or all of its authority to administer the Plan to a committee comprised of one or more members of the Company's management.     (b) Duties and Powers of Committee. It shall be the duty of the Committee to conduct the general administration of the Plan in accordance with the provisions of the Plan. The Committee shall have the power to interpret the Plan and the terms of the Options and to adopt such rules for the administration, interpretation, and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan.     (c) Majority Rule. The Committee shall act by a majority of its members in office. The Committee may act either by vote at a meeting or by a memorandum or other written instrument signed by a majority of the Committee.     (d) Compensation; Professional Assistance; Good Faith Actions. All expenses and liabilities incurred by members of the Committee in connection with the administration of the Plan shall be borne by the Company. The Committee may, with the approval of the Board, employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Committee, the Company and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon all Employees, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or 8 -------------------------------------------------------------------------------- interpretation made in good faith with respect to the Plan or the Options, and all members of the Committee shall be fully protected by the Company in respect to any such action, determination, or interpretation.     14.  Designation of Subsidiary Corporations.  The Board shall designate from among the Subsidiary Corporations, as determined from time to time, the Subsidiary Corporation or Subsidiary Corporations whose Employees shall be eligible to be granted Options under the Plan. The Board may designate a Subsidiary Corporation, or terminate the designation of a Subsidiary Corporation, without the approval of the stockholders of the Company.     15.  No Rights as an Employee.  Nothing in the Plan shall be construed to give any person (including any Eligible Employee) the right to remain in the employ of the Company, a Parent Corporation or a Subsidiary Corporation or to affect the right of the Company, any Parent Corporation or any Subsidiary Corporation to terminate the employment of any person (including any Eligible Employee) at any time, with or without cause.     16.  Term; Approval by Stockholders.  Subject to approval by the stockholders of the Company in accordance with this Section, the Plan shall be in effect until December 31, 2010, unless sooner terminated in accordance with Section 12. No Option may be granted during any period of suspension of the Plan or after termination of the Plan. The Plan shall be submitted for the approval of the Company's stockholders within twelve (12) months after the date of the adoption of the Plan by the Board. Options may be granted prior to such stockholder approval; provided, however, that such Options shall not be exercisable prior to the time when the Plan is approved by the Company's stockholders; and, provided, further, that if such approval has not been obtained by the end of said 12-month period, all Options previously granted under the Plan shall thereupon terminate without being exercised.     17.  Effect upon Other Plans.  The adoption of the Plan shall not affect any other compensation or incentive plans in effect for the Company, any Parent Corporation or any Subsidiary Corporation. Nothing in this Plan shall be construed to limit the right of the Company, any Parent Corporation or any Subsidiary Corporation to: (a) establish any other forms of incentives or compensation for employees of the Company, any Parent Corporation or any Subsidiary Corporation or (b) grant or assume options otherwise than under the Plan in connection with any proper corporate purpose, including, but not by way of limitation, the grant or assumption of options in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, firm or association.     18.  Conditions to Issuance of Stock Certificates.  The Company shall not be required to issue or deliver any certificate or certificates for shares of Stock purchased upon the exercise of Options prior to fulfillment of all the following conditions:     (a) The admission of such shares to listing on all stock exchanges, if any, on which is then listed;     (b) The completion of any registration or other qualification of such shares under any state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Committee shall, in its absolute discretion, deem necessary or advisable;     (c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Committee shall, in its absolute discretion, determine to be necessary or advisable;     (d) The payment to the Company of all amounts which it is required to withhold under federal, state or local law upon exercise of the Option; and 9 --------------------------------------------------------------------------------     (e) The lapse of such reasonable period of time following the exercise of the Option as the Committee may from time to time establish for reasons of administrative convenience.     19.  Notification of Disposition.  Each Employee shall give prompt notice to the Company of any disposition or other transfer of any shares of Stock purchased upon exercise of an Option if such disposition or transfer is made: (a) within two (2) years from the Date of Grant of the Option, or (b) within one (1) year after the transfer of such shares of Stock to such Employee upon exercise of such Option. Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by the Employee in such disposition or other transfer.     20.  Notices.  Any notice to be given under the terms of the Plan to the Company shall be addressed to the Company in care of its Secretary and any notice to be given to any Employee shall be addressed to such Employee at such Employee's last address as reflected in the Company's records. By a notice given pursuant to this Section, either party may designate a different address for notices to be given to it, him or her. Any notice which is required to be given to an Employee shall, if the Employee is then deceased, be given to the Employee's personal representative if such representative has previously informed the Company of his status and address by written notice under this Section. Any notice shall have been deemed duly given if enclosed in a properly sealed envelope or wrapper addressed as aforesaid at the time it is deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.     21.  Compliance with Laws.  All Eligible Employees will have equal rights and privileges under this Plan so that this Plan qualifies as an "employee stock purchase plan" within the meaning of Section 423 of the Code or applicable Treasury regulations thereunder. Any provision of this Plan that is inconsistent with Section 423 or applicable Treasury regulations will, without further act or amendment by the Company or the Board, be reformed to comply with the equal rights and privileges requirement of Section 423 or applicable Treasury regulations. This Plan is intended to conform to the extent necessary with all provisions of the Securities Act of 1933, as amended, and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission under those acts, including Rule 16b-3. This Plan is intended to be administered, and options will be granted and may be exercised, only in a manner which conforms to these laws, rules and regulations. To the extent permitted by applicable law, this Plan and Options granted hereunder shall be deemed amended to the extent necessary to conform to these laws, rules and regulations.     22.  Headings.  Headings are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan. * * * * * * * 10 -------------------------------------------------------------------------------- QuickLinks Exhibit 10.38 GUITAR CENTER, INC. EMPLOYEE STOCK PURCHASE PLAN GUITAR CENTER, INC. EMPLOYEE STOCK PURCHASE PLAN TABLE OF CONTENTS GUITAR CENTER, INC. EMPLOYEE STOCK PURCHASE PLAN

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.1 FIFTH AMENDMENT AND WAIVER     FIFTH AMENDMENT AND WAIVER (this "Amendment"), dated as of September 28, 2001, among ELGAR HOLDINGS, INC. ("Holdings"), ELGAR ELECTRONICS CORPORATION (the "Borrower"), the lenders party to the Credit Agreement referred to below (the "Banks"), and BANKERS TRUST COMPANY, as Agent (in such capacity, the "Agent"). All capitalized terms used herein and not otherwise defined herein shall have the respective meanings provided such terms in the Credit Agreement referred to below. W  I  T  N  E  S  S  E  T  H:     WHEREAS, Holdings, the Borrower, the Banks and the Agent are parties to a Credit Agreement, dated as of February 3, 1998, and amended and restated as of May 29, 1998 (as amended, modified or supplemented to, but not including, the date hereof, the "Credit Agreement");     WHEREAS, the parties hereto wish to amend/or waive certain provisions of the Credit Agreement as herein provided; and     WHEREAS, subject to the terms and conditions of this Amendment, the parties hereto agree as follows:     NOW, THEREFORE, it is agreed:     1.  Section 4.02(b) of the Credit Agreement is hereby amended by deleting the text "September 30, 2001" set forth opposite the Scheduled Payment amount of "$1,000,000" appearing in the table therein and inserting the text "October 5, 2001" in lieu thereof.     2.  This Amendment shall become effective on the date (the "Amendment Effective Date") when each of Holdings, the Borrower and the Required Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Agent at the Notice Office.     3.  This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be delivered to Holdings, the Borrower and the Agent.     4.  THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.     5.  From and after the Amendment Effective Date, all references in the Credit Agreement and each of the other Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as modified hereby.     6.  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 Credit Document. * * * 1 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written.     ELGAR HOLDINGS, INC.     By:   /s/ Kenneth R. Kilpatrick -------------------------------------------------------------------------------- Title: President and Chief Executive Officer     ELGAR ELECTRONICS CORPORATION     By:   /s/ Kenneth R. Kilpatrick -------------------------------------------------------------------------------- Title: President and Chief Executive Officer     BANKERS TRUST COMPANY, Individually and as Agent     By:   /s/ Patrick W. Dowling -------------------------------------------------------------------------------- Title: Vice President 2 -------------------------------------------------------------------------------- QuickLinks Exhibit 10.1 FIFTH AMENDMENT AND WAIVER

NASH FINCH COMPANY EXECUTIVE INCENTIVE BONUS AND DEFERRED COMPENSATION PLAN   (As Amended Through September 30, 2001.)     1.         PURPOSE OF THE PLAN.  The purpose of this Executive Incentive Bonus and Deferred Compensation Plan is to increase the interest of the Company's top executives and key employees in continuing their employment and to increase their incentive in the management, growth and success of the business by giving such employees an opportunity to participate in the profits and growth of the business in the same manner as if they were shareholders.  The term "Company" as used in this Plan includes Nash Finch Company and each of its present and future subsidiaries.   2.         ADMINISTRATION OF THE PLAN.  This Plan will be administered by the Compensation Committee (the "Committee") of the Board of Directors.  Members of the Committee shall not be eligible to vote on any resolution relating to their individual eligibility to participate in the Plan or individual contract.  The Committee is empowered to make such rules and regulations and interpretations as may be necessary to carry out the Plan, and its decisions by majority vote shall be binding and conclusive upon all persons participating in this Plan or claiming any rights thereunder.  A majority of the members of the Committee shall constitute a quorum for the transaction of business, and all actions taken at a meeting shall be by the vote of a majority of those present at such meeting.  Any action may be taken by the Committee without a meeting upon written consent signed by all the members of the Committee.  The Committee shall authorize records required to be maintained under the Plan.  The form of the agreement under this Plan to be entered into with employees shall be approved by the Committee.   3.         PARTICIPANTS.  The Committee shall determine from time to time which executives or key employees of the Company or any subsidiary shall participate in the Plan.  Participants may include (a) directors who are full-time Officers or employees of the Company, (b) full-time officers and other executive employees of the Company or any subsidiary, and (c) any other full–time executives or key employees of the Company or any subsidiary selected by the Committee for any calendar year, established by the Committee pursuant to its rules and regulations.  Notwithstanding the foregoing, an executive or key employee who was not participating in the Plan prior to January 1, 2000 shall not begin participating after December 31, 1999.   4.         PROCEDURE FOR SELECTION OF PARTICIPANTS.  At the end of each year or at such time as the Committee shall establish under its rules and regulations, the Committee shall, exclusive of any participants who may be members of the Committee, select the participants to whom allotments are to be made for such year.  The selection of a participant for any year shall not entitle such participant to an allotment for any subsequent year for which he is not selected for an allotment.  Notwithstanding the foregoing, the Committee shall select no participants to receive allotments under the Plan for any year beginning after December 31, 1999.   5.         AMOUNT OF ALLOTMENTS.  As of the end of each year, the Committee shall allot to the participants selected for such year, from the amount of the Incentive Bonus Fund for that year as hereinafter determined, such amount as the Committee in its sole discretion deems to be advisable and appropriate, but not more than 33-1/3% of each participant's basic annual salary from the Company or any subsidiary for such year shall be allotted to him. The Committee shall notify each participant promptly in writing of any allotment made to him.  Such allotment shall be evidenced by a written agreement between the Company and the participant if such allotment is the first for such participant, or such allotment shall be included as part of the agreement for any prior year entered into between the Company and the participant.  Each allotment shall be contingently credited and converted into share equivalents, as further provided herein, and shall be distributable only in the manner and subject to the conditions set forth herein.  The entire amount of each allotment to each participant shall be contingently credited to him at the end of each year.  The portion of the Incentive Bonus Fund for any year in excess of the maximum limitation for all participants, as determined by the Committee, shall be canceled.  In order to qualify for an allotment, a participant must be actively employed by the Company, or be on an approved leave of absence, on the last day of the year for which the allotment is made.   The allotments to participants for any year shall be made from an Incentive Bonus Fund computed to be 5% of the excess, if any, of the consolidated net income of the Company and its consolidated subsidiaries for the year over 6% of the stockholders' equity, as shown in the consolidated balance sheet of the Company and its consolidated subsidiaries at the end of the preceding year as certified by the Company's independent certified public accountants.  No Incentive Bonus Fund shall be computed if the consolidated net income of the Company and its consolidated subsidiaries for a year does not exceed 6% of the stockholders' equity at the end of the preceding year.  However, the Committee may, in its discretion and by appropriate action, authorize an Incentive Bonus Fund of any amount for such year in the event that the amount of the Incentive Bonus Fund computed under the formula for such year is zero or an insignificant amount in the judgment of the Committee.  "Consolidated net income" as used herein, shall mean the amount of the net earnings as shown in the consolidated statement of earnings of the Company and its consolidated subsidiaries for the year as certified by the Company's independent certified public accountants; subject, however, to the discretion of the Committee to exclude all or any items of material amount therein applicable to any prior year.   Notwithstanding the foregoing, the Committee shall make no allotments under the Plan to any participants for any year beginning after December 31, 1999.   6.         CONVERSION OF ALLOTMENTS INTO SHARE EQUIVALENTS AND CREDIT OF DIVIDEND AND INTEREST EQUIVALENTS.  Each allotment contingently credited to a participant shall be converted into an equivalent number of shares of the common stock of the Company (the "Common Stock").  Commencing with any such allotment for 1993, and for subsequent years, the number of such share equivalents shall be determined by dividing (a) the amount of the allotment by (b) the average, rounded to the nearest one–tenth of a cent ($.001), of the closing sales prices per share for the Common Stock reported by the NASDAQ National Market System, or such other stock exchange or market on which the Common Stock may be listed at any particular time (the "Average Price"), for the last calendar quarter of the year for which the allotment is made.  The number of share equivalents so determined shall be computed to four decimal places.  For purposes of determining the Average Price, the closing sales price for any trading day for which there are no reported sales of the Common Stock shall be deemed to be the last previously reported closing sales price.   Each participant shall also be contingently credited as of the end of each year with an amount equal to the product of (x) the total dividends per share on the Common Stock declared in such year multiplied by (y) the aggregate number of share equivalents contingently credited to the said participant as of the beginning of such year.  The amount so determined and credited shall be converted to additional share equivalents in the manner stated in the preceding paragraph using the Average Price for the last calendar quarter of such year.  In the event that the authorized shares of Common Stock are split or changed in any manner by reason of any reorganization, merger, consolidation, stock split, stock dividend, or recapitalization, then the number of share equivalents and the market value equivalent thereof contingently credited to each participant shall be appropriately adjusted.   The methods for determining share equivalents to be credited to participants, as set forth in the preceding two paragraphs of this Section 6, shall be effective for allotments and dividend equivalents contingently credited to participants for 1993 and subsequent years.  Further, the total "cash" balances contingently credited to participants' accounts for 1992 and prior years for (i) dividends declared and (ii) partial share equivalents, shall be converted as of December 31, 1993, into additional share equivalents in the manner stated in the first paragraph of this Section 6, using the Average Price for the last calendar quarter of 1993.  The conversion of allotments for 1992 and prior years into share equivalents shall remain as originally determined; that is, on the basis of the last available closing market quotation price per share for the Common Stock for the applicable year.   In the event that a participant's allotment and dividend equivalents are to be distributed to the participant in more than one (1) installment, then the participant shall be paid an amount, within fifteen (15) days of the end of each quarter of the calendar year, equal to the interest which would have accrued during the quarter on the unpaid balance due the participant at the end of such calendar quarter.  The interest rate shall equal the prime interest rate charged by Norwest Bank Minnesota, N.A. on the last business day of each quarter. For example, assume that the unpaid balance due a participant on December 31, Year I is $240,000, and that the participant will receive monthly payments of $2,000 for a ten (10)-year period beginning in Year II.  Further assume that the prime interest rates in effect on the last business day of March, June, September and December, Year II, are 6-1/4%, 6-3/4%, 7-1/4% and 7-3/4%, respectively. During Year II, the participant will be due the following additional interest equivalency payments:                               Quarterly Interest Equivalency Payments   1st Quarter   $ 234,000   x   .0625   x   .25   =   $ 3,656.25   2nd Quarter   228,000   x   .0675   x   .25   =   3,847.50   3rd Quarter   222,000   x   .0725   x   .25   =   4,023.75   4th Quarter   216,000   x   .0775   x   .25   =   4,185.00     7.         TERMS OF AGREEMENTS.  Each agreement authorized under this Plan shall cover a period of one year unless additional allotments are made in any subsequent year, in which case such agreement shall also constitute an agreement for such subsequent year or years.  Each agreement shall provide that (a) the participant will continue in full–time employment with the Company or a subsidiary until age 65 or other age approved and authorized by the Committee but in no case earlier than age 60; (b) the participant will, upon retirement, agree to be available for consultation during the period that he is receiving distributions hereunder; (c) the participant will refrain from actively participating or engaging in any business in competition with the Company or any subsidiary; (d) the participant will agree to the terms of accumulation and distribution of his allotments; and (e) the participant will agree to be bound concurrently with the Company under this Plan and the rules and regulations of the Committee promulgated thereunder.   8.         FORFEITURES.  Upon termination of a participant's service with the Company or a subsidiary prior to age 65, such participant shall forfeit 50% of all allotments and dividend equivalents contingently credited to him in any year, except that such forfeiture shall not apply in the case of termination of service (a) attributable to death, disability, or discharge without cause; (b) for any reason after the participant has attained age 60; or (c) attributable to any reason approved by the Committee.  The entire amount of a participant's allotments, dividend equivalents, and interest equivalents shall be forfeited and canceled if, without the prior written consent of the Company, the participant at any time prior to his termination of service, or during the period that he is receiving distributions hereunder, actively participates or engages in any business in competition with the Company or any subsidiary, or fails to hold himself available for consultation, or if the employment of the participant is terminated at any time prior to age 65 because of evidence of dishonesty or mistrust in his employment or because of his involvement in a crime or misdemeanor against the Company or any subsidiary, or any employee thereof, for which he is convicted or which he has confessed in writing to the Company or to any law enforcement agency.  Allotments and dividend equivalents contingently credited to a participant, as well as interest equivalents, that shall have been forfeited by such participant shall be canceled and shall not thereafter be reallotted to any other participant.   9.         DISTRIBUTION OF ALLOTMENTS.  Distribution of the allotments and dividend equivalents contingently credited to, and accumulated for the benefit of, a participant as of the end of the year in which termination of his service occurs, or as of an earlier date of retirement or other date of termination which does not entitle him to participate under this Plan for such year, shall be made by payments in cash in such manner and on such dates as determined by the Committee, in its sole discretion, immediately prior to the date the first payment is due or, if the Committee shall not have made such prior determination as aforesaid, then in equal monthly installments over a period of one hundred twenty (120) months, commencing with the second month following the month or following the end of the year of termination of service, whichever is applicable.  Such installment payments shall also include an additional sum representing interest equivalency pursuant to Section 6 hereof.   In the event that a participant dies after retirement but before any or all payments have been made, all remaining payments shall be made to the person or persons or the survivors thereof as designated by the participant pursuant to his agreement with the Company.  The Committee shall cause the Company to make such payments in the manner of payment then in effect pursuant to said agreement, or in one or more installments, as the Committee in its sole discretion may then determine.  The Company shall deduct from the amount of all payments made under this Plan any taxes required to be withheld under federal, state or local laws.   The amount distributable to a participant shall be the greater of (a) the amount at which the participant's total share equivalents were contingently credited to the participant, or (b) an amount equal to the product of (x) the total share equivalents contingently credited to the participant multiplied by (y) the Average Price of the Common Stock for either (i) the calendar quarter ending on the date of termination (if the participant's date of termination is the last day of a calendar quarter or the next following day), or (ii) the last sixty–three (63) days U.S. stock markets are open for the trading of shares prior to or coinciding with the date of termination (if the participant's date of termination is not the last day of a calendar quarter or the next following day).   A participant who is actively employed by the Company, or is on an approved leave of absence, on the last day of 1999, may elect to transfer all, but not part, of the share equivalents contingently credited to the participant pursuant to the Plan as of December 31, 1999 to the Nash Finch Company Supplemental Executive Retirement Plan (the “SERP”).  If such an election is made, a dollar denominated credit will be made to a bookkeeping account established under the SERP as of January 1, 2000.  The amount of the credit to such account under the SERP shall be equal to the dollar value of the electing participant’s account under the Plan as of December 31, 1999, including share equivalents credited as of that date for 1999, determined in the manner established under this Section 9 for determining amounts distributable to a participant.   If a participant makes the election provided for in the preceding paragraph, the participant shall, as of January 1, 2000, cease to be a participant entitled to any benefit arising under or in connection with the Plan.  The election shall be made in the manner, and in accordance with, the terms specified, in the SERP.   A participant who is actively employed by the Company, or is on an approved leave of absence, on September 30, 2001, may elect to transfer all, but not part, of the share equivalents contingently credited to such participant pursuant to the Plan as of such date into Performance Units (as defined in the Stock Incentive Plan, as hereinafter defined) granted under the Nash Finch Company 2000 Stock Incentive Plan (the “Stock Incentive Plan”).  If such an election is made by a participant, Performance Units will be granted to such participant under the Stock Incentive Plan as of October 1, 2001.  Such Performance Units shall represent the right of such participant to receive a distribution from the Company in the form of shares of Common Stock (the “Performance Shares”) upon the achievement of certain employment or service goals by such participant and upon the termination of such participant’s employment or other service with the Company, as set forth in more detail in such participant’s award agreement evidencing such Performance Units.   Prior to any such transfer of share equivalents and the grant of Performance Units under the Stock Incentive Plan to a participant pursuant to the preceding paragraph, such participant shall be contingently credited as of September 30, 2001 with an amount equal to the product of (x) the total cash dividends per share on the Common Stock declared during the calendar year 2001 and on or before September 30, 2001, multiplied by (y) the aggregate number of share equivalents contingently credited to such participant as of the beginning of the calendar year 2001.  The amount so determined and credited shall be converted to additional share equivalents in the manner stated in the first paragraph of Section 6 of the Plan using the Average Price for the quarter ended September 30, 2001.  In the event that the authorized shares of Common Stock are, on or before September 30, 2001, split or changed in any manner by reason of any reorganization, merger, consolidation, stock split, stock dividend, or recapitalization, then the number of share equivalents then held by such participant and the market value equivalent thereof contingently credited to such participant shall be appropriately adjusted. If a participant makes the election provided for in the two preceding paragraphs, the participant shall, as of October 1, 2001, cease to be a participant entitled to any benefit arising under or in connection with the Plan.   10.       RIGHTS OF PARTICIPANTS.  No participant or any other person shall acquire or have any interest in any fund or in any specific asset or assets of the Company or any subsidiary by reason of any allotments to him hereunder, nor any right to receive any distribution under this Plan, except as and to the extent expressly provided in the Plan.  Nothing in this Plan shall be deemed to give any officer or employee of the Company or any subsidiary any right to participate in the Plan except to such extent, if any, as the Committee may determine in accordance with the provisions of this Plan.  The adoption of this Plan or the authorization and execution of an agreement thereunder shall not be held or construed to confer upon any employee any right or guarantee of continuation of employment by the Company or any subsidiary, nor shall it affect in any way the terms of any employment agreement now or hereafter in effect between the employee and the Company or a subsidiary; and, further, it shall not confer upon any, participant any rights of a shareholder by reason of the share equivalents contingently credited to him under this Plan.   11.       NON-ASSIGNABILITY OF AGREEMENT.  The agreement authorized under this Plan when entered into between the Company and the employee shall not be assignable or otherwise subject to hypothecation by the employee, nor Shall the employee acquire any rights to any distributable amount thereunder except as provided in this Plan and such agreement.  Such agreement shall continue in force under its terms whether or not this Plan is amended or terminated, and shall constitute a legally enforceable contract between the Company and the employee during the period of its existence.   12.       AMENDMENT OR TERMINATION OF PLAN.  The Committee may amend or discontinue this Plan at any time by the affirmative vote of a majority of such Committee who are not participants under this Plan.  No amendment, however, shall alter or impair any agreement then in force without the consent of the employee covered thereby, and no amendment shall apply to or affect the payment or distribution of any participant of any amounts contingently credited to him for any year ended prior to the effective date of such amendment.  Termination of the Plan shall not affect the agreements theretofore entered into between the Company and its employees, but all such agreements shall continue in force after the termination of this Plan in accordance with their terms and provisions.   13.       EFFECTIVE DATE OF PLAN.  This Plan shall become effective upon the approval of the Executive Committee of the Board of Directors of the Company at any regular or special meeting, or at any adjournment thereof, called and held before December 31, 1967, and shall remain in effect until terminated by the Board of Directors.   14.       CHANGE IN CONTROL.  For purposes of this Section 14, a "Change in Control" of the Company shall mean (a) the sale, lease, exchange or other transfer of all or substantially all of the assets of the Company (in one transaction or in a series of related transactions) to any person that is not controlled by the Company; (b) the approval by the stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company; or (c) a change in control of a nature that would be required to be reported (assuming such event has not been "previously reported") in response to Item 1(a) of the Current Report on Form 8-K, as in effect on May 1, 1988, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement; provided that, without limitation, such a Change in Control shall be deemed to have occurred at such time as (x) any person is or becomes the "beneficial owner" (as defined in Rule 13d–3 under the Exchange Act), directly or indirectly, of 20% or more of the combined voting power of the Company's outstanding securities ordinarily having the right to vote at elections of directors; or (y) individuals who constitute the Board of Directors on May 1, 1988, Cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to May 1, 1988, whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors comprising the Board of Directors on May 1, 1988, (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purpose of this clause (y), considered as though such person were a member of the Board of Directors on May 1, 1988.   The Company expressly recognizes that a Change in Control of the Company would be likely to result in a material alteration or diminution of a participant's position and responsibilities, and if that were to occur, certain of the terms of this Plan would be unreasonable or unfair in their application to participants.   Accordingly, if during the term of this Plan, any Change in Control of the Company shall occur, the following provisions shall be applicable and shall supersede all other provisions of this Plan:               a.         [Intentionally omitted.]               b.         Forfeitures.  The provisions of Section 8 shall lapse and shall have no further applicability to any participant; and               c.         Acceleration.  All amounts credited to and accumulated for the benefit of a participant (or other person receiving payments or entitled to receive payments under Section 9, such other person to be hereinafter called "other recipient"), shall become due and payable and shall be paid in full on the day the Change in Control becomes effective unless a participant or other recipient, prior thereto, shall notify the Committee, in writing, that such participant or other recipient waives the right to acceleration, in which case the provision of Section 9 shall continue to apply to such participant or other recipient.  In effecting such payment, the Committee may make such arrangements, including deposits in escrow or in trust in advance of the anticipated effective date of the Change in Control, as it may deem advisable, to carry out the foregoing and to protect the interests of the Company in the event such Change in Control does not occur.    

Use these links to rapidly review the document EXHIBIT 10.3 EXHIBIT 10.3 PARENT UNDERTAKING AGREEMENT     PARENT UNDERTAKING AGREEMENT, dated as of October 26, 2001, made by Dal-Tile International Inc., a corporation organized and existing under the laws of Delaware ("Dal-Tile International"), and Dal-Tile Group Inc., a corporation organized and existing under the laws of Delaware ("Dal-Tile Group" and, together with Dal-Tile International, the "Companies"), in favor of DTSC, Inc., a corporation organized and existing under the laws of Delaware (the "Purchaser"), the Investors and the Banks (as each such term is defined in the Sale Agreement referred to below) and Credit Lyonnais New York Branch, as agent (the "Agent") for the Investors and the Banks, and their respective successors and assigns (collectively, the "Beneficiaries"). PRELIMINARY STATEMENTS:     (1) Dal-Tile Corporation, a corporation organized and existing under the laws of Pennsylvania (the "Originator") has entered into a Purchase and Contribution Agreement dated as of October 26, 2001 with the Purchaser (said Agreement, as it may hereafter be amended or otherwise modified from time to time, being the "Originator Agreement," the terms defined therein and not otherwise defined herein being used herein as defined therein or in the Sale Agreement (as defined below)), pursuant to which the Originator may transfer Receivables and other financial assets to the Purchaser, either by sale or by contribution to the capital of the Purchaser.     (2) The Originator, the Purchaser, Atlantic Asset Securitization Corp., as an Investor, Credit Lyonnais New York Branch, as a Bank, and the Agent have entered into a Receivables Purchase Agreement dated as of October 26, 2001 (said Agreement, as it may hereafter be amended or otherwise modified from time to time, being the "Sale Agreement"), pursuant to which the Purchaser may sell Receivables and other financial assets (or interests therein) to the Investors and/or the Banks.     (3) Dal-Tile Group, as the owner of all of the outstanding shares of stock of the Originator, and Dal-Tile International, as the owner of all of the outstanding shares of stock of Dal-Tile Group, will derive substantial benefit from the transactions contemplated under the Originator Agreement and the Sale Agreement.     (4) It is a condition precedent to the acquisition of Receivables by the Purchaser under the Originator Agreement and to the acquisition of Receivables (or interests therein) by the Investors and/or the Banks under the Sale Agreement that the Companies shall have executed and delivered this Agreement.     NOW, THEREFORE, in consideration of the premises and in order to induce the Purchaser to purchase Receivables under the Originator Agreement and the Investors and the Banks to make purchases under the Sale Agreement, the Companies hereby agree as follows:     SECTION 2.  Unconditional Undertaking.   The Companies hereby jointly and severally, unconditionally and irrevocably undertake and agree with and for the benefit of the Beneficiaries to cause the due and punctual performance and observance by the Originator and its successors and assigns of all of the terms, covenants, conditions, agreements and undertakings on the part of the Originator (whether as Originator, Collection Agent or otherwise) to be performed or observed under the Originator Agreement, the Sale Agreement, each other Transaction Document (as defined under the Sale Agreement) and any document delivered in connection with any of the foregoing in accordance with the terms thereof (each of the foregoing, collectively, the "Applicable Documents"), including, without limitation, the punctual payment when due of all obligations of the Originator now or hereafter existing under the Applicable Documents, whether for indemnification payments, fees, expenses or otherwise (such terms, covenants, conditions, agreements, undertakings and other obligations being the "Obligations"), and agrees to pay any and all expenses (including counsel fees and expenses) incurred by the Beneficiaries in enforcing any rights under this Agreement; provided, that, in no event, shall the undertaking contained herein constitute a guaranty of the ability to collect on, or -------------------------------------------------------------------------------- payment of, the Transferred Receivables. In the event that the Originator shall fail in any manner whatsoever to perform or observe any of the Obligations when the same shall be required to be performed or observed under any Applicable Document, then the Companies will themselves duly and punctually perform or observe, or cause to be duly and punctually performed or observed, such Obligation, and it shall not be a condition to the accrual of the obligation of the Companies hereunder to perform or observe any Obligation (or to cause the same to be performed or observed) that any Beneficiary shall have first made any request of or demand upon or given any notice to either Company or to the Originator or their respective successors or assigns, or have instituted any action or proceeding against any Company or the Originator or their respective successors or assigns in respect thereof.     SECTION 3.  Obligation Absolute.   Each Company undertakes that the Obligations will be performed or paid strictly in accordance with the terms of the Applicable Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Beneficiaries with respect thereto. The obligations of the Companies under this Agreement are independent of the Obligations, and a separate action or actions may be brought and prosecuted against either or both of the Companies to enforce this Agreement, irrespective of whether any action is brought against the Originator or whether the Originator is joined in any such action or actions. The liability of the Companies under this Agreement shall be absolute and unconditional irrespective of:     (a) any lack of validity or enforceability of any Applicable Document;     (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 departure from any Applicable Document, including, without limitation, any increase in the Obligations resulting from additional purchases of Receivables (or interests therein) or otherwise;     (c) any taking, exchange, release or non-perfection of any collateral, or any taking, release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations;     (d) any manner of application of collateral, or proceeds thereof, to all or any of the Obligations, or any manner of sale or other disposition of any collateral for all or any of the Obligations or any other assets of the Originator or any of its subsidiaries;     (e) any change, restructuring or termination of the corporate structure or existence of the Originator or any of its subsidiaries; or     (f)  any other circumstance (other than satisfaction in full or termination of the Obligations in accordance with the terms of the Applicable Documents) that might otherwise constitute a defense available to, or a discharge of, the Originator or a guarantor.     This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by any Beneficiaries upon the insolvency, bankruptcy or reorganization of the Originator or otherwise, all as though payment had not been made.     SECTION 4.  Waiver.   The Companies hereby waive promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations and this Agreement and any requirement that any Beneficiary protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right or take any action against the Originator or any other person or entity or any collateral.     SECTION 5.  Subrogation.   The Companies hereby defer and subordinate all rights of subrogation against the Originator and its property and all rights of indemnification, contribution and 2 -------------------------------------------------------------------------------- reimbursement from the Originator and its property, in each case in connection with this Agreement and any payments made hereunder, and regardless of whether such rights arise by operation of law, pursuant to contract or otherwise until satisfaction in full of the Obligations.     SECTION 6.  Representations and Warranties.   Each Company hereby represents and warrants as to itself as follows:     (a) Such Company is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction indicated at the beginning of this Agreement.     (b) The execution, delivery and performance by such Company of this Agreement are within such Company's corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (i) such Company's organizational documents or (ii) law or any contractual restriction binding on or affecting such Company.     (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by such Company of this Agreement.     (d) This Agreement is the legal, valid and binding obligation of such Company enforceable against such Company in accordance with its terms, except that such enforceability may be subject to bankruptcy, insolvency, reorganization, moratorium (whether general or specific) and other similar laws now or hereafter in effect affecting creditors rights generally.     (e) The consolidated balance sheet of Dal-Tile International and its consolidated subsidiaries as at December 29, 2000, and the related consolidated statement of income and retained earnings of Dal-Tile International and its consolidated subsidiaries for the fiscal year then ended, copies of which have been furnished to the Beneficiaries, fairly present, in all material respects, the financial condition of Dal-Tile International and its consolidated subsidiaries as at such date and the results of the operations of Dal-Tile International and its consolidated subsidiaries for the period ended on such date, all in accordance with generally accepted accounting principles consistently applied, and since December 29, 2000 there has been no material adverse change in the business, financial condition or operations of Dal-Tile International and its consolidated subsidiaries taken as a whole that could reasonably be expected to adversely affect the value or collectibility of the Receivables or the ability of the Purchaser or the Originator to collect the Receivables or otherwise perform its obligations under the Applicable Documents.     (f)  There is no pending or threatened action or proceeding affecting any Company or any of its subsidiaries before any court, governmental agency or arbitrator, which may reasonably be expected to materially adversely affect (i) the financial condition or operations of such Company or any of its subsidiaries or (ii) the ability of such Company to perform its obligations under this Agreement, or which purports to affect the legality, validity or enforceability of this Agreement.     (g) Each information, financial statement, document, book, record and report furnished or to be furnished at any time by any Company to any Beneficiary in connection with this Agreement is or will be accurate in all material respects as of its date and (except as otherwise disclosed to such Beneficiary at such time) as of the date so furnished, and no such information, financial statement, document, book, record or report 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 contained therein, in the light of the circumstances under which they were made, not misleading.     (h) There are no conditions precedent to the effectiveness of this Agreement that have not been satisfied or waived.     (i)  As of the date hereof and prior to the date, if any, of the merger contemplated in Section 6(c) below, Dal-Tile International is the owner of all of the outstanding shares of stock of 3 -------------------------------------------------------------------------------- Dal-Tile Group and Dal-Tile Group is the owner of all of the outstanding shares of stock of the Originator.     SECTION 7.  Covenants.   Each Company covenants and agrees that, until the later of the Facility Termination Date and the date on which all Receivables shall have either been collected in full or become Defaulted Receivables, such Company will, unless each Beneficiary shall otherwise consent in writing:     (a)  Compliance with Laws, Etc.  Comply in all material respects with all applicable laws, rules, regulations and orders with respect to it, its business and properties.     (b)  Preservation of Corporate Existence.  Except upon consummation, if at all, of the merger contemplated in Section 6(c) below, preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each relevant jurisdiction, except to the extent that the failure so to preserve and maintain such existence, rights, franchises, privileges and qualification would not materially adversely affect the interests of the Beneficiaries hereunder, or the ability of such Company to perform its obligations hereunder.     (c)  Stock Ownership.  In the case of Dal-Tile International, be the registered and beneficial owner of all of the issued and outstanding shares of each class of the capital stock of Dal-Tile Group and, in the case of Dal-Tile Group, be the registered and beneficial owner of all of the issued and outstanding shares of each class of the capital stock of the Originator, provided that Dal-Tile Group may merge with and into Dal-Tile International, with Dal-Tile International being the surviving corporation, so long as Dal-Tile International is the registered and beneficial owner of all of the issued and outstanding shares of each class of the capital stock of the Originator.     (d)  Notice Regarding Credit Agreement.  At least three Business Days prior to the effectiveness of any amendment or waiver of any provision under the Credit Agreement, and as soon as possible and in any event within three Business Days after the occurrence of any "Event of Default" under the Credit Agreement, deliver a copy of such amendment or waiver and a written notice of such occurrence to the Agent.     SECTION 8.  Additional Covenants Dal-Tile International.   Dal-Tile International covenants and agrees that, until the later of the Facility Termination Date and the date on which all Receivables shall have either been collected in full or become Defaulted Receivables, Dal-Tile International will, unless each Beneficiary shall otherwise consent in writing:     (a)  Maintenance of Net Worth.  Not permit the Consolidated Net Worth of Dal-Tile International, at the end of any fiscal quarter of Dal-Tile International, to be less than an amount equal to the sum of (i) $262,977,000 and (ii) 50% of aggregate Consolidated Net Income of Dal-Tile International for each fiscal quarter ending after June 29, 2001 for which the Consolidated Net Income of Dal-Tile International is positive.     (b)  Maintenance of Consolidated Interest Coverage Ratio.  Not permit, for any period of four consecutive fiscal quarters of Dal-Tile International ending on the last day of any fiscal quarter of Dal-Tile International, the Consolidated Interest Coverage Ratio of Dal-Tile International for such period to be less than 2.50 to 1.00.     (c)  Maintenance of Consolidated Leverage Ratio.  Not permit, for any period of four consecutive fiscal quarters ending on the last day of any fiscal quarter of Dal-Tile International, the Consolidated Leverage Ratio of Dal-Tile International for such period to be greater than 3.25 to 1.00. 4 --------------------------------------------------------------------------------     (d)  Reporting Requirements.  Furnish to the Purchaser and the Agent:     (ii) as soon as available and in any event within 45 days after the end of the first three quarters of each fiscal year of Dal-Tile International, an unaudited consolidated balance sheet of Dal-Tile International and its consolidated Subsidiaries as of the end of such quarter and consolidated statements of income and retained earnings of Dal-Tile International and its consolidated Subsidiaries for the period commencing at the end of the previous fiscal year of Dal-Tile International and ending with the end of such quarter, certified by the chief financial officer or treasurer of Dal-Tile International;     (iii) as soon as available and in any event within 90 days after the end of each fiscal year of Dal-Tile International, a copy of the annual report for such fiscal year of Dal-Tile International and its consolidated Subsidiaries, containing consolidated financial statements for such year audited by Ernst & Young or other independent public accountants acceptable to the Agent; and     (iv) promptly after the sending or filing thereof, copies of all reports that Dal-Tile International sends to any of its security holders generally, and copies of all Form 10-K, Form 10-Q and Form 8-K reports and all other reports and registration statements that Dal-Tile International or any Subsidiary thereof files with the Securities and Exchange Commission or any national securities exchange.     (e)  Definitions.  As used in this Section 7, the following terms shall have the following meanings:     "Consolidated Interest Coverage Ratio" and any defined terms included in, or otherwise affecting, the definition of Consolidated Interest Coverage Ratio in the Credit Agreement shall each have the meanings set forth in the definitions of such terms in the Credit Agreement as in effect on the date hereof and giving effect solely to any subsequent amendments or waivers thereto which were granted at a time when the Agent was a party to the Credit Agreement (but only to the extent that a written statement (which such statement shall be requested by the Agent to the extent the Agent deems such statement to be required under the terms of any agreement governing the activities of any Investor) has been obtained from each Relevant Rating Agency that the rating of the commercial paper of each Investor that is rated by such Relevant Rating Agency will not be downgraded or withdrawn solely as a result of such amendment or waiver) or which are specifically approved in writing by the Agent at a time when the Agent is not a party to the Credit Agreement.     "Consolidated Leverage Ratio" and any defined terms included in, or otherwise affecting, the definition of Consolidated Leverage Ratio in the Credit Agreement shall each have the meanings set forth in the definitions of such terms in the Credit Agreement as in effect on the date hereof and giving effect solely to any subsequent amendments or waivers thereto which were granted at a time when the Agent was a party to the Credit Agreement (but only to the extent that a written statement (which such statement shall be requested by the Agent to the extent the Agent deems such statement to be required under the terms of any agreement governing the activities of any Investor) has been obtained from each Relevant Rating Agency that the rating of the commercial paper of each Investor that is rated by such Relevant Rating Agency will not be downgraded or withdrawn solely as a result of such amendment or waiver) or which are specifically approved in writing by the Agent at a time when the Agent is not a party to the Credit Agreement. 5 --------------------------------------------------------------------------------     "Consolidated Net Income" and any defined terms included in, or otherwise affecting, the definition of Consolidated Net Income in the Credit Agreement shall each have the meanings set forth in the definitions of such terms in the Credit Agreement as in effect on the date hereof and giving effect solely to any subsequent amendments or waivers thereto which were granted at a time when the Agent was a party to the Credit Agreement (but only to the extent that a written statement (which such statement shall be requested by the Agent to the extent the Agent deems such statement to be required under the terms of any agreement governing the activities of any Investor) has been obtained from each Relevant Rating Agency that the rating of the commercial paper of each Investor that is rated by such Relevant Rating Agency will not be downgraded or withdrawn solely as a result of such amendment or waiver) or which are specifically approved in writing by the Agent at a time when the Agent is not a party to the Credit Agreement.     "Consolidated Net Worth" and any defined terms included in, or otherwise affecting, the definition of Consolidated Net Worth in the Credit Agreement shall each have the meanings set forth in the definitions of such terms in the Credit Agreement as in effect on the date hereof and giving effect solely to any subsequent amendments or waivers thereto which were granted at a time when the Agent was a party to the Credit Agreement (but only to the extent that a written statement (which such statement shall be requested by the Agent to the extent the Agent deems such statement to be required under the terms of any agreement governing the activities of any Investor) has been obtained from each Relevant Rating Agency that the rating of the commercial paper of each Investor that is rated by such Relevant Rating Agency will not be downgraded or withdrawn solely as a result of such amendment or waiver) or which are specifically approved in writing by the Agent at a time when the Agent is not a party to the Credit Agreement.     SECTION 9.  Amendments, Etc.   No amendment or waiver of any provision of this Agreement or consent to any departure by any Company herefrom shall be effective unless in a writing signed by each Beneficiary (and, in the case of any amendment, also signed by the Companies), and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.     SECTION 10.  Addresses for Notices.   All notices and other communications hereunder shall be in writing (which shall include facsimile communication) and faxed or delivered, if to any Beneficiary, at its address set forth under its name on the signature pages of the Sale Agreement and if to a Company, at its address set forth under its name on the signature pages hereof or, as to any party, at such other address as shall be designated by such party in a written notice to each other party. Notices and communications by facsimile shall be effective when sent, and notices and communications sent by other means shall be effective when received.     SECTION 11.  No Waiver; Remedies.   No failure on the part of any Beneficiary to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.     SECTION 12.  Continuing Agreement; Assignments under Originator Agreement.   This Agreement is a continuing agreement and shall (i) remain in full force and effect until the later of (x) the payment and performance in full of the Obligations and the payment of all other amounts payable under this Agreement and (y) the Facility Termination Date (as defined under the Sale Agreement), (ii) be binding upon each Company, its successors and assigns, and (iii) inure to the benefit of, and be 6 -------------------------------------------------------------------------------- enforceable by, each Beneficiary and its successors, transferees and assigns. Each Beneficiary (and any assignee thereof) may at any time assign any and all of its rights hereunder to any other person or entity without the consent of the Companies or the Originator, whereupon (i) each reference herein to such Beneficiary shall mean and be a reference to such assignee and (ii) such assignee may enforce this Agreement to the fullest extent as if it were a named party hereto. Without limiting the generality of the foregoing, each Company acknowledges and consents to the assignment by the Purchaser, under and in connection with the Sale Agreement, of all of the Purchaser's right, title and interest in, to and under this Agreement to the Agent for the benefit of the Investors and the Banks and each Company agrees that at all times that the Sale Agreement shall be in effect (i) any claim made by the Purchaser hereunder shall be deemed made for the benefit of the Agent and the Investors and the Banks and (ii) any payment or remittance to be made hereunder by any Company in respect of any claim being made by or in respect of the Purchaser or the Purchaser's interest under the Originator Agreement shall be paid or remitted to the Agent for the benefit of the Investors and the Banks.     SECTION 13.  Governing Law.   This Agreement shall, in accordance with Section 5-1401 of the General Obligations Law of the State of New York, be governed by, and construed in accordance with, the law of the State of New York without regard to any conflict of laws principles thereof that would call for the application of the laws of any other jurisdiction. 7 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, each Company has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written.     DAL-TILE INTERNATIONAL INC.     By:             -------------------------------------------------------------------------------- Title:     7834 C.F. Hawn Freeway P.O. Box 170130 Dallas, Texas 75217 Attention: Scott Veldman Facsimile Number: (214) 309-4390     DAL-TILE GROUP INC.     By:             -------------------------------------------------------------------------------- Title:     7834 C.F. Hawn Freeway P.O. Box 170130 Dallas, Texas 75217 Attention: Scott Veldman Facsimile Number: (214) 309-4390 8 -------------------------------------------------------------------------------- ASSIGNMENT OF PARENT UNDERTAKING AGREEMENT     The undersigned hereby assigns all of its right, title and interest in and to the foregoing Parent Undertaking Agreement to Credit Lyonnais New York Branch, in its capacity as agent (the "Agent") for the Investors and the Banks under and as defined in the Receivables Purchase Agreement dated as of October 26, 2001 by and among DTSC, Inc. (the "Purchaser"), the Agent and certain other parties, as the same may be amended, restated, supplemented or otherwise modified from time to time. Dal-Tile International Inc. and Dal-Tile Group Inc. (the "Companies") acknowledge such assignment and agree that the Agent may further assign, without notice, its right, title and interest in and to the Parent Undertaking Agreement without the consent of any person or entity. The Agent, as the assignee of the Purchaser, shall have the right to enforce the Parent Undertaking Agreement, and to directly exercise all of the Purchaser's rights and remedies under the Parent Undertaking Agreement, and the Companies agree to cooperate fully with the Agent in the exercise of such rights and remedies thereunder.     DTSC, INC.     By:             -------------------------------------------------------------------------------- Name: Title: Acknowledged and agreed to this 26th day of October, 2001 DAL-TILE INTERNATIONAL INC. By:             -------------------------------------------------------------------------------- Name: Title:     DAL-TILE GROUP INC.     By:             -------------------------------------------------------------------------------- Name: Title:     9 -------------------------------------------------------------------------------- TABLE OF CONTENTS SECTION 1.   Unconditional Undertaking SECTION 2.   Obligation Absolute SECTION 3.   Waiver SECTION 4.   Subrogation SECTION 5.   Representations and Warranties SECTION 6.   Covenants     (a)   Compliance with Laws, Etc.     (b)   Preservation of Corporate Existence     (c)   Stock Ownership     (d)   Notice Regarding Credit Agreement SECTION 7.   Additional Covenants Dal-Tile International     (a)   Maintenance of Net Worth     (b)   Maintenance of Consolidated Interest Coverage Ratio     (c)   Maintenance of Consolidated Leverage Ratio     (d)   Reporting Requirements [a2062020zex-10_4.htm#li2063_3.18_certain_reporting_requirements.]     (e)   Definitions SECTION 8.   Amendments, Etc. [a2062020zex-10_4.htm#lo2063_10.3_amendments,_etc.] SECTION 9.   Addresses for Notices SECTION 10.   No Waiver; Remedies [a2062020zex-10_4.htm#lq2063_13.3_no_waiver;_cumulative_remedies.] SECTION 11.   Continuing Agreement; Assignments under Originator Agreement SECTION 12.   Governing Law [a2062020zex-10_4.htm#lq2063_13.11_governing_law.] 10 --------------------------------------------------------------------------------

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

FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT This First Amendment to Loan and Security Agreement (the "Amendment"), dated as of February 23, 2001 (the "Effective Date"), is among the financial institutions listed on the signature pages hereof, Bank of America, National Association as administrative agent for the Lenders (the "Agent"), Harold's Stores, Inc., an Oklahoma corporation (the "Parent"), and each of Harold's Financial Corporation, an Oklahoma corporation, Harold's Direct, Inc., an Oklahoma corporation, Harold's Stores of Texas, L.P., a Texas limited partnership, Harold's Stores of Georgia, L.P., a Georgia limited partnership, and Harold's of Jackson, Inc., a Mississippi corporation (including the Parent each a "Borrower" and collectively the "Borrowers"). RECITALS : A. The Borrowers, the Lenders, and the Agent are parties to the certain Loan and Security Agreement dated as of November 20, 2000 (as the same may be further amended, renewed, extended, restated or otherwise modified from time to time, the "Agreement"). B. The Borrowers have advised the Agent that (1) the Parent intends to adopt and file with the Secretary of State of Oklahoma a Certificate of Designations creating the Series 2001-A Preferred Stock (the "Preferred Stock "), (2) the Parent intends to sell and issue an aggregate of Three Hundred Thousand (300,000) shares of the Preferred Stock at a price per share of Twenty and No/100 Dollars ($20.00) (the "Stock Issuance") pursuant to that certain Series 2001-A Preferred Stock Purchase Agreement dated the date hereof (the "Stock Purchase Agreement") to the investors listed on Schedule 1.1(C) of the Agreement (the " Investors"), (3) the Parent intends to pay dividends on the Preferred Stock in both cash and additional shares of Preferred Stock pursuant to that certain Exhibit A, Preferences and Rights of Series 2001-A Preferred Stock of Harold's Stores, Inc., to the Stock Purchase Agreement ("Preferred Stock Preferences and Rights Agreement"), (4) the Parent and the Investors will enter into an Investor Rights Agreement dated as of the date hereof (the "Investor Rights Agreement") which will allow the Investors to demand that the Parent effect registration under the Exchange Act of (a) the shares of the Parent's common stock, $0.01 par value per share (the "Common Stock"), issuable or issued upon conversion of the Preferred Stock and (b) any other shares of Common Stock of the Parent issued as (or issuable upon the conversion or exercise of any warrant, right, or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the share listed in (a), and (5) the Parent will enter into an Employment and Non-Competition Agreement with Clark Hinkley (the "Employment Agreement" ) pursuant to which Clark Hinkley shall serve as Chief Executive Officer of the Parent. C. The Borrowers have requested that the Lenders amend the Agreement in certain respects as more specifically provided hereinbelow. D. Subject to the satisfaction of the conditions set forth herein, the Lenders party hereto are willing to amend the Agreement. NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: DEFINITIONS Definitions . Unless otherwise defined in this Amendment, capitalized terms used in this Amendment shall have the same meanings as are given to such terms in the Agreement (as amended by this Amendment). AMENDMENTS Addition to Section 1.1 of the Agreement . Effective as of the Effective Date, Section 1.1 of the Agreement is hereby amended to add the following new terms and definitions, which terms and definitions shall appear in alphabetical order in such Section 1.1 and shall read in their entireties as follows: "First Amendment Date" means February 23, 2001. "Investors" means each of the investors identified on Schedule 1.1(C) as of the First Amendment Date. "Preferred Stock" means the Series 2001-A Preferred Stock designated in the Parent's Certificate of Incorporation. "Stock Purchase Agreement" means that certain Series 2001-A Preferred Stock Purchase Agreement dated as of February 23, 2001, among the Parent and the Investors. Amendments to Section 1.1 of the Agreement . Effective as of the Effective Date, each of the following definitions set forth in Section 1.1 of the Agreement is amended and restated to read in its entirety, respectively, as follows: "Applicable Margin" means, as of February 23, 2001 with respect to LIBOR Rate Loans, two and one-quarter percent (2.25%), subject to adjustment from time to time thereafter to the applicable percentage corresponding to the Leverage Ratio, as set forth below, respectively Leverage Ratio LIBOR Rate Loans Greater than or equal to 5.00 to 1.00 3.00% Less than 5.00 to 1.00 but greater than or equal to 4.00 to 1.00 2.75% Less than 4.00 to 1.00 but greater than or equal to 3.00 to 1.00 2.50% Less than 3.00 to 1.00 but greater than or equal to 2.00 to 1.00 2.25% Less than 2.00 to 1.00 2.00% For the purpose of determining any such adjustments to the Applicable Margin, the Leverage Ratio (a) for the Fiscal Period beginning January 1, 2002, shall be determined based upon the Parent's Financial Statements for the Fiscal Quarter ending November 3, 2001 and (b) for each Fiscal Quarter ending after January 1, 2002, shall be determined based upon the Parent's Financial Statements for each of its respective Fiscal Quarters beginning with the Fiscal Quarter ending February 2, 2002, delivered to the Agent as required by Section 7.2(a) (with respect to the Financial Statements for the last Fiscal Quarter of the Parent of each Fiscal Year) and Section 7.2(b) (with respect to the Financial Statements for each Fiscal Quarter of the Parent which is not a Fiscal Year end), and any such adjustment, if any, shall become effective as of the date, on or after the first day of the calendar month following the calendar month in which such Financial Statements are delivered to the Agent, when any LIBOR Rate Loan is made, continued, or converted, as the case may be. "Change of Control" means the occurrence of any of the following: (a) except as allowed by Section 9.9, the adoption of a plan relating to the liquidation or dissolution of any Borrower; (b) the acquisition by any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act, as amended), other than any of the record owners who own more than five percent (5%) of the Capital Stock of the Parent as specified in Schedule 8.7 as of the Closing Date, of a direct or indirect majority in interest (more than fifty percent (50.0%)) of the voting power of the Capital Stock of the Parent by way of merger, consolidation, or otherwise; (c) the first day, after the First Amendment Date, on which a majority of the members of the Management Group of the Parent are not Continuing Directors, except as allowed by Section 9.9; or (d) any Borrower (other than the Parent) shall cease to be a Wholly-Owned Subsidiary of the Parent. "Continuing Directors" means, as of any date of determination, any duly appointed member of the Management Group of the Parent, any other Borrower, or any general partner of any other Borrower, who (a) was a member of such Management Group on the First Amendment Date or (b) was nominated for election or elected to such Management Group with the affirmative vote of a majority of the Management Group who were members of such Management Group at the time of such nomination or election or (c) was approved by Inter-Him N.V., provided that Ronald de Waal controls not less than sixty seven percent (67%) of the Capital Stock of Inter-Him N.V. at any time. Amendment to Section 4.5 of the Agreement . Effective as of the Effective Date, Section 4.5 of the Agreement is hereby amended and restated in its entirety to read as follows: Section 4.5 Prepayments from Asset Dispositions; Mandatory Prepayments. (a) All proceeds or other cash payments received by any Borrower pursuant to any transaction of merger, reorganization, consolidation, transfer, sale, assignment, lease, or other disposition allowed by Section 9.9(c) (other than the sale of Inventory in the ordinary course of business), and Section 9.19 net of related actual transaction costs and expenses, shall be paid to the Agent, promptly upon such receipt, for application to the Obligations in such manner as the Agent shall determine in its sole discretion. (b) All proceeds or other cash payments received by any Borrower from the sale and issuance of Preferred Stock pursuant to the Stock Purchase Agreement, shall be used by the Borrowers (i) to pay the Agent, for the account of the Lenders, the amount, if any and without duplication, by which the Aggregate Revolver Outstandings less the aggregate amount of Pending Revolving Loans exceeds the Borrowing Base and (ii) for general working capital purposes (not otherwise prohibited by this Agreement) in the ordinary course of business, and shall not be used, directly or indirectly, (A) to buy or carry any Margin Stock, (B) to repay or otherwise refinance indebtedness of the Borrowers or others incurred to buy or carry any Margin Stock, (C) to extend credit for the purpose of buying or carrying any Margin Stock, or (D) to acquire any security in any transaction that is subject to Section 13 or 14 of the Exchange Act. Amendment to Section 9.10 of the Agreement .  Effective as of the Effective Date, Section 9.10 of the Agreement is hereby amended and restated to read in its entirety as follows: Section 9.10 Distributions; Capital Change; Restricted Investments. No Consolidated Party shall (a) directly or indirectly declare or make, or incur any liability to make any Distribution, except Distributions to a Borrower and Distributions paid or payable by the Parent pursuant to the Stock Purchase Agreement; provided, that no Default or Event of Default shall exist at the time of, or shall occur after giving effect to, any such Distribution, (b) make any change in its capital structure which could have a Material Adverse Effect, or (c) make any Restricted Investment. Amendment to Section 9.13 of the Agreement . Effective as of the Effective Date, Section 9.13 of the Agreement is hereby amended and restated in its entirety as follows: Section 9.13 Debt. No Consolidated Party shall incur or maintain any Debt, other than (a) the Obligations; (b) trade payables and contractual obligations to suppliers and customers arising in the ordinary course of business; (c) other Debt existing on the Closing Date and reflected in the Financial Statements described in Section 8.6(a); (d) Debt of a Borrower constituting purchase money Debt (including, without limitation, obligations under Capital Leases) incurred after the Closing Date not to exceed $500,000 in the aggregate; (e) Permitted Subordinated Debt; and (f) Distributions payable by the Parent to the Investors pursuant to the Stock Purchase Agreement and not otherwise prohibited by this Agreement. Amendment to Section 9.24(a) of the Agreement . Effective as of the Effective Date, Section 9.24(a) of the Agreement is hereby amended and restated in its entirety as follows: Section 9.24 Adjusted Tangible Net Worth. (a) The Borrowers shall not permit the Adjusted Tangible Net Worth, determined for the Consolidated Parties, as of the end of any Fiscal Quarter, to be less than the following amounts during the specified periods: Fiscal Year 2002 $26,000,000 Fiscal Year 2003 and thereafter: $26,000,000 or such greater amount as may be established pursuant to Section 9.24(b). Amendment to Section 11.1(r) . Effective as of the Effective Date, Section 11.1(r) of the Agreement is hereby amended and restated in its entirety as follows: (r) any breach or default (however defined) occurs under or in connection with (i) any Permitted Subordinated Debt, (ii) any subordination agreement governing any Permitted Subordinated Debt, or (iii) the Stock Purchase Agreement or any other agreement, certificate, or document executed and delivered in connection with the transactions contemplated by the Stock Purchase Agreement which could have a Material Adverse Effect, unless such default or event of default is waived by the parties thereto; or Addition to Section 11.1 . Effective as of the Effective Date, Section 11.1 of the Agreement is hereby amended to add clause (s) to such Section 11.1 which shall read in its entirety as follows: (s) any Borrower shall agree, without the consent of the Agent, to any amendment, restatement, or other modification to the Stock Purchase Agreement or any other document, agreement, or certificate related thereto, to the extent any such amendment, restatement, or other modifications changes (i) the Dividend Rate (as defined in Exhibit A to the Stock Purchase Agreement), (ii) the timing or type of dividends, fees, redemption rights, voting rights, and conversion rights, if any, (iii) change the effective date of any performance, termination, or maturity specified therein, or (iv) adds or changes, in a manner more restrictive to any or all of the Borrowers, any covenant or restriction. Amendment to Schedule 8.7 of the Agreement . Effective as of the Effective Date, Schedule 8.7 is amended in its entirety to read as set forth in Schedule 8.7 hereof. Addition of Schedule 1.1(C) to the Agreement . Effective as of the Effective Date, the Agreement is hereby amended to add Schedule 1.1(C) to the Agreement, which Schedule shall read in its entirety as set forth on Schedule 1.1(C) hereof. CONSENTS AND WAIVERS Consent . The Borrowers have requested that the Agent and the Majority Lenders consent to (a) the amendment to the Parent's Certificate of Incorporation as such amendment relates to the creation of the Preferred Stock, (b) the creation of the Preferred Stock, and (c) the Stock Issuance pursuant to the Stock Purchase Agreement (each referred to herein individually as a " Proposed Action " and collectively, as the " Proposed Actions "). Each of the undersigned Lenders, subject to Section 13.1 of the Agreement and to the satisfaction of the conditions precedent set forth in Article 4 of this Amendment, (a) consents to the Proposed Actions as described in this Section 3.1 and (b) agrees that such Proposed Actions will not result in a Default or an Event of Default under the Agreement. The consent by the Agent and the Lenders pursuant to this Section 3.1 is expressly limited as provided herein and shall not extend to any actions taken pursuant to the second sentence of Section 8.10 of the Stock Purchase Agreement. In order to induce the Lenders to agree to provide the foregoing consent, the Borrowers agree that the consent set forth in this Section 3.1 shall not be deemed a consent to departure from any covenant or condition in any Loan Document except as specifically described in this Section 3.1 . Waiver . The Borrowers have advised the Agent and the Lenders that (a) the Borrowers failed to dissolve CMT Enterprises, Inc., a New York corporation and Wholly-Owned Subsidiary of the Parent, on or before January 31, 2001, as required by Section 9.29 of the Agreement and (b) the Borrowers permitted the Adjusted Tangible Net Worth for the Fiscal Quarter ending February 3, 2001, to be less than the minimum amount specified for such date by Section 9.24 of the Agreement (such instance of non-compliance hereinafter being collectively called the " Specified Defaults "). At the Borrowers' request, subject to Section 13.1 of the Agreement and to the satisfaction of the conditions precedent set forth in Article 4 hereof, the Agent and the Majority Lenders hereby waive the Specified Defaults; provided, that such waiver is expressly limited as provided herein, and provided further , that in order to induce the Lenders to agree to the foregoing waiver, each Borrower agrees that (a) it will deliver to the Agent a copy of the articles or certificate of dissolution of CMT Enterprises, Inc. on or before April 30, 2001 and its failure to deliver such articles or certificate of dissolution on or before April 30, 2001 shall constitute an Event of Default under the Agreement and (b) the waiver granted under this Section 3.2 shall not constitute or be deemed a waiver of any other Default or Event of Default, now existing or hereafter arising, or a waiver of any rights or remedies arising as a result of such other Event of Default. Without limiting the foregoing, any failure to comply with the requirements of Sections 9.24 as of or for any date other than the date specified in clause (a) preceding shall constitute an Event of Default. MISCELLANEOUS Conditions Precedent . The effectiveness of this Amendment is subject to the satisfaction of each of the following conditions precedent: The Agent shall have received all of the following, each dated the Effective Date (unless otherwise indicated), in form and substance satisfactory to the Agent: Amendment Documents . This Amendment and any other instrument, document, or certificate reasonably required by the Agent to be executed or delivered by the Borrowers in connection with this Amendment, in each case duly executed (collectively, the " Amendment Documents "); Corporate Certificate of the Parent Before Stock Issuance Transactions . A certificate duly executed by the secretary and chief executive officer of the Parent (A) certifying that the Parent continues in existence as an Oklahoma corporation, (B) certifying current incumbency with respect to each of the officers of the Parent authorized to execute and deliver this Amendment and to request borrowings under the Agreement as amended by this Amendment, (C) certifying and attaching true and complete copies of authorizing resolutions of the board of directors of the Parent to authorize the execution, delivery, and performance of this Amendment and the other Loan Documents to be executed by the Parent in connection herewith, (D) certifying that except for the attached certificate of designations creating the Series 2001-A Preferred Stock, the certificate of incorporation of the Parent, a copy of which has been previously certified to the Agent under that certain Corporate Certificate dated as of November 20, 2000, remains in full force and effect on and as of the date hereof without further modification or amendment in any respect since November 20, 2000, and (E) certifying that the bylaws of the Parent, a copy of which have been previously certified to the Agent under that certain Corporate Certificate dated as of November 20, 2000, remain in full force and effect on and as of the date hereof without further modification or amendment in any respect since November 20, 2000; Corporate Certificate of the Parent After Stock Issuance Transactions . A certificate duly executed by the secretary and chief executive officer of the Parent (A) certifying that the Parent continues in existence as an Oklahoma corporation, (B) certifying current incumbency with respect to each of the officers of the Parent authorized to request borrowings under the Agreement as amended by this Amendment, (C) certifying and attaching true and complete copies of authorizing resolutions of the board of directors of the Parent to authorize the execution, delivery, and performance of the Loan Documents to be executed by the Parent in the future, (D) certifying that except for the amendment to the certificate of incorporation of the Parent attached to the Corporate Certificate dated as of February 23, 2001, the certificate of incorporation of the Parent, a copy of which has been previously certified to the Agent under that certain Corporate Certificate dated as of November 20, 2000, remains in full force and effect on and as of the date hereof without further modification or amendment in any respect since November 20, 2000, and (E) certifying that the bylaws of the Parent, a copy of which have been previously certified to the Agent under that certain Corporate Certificate dated as of November 20, 2000, remain in full force and effect on and as of the date hereof without further modification or amendment in any respect since November 20, 2000; Corporate Certificate of other Borrowers . A certificate duly executed by the secretary and president of each Borrower, other than the Parent, (A) certifying that such Borrower is in existence and good standing in its state of incorporation, (B) certifying current incumbency with respect to each of the officers of such Borrower authorized to execute and deliver this Amendment and to request borrowings under the Agreement as amended by this Amendment, (C) certifying and attaching true and complete copies of authorizing resolutions of the board of directors of such Borrower to authorize the execution, delivery, and performance of this Amendment and the other Loan Documents to be executed by such Borrower in connection herewith, (D) certifying that the formation document of such Borrower, a copy of which has been previously certified to the Agent under that certain Corporate Certificate dated as of November 20, 2000, remains in full force and effect on and as of the date hereof without further modification or amendment in any respect since November 20, 2000, and (E) certifying that the organizational document of such Borrower, a copy of which have been previously certified to the Agent under that certain Corporate Certificate dated as of November 20, 2000, remain in full force and effect on and as of the date hereof without further modification or amendment in any respect since November 20, 2000; Preferred Stock Documents . Executed copies of the Investor Rights Agreement, the Stock Purchase Agreement, the Right of First Refusal Agreement dated as of the date hereof among the Parent, the Investors, and the Family Members (as defined in the Stock Purchase Agreement), the Employment Agreement, the Voting Agreement dated as of the date hereof among the Parent, the Investors, Rebecca Powell Casey, Michael T. Casey, and the other Family Members (as defined in the Stock Purchase Agreement), the Shareholders Agreement Amendment evidencing the amendment of the Parent's First Amended and Restated Stockholders' Agreement, dated June 15, 1998, the Second Amendment to Employment Agreement evidencing the amendment by Rebecca Powell Casey to her employment agreement with the Parent, the First Amendment to Employment Agreement evidencing the amendment by Harold G. Powell to his employment/consulting Agreement, the Confidential Separation Agreement and Release between H. Rainey Powell and the Parent, and all other documentation executed and delivered in connection with the transactions contemplated by such documents (collectively, the " Preferred Stock Documents "); Receipt of Amendment Fee . The amendment fee in accordance with Section 4.6 hereto; Receipt of Joinder Agreement, Financing Statements, and Corporate Certificate of White Flint . Executed originals of (A) the certain Joinder Agreement dated concurrently herewith (the " Joinder Agreement ") joining Harold's of White Flint, Inc. (" White Flint ") to the Subsidiary Guarantor Documents, (B) UCC financing statements with respect to all of White Flint's Collateral (as defined in the Subsidiary Security Agreement) and other property (as applicable) in which a Lien is granted to the Agent and take all other steps reasonably required by the Agent to evidence, perfect, maintain, protect, and enforce the Agent's Lien in all such property, (C) a certificate duly executed by the secretary and president of White Flint certifying (1) certifying that White Flint is in existence and good standing in Maryland and Oklahoma, (2) certifying to the current incumbency with respect to each of the officers of White Flint authorized to execute and deliver the Joinder Agreement and the Subsidiary Guarantor Documents, (3) certifying and attaching true and complete copies of authorizing resolutions of the board of directors of White Flint to authorize the execution, delivery, and performance of the Joinder Agreement, the Subsidiary Guarantor Documents, and the other Loan Documents to be executed by White Flint in connection therewith, and (4) certifying and attaching true and correct copies of the certificate of incorporation and the bylaws of White Flint, and (D) any other instrument, document, or certificate reasonably required by the Agent to be executed or delivered by White Flint in connection with the Joinder Agreement or the Subsidiary Guarantor Documents (collectively, the " White Flint Documents "); Opinion of Counsel . A signed opinion of counsel for the Parent, opining as to such matters in connection with the transactions contemplated by this Amendment as the Agent may reasonably request, such opinion to be in form, scope, and substance satisfactory to the Agent, Lenders, and their respective counsel, and addressing, without limitation, that these transactions comply in all material respects with all Requirements of Law of any Governmental Authority, that the sale of shares pursuant to the Stock Purchase Agreement is exempt under all applicable federal and state securities laws, that no approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority, the American Stock Exchange, or other Person is necessary or required in connection with the execution, delivery, or performance by, or enforcement against, the Parent of this Amendment, the White Flint Documents, or any Preferred Stock Documents; Evidence of Proceeds . Evidence in form and substance satisfactory to the Agent, Lenders, and their respective counsel, that the Parent has received payment in full for the Stock Issuance; Closing Certificate . A certificate of the Borrowers in form and substance satisfactory to the Agent certifying as to the satisfaction of the conditions precedent set forth in this Section 4.1 ; and Additional Information . Such additional documents, instruments, and information as the Agent may reasonably request to effect the transactions contemplated hereby. The representations and warranties contained herein, in the Agreement, and in all other Loan Documents, as amended hereby, shall be true and correct in all material respects as of the date hereof as if made on the date hereof (except those, if any, which by their terms specifically relate only to a different date). All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all other agreements, documents, and instruments executed and/or delivered pursuant hereto, and all legal matters incident thereto, shall be reasonably satisfactory to the Agent. No Default or Event of Default shall have occurred and be continuing. Representations and Warranties . The Borrowers hereby represent and warrant to the Agent that, as of the date of and after giving effect to this Amendment, (a) the execution, delivery, and performance of this Amendment and any and all other Amendment Documents executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of each Borrower and will not violate any Borrower's certificate of incorporation or bylaws, (b) all representations and warranties set forth in the Agreement and in any other Loan Document are true and correct in all material respects as if made again on and as of such date (except those, if any, which by their terms specifically relate only to a different date), and (c) no Default or Event of Default has occurred and is continuing. Survival of Representations and Warranties . All representations and warranties made in this Amendment or any other Loan Document shall survive the execution and delivery of this Amendment and the other Loan Documents, and no investigation by the Agent or any Lender, or any closing, shall affect the representations and warranties or the right of the Agent and the Lenders to rely upon them. Reference to Agreement . Each of the Loan Documents, including the Agreement, the Amendment Documents, and any and all other agreements, documents, or instruments now or hereafter executed and/or delivered pursuant to the terms hereof or pursuant to the terms of the Agreement as amended hereby, are hereby amended so that any reference in such Loan Documents to the Agreement, whether direct or indirect, shall mean a reference to the Agreement as amended hereby. Ratifications . Each of the parties hereto agrees that the Loan Documents, as amended hereby, shall continue to be legal, valid, binding, and enforceable in accordance with their respective terms. Without limiting the generality of the foregoing, each Borrower hereby acknowledges and confirms, that upon the effectiveness of this Amendment, and as a result thereof, the liens, security interests, and assignments created and evidenced by the Loan Documents are valid and existing liens, security interests, and assignments of the respective priority recited in the Loan Documents. Amendment Fee . The Borrowers jointly and severally agree to pay to the Agent and the Lenders on the date hereof an amendment fee in the amount of $20,000 as additional consideration for the Agent's and the Lenders agreement to amend the Agreement, consent to the Proposed Actions, and waive the Existing Defaults. 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. General . This Amendment, when signed by the Majority Lenders and each Borrower, as provided hereinbelow (a) shall be deemed effective prospectively as of the Effective Date, (b) contains the entire agreement among the parties and may not be amended or modified except in writing signed by all parties, (c) shall be governed and construed according to the laws of the State of Texas, (d) may be executed in any number of counterparts, each of which shall be valid as an original and all of which shall be one and the same agreement, and (e) shall constitute a Loan Document. A telecopy or other electronic transmission of any executed counterpart shall be deemed valid as an original. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.     IN WITNESS WHEREOF, the parties have entered into this Agreement on the date first above written. BORROWERS : HAROLD'S STORES, INC.   By: H. Rainey Powell President   HAROLD'S FINANCIAL CORPORATION   By: H. Rainey Powell President HAROLD'S DIRECT, INC.   By: H. Rainey Powell President   HAROLD'S STORES OF TEXAS, L.P. By: HSTX, Inc., General Partner   By: Rebecca P. Casey President HAROLD'S STORES OF GEORGIA, L.P. By: HSGA, Inc., General Partner   By: H. Rainey Powell President HAROLD'S OF JACKSON, INC.   By: H. Rainey Powell President AGENT : BANK OF AMERICA, NATIONAL ASSOCIATION, as the Agent   By: Carol L. Whitley Vice President LENDER : BANK OF AMERICA, NATIONAL ASSOCIATION   By: Carol L. Whitley Vice President       ACKNOWLEDGMENT, CONSENT, AND REAFFIRMATION Each of the undersigned hereby acknowledges and consents to the execution and terms and conditions of the foregoing Amendment and reaffirms its obligations under that certain Security Agreement dated as of November 20, 2000 (the " Security Agreement") and that certain Subsidiary Guaranty Agreement dated as of November 20, 2000 (the "Guaranty Agreement"), made by each of the undersigned in favor of the Agent, for the benefit of the Agent and the Lenders, and acknowledges and agrees that the Security Agreement and the Guaranty Agreement remain in full force and effect and the Security Agreement and the Guaranty Agreement are hereby ratified and confirmed in all respects. Dated as of February 23, 2001. HAROLD'S DBO, INC.   By: Rebecca P. Casey, President HSGA, INC.   By: H. Rainey Powell, President HSTX, INC.   By: Rebecca P. Casey, President HAROLD'S LIMITED PARTNERS, INC.   By: H. Rainey Powell, President THE CORNER PROPERTIES, INC.   By: H. Rainey Powell, President HAROLD'S OF WHITE FLINT, INC.   By: Name: Title: SCHEDULE 1.1(C) INVESTORS Investor Name and Address Number of Shares Aggregate Purchase Price INTER-HIM, N.V. Switzerland Representative Office Im Langacker 16 Postfach CH-5401 Baden Schweiz Attn: Mr. Victor Hoogstraal Telecopy: +41 56 483 0389 300,000 $6,000,000           SCHEDULE 8.7 CAPITALIZATION   Shares Authorized Shares Issued and Outstanding Company Common Preferred Common Preferred Harold's Stores, Inc. 25,000,000 1,000,000 6,084,302 300,000 Series 2001-A Harold's Financial Corporation 20,000 180,000 20,000 180,000 Harold's Direct, Inc. 50,000 N/A 50,000 N/A Harold's Limited Partners, Inc. 50,000 N/A 500 N/A Harold's DBO, Inc. 50,000 N/A 1,000 N/A HSTX, Inc. 50,000 N/A 1,000 N/A HSGA, Inc. 50,000 N/A 1,000 N/A Harold's of Jackson, Inc. 50,000 50,000 50,000 50,000 The Corner Properties, Inc. 50,000 N/A 50,000 N/A Harold's of Texas, Inc. (formerly known as Southcoast Plaza, Inc.) 25,000 N/A 10,000 N/A Harold's of White Flint, Inc. 10,000 N/A 10,000 N/A CMT Enterprises, Inc. 200 N/A 10 N/A Harold's Stores of Texas, L.P. - owned by HSTX, Inc. (1%) and Harold's Limited Partners, Inc. (99%) Harold's Stores of Georgia, L.P. - owned by HSGA, Inc. (1%) and Harold's Limited Partners, Inc. (99%) The following individuals/entities own over 5% of the Capital Stock of Harold's Stores, Inc.: 1. Rebecca P. Casey 2. Michael T. Casey 3. H. Rainey Powell 4. Harold G. Powell 5. Lisa P. Hunt 6. Inter-Him N.V. (c/o Ronald deWaal Investments) 7. Safeco Asset Management Company 8. Security National Bank & Trust of Norman, as Trustee

EXHIBIT 10.5   E*TRADE GROUP, INC. NOTE SECURED BY STOCK PLEDGE AGREEMENT $12,500,000 June 19, 2001 Menlo Park, California           FOR VALUE RECEIVED, Christos M. Cotsakos ("Maker") promises to pay to the order of E*TRADE Group, Inc., a Delaware corporation (the "Corporation"), at its corporate offices at 4500 Bohannon Drive, Menlo Park, California 94025, the principal sum of Twelve Million Five Hundred Thousand Dollars ($12,500,000), together with all accrued interest thereon, upon the terms and conditions specified below.           1.      Purchase Money Indebtedness.   The proceeds of this Note shall be applied solely and exclusively to the payment of the purchase price of Two Million Five Hundred Ten Thousand, Three Hundred Twenty-three (2,510,323) shares of the Corporation's common stock acquired this day by Maker (the "Purchased Shares"), together with all associated taxes, and those Purchased Shares shall be held in pledge by the Corporation as collateral for the payment of this Note.           2.     Interest.   Interest shall accrue on the unpaid balance outstanding from time to time under this Note at the rate of 7.5% per annum, compounded semi-annually. Accrued and unpaid interest as of June 19, 2002 shall become due and payable on June 19, 2002.           3.     Principal Due Date.   Subject to the accelerated payment provisions of Paragraph 5 and 6 of this Note, the principal balance of this Note shall become due and payable in one lump sum on July 19, 2002.           4.     Payment.   Payment shall be made in lawful tender of the United States and shall be applied first to the payment of all accrued and unpaid interest and then to the payment of principal. Prepayment of the principal balance of this Note, together with all accrued and unpaid interest on the portion of principal so prepaid, may be made in whole or in part at any time without penalty.           5.     Events of Acceleration.   The entire unpaid principal balance of this Note, together with all accrued and unpaid interest, shall become immediately due and payable prior to the specified due date of this Note upon the occurrence of one or more of the following events:                   A.     the failure of the Maker to pay any installment of principal or accrued interest under this Note when due and the continuation of such default for more than thirty (30) days; or                   B.     the expiration of the thirty (30)-day period following the date the Maker ceases for any reason to remain in the employ of the Corporation; or                   C.     the insolvency of the Maker, the commission of any act of bankruptcy by the Maker, the execution by the Maker of a general assignment for the benefit of creditors, the filing by or against the Maker of any petition in bankruptcy or any petition for relief under the provisions of the Federal bankruptcy act or any other state or Federal law for the relief of debtors and the continuation of such petition without dismissal for a period of thirty (30) days or more, the appointment of a receiver or trustee to take possession of any property or assets of the Maker or the attachment of or execution against any property or assets of the Maker; or                   D.     an acquisition of the Company (whether by merger, sale of all or substantially all of the Company's assets or sale of more than fifty percent (50%) of the Company's outstanding voting securities) for consideration payable in cash or freely-tradable securities; provided, however, that if the Pooling of Interest Method, as described in Accounting Principles Board Opinion No. 16, is used to account for the acquisition for financial accounting purposes, then acceleration of this Note shall not occur until the end of the sixty (60)-day period immediately following the close of the applicable transfer restriction period required under Accounting Series Release Numbers 130 and 135 and further provided that any contrary provision in any employment agreement or action by the Company's compensation committee shall supercede this provision; or                   E.     the occurrence of any event of default under the Stock Pledge Agreement securing this Note or any obligation secured thereby.           6.     Special Acceleration Event. In the event the Maker sells or otherwise transfers for value one or more shares of the Corporation's common stock purchased with the proceeds of this Note, then any unpaid portion of the principal balance of this Note attributable to the purchase price of those shares shall become immediately due and payable, together with all accrued and unpaid interest on that principal portion.           7.     Employment. The Maker shall be deemed to continue in employment with the Corporation for so long as he or she renders services as an employee of the Corporation or one or more of the Corporation's fifty percent (50%) or more owned (directly or indirectly) subsidiaries.           8.     Security. Payment of this Note shall be secured by a pledge of the Purchased Shares with the Corporation pursuant to the Stock Pledge Agreement to be executed this date by the Maker. The Maker, however, shall remain personally liable for payment of this Note, and assets of the Maker, in addition to the collateral under the Stock Pledge Agreement, may be applied to the satisfaction of the Maker's obligations hereunder.           9.     Collection. If action is instituted to collect this Note, the Maker promises to pay all costs and expenses (including reasonable attorney fees) incurred in connection with such action.            10.     Waiver. A waiver of any term of this Note, the Stock Pledge Agreement or of any of the obligations secured thereby must be made in writing and signed by a duly-authorized officer of the Corporation and any such waiver shall be limited to its express terms.            No delay by the Corporation in acting with respect to the terms of this Note or the Stock Pledge Agreement shall constitute a waiver of any breach, default, or failure of a condition under this Note, the Stock Pledge Agreement or the obligations secured thereby.            The Maker 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 interest on interest 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.                    11.     Conflicting Agreements. 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 the Note, the terms of this Note shall prevail.            12.     Governing Law. This Note shall be construed in accordance with the laws of the State of California without resort to that State's conflict-of-laws rules.   /s/ Christos M. Cotsakos   --------------------------------------------------------------------------------   Christos M. Cotsakos, MAKER   E*TRADE GROUP, INC. STOCK PLEDGE AGREEMENT                AGREEMENT made as of this 19th day of June, 2001 by and between E*TRADE Group, Inc., a Delaware corporation (the “Corporation”), and Christos M. Cotsakos (“Pledgor”). RECITALS           A. In connection with the purchase this day of Two Million Five Hundred Ten Thousand, Three Hundred Twenty-Three (2,510,323) shares of the Corporation’s Common Stock (the “Purchased Shares”) from the Corporation, Pledgor has issued that certain promissory note (the “Note”) dated June 19, 2001 payable to the order of the Corporation in the principal amount of Twelve Million Five Hundred Thousand Dollars ($12,500,000.00).           B. Such Note is secured by the Purchased Shares and other collateral upon the terms set forth in this Agreement.                NOW, THEREFORE, it is hereby agreed as follows:                1. Grant of Security Interest. Pledgor hereby grants the Corporation a security interest in, and assigns, transfers to and pledges with the Corporation, the following securities and other property (collectively, the “Collateral”): >                (i) the Purchased Shares delivered to and deposited with the > Corporation as collateral for the Note; > >                (ii) any and all new, additional or different securities or > other property subsequently distributed with respect to the Purchased Shares > which are to be delivered to and deposited with the Corporation pursuant to > the requirements of Paragraph 3 of this Agreement; > >                (iii) any and all other property and money which is delivered > to or comes into the possession of the Corporation pursuant to the terms of > this Agreement; and > >                (iv) the proceeds of any sale, exchange or disposition of the > property and securities described in subparagraphs (i), (ii) or (iii) above.                2. Warranties. Pledgor hereby warrants that Pledgor is the owner of the Collateral and has the right to pledge the Collateral and that the Collateral is free from all liens, adverse claims and other security interests (other than those created hereby).                3. Duty to Deliver. Any new, additional or different securities or other property (other than regular cash dividends) which may now or hereafter become distributable with respect to the Collateral by reason of (i) any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the Common Stock as a class without the Corporation’s receipt of consideration or (ii) any merger, consolidation or other reorganization affecting the capital structure of the Corporation shall, upon receipt by Pledgor, be promptly delivered to and deposited with the Corporation as part of the Collateral hereunder. Any such securities shall be accompanied by one or more properly-endorsed stock power assignments.                4. Payment of Taxes and Other Charges. Pledgor shall pay, prior to the delinquency date, all taxes, liens, assessments and other charges against the Collateral, and in the event of Pledgor’s failure to do so, the Corporation may at its election pay any or all of such taxes and other charges without contesting the validity or legality thereof. The payments so made shall become part of the indebtedness secured hereunder and until paid shall bear interest at the minimum per annum rate, compounded semi-annually, required to avoid the imputation of interest income to the Corporation and compensation income to Pledgor under the Federal tax laws.                5. Stockholder Rights. So long as there exists no event of default under Paragraph 10 of this Agreement, Pledgor may exercise all stockholder voting rights and be entitled to receive any and all regular cash dividends paid on the Collateral and all proxy statements and other stockholder materials pertaining to the Collateral.                6. Rights and Powers of Corporation. The Corporation may, without obligation to do so, exercise at any time and from time to time one or more of the following rights and powers with respect to any or all of the Collateral: >                (i) subject to the applicable limitations of Paragraph 9, > accept in its discretion other property of Pledgor in exchange for all or part > of the Collateral and release Collateral to Pledgor to the extent necessary to > effect such exchange, and in such event the other property received in the > exchange shall become part of the Collateral hereunder; > >                (ii) perform such acts as are necessary to preserve and protect > the Collateral and the rights, powers and remedies granted with respect to > such Collateral by this Agreement; and > >                (iii) transfer record ownership of the Collateral to the > Corporation or its nominee and receive, endorse and give receipt for, or > collect by legal proceedings or otherwise, dividends or other distributions > made or paid with respect to the Collateral, provided and only if there exists > at the time an outstanding event of default under Paragraph 10 of this > Agreement. Any cash sums which the Corporation may so receive shall be applied > to the payment of the Note and any other indebtedness secured hereunder, in > such order of application as the Corporation deems appropriate. Any remaining > cash shall be paid over to Pledgor.                     Any action by the Corporation pursuant to the provisions of this Paragraph 6 may be taken without notice to Pledgor. Expenses reasonably incurred in connection with such action shall be payable by Pledgor and form part of the indebtedness secured hereunder as provided in Paragraph 12.                     7. Care of Collateral. The Corporation shall exercise reasonable care in the custody and preservation of the Collateral. However, the Corporation shall have no obligation to (i) initiate any action with respect to, or otherwise inform Pledgor of, any conversion, call, exchange right, preemptive right, subscription right, purchase offer or other right or privilege relating to or affecting the Collateral, (ii) preserve the rights of Pledgor against adverse claims or protect the Collateral against the possibility of a decline in market value or (iii) take any action with respect to the Collateral requested by Pledgor unless the request is made in writing and the Corporation determines that the requested action will not unreasonably jeopardize the value of the Collateral as security for the Note and other indebtedness secured hereunder.                     Subject to the limitations of Paragraph 9, the Corporation may at any time release and deliver all or part of the Collateral to Pledgor, and the receipt thereof by Pledgor shall constitute a complete and full acquittance for the Collateral so released and delivered. The Corporation shall accordingly be discharged from any further liability or responsibility for the Collateral, and the released Collateral shall no longer be subject to the provisions of this Agreement.                     8. Transfer of Collateral. In connection with the transfer or assignment of the Note (whether by negotiation, discount or otherwise), the Corporation may transfer all or any part of the Collateral, and the transferee shall thereupon succeed to all the rights, powers and remedies granted the Corporation hereunder with respect to the Collateral so transferred. Upon such transfer, the Corporation shall be fully discharged from all liability and responsibility for the transferred Collateral.                     9. Release of Collateral. Provided all indebtedness secured hereunder (other than payments not yet due and payable under the Note) shall at the time have been paid in full and there does not otherwise exist any event of default under Paragraph 10, the Purchased Shares, together with any additional Collateral which may hereafter be pledged and deposited hereunder, shall be released from pledge and returned to Pledgor in accordance with the following provisions: >                     (i) Upon payment or prepayment of principal under the > Note, together with payment of all accrued interest to date on the principal > amount so paid or prepaid, one or more of the Purchased Shares held as > Collateral hereunder shall (subject to the applicable limitations of > Paragraphs 9(iii) and 9(v) below) be released at the time of such payment or > prepayment. The number of the shares to be so released shall be equal to the > number obtained by multiplying (i) the total number of Purchased Shares held > under this Agreement at the time of the payment or prepayment, by (ii) a > fraction, the numerator of which shall be the amount of the principal paid or > prepaid and the denominator of which shall be the unpaid principal balance of > the Note immediately prior to such payment or prepayment. In no event, > however, shall any fractional shares be released. > >                     (ii) Any additional Collateral which may hereafter be > pledged and deposited with the Corporation (pursuant to the requirements of > Paragraph 3) with respect to the Purchased Shares shall be released at the > same time the particular shares of Common Stock to which the additional > Collateral relates are to be released in accordance with the applicable > provisions of Paragraph 9(i) or 9(vi). > >                     (iii) Under no circumstances, however, shall any Purchased > Shares or any other Collateral be released if previously applied to the > payment of any indebtedness secured hereunder. In addition, in no event shall > any Purchased Shares or other Collateral be released pursuant to the > provisions of Paragraph 9(i), 9(ii) or 9(vi) if, and to the extent, the fair > market value of the Common Stock and all other Collateral which would > otherwise remain in pledge hereunder after such release were effected would be > less than the unpaid principal and accrued interest under the Note. > >                     (iv) For all valuation purposes under this Agreement, the > fair market value per share of Common Stock on any relevant date shall be > determined in accordance with the following provisions: > >                          (A) If the Common Stock is at the time traded on the > Nasdaq National Market, the fair market value shall be the average of the high > and low selling prices per share of Common Stock on the date in question, as > such prices are reported by the National Association of Securities Dealers on > the Nasdaq National Market. If there is no average of the high and low selling > prices for the Common Stock on the date in question, then the average of the > high and low selling prices on the last preceding date for which such > quotation exists shall be determinative of fair market value. > >                          (B) If the Common Stock is at the time listed on the > American Stock Exchange or the New York Stock Exchange, then the fair market > value shall be the average of the high and low selling prices selling prices > per share of Common Stock on the date in question on the securities exchange > serving as the primary market for the Common Stock, as such prices are > officially quoted in the composite tape of transactions on such exchange. If > there is no average of the high and low selling prices of Common Stock on such > exchange on the date in question, then the fair market value shall be the > average of the high and low selling prices on the exchange on the last > preceding date for which such quotation exists. >                           (C) If the Common Stock is at the time neither > listed on any securities exchange nor traded on the Nasdaq National Market, > the fair market value shall be determined by the Corporation’s Board of > Directors after taking into Account such factors as the Board shall deem > appropriate. > >                     (v) So long as the Collateral is in whole or in part > comprised of “margin stock” within the meaning of Section 221.2 of Regulation > U of the Federal Reserve Board, then no Collateral shall be substituted for > any Collateral under the provisions of Paragraph 6(i) or be released under > Paragraph 9(i), 9(ii) or 9(vi), unless there is compliance with each of the > following additional requirements: > >                          (A) The substitution or release must not increase the > amount by which the indebtedness secured hereunder at the time of such > substitution or release exceeds the maximum loan value (as defined below) of > the Collateral immediately prior to such substitution or release. > >                          (B) The substitution or release must not cause the > amount of indebtedness secured hereunder at the time of such substitution or > release to exceed the maximum loan value of the Collateral remaining after > such substitution or release is effected. > >                          (C) For purposes of this Paragraph 9(v), the maximum > loan value of each item of Collateral shall be determined on the day the > substitution or release is to be effected and shall, in the case of the shares > of Common Stock and any additional Collateral (other than margin stock), equal > the good faith loan value thereof (as defined in Section 221.2 of Regulation > U) and shall, in the case of all margin stock (other than the Common Stock), > equal fifty percent (50%) of the current market value of such margin stock. > >                     (vi) The Compensation Committee of the Corporation’s Board > of Directors shall have the discretion, exercisable upon such terms and > conditions as the Compensation Committee deems advisable, to authorize the > release of one or more shares of Common Stock from pledge hereunder in the > event the maximum loan value of the Collateral pledged hereunder (as such > value is determined pursuant to subparagraph 9(v)(C)) should substantially > exceed the outstanding indebtedness at the time secured hereunder. Any such > release of the pledged shares of Common Stock shall, however, be effected in > compliance with the requirements of subparaphs (iii) and (v) of this Paragraph > 9.                     10. Events of Default. The occurrence of one or more of the following events shall constitute an event of default under this Agreement: >                     (i) the failure of Pledgor to pay, when due under the > Note, any installment of principal or accrued interest; or >                     (ii) the occurrence of any other acceleration event > specified in the Note; or > >                     (iii) the failure of Pledgor to perform any obligation > imposed upon Pledgor by reason of this Agreement; or > >                     (iv) the breach of any warranty of Pledgor contained in > this Agreement.                Upon the occurrence of any such event of default, the Corporation may, at its election, declare the Note and all other indebtedness secured hereunder to become immediately due and payable and may exercise any or all of the rights and remedies granted to a secured party under the provisions of the California Uniform Commercial Code (as now or hereafter in effect), including (without limitation) the power to dispose of the Collateral by public or private sale or to accept the Collateral in full payment of the Note and all other indebtedness secured hereunder.                Any proceeds realized from the disposition of the Collateral pursuant to the foregoing power of sale shall be applied first to the payment of expenses incurred by the Corporation in connection with the disposition, then to the payment of the Note and finally to any other indebtedness secured hereunder. Any surplus proceeds shall be paid over to Pledgor. However, in the event such proceeds prove insufficient to satisfy all obligations of Pledgor under the Note, then Pledgor shall remain personally liable for the resulting deficiency.           11. Other Remedies. The rights, powers and remedies granted to the Corporation pursuant to the provisions of this Agreement shall be in addition to all rights, powers and remedies granted to the Corporation under any statute or rule of law. Any forbearance, failure or delay by the Corporation in exercising any right, power or remedy under this Agreement shall not be deemed to be a waiver of such right, power or remedy. Any single or partial exercise of any right, power or remedy under this Agreement shall not preclude the further exercise thereof, and every right, power and remedy of the Corporation under this Agreement shall continue in full force and effect unless such right, power or remedy is specifically waived by an instrument executed by the Corporation.           12. Costs and Expenses. All costs and expenses (including reasonable attorneys fees) incurred by the Corporation in the exercise or enforcement of any right, power or remedy granted it under this Agreement shall become part of the indebtedness secured hereunder and shall constitute a personal liability of Pledgor payable immediately upon demand and bearing interest until paid at the minimum per annum rate, compounded semiannually, required to avoid the imputation of interest income to the Corporation and compensation income to Pledgor under the Federal tax laws.           13. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California without resort to that State’s conflict-of-laws rules.           14. Successors. This Agreement shall be binding upon the Corporation and its successors and assigns and upon Pledgor and the executors, heirs and legatees of Pledgor’s estate.           15. Severability. If any provision of this Agreement is held to be invalid under applicable law, then such provision shall be ineffective only to the extent of such invalidity, and neither the remainder of such provision nor any other provisions of this Agreement shall be affected thereby.           IN WITNESS WHEREOF, this Agreement has been executed by Pledgor and the Corporation on this 19th day of June, 2001.       /s/ CHRISTOS M. COTSAKOS       --------------------------------------------------------------------------------       PLEDGOR               Address:                                                  --------------------------------------------------------------------------------       --------------------------------------------------------------------------------                         AGREED TO AND ACCEPTED BY:       E*TRADE GROUP, INC.       By: /s/ RUSSELL S. ELMER         --------------------------------------------------------------------------------       Title: Chief People and Culture Officer         --------------------------------------------------------------------------------       Dated:  June 19, 2001       ASSIGNMENT SEPARATE FROM CERTIFICATE           FOR VALUE RECEIVED, ______________ hereby sells, assigns and transfers unto E*TRADE Group, Inc. (the “Corporation”), __________ (____) shares of the Common Stock of the Corporation standing in his name on the books of the Corporation represented by Certificate No.___herewith and does hereby irrevocably constitute and appoint________ Attorney to transfer the said stock on the books of the Corporation with full power of substitution in the premises. Dated:               --------------------------------------------------------------------------------                 Signature:         -------------------------------------------------------------------------------- Instruction: Please do not fill in any blanks other than the signature line. Please sign exactly as you would like your name to appear on the issued stock certificate.

AMENDMENT NO. 1 TO FINANCING AGREEMENT                            This AMENDMENT NO. 1 TO FINANCING AGREEMENT (this “Amendment”), made as of March 30, 2001, between FIRSTAR BANK, NATIONAL ASSOCIATION, a national banking association (“Bank”) and VARI-LITE, INC., a Delaware corporation (“Borrower”), WITNESSETH:                            WHEREAS, Borrower and Bank have entered into that certain Financing Agreement, dated as of December 29, 2000 (the “Financing Agreement”), pursuant to which Bank has made certain loans and financial accommodations available to Borrower; and                            WHEREAS, Borrower and Bank desire to amend the Financing Agreement as hereinafter set forth;                            NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Bank and Borrower agree as follows: 1.  DEFINED TERMS.                            Each defined term used herein and not otherwise defined herein has the meaning ascribed to such term in the Financing Agreement. 2.  AMENDMENT TO FINANCING AGREEMENT.                            The Financing Agreement is amended, effective as of the date of this Agreement, as follows:                            2.1        Amendment to Exhibit J. Exhibit J to the Financing Agreement is amended in its entirety to read as set forth on Exhibit J attached hereto and by reference made a part hereof.                            2.2        Amendment to Section 8.7 of the Financing Agreement—Certified Quarterly Financial Statements. Section 8.7 of the Financing Agreement is amended in its entirety to read as follows:                                         Section 8.7 — Certified Quarterly Financial Statements.                                         Promptly when available and in any event not later than forty-five (45) days after the end of each quarter, Borrower shall furnish to Bank quarterly financial statements, on a consolidated basis, showing International’s financial condition and results of International's operations for the periods of time covered by such statements in such detail as Bank may from time to time require, prepared in accordance with generally accepted accounting principles consistently applied and containing all disclosures required to fully and accurately present the financial position and results of International and to make such statements not misleading under the circumstances, and in each instance certified by the chief financial officer or other responsible officer of International as being filed with the Securities and Exchange Commission.  Said statements shall include: (i) a comparison prepared by International of its projected financial position and results of operations of International provided for in Section 8.6 hereof with the actual financial position and results of operations of International and an explanation of any variations between them; and (ii) a comparison between actual calculated results and the covenanted results for each of the Financial Covenants contained in Exhibit  J attached hereto and incorporated herein by reference. 3.  REPRESENTATIONS AND WARRANTIES.                            Borrower represents and warrants to Bank as follows:                            3.1        The Amendment.  This Amendment has been duly and validly executed by an authorized executive officer of Borrower and constitutes the legal, valid and binding obligation of Borrower enforceable against Borrower in accordance with its terms.                            3.2        Financing Agreement.  The Financing Agreement as amended by this Amendment remains in full force and effect and remains the valid and binding obligation of Borrower enforceable against Borrower in accordance with its terms.  Borrower hereby ratifies and confirms the Financing Agreement as amended by this Amendment.                            3.3        Nonwaiver. Neither the execution, delivery, performance or effectiveness of this Amendment shall operate nor be deemed to be nor construed as a waiver (i) of any right, power or remedy of Bank under the Financing Agreement, nor (ii) of any term, provision, representation, warranty or covenant contained in the Financing Agreement or any other documentation executed in connection therewith.  Further, none of the provisions of this Amendment shall constitute, or be deemed to be or construed as, a waiver of any Event of Default under the Financing Agreement as amended by this Amendment.                            3.4        Reference to and Effect on the Financing Agreement.  Upon the effectiveness of this Amendment, each reference in the Financing Agreement to “this Agreement”, “hereunder”, “hereof”, “herein”, or words of like import shall mean and be a reference to the Financing Agreement as amended hereby, and each reference to the Financing Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Financing Agreement shall mean and be a reference to the Financing Agreement as amended hereby.                            3.5        Claims and Defenses.  As of the date of this Amendment, Borrower has no defenses, claims, counterclaims or setoffs with respect to the Financing Agreement or its Obligations thereunder or with respect to any actions of the Bank or any of its officers, directors, shareholders, employees, agents or attorneys, and Borrower irrevocably and absolutely waives any such defenses, claims, counterclaims and setoffs and releases the Bank and each of its officers, directors, shareholders, employees, agents and attorneys from the same. 4.  CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AMENDMENT NO. 1.                            In addition to all of the other conditions and agreements set forth herein, the effectiveness of this Amendment is subject to the each of the following conditions precedent:                            4.1        Amendment No. 1 to Financing Agreement.  Bank shall have received an original counterpart of this Amendment No. 1 to Financing Agreement, executed and delivered by a duly authorized officer of Borrower.                            4.2        Acknowledgment of Guarantor.  Bank shall have received an original of the attached Acknowledgment of Vari-Lite International, Inc., a Delaware corporation, executed and delivered by a duly authorized officer of Vari-Lite International, Inc..                            4.3        No Material Adverse Change.  There shall have occurred no material and adverse change in the Borrower’s assets, liabilities or financial condition since the date of the last Financials delivered by Borrower to Bank nor shall there have been any material damage to or loss of any of Borrower’s assets or properties since such date. 5.  SECTION   MISCELLANEOUS.                            5.1        Governing Law.  This Amendment has been delivered and accepted at and shall be deemed to have been made at Cleveland, Ohio.  This Amendment shall be interpreted and the rights and liabilities of the parties hereto determined in accordance with the laws of the State of Ohio, without regard to principles of conflict of law, and all other laws of mandatory application.                            5.2        Severability.  Each provision of this Amendment shall be interpreted in such manner as to be valid under applicable law, but if any provision hereof shall be invalid under applicable law, such provision shall be ineffective to the extent of such invalidity, without invalidating the remainder of such provision or the remaining provisions hereof.                            5.3        Counterparts.  This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute but one and the same agreement.                            IN WITNESS WHEREOF, Borrower has caused this Amendment No. 1 to Financing Agreement to be duly executed and delivered by its duly authorized officer as of the date first above written. Signed and acknowledged in the presence of:   VARI-LITE, INC.           --------------------------------------------------------------------------------   By: --------------------------------------------------------------------------------         Name: --------------------------------------------------------------------------------                     Its: -------------------------------------------------------------------------------- --------------------------------------------------------------------------------               Name: --------------------------------------------------------------------------------         STATE OF --------------------------------------------------------------------------------   )       )ss: COUNTY OF --------------------------------------------------------------------------------   )                            The foregoing instrument was acknowledged before me this ___ day of May, 2001, by _______________, the ___________________ of Vari-Lite, Inc., a Delaware corporation, on behalf of the corporation.     --------------------------------------------------------------------------------     Notary Public                                                     Accepted at Cleveland, Ohio, Effective as of  March 30, 2001.FIRSTAR BANK, NATIONAL ASSOCIATION     By: --------------------------------------------------------------------------------       Its: --------------------------------------------------------------------------------   ACKNOWLEDGMENT OF GUARANTOR                            The undersigned, Vari-Lite International, Inc., a Delaware corporation, having guaranteed all of the obligations of Vari-Lite, Inc. to Firstar Bank, National Association (“Bank”), hereby acknowledges and agrees, effective as of March 30, 2001, to the terms of the foregoing Amendment No. 1 to Financing Agreement.  The undersigned represents and warrants to Bank that the Guaranty executed and delivered by the undersigned to Bank, dated as of December 29, 2000, remains the valid and binding obligation of the undersigned, enforceable against it in accordance with its terms.       VARI-LITE INTERNATIONAL, INC.             By: --------------------------------------------------------------------------------                 Its: --------------------------------------------------------------------------------         STATE OF --------------------------------------------------------------------------------   )           )ss:     COUNTY OF --------------------------------------------------------------------------------   )                                The foregoing instrument was acknowledged before me this ___ day of May, 2001, by ___________________, the ________________ of VARI-LITE INTERNATIONAL, INC., a Delaware corporation, on behalf of the company.     --------------------------------------------------------------------------------   Notary Public                                                Exhibit J Financial Covenants Financial Covenants.  Borrower agrees that it shall: (A) Net Capital Expenditures.  Not make nor permit International to make  Net Capital Expenditures in an aggregate amount exceeding $9,000,000 for any fiscal year. (B) Earnings Before Interest, Taxes, Depreciation and Amortization.  Not permit International’s Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") to be less than the following amounts for the following periods:                      EBIDTA                  Period -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- $ 2,931,000 10/01/00 - 12/31/00 $ 6,234,000 10/01/00 - 03/31/01 $ 9,875,000 10/01/00 - 06/30/01 $14,532,000 10/01/00 - 09/30/01 $16,123,000 01/01/01 - 12/31/01 $16,272,000 04/01/01 - 03/31/02 $15,834,000 07/01/01 - 06/30/02 $15,447,000 10/01/01 - 09/30/02 $16,314,000 01/01/02 - 12/31/02 $16,882,000 04/01/02 - 03/31/03 $17,385,000 07/01/02 - 06/30/03 $18,123,000 10/01/02 - 09/30/03   (C) Net Worth.  Not permit International’s Net Worth to be less than the following amounts as of the following dates:                    Net Date                  Period -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- $45,000,000 12/31/00 $45,000,000 03/31/01 $45,000,000 06/30/01 $45,000,000 09/30/01 $46,000,000 12/31/01 $46,000,000 03/31/02 $46,000,000 06/30/02 $46,000,000 09/30/02 $47,750,000 12/31/02 $47,750,000 03/31/03 $47,750,000 06/30/03 $47,750,000 09/30/03   (D) Maximum Debt.  Not permit International’s Total Funded Indebtedness to exceed the following amounts at any time during the following periods:   Total Funded Indebtedness Period -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- $29,000,000 01/01/01 - 06/30/01   $27,000,000 07/01/01 - 09/30/01   $25,000,000 10/01/01 - 12/31/01   $25,000,000 01/01/02 - 03/31/02   $25,000,000 04/01/02 - 06/30/02   $25,000,000 07/01/02 - 09/30/02   $25,000,000 10/01/02 - 12/31/02   $27,000,000 01/01/03 - 03/31/03   $27,000,000 04/01/03 - 06/30/03   $27,000,000 07/01/03 - 09/30/03   $27,000,000 at any time thereafter   (E) Leverage Ratio.  Not permit International’s Leverage Ratio to exceed the following ratios as of the following dates:                   Leverage Ratio               Date -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 4.65 to 1 03/31/01 2.73 to 1 06/30/01 2.25 to 1 09/30/01 2.25 to 1 12/31/01 2.25 to 1 03/31/02 2.00 to 1 06/30/02 2.00 to 1 09/30/02 1.80 to 1 12/31/02 1.75 to 1 03/31/03 1.65 to 1 06/30/03 1.65 to 1 09/30/03   (F) Total Debt Service Ratio.  Not permit International’s Total Debt Service Ratio to be less than the following ratios as of the following dates:   Total Debt Service Ratio Date -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 1.05 to 1 09/30/01 1.10 to 1 12/31/01 1.10 to 1 03/31/02 1.10 to 1 06/30/02 1.10 to 1 09/30/02 1.20 to 1 12/31/02 1.20 to 1 03/31/03 1.20 to 1 06/30/03 1.20 to 1 09/30/03   II. Definitions     (A) The term "Net Capital Expenditures" for purposes of this Exhibit J shall mean the sum of  (a) International’s consolidated capital expenditures (including, but not by way of limitation, expenditures for fixed assets or leases capitalized or required to be capitalized on International’s consolidated books by purchase, lease-purchase agreement, option or otherwise), minus  (b) the net book value of capital assets previously sold and replaced by such capital expenditures.   (B) The term "Earnings Before Interest, Taxes, Depreciation, and Amortization" or "EBITDA"for purposes of this Exhibit J shall mean International’s consolidated earnings from operations before income taxes and interest income or expense plus depreciation, plus amortization of all non-cash charges, all as determined in accordance with generally accepted accounting principles, and shall not include any gains or losses from the sale of assets outside the normal course of business or any other extraordinary accounting adjustments or non-recurring items of income or loss.   (C) The term "Net Worth" for purposes of this Exhibit J shall mean the total of International’s consolidated shareholders equity, as determined in accordance with generally accepted accounting principles, consistently applied.   (D) The term "Total Funded Indebtedness" for purposes of this Exhibit J shall have the meaning and be determined in accordance with generally accepted accounting principles consistently applied by International on a consolidated basis in accordance with past practices.     (E) The term "Leverage Ratio" for purposes of this Exhibit J shall mean:     1.          As of 03/31/01,  the ratio of Total Funded Indebtedness as of such date to EBITDA as measured from 10/01/00 to 03/31/01;     2.          As of 06/30/01, the ratio of Total Funded Indebtedness as of such date to EBITDA as measured from 10/01/00 to 06/30/01;      3.          As of 09/30/01, the ratio of Total Funded Indebtedness as of such date to EBITDA as measured from 10/01/00 to 09/30/01; and     4.          As of 12/31/01 and as of the last day of any fiscal quarter thereafter, the ratio of Total Funded Indebtedness as of such date to EBITDA as measured on a four quarter trailing basis.   (F) The term “Unfunded Capital Expenditure Payments” for purposes of this Exhibit J shall mean the amount of consolidated capital expenditures of International which are not financed under the CapEx Facility nor any other financing arrangement with any other person.   (G) The term "Total Debt Service Ratio" for purposes of this Exhibit J shall mean:     1.          For the period commencing on the 07/01/01 and ending on 09/30/01, the ratio of (a) EBITDA as measured from 01/01/01 to 09/30/01 to (b) the sum of  (i) the total consolidated and regularly scheduled principal and interest payments of Total Funded Indebtedness for the period 01/01/01 to 09/30/01,  plus  (ii) Unfunded Capital Expenditure Payments for the period 01/01/01 to 09/30/01, minus (iii) the US $1,000,000 Japanese principal payment paid by Vari-Lite Asia, Inc. in March, 2001;     2.          For the period commencing on the 10/01/01 and ending on 12/31/01, the ratio of (a) EBITDA as measured on a four quarter trailing basis to (b) the sum of  (i) the total consolidated and regularly scheduled principal and interest payments of Total Funded Indebtedness for such four quarter trailing period,  plus (ii) Unfunded Capital Expenditure Payments for such four quarter trailing period,  minus  (iii) the US $1,000,000 Japanese principal payment paid by Vari-Lite Asia, Inc. in March, 2001, plus (iv) the amount of taxes paid by International on a consolidated basis during such four quarter trailing period, minus (v) the amount of Japanese taxes paid by Vari-Lite Asia, Inc. in February, 2001; and     3.          For all periods after 12/31/01, the ratio of (a) EBITDA as measured on a four quarter trailing basis to (b) the sum of  (i) the total consolidated and regularly scheduled principal and interest payments of Total Funded Indebtedness for such four quarter trailing period,  plus (ii) Unfunded Capital Expenditure Payments for such four quarter trailing period, plus (iii) the amount of taxes paid by International on a consolidated basis during such four quarter trailing period.  

Secretary’s Document #436 Farmland Industries, Inc. Management Long Term Incentive Plan A. EFFECTIVE DATE AND PLAN PURPOSE 1. The Management Long Term Incentive Plan (the Plan) is effective September 2000. a. The Plan provides incentive compensation opportunities for designated management employees of Farmland Industries, Inc. (the Company) based on the attainment of multi-year performance goals. (See Exhibit B and subsequent Exhibits for performance criteria and goals.) b. The Plan’s initial performance and reward cycles cover fiscal years 2001 through 2002, the period from September 1, 2000 through August 31, 2002; and fiscal years 2001 through 2003, the period from September 1, 2000 through August 31, 2003. c. The Plan’s subsequent performance and reward cycles will begin each subsequent year thereafter for a three–year time span. The Plan’s second full performance and reward cycle covers fiscal years 2002 through 2004, the Plan’s third performance and reward cycle covers fiscal years 2003 through 2005, etc. d. It is the company’s intent to continue this Plan indefinitely, but the Company reserves the right to amend or discontinue the Plan at any time if such action is deemed in the best interests of the Company and the Membership. 2. The key purposes of the Plan are set forth below. a. To attract and retain high quality management personnel who can produce sustained company results for the immediate and ongoing benefit of its Membership. (See Exhibit A for a list of participants.) b. To provide a long-term incentive element which encourages key management employees to act like owner management. c. To provide a competitive program of total cash compensation in appropriate marketplaces with an emphasis on variable, pay-for-performance opportunities linked to the accomplishment of demonstrated results. d. To focus key employees on key strategic results and motivate those actions which reinforce the attainment of the Company’s business plan over a sustained period of time. B. DESCRIPTION OF PLAN IN OPERATION. 1. The Plan shall establish multi-year performance and award cycles (Plan cycle). a. The initial cycles are from 9/1/2000 through 8/31/2002, and 9/1/2000 through 8/31/2003. b. Subsequent plan cycles shall commence each year thereafter and contain a three year performance cycle., e.g.: 9/1/2002 through 8/31/2004 9/1/2003 through 8/31/2005 To continue as Board and management determines valid. 2. Participation shall be as designated by the CEO for each cycle (except that the CEO’s participation shall be approved by the Board of Directors), and shall be limited to management positions which have a significant impact on long term, strategic results. Positions and/or individuals participate at the discretion of the CEO. 3. Multi-year performance goals shall be established each cycle which shall focus on one, or a very few, key, measurable results of strategic financial importance to the Company. 4. An incentive pool from which participant awards can be paid shall be created each cycle based on results achieved against goals. The pool shall be equal to a fixed percentage share of Company income. The minimum amount at which the pool is funded is defined in accompanying Exhibits for each cycle. The total size of the pool increases as Company results improve, and the incentive pool shall be an open-ended, uncapped amount to provide participants with an “ownership interest” in maximizing results. 5. Performance goals and the share of results used to produce the incentive pool can vary from cycle to cycle, but generally be established under the following criteria: ------------------- -------------------- -------------------------------------- ------------------------ Level Achieved Share of Results Awards Payable - Resulting Approximate to Pool Compensation Level in Marketplace Probability of Attainment ------------------- -------------------- -------------------------------------- ------------------------ ‹Threshold None None - Un-competitive ------------------- -------------------- -------------------------------------- ------------------------ ------------------- -------------------- -------------------------------------- ------------------------ Threshold/ Expected Significant – Desired (Average) 90% Target ------------------- -------------------- -------------------------------------- ------------------------ ------------------- -------------------- -------------------------------------- ------------------------ Above Target Above Expectations Large (Very Competitive) to 40 - 50 % open–ended “ownership” share of outstanding results ------------------- -------------------- -------------------------------------- ------------------------ 6. Each cycle the Company shall establish a Basic Award Percentage (pool portion) for each participant in the Plan. Such Basic award Percentages shall: a. Be communicated to participants by the Company; b. Remain unchanged during a cycle unless a participant’s status shall significantly change; and c. In total, be approximately 10% less than the total incentive pool. The remaining portion of the incentive pool for each Part of the Plan shall be a Reserve Incentive Pool available for discretionary use by the CEO and/or for allocation for new participants as selected by the CEO. 7. Each cycle, the CEO may distribute all or some portion of the Plan’s Reserve Incentive Pool to participants for any of these reasons: a. To recognize outstanding individual performance or contributions to overall Company results. b. To recognize changes in status during a cycle where a participant’s accountability significantly increased. c. To permit participation by a person hired or promoted into an eligible position during a cycle. Such distribution can consist of an additional dollar award at cycle end, or a new or increased Base Share Award determined during the cycle. 8. Total awards can not exceed the size of the incentive pool generated each cycle. If additional participants caused the incentive pool to be more than 100% allocated, the CEO would determine the amount of reduction to each participant’s pool portion. No awards are payable if no money has been generated based on plan formulas. 9. Participant’s total award shall be the sum of his (or her) Basic Award Percentage plus any additional amount awarded by the CEO from the Reserve Incentive Pool. Total awards shall be payable as soon as practical at the end of the cycle subject to (10) and (11) below. a. About mid-December, 2002 for the initial cycle. b. About mid-December, following the end of each successive cycle. 10. Awards shall be payable in cash and subject to all applicable withholding. 11. Participants may voluntarily elect to irrevocably defer receipt of awards otherwise payable in accordance with rules and procedures established by the Company in the Farmland Industries, Inc. Executive Deferred Compensation Plan. 12. Exhibit A lists participants. Exhibit B and succeeding exhibits list the Performance criteria and goals, and the amount by which the pool is to be funded for each level of performance. C. VESTING AND FORFEITURE OF AWARDS 1. A participant must be an active employee of the Company at the end of each cycle in order to receive an award for such cycle unless active employment ceases for reasons of death, total disability, or retirement. 2. In the event of a participant’s death, total disability, or retirement during a cycle, awards otherwise payable shall be prorated on the basis of full months of active participation in relation to the length of the cycle. 3. In the event of a participant’s change of status to a non-participating position during a cycle, awards otherwise payable shall be prorated and/or adjusted depending upon the reason for the change, but generally on the basis of full months participation in relation to the length of the cycle. 4. If a participant’s employment is terminated with the Company for reasons other than death, total disability or retirement during a cycle, such participant shall forfeit all rights to any award otherwise payable. 5. Decisions regarding pro-ration and award adjustment shall be made by the CEO and, barring highly unusual circumstances, on the basis of full months of active participation in relation to the thirty-six months within each cycle. The Board and CEO authorities and guidelines for specific situations are set forth in Section D. D. APPROVAL AUTHORITY FOR KEY ACTIONS 1. The Board approved this plan in February, 2001. The Board, in its sole judgment, has the authority for all the following actions. a. Amendment or discontinuance of the Plan. b. Adjustment or cancellation of any awards otherwise payable should the Company suffer an operating loss in the final fiscal year of any performance cycle. c. Approval for any cycle for all the following: (i) performance goals (ii) award payout procedures which are not specifically delegated to the Compensation Committee of the Board (the Committee), the CEO or the Company. d. Approval of all of the following with respect to the CEO for any given Plan cycle: (i) The CEO’s portion of any incentive award pool generated by the Plan; (ii) An appropriate prorata portion of any award otherwise payable in the event of termination of employment by the CEO during a cycle due to death, total disability, or retirement; (iii) An appropriate prorata award for a CEO hired or promoted into such position during a cycle; and (iv) A determination of the CEO’s personal performance during a cycle, with authority to deny, or adjust, any award otherwise payable should such performance be deemed, in the Board’s majority judgment, wholly unsatisfactory. e. Approval for the inclusion or exclusion of major, extraordinary financial results or transactions occurring during the cycle in the calculation of performance results impacting Plan goals and awards. Such decisions will be made on a case-by-case basis with the basic standard of judgment being the best interests of the Company and its Membership and the purposes of the Plan. f. Delegation to the Committee of the power to review or decide any issue relative to the Plan. 2. The Committee shall be responsible for monitoring the Plan, reviewing all major aspects in detail, analyzing Company requests for Plan actions or approvals, recommending Plan amendments or actions to the Board, and reporting to the Board such information as it may reasonably request. 3. The Company shall be responsible for administering the Plan, establishing appropriate accounting reserves to recognize award liabilities, communicating all appropriate details to participants in a timely manner, recommending necessary plan amendments or actions to the Committee, and reporting such information to the Committee and the Board as they may request. 4. The CEO is specifically authorized to take the following actions with respect to all other participants. a. Approval for any cycle for the following: (i) participants (ii) levels of opportunity and incentive pool calculations b. Distribution on a subjective, discretionary basis of the Plan’s Reserve Incentive Pool, if any: (i) Distribution can be made in any amount the CEO shall determine, and need not be consistent with the distribution of Basic Award Percentages. (ii) The total distribution cannot exceed the funds in the Reserve Incentive Pools but the total Reserve need not be spent and any unused funds shall not be carried over to subsequent cycles but shall revert to the Company. c. Approval of appropriate prorata awards and/or Basic Award Percentages from the Incentive Pool to a participant in the event of any of the following circumstances. (i) A participant’s death, total disability, or retirement at any time during a Plan Cycle. (ii) A participant’s change of status during a Plan cycle which is sufficiently significant to either (a) render further participation inappropriate or (b) render the originally designated Basic Award Percentage inappropriate relative to those applicable to other participants in positions of similar responsibility and impact. (iii) The hiring, or promotion, of an employee during a cycle into a position for which Plan participation is appropriate. Such decisions shall be subjective, discretionary judgments made on a case- by-case basis, but the CEO shall generally follow these guidelines: (a) Prorata awards and prorata assignment of Basic Award Percentages shall generally be mathematically determined on the basis of full months of active participation in the applicable position divided by the number of months within the Plan cycle. (b) If a participant’s status is reduced to a position where Plan participation is no longer appropriate, a prorata award will generally be determined in accordance with (ii) above if the change was due to reorganization or similar Company instigated action. The CEO will determine appropriate action if a participant leaves the plan due to individual performance or personal choice. E. ADMINISTRATIVE ISSUES 1. Participation in the Plan is not a guarantee of employment, nor does participation in one cycle guarantee participation in subsequent cycles. Plan awards shall not be considered as compensation for any Company benefit plan whatsoever. For purposes of the Plan, the following definitions shall apply: a. “Retirement” shall mean the cessation of Company employment at or after age 55 and immediate retirement under the Company’s primary qualified retirement plan applicable to the participant whether or not retirement benefits are then commenced. The CEO in his sole discretion may make an exception for an individual over 55 who has not vested in the retirement plan. b. “Total Disability” shall mean the cessation of Company employment for reasons of physical or mental impairment which on the basis of evidence provided to the CEO or Board (as appropriate) is, in the CEO’s or Board’s (as appropriate) sole judgment, expected to last at least 12 months. 4. In the event of a substantial change of ownership in which the Company, as constituted on the Effective Date, is not a surviving entity, the Plan shall continue in effect and insure to the benefit of the new entity. 5. The Basic Award Percentages originally assigned to any participant but subsequently forfeited or otherwise reduced for such participant during a Plan cycle may be reassigned to any other participant. The Board may make such assignment with respect to the CEO, and the CEO may make such assignment with respect to any other participant. 6. The total awards payable under the Plan for any cycle can not exceed the total incentive pools generated by the Plan for such cycle, and any unused incentive pool funds shall revert to the Company at cycle end. 7. All participants shall designate a beneficiary under the Plan in accordance with policies and procedures established by the Company from time to time, and it is a participant’s responsibility to keep such designation up to date. In the event of a participant’s death, the Company shall pay any award payable on behalf of such participant to such designated beneficiary or, if such beneficiary is no longer living or can not be located, to the participant’s estate. Exhibit A Title of Participant President and CEO Executive Vice President/Chief Financial Officer Executive Vice President/President, Grain/Grain Processing Group Executive Vice President, Administrative Group/General Counsel Senior Vice President, Corporate Secretary Regional Vice Presidents (2 incumbents) Vice President/President and CEO, One System Group LLC Vice President, Administration Vice President/Controller Vice President, E-Commerce Development Vice President, Human Resources Vice President, Livestock Production Vice President/President, Pork Division Vice President/Treasurer General Manager, Nitrogen MFG– Crop Production Director, Commodity Management– Grain Director, Business Services – Grain Director, Grain Processing– Grain President/General Manager, Farmland – Atwood – Grain Director, Marketing – Grain Vice President, Sales and Marketing – Pork Division Vice President, Operations – Pork Division Vice President/Controller – Pork Division Plant Manager – Pork Division (One incumbent in developmental assignment) Vice President, Human Resources– Pork Division President, SFFA LLC Director, Taxation– Corporate Finance Director, Employee Trust Administration – Corporate Finance Director, SEC Accounting – Corporate Finance Assistant Treasurer – Corporate Finance Director, Risk Management – Corporate Finance Director, General Accounting – Corporate Finance Director, Strategic Sourcing Associate General Counsel – Admin Group (3 incumbents) Director, Environmental Affairs–Admin Group Exhibit B Performance criteria for FY 2001 - FY 2002 cycle include the following: Aggregate Income, defined as the targeted income, before taxes and extraordinary items1, for the entire two-year period, as shown in the table below. Performance goals and amounts funding the payout pool include the following: ------------------------------------- ----------------------------------- ----------------------------------- Performance Level Aggregate Income % of Net Earnings to Pool ------------------------------------- ----------------------------------- ----------------------------------- Below Target Below $78,200,000 0% of Earnings ------------------------------------- ----------------------------------- ----------------------------------- ------------------------------------- ----------------------------------- ----------------------------------- Target $78,200,000 .83% of Earnings ------------------------------------- ----------------------------------- ----------------------------------- ------------------------------------- ----------------------------------- ----------------------------------- Above Target Above $78,200,000 .83% of Earnings ------------------------------------- ----------------------------------- ----------------------------------- In order to ensure the integrity of Farmland’s financial strength, a limit on funded indebtedness as a percent of capitalization is incorporated into this plan. In the event that the indebtedness ratio is above the level which is established by bank covenants at the end of the cycle, no payout will occur under this plan. 1Guidelines for “Extraordinary” Designation were issued on September 1, 1990, and updated on September 1, 1992. These guidelines state that the Chief Financial Officer and the Chief Executive Officer must approve the classification of any item as “extraordinary”. Transactions deemed as “extraordinary” and therefore excluded in the determination of income for variable compensation include: * Income or losses that pertain to discontinued operations or activities which have been non–operational through a fiscal year-end. * The punitive portion of litigation results in favor of or against Farmland, excluding redemptive payments on normal business matter where the intent is to substantially restore net income to where it would have been had the incident not occurred. * Non–recurring (one-time) adjustment to income or expense such as the gain from settlement of the retirement plan or a write-down of a major fixed asset. * The gain or loss on the disposal of a major asset or a group of assets. * Other items as approved. Specific requests by an operating unit for treatment of an item as“extraordinary” must be approved by the Senior Management representative before review by the Chief Financial Officer and the Chief Executive Officer. Exhibit C Performance criteria for FY 2001 - FY 2003 cycle include the following: Aggregate Income, defined as the targeted income, before taxes and extraordinary items1, for the entire three-year period, as shown in the table below. Performance goals and amounts funding the payout pool include the following: ------------------------------------- ----------------------------------- ----------------------------------- Performance Level Aggregate Income % of Net Earnings to Pool ------------------------------------- ----------------------------------- ----------------------------------- Below Target Below $194,200,000 0% of earnings ------------------------------------- ----------------------------------- ----------------------------------- ------------------------------------- ----------------------------------- ----------------------------------- Target $194,200,000 .83% of earnings ------------------------------------- ----------------------------------- ----------------------------------- ------------------------------------- ----------------------------------- ----------------------------------- Above Target Above $194,200,000 .83% of earnings ------------------------------------- ----------------------------------- ----------------------------------- In order to ensure the integrity of Farmland’s financial strength, a limit on funded indebtedness as a percent of capitalization is incorporated into this plan. In the event that the indebtedness ratio is above the level which is established by bank covenants at the end of the cycle, no payout will occur under this plan. 1 The Chief Financial Officer and the Chief Executive Officer must approve the classification of any item as “extraordinary”. Transactions deemed as “extraordinary” and therefore excluded in the determination of income for variable compensation include: * The punitive portion of litigation results in favor of or against Farmland, excluding redemptive payments on normal business matter where the intent is to substantially restore net income to where it would have been had the incident not occurred. * Non–recurring (one-time) adjustment to income or expense such as the gain from settlement of the retirement plan or a write-down of a major fixed asset. * The gain or loss on the disposal of a major asset or a group of assets. * The impact of adjustments resulting from LIFO inventory computations or reserves. * Other items as approved. Specific requests by an operating unit for treatment of an item as “extraordinary” must be approved by the Senior Management representative before review by the Chief Financial Officer and the Chief Executive Officer.

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.38 AMENDMENT NO. 1 TO LICENSING AGREEMENT BETWEEN TULARIK INC. AND ELI LILLY AND COMPANY     THIS AMENDMENT NO. 1 (this "Amendment") to the Licensing Agreement dated as of September 30, 1999 (the "Agreement") by and between Eli Lilly And Company, an Indiana corporation, having offices at Lilly Corporate Center, Indianapolis, Indiana 46285 ("Lilly"), and Tularik Inc., a Delaware corporation having offices at Two Corporate Drive, South San Francisco, California 94080 ("Tularik"), is entered into as of January 10, 2001. Lilly and Tularik may be referred to herein individually as a "Party" or, collectively, as "Parties".     WHEREAS, the Parties previously entered into the Agreement, which provided for the licensing of the Product from Lilly to Tularik;     WHEREAS, the Parties desire to modify the Agreement to clarify certain aspects of Section 2.2 of the Agreement;     WHEREAS, in order to accomplish the foregoing, the Parties have agreed to amend the Agreement in part;     NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements expressed herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, Tularik and Lilly hereby agree as follows:     1.  Section 2.2 of the Agreement is hereby amended by adding the following two paragraphs:     "Lilly agrees that any and all discoveries, inventions, improvements, trade secrets, know-how, works of authorship or other intellectual property conceived, created, written, developed or first reduced to practice by employees of Lilly, alone or jointly with others, in the course of providing assistance regarding the Product to Tularik pursuant to this section ("Inventions") shall be the sole and exclusive property of Tularik. Lilly acknowledges that all original works of authorship protectable by copyright which are produced by employees of Lilly in the course of providing assistance regarding the Product to Tularik pursuant to this section are "works made for hire," as defined in the United States Copyright Act (17 U.S.C. § 101).     Lilly shall promptly and fully disclose to Tularik all Inventions, shall treat all Inventions as Tularik Proprietary Information subject to Section 6.3 of this Agreement, and hereby agrees to assign to Tularik without further consideration all of Lilly's right, title and interest in and to any and all Inventions, whether or not patentable or copyrightable. Lilly and its employees shall execute all papers, including patent applications, invention assignments and copyright assignments, and otherwise shall assist Tularik as reasonably required to perfect in Tularik the rights, title and other interests granted to Tularik under this Agreement. Tularik shall pay for costs related to such assistance if it is required."     2.  Section 8.1(f)(4) of the Agreement is hereby amended by replacing the last sentence of such Section 8.1(f)(4) with the following: Without limiting the generality of the foregoing, no termination of this Agreement, whether by lapse of time or otherwise, shall serve to terminate the obligations of the Parties hereto under subsections 2.2 (last two paragraphs), 3.4, 3.5, 6.3, 6.6, 6.7, 6.14, Section 7 (as provided in Section 7.5), subsections 8.1(e), 8.1(f) and Section 9 (except for subsection 9.4, which shall expire as provided therein) hereof, and such obligations shall survive any such termination.     3.  Capitalized terms used herein but not otherwise defined herein shall have the respective meanings assigned to such terms in the Agreement. 1 --------------------------------------------------------------------------------     4.  Except as expressly modified by this Amendment, all of the terms and conditions of the Agreement shall remain in full force and effect.     5.  This Amendment may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall be considered one and the same instrument.     IN WITNESS WHEREOF, the parties have executed, or caused their duly authorized officer or representative to execute, this Amendment as of January 10, 2001. TULARIK INC.     By:     /s/ WILLIAM J. RIEFLIN    --------------------------------------------------------------------------------     Name: William J. Rieflin Title: Executive Vice President     ELI LILLY AND COMPANY INC.     By:     /s/ HOMER PEARCE    --------------------------------------------------------------------------------     Name: Homer Pearce Title: Vice President, Cancer Research/Clinical Investigation 2 -------------------------------------------------------------------------------- QuickLinks EXHIBIT 10.38 AMENDMENT NO. 1 TO LICENSING AGREEMENT BETWEEN TULARIK INC. AND ELI LILLY AND COMPANY

AMENDED AND RESTATED EMPLOYMENT AGREEMENT (Thomas C. Walker)              This Employment Agreement (the "Agreement") by and between F.Y.I. Incorporated, a Delaware corporation (the "Company"), and Thomas C. Walker ("Employee") is hereby entered into and effective as of May 18, 2001.  This Agreement hereby supersedes any other employment agreements or understandings, written or oral, between the Company and Employee. R E C I T A L S              The following statements are true and correct:              As of the date of this Agreement, the Company is engaged primarily in the business of providing document and information management outsourcing solutions.              Employee is employed hereunder by the Company in a confidential relationship wherein Employee, in the course of his employment with the Company, has and will continue to become familiar with and aware of information as to the Company's customers, specific manner of doing business, including the processes, techniques and trade secrets utilized by the Company, and future plans with respect thereto, all of which has been and will be established and maintained at great expense to the Company; this information is a trade secret and constitutes the valuable goodwill of the Company.              Therefore, in consideration of the mutual promises, terms, covenants and conditions set forth herein and the performance of each, it is hereby agreed as follows: A G R E E M E N T S              1.          Employment and Duties.              (a)         The Company hereby employs Employee as Chairman of the Board and Chief Development Officer.  As such, Employee shall have responsibilities, duties and authority reasonably accorded to and expected of a Chairman of the Board and Chief Development Officer and will report directly to the Board of Directors of the Company (the “Board”).  Employee hereby accepts this employment upon the terms and conditions herein contained and, subject to paragraph 1(b), agrees to devote his working time, attention and efforts to promote and further the business of the Company.              (b)        Employee shall not, during the term of his employment hereunder, be engaged in any other business activity pursued for gain, profit or other pecuniary advantage except to the extent that such activity (i) does not interfere with Employee's duties and responsibilities hereunder and (ii) does not violate paragraph 3 hereof.  The foregoing limitations shall not be construed as prohibiting Employee from (A) serving on the boards of directors of other companies or (B) making personal investments in such form or manner as will neither require his services, other than to a minimal extent, in the operation or affairs of the companies or enterprises in which such investments are made nor violate the terms of paragraph 3 hereof.                2.          Compensation.  For all services rendered by Employee, the Company shall compensate Employee as follows:              (a)         Base Salary.  The base salary payable to Employee shall be $330,000 per year (effective January 1, 2001), payable on a regular basis in accordance with the Company's standard payroll procedures but not less than bi-monthly.              (b)        Incentive Bonus Plan.  Employee shall be eligible for a bonus opportunity of up to 65% of his annual base salary in accordance with the Company’s Incentive Bonus Plan as modified from time to time, payable in cash and/or equity of the Company (at the Company’s discretion).  The bonus payment and the Company's targeted performance shall be determined and approved by the Board or the compensation committee thereof.  For 2001, Employee has already been awarded Warrant No. 57 as payment for any 2001 bonus opportunity.              (c)         Executive Perquisites, Benefits and Other Compensation.  Employee shall be entitled to receive additional benefits and compensation from the Company in such form and to such extent as specified below:              (i)          Payment of all premiums for coverage for Employee and his dependent family members under health, hospitalization, disability, dental, life and other insurance plans that the Company may have in effect from time to time, and not less favorable than the benefits provided to other Company executives.              (ii)         Reimbursement for all business travel and other out-of-pocket expenses reasonably incurred by Employee in the performance of his services pursuant to this Agreement.  All reimbursable expenses shall be appropriately documented in reasonable detail by Employee upon submission of any request for reimbursement, and in a format and manner consistent with the Company's expense reporting policy.              (iii)        Four (4) weeks paid vacation for each year during the period of employment or such greater amount as may be afforded officers and key employees generally under the Company's policies in effect from time to time (prorated for any year in which Employee is employed for less than the full year).              (iv)       An automobile allowance in the amount of $1,000 per month (increased from $500 per month effective March 2001).              (v)        The Company shall reimburse Employee up to $300 per month for club dues actually incurred by Employee, provided that such club is used at least 50% of the time for business purposes.                (vi)       The Company shall provide Employee with other executive perquisites as may be available to or deemed appropriate for Employee by the Board and participation in all other Company-wide employee benefits as available from time to time, which will include participation in the Company's Incentive Compensation Plan.              (vii)      The Company shall provide Employee with reasonable assistance in personal tax planning from Arthur Andersen LLP.              (viii)     Participation in the Company’s 401(k) Plan and Non-Qualified Plan.              (ix)        The Company shall, under Employee’s direction, establish a Supplemental Retirement Plan/Survivor Protection Plan to be placed inside the Company’s Non-Qualified Plan and provide Employee with such benefit.              (x)         The Company shall reimburse Employee up to $7,000 per year for expenditures on health, insurance, financial planning or tax planning benefits (or similar benefits, or such other benefits at the discretion of the Company) or club dues, all as selected by Employee.              3.          Non-Competition Agreement.              (a)         Subject to Section 3(a), Employee will not, during the period of his employment by or with the Company, and for a period of two (2) years immediately following the termination of his employment under this Agreement, for any reason whatsoever, directly or indirectly, for himself or on behalf of or in conjunction with any other person, company, partnership, corporation, business or entity of whatever nature:              (i)          engage, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, in any business selling any products or services in direct competition with the Company, within 100 miles of (i) the principal executive offices of the Company or (ii) any place to which the Company provides products or services or in which the Company (including the subsidiaries thereof) is in the process of initiating business operations during the term of this covenant (the "Territory");              (ii)         call upon any person who is, at that time, within the Territory, an employee of the Company (including the subsidiaries thereof) in a managerial capacity for the purpose or with the intent of enticing such employee away from or out of the employ of the Company (including the subsidiaries thereof), provided that Employee shall be permitted to call upon and hire any member of his immediate family;              (iii)        call upon any person or entity which is, at that time, or which has been, within one (1) year prior to that time, a customer of the Company (including the subsidiaries thereof) within the Territory for the purpose of soliciting or selling products or services in direct competition with the Company within the Territory;                (iv)       call upon any prospective acquisition candidate, on Employee's own behalf or on behalf of any competitor, which candidate was either called upon by the Company (including the subsidiaries thereof) or for which the Company made an acquisition analysis, for the purpose of acquiring such entity; or              (v)        disclose customers, whether in existence or proposed, of the Company (or the subsidiaries thereof) to any person, firm, partnership, corporation or business for any reason or purpose whatsoever.              As used in paragraph 3(a), references to the business, customers, Territory, etc. of the Company refer to the status of the Company prior to any Change in Control (i.e., such breadth of business, customers, Territory, etc. shall not automatically be expanded to include those of a successor to the Company resulting from a Change in Control).  Notwithstanding the above, the foregoing covenant shall not be deemed to prohibit Employee from acquiring as an investment not more than three percent (3%) of the capital stock of a competing business, whose stock is traded on a national securities exchange or over-the-counter.              (b)        Because of the difficulty of measuring economic losses to the Company as a result of a breach of the foregoing covenant, and because of the immediate and irreparable damage that could be caused to the Company for which it would have no other adequate remedy, Employee agrees that the foregoing covenant may be enforced by the Company in the event of breach by him by injunctions and restraining orders without the necessity of posting any bond therefor.              (c)         In the course of Employee’s employment with the Company, Employee will become exposed to certain of the Company’s confidential information and business relationships, which the above covenants are designed to protect.  It is agreed by the parties that the foregoing covenants in this paragraph 3 impose a reasonable restraint on Employee in light of the activities and business of the Company (including the Company's subsidiaries) on the date of the execution of this Agreement and the current plans of the Company (including the Company's subsidiaries); but it is also the intent of the Company and Employee that such covenants be construed and enforced in accordance with the changing activities, business and locations of the Company (including the Company's subsidiaries) throughout the term of this covenant, whether before or after the date of termination of the employment of Employee, subject to the following paragraph.  For example, if, during the Term of this Agreement, the Company (including the Company's subsidiaries) engages in new and different activities, enters a new business or established new locations for its current activities or business in addition to or other than the activities or business enumerated under the Recitals above or the locations currently established therefor, then Employee will be precluded from soliciting the customers or employees of such new activities or business or from such new location and from directly competing with such new business within 100 miles of its then-established operating location(s) through the term of this covenant.              It is further agreed by the parties hereto that, in the event that Employee shall cease to be employed hereunder, and shall enter into a business or pursue other activities not in competition with the Company (including the Company's subsidiaries), or similar activities or business in locations the operation of which, under such circumstances, does not violate clause (i) of this paragraph 3, and in any event such new business, activities or location are not in violation of this paragraph 3 or of Employee's obligations under this paragraph 3, if any, Employee shall not be chargeable with a violation of this paragraph 3 if the Company (including the Company's subsidiaries) shall thereafter enter the same, similar or a competitive (i) business, (ii) course of activities or (iii) location, as applicable.                (d)        The covenants in this paragraph 3 are severable and separate, and the unenforceability of any specific covenant shall not affect the provisions of any other covenant.  Moreover, in the event any court of competent jurisdiction shall determine that the scope, time or territorial restrictions set forth are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent which the court deems reasonable, and the Agreement shall thereby be reformed to such extent.              (e)         All of the covenants in this paragraph 3 shall be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of such covenants.  It is specifically agreed that the period of two (2) years following Employee’s employment set forth at the beginning of this paragraph 3, during which the agreements and covenants of Employee made in this paragraph 3 shall be effective, shall be computed by excluding from such computation any time during which Employee is in violation of any provision of this paragraph 3.              4.          Place of Performance.              (a)         Employee’s place of employment is the Company’s headquarters in Dallas, Texas.  Employee understands that he may be requested by the Board to relocate from his present residence to another geographic location in order to more efficiently carry out his duties and responsibilities under this Agreement or as part of a promotion or other increase in duties and responsibilities.  In the event that Employee is requested to relocate and agrees to do so, the Company will pay all relocation costs to move Employee, his immediate family and their personal property and effects.  Such costs may include, by way of example, but are not limited to, pre-move visits to search for a new residence, investigate schools or for other purposes; temporary lodging and living costs prior to moving into a new permanent residence; duplicate home carrying costs; all closing costs on the sale of Employee's present residence and on the purchase of a comparable residence in the new location; and added income taxes that Employee may incur, as a result of any payment hereunder, to the extent any relocation costs are not deductible for tax purposes.  The general intent of the foregoing is that Employee shall not personally bear any out-of-pocket cost as a result of the relocation, with an understanding that Employee will use his best efforts to incur only those costs which are reasonable and necessary to effect a smooth, efficient and orderly relocation with minimal disruption to the business affairs of the Company and the personal life of Employee and his family.              (b)        Notwithstanding the above, if Employee is requested by the Board to relocate and Employee refuses, such refusal shall not constitute "good cause" for termination of this Agreement under the terms of paragraph 5(c).                5.          Term; Termination; Rights on Termination.  The term of this Agreement shall begin on the date hereof and continue through December 31, 2002 (the "Term").  This Agreement and Employee's employment may be terminated earlier in any one of the following ways:              (a)         Death.  The death of Employee shall immediately terminate the Agreement with no severance compensation due to Employee's estate.              (b)        Disability.  If, as a result of incapacity due to physical or mental illness or injury, Employee shall have been absent from his full-time duties hereunder for four (4) consecutive months, then thirty (30) days after receiving written notice (which notice may occur before or after the end of such four (4) month period, but which shall not be effective earlier than the last day of such four (4) month period), the Company may terminate Employee's employment hereunder provided Employee is unable to resume his full-time duties at the conclusion of such notice period.  Also, Employee may terminate his employment hereunder if his health should become impaired to an extent that makes the continued performance of his duties hereunder hazardous to his physical or mental health or his life, provided that Employee shall have furnished the Company with a written statement from a qualified doctor to such effect and provided, further, that, at the Company's request made within thirty (30) days of the date of such written statement, Employee shall submit to an examination by a doctor selected by the Company who is reasonably acceptable to Employee or Employee's doctor and such doctor shall have concurred in the conclusion of Employee's doctor.  In the event this Agreement is terminated as a result of Employee's disability, Employee shall receive from the Company, in a lump-sum payment due within ten (10) days of the effective date of termination, the base salary at the rate then in effect for whatever time period is remaining under the Term of this Agreement or for one (1) year, whichever amount is greater.              (c)         Good Cause.  The Company may terminate the Agreement ten (10) days after written notice to Employee for good cause, which shall be: (1) Employee's material and irreparable breach of this Agreement; (2) Employee's gross negligence in the performance or intentional nonperformance (continuing for ten (10) days after receipt of the written notice) of any of Employee's material duties and responsibilities hereunder; (3) Employee's dishonesty, fraud or misconduct with respect to the business or affairs of the Company which materially and adversely affects the operations or reputation of the Company; (4) Employee's conviction of a felony crime; or (5) chronic alcohol abuse or illegal drug abuse by Employee.  In the event of a termination for good cause, as enumerated above, Employee shall have no right to any severance compensation.              (d)        Without Cause.  At any time after the commencement of employment, the Company may, without cause, terminate this Agreement and Employee's employment, effective thirty (30) days after written notice is provided to the Employee.  Should Employee be terminated by the Company without cause, Employee shall receive from the Company, in a lump-sum payment due on the effective date of termination, two (2) times the base salary at the rate then in effect, as severance pay.  Further, any termination without cause by the Company shall operate to shorten the period set forth in paragraph 3(a) and during which the terms of paragraph 3 apply to one (1) year from the date of termination of employment.                (e)         Change in Control.  Refer to paragraph 12 below.              (f)         Termination by Employee for Good Reason.  Employee may terminate his employment hereunder for "Good Reason."  As used herein, "Good Reason" shall mean the continuance of any of the following after ten (10) days' prior written notice by Employee to the Company, specifying the basis for such Employee's having Good Reason to terminate this Agreement:              (i)          the assignment to Employee of any duties materially and adversely inconsistent with Employee's position as specified in paragraph 1 hereof (or such other position to which he may be promoted), including status, offices, responsibilities or persons to whom Employee reports as contemplated under paragraph 1 of this Agreement, or any other action by the Company which results in a material and adverse change in such position, status, offices, titles or responsibilities;              (ii)         Employee's removal from, or failure to be reappointed or reelected to, Employee's position under this Agreement, except as contemplated by paragraphs 5(a), (b), (c) and (e); or              (iii)        any other material breach of this Agreement by the Company that is not cured within the ten (10) day time period set forth in paragraph 5(f) above, including the failure to pay Employee on a timely basis the amounts to which he is entitled under this Agreement. In the event of any termination by the Employee for Good Reason, as determined by a court of competent jurisdiction or pursuant to the provisions of paragraph 16 below, the Company shall pay all amounts and damages to which Employee may be entitled as a result of such breach, including interest thereon and all reasonable legal fees and expenses and other costs incurred by Employee to enforce his rights hereunder.  In addition, Employee shall be entitled to receive from the Company, in a lump-sum payment due on the effective date of termination, two (2) times the base salary at the rate then in effect, as severance pay.  Further, none of the provisions of paragraph 3 shall apply in the event this Agreement is terminated by Employee for Good Reason.              (g)        Termination by Employee Without Cause.  If Employee resigns or otherwise terminates his employment without Good Reason pursuant to paragraph 5(f), Employee shall receive no severance compensation. Upon termination of this Agreement for any reason provided in clauses (a) through (g) above, Employee shall be entitled to receive all compensation earned and all benefits vested and reimbursements due through the effective date of termination.  Additional compensation subsequent to termination, if any, will be due and payable to Employee only to the extent and in the manner expressly provided above or in paragraph 16.  All other rights and obligations of the Company and Employee under this Agreement shall cease as of the effective date of termination, except that the Company's obligations under paragraph 9 herein and Employee's obligations under paragraphs 3, 6, 7, 8 and 10 herein shall survive such termination in accordance with their terms.                6.          Return of Company Property.  All records, designs, patents, business plans, financial statements, manuals, memoranda, lists and other property delivered to or compiled by Employee by or on behalf of the Company (including the Company’s subsidiaries) or its representatives, vendors or customers which pertain to the business of the Company (including the Company’s subsidiaries) shall be and remain the property of the Company and be subject at all times to its discretion and control.  Likewise, all correspondence, reports, records, charts, advertising materials and other similar data pertaining to the business, activities or future plans of the Company (including the Company’s subsidiaries) which is collected by Employee shall be delivered promptly to the Company without request by it upon termination of Employee's employment.              7.          Inventions.  Employee shall disclose promptly to the Company any and all significant conceptions and ideas for inventions, improvements and valuable discoveries, whether patentable or not, which are conceived or made by Employee, solely or jointly with another, during the period of employment or within one (1) year thereafter, and which are directly related to the business or activities of the Company (including the Company’s subsidiaries) and which Employee conceives as a result of his employment by the Company.  Employee hereby assigns and agrees to assign all his interests therein to the Company or its nominee.  Whenever requested to do so by the Company, Employee shall execute any and all applications, assignments or other instruments that the Company shall deem necessary to apply for and obtain letters patent of the United States or any foreign country or to otherwise protect the Company's interest therein.              8.          Trade Secrets.  Employee agrees that he will not, during or after the term of this Agreement with the Company, disclose the specific terms of the Company's (including the Company’s subsidiaries) relationships or agreements with its significant vendors or customers or any other significant and material trade secret of the Company (including the Company’s subsidiaries), whether in existence or proposed, to any person, firm, partnership, corporation or business for any reason or purpose whatsoever, except as is disclosed in the ordinary course of business.              9.          Indemnification.  In the event Employee is made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by the Company against Employee), by reason of the fact that he is or was performing services under this Agreement, then the Company shall indemnify Employee against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, as actually and reasonably incurred by Employee in connection therewith.  In the event that both Employee and the Company are made a party to the same third-party action, complaint, suit or proceeding, the Company agrees to engage competent legal representation, and Employee agrees to use the same representation, provided that if counsel selected by the Company shall have a conflict of interest that prevents such counsel from representing Employee, Employee may engage separate counsel and the Company shall pay all attorneys' fees of such separate counsel.  Further, while Employee is expected at all times to use his best efforts to faithfully discharge his duties under this Agreement, Employee cannot be held liable to the Company for errors or omissions made in good faith where Employee has not exhibited gross, willful and wanton negligence and misconduct or performed criminal and fraudulent acts which materially damage the business of the Company.                10.        No Prior Agreements.  Employee hereby represents and warrants to the Company that the execution of this Agreement by Employee and his employment by the Company and the performance of his duties hereunder will not violate or be a breach of any agreement with a former employer, client or any other person or entity.  Further, Employee agrees to indemnify the Company for any claim, including, but not limited to, attorneys' fees and expenses of investigation, by any such third party that such third party may now have or may hereafter come to have against the Company based upon or arising out of any non-competition agreement, invention or secrecy agreement between Employee and such third party which was in existence as of the date of this Agreement.              11.        Assignment; Binding Effect.  Employee understands that he has been selected for employment by the Company on the basis of his personal qualifications, experience and skills.  Employee agrees, therefore, he cannot assign all or any portion of his performance under this Agreement and the Company agrees not to assign all or any portion of its obligations under this Agreement (other than to a successor as a result of a Change in Control).  Subject to the preceding two (2) sentences and the express provisions of paragraph 12 below, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective heirs, legal representatives, successors and assigns.              12.        Change in Control.              (a)         Unless he elects to terminate this Agreement pursuant to (c) below, Employee understands and acknowledges that the Company may be merged or consolidated with or into another entity and that such entity shall automatically succeed to the rights and obligations of the Company hereunder.              (b)        In the event of a pending Change in Control wherein the Employee has not received written notice at least fifteen (15) business days prior to the anticipated closing date of the transaction giving rise to the Change in Control from the successor to all or a substantial portion of the Company's business and/or assets that such successor is willing as of the closing to assume and agree to perform the Company's obligations under this Agreement in the same manner and to the same extent that the Company is hereby required to perform, such Change in Control shall be deemed to be a termination of this Agreement by the Company and the amount of the lump-sum severance payment due to Employee shall be six (6) times Employee’s annual salary immediately prior to the Change in Control and the non-competition provisions of paragraph 3 shall not apply whatsoever.  Payment shall be made either at closing of the transaction if notice is served at least five (5) days before closing or within ten (10) days of Employee’s written notice.              (c)         In any Change in Control situation in which Employee has received written notice from the successor to the Company that such pending successor is willing to assume the Company's obligations hereunder or Employee receives notice after (or within fifteen (15) business days prior to) the Change in Control that Employee is being terminated, Employee may nonetheless, at his sole discretion, elect to terminate this Agreement by providing written notice to the Company at any time prior to closing of the transaction and up to one (1) year after the closing of the transaction giving rise to the Change in Control.  In such case, the amount of the lump-sum severance payment due to Employee shall be six (6) times Employee’s annual salary in effect immediately prior to the Change in Control and the non-competition provisions of paragraph 3 shall all apply.  Payment shall be made either at closing if notice is served at least five (5) days before closing or within ten (10) days of written notice by Employee.              (d)        For purposes of applying paragraph 5 under the circumstances described in (b) and (c) above, the effective date of termination will be the later of the closing date of the transaction giving rise to the Change in Control or Employee’s notice as described above, and all compensation, reimbursements and lump-sum payments due Employee must be paid in full by the Company at such time.  Further, Employee will be given sufficient time in order to comply with the Securities and Exchange Commission’s regulations to elect whether to exercise and sell all or any of his vested options to purchase Common Stock of the Company, including any options with accelerated vesting under the provisions of the Company's 1995 Stock Option Plan, as amended or any warrants, such that he may convert the options or warrants to shares of Common Stock of the Company at or prior to the closing of the transaction giving rise to the Change in Control, if he so desires.              (e)         A "Change in Control" shall be deemed to have occurred if:              (i)          any person, other than the Company or an employee benefit plan of the Company, acquires directly or indirectly the Beneficial Ownership (as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended) of any voting security of the Company and immediately after such acquisition such person is, directly or indirectly, the Beneficial Owner of voting securities representing 30% or more of the total voting power of all of the then-outstanding voting securities of the Company;              (ii)         the individuals (A) who, as of the closing date of the Company’s initial public offering, constitute the Board of Directors of the Company (the “Original Directors”) or (B) who thereafter are elected to the Board of Directors of the Company and whose election, or nomination for election, to the Board of Directors of the Company was approved by a vote of at least two-thirds (2/3) of the Original Directors then still in office (such directors becoming “Additional Original Directors” immediately following their election) or (C) who are elected to the Board of Directors of the Company and whose election, or nomination for election, to the Board of Directors of the Company was approved by a vote of at least two-thirds (2/3) of the Original Directors and Additional Original Directors then still in office (such directors also becoming “Additional Original Directors” immediately following their election), cease for any reason to constitute a majority of the members of the Board of Directors of the Company;                (iii)        the stockholders of the Company shall approve a merger, consolidation, recapitalization or reorganization of the Company, a reverse stock split of outstanding voting securities of the Company, or consummation of any such transaction if stockholder approval is not sought or obtained, other than any such transaction which would result in at least 75% of the total voting power represented by the voting securities of the surviving entity outstanding immediately after such transaction being Beneficially Owned by holders of at least 75% of the outstanding voting securities of the Company immediately prior to the transaction, with the voting power of each such continuing holder relative to other such continuing holders not substantially altered in the transaction; or              (iv) the stockholders of the Company shall approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or a substantial portion of the Company's assets (i.e., 50% or more of the total assets of the Company (including the Company’s subsidiaries)).              (f)         Continuation of Benefits.  (i) Following the termination of the Executive’s employment in connection with a Change in Control (as contemplated by paragraph 12(b) or 12(c) of this Agreement) (a “Change in Control Termination”) and until the earlier of (A) three (3) years following such Change in Control Termination or (B) the date on which the Executive becomes employed by a new employer (other than to the successor to the Company following such Change in Control), the Company shall, at its expense, provide the Executive with medical, dental, life insurance, disability and accidental death and dismemberment benefits (“Insurance Benefits”) at the highest level provided to the Executive immediately prior to the Change in Control; provided, however, if the Executive becomes employed by a new employer that maintains Insurance Benefits that either (x) do not cover the Executive with respect to a pre-existing condition that was covered under the Company’s Insurance Benefits, or (y) do not cover the Executive for a designated waiting period, or (z) do not provide for a certain benefit, the Executive’s coverage under the Company’s Insurance Benefits shall continue (with respect to such area of non-coverage described in (x), (y) or (z), as applicable), without limitation, until the earlier of the end of the applicable period of non-coverage under the new employer’s Insurance Benefits or the third anniversary of the Change in Control.              (ii) Following a Change in Control Termination the special benefit allowance of $7,000 contemplated by paragraph 2(c)(x) of this Agreement will continue for 3 years thereafter.              (iii) The Company shall reimburse all reasonable expenses incurred by the Executive for reasonable office and secretarial expenses and for reasonable professional outplacement services by qualified consultants selected by the Executive for up to 3 years after a Change in Control Termination.                (iv) The Executive shall not be required to seek other employment following a Change in Control Termination and any compensation earned from other employment shall not reduce the amounts otherwise payable under this Agreement.               (g)       If any portion of the severance benefits, Change in Control benefits or any other payment under this Agreement, or under any other agreement with, or plan of the Company, including but not limited to stock options, warrants and other long-term incentives (in the aggregate “Total Payments”) would be subject to the excise tax imposed by Section 4999 of the Code, as amended (or any similar tax that may hereafter be imposed) or any interest or penalties 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 Employee shall be entitled to receive from the Company an additional payment (the “Gross-up Payment”) (i.e., in addition to such other severance benefits, Change in Control benefits or any other payments under this Agreement) in an amount such that the net amount of Total Payments and Gross-up Payment retained by the Employee, after the calculation and deduction of all Excise Tax on the Total Payments and all federal, state and local income tax, employment tax and Excise Tax on the Gross-up Payment, shall be equal to the Total Payments.              For purposes of this paragraph Employee’s applicable Federal, state and local taxes shall be computed at the maximum marginal rates, taking into account the effect of any loss of personal exemptions resulting from receipt of the Gross-Up Payment.              All determinations required to be made under this paragraph 12, including whether a Gross-Up Payment is required under this paragraph, and the assumptions to be used in determining the Gross-Up Payment, shall be made by the Company’s current independent accounting firm, or such other firm as the Company may designate in writing prior to a Change in Control (the “Accounting Firm”), which shall provide detailed supporting calculations both to the Company and Employee within twenty business days of the receipt of notice from Employee that there will likely be a Change in Control, 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 party effecting the Change in Control or is otherwise unavailable, Employee (together with all other employees with comparable appointment rights in their respective employment agreements such that all such employees may collectively select a single accounting firm) may 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 with respect to such determinations described above shall be borne solely by the Company.                Employee agrees (unless requested otherwise by the Company) to use reasonable efforts to contest in good faith any subsequent determination by the Internal Revenue Service that Employee owes an amount of Excise Tax greater than the amount determined pursuant to this paragraph; provided, that Employee shall be entitled to reimbursement by the Company (on an after tax basis) of all fees and expenses reasonably incurred by Employee in contesting such determination.  In the event the Internal Revenue Service or any court of competent jurisdiction determines that Employee owes an amount of Excise Tax that is greater than the amount previously taken into account and paid under this Agreement (such additional Excise Tax being the “Additional Excise Tax”), the Company shall promptly pay to Employee the amount of such shortfall.  In the case of any payment that the Company is required to make to Employee pursuant to the preceding sentence (a “Later Payment”), the Company shall also pay to Employee an additional amount such that after payment by Employee of all of Employee’s applicable Federal, state and local taxes, including any interest and penalties assessed by any taxing authority, on the Later Payment, Employee will retain from the Later Payment an amount equal to the Additional Excise Tax, which Employee shall use to pay the Additional Excise Tax, which Employee shall use to pay the Additional Excise Tax.              (h)        In the event of a Change in Control, the Company shall require that the ultimate parent entity (or if no parent entity, the acquiring entity itself) of any entity that acquires control (through ownership of securities or assets, consistent with the definitional triggers of a Change in Control set forth above) of the Company in connection with such Change in Control assume or guaranty the Company’s obligations under paragraphs 12(f) and 12(g) of this Agreement.              13.        Complete Agreement.  This Agreement is not a promise of future employment.  Employee has no oral representations, understandings or agreements with the Company or any of its officers, directors or representatives covering the same subject matter as this Agreement.  This written Agreement is the final, complete and exclusive statement and expression of the agreement between the Company and Employee and of all the terms of this Agreement, and it cannot be varied, contradicted or supplemented by evidence of any prior or contemporaneous oral or written agreements.  This written Agreement may not be later modified except by a further writing signed by a duly authorized officer of the Company and Employee, and no term of this Agreement may be waived except by writing signed by the party waiving the benefit of such term.              14.        Notice.  Whenever any notice is required hereunder, it shall be given in writing addressed as follows: To the Company: F.Y.I. Incorporated   3232 McKinney Avenue   Suite 1000   Dallas, Texas 75204   Attn:  President     with a copy to: F.Y.I. Incorporated   3232 McKinney Avenue   Suite 1000   Dallas, Texas 75204   Attn:  General Counsel     with a copy to: Locke Liddell & Sapp LLP   2200 Ross Avenue   Suite 2200   Dallas, Texas 75201   Attn:  Charles C. Reeder, Esq.     To Employee: Thomas C. Walker   3510 Turtle Creek Blvd., #10-A   Dallas, Texas 75219     Notice shall be deemed given and effective three (3) days after the deposit in the U.S. mail of a writing addressed as above and sent first class mail, certified, return receipt requested, or when actually received.  Either party may change the address for notice by notifying the other party of such change in accordance with this paragraph 14.              15.        Severability; Headings.  If any portion of this Agreement is held invalid or inoperative, the other portions of this Agreement shall be deemed valid and operative and, so far as is reasonable and possible, effect shall be given to the intent manifested by the portion held invalid or inoperative.  The paragraph headings herein are for reference purposes only and are not intended in any way to describe, interpret, define or limit the extent or intent of the Agreement or of any part hereof.              16.        Arbitration.  Any unresolved dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three (3) arbitrators in Dallas, Texas, in accordance with the rules of the American Arbitration Association then in effect.  The arbitrators shall not have the authority to add to, detract from, or modify any provision hereof nor to award punitive damages to any injured party.  The arbitrators shall have the authority to order back-pay, severance compensation, vesting of options (or cash compensation in lieu of vesting of options), reimbursement of costs, including those incurred to enforce this Agreement, and interest thereon in the event the arbitrators determine that Employee was terminated without disability or good cause, as defined in paragraphs 5(b) and 5(c), respectively, or that the Company has otherwise materially breached this Agreement.  A decision by a majority of the arbitration panel shall be final and binding.  Judgment may be entered on the arbitrators' award in any court having jurisdiction.  The costs of any arbitration proceeding shall be borne by the party or parties not prevailing in such proceeding determined by the arbitrators. [Balance of sheet intentionally left blank]              17.        Governing Law.  This Agreement shall in all respects be construed according to the laws of the State of Delaware.     EMPLOYEE:           --------------------------------------------------------------------------------   Thomas C. Walker               F.Y.I. INCORPORATED               By:   --------------------------------------------------------------------------------   Title:  

EXHIBIT 10-43 AMENDMENT TO EMPLOYMENT AGREEMENT Amendment made as of the 27th day of September, 2000 between NIAGARA MOHAWK POWER CORPORATION (the “Company”), NIAGARA MOHAWK HOLDINGS, INC. (“Holdings”), and [INSERT NAME] (the “Executive”). WHEREAS, the Company and the Executive have entered into an Agreement made as of April 16, 1999 (the “Change in Control Agreement”) with respect to the terms and conditions of the Executive’s employment; and WHEREAS, the Company and the Executive desire to amend the Change in Control Agreement in certain respects: NOW, THEREFORE, the Company and the Executive hereby agree that the Change in Control Agreement is amended by amending the first sentence of Paragraph 2 (c) to read as follows: (c)     The consummation of a reorganization, merger or consolidation, involving the Company that requires the approval of the Company’s shareholders (whether for such transaction or the issuance of securities in the transaction) in each case, unless, immediately following such reorganization, merger or consolidation, (i) more than 75% of the then outstanding shares of common stock of (A) the corporation resulting from such reorganization, merger or consolidation (the “Surviving Corporation”) or (B) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of at least 95% of the outstanding shares of common stock of the surviving corporation (the “Parent Corporation”) and more than 75% of combined voting power of the then outstanding voting securities of the Surviving Corporation (or, if applicable, the Parent Corporation) entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Surviving Corporation (or, if applicable, the Parent Corporation) and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the Surviving Corporation (or, if applicable, the Parent Corporation) or the combined voting power of the then outstanding voting securities of the Surviving Corporation (or, if applicable, the Parent 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 Surviving Corporation (or, if applicable, the Parent Corporation) were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the date first written above. NIAGARA MOHAWK POWER CORPORATION                                                                                                    By:  /s/David J. Arrington                                 [INSERT EXECUTIVE’S NAME]                                                     David J. Arrington                                                                                                            Senior Vice President - Human Resources                                                                                                            And Chief Administrative Officer NIAGARA MOHAWK HOLDINGS, INC.                                                                                                     By:  /s/David J. Arrington                                                                                                                                        David J. Arrington                                                                                                            Senior Vice President and                                                                                                            Chief Administrative Officer

STRATEGIC RELATIONSHIP AGREEMENT       This STRATEGIC RELATIONSHIP AGREEMENT (this "Agreement") is entered into as of September __, 2001, by and among AMERICAN CAPITAL STRATEGIES, LTD., a Delaware corporation ("ACAS"), and GLADSTONE CAPITAL CORPORATION, a Maryland corporation ("GLAD").   W I T N E S S E T H WHEREAS, GLAD is a business development company that is in the business of purchasing debentures and similar debt instruments from medium-sized businesses, particularly those sponsored by buyout funds; and WHEREAS, ACAS, which is also a business development company, is a buyout and mezzanine fund primarily in the business of providing mezzanine and subordinated debt to and making equity investments in middle market non-public companies; and WHEREAS, considering their complementary business plans, ACAS and GLAD believe that there can be substantial mutual benefit to referrals of investment opportunities and other cooperative activities. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intend to be legally bound, hereby agree as follows: 1.             Referral of Investment Opportunities. (a)   In recognition of the mutual benefits to ACAS and GLAD from the referral of investment opportunities: i)      ACAS hereby agrees to refer to GLAD selected investment placement opportunities for senior debt and senior subordinated debt involving portfolio companies and prospective portfolio companies of ACAS promptly upon ACAS becoming aware of such opportunities; and ii)     GLAD hereby agrees to refer to ACAS selected investment placement opportunities for senior subordinated debt and junior subordinated debt and equity investments involving portfolio companies and prospective portfolio companies of GLAD promptly upon GLAD becoming aware of such opportunities. (b)   The referrals subject to this paragraph 1 shall be on a non-exclusive basis and shall be further subject to the terms of any confidentiality agreements or understandings to which ACAS or GLAD, respectively, may be a party.  Subject to the foregoing, ACAS agrees to provide to GLAD and GLAD agrees to provide to ACAS appropriate information that may be in their respective possession regarding such investment opportunities.  Subject to fiduciary duties and other appropriate considerations, ACAS and GLAD each agree to make affirmative recommendations regarding the availability of such financing from the other to such portfolio companies and prospective portfolio companies. (c)           ACAS and GLAD will, to the extent each deems it necessary, perform its own due diligence investigation and make its own investment decision regarding each such investment opportunity.  Each of ACAS and GLAD will be solely responsible for its investment decisions and may refuse to consider any particular investment opportunity.  Neither ACAS nor GLAD shall have any liability to the other as a result of the referral or the failure to refer any particular investment opportunity to the other or as a result of any information regarding such opportunities that may be provided hereunder.  Neither ACAS nor GLAD shall have any responsibility to the other to invest in or to refrain from investing in any particular investment as a result of the operation of this paragraph 1. 2.             Employment.  GLAD and ACAS agree that during the term of this Agreement, without the permission of the other, they will not solicit, endeavor to entice, make offers of employment to or employ any person who is a employee of the other on the date hereof or subsequently without the consent of the other party.  ACAS has acknowledged that GLAD has hired as employees Virginia Rollins and Joseph Bute, each of whom was formerly employed as a principal of ACAS.  Neither such individual was an ACAS principal at the time such offers for employment were made by GLAD.  ACAS consented to such offers and has consented to such hiring.  Further, ACAS has consented to the hiring of David J. Gladstone by GLAD. 3.             Offer to Sell Senior Notes.  ACAS shall, from time to time, offer GLAD the opportunity to purchase from ACAS and GLAD will consider purchasing from ACAS senior notes and loans in the ACAS portfolio.  Such offers will be made on a non–exclusive basis and each of GLAD and ACAS will make an independent investment decision on such transactions.  ACAS will make the first such offer as soon as practical after the date hereof. 4.             Covenants (a)   Standards of Operation. The parties hereto shall at all times during the term of this Agreement operate their respective businesses in compliance with all applicable laws, rules and regulations and shall maintain all licenses or other authorizations necessary for the operation of each business. (b)   Confidentiality; No Publicity. The parties shall at all times use and maintain in confidence any proprietary materials provided to the other party hereunder.  For this purpose, "proprietary materials" shall be deemed to include the name of a borrower or prospective borrower and the amount and the terms of an investment opportunity referred hereunder and the fact that such an investment opportunity was so referred, unless specifically indicated to the contrary by the party providing such referral.  In addition, the parties agree not to disseminate or otherwise make any public announcement concerning this Agreement or the relationship created hereby until that date which is twenty-five days after the closing of GLAD's initial public offering. (c)   Independent Status.  The parties shall at all times be independent entities, rather than a co-venturer, agent, employee, franchisee or representative of the other.  They shall work independently without supervision of the other and shall be responsible for their own liabilities and obligations, including taxes.  The parties hereby acknowledge and agree that they may each may engage in other businesses and ventures and may enter into other agreements covering the subject matter hereof. (d)   Indemnification. Each of the parties shall indemnify, defend and hold harmless the other from and against any and all losses claims, damages, liabilities and expenses whatsoever, joint or several, as incurred, as to which such other party may become subject under any applicable federal or state law or otherwise, related to or arising out of or based upon any act or omission of such party, as the case may be, in connection with a breach or misrepresentation or omission by such party of such party's obligations hereunder or the representations contained herein or in connection with any transactions contemplated hereby, and will reimburse the other party for all legal or other expenses (including, without limitation, attorney's fees and expenses) as they are incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding arising therefrom, whether or not such other party is a named party in any such claim, action or proceeding; provided, however, that no party shall have liability to the other to the extent that any such loss, claim, damage, liability or expense is found in a final judgment by a court of competent jurisdiction to have resulted from such other party's willful misconduct or gross negligence. 5.             Representations and Warranties . Each of the parties represents and warrants to the others: (a)   It is a corporation duly organized, validly existing and in good standing in its jurisdiction of incorporation and it is qualified as a foreign corporation and in good standing in each jurisdiction where the nature of its activities requires such qualification, except to the extent that a failure to qualify would not have a material adverse effect on it; (b)   The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby has been authorized by all necessary corporate action necessary to be taken on its part; (c)   The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not violate the terms of any law, statute, regulation, decree, order of other legal requirement to which it is subject or by which it is bound or any contract, agreement or understanding to which it is a party or by which it is otherwise bound; and (d)   This Agreement has been duly executed and delivered by such party and is a valid and binding obligation of such party that is enforceable against such party in accordance to its terms, subject to bankruptcy, insolvency and other laws of general applicability affecting the rights of creditors. 6.             Duration of Agreement. (a)   This Agreement shall take effect as of the date of execution and shall remain in effect for three years from date of execution. Thereafter, the term of this Agreement may be renewed for an additional one year period if agreed to in writing by each of the parties to be so bound. (b)      Notwithstanding any other provisions hereof, any party may terminate this Agreement upon sixty days' prior written notice to the other parties. 7.             Miscellaneous. (a)           Notices. Any notice required to be given hereunder shall be sufficient if in writing, and hand-delivered or sent by certified or registered mail, return receipt requested, first-class postage prepaid or by overnight parcel express service offered by a nationally–recognized carrier, if  to GLAD to 1750 Tysons Boulevard, 4th Floor, McLean, Virginia  22102, and if to ACAS to its office located at 2 Bethesda Metro Center, 14th Floor, Bethesda, Maryland 20814, attention: Compliance Officer. (b)   Governing Law. This Agreement, including any exhibits hereto, shall be construed in accordance with and governed by the laws of the State of Maryland, without regard to its principles of conflicts of law. Venue for any adjudication hereof shall be only in the courts of the State of Maryland or the federal courts in the State of Maryland, the jurisdiction of which courts both parties hereby consent to as the agreement of the parties, as not inconvenient and as not subject to review by any court other than such courts in the State of Maryland. The parties agree that service of any summons and/or complaint, and other process that may be served in any action, may be made by mailing via registered mail or delivering a copy of such process to the part at its address specified above, and each party agrees that this submission to jurisdiction to consent to service of process are reasonable and made for the express benefit of the other parties hereto. (c)   Waiver of Jury Trial. Each party to this Agreement agrees that any suit, action or proceeding, whether claim or counterclaim, brought or instituted by any party hereto or any successor or assign of any party on or with respect to this Agreement which in any way related, directly, or indirectly, to the subject matter hereof or any event, transaction or occurrence arising out of or in any way connected with this Agreement or the dealings of the parties with respect thereto, shall be tried only by a court and not by a jury. EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. Each party acknowledges and agrees that this paragraph is a specific and material aspect of this Agreement among  the parties and that the other parties would not enter into this Agreement if this waiver of jury trial section were not a part of this Agreement. (d)   Entire Agreement; Modifications and Waivers; Severability. This Agreement, and the exhibits hereto represent the entire agreement and understanding by and among the parties hereto with respect to the subject matter herein referred to, and no representations, promises, agreements or understandings, written or oral, not herein contained shall be of any force or effect.  No change or modification hereof shall be valid or binding unless the same is in writing and signed by the party against whom such waiver is sought to be enforced; moreover, no valid waiver of any provision of this Agreement at any time shall be deemed a waiver of any other provision of this Agreement at such time or will be deemed a valid waiver of such provision at any other time. In the event any provision contained herein shall be held to be invalid, illegal or unenforceable, it shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein, unless to do so would cause this Agreement to fail of its essential purpose. (e)   Captions.  The captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. (f)    No Transfers. Neither this Agreement nor any party's rights and duties hereunder may be sold, assigned or delegated by a party without the prior written consent of the other parties hereto. (g)   Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. *      *      *      *                   IN WITNESS WHEREOF, this Strategic Relationship Agreement is entered into as of the date first set forth above.     AMERICAN CAPITAL STRATEGIES,  LTD.                   By:       Name: Malon Wilkus     Title: CEO                   GLADSTONE CAPITAL CORPORATION                           By:       Name: David Gladstone     Title: CEO  

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. BROAD-BASED RESTRICTED STOCK PLAN TABLE OF CONTENTS Page o 1 BACKGROUND AND PURPOSE                        1 o 2 DEFINITIONS                                                       1 2.1 Board                                                                      1 2.2 Change in Control                                                    1 2.3 Code                                                                       3 2.4 Disabled                                                                  3 2.5 Employee                                                                3 2.6 IASG                                                                      3 2.7 1933 Act                                                                3 2.8 1934 Act                                                                3 2.9 Plan                                                                        3 2.10 Restricted Stock Grant                                          3 2.11 Rule 16b-3                                                           4 2.12 Stock                                                                   4 o 3 SHARES RESERVED UNDER PLAN                 4 o 4 EFFECTIVE DATE                                               4 o 5 ADMINISTRATION                                            4 o 6 ELIGIBILITY                                                        5 o 7 RESTRICTED STOCK GRANTS                        5 7.1 Initial Grants                                                          5 7.2 Issuance of Stock                                                  6 7.3 Voting and Other Rights                                         6 7.4 Forfeitures                                                             7 7.5 Forfeited Stock                                                      7 o 8 NON-TRANSFERABILITY                                8 o 9 RESALE RESTRICTIONS                                  9 o 10 ADJUSTMENT                                                 9 10.1 Capital Structure                                                 9 10.2 Mergers                                                           10 10.3 Fractional Shares                                             10 o 11 AMENDMENT OR TERMINATION            10 o 12 MISCELLANEOUS                                        11 12.1 No Contract of Employment                              11 12.2 Withholding                                                      11 12.3 Construction                                                     11 12.4 Other Conditions                                               11 12.5 Rule 16b-3                                                       12 o 1 BACKGROUND AND PURPOSE The purpose of this Plan is to promote the interest of IASG by authorizing the Board to make Restricted Stock Grants to Employees in order to (1) attract and retain Employees, (2) provide an additional incentive to each Employee to work to increase the value of Stock and (3) provide each Employee with a stake in the future of IASG. o 2 DEFINITIONS 2.1 Board -- means the Board of Directors of IASG. 2.2 Change in Control -- means: (1) A "person" or "group" (within the meaning of o 13(d) and o 14(d)(2) of the 1934 Act) becomes, is determined by the Board (acting in good faith) to be, or files a report on Schedule 13D, 13G or 14D-2 (or any successor schedule, form or report) disclosing that such person or group is the ultimate "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act) of securities representing more than twenty-five percent (25%) of the combined voting power of IASG's then outstanding securities ordinarily having the right to vote at an election of directors; provided, however, that the acquisition by IASG, by its subsidiaries, by any employee benefit plan sponsored by IASG or by IASG's Chief Executive Officer or Chief Operating Officer of securities representing more than twenty-five percent (25%) of such voting power shall not constitute a Change in Control; (2) individuals who, on the effective date of this Plan, constitute the members of the Board (together with any new members who were appointed to the Board by individuals who, on the effective date of this Plan, constitute the members of the Board or whose nomination for election to the Board was approved by the then incumbent Chairman of the Board and disregarding any director who resigned from the Board in the ordinary course of business) cease for any reason to constitute at least seventy-five percent (75%) of the members of the Board then in office; (3) the sale of all or substantially all of IASG's assets in one transaction or a series of related transactions to any person or group; (4) IASG is merged, consolidated or reorganized into or with another corporation or other legal person, or securities of IASG are exchanged for securities of another corporation or other legal person, and immediately after such merger, consolidation, reorganization or exchange less than fifty percent (50%) of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held, directly or indirectly, in the aggregate by the holders of securities entitled to vote generally in the election of the members of the Board immediately prior to such transaction; (5) the stockholders of IASG or the Board shall take any action in contemplation of the liquidation or dissolution of IASG; or (6) any other transaction or series of related transactions occur that have substantially the effect of the transactions specified in any of the preceding sections of this definition of a Change in Control. 2.3 Code -- means the Internal Revenue Code of 1986, as amended. 2.4 Disabled -- means a mental or physical condition which an Employee has on the date his or her employment with IASG terminates which in the judgment of IASG's Chief Executive Officer acting in his or her absolute discretion or, if the affected Employee is such officer, in the judgment of the Board acting in its absolute discretion renders such Employee unable to perform the essential functions of his or her job. 2.5 Employee -- means each individual who is classified on IASG's payroll and personnel records as a regular, full-time employee of IASG and each other individual who is classified on IASG's payroll and personnel records as an employee of IASG who the Board in its discretion determines to treat as a regular, full-time employee of IASG for purposes of this Plan. 2.6 IASG -- means International Airline Support Group, Inc., a Delaware corporation, and any successor to International Airline Support Group, Inc. 2.7 1933 Act -- means the Securities Act of 1933, as amended. 2.8 1934 Act -- means the Securities Exchange Act of 1934, as amended. 2.9 Plan -- means this International Airline Support Group, Inc. Broad-Based Restricted Stock Plan as effective as of the date adopted by the Board and as amended from time to time thereafter. 2.10 Restricted Stock Grant -- means a grant of Stock made to an Employee under o 7. 2.11 Rule 16b-3 -- means the exemption under Rule 16b?3 to Section 16(b) of the 1934 Act or any successor to such rule. 2.12 Stock -- means the common stock, par value $.001 per share, of IASG. o 3 SHARES RESERVED UNDER PLAN There shall (subject to o 10) be 167,800 shares of Stock reserved for issuance under this Plan. Such shares of Stock shall be reserved to the extent that IASG deems appropriate from authorized but unissued shares of Stock and from shares of Stock that have been reacquired by IASG. Any shares of Stock which have been issued as part of a Restricted Stock Grant which thereafter are forfeited under o 7.4 shall again become available for issuance under 7.5. Any shares of Stock used to satisfy a tax withholding obligation shall not thereafter become available for issuance under this Plan. o 4 EFFECTIVE DATE The effective date of this Plan shall be the date of its adoption by the Board. o 5 ADMINISTRATION This Plan shall be administered by IASG's Chief Executive Officer or his or her delegate. IASG's Chief Executive officer acting in his or her absolute discretion shall exercise such powers and take such action (except for powers and actions expressly reserved for the Board) as he or she deems appropriate and proper under the circumstance, including the power to interpret this Plan and take such other action in the administration and operation of this Plan as he or she deems equitable under the circumstances, which action shall be binding on IASG, on each affected Employee and on each other person directly or indirectly affected by such action. However, any decisions with respect to any Restricted Stock Grant made to IASG's Chief Executive Officer shall be made by the Board. o 6 ELIGIBILITY Only Employees shall be eligible for Restricted Stock Grants under this Plan. o 7 RESTRICTED STOCK GRANTS 7.1 Initial Grants. The Board as of the effective date of this Plan under o 4 shall make a Restricted Stock Grant to every individual who is an Employee on such date. All such grants shall be made subject to all the terms and conditions of this Plan and shall be evidenced by a letter to each such Employee from IASG's Chief Executive Officer or his or her delegate. The Board in its discretion shall determine the number of shares of Stock subject to each such Restricted Stock Grant, but the total number of shares of Stock subject to all such Restricted Stock Grants shall equal the number of shares of Stock reserved for issuance under this Plan. 7.2 Issuance of Stock. The Stock subject to each Restricted Stock Grant shall (subject to o 12.4) be issued in the name of the Employee as of the date that the Employee properly executes the irrevocable stock power in favor of IASG which IASG presents to such Employee and which gives IASG the right to forfeit the shares of Stock subject to such grant in accordance with o 7.4, and no Stock shall be issued under this Plan in the name of an Employee if he or she fails to execute such irrevocable stock power. Such irrevocable stock power shall expire if and when the Stock subject to such stock power no longer is subject to forfeiture under o 7.4. Each such stock certificate which represents shares of Stock issued as part of a Restricted Stock Grant shall be held by IASG until the related Stock has been forfeited under o 7.4 or such Stock is no longer subject to forfeiture under o 7.4. IASG shall (subject to o 9 and o 12.4) deliver the stock certificate which represents shares of Stock which no longer are subject to forfeiture under o 7.4 to the Employee to whom the related Restricted Stock Grant was made as soon as practicable after such shares no longer are subject to forfeiture. 7.3 Voting and Other Rights. An Employee shall have the right to vote all the shares of Stock subject to a Restricted Stock Grant made to that Employee while the Stock remains issued in his or her name and shall have the right to receive any cash dividends declared on such Stock while such Stock remains issued in his or her name. Any distributions made with respect to any Stock subject to a Restricted Stock Grant other than cash dividends shall be held by IASG subject to the same forfeiture conditions as the Stock subject to the related Restricted Stock Grant and either shall be forfeited under o 7.4 when the Stock subject to such grant is forfeited or delivered to the Employee when the Stock subject to the grant is no longer subject to forfeiture. 7.4 Forfeitures. An Employee shall forfeit 100% of the Stock subject to each and every Restricted Stock Grant made to such Employee if his or her employment with IASG terminates for any reason whatsoever before the fifth anniversary of the effective date of this Plan under o 4 unless (1) his or her employment with IASG terminates as a result of his or her death, in which event the Stock subject to each of his or her outstanding Restricted Stock Grants shall become non-forfeitable on the date his or her employment so terminates, (2) his or her employment terminates because he or she is Disabled, in which event the Stock subject to each of his or her outstanding Restricted Stock Grants shall become non-forfeitable on the date his or her employment so terminates or (3) there is a Change in Control, in which event the Stock subject to each outstanding Restricted Stock Grant shall become non-forfeitable on the date of such Change in Control. Each and every share of Stock which is subject to an outstanding Restricted Stock Grant which was forfeitable immediately before the fifth anniversary of the effective date of this Plan under o 4 shall become non-forfeitable on the fifth anniversary of such effective date. 7.5 Forfeited Stock. The Board as of the last day of IASG's fiscal year (and as of any other date or dates in a calendar year which the Board acting in its absolute discretion selects) shall make Restricted Stock Grants with respect to the shares of Stock which have been forfeited under o 7.4 and which are then available for issuance under o 3. Whenever a Restricted Stock Grant is made under this o 7.5 to any Employee, a grant shall be made as of the same date to every other individual who is an Employee on such date, and each such grant shall be made subject to all the terms and conditions of this Plan and shall be evidenced by a letter to each such Employee from IASG's Chief Executive Officer or his or her delegate. The Board in its discretion shall determine the number of shares of Stock subject to each such Restricted Stock Grant, but the total number of shares of Stock subject to all Restricted Stock Grants made as of any date shall equal the number of shares of Stock then available for issuance under o 3. o 8 NON-TRANSFERABILITY No Stock subject to a Restricted Stock Grant which remains subject to forfeiture under o 7.4 shall (absent the Board's consent) be transferable by an Employee other than by will or by the laws of descent and distribution and, if the Board consents to such a transfer, the person or persons to whom the Stock is transferred thereafter shall be treated as the Employee and the shares of Stock so transferred shall remain subject to all the terms and conditions of this Plan. The person or persons to whom Stock subject to a Restricted Stock grant is transferred by will or by the laws of descent and distribution thereafter shall be treated as the Employee, and the shares of Stock so transferred shall remain subject to all the terms and conditions of this Plan o 9 RESALE RESTRICTIONS Each Employee who is an officer or director of IASG shall be advised through the delivery of a copy of this Plan that the shares of Stock subject to a Restricted Stock Grant made to him or to her have been registered with the Securities and Exchange Commission under the 1933 Act in a Registration Statement on Form S-8. However, each such Employee also shall be advised through the delivery of a copy of this Plan that, (i) because, such Employee may be deemed to be an affiliate of IASG and (ii) because the sale or distribution by such Employee of such Stock has not been registered under the 1933 Act, such Employee may not sell, transfer or otherwise dispose of Stock issued to such Employee unless (x) such sale, transfer or other disposition is made in conformity with the volume and other limitations of the 1933 Act, (y) such sale, transfer or other disposition has been registered under the 1933 Act or (z) in the written opinion of counsel reasonably acceptable to IASG, such sale, transfer or other disposition is otherwise exempt from registration under the 1933 Act. o 10 ADJUSTMENT 10.1 Capital Structure. The number, kind or class (or any combination thereof) of shares of Stock reserved under o 3 and the number, kind or class (or any combination thereof) of shares of Stock subject to outstanding Restricted Stock Grants under this Plan shall be adjusted by the Board in an equitable manner as determined by the Board to reflect any change in the capitalization of IASG, including, but not limited to, such changes as stock dividends or stock splits. 10.2 Mergers. The Board as part of any corporate transaction described in o 424(a) of the Code shall have the right to adjust (in any manner that the Board in its discretion deems consistent with o 424(a) of the Code) the number, kind or class (or any combination thereof) of shares of Stock reserved under o 3. Furthermore, the Board as part of any corporate transaction described in o 424(a) of the Code shall have the right to adjust (in any manner that the Board in its discretion deems consistent with o 424(a) of the Code) the number, kind or class (or any combination thereof) of shares of Stock subject to any outstanding Restricted Stock Grants. 10.3 Fractional Shares. If any adjustment under this o 10 would create a fractional share of Stock or a right to acquire a fractional share of Stock, such fractional share shall be disregarded and the number of shares of Stock reserved under this Plan and the number subject to outstanding Restricted Stock grants shall be the next lower number of shares of Stock, rounding all fractions downward. An adjustment made under this o 10 by the Board shall be conclusive and binding on all affected persons. o 11 AMENDMENT OR TERMINATION This Plan may be amended by the Board from time to time to the extent that the Board deems necessary or appropriate; provided, however, the Board shall not have the right unilaterally to modify, amend or cancel any outstanding Restricted Stock Grant unless the Employee to whom such grant was made consents in writing to such modification, amendment or cancellation. o 12 MISCELLANEOUS 12.1 No Contract of Employment. A Restricted Stock Grant made to an Employee under this Plan shall not constitute a contract of employment and shall not confer on an Employee any rights upon his or her termination of employment in addition to those rights expressly set forth in this Plan. 12.2 Withholding. Each Restricted Stock Grant shall be made subject to the condition that the Employee consents to whatever action the Board directs to satisfy the minimum statutory federal and state tax withholding requirements, if any, that IASG determines are applicable to the Restricted Stock Grant when the Stock subject to such grant no longer is subject to forfeiture under o 7.4. 12.3 Construction. All references to sections (o) are to sections (o) of this Plan unless otherwise indicated. This Plan shall be construed under the laws of the State of Delaware. Each term set forth in o 2 shall have the meaning set forth opposite such term for purposes of this Plan and, for purposes of such definitions, the singular shall include the plural and the plural shall include the singular. 12.4 Other Conditions. IASG may require that an Employee (as a condition to the issuance of Stock as part of a Restricted Stock Grant or the delivery of the stock certificate representing such shares of Stock) enter into any agreement or make such representations prepared by IASG, including (without limitation) any agreement that restricts the transfer of Stock acquired pursuant to a Restricted Stock Grant or provides for the repurchase of such Stock by IASG. 12.5 Rule 16b-3. The Board shall have the right to amend any Restricted Stock Grant or to withhold or otherwise restrict the transfer of any Stock under this Plan to an Employee as the Board deems appropriate in order to satisfy any condition or requirement under Rule 16b-3. IN WITNESS WHEREOF, IASG has caused its duly authorized officer to execute this Plan to evidence its adoption of this Plan. INTERNATIONAL AIRLINE SUPPORT GROUP, INC. By:____________________________ Date:__________________________

QuickLinks -- Click here to rapidly navigate through this document Redacted Version [**] 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 10.210 CONTRACT MANUFACTURING AGREEMENT THIS CONTRACT MANUFACTURING AGREEMENT (the "Agreement") is made and entered into as of July 26, 2001 ("Date of Agreement"), by and between:     Chiron S.p.A., with its registered offices at Via Fiorentina 1, 53100 Siena, Italy, hereafter referred to as "Chiron",     and     SynCo Bio Partners B.V., with its registered offices at Paasheuvelweg 30, 1105 BJ Amsterdam Zuidoost, The Netherlands, hereafter referred to as the"SynCo". Background – Chiron has developed or is developing a broad line of novel adult and pediatric vaccines for viral and bacterial infectious diseases; – SynCo operates a manufacturing plant in Amsterdam, The Netherlands; – Chiron wishes to contract with SynCo to provide services related to the production of certain vaccines or intermediate products in the Plant, in quantities and at times to be separately agreed upon between Parties. SynCo is willing to use its personnel, expertise and facilities to discharge such contract manufacturing tasks and to provide such services, assistance, advice and consulting as Chiron may request from time to time. NOW, THEREFORE, in consideration of the premises, the mutual covenants, terms and conditions hereinafter set forth, THE PARTIES AGREE AS FOLLOWS: Article 1—Definitions For the purpose of this Agreement the following terms shall be defined as follows: 1.1."Affiliate" means: with respect to either Party, any company, entity, joint venture or similar business arrangement which is controlled by, controlling or under common control with such Party, and shall include without limitation any company fifty percent or more of whose voting stock or participating profit interest is owned or controlled, directly or indirectly, by such Party, and any company which owns or controls, directly or indirectly, fifty percent or more of such Party. 1.2."BPRs" means: the batch production records and other documents providing the manufacturing history of a batch of Product. 1.3."Confidential Information" means: (a) all information disclosed by either Party in writing and designated confidential, (b) all information disclosed orally that is confirmed in writing and designated confidential within thirty (30) days after such disclosure, (c) all information relating to Patents, (d) all Specifications, (e) all other Technology, and (f) all other information relating to the manufacture of the Products, whether such information is provided to SynCo by Chiron hereunder or otherwise. 1.4."GMP" means: European Good Manufacturing Practices for Medicinal Products as in effect at the time of manufacture of any Product supplied to Chiron hereunder. -------------------------------------------------------------------------------- 1.5."Material" means: the working cell banks and specific reagents as required for the manufacture of the Products in accordance with the relevant Specifications. Commercially available raw materials are excluded. 1.6."Parties" and "Party" means: SynCo and Chiron and SynCo or Chiron, respectively, as the context may require. 1.7"Patents" means all Patents owned by or licensed (with a right to sublicense) to Chiron or any of its Affiliates claiming Technology. 1.8."Plant" means: SynCo's facility located at Paasheuvelweg 30, 1105 BJ Amsterdam Zuidoost, The Netherlands. 1.9."Product" or "Products means: any or all of the vaccine products or intermediate products thereof listed on Appendix B. 1.10."Specifications" means: with respect to each Product, the specifications for such Product as set forth in Appendix C, as such specifications may be amended by Chiron from time to time. 1.11"Technology" means: all inventions, discoveries, procedures, processes, methods, data, information, results, trade secrets and know-how, whether patentable or otherwise, owned by or licensed (with a right to sublicense) to Chiron or any of its Affiliates as of the Agreement Date or any time during the term of this Agreement relating to the manufacture of the Products and shall include, without limitation, the Specifications. Article 2—Manufacture of Product 2.1.SynCo shall manufacture and supply to Chiron such quantities of Products as Chiron may from time to time order in accordance with the terms of this Agreement. 2.2.SynCo will manufacture the Products on a campaign basis, one campaign per Product per year. Attached as Appendix D is Chiron's firm order for Products to be delivered in [**]. SynCo hereby accepts such orders. Additional orders shall depend on available capacity at SynCO and might be ordered by firm written purchase order submitted [**] of the requested shipping date. Synco shall accept or reject such order by notice in writing to Chiron within 30 days of receipt of such order. 2.3.SynCo shall ship in accordance with Chiron's shipping instructions, at Chiron's expense. SynCo shall deliver the product to Chiron BV, Amsterdam and confirm delivery in writing to Chiron S.p.A. Title with respect to each batch of Product passes to Chiron S.p.A. upon payment of the final invoice. On the day that title passes Chiron S.p.A. should insure the batch of Product. Article 3—Transfer of Technology and Material. 3.1Chiron hereby grants to SynCo a non-exclusive, royalty free license under the Patents and to use the Technology to manufacture Product solely for Chiron in accordance with the terms and conditions of this Agreement. 3.2.Chiron shall provide SynCo with the Specifications and all other relevant Technology for the purpose of enabling SynCo to perform its obligations under this Agreement. 3.3.Chiron will furnish SynCo, free of charge, with the Material in sufficient quantities for the purpose of enabling SynCo to perform its obligations under this Agreement. The Material will remain the exclusive property of Chiron. SynCo will not transfer the Material to any third party. The Material will be released by the QA officer of Chiron. SynCo will maintain records of usage of the Material, and will inform Chiron of needs for additional quantities in a timely manner, and return to Chiron any unused quantities of the Material upon request. [**] 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. 2 -------------------------------------------------------------------------------- Article 4—Regulatory Affairs and Quality Assurance 4.1.SynCo shall manufacture all Products supplied to Chiron hereunder in the Plant and shall not transfer Technology to, or manufacture Product at, any other location without the prior written consent of Chiron. 4.2SynCo shall and maintain adequate equipment, knowledge and experience and competent personnel to carry out satisfactorily its obligations under this Agreement. 4.3.SynCo shall exercise all reasonable skill, care and diligence in the performance of its duties under this Agreement and shall carry out all responsibilities with recognized professional standards and the requirements of GMP. SynCo shall obtain and maintain all legally required permits in order to manufacture the Products in the Plant. SynCo shall inform Chiron of all permits filed and their status with respect to approval. 4.4.SynCo shall not subcontract any part of its obligations under this Agreement to a third party without prior written approval by Chiron. 4.5.Chiron will provide to SynCo the release tests to be performed on the Products and SynCo will perform such release testing in accordance with Chiron's written instructions. 4.6.SynCo shall write and maintain all BPRs and all documentation relating to the manufacture of Product supplied hereunder in the English language. 4.7.Subject to reasonable prior notice, Chiron's designated representatives may inspect those portions of the Plant used in the production of the Products for the purpose of determining compliance with GMP and the terms of this Agreement at reasonable times during the production campaign of the Products. SynCo will provide full cooperation for these inspections. 4.8.SynCo's Quality Assurance unit shall review and approve all BPRs and shall investigate all deviations on such BPRs. This unit shall also ensure that the Plant and manufacturing operations are in compliance with GMP and with any other applicable law or regulation in effect during the time of manufacture of the Product. Within sixty days of completion of manufacture of each batch of Product, SynCo will supply Chiron with a "Certification of Compliance" for such batch stating that the BPRs and related documentation have been reviewed and found to be in GMP compliance. 4.9.Chiron will have final responsibility for the release of each batch of Product manufactured by SynCo. 4.10.SynCo will notify Chiron at least six (6) months in advance of any proposed modifications to the Plant, utilities, equipment or any other aspect of the manufacturing process for the Products. SynCo shall not make any such change without the prior written consent of Chiron, which consent Chiron may withhold in its reasonable discretion if the change have any impact on Chiron's Marketing Authorizations for any or all of the Products. 4.11.SynCo will retain manufacturing data, test records, and raw material samples as required to satisfy GMP. SynCo will provide Chiron, free of charge, with copies of all manufacturing data and test records, as well as copies of other documents resulting from work under this Agreement, required by Chiron for regulatory purposes. In the event of termination of the Agreement, all original manufacturing data, test records, samples and other materials required to satisfy GMP for the production of the Products will be delivered to Chiron promptly upon its request. 4.12.SynCo will permit the Regulatory Authorities to conduct inspections relating to the manufacture of the Products and will cooperate fully in connection with such inspections. SynCo will notify 3 -------------------------------------------------------------------------------- Chiron promptly of any of such inspections and shall promptly inform Chiron of the results of such inspections. Article 5—Warranties and Liability 5.1.SynCo warrants that: a)the Products will be manufactured, packed, stored and delivered in compliance with this Agreement and all applicable laws, regulations, and orders, including GMP; without limiting the generality of the foregoing, SynCo will obtain and maintain in effect all required governmental permits, licenses, and approvals applicable to the manufacture of the Products and shall produce the Products in accordance with all such permits, licenses, orders, applications and approvals; b)the Material will be received and stored in accordance with all applicable laws, regulations and orders and in accordance with the relevant specifications; c)on the date of delivery thereof, the Products will conform to the Specifications; and d)it will not carry on activities in the Plant which could reasonably prevent the Products from being manufactured in accordance with all applicable laws, regulations, and orders, including GMP. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SYNCO MAKES NO WARRANTIES EXPRESS OR IMPLIED AND EXPRESSLY DISCLAIMS WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE OR MERCHANTABILITY, AND SYNCO SHALL NOT BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES IN ANY CASE OF NONCONFORMITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING FROM ANY ALLEGED OR ACTUAL BREACH OF THIS AGREEMENT. 5.2.SynCo shall promptly replace, free of charge, any defective or non-conforming Product supplied to Chiron, provided Chiron notifies SynCo in writing upon discovery of such defect or non-conformity within a period of sixty days after SynCo's Quality Assurance has approved the Product pursuant to Article 4.8, and provided Chiron allows SynCo to evaluate the claim and to test the said quantity of Product within a reasonable period of time, but not to exceed sixty days. Replacement of the Product by Synco pursuant to this paragraph 5.2 shall be the sole remedy of Chiron against SynCo for defective or non-conforming Product. 5.3If the Parties disagree whether such Product is defective or non-conforming, then the Product in dispute will be tested and further analyzed by a qualified independent testing laboratory reasonably acceptable to both Parties. Such laboratory's testing will determine, using representative samples, whether the quantity of the Product is defective or non-conforming with the Specifications. The resulting determination of the laboratory will be final and binding on SynCo and Chiron. SynCo will bear the cost of such testing if the testing demonstrates that the Product is defective or non-conforming and Chiron will bear the cost if the testing demonstrates the Product is neither defective nor non-conforming. 5.4.Except to the extent subject to indemnification by Chiron pursuant to Article 5.5., SynCo will indemnify, defend and hold harmless Chiron and its Affiliates from and against any and all losses, claims, damages or liabilities (including but not limited to reasonable attorney's fees) arising from or relating to (a) any breach by SynCo of its representations, warranties or covenants under this Agreement; or (b) any negligence or intentional wrongdoing of SynCo. 4 -------------------------------------------------------------------------------- 5.5.Except to the extent subject to indemnification by SynCo pursuant to Article 5.4., Chiron will indemnify, defend and hold harmless SynCo and its Affiliates from and against any and all losses, claims, damages or liabilities (including but not limited to reasonable attorney's fees), arising from or relating to (a) any use, including clinical trials, or sale by Chiron or any third party of any Product supplied by Synco hereunder; (b) any allegation by any third party of infringement of its intellectual property rights by or the manufacture, use or sale of Products by Chiron or any of its Affiliates; (c) any breach by Chiron of its representations, warranties or covenants under this Agreement; or (d) any negligence or intentional wrongdoing of Chiron. 5.6.Any person seeking indemnity pursuant to this section (the "Indemnified Party") shall notify the Party from whom indemnification is sought (the "Indemnifying Party") in writing promptly upon becoming aware of any claim, threatened claim, damage, loss, suit, proceeding or liability ("Claim") to which such indemnification may apply. Failure to provide such notice shall constitute a waiver of the Indemnifying Party's indemnity obligations hereunder if and to the extent the Indemnifying Party is materially damaged thereby. The Indemnifying Party shall have the right to assume and control the defence of the Claim at its own expense. If the right to assume and control the defence is exercised, the Indemnified Party shall have the right to participate in, but not control, such defence at its own expense and the Indemnify Party's indemnity obligations shall be deemed not to include attorneys' fees and litigation expenses incurred by the Indemnified Party after the assumption of the defence by the Indemnifying Party. If the Indemnifying Party does not assume the defence of the Claim, the Indemnified Party may defend the Claim; provided, that the Indemnified Party will not settle or compromise the Claim without consent of Indemnifying Party, which consent will not be unreasonably withheld. The Indemnified Party shall co-operate with Indemnifying Party and will make available to Indemnifying Party all pertinent information under the control of the Indemnified Party. Article 6—Considerations and Payments 6.1.As payment in full for Product supplied hereunder, Chiron shall pay to SynCo [**] as set forth in Appendix A. [**] will be invoiced as follows: [**] with payment within 30 days. 6.2.SynCo shall invoice Chiron in Euro's after SynCo's Quality Assurance has approved the Batch Production records. Payment terms to SynCo shall be promptly after receipt of the invoice, namely within 30 days. Article 7—Confidentiality and Intellectual Property     A Party receiving Confidential Information from the other Party or developing Confidential Information hereunder shall not disclose such Confidential Information to any third party or otherwise for a period extending ten (10) years following expiration or earlier termination of this Agreement, except as follows: (a)to the extent such information is or becomes general public knowledge through no fault of the recipient Party; or (b)to the extent such information can be shown by contemporaneous documentation of the recipient Party to have been in its possession prior to receipt thereof hereunder; or (c)to the extent such information is received by the recipient Party from a third party without any breach of an obligation to the disclosing Party; or [**] 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. 5 -------------------------------------------------------------------------------- (d)to the extent required by law, by local authorities for regulatory purposes or is necessary to perform its obligations under this Agreement, in which case, the recipient Party may disclose the information if the recipient Party gives the other Party prior notice of such disclosure and an opportunity to comment upon the content of the disclosure. However, SynCo shall have the right, at all times and without the obligation to give notice to Chiron, to use information related to its Plant for its own business purposes and Chiron shall have the right, at all times and without the obligation to give notice to SynCo, to use the information related to the Vaccines for its own business purposes. For the avoidance of doubt: It is understood that SynCo purchased the Plant and certain related equipment, including computers and other information technology systems, from an Affiliate of Chiron, and that prior to such purchase the Plant and equipment were utilized by Chiron and its Affiliates for the manufacture of Products. It is further understood that certain employees of SynCo formerly were employees of an Affiliate of Chiron and were engaged directly or indirectly in the manufacture of Products. Notwithstanding anything to the contrary contained herein, and in particularly notwithstanding paragraph (b) above, all information relating the Specifications, Technology or manufacture of the Products which exists as of the date of this Agreement shall be owned solely and exclusively by Chiron and shall not be disclosed by SynCo at any time during the term of this Agreement or for a period of ten years following the expiration or earlier termination of this Agreement. Each Party shall use Confidential Information received from the other Party solely for the purposes of this Agreement and for no other purpose whatsoever. Article 8—Term of Agreement The term of this Agreement shall commence as of the Date of Agreement, and will continue until January 1, 2004. Termination of this agreement will not relieve Chiron of its obligations to pay SynCo for Product previously supplied hereunder and for commitments which arise directly out of firm purchase orders for Products and which cannot reasonably be canceled or otherwise put to use. Article 9—Additional Terms 9.1.Force Majeure. A Party shall not be held liable to the other for any delay in performance or non performance of that Party directly or indirectly caused by reason of force majeure including, but not limited to, industrial disputes, strike, lockouts, riots, mobs, fires, floods, or other natural disasters, wars declared or undeclared, civil strife, embargo, lack or failure of transport facilities, currency restrictions, or events caused by reason of laws, regulations or orders by any government, governmental agency or instrumentality or by any other supervening circumstances beyond the control of either Party. Provided, however, that the Party affected shall: give prompt written notice to the other Party of the date of commencement of the force majeure, the nature thereof, and expected duration; and shall use its best efforts to avoid or remove the force majeure to the extent it is able to do so; and shall make up, continue on and complete performance when such cause is removed to the extent it is able to do so. Either Party has the right to terminate the Agreement with immediate effect and without any liability, upon written notice to the other Party, should the force majeure continue after three months (3) following the first notification. 9.2.Non-Waiver. The failure by any Party at any time to enforce any of the terms or provisions or conditions of this Agreement or exercise any right hereunder shall not constitute a waiver of the same or affect the validity of this Agreement or any part hereof, or that Party's rights thereafter to enforce or exercise the same. No waiver by a Party shall be valid or binding, except if in writing and signed by a duly authorized representative of the waiving Party. 6 -------------------------------------------------------------------------------- 9.3.Severability. In case one or more of the provisions contained in this Agreement shall, for any reason, be held invalid, illegal or unenforceable in any respect, such holding shall not affect any other provisions of this Agreement, but this Agreement shall be construed by limiting such provision to such extent as would nearly as possible reflect the intent, purpose and economic effect of such provision, or, if such is not possible, by deleting such provision from this Agreement, provided that the remaining provisions reflect the intent of the Parties, as evidenced by this Agreement as a whole. 9.4.Captions. All titles and captions in this Agreement are for convenience only and shall not affect its interpretation. 9.5.Law and Arbitration. This Agreement shall be governed, construed and interpreted by the law of the Netherlands. The Parties agree that all disputes between them arising out of or relating to this Agreement shall be settled by arbitration in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with such Rules. The arbitration proceedings shall take place in Amsterdam, The Netherlands if initiated by Chiron and in Milan, Italy if initiated by SynCo and shall be conducted in the English language. Judgment on the award may be issued by and enforced by any court of competent jurisdiction. 9.6.Entire Understanding. This Agreement (including appendices) is the entire understanding and agreement between the Parties relating to the subject matter hereof and supersedes (except as provided herein) any and all prior arrangements, understandings, and agreements between the Parties whether written or oral relating thereto. No amendments, changes, or modifications of the terms of this Agreement shall be valid or binding unless made in writing and signed by the duly authorized representatives of each Party. 9.7.Independent Status of Parties. Each Party is an independent party acting in its own name and for its own account. Neither Party has any authority to act as an agent or representative of the other, or to contract in the name of, or create or assume any obligation against, or otherwise legally bind, the other Party in any way for any purpose, unless agreed separately in writing. All costs and expenses connected with each Party's activities and performance under this Agreement unless otherwise separately agreed or provided for in this Agreement are to be borne solely by the Party incurring such costs and expenses. IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly authorized representatives: Chiron S.p.A.       SynCo Bio Partners B.V. /s/ GABRIELE BRUSA    -------------------------------------------------------------------------------- Dr. Gabriele Brusa Chief Executive Officer       /s/ MIC N. HAMERS    -------------------------------------------------------------------------------- Dr. Mic N. Hamers Managing Director 7 -------------------------------------------------------------------------------- APPENDIX A COST OF CERTAIN PRODUCT The [**] of dried purified MenC polysaccharides amounts to [**] for the year [**] The [**] of CRM197 amounts to [**] for the year [**] and amounts to for the year [**] [**] 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. -------------------------------------------------------------------------------- APPENDIX B LIST OF PRODUCTS MEN C CRM197 -------------------------------------------------------------------------------- APPENDIX C OPERATING PROCEDURES AND SPECIFICATIONS MF-MFS-MEC-000        Master Formulation Document MenC polysaccharide This document lists all materials, documents, including all BPRs and control methods and equipment for the production of MenC MF-MFS-CRM-000        Master Formulation Document for CRM197 This document lists all materials, documents, including all BPRs and control methods, and equipment for the production of CRM197 -------------------------------------------------------------------------------- APPENDIX D FIRM ORDERS Campaign of [**] [**] for registration purposes. Campaign shall start no later than [**] Campaign of [**] [**] Delivery preferably in [**], but not later [**] Campaign of [**] [**] Delivery preferably in [**], but not later than [**] N.B. [**] can be (partly) changed to [**]. If the order is [**] of [**]. [**] 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. -------------------------------------------------------------------------------- QuickLinks CONTRACT MANUFACTURING AGREEMENT APPENDIX A COST OF CERTAIN PRODUCT APPENDIX B LIST OF PRODUCTS APPENDIX C OPERATING PROCEDURES AND SPECIFICATIONS APPENDIX D FIRM ORDERS

Exhibit 10.11 June 14, 2001   Mr. Michael J. Soenen FTD.COM INC. 3113 Woodcreek Drive Downers Grove, Illinois  60515 Dear Mike:              This letter agreement (this "Agreement") sets forth the terms of your employment with FTD.COM INC. ("FTD.COM"), and replaces and supercedes your prior employment agreement dated May 17, 2000.              Duties.  You shall serve as an officer of FTD.COM or in a substantially similar position with any entity that acquires FTD.COM or all or substantially all of FTD.COM's assets (other than IOS BRANDS Corporation ("IOS") or Florists' Transworld Delivery, Inc. ("FTDI") or any of their other direct or indirect subsidiaries) through May 17, 2003 and shall perform the duties assigned by FTD.COM from time to time.  You shall devote your entire business time to the affairs of FTD.COM, to the performance of your duties under this Agreement and to the promotion of FTD.COM's interests.              Compensation.  As full compensation for the performance by you of your duties under this Agreement, FTD.COM shall compensate you as follows: (a)         Salary.  FTD.COM shall pay to you a salary of $250,000 per year, payable in the periodic installments ordinarily paid by FTD.COM to employees of FTD.COM at comparable levels to you.  You shall be entitled to such merit increases in base salary as the FTD.COM Board of Directors may determine, in its discretion. (b)        Performance Bonus.  You shall be entitled to participate in a performance bonus as set by the Board of Directors based upon performance criteria to be set by the Board.  If your employment with FTD.COM is terminated for any reason other than "cause" (as defined below under "Severance") following a Change in Control (as defined below), you shall be entitled to received a pro rata bonus for the applicable fiscal year if you are entitled to one based upon the performance criteria set by the Board. (c)         Equity Incentive Awards.  You have been entitled to participate in the IOS and FTD.COM equity incentive plans and any stock options or restricted stock awards granted to you, including any granted prior to the date hereof, shall be deemed to include vesting provisions that accelerate the vesting of any unvested awards upon the occurrence of a Change of Control (as defined below). (d)        Paid Vacation.  You shall be entitled to four weeks of paid vacation per year in accordance with FTD.COM's policies with respect to vacations then in effect. (e)         Benefits.  You shall be entitled to the additional employment-related benefits that are made available from time to time to employees of FTD.COM at comparable levels to you. (f)         Expense Reimbursement.  FTD.COM shall reimburse you, in accordance with the practice from time to time in effect for other employees of FTD.COM, for all reasonable and necessary travel expenses and other disbursements incurred by you, for or on behalf of FTD.COM, in the performance of your duties under this Agreement.              Immediate Vesting of Awards and Forgiveness of Indebtedness Upon Change of Control.              In the event a Change of Control occurs during your employment, notwithstanding any provision of this Agreement or any other agreement governing any equity incentive awards held by you, any outstanding stock options or restricted stock awards granted by IOS, FTDI, FTD.COM or any other FTD company shall vest in full and become immediately exercisable, and any restrictions relating thereto shall lapse, upon the occurrence of such Change of Control.  In addition, upon the occurrence of a Change of Control, any secured indebtedness owed by you to FTD.COM shall be released and discharged in full.  For purposes of this agreement, "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 (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% of the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors ("Voting Stock") of IOS, FTDI or FTD.COM, respectively; provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control:  (i) any acquisition directly from IOS, FTDI or FTD.COM, (ii) any acquisition by IOS, FTDI or FTD.COM, any subsidiary of IOS, FTDI or FTD.COM or any employee benefit plan (or related trust) sponsored or maintained by IOS, FTDI or FTD.COM or any such subsidiary or (iii) any acquisition by any of Perry Acquisition Partners, L.P., Bain Capital, Inc., Fleet Private Equity Co. Inc. or any of their respective affiliates; (b)        a change in a majority of the members of the Board of Directors of IOS, FTDI or FTD.COM, respectively, occurs (i) within one year following the public announcement of an actual or threatened election contest (within the meaning of Rule 14a-11 under the Exchange Act) or the filing of a Schedule 13D or other public announcement indicating a Person intends to effect a change in control of IOS, FTDI or FTD.COM or (ii) as a result of a majority of the members of the Board having been proposed, designated or nominated by a Person (other than IOS, FTDI or FTD.COM through their respective Boards of Directors or duly authorized committees thereof or through the exercise of contractual rights); (c)         consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of IOS, FTDI or FTD.COM (a "Business Combination"), in each case, unless, following such Business Combination, (i) more than 50% of the Voting Stock of the entity resulting from such Business Combination is held in the aggregate by (A) the holders of securities entitled to vote generally in the election of directors of IOS, FTDI or FTD.COM immediately prior to such transaction, (B) any employee benefit plan (or related trust) sponsored or maintained by IOS, FTDI or FTD.COM or such entity or any subsidiary of any of them or (C) any of Perry Acquisition Partners, L.P., Bain Capital, Inc., Fleet Private Equity Co. Inc. or any of their respective affiliates and (ii) at least half of the members of the board of directors of the entity resulting from such Business Combination were members of the Board of Directors of IOS, FTDI or FTD.COM at the time of the execution of the initial agreement, or the action of the Board of Directors of IOS, FTDI or FTD.COM, providing for such Business Combination; or (d)        approval by the stockholders of IOS, FTDI or FTD.COM of a complete liquidation or dissolution of IOS, FTDI or FTD.COM.              Severance.  FTD.COM shall have the right to terminate your employment by giving you written notice of the effective date of the termination.  If your employment is terminated (a) without "cause" by FTD.COM or (b) by you following your assignment to a position that represents a material diminution in your operating responsibilities (it being understood that a change in your title shall not by itself entitle you to terminate your employment and receive the right to severance payments under this paragraph), FTD.COM will pay you continued salary for one year from the effective date of any such termination under clause (a) or (b) above ("Termination Date") and any pro rata bonus to which you may be entitled pursuant to this Agreement.  FTD.COM's severance obligations are subject to your best efforts to mitigate, and you will promptly notify FTD.COM of any subsequent employment.  In addition to the foregoing continued salary payments, on the Termination Date, FTD.COM shall cause you to be entitled to accelerated vesting of any options to purchase capital stock of FTD.COM or any subsidiary (with unrestricted rights to exercise any such stock options) and vesting of all capital stock of FTD.COM or any subsidiary subject to forfeiture under restricted stock awards in the same manner and extent as would be the case in the event of a Change of Control.  Your participation (including dependent coverage) in any life, disability, group health and dental benefit plans provided by FTD.COM, in effect immediately prior to the Termination Date, shall be continued after the Termination Date, in accordance with FTD.COM policy relating to such plans as of the Termination Date, until the earlier of (i) the end of the one-year severance period or (ii) the date on which you accept other full-time employment.  Following the Termination Date, FTD.COM shall not be obligated to (1) provide business accident insurance covering you or (2) make contributions on your behalf to any qualified retirement and pension plans or profit sharing plans.              For purposes of this Agreement, "cause" means any of the following events that FTD.COM or the FTD.COM Board of Directors has determined, in good faith, has occurred: (i) your continual or deliberate neglect of the performance of your material duties; (ii) your failure to devote substantially all of your working time to the business of FTD.COM and its subsidiaries or affiliated companies; (iii) your engaging willfully in misconduct in connection with the performance of any of your duties, including, without limitation, the misappropriation of funds or securing or attempting to secure personally any profit in connection with any transaction entered into on behalf of FTD.COM or its subsidiaries or affiliated companies; (iv) your willful breach of any confidentiality or nondisclosure agreements with FTD.COM (including this Agreement) or your violation, in any material respect, of any code or standard of behavior generally applicable to employees or executive employees of FTD.COM; (v) your violation of the separate confidentiality and non-competition agreement described below and attached hereto as Exhibit A; or (vi) your engaging in conduct that results in material injury to the reputation of FTD.COM or its subsidiaries or affiliated companies such as conviction for a felony or crime involving fraud under Federal, state or local laws, or embezzlement.              Confidential Information and Non-Competition.  You agree to enter into a separate agreement with FTD.COM (attached hereto as Exhibit A) that provides for (a) non-disclosure of confidential information, (b) non-competition and (c) non-solicitation of customers, suppliers and employees.  This Agreement shall not be effective until you have executed and delivered such agreement to FTD.COM.              Tax Matters.    Upon the occurrence of a Change of Control during your employment, FTD.COM shall be obligated to make "gross up payments" to the extent required by law to cover certain tax obligations in the manner contemplated by Exhibit B hereto.              Miscellaneous.  This Agreement shall be governed by the internal laws of the State of Illinois, excluding the conflicts-of-law principles thereof.  You and FTD.COM consent to jurisdiction and venue in any federal or state court in the City of Chicago.  This Agreement and the accompanying Exhibit A and B state our entire agreement and understanding regarding your employment with FTD.COM.  This agreement may be amended only by a written document signed by both you and FTD.COM.  No delay or failure to exercise any right under this Agreement waives such rights under the Agreement.  If any provision of this Agreement is partially or completely invalid or unenforceable, then that provision shall only be ineffective to such extent of its invalidity or unenforceability, and the validity or enforceability of any other provision of this Agreement shall not be affected.  Any controversy relating to this Agreement shall be settled by arbitration in Chicago, Illinois in accordance with the Commercial Arbitration Rules of the American Arbitration Association, except as otherwise provided in the Confidentiality and Non-Competition agreement attached hereto as Exhibit A.  In the event of any inconsistency between this Agreement and any personnel policy or manual of FTD.COM with respect to any matter, this Agreement shall govern the matter.  You shall be entitled to be reimbursed for your reasonable costs and expenses, including attorneys' fees, incurred in connection with the enforcement of your rights under this Agreement to the extent that you prevail in any such controversy.     Sincerely,       /s/ RICHARD C. PERRY       Richard C. Perry   Director   FTD.COM INC.   Accepted as of this   14th day of June, 2001       /s/ MICHAEL J. SOENEN --------------------------------------------------------------------------------   Michael J. Soenen    

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT Christopher Havens (“Executive”) and Ultramar Diamond Shamrock Corporation, a Delaware corporation (the “Company”), hereby enter into this First Amendment to the Employment Agreement between Executive and the Company, dated as of November 27, 1996, and effective as of December 3, 1996 (the “Agreement”). WHEREAS, the Executive serves as Executive Vice President, Marketing and Retail Operations, of the Company; and WHEREAS, the Executive and the Company entered into the Agreement as of the date stated above; and WHEREAS, Section 12.8 of the Agreement provides that it may be amended only by an instrument in writing approved by the Company and signed by the Executive and the Company; and WHEREAS, the Company considers it in the best interests of its stockholders to foster the continuous employment of certain key management personnel; and WHEREAS, the Company wishes to amend the Agreement to add certain provisions approved by the Compensation Committee of the Board of Directors of the Company at a meeting held on May 1, 2000. NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and in the Agreement, it is agreed that, effective as of May 1, 2000, the Agreement shall be amended as follows: I. A new final sentence is added to Section 4.2 of the Agreement as follows:   Notwithstanding any other provision of the Agreement, or the terms of the Ultramar Diamond Shamrock Corporation Retirement Restoration Plan (the “RRP”), to the contrary, Executive (and Executive’s beneficiaries) shall be entitled to no benefits under, or with respect to, the RRP, in acknowledgment of the fact that such benefits will be provided under the supplemental executive retirement plan of the Company in which Executive participates. II. Section 5.2(i) of the Agreement is hereby deleted and substituted with the following: -------------------------------------------------------------------------------- Havens First Amendment to Employment Agreement Page 2 of 7         (i)       If the Company determines in good faith that the Executive has incurred a Disability (as defined below) during the Term, the Company may give the Executive written notice of its intention to terminate its obligations under this Agreement, which notice may, but need not, include a statement of the Company’s intent to terminate the Executive’s employment. In such event, the Company’s obligations under this Agreement, and the Executive’s employment (if applicable), will terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Termination Date”), provided that within the 30 days after such receipt, the Executive will not have returned to full-time performance of his duties. The Executive will continue to receive his annual base salary until the Disability Termination Date. The Executive will continue to receive benefits until the Disability Termination Date, provided that if the Company has not elected to terminate the Executive’s employment under this provision (but rather to terminate only its obligations under this Agreement), the Executive’s right to continue to receive benefits following the Disability Termination Date will be governed by the policies and procedures of the Company generally applicable to disabled employees. In that event, the Executive will be considered an “employee at will” following the Disability Termination Date, and either the Executive or the Company may thereafter terminate the Executive’s employment for any reason or for no reason, and the rights and obligations of the Executive and the Company upon such termination will be governed by the policies and procedures of the Company applicable to employees at will, and by applicable law.   In the event of the Executive’s disability, the Company will pay the Executive, promptly after the Disability Termination Date, (a) the unpaid annual base salary to which he is entitled, pursuant to Section 4.1, through the Disability Termination Date, (b) for any accrued but unused vacation days, to the extent and in the amounts, if any, provided under the Company’s usual policies and arrangements, and (c) a lump sum in cash in an amount equal to 50% of his annual base salary at the Disability Termination Date. This Section 5.2 will not limit the entitlement of the Executive, the Executive’s estate or beneficiaries to any disability or other benefits then available to the Executive under any disability insurance or other benefit plan or policy that is maintained by the Company for the Executive’s benefit; provided that (i) any amounts paid as base salary shall offset, on a dollar-for-dollar basis (but not below zero), the Company’s obligation to pay the Executive short-term disability benefits under any short-term disability plan, program or arrangement of the Company, in respect of the same period for which such base salary is paid, and (ii) any benefits paid pursuant to the Company’s long-term disability plan shall reduce, on a dollar-for-dollar basis (but not below zero), the Company’s obligation to pay the Executive base salary in respect of the same period for which such benefits are paid; provided, however, that any such offset or reduction shall not affect, or be affected by, the payments provided to be made in accordance with clauses (a), (b), or (c) of this Section 5.2(i). III. Section 5.5(i)(a) of the Agreement shall be revised to read as follows:         (i) Form and Amount. Upon Executive’s involuntary termination, other than for Cause, the Company shall:           (a) subject to Section 5.5(iii), pay or provide Executive             (1) his annual salary and benefits until the date of termination,             (2) within five business days after any revocation period in the release described in Section 5.5(iii) has expired, a lump sum cash payment equal to three multiplied by the sum of (x) and (y), where (x) is Executive’s highest annual base salary in effect during the three years prior to his date of termination, and (y) is the highest annual incentive compensation earned by Executive during the three years prior to his termination; provided, however, that all amounts received by Executive pursuant to the Ultramar Diamond Shamrock Corporation Intermediate Incentive and Performance-Based Restricted Stock Plan shall not be considered “annual incentive compensation” for purposes of this Section 5.5(i)(a)(2), -------------------------------------------------------------------------------- Havens First Amendment to Employment Agreement Page 3 of 7             (3) three additional years of age and service credit under all Company-sponsored employee benefit plans, including all retirement income plans and welfare benefit plans, policies or programs or arrangements in which Executive participates, including any savings, pension, supplemental executive retirement or other retirement income or welfare benefit, short or long-term disability, and any other deferred compensation, group and/or executive life, health, retiree health, medical/hospital, or other insurance (whether funded by actual insurance or self-insured by the Company), expense reimbursement or other employee benefit plans, policies, programs or arrangements or any equivalent successor plans, policies, programs or arrangements that may not now exist or may be adopted hereafter by the Company (but only to the extent that eligibility, vesting, or the timing or amount of the benefit are dependent upon age and service); provided, however, that in the case of a qualified defined benefit pension plan (hereafter, the “Qualified Plan”), (i) if such aforementioned involuntary termination occurs prior to, or contemporaneous with, the occurrence of an event entitling Executive to a lump sum payment under the provisions of either the Ultramar Corporation Supplemental Executive Retirement Plan (or any equivalent successor plan, policy, program or arrangement) (collectively, the “Ultramar SERP”) or the Diamond Shamrock, Inc. Supplemental Executive Retirement Plan (or any equivalent successor plan, policy, program or arrangement) (collectively, the “DS SERP”) pertaining to “Change in Control” (as defined in either the Ultramar SERP or the DS SERP, as the case may be), disregarding for this purpose, any “Change in Control” occurring prior to December 4, 1996 (collectively, a “SERP Lump Sum Payment”), in lieu of granting any such actual additional years of age and service credit under the Qualified Plan, an amount equal to the present value of the additional benefit Executive would have accrued if he had been credited for all purposes with the three additional years of age and service under the Qualified Plan as of his date of termination with the Company will be paid in a lump sum in cash within five business days after any revocation period in the release described in Section 5.5(iii) has expired and (ii) if such aforementioned involuntary termination occurs following the occurrence of an event entitling Executive to a SERP Lump Sum Payment, in lieu of granting any such additional years of age and service credit under the Qualified Plan, an amount equal to the excess of (A) the present value of the additional benefit Executive would have accrued if he had been credited for all purposes with the three additional years of age and service under the Qualified Plan as of his date of termination with the Company over (B) the amount by which the SERP Lump Sum Payment would, under the terms of the Ultramar SERP or DS SERP (as the case may be), have been reduced had the aforementioned involuntary termination instead occurred contemporaneous with the occurrence of the event entitling Executive to the SERP Lump Sum Payment, will be paid in a lump sum in cash within five business days after any revocation period in the release described in Section 5.5(iii) has expired, with (i) in the event that Executive’s aforementioned involuntary termination occurs on or after a “Change in Control” of the Company, as defined in Section 6.2 (or prior to, but in anticipation of, such a “Change in Control”), such present value being determined, in each such case, using the interest rate and mortality table set forth in Section 4.1(m)(i) and 4.1(n)(i), respectively, of the Ultramar SERP and (ii) in the event that Executive’s aforementioned involuntary termination occurs prior to such a “Change in Control” of the Company (other than such a termination in anticipation of such a “Change in Control”), such present value being determined, in each such case, using the interest rate and mortality table set forth in Section 4.1(m)(ii) and 4.1(n)(ii), respectively, of the Ultramar SERP, and further, provided, in crediting the three additional years of age and service for purposes of calculating current and unused vacation such additional years shall be applied in determining the amount of annual vacation to which Executive is entitled, but shall not be deemed to cause Executive to have earned three additional years worth of unused vacation, -------------------------------------------------------------------------------- Havens First Amendment to Employment Agreement Page 4 of 7              (4) within five business days after any revocation period in the release described in Section 5.5(iii) has expired, a lump sum cash payment equal to three times the maximum amount the Company could have contributed on behalf of Executive to all of the Company-sponsored qualified and nonqualified defined contribution retirement plans in which Executive participated for any of the three years ending on the date of Executive’s termination of employment, assuming that Executive made the maximum voluntary contributions thereto,              (5) for a period of three years after the date of Executive’s termination of employment, the continuation of the employee welfare benefits set forth in Section 4.2 (other than short-term or long-term disability benefits), except as offset by benefits paid by other sources as set forth in Section 8.2, or as provided in Section 5.5(ii) (provided, however, that in the event that any such continued coverage is not permitted under the terms of any applicable welfare plan or policy, the Company shall provide Executive with the after-tax economic equivalent of any coverage foregone, such economic equivalent to be deemed to be no less than the total cost to Executive of obtaining such coverage on an individual basis and to be paid quarterly in advance without discount); IV. Section 5.5(i) of the Agreement shall be amended by striking the period at the end of Subsection 5.5(i)(b) and inserting the following in lieu thereof:   ; and (c) the Company shall provide Executive with outplacement services for a period of one year commencing on the date his employment is terminated in accordance with the Company’s executive outplacement policy in effect at the time his employment is terminated or immediately prior to a Change in Control (if prior to his termination of employment), whichever is more generous. -------------------------------------------------------------------------------- Havens First Amendment to Employment Agreement Page 5 of 7 V. Section 5.5(ii) of the Agreement shall be amended by striking the reference to “Section 5.5(i)(a)(4)” and inserting “Section 5.5(i)(a)(5)” in lieu thereof and adding a new sentence to the end thereof, which shall read as follows:   Notwithstanding the above, if Executive’s continued participation in any of the benefits referenced in Section 5.5(i)(a)(5) would violate any applicable law or cause any benefits plan, policy, or arrangement of the Company to fail to qualify for tax-favored status, the Company shall not be required to provide such benefits to Executive through the Company’s plans, policies, or arrangements, but instead shall either (A) arrange to make a substantially similar benefit available to Executive at not cost to the Executive or (B) pay Executive a sufficient amount of cash to allow Executive to purchase, on an after-tax basis, a substantially similar benefit on the open market at no incremental cost to Executive. VI. Section 5.5 of the Agreement shall be amended by adding a new subsection (iv) to the end thereof which shall read as follows:             (iv)       Other Severance Benefits. Notwithstanding any provision of this Agreement to the contrary, Executive shall be entitled to receive the greater of (a) the termination payments and benefits provided under Section 5.5 of this Agreement, or (b) the termination payments and benefits provided by any other Company-sponsored plan, program or policy which has as its primary purpose the provision of severance benefits, but in no event shall Executive be eligible to receive termination payments and benefits provided under both this Agreement and any such plan, program or policy. VII. Section 8 of the Agreement shall be revised to read as follows: 8. Mitigation and Offset.         8.1       Executive’s right to receive when due the payments and other benefits provided for under and in accordance with the terms of this Agreement is absolute, unconditional and subject to no set-off, counterclaim or legal equitable defense. Any claim which the Company may have against Executive, whether for breach of this Agreement or otherwise, shall be brought in a separate action or proceeding and not part of any action or proceeding brought by Executive to enforce the rights against the Company under this Agreement. -------------------------------------------------------------------------------- Havens First Amendment to Employment Agreement Page 6 of 7         8.2       Executive shall not have any duty to mitigate the amounts payable by the Company under this Agreement upon any termination of employment by seeking new employment following termination. All amounts payable pursuant to this Agreement shall be paid without reduction regardless of any amount of salary, compensation or other amounts which may be paid or payable to Executive as the result of Executive’s employment by another employer; provided, however, that Executive’s coverage under the Company’s welfare benefit plans will be reduced to the extent that Executive becomes covered under any comparable employee benefit plan made available by another employer and covering the same type of benefits. Executive shall report to the Company any such benefits actually received by him. VIII. Section 12.5(i) of the Agreement shall be amended to read as follows:         (i) To The Company. If to the Company, addressed to the attention of the Chief Executive Officer at P.O. Box 696000, San Antonio, Texas, 78269-6000, with a copy sent to the attention of the General Counsel at such address. IX. Section 12 of the Agreement shall be amended to add a new Subsection 12.11 which shall read as follows:          12.11 Dialogue. Unless Executive otherwise consents by the execution of an instrument in writing that specifically refers to Section 12.11 of this Agreement, no claim or dispute arising out of or related to this Agreement or any other agreement, policy, plan, program or arrangement, including without limitation, any qualified or nonqualified retirement plan, stock option plan or agreement, or any other equity incentive plan in which Executive participated prior to his termination, shall be subject to the Company’s Dialogue Dispute Resolution Program. -------------------------------------------------------------------------------- Havens First Amendment to Employment Agreement Page 7 of 7 X. The model release attached to this First Amendment as “Exhibit A” shall be substituted for the exhibit referred to in Section 5.5(iii) of the Agreement. XI. Except as otherwise provided herein, the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Agreement as of the first day of May, 2000. /s/ Christopher Havens —————————————— Christopher Havens ULTRAMAR DIAMOND SHAMROCK CORPORATION By: /s/ Jean Gaulin —————————————— TITLE  Chairman, President and CEO

Exhibit 10.03 - Pledge Agreement between Rational Software Corporation and Kevin J. Haar PLEDGE AGREEMENT This PLEDGE AGREEMENT, dated as of _____________, 2000 (this "Pledge Agreement"), is executed by KEVIN J. HAAR ("Employee"), in favor of Rational Software Corporation, a Delaware corporation (the "Company"). RECITALS A. Employee has entered into a relocation loan agreement (the "Loan") in favor of the Company. B. In order to induce the Company to extend the credit evidenced by the Loan, Employee has agreed to enter into this Pledge Agreement and to pledge and grant to the Company the security interest in the Pledged Collateral described below. 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, Employee hereby agrees with the Company as follows: 1. Definitions and Interpretation. Unless otherwise defined herein, all other capitalized terms used herein and defined in the Loan shall have the respective meanings given to those terms in the Loan, and all terms defined in the Massachusetts Uniform Commercial Code (the "UCC") shall have the respective meanings given to those terms in the UCC. 2. The Pledge. To secure the Obligations as defined in Section 3 hereof, Employee hereby pledges and assigns to the Company, and grants to the Company a security interest in, all of Employee's right, title and interest, whether now existing or hereafter arising in all instruments, certificated and uncertificated securities, money and general intangibles of, relating to or arising from the following property (the "Pledged Collateral"): (a) The shares of stock of the Company more particularly described on Schedule A attached hereto (the "Shares") and any additional shares of stock of the Company hereafter acquired by Employee (collectively with the Shares, the "Pledged Shares"); (b) All dividends (including cash dividends), other distributions (including stock redemption proceeds), or other property, securities or instruments in respect of or in exchange for the Pledged Shares, whether by way of dividends, stock dividends, recapitalizations, mergers, consolidations, split-ups, combinations or exchanges of shares or otherwise; (c) The real property more particularly described on Schedules B attached hereto (the "Real Property"); (d) All proceeds of the foregoing ("Proceeds"); and (e) Any other property in which the undersigned has an interest and that is otherwise at any time in the possession or under the control or recorded on the books of or has been transferred to the Company, or any third party(ies) acting in its behalf or designated by it, whether expressly as collateral or for safekeeping or for any other or different purpose, including (without limitation) any property which may be in transit by mail or carrier for any purpose, or covered or affected by any documents in the Company's possession, or in possession of any such third party(ies), and in any and all property in which the undersigned at any time has rights and in which at any time a security interest has been transferred to the Company. In addition, if the aggregate market value of the aforesaid property should at any time in the opinion of the Company or any of its officers suffer any decline or should any such property be deemed by the Company or any of its officers to be unsatisfactory or inadequate, or should any such property fail to conform to legal requirements, then and in any such event the undersigned will (to the satisfaction of the Company) deliver or transfer to the Company additional property or a security interest therein to be subject to the terms and provisions hereof or make payments to it on account of the Obligations. Stock dividends and the distributions on account of any stock or other securities subject to the terms and provisions hereof shall be deemed an increment thereto and if not received directly by the Company shall be delivered immediately to it by the undersigned in form for transfer. 3. Security for Obligations. The obligations secured by this Pledge Agreement (the "Obligations") shall mean and include all loans, advances, debts, liabilities and obligations, howsoever arising, owed by Employee to Company of every kind and description (whether or not evidenced by any Loan or instrument and whether or not for the payment of money), now existing or hereafter arising under or pursuant to the terms of the Loan, including, all interest, fees, charges, expenses, attorneys' fees and costs and accountants' fees and costs chargeable to and payable by Employee hereunder and thereunder, in each case, whether direct or indirect, absolute or contingent, due or to become due, and whether or not arising after the commencement of a proceeding under Title 11 of the United States Code (11 U.S.C. Section 101 et seq.), as amended from time to time (including post-petition interest) and whether or not allowed or allowable as a claim in any such proceeding. 4. Delivery of Pledged Collateral. At the request of the Company, all certificates, deeds or other instruments representing or evidencing the Pledged Collateral shall be delivered to the Company and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Company. 5. Representations and Warranties. Employee hereby represents and warrants as follows: (a) Issuance of Pledged Shares, Absence of Liens, Etc. The Pledged Shares have been duly authorized and are validly issued and are fully paid and non-assessable. The Pledged Shares and Real Property are owned by Employee free and clear of any and all liens, pledges, encumbrances or charges, and Employee has not optioned or otherwise agreed to sell, hypothecate, pledge, or otherwise encumber or dispose of the Pledged Shares or Real Property. (b) Security Interest. The pledge of the Pledged Collateral creates a valid security interest in the Pledged Collateral, which security interest is a perfected and first priority security interest, securing the payment of the Obligations and the obligations hereunder. (c) Restatement of Representations and Warranties. On and as of the date any property becomes Pledged Collateral, the foregoing representations and warranties shall apply to such additional Pledged Collateral. 6. Further Assurances. Employee agrees that at any time and from time to time, at Employee's expense, Employee will promptly execute and deliver all instruments and documents, including without limitation all Pledged Shares, and take all further action, that may be necessary or desirable, or that the Company may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Company to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. 7. Voting Rights; Dividends; Etc. (a) Rights Prior to an Event of Default. So long as no Event of Default shall have occurred and be continuing: (i) Employee shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Shares or any part thereof for any purpose not inconsistent with the terms of this Pledge Agreement. (ii) Employee shall be entitled to receive and retain free and clear of the security interest of the Company hereunder any and all dividends and interest paid in respect of the Pledged Shares, provided, however, that any and all (A) dividends and interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for any Pledged Shares, (B) dividends and other distributions paid or payable in cash in respect of any Pledged Shares in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (C) cash paid, payable or otherwise distributed in respect of principal of, or in redemption of, or in exchange for, any Pledged Shares, shall be, and shall be forthwith delivered to the Company to hold as, Pledged Collateral and shall, if received by Employee, be received in trust for the benefit of the Company, be segregated from the other property or funds of Employee and be forthwith delivered to the Company as Pledged Collateral in the same form as so received (with any necessary endorsement) to be held as part of the Pledged Collateral. (b) Rights Following an Event of Default. Upon the occurrence and during the continuance of an Event of Default: (i) All rights of Employee to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 7(a)(i) and to receive the dividends and interest payments which it would otherwise be authorized to receive and retain pursuant to Section 7(a)(ii) shall cease and all such rights shall thereupon become vested in the Company which shall thereupon have the sole right, but not the obligation, to exercise such voting and other consensual rights and to receive and hold as Pledged Collateral such dividends and interest payments. (ii) All dividends and interest payments which are received by Employee contrary to the provisions of subparagraph (i) of this Section 7(b) shall be received in trust for the benefit of the Company, shall be segregated from other funds of Employee and shall be forthwith delivered to the Company as Pledged Collateral in the same form as so received (with any necessary endorsement). 8. Events of Default. (a) Event of Default. An Event of Default shall be deemed to have occurred under this Pledge Agreement upon the occurrence and during the continuance of an Event of Default under the Loan. (b) Rights Under the UCC. In addition to all other rights granted hereby, and by law, the Company shall have, with respect to the Pledged Collateral, the rights and obligations of a creditor under the UCC. (c) Sale of Pledged Collateral. Employee acknowledges and recognizes that the Company may be unable to effect a public sale of all or a part of the Pledged Shares and may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obligated to agree, among other things, to acquire the Pledged Shares for their own account, for investment and not with a view to the distribution or resale thereof. Employee acknowledges that any such private sales may be at prices and on terms less favorable to the Company than those of public sales, and agrees that so long as such sales are made in good faith such private sales shall be deemed to have been made in a commercially reasonable manner and that the Company has no obligation to delay sale of any Pledged Shares to permit the issuer thereof to register it for public sale under the Securities Act of 1933, as amended or under any state securities law. Employee further acknowledges and recognizes that the market for the Real Property may be illiquid and that there is no guarantee the Company will be able to obtain at least the same price or terms on a sale of the Real Property that the Employee or any another seller would be able to obtain in the same or other conditions. (d) Notice, Etc. In any case where notice of sale is required, ten (10) days' notice shall be deemed reasonable notice. The Company may have resort to the Pledged Collateral or any portion thereof with no requirement on the part of the Company to proceed first against any other Person or property. (e) Other Remedies. Upon the occurrence and during the continuance of an Event of Default, (i) at the request of the Company, Employee shall assemble and make available to the Company all records relating to the Pledged Collateral at any place or places specified by the Company, together with such other information as the Company shall request concerning Employee's ownership of the Pledged Collateral and relationship to the Company; and (ii) the Company or its nominee shall have the right, but shall not be obligated, to vote or give consent with respect to the Pledged Shares or any part thereof. 9. Lender Appointed Attorney-in-Fact. Employee hereby appoints the Company as Employee's attorney-in-fact, with full authority in the place and stead of Employee and in the name of Employee or otherwise, from time to time in the Company's discretion and to the full extent permitted by law to take any action and to execute any instrument which the Company may deem reasonably necessary or advisable to accomplish the purposes of this Pledge Agreement in accordance with the terms and provisions hereof, including without limitation, to receive, endorse and collect all instruments made payable to Employee 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. Employee hereby ratifies all reasonable actions that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable. The powers conferred on the Company hereunder are solely to protect its interests in the Pledged Collateral and shall not impose any duty upon the Company to exercise any such powers. The Company shall be accountable only for amounts that it actually receives as a result of the exercise of such powers and in no event shall the Company or any of its officers, directors, employees or agents be responsible to Employee for any act or failure to act, except for gross negligence or willful misconduct. 10. Miscellaneous. (a) Notices. Except as otherwise provided herein, all notices, requests, demands, consents, instructions or other communications to or upon the Company or Employee under this Agreement or the Loan shall be in writing and telecopied, mailed or delivered to each party at its telecopier number or address set forth on the signature page hereto (or to such other telecopier number or address for any party as indicated in any notice given by that party to the other party). All such notices and communications shall be effective (a) when sent by Federal Express or other overnight service of recognized standing, on the Business Day following the deposit with such service; (b) when mailed by registered or certified mail, first class postage prepaid and addressed as aforesaid through the United States Postal Service, upon receipt; (c) when delivered by hand, upon delivery; and (d) when telecopied, upon confirmation of receipt. (b) Nonwaiver. No failure or delay on the Company's part in exercising any right hereunder shall operate as a waiver thereof or of any other right nor shall any single or partial exercise of any such right preclude any other further exercise thereof or of any other right. (c) Amendments and Waivers. This Pledge Agreement may not be amended or modified, nor may any of its terms be waived, except by written instruments signed by Employee and the Company. Each waiver or consent under any provision hereof shall be effective only in the specific instances for the purpose for which given. (d) Assignments. This Pledge Agreement shall be binding upon and inure to the benefit of the Company and Employee and their respective successors and assigns; provided, however, that the Company may sell, assign and delegate its rights and obligations to any affiliate or successor entity of the Company. (e) Cumulative Rights, etc. The rights, powers and remedies of the Company under this Pledge Agreement shall be in addition to all rights, powers and remedies given to the Company by virtue of any applicable law, rule or regulation of any governmental authority, or any other agreement, all of which rights, powers, and remedies shall be cumulative and may be exercised successively or concurrently without impairing the Company's rights hereunder. Employee waives any right to require the Company to proceed against any Person or to exhaust any Pledged Collateral or to pursue any remedy in the Company's power. (f) Payments Free of Taxes, Etc. All payments made by Employee under this Pledge Agreement shall be made by Employee free and clear of and without deduction for any and all present and future taxes, levies, charges, deductions and withholdings. In addition, Employee shall pay upon demand any stamp or other taxes, levies or charges of any jurisdiction with respect to the execution, delivery, registration, performance and enforcement of this Pledge Agreement. Upon request by the Company, Employee shall furnish evidence satisfactory to the Company or such the Company that all requisite authorizations and approvals by, and notices to and filings with, governmental authorities and regulatory bodies have been obtained and made and that all requisite taxes, levies and charges have been paid. (g) Partial Invalidity. If any time any provision of this Pledge Agreement is or becomes illegal, invalid or unenforceable in any respect under the law or any jurisdiction, neither the legality, validity or enforceability of the remaining provisions of this Pledge Agreement nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired thereby. (h) Expenses. Each of Employee and the Company shall bear its own costs in connection with the preparation, execution and delivery of, and the exercise of its duties under, this Pledge Agreement and the Loan. Employee shall pay on demand all reasonable fees and expenses, including reasonable attorneys' fees and expenses, incurred by the Company with respect to any amendments or waivers hereof requested by Employee or in the enforcement or attempted enforcement of any of the Obligations or in preserving any of the Company's rights and remedies (including, without limitation, all such fees and expenses incurred in connection with any "workout" or restructuring affecting the Loan or any bankruptcy or similar proceeding involving Employee or any of its Subsidiaries). As used herein, the term "reasonable attorneys' fees" shall include, without limitation, allocable costs of the Company's in-house legal counsel and staff. (i) Governing Law. This Pledge Agreement shall be governed by and construed in accordance with the laws of the State of Massachusetts without reference to conflicts of law rules (except to the extent governed by the UCC). (j) Jury Trial. EACH OF EMPLOYEE AND THE COMPANY, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY AS TO ANY ISSUE RELATING HERETO IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS PLEDGE AGREEMENT. * * * * * IN WITNESS WHEREOF, Employee has caused this Pledge Agreement to be executed as of the day and year first above written. /s/ Kevin J. Haar Kevin J. Haar /s/ Pamela Haar Pamela Haar Address: 3144 SUNRISE LANE St. Louis, MO 63129 Tel.: 314-892-1529 Fax: 314-892-5216   ACKNOWLEDGED: RATIONAL SOFTWARE CORPORATION By: /s/ Timothy A. Brennan Name: Timothy A. Brennan Title: Senior Vice President, Chief Financial Officer, Secretary 18880 Homestead Road Cupertino, CA 95014 Tel.: (408) 863-9900 SCHEDULE A SHARES Certificate Number Certificate Date Registered Holder Number of Shares RSC 08607 9/22/00 KEVIN HAAR & PAMELA HAAR, JT TEN 18,532                                                                                                                   SCHEDULE A REAL PROPERTY     Residence located at: 3144 SUNRISE LANE                       St. Louis, MO 63129 --------------------------------------------------------------------------------

EXHIBIT 10.125       August 28, 2001   Andrew Alcorn 66 Dale Drive Chatham, New Jersey 07928 Dear Andy: The purpose of this letter is to confirm the termination of your employment by Vision Twenty-One, Inc., MEC Health Care, Inc. and Block Vision, Inc. (collectively, the "Company"), and to confirm the terms of your departure from the Company as follows. 1. Your employment with the Company is terminated effective August 31, 2001 (the "Termination Date"). 2. In accordance with the terms of Section 5 (a) (1) of the Amended And Restated Employment Agreement dated May 30, 2001 between you and the Company (the "Employment Agreement"), the Company shall make the following payments to you, in addition to the payment of any accrued and unpaid salary: (A) a lump sum payment shall be made to you on the Termination Date in an amount equal to your annual base salary paid during the twelve (12) months immediately preceding the Termination Date, and (B) the Installment Termination Payments (as such term is defined in the Employment Agreement) in an aggregate amount equal to your annual base salary paid during the twelve (12) months immediately preceding the Termination Date shall be paid to you, in equal consecutive installments, commencing with the pay date immediately following the Termination Date, paid in accordance with the Company's normal payroll schedule, but no less frequently than monthly. 3. In consideration for the consulting services which you have agreed to provide to the Company for the six (6) month period immediately following the Termination Date as set forth in item 4. of this letter, the Company hereby waives the mitigation provision set forth in the last sentence of Section 5 (a) (1) of the Employment Agreement (the "Mitigation Provision"), and confirms that there shall be no reduction in the amount of the Installment Termination Payments to be paid to you by the Company pursuant to Section 5 (a) (1) of the Employment Agreement. It is further confirmed that the Company shall be obligated to make the Installment Termination Payments in accordance with item 2. of this letter Andrew Alcorn August 28, 2001 Page 2 and Section 5 (a) (1) of the Employment Agreement, regardless of whether you provide the consulting services to the Company as contemplated by item 4. of this letter. 4. Commencing on September 1, 2001 and continuing until August 31, 2002 (the "Consulting Term"), you will render consulting services to the Company with respect to those projects which I may assign to you on behalf of the Company (collectively, the "Projects"). It is hereby confirmed that (i) during the first three (3) months of the Consulting Term (September 1, 2001 through November 30, 2001) you agree to provide up to 16 hours of consulting services to the Company per week, (ii) during the second three (3) months of the Consulting Term (December 1, 2001 through February 28, 2002) you agree to provide up to 8 hours of consulting services to the Company per week, (iii) during the remaining six (6) months of the Consulting Term (March 1, 2002 through August 31, 2002) you agree to provide such consulting services to the Company per week as you and I mutually agree to from time to time, at a daily rate of reimbursement of $1,058.00 (based on an 8 hour day), (iv) you will be provided with written notice of each Project, within a reasonable period of time prior to the requested performance of the Project, specifying the Project, the nature and scope of which shall be consistent with your duties and responsibilities for the Company prior to the Termination Date, (v) all of the consulting services which you will provide to the Company for the six (6) month period immediately following the Termination Date are in consideration for the Company's waiver of the Mitigation Provision and the Company shall have no obligation to pay any additional compensation to you for such services during such period, (vi) the Company will reimburse you for all travel and related expenses you incur in connection with your performance of the consulting services during the Consulting Term upon your presentation from time to time of an itemized account of such expenses, and (vii) all consulting services which you provide to the Company during the Consulting Term shall be provided by you as an independent contractor and not as an employee or agent of the Company. 5. Effective as of the Termination Date, you will resign as an officer of Vision Twenty-One, Inc. and will resign as an officer and director of all direct and indirect subsidiaries of Vision Twenty-One, Inc. Andrew Alcorn August 28, 2001 Page 3 This letter supersedes and replaces my letter to you dated July 19, 2001 which you countersigned on July 27, 2001. If you are in agreement with the terms set forth in this letter, I would appreciate if you could confirm such agreement by signing this letter where indicated below. Sincerely, /s/ Mark Gordon Mark Gordon, O.D., Chief Executive Officer, Vision Twenty-One, Inc. President, MEC Health Care, Inc. Director, Block Vision, Inc.   Acknowledged and agreed to this 31st day of August, 2001. /s/ Andrew Alcorn Andrew Alcorn    

QuickLinks -- Click here to rapidly navigate through this document EXECUTION COPY INVESTOR RIGHTS AGREEMENT     This INVESTOR RIGHTS AGREEMENT (this "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 organized under the laws of the Federal Republic of Germany ("SAP AG").     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 SAP AG;     WHEREAS, in connection with the Prior Share Purchase Agreement, the Company and SAP AG entered into, and are a party to, that certain Registration Rights Agreement, dated June 14, 2000 (the "Prior Registration Rights Agreement");     WHEREAS, subject to the terms and conditions of the Share Purchase Agreement, of even date herewith, by and between the Company and SAP AG (the "Share Purchase Agreement"), the Company has agreed to sell additional shares of its common stock to SAP AG (together with the shares of common stock of the Company sold pursuant to the Prior Share Purchase Agreement, the "Shares");     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     WHEREAS, subject to the terms and conditions set forth herein, in connection with the sale of the Shares, SAP AG and the Company have agreed to amend and restate in its entirety the Prior Registration Rights Agreement and to grant certain registration rights to SAP AG with respect to the Shares effective upon the Closing (as defined in the Share Purchase Agreement).     NOW, THEREFORE, in consideration of the promises, mutual covenants and conditions herein contained, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree, effective upon the Closing, (i) the Prior Registration Rights Agreement is hereby amended and restated in its entirety as set forth herein; and (ii) as follows:     1.  Definitions.  For purposes of this Agreement, the following terms shall have the following respective meanings:     "1933 Act" means the Securities Act of 1933, as amended.     "1934 Act" means the Securities Exchange Act of 1934, as amended.     "Additional Shares" means common stock issued or sold by the Company, provided, that "Additional Shares" shall not include common stock issued directly or upon the conversion of securities convertible into or exercisable or exchangeable for common stock (i) in connection with a transaction covered by Rule 145 under the 1933 Act or any other merger, acquisition or asset purchase, or the resale of securities issued in any such transaction, (ii) in a transaction that is registered under the 1933 Act, (iii) upon the conversion or exchange of any debt securities, (iv) upon the conversion or exercise of any warrants or other rights outstanding as of the Closing (v) as a dividend or other distribution, (vi) issued to employees, consultants or other service providers to the Company, or (vii) in connection with the rights issued under the Company's Stockholder Rights Plan.     "Automaker Holders" means General Motors Corporation, Ford Motor Company or any assignee or transferee of either that possesses registration rights pursuant to the Automaker Registration Rights Agreement. 1 --------------------------------------------------------------------------------     "Automaker Registration Rights Agreement" means the Registration Rights Agreement, dated December 8, 2000, by and among the Company, General Motors Corporation, Ford Motor Company and certain other parties.     "Beneficially Own" shall have the meaning set forth in the Standstill Agreement.     "Closing" shall have the meaning set forth in the Share Purchase Agreement.     "Current Market Value" means the simple average of (i) 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 the delivery of the Proposal Notice or Sale Notice (as defined in Section 11.1 below) and (ii) 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 the delivery of the Proposal Notice or Sale Notice, 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.     "Eligible Period" means the period (a) commencing on the second anniversary of the date of this Agreement and (b) terminating on the sixth anniversary of the date of this Agreement; provided, however, that with respect to Registrable Shares purchased pursuant to the Prior Share Purchase Agreement only, the Eligible Period shall commence on June 14, 2002.     "Existing Registration Rights Agreement" means the Sixth Amended and Restated Registration Rights Agreement, dated December 8, 2000, by and among the Company and certain of its stockholders.     "Holders" shall have the meaning ascribed to it in the Existing Registration Rights Agreement.     "Register," "registered," and "registration" refers to a registration effected by preparing and filing a registration statement or similar document in compliance with the 1933 Act, and the declaration or ordering of effectiveness of such registration statement or document.     "Registrable Shares" means (i) the shares of common stock of the Company held by SAP AG as of the date hereof, (ii) the shares of common stock of the Company issuable to SAP AG in accordance with the terms and conditions of the Share Purchase Agreement, (iii) any shares of common stock of the Company purchased by SAP AG from the Company after the Closing (including pursuant to Section 11 hereof), and (iv) any securities of the Company issued as a dividend on or other distribution with respect to, or in exchange for or replacement of, the common stock described in subparagraphs (i), (ii) and (iii).     "Registration Statement" means any registration statement described in Sections 2.1 or 2.2 of this Agreement.     "Rule 144" means Rule 144 promulgated under the 1933 Act.     "SEC" means the Securities and Exchange Commission.     "Standstill Agreement" shall mean that Amended and Restated Standstill and Stock Restriction Agreement, of even date herewith, by and between the Company and SAP AG.     "Standstill Period" shall have the meaning ascribed to it in the Standstill Agreement.     "Stockholder" shall mean SAP AG or any assignee or transferee to which SAP AG's rights and obligations under this Agreement have been assigned pursuant to Section 14.5 2 --------------------------------------------------------------------------------     2.  Registration Rights.             2.1  Demand Registration.                   (a) If at any time during the Eligible Period the Stockholder requests in writing (the "Stockholder Demand") that the Company file a registration statement on Form S-3 (or any successor form to Form S-3, or, if Form S-3 is not then available, on Form S-1 or any other available form) for a public offering of shares of the Registrable Shares, the anticipated aggregate offering price of which, net of standard underwriting fees and discounts, is at least five million dollars ($5,000,000), the Company shall, subject to Section 4.1 hereof, file such Registration Statement with the SEC within forty-five (45) days after its receipt of such request. The Company shall use commercially reasonable efforts to cause such Registration Statement to be declared effective as soon thereafter as practicable and keep such registration statement effective until the Stockholder notifies the Company in writing that the Company is no longer required to keep such Registration Statement effective. In no event, however, shall the Company be required to (i) effect more than four (4) registrations pursuant to this section or (ii) keep one or more registration statements filed pursuant to this section effective for more than an aggregate of one hundred twenty (120) days. In the event the registration is proposed to be part of a firm commitment underwritten public offering, the substantive provisions of Section 2.3 hereof shall be applicable to each such registration initiated under this Section 2.1 and the piggyback registration rights of Holders and Automaker Holders (to the extent provided for in the Existing Registration Rights Agreement and the Automaker Registration Rights Agreement) shall be applicable, subject to Section 2.3 below, to a registration effected pursuant to this Section 2.1.                 (b) Notwithstanding the foregoing, the Company shall not be obligated to take any action pursuant to subparagraph (a):                       (i) if the Company, within ten (10) days of the receipt of the Stockholder Demand, gives notice of its bona fide intention to effect the filing of a registration statement with the SEC within forty-five (45) days of receipt of such demand (other than a registration relating primarily to the sale of securities to participants in a Company stock plan of employee benefit plan, a transaction covered by Rule 145 under the 1933 Act or the resale of securities issued in such a transaction, a registration in which the only stock being registered is Common Stock issuable upon conversion or exchange of debt securities which are also being registered, any registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Shares, or a registration initiated under Section 2.1 or 2.2 of Automaker Registration Rights Agreement) provided, however, that if such registration statement is not filed by the Company within 45 days of receipt of such Stockholder Demand and declared effective by the Commission with 120 days after the Company's receipt of such Stockholder Demand, the Company shall be obligated to cause such Registrable Shares of the Stockholder to be registered in accordance with the provisions of this Section 2.1 provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective;                       (ii) during the period starting with the Company's date of filing of, and ending on the date ninety (90) days immediately following, the effective date of any registration statement pertaining to securities of the Company, which registration was either filed as a result of the exercise by Stockholder of its rights pursuant to Section 2.1 hereof or was subject to Section 2.2 hereof.           2.2  Piggyback Registration.                   (a) If at any time during the Eligible Period, the Company proposes to register (for its own account, on behalf of its existing stockholders, or a combination of the foregoing) any of its common stock under the 1933 Act in connection with a public offering of such common stock solely for cash (other than a registration relating primarily to the sale of securities to participants in a Company stock plan of employee benefit plan, a transaction covered by Rule 145 under the 1933 Act or the 3 -------------------------------------------------------------------------------- resale of securities issued in such a transaction, a registration in which the only stock being registered is Common Stock issuable upon conversion or exchange of debt securities which are also being registered, any registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Shares or a registration initiated under Section 2.1 or 2.2 of the Automaker Registration Rights Agreement) the Company shall, at such time, give the Stockholder notice of such registration. Upon the written request of the Stockholder, given within ten (10) days after notice has been given by the Company in accordance with Section 14.1 hereof, the Company shall, subject to Section 2.3 hereof, cause to be registered under the 1933 Act all of the Registrable Shares that the Stockholder has requested to be registered.                 (b) In the event that any registration is initiated pursuant to Sections 2.1 or 2.2 of the Automaker Registration Rights Agreement, the Company shall, upon written notice from the Stockholder of its desire to "piggyback" on such registration statement, use reasonable efforts to seek written consent from the Automaker Holders to permit such "piggyback" on the registration statement by the Stockholder in accordance with the terms of this Agreement (it being understand that the Company shall not be required to make any payment to the Automakers or incur additional obligations with respect to the Automakers to obtain such consent).           2.3  Underwriting Requirements.                   (a) In connection with any underwritten public offering, the Company shall not be required to include any of the Stockholder Registrable Shares in such underwriting unless the Stockholder accepts the terms of the underwriting as agreed upon between the Company and the underwriters for the offering (which underwriters shall be selected by the Company).                 (b) If the total amount of securities, including Registrable Shares, requested to be included in an underwritten public offering exceeds the amount of securities that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Shares, which the underwriters determine in their sole discretion will not jeopardize the success of the offering. In such event, the Company may reduce the number of or exclude Registrable Shares proposed to be offered by Stockholder prior to reducing the number of or excluding the shares proposed to be offered by (i) the Company (except with respect to a registration pursuant to Section 2.1 hereof), (ii) the holders of registration rights under the Existing Registration Rights Agreement (the "Existing Holders") to the extent required by the Existing Registration Rights Agreement and (iii) the holders of registration rights under the Automaker Registration Rights Agreement to the extent required by Automaker Registration Rights Agreements, provided, however, that if the Stockholder is not permitted to include at least seventy-five percent (75%) of the number of Registrable Shares proposed by the Stockholders to be included in a registration pursuant to Section 2.1 as a result of the foregoing sentence, such registration shall be deemed not to be a registration by the Stockholder pursuant to Section 2.1.                 (c) Notwithstanding Section 2.3(b) hereof, following the Closing, the Company will use commercially reasonable efforts to obtain the consent of the Existing Holders such that (A) in the event of registration pursuant to Section 2.1 hereof, the Company shall reduce the number of or exclude the shares proposed to be offered by the Existing Holders prior to reducing the number of or excluding the Registrable Shares proposed to be offered by Stockholder, and (B) in the event of registration pursuant to Section 2.2 hereof, the Company shall reduce the number of or exclude the shares proposed to be offered by the Existing Holders (and, if the consent described in Section 2.3(d) hereof is obtained with respect to such offering, the Automaker Holders) on a pro rata basis with the number of Registrable Shares proposed to be offered by Stockholder (calculated on the basis of the number of shares of common stock proposed to be offered), it being understood that, in each case, the 4 -------------------------------------------------------------------------------- Company shall not be required to make any payment to the Existing Holders or incur additional obligations with respect to the Existing Holders to obtain such consent.                 (d) Notwithstanding Section 2.3(b) hereof, upon a registration pursuant to Section 2.1 or Section 2.2 hereof, the Company will use reasonable efforts to obtain the consent of the Automaker Holders with respect to such registration such that (A) in the event of a registration pursuant to Section 2.1 hereof, the Company shall reduce the number or exclude the shares proposed to be offered by the Automaker Holders prior to reducing the number of or excluding the Registrable Shares proposed to be offered by Stockholder, and (B) in the event of a registration pursuant to Section 2.2 hereof, the Company shall reduce the number of or exclude the shares proposed to be offered by the Automaker Holders (and, if the consent described in Section 2.3(c) hereof is obtained, the Existing Holders) and on a pro rata basis with the number of Registrable Shares proposed to be offered by Stockholder (calculated on the basis of the number of shares of common stock proposed to be offered), it being understood that, in each case, the Company shall not be required to make any payment to the Automaker Holders or incur additional obligations with respect to the Automaker Holders to obtain such consent.     3.  Further Obligations of the Company after Registration.             3.1  Blue Sky Compliance.  The Company shall, as soon as reasonably possible after the effectiveness of a Registration Statement, use its best efforts to register and qualify the Registrable Shares covered by the Registration Statement under such other securities or "blue sky" laws of such jurisdictions as shall be reasonably requested by the Stockholder, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions unless the Company is already subject to service in such jurisdiction and except as may be required by the 1933 Act.           3.2  Furnishing of Prospectus.  With respect to a Registration Statement filed pursuant to Sections 2.1 hereof or 2.2 hereof, the Company shall furnish to the Stockholder copies of any preliminary prospectus and, as soon as reasonably possible after the effectiveness of the Registration Statement, furnish to the Stockholder such numbers of copies of a final prospectus in conformity with the requirements of the 1933 Act, and such other documents as the Stockholder may reasonably request, in order to facilitate the resale or other disposition of Registrable Shares owned by it.           3.3  Amendments.  With respect to a Registration Statement filed pursuant to Section 2.1 hereof or 2.2 hereof of this Agreement, and, subject to Section 4.1 hereof of this Agreement, the Company shall prepare and file with the SEC such amendments to the Registration Statement and amendments or supplements to the prospectus contained therein as may be necessary to keep such Registration Statement effective and such Registration Statement and prospectus accurate and complete for the entire period for which the Registration Statement remains effective.           3.4  Notices.  The Company shall:                 (a) Notify the Stockholder, promptly after it shall receive notice thereof, of the date and time when any Registration Statement and each post-effective amendment thereto has become effective;                 (b) Notify the Stockholder promptly of any request by the SEC for the amending or supplementing of any Registration Statement or prospectus or for additional information;                 (c) Notify the Stockholder, at any time when a prospectus relating to the Registrable Shares is required to be delivered under the Securities Act, of any event which would cause any such prospectus or any other prospectus as then in effect to include an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and, subject to 5 -------------------------------------------------------------------------------- Section 4.1 hereof, promptly prepare and file with the SEC, and promptly notify the Stockholder of the filing of, such amendments or supplements to any Registration Statement or prospectus as may be necessary to correct any such statements or omissions;                 (d) Notify the Stockholder, promptly after it shall receive notice of the issuance of any stop order by the SEC suspending the effectiveness of any Registration Statement or the initiation or threatening of any proceeding for that purpose and, subject to Section 4.1 hereof, promptly use commercially reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued.     4.  Conditions and Limitations on Registration Rights.  The registration rights granted by this Agreement are subject to the following additional conditions and limitations:           4.1  Delays and Suspension.  The Company may delay the filing of, or suspend or delay the effectiveness of a Registration Statement for up to thirty (30) days, if the Company shall furnish to the Stockholder a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its stockholders for such a registration statement to be filed or declared effective or for an effective registration statement not to be suspended. In such event, the Company's obligation under this Agreement to file a registration statement, seek effectiveness of a registration statement or keep such registration statement effective shall be deferred for a period not to exceed sixty (60) days from the receipt of the request to file such registration by the Stockholder, provided that the Company may not exercise this right of deferral for an aggregate of in excess of seventy-five (75) days in any one year period. If the Company suspends the effectiveness of a Registration Statement, the Company will promptly deliver notice to the Stockholder of such suspension and will again deliver notice to the Stockholder when such suspension is no longer necessary. The duration for which the Company is required to keep a Registration Statement effective shall be extended by an additional number of days equal to the length of any suspension period.           4.2  Amended or Supplemented Prospectus.  The Stockholder agrees that, upon receipt of any notice from the Company described in Section 4.1 hereof that suspends an effective registration statement, the Stockholder shall forthwith discontinue disposition of Registrable Shares until such Stockholder's receipt of copies of a supplemented or amended prospectus from the Company, or until it is advised in writing by the Company that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the prospectus. If so directed by the Company, the Stockholder will deliver to the Company all copies of the prospectus covering such Registrable Shares current at the time of receipt of such notice of suspension.     5.  Indemnification.             5.1 The Company will indemnify the Stockholder, each of its officers, directors and partners, legal counsel, agents and each person controlling the Stockholder within the meaning of Section 15 of the 1933 Act, with respect to which registration, qualification or compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the 1933 Act, against all expenses, claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, (commenced or threatened), arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or any violation by the Company of the 1933 Act, the 1934 Act, and any state securities laws or any rule, regulation or qualification promulgated thereunder, and the Company 6 -------------------------------------------------------------------------------- will reimburse the Stockholder, each of its officers, directors, and partners, legal counsel, agents and each person controlling the Stockholder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred, in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, provided, however, that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by the Stockholder, controlling person or underwriter expressly for use therein.           The foregoing indemnity is subject to the condition that, insofar as it relates to any such untrue statement, alleged untrue statement, omission or alleged omission made in a preliminary prospectus on file with the SEC at the time the registration statement becomes effective or the amended prospectus filed with the SEC pursuant to Rule 424(b), as amended from time to time (the "Final Prospectus"), such indemnity shall not inure to the benefit of: (a) the Stockholder (i) if a copy of the Final Prospectus was not furnished by the Stockholder to the person asserting the loss, liability, claim or damage at or prior to the time such action as required by the 1933 Act and such Final Prospectus would have cured the defect giving rise to the loss, liability, claim or damage or (ii) to the extent that such untrue statement, alleged untrue statement, omission or alleged omission is made in reliance upon and in conformity with written information furnished to the Company by the Stockholder expressly for use therein, or (b) any underwriter (i) if a copy of the Final Prospectus was not furnished to the person asserting the loss, liability, claim or damage at or prior to the time such action as required by the 1933 Act and the Final Prospectus would have cured the defect giving rise to the loss, liability, claim or damage or (ii) to the extent that such untrue statement, alleged untrue statement, omission or alleged omission is made in reliance on and in conformity with written information furnished to the Company by the underwriter for use therein.           5.2 The Stockholder will, if Registrable Shares held by the Stockholder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the 1933 Act, against all expenses, claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation (commenced or threatened), arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to such registration, qualification or compliance, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and, severally, and not jointly, will reimburse the Company, such directors, officers, persons, underwriters or control persons for any legal and any other expenses reasonably incurred, in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by the Stockholder expressly for use therein. Notwithstanding the foregoing, the liability of the Stockholder under this Section 5 shall be limited to an amount equal to the net proceeds received by the Stockholder from the sale of shares in such registration.           5.3 Each party entitled to indemnification under this Section 5 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation 7 -------------------------------------------------------------------------------- resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement, unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action, and provided further that an Indemnified Party shall have the right to retain its own counsel, with the fees and expenses of such counsel to be paid by the Indemnifying Party, if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between such Indemnified Party and any other party represented by such counsel in such proceeding. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation.           5.4 If the indemnification provided for in this Section 5 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any losses, claims, damages or liabilities referred to herein, the Indemnifying Party, in lieu of indemnifying such Indemnified Party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, that in no event shall any contribution by the Stockholder hereunder exceed the net proceeds from the offering received by the Stockholder.           5.5 The obligations of the Company and the Stockholder under this Section 5 shall survive completion of any offering of Registrable Securities in a registration statement and the termination of this Agreement.     6.  Information from Stockholder.  It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement with respect to the Registrable Shares of the Stockholder that the Stockholder shall furnish to the Company such information regarding itself, the Registrable Shares held by it, and the intended method of disposition of such securities, as shall be required to effect the registration of the Registrable Shares.     7.  Expenses of Registration.  The Company shall pay all registration, filing and qualification fees (including SEC filing fees and the listing fees of the Nasdaq Stock Market or any stock exchange on which the Company securities are traded) attributable to the Registrable Shares registered under this Agreement, and any legal, accounting or other professional fees or expenses incurred by the Company; provided, however, with respect to any registration requested by the Stockholder pursuant to Section 2.1 hereof, the Stockholder shall pay one-half of the SEC filing fee for the registration of the Registrable Securities. The Stockholder shall pay all underwriting discounts, selling commissions and stock transfer taxes, if any, attributable to the sale of such securities registered by the Stockholder and any legal, accounting or other professional fees incurred by the Stockholder.     8.  Reports Under the Securities Exchange Act.  The Company agrees to file with the SEC in a timely manner all reports and other documents and information required of the Company under the 8 -------------------------------------------------------------------------------- 1934 Act, and take such other actions as may be necessary to assure the availability of Form S-3 for use in connection with the registration rights provided in this Agreement and Rule 144 for use in connection with resales of the Registrable Shares.     9.  Rule 144.  In the event that all of the Stockholder's Registrable Shares may, under Rule 144, be resold or otherwise disposed of in a ninety (90) day period without registration under the 1933 Act, the registration rights granted under this Agreement to such Stockholder and the obligations of the Company hereunder (other than its obligations under Sections 5 and 8 and this Section 9) to such Stockholder, shall automatically terminate in their entirety and be of no further force and effect whatsoever without any further action on the part of the Company or the Stockholder.     10.  Market Stand-Off.  So long as the Stockholder Beneficially Owns at least five percent (5%) of the Company's outstanding common stock, the Stockholder agrees that, upon the request of the underwriters managing any underwritten public offering of the Company's securities in connection with an effective registration statement under the 1933 Act, it will not offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of (other than to donees who agree to be similarly bound), directly or indirectly, the Registrable Shares other than those included in the registration, without the prior written consent of such underwriters, for such period of time, not to exceed ninety (90) days (or such lesser period as executive officers or directors of the Company are so restricted with respect to the transfer of shares of common stock of the Company held by them) after the effective date of the registration statement relating thereto. The Stockholder agrees that, if requested by the underwriters for such an offering, it will enter into a lock-up agreement directly with the underwriters on substantially the same terms and conditions as described above. The Stockholder agrees that the Company may instruct its transfer agent to place stop-transfer notations in its records to enforce the provisions of this Section 10.     11.  Pro Rata Right.  Subject to the terms and conditions specified in this Section 11, the Company hereby grants to SAP AG a pro rata right to participate with respect to future sales by the Company of Additional Shares (the "Pro Rata Right"). Beginning on the Closing and until the earlier of (i) the third anniversary of the Closing and (ii) the end of the Standstill Period, each time the Company proposes to offer any Additional Shares, the Company shall offer to SAP AG the opportunity to purchase a number of shares equal to SAP AG's pro rata portion of such Additional Shares in accordance with the following provisions:           11.1  Notice.  The Company shall deliver to SAP AG a notice (a "Notice") not later than thirty calendar (30) days following the sale of Additional Shares. In lieu of a Notice provided following the sale of the Additional Shares (such Notice, a "Sale Notice"), the Company may, in its sole discretion, elect to provide a Notice to SAP AG in advance of a proposed sale of Additional Shares in lieu of a Sale Notice (such Notice, a "Proposal Notice").           11.2  Contents of Notice.                   (a)  Contents of Sale Notice.  If the Company delivers a Sale Notice, such Notice shall state (i) that the Company has completed the sale of Additional Shares, (ii) the number of such Additional Shares sold, (iii) the number of Pro Rata Shares pursuant to which SAP is entitled to purchase pursuant to Section 11.7 hereof and (iv) the Price and, if applicable, the Additional Terms, (each as determined in accordance with Section 11.4 hereof) for the purchase of such shares.                 (b)  Contents of Proposal Notice.  If the Company elects to deliver a Proposal Notice in lieu of a Sale Notice, such Notice shall state (i) that the Company proposes to sell Additional Shares, (ii) the number of such Additional Shares to be sold, (iii) the number of Proposed Pro Rata Shares pursuant to which SAP is entitled to purchase pursuant to Section 11.7 hereof and (iv) the Price 9 -------------------------------------------------------------------------------- and, if applicable, the Additional Terms, (each as determined in accordance with Section 11.4 hereof) for the purchase of such shares.           11.3  Election.  Within 10 business days after receipt of a Sale Notice or the Proposal Notice, as the case may be, SAP AG may elect to purchase, all, but not less than all, of the Pro Rata Shares (in the case of a Sale Notice) or the Proposed Pro Rata Shares (in the case of a Proposal Notice) on the Price and other applicable Additional Terms set forth in the Sale Notice or Proposal Notice, as the case may be, by delivering notice to the Company (the "Election Notice").           11.4  Price.  The price (the "Price") and additional terms, if any, (the "Additional Terms") for the sale of the Pro Rata Shares or the Pro Rata Additional Shares, as applicable, shall be calculated as follows.                 (a)  Prior to First Anniversary of Closing.  In the event that the Additional Shares are sold prior to the first anniversary of the Closing or a Proposal Notice is delivered prior the first anniversary of the Closing, at the option of SAP AG, the consideration payable for the Pro Rata Shares, which consideration shall be specified in the election notice, shall be either (i) the Price and Additional Terms for the Pro Rata Shares or Proposed Pro Rata Shares shall be equal to the price and additional terms, if any, pursuant to which the Additional Shares are sold (in the event of a Sale Notice), or proposed to be sold (in the event of a Proposal Notice) or (ii) the Price shall be the Current Market Value and there shall be no Additional Terms (except as set forth in Section 11.5 hereof).                 (b)  On or after First Anniversary of Closing.  In the event that the Additional Shares are sold on or after the first anniversary of the Closing or a Proposal Notice is delivered on or after the first anniversary of the Closing, the Price shall be the Current Market Value and there shall be no Additional Terms (except as set forth in Section 11.5 hereof).           11.5  Closing.  In the case of a Sale Notice, if SAP AG elects to purchase the Pro Rata Shares, the sale of the Pro Rata Shares shall occur no later than thirty (30) days following the Election Notice (subject to extension by thirty (30) days solely to comply with regulatory requirements). In the case of Proposal Notice, if SAP AG elects to purchase the Proposed Pro Rata Shares, the sale of the Pro Rata Shares shall occur contemporaneously with, and conditioned upon, the sale of the Additional Shares described in the Proposal Notice. SAP AG's purchase of the Pro Rata Shares or the Proposed Pro Rata Shares, as the case may be, shall be conditioned upon the execution by SAP AG and the Company of customary documentation, including without limitation, a stock purchase agreement containing representations and warranties substantially similar to those contained in the Share Purchase Agreement.           11.6  Sales After Notice.                   (a)  Sale Notice.  In the event the Company has delivered a Sale Notice, and SAP does not timely elect to purchase the Pro Rata Shares or Proposed Pro Rata Shares in accordance with Section 11.3, SAP AG shall be deemed to have made an irrevocable election on the to not purchase the Pro Rata Shares or the Proposed Pro Rata Shares, as the case may be.                 (b)  Proposal Notice.  In the event that the Company delivers a Proposal Notice and SAP AG either fails to timely elect to purchase the Proposed Pro Rata Shares pursuant to Section 11.3 hereof or elects to not purchase Proposed Pro Rata Shares, the Company may, any time during the ninety (90) day period following the delivery of the Proposal Notice, enter into an agreement for the sale or issuance of such Additional Shares and, except as provided in the following sentence, shall not be required to issue a Sale Notice pursuant to Section 11.1 hereof with respect to such Additional Shares. If the Company does not sell the Additional Shares described in the Proposed Notice within the ninety (90) period, or the price for the sale of the Additional Shares is less than that specified in the Proposal Notice and/or terms of the Proposed Sale have changed so as to be significantly more 10 -------------------------------------------------------------------------------- favorable than those specified in the Proposal Notice, the Pro Rata Right shall be deemed to be revived and the Company shall be obligated to either deliver a Sale Notice or, it so elects, a Proposal Notice, to SAP AG with respect to any Additional Shares in accordance with terms of Section 11.1 hereof.           11.7  Pro Rata Portion.  The number of shares SAP AG shall be entitled to purchase pursuant to the exercise of the Pro Rata Right shall be determined as follows.                 (a) "Pro Rata Shares" shall equal a number of shares such that the SAP Percentage Prior to the Issuance shall equal the SAP Percentage After the Issuance. The "SAP Percentage Prior to the Issuance" shall equal the quotient obtained by dividing (i) the number of shares of common stock beneficially owned by SAP AG immediately prior the sale of the Additional Shares specified in the Sale Notice by (ii) the total number of shares of common stock outstanding immediately prior to the sale of the Additional Shares specified in the Sale Notice and the Pro Rata Shares, and the "SAP Percentage After the Issuance" shall equal the quotient obtained by dividing (x) the sum of (A) the number of shares of common stock beneficially owned by SAP AG immediately prior the sale of the Additional Shares specified in the Sale Notice and (B) the number of Pro Rata Shares, divided by (y) sum of (X) the total number of shares of common stock outstanding immediately following the sale of the Additional Shares specified in the Sale Notice and (Y) the number of Pro Rata Shares.                 (b) "Proposed Pro Rata Shares" shall equal a number of shares equal to the product obtained by multiplying (A) the number of Additional Shares proposed to be sold by the Company set forth in the Proposal Notice by (B) the quotient obtained by dividing (x) the number of Registrable Shares of common stock held by SAP AG immediately prior the sale of the Additional Shares by (y) the total number of shares of common stock outstanding prior to the sale of the Additional Shares specified in the Proposal Notice.           11.8  Pro Rata Right with Respect to Shares Issued Before Closing.  Upon the Closing, the Company shall provide an Additional Share Notice with respect to any Additional Shares issued after the date hereof and prior to the Closing, and SAP AG shall have the right to exercise its Pro Rata Right under this Section 11 with respect to the issuance of such Additional Shares. In such event, the purchase price for such Additional Shares shall be equal to the lowest of the (i) the price per Share paid by SAP under the Share Purchase Agreement, (ii) the price and additional terms, if any, pursuant to which the Additional Shares are sold and (iii) the Current Market Value.           11.9  Stockholder Approval.  Nothing contained in this Section 11 shall require the Company to issue any Pro Rata Shares or Proposed Pro Rata Shares if such issuance would require the Company to obtain stockholder approval of the issuance pursuant to Rule 4350(i)(1)(B) or (D) of the Nasdaq National Market Issuer Designation Requirements or under the Delaware General Corporation Law.     12.  Board of Directors Matters.             12.1  SAP AG Appointed Director.  Beginning upon the Closing and until SAP AG Beneficially Owns less than ten percent (10%) of the outstanding Common Stock of the Company, (the "Director End Date"), at the first meeting of the Board of Directors of the Company following the Company's receipt of a written request from SAP AG that the Company appoint an SAP designated person to the Company's Board of Directors, the Company shall appoint, a mutually agreed upon (in the exercise of the reasonable discretion of the Company and SAP AG) person to serve as a director of the Company (the "SAP Director") to serve until such director's successor is duly qualified and elected or his or her prior resignation, removal or death.           12.2  SAP AG Board Observer.  Beginning upon the Closing and until the Director End Date, SAP AG shall be entitled to designate one executive board member of SAP AG mutually agreeable to SAP AG and the Company (in the exercise of their reasonable discretion) to attend each 11 -------------------------------------------------------------------------------- meeting of the Board of Directors of the Company, at SAP AG's expense, in a non-voting observer capacity (such designee, an "SAP Observer"). Until the earlier to occur of (i) the appointment of the SAP Director pursuant to Section 12.1 or (ii) the Director End Date, the Company shall give to the SAP Observer notice of all meetings of the Company's Board of Directors in the manner provided in the Company's Amended and Restated Bylaws. In no event, however, shall the SAP Observer attend any meeting of the Board of Directors of the Company that is attended by the SAP Director. The Company shall have the right in its sole discretion: (A) to exclude the SAP Observer from all or any portion of a meeting of the Company's Board of Directors and (B) exclude SAP AG and the SAP Observer from access to any notices, minutes, consents or other materials provided to the directors of the Company, in each case, if the Company reasonably believes that such exclusion is reasonably necessary (x) to preserve the attorney-client privilege, (y) to protect confidential or proprietary information of the Company, including without limitation the Company's trade secrets and (z) to prevent violation of any applicable antitrust or competition laws.           12.3  Confidentiality.  SAP AG shall treat any confidential information of the Company obtained through the material provided to SAP AG pursuant to Section 12.2 hereof or from the SAP Director or SAP Observer in accordance with a confidentiality agreement between the Company, New Commerce One Holding and SAP AG (in a form to be mutually agreed to in good faith by the Company and SAP AG prior to the Closing) (the "Confidentiality Agreement"). The SAP Observer shall execute a form of confidentiality agreement (in a form to be mutually agreed to in good faith by the Company and SAP AG prior to the Closing) before attending any meeting of the Board of Directors.     13.  Information Rights.             13.1  Financial Information.  Until such time SAP AG no longer accounts for its investment in the Company under the equity method of accounting (the "Equity Method Period"), the Company shall: (i) not later than eight (8) business days after the end of a fiscal quarter, provide to SAP AG a consolidated balance sheet, consolidated income statement and consolidated statement of stockholders' equity for such quarter; (ii) no later than fifteen (15) business day after the end of a fiscal year, provide to SAP AG, a consolidated balance sheet, a consolidated income statement and a consolidated statement of stockholders' equity for such fiscal year; and (iii) not later than the twentieth (20th) day of each month, provide rolling forecasts of its expected quarterly income statement results for the following four (4) quarters.           13.2  Outstanding Shares Information.  Until the end of the Equity Method Period, Commerce One will, within 15 business days following the end of a fiscal quarter, inform SAP AG as to the number of shares of its outstanding common stock as of the end of such quarter and, further, will update such information to SAP AG at any time that the number of shares of Commerce One's outstanding common stock increases or decreases by more than 1% from the number most recently reported to SAP AG.           13.3  Confidentiality of Information.  Any information provided under this Section 13 shall be kept confidential by SAP AG pursuant to the Confidentiality Agreement.     14.  Miscellaneous.             14.1  Notices.  All notices and other communications required or permitted hereunder shall be made in the manner and to addresses set forth in the Share Purchase Agreement.           14.2  Interpretation.  The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 12 --------------------------------------------------------------------------------           14.3  Counterparts.  This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart.           14.4  Entire Agreement.  This Agreement and the documents and instruments and other agreements among the parties hereto referenced herein: (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; and (b) are not intended to confer upon any other person any rights or remedies hereunder.           14.5  Assignment.  SAP AG may transfer or assign its rights and obligations hereunder without the consent of the Company, except those rights and obligations set forth in Sections 11 and 12 hereof, together with any Registrable Shares transferred or assigned in accordance with the terms of the Standstill Agreement to any Purchaser Controlled Entity (as defined in the Standstill Agreement), as long as such transferee or assignee of the Registrable Shares executes and delivers a counterpart copy of this Agreement thereby agreeing to be bound by the terms and provisions set forth herein. In addition, any person to whom SAP transfers Registrable Shares in one or more private, unregistered transaction(s), who beneficially owns not less than the greater of (i) eleven million five hundred thousand (11,500,000) Registrable Shares and (ii) twenty-five percent (25%) of the Registrable Shares (a "Transferee"), shall be entitled, upon the exercise by SAP AG of its rights under Sections 2.1 and 2.2 hereof, to exercise the rights set forth in Section 2.2 hereof, on a pro rata basis with SAP AG and all other Transferees (as determined by the number of Registrable Shares requested by SAP AG and all Transferees to be included in such registration). SAP AG shall provide to the Company, upon completion of the transfer of Shares to a Transferee, a notice specifying (i) the date on which such transfer was completed, (ii) the identity of the Transferee and (iii) the number of shares transferred (the "Transfer Notice"). The rights of the transferree set forth in this Section 14.5 are conditional upon the receipt by the Company of the Transfer Notice. Further, the parties agree that, in the event that the reorganization of Commerce One into a holding company structure is consummated, that New Commerce One Holding (as the publicly-traded holding company parent 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 permitted herein, any assignment of rights or delegation of duties under this Agreement by a party without the prior written consent of the other parties, unless such consent is expressly not required hereby, shall be void ab initio. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.           14.6  Severability.  In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision.           14.7  Certain Company Representations.  This Agreement has been duly authorized by all necessary action by the Company, and the Company's execution, delivery and performance of this Agreement does not violate any other agreement or instrument to which it is currently a party. As of the date hereof, the Company has not granted registration rights to any holder of its securities except pursuant to this Agreement, the Existing Registration Rights Agreement that grants registration rights to certain stockholders of the Company with respect to 4,528,170 shares of common stock and the Automaker Registration Rights Agreement that grants to the Automaker Holders registration rights 13 -------------------------------------------------------------------------------- with respect to 28,800,000 shares of common stock. The Company hereby agrees not to grant or amend any registration rights that materially impair the registration rights granted to the Stockholder hereunder.           14.8  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.           14.9  Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.           14.10  Term.  Except as provided herein, including without limitation in Sections 10, 12 and 13, and except with respect to Section 14 as it is applicable to other Sections of this Agreement, the rights and obligations hereunder shall terminate six (6) years from the date of this Agreement. [The remainder of this page is intentionally left blank] 14 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date 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 INVESTOR RIGHTS AGREEMENT] -------------------------------------------------------------------------------- QuickLinks INVESTOR RIGHTS AGREEMENT

EX-10.156 5 opagrllc.htm OPERATING AGREEMENT Exhibit 10.156 AXYS 468 LITTLEFIELD LLC OPERATING AGREEMENT This Operating Agreement ("this Agreement") is made as of May 4, 2001 by and between Axys Pharmaceuticals, Inc., a Delaware corporation ("API") and Axys 468 Littlefield LLC, a California limited liability company (the "Company"), with respect to the operation of the Company. Capitalized terms used in this Agreement not otherwise defined herein have the meanings given to them in Section 6. The parties hereby agree as follows: Formation Of Company . Formation . On May 4, 2001, the Company was organized as a California limited liability company under and pursuant to the California Act by the filing of the Articles with the Secretary of State of the State of California. Principal Place Of Business . The principal place of business of the Company will be 180 Kimball Way, South San Francisco, California. The Company may locate its other places of business at any other place or places as the Manager may from time to time deem advisable. Term . The term of the Company commenced on May 4, 2001 upon the filing of the Articles with the Secretary of State of the State of California and shall be of continuing duration, unless the Company is dissolved in accordance with the provisions of this Agreement or the California Act. Company Purposes . The purpose of the Company shall be to (i) invest in, develop, manage, and operate the real property commonly known as 468 Littlefield Avenue, South San Francisco, California (the "Property"), directly or through ownership interests in other entities; and (ii) engage in any other lawful acts or activities for which limited liability companies may be organized under the laws of the State of California. Tax Classification . For U.S. federal and state tax purposes only, it is intended that the Company's existence as a separate entity from its sole Member, API, be disregarded pursuant to Code Section 7701 and the Treasury Regulations promulgated thereunder and applicable state tax law (the "check-the- box regulations"). Accordingly, the Manager will cause the Company to file such elections and informational returns and perform such actions as may be required under the check-the-box regulations. If at some future date the Member deems it advisable for additional Persons to become Members of the Company, the Company and the Member will cause this Agreement (including this Section 1.5) to be amended pursuant to Section 7.3. Manager And Officers . Authority Of Manager. Except with respect to the matters as to which the approval of the Member is expressly required hereunder, the Manager will have full and exclusive authority to manage the business and affairs of the Company and to perform all acts as may be necessary or appropriate for the conduct of the Company's business. Unless authorized to do so by this Agreement or by the Manager, no Member, agent or employee of the Company will have any power or authority to bind the Company in any way, to pledge its credit or to render it liable for any purpose. Tenure, Election And Qualifications Of Manager . There will be one (1) Manager. The initial Manager will be API. The Manager will hold office until the earliest of (1) the election and qualification of its successor; and (2) its dissolution, resignation or removal. Resignation . The Manager may resign at any time by giving written notice to the Member. The resignation of a Manager will take effect upon receipt of notice thereof or at such later time as will be specified in such notice; unless otherwise specified therein, the acceptance of such resignation will not be necessary to make it effective. Removal . The Manager may be removed at any time, with or without cause, by the Member. Vacancies . Any vacancy occurring in the office of Manager will be filled by the affirmative vote of the Member. Appointment Of Officers . The Manager may appoint officers of the Company, including, but not limited to: (a) a president; (b) one or more vice presidents; (c) a secretary and (d) a chief financial officer. The Manager may delegate a portion of the day-to-day management responsibilities to any such officers, and such officers will have the authority to contract for, negotiate on behalf of and otherwise represent the interests of the Company as authorized by the Manager in any job description created by the Manager. Salaries . The Manager shall receive no salary or other compensation from the Company unless approved by the Member; provided, however, the foregoing shall not prevent any employee of or consultant to the Company from receiving salary or other compensation from the Company with respect to his, her or its services as an employee or consultant. Other Compensation . Each Member agrees and acknowledges that the Company shall pay to Manager as an operating expense of the Property a construction management fee of $360,000 for construction of improvements on the Property, which fee shall be paid to Manager in equal monthly installments during the term of the construction loan from Cupertino National Bank & Trust. Member Approval Of Certain Matters . The Company will not take any of the following actions without the written approval of the Member: Any action for which Member approval is required under the California Act; Any action expressly described elsewhere in this Agreement as requiring Member approval; and Any transaction or series of related transactions outside the normal course of business: that results in the sale of substantially all of the assets of the Company; or in which new equity securities of, or equity securities in, the Company are issued. Capital Contributions. The Member will contribute the property set forth in Schedule A hereto as its Capital Contribution. Records And Reports . Records And Reports . At the expense of the Company, the Manager will maintain in the principal office of the Company records and accounts of all operations and expenditures of the Company for a period of five (5) years from the end of the Fiscal Year during which the last entry was made on such record. At a minimum the Company will keep the following records: A current list of the full name and last known business address of the Manager and the Member; A copy of the Articles, together with executed copies of any written powers of attorney pursuant to which this Agreement and any certificate and all amendments thereto have been executed; Copies of the Company's federal, foreign, state and local income tax returns and reports, if any, for the three (3) most recent years; Copies of this Agreement and all amendments thereto; True and full information regarding the status of the business and financial condition of the Company, including financial statements of the Company for the three (3) most recent years; and True and full information regarding the amount of cash and a description and statement of the agreed value of any other property or services contributed by the Member and that the Member has agreed to contribute in the future, and the date on which such Person became a Member. Member Access To Records . Upon written request of the Member, setting forth the purpose for such request, the Member will have the right, during ordinary business hours, to inspect and copy such Company documents at the Member's expense1. Returns And Other Elections . The Manager will cause the preparation and timely filing of all tax returns required to be filed by the Company pursuant to the Code and all other tax returns deemed necessary and required in each jurisdiction in which the Company does business. Copies of such returns, or pertinent information therefrom, will be furnished to the Member within a reasonable time after the end of the Company's Fiscal Year. All elections permitted to be made by the Company under federal or state laws will be made by the Manager in his, her or its discretion. Accounting Principles . The books and records of the Company will be determined in accordance with generally accepted accounting principles consistently applied under the accrual method of accounting. Dissolution . Dissolution Events . The Company will be dissolved upon the occurrence of any of the following events (each, a "Dissolution Event"): the affirmative vote of the Member; the entry of a decree of judicial dissolution under the California Act; or the withdrawal, bankruptcy or dissolution of the Member. Winding Up . The Company will cease to carry on its business, except insofar as may be necessary for the winding up of its business, upon the occurrence of a Dissolution Event, but its separate limited liability company existence will continue until a Certificate of Dissolution has been filed with the Secretary of State of the State of California or until a decree dissolving the Company has been entered by a court of competent jurisdiction. Liquidation . In settling accounts in dissolution, the assets of the Company will be applied in the following order: to creditors, in the order of priority as provided by law, and the balance to the Member. Dissolution . When all debts, liabilities and obligations have been paid and discharged or adequate provisions have been made therefor and all of the remaining property and assets have been distributed to the Member, a Certificate of Dissolution will be executed in such form as is prescribed by the Secretary of State of the State of California and same is filed therewith. Upon the acceptance of the Certificate of Dissolution, the existence of the Company will cease, except for the purpose of suits, other proceedings and appropriate action as provided in the California Act. The Manager will thereafter be a trustee for the Member and creditors of the Company and as such will have authority to distribute any Company property discovered after dissolution, convey real estate and take such other action as may be necessary on behalf of and in the name of the Company. Definitions. The following terms used in this Agreement have the following meanings unless otherwise expressly provided elsewhere in this Agreement: "Agreement" mean this Agreement. "Articles" means the Company's Articles of Organization, as the same exists or may hereafter be amended. "California Act" means the California Beverly-Killea Limited Liability Company Act, as the same exists or may hereafter be amended. "Capital Contribution" means any contribution to the capital of the Company in cash or property by the Member. "Code" means the Internal Revenue Code of 1986, as the same exists or may hereafter be amended. "Company" means AXYS 468 Littlefield LLC , a California limited liability company. "Dissolution Event" means any of the events specified in Section 6.1. "Fiscal Year" means the Company's fiscal year. The Company's fiscal year will be the same fiscal year as that of the Member. "Manager" means the Person elected by the Member pursuant to this Agreement and the California Act and shall initially mean API. "Member" means, as of a given time, each person that is a member of the Company at such time and shall initially mean API. "Person" means any individual or partnership, limited liability company, corporation, joint venture, trust, or other business association or entity, and the heirs, executors, administrators, legal representatives, successors, and assigns of such individual or entity where the context so permits. "Treasury Regulations" means the Income Tax Regulations, including any temporary regulations, promulgated under the Code, as the same exists or may be amended from time to time. General Provisions . Notices . Any notice, demand or communication required or permitted to be given by any provision of this Agreement will be deemed to have been sufficiently given or served for all purposes if delivered personally to the party or to an executive officer of the party to whom the same is directed or, if sent by registered or certified mail, postage and charges prepaid, addressed to the intended recipient's address as it appears in the Company's records. Except as otherwise provided herein, any such notice will be deemed to be given three (3) business days after the date on which the same was deposited in a regularly maintained receptacle for the deposit of United States mail, addressed and sent as set forth above. Governing Law . This Agreement, and the application and interpretation hereof, will be governed exclusively by the California Act. Amendments . Any amendment to this Agreement will not be effective unless signed by the Member. Execution Of Additional Instruments . The Member hereby agrees to execute such other and further statements of interest and holdings, designations, powers of attorney and other instruments necessary to comply with any laws, rules or regulations. Waivers . The failure of any party to seek redress for violation of or to insist upon the strict performance of any covenant or condition of this Agreement will not prevent a subsequent act from being a violation of this Agreement. Rights And Remedies Cumulative . The rights and remedies provided by this Agreement are cumulative, and the use of any one right or remedy by any party will not preclude or waive the right to use any or all other remedies. Such rights and remedies are given in addition to any other rights the parties may have by law, statute, ordinance or otherwise. Severability . If any provision of this Agreement or the application thereof to any person or circumstance is held to be invalid, illegal or unenforceable to any extent, the remainder of this Agreement and the application thereof will not be affected and will be enforceable to the fullest extent permitted by law. Heirs, Successors And Assigns . Each and all of the covenants, terms, provisions and agreements herein contained will be binding upon and inure to the benefit of the parties and, to the extent permitted by this Agreement, their respective heirs, legal representatives, successors and assigns. Creditors . None of the provisions of this Agreement will be for the benefit of or enforceable by any creditor of the Company. Counterparts . This Agreement may be executed in counterparts, each of which will be deemed an original but all of which will constitute one and the same instrument. Attorneys' Fees . In the event any dispute among the parties results in litigation, the prevailing party or parties in such dispute will be entitled to recover from the losing party or parties all fees, costs and expenses of enforcing any right or rights of the prevailing party or parties under this Agreement including, without limitation, reasonable fees of attorneys and accountants.   The parties hereto have executed this Agreement as of the date first above written. Axys Pharmaceuticals Inc., a Delaware corporation By: /s/ Douglas Altschuler Name: Douglas Altschuler Title: Vice President and General Counsel Axys 468 Littlefield LLC, a California limited liability company By: Axys Pharmaceuticals, Inc., a Delaware corporation Its: Manager By: /s/ Douglas Altschuler Name: Douglas Altschuler Title: Vice President and General Counsel       Schedule A CAPITAL CONTRIBUTION Name of Member Capital Contribution Axys Pharmaceuticals, Inc. 180 Kimball Way South San Francisco, CA 94080 Assignment of Ground Lease dated October 30, 1998, the Property, and transfer of all improvements located thereon.    

Exhibit 10.29 EMPLOYMENT AGREEMENT     THIS AGREEMENT, effective as of September 4, 2000, is made by and between DELTAGEN, INC., a Delaware corporation (hereinafter the "Company"), and RICHARD HAWKINS (hereinafter "Executive"). RECITALS     WHEREAS, the Company and Executive wish to set forth in this Agreement the terms and conditions under which Executive will continue to be employed by the Company; and     WHEREAS, the Company wishes to be assured that Executive will be available to the Company for an additional three (3) years after September 4, 2000.     NOW, THEREFORE, the Company and Executive, in consideration of the mutual promises set forth herein, 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 September 4, 2000 ("Commencement Date") and this Agreement shall expire after a period of three (3) years from the Commencement Date, unless terminated earlier pursuant to Article 6.     B.  Renewal.  The term of this Agreement shall be automatically renewed for successive, additional one (1) year term 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 (1) year. 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 Chief Financial Officer. Executive shall have the powers and duties commensurate with such position, including but not limited to, hiring personnel necessary (in the judgment of the Board of Directors) 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 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. -------------------------------------------------------------------------------- ARTICLE III. COMPENSATION     A.  Base Salary.  Executive shall receive a Base Salary at an annual rate of two hundred twenty-five thousand dollars ($225,000), 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.  Annual Bonus.  Executive shall be eligible for an annual bonus of 25% of the Base Salary as determined by the Board of Directors in its sole discretion.     C.  Accelerated Vesting of Options.  If the Company enters into a transaction which is a Change in Control Transaction, then fifty percent (50%) of all options held by Executive as of the date of completion of the Change in Control Transaction shall become fully vested and exercisable (provided that such provision shall not apply if, as of such date, more than 50% of the options held by Executive are already fully vested).     D.  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 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 Financial Officer 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.  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. 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 and Inventions Agreement in form acceptable to the Company's counsel. 2 --------------------------------------------------------------------------------     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 and Inventions 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 180 days in the aggregate in any 365-day period, then, to the extent permitted by law, the Company may terminate the employment on the 180th 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 as Executive shall become entitled to receive disability insurance payments under the disability insurance policy maintained by the Company.     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) Executive willfully and habitually neglects 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.     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, 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. 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 3 -------------------------------------------------------------------------------- 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 Base Salary or in the responsibilities of Executive which are inconsistent with Executive acting as Chief Financial Officer of the Company, such action shall be deemed to be a termination of employment of Executive without cause pursuant to Section 6.D.     F.  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:     1.  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;     2.  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     3.  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 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 4 -------------------------------------------------------------------------------- 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 other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. To the Company:   Deltagen, Inc. 1003 Hamilton Avenue Menlo Park, CA 94025 To Executive:   Richard Hawkins c/o Deltagen, Inc. 1003 Hamilton Avenue Menlo Park, CA 94025     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.  In case of conflict between any of the terms and conditions of this Agreement and any prior employment or option agreement between the Company and Executive, the terms and conditions of this Agreement shall control. 5 --------------------------------------------------------------------------------     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.     Executed by the parties as of the day and year first above written.     DELTAGEN, INC.     --------------------------------------------------------------------------------     By: William Matthews, Ph.D.     Title: Chief Executive Officer and President     EXECUTIVE:     --------------------------------------------------------------------------------     Richard Hawkins 6 --------------------------------------------------------------------------------

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.3 UNITED ONLINE, INC. 2001 EMPLOYEE STOCK PURCHASE PLAN I.  PURPOSE OF THE PLAN     This Employee Stock Purchase Plan is intended to promote the interests of United Online, Inc., a Delaware corporation, by providing eligible employees with the opportunity to acquire a proprietary interest in the Corporation through participation in a payroll deduction based employee stock purchase plan designed to qualify under Section 423 of the Code.     Capitalized terms herein shall have the meanings assigned to such terms in the attached Appendix. II.  ADMINISTRATION OF THE PLAN     The Plan Administrator shall have full authority to interpret and construe any provision of the Plan and to adopt such rules and regulations for administering the Plan as it may deem necessary in order to comply with the requirements of Code Section 423. Decisions of the Plan Administrator shall be final and binding on all parties having an interest in the Plan. III.  STOCK SUBJECT TO PLAN     A.  The stock purchasable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares of Common Stock purchased on the open market. The number of shares of Common Stock initially reserved for issuance over the term of the Plan shall be limited to 645,376 shares. Such reserve shall consist of the shares transferred from the NetZero, Inc. 1999 Employee Stock Purchase Plan.     B.  The number of shares of Common Stock available for issuance under the Plan shall automatically increase on the first trading day of January each calendar year during the term of the Plan, beginning with calendar year 2002 by an amount equal to one and one-half percent (1.5%) of the total number of shares of Common Stock outstanding on the last trading day in December of the immediately preceding calendar year, but in no event shall any such annual increase exceed 650,000 shares.     C.  Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, appropriate adjustments shall be made to (i) the maximum number and class of securities issuable under the Plan, (ii) the maximum number and class of securities purchasable per Participant and in the aggregate on any one Purchase Date, and (iii) the maximum number and/or class of securities by which the share reserve is to increase automatically each calendar year pursuant to the provisions of Section III.B of this Article One and (v) the number and class of securities and the price per share in effect under each outstanding purchase right in order to prevent the dilution or enlargement of benefits thereunder. IV.  OFFERING PERIODS     A.  Shares of Common Stock shall be offered for purchase under the Plan through a series of successive offering periods until such time as (i) the maximum number of shares of Common Stock available for issuance under the Plan shall have been purchased or (ii) the Plan shall have been sooner terminated.     B.  Each offering period shall be of such duration (not to exceed twenty-four (24) months) as determined by the Plan Administrator prior to the start date of such offering period. However, the initial offering period shall commence at the Effective Time. The next offering period shall commence on the first business day in May 2002, and subsequent offering periods shall commence as designated -------------------------------------------------------------------------------- by the Plan Administrator. Special offering periods may be established with respect to entities that are acquired by the Company (or by a subsidiary of the Company) or under such other circumstances as it deems appropriate.     C.  Each offering period shall be comprised of a series of one or more successive Purchase Intervals. Purchase Intervals shall run from the first business day in November each year to the last business day in April in the following year and from the first business day in May each year to the last business day in October.     D.  Should the Fair Market Value per share of Common Stock on any Purchase Date within an offering period be less than the Fair Market Value per share of Common Stock on the start date of that offering period, then the individuals participating in that offering period shall, immediately after the purchase of shares of Common Stock on their behalf on such Purchase Date, be transferred from that offering period and be automatically enrolled in the next offering period commencing on the next business day following such Purchase Date. The new offering period shall have a duration of twenty (24) months, unless a shorter duration is established by the Plan Administrator within five (5) business days following the start date of that offering period. V.  ELIGIBILITY     A.  Each individual who is an Eligible Employee on the start date of an offering period under the Plan may enter that offering period only on such start date. However, the Eligible Employees who were employees of Juno Online Service, Inc. prior to the Effective Time, may enter the offering period that begins on November 1, 2001 on the first business day in February 2002. No Eligible Employee may be entered into more than one offering period.     B.  The date an individual enters an offering period shall be designated his or her Entry Date for purposes of that offering period.     C.  To participate in the Plan for a particular offering period, the Eligible Employee must complete the enrollment forms prescribed by the Plan Administrator (including a stock purchase agreement and a payroll deduction authorization) and file such forms with the Plan Administrator (or its designate) on or before his or her scheduled Entry Date. VI.  PAYROLL DEDUCTIONS     A.  The payroll deduction authorized by the Participant for purposes of acquiring shares of Common Stock during an offering period may be any multiple of one percent (1%) of the Cash Earnings paid to the Participant during each Purchase Interval within that offering period, up to a maximum of fifteen percent (15%). The deduction rate so authorized shall continue in effect throughout the offering period, except to the extent such rate is changed in accordance with the following guidelines:      (i) The Participant may, at any time during the offering period, reduce his or her rate of payroll deduction to become effective as soon as possible after filing the appropriate form with the Plan Administrator. The Participant may not, however, effect more than one (1) such reduction per Purchase Interval.     (ii) The Participant may, prior to the commencement of any new Purchase Interval within the offering period, increase the rate of his or her payroll deduction by filing the appropriate form with the Plan Administrator. The new rate (which may not exceed the fifteen percent (15%) maximum) shall become effective on the start date of the first Purchase Interval following the filing of such form. 2 --------------------------------------------------------------------------------     B.  Payroll deductions shall begin on the first pay day administratively feasible following the Participant's Entry Date into the offering period and shall (unless sooner terminated by the Participant) continue through the pay day ending with or immediately prior to the last day of that offering period. The amounts so collected shall be credited to the Participant's book account under the Plan, but no interest shall be paid on the balance from time to time outstanding in such account. The amounts collected from the Participant shall not be required to be held in any segregated account or trust fund and may be commingled with the general assets of the Corporation and used for any corporate purpose.     C.  Payroll deductions shall automatically cease upon the termination of the Participant's purchase right in accordance with the provisions of the Plan.     D.  The Participant's acquisition of Common Stock under the Plan on any Purchase Date shall neither limit nor require the Participant's acquisition of Common Stock on any subsequent Purchase Date, whether within the same or a different offering period. VII.  PURCHASE RIGHTS     A.  Grant of Purchase Right.  A Participant shall be granted a separate purchase right for each offering period in which he or she participates. The purchase right shall be granted on the Participant's Entry Date into the offering period and shall provide the Participant with the right to purchase shares of Common Stock, in a series of successive installments over the remainder of such offering period, upon the terms set forth below. The Participant shall execute a stock purchase agreement embodying such terms and such other provisions (not inconsistent with the Plan) as the Plan Administrator may deem advisable.     Under no circumstances shall purchase rights be granted under the Plan to any Eligible Employee if such individual would, immediately after the grant, own (within the meaning of Code Section 424(d)) or hold outstanding options or other rights to purchase, stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Corporation or any Corporate Affiliate.     B.  Exercise of the Purchase Right.  Each purchase right shall be automatically exercised in installments on each successive Purchase Date within the offering period, and shares of Common Stock shall accordingly be purchased on behalf of each Participant (other than Participants whose payroll deductions have previously been refunded pursuant to the Termination of Purchase Right provisions below) on each such Purchase Date. The purchase shall be effected by applying the Participant's payroll deductions for the Purchase Interval ending on such Purchase Date to the purchase of whole shares of Common Stock at the purchase price in effect for the Participant for that Purchase Date.     C.  Purchase Price.  The purchase price per share at which Common Stock will be purchased on the Participant's behalf on each Purchase Date within the offering period shall be equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of Common Stock on the Participant's Entry Date into that offering period or (ii) the Fair Market Value per share of Common Stock on that Purchase Date.     D.  Number of Purchasable Shares.  The number of shares of Common Stock purchasable by a Participant on each Purchase Date during the offering period shall be the number of whole shares obtained by dividing the amount collected from the Participant through payroll deductions during the Purchase Interval ending with that Purchase Date by the purchase price in effect for the Participant for that Purchase Date. However, the maximum number of shares of Common Stock purchasable per Participant on any one Purchase Date shall not exceed 1,250 shares, subject to periodic adjustments in the event of certain changes in the Corporation's capitalization. In addition, the maximum number of shares of Common Stock purchasable in total by all Participants on any one Purchase Date shall not 3 -------------------------------------------------------------------------------- exceed 600,000 shares, subject to periodic adjustments in the event of certain changes in the Corporation's capitalization. However, the Plan Administrator shall have the discretionary authority, exercisable prior to the start of any offering period under the Plan, to increase or decrease the limitations to be in effect for the number of shares purchasable per Participant and in total by all Participants on each Purchase Date within that offering period.     E.  Excess Payroll Deductions.  Any payroll deductions not applied to the purchase of shares of Common Stock on any Purchase Date because they are not sufficient to purchase a whole share of Common Stock shall be held for the purchase of Common Stock on the next Purchase Date. However, any payroll deductions not applied to the purchase of Common Stock by reason of the limitation on the maximum number of shares purchasable per Participant or in the aggregate on the Purchase Date shall be promptly refunded.     F.  Suspension of Payroll Deductions.  In the event that a Participant is, by reason of the accrual limitations in Article VIII, precluded from purchasing additional shares of Common Stock on one or more Purchase Dates during the offering period in which he or she is enrolled, then no further payroll deductions shall be collected from such Participant with respect to those Purchase Dates. The suspension of such deductions shall not terminate the Participant's purchase right for the offering period in which he or she is enrolled, and payroll deductions shall automatically resume on behalf of such Participant once he or she is again able to purchase shares during that offering period in compliance with the accrual limitations of Article VIII.     G.  Termination of Purchase Right.  The following provisions shall govern the termination of outstanding purchase rights:      (i) A Participant may withdraw from the offering period in which he or she is enrolled by filing the appropriate form with the Plan Administrator (or its designate) at any time prior to the next scheduled Purchase Date in that offering period, and no further payroll deductions shall be collected from the Participant with respect to the offering period. Any payroll deductions collected during the Purchase Interval in which such withdrawal occurs shall, at the Participant's election, be immediately refunded or held for the purchase of shares on the next Purchase Date. If no such election is made at the time of such withdrawal, then the payroll deductions collected with respect to the Purchase Interval in which such withdrawal occurs shall be refunded as soon as possible.     (ii) The Participant's withdrawal from the offering period shall be irrevocable, and the Participant may not subsequently rejoin that offering period. In order to resume participation in any subsequent offering period, such individual must re-enroll in the Plan (by making a timely filing of the prescribed enrollment forms) on or before his or her scheduled Entry Date into that offering period.     (iii) Should the Participant cease to remain an Eligible Employee for any reason (including death, disability or change in status) while his or her purchase right remains outstanding, then that purchase right shall immediately terminate, and all of the Participant's payroll deductions for the Purchase Interval in which the purchase right so terminates shall be immediately refunded. However, should the Participant cease to remain in active service by reason of an approved unpaid leave of absence, then the Participant shall have the right, exercisable up until the last business day of the Purchase Interval in which such leave commences, to (a) withdraw all the payroll deductions collected to date on his or her behalf for that Purchase Interval or (b) have such funds held for the purchase of shares on his or her behalf on the next scheduled Purchase Date. In no event, however, shall any further payroll deductions be collected on the Participant's behalf during such leave. Upon the Participant's return to active service (x) within ninety (90) days following the commencement of such leave or (y) prior to the expiration of any longer period for which such Participant's right to reemployment with the Corporation is guaranteed by statute or contract, his or her payroll deductions under the Plan shall automatically resume at the rate in effect at the 4 -------------------------------------------------------------------------------- time the leave began, unless the Participant withdraws from the Plan prior to his or her return. An individual who returns to active employment following a leave of absence which exceeds in duration the applicable (x) or (y) time period will be treated as a new Employee for purposes of subsequent participation in the Plan and must accordingly re-enroll in the Plan (by making a timely filing of the prescribed enrollment forms) on or before his or her scheduled Entry Date into the offering period.     H.  Change in Control.  Each outstanding purchase right shall automatically be exercised, immediately prior to the effective date of any Change in Control, by applying the payroll deductions of each Participant for the Purchase Interval in which such Change in Control occurs to the purchase of whole shares of Common Stock at a purchase price per share equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of Common Stock on the Participant's Entry Date into the offering period in which such Change in Control occurs or (ii) the Fair Market Value per share of Common Stock immediately prior to the effective date of such Change in Control. However, the applicable limitation on the number of shares of Common Stock purchasable per Participant shall continue to apply to any such purchase, but not the limitation applicable to the maximum number of shares of Common Stock purchasable in total by all Participants.     The Corporation shall use reasonable efforts to provide at least ten (10)-days prior written notice of the occurrence of any Change in Control, and Participants shall, following the receipt of such notice, have the right to terminate their outstanding purchase rights prior to the effective date of the Change in Control.     I.  Proration of Purchase Rights.  Should the total number of shares of Common Stock to be purchased pursuant to outstanding purchase rights on any particular date exceed the number of shares then available for issuance under the Plan, the Plan Administrator shall make a pro-rata allocation of the available shares on a uniform and nondiscriminatory basis, and the payroll deductions of each Participant, to the extent in excess of the aggregate purchase price payable for the Common Stock pro-rated to such individual, shall be refunded.     J.  Assignability.  The purchase right shall be exercisable only by the Participant and shall not be assignable or transferable by the Participant.     K.  Stockholder Rights.  A Participant shall have no stockholder rights with respect to the shares subject to his or her outstanding purchase right until the shares are purchased on the Participant's behalf in accordance with the provisions of the Plan and the Participant has become a holder of record of the purchased shares. VIII.  ACCRUAL LIMITATIONS     A.  No Participant shall be entitled to accrue rights to acquire Common Stock pursuant to any purchase right outstanding under this Plan if and to the extent such accrual, when aggregated with (i) rights to purchase Common Stock accrued under any other purchase right granted under this Plan and (ii) similar rights accrued under other employee stock purchase plans (within the meaning of Code Section 423) of the Corporation or any Corporate Affiliate, would otherwise permit such Participant to purchase more than Twenty-Five Thousand Dollars ($25,000.00) worth of stock of the Corporation or any Corporate Affiliate (determined on the basis of the Fair Market Value per share on the date or dates such rights are granted) for each calendar year such rights are at any time outstanding.     B.  For purposes of applying such accrual limitations to the purchase rights granted under the Plan, the following provisions shall be in effect:      (i) The right to acquire Common Stock under each outstanding purchase right shall accrue in a series of installments on each successive Purchase Date during the offering period on which such right remains outstanding. 5 --------------------------------------------------------------------------------     (ii) No right to acquire Common Stock under any outstanding purchase right shall accrue to the extent the Participant has already accrued in the same calendar year the right to acquire Common Stock under one or more other purchase rights at a rate equal to Twenty-Five Thousand Dollars ($25,000.00) worth of Common Stock (determined on the basis of the Fair Market Value per share on the date or dates of grant) for each calendar year such rights were at any time outstanding.     C.  If by reason of such accrual limitations, any purchase right of a Participant does not accrue for a particular Purchase Interval, then the payroll deductions which the Participant made during that Purchase Interval with respect to such purchase right shall be promptly refunded.     D.  In the event there is any conflict between the provisions of this Article and one or more provisions of the Plan or any instrument issued thereunder, the provisions of this Article shall be controlling. IX.  EFFECTIVE DATE AND TERM OF THE PLAN     A.  The Plan shall become effective at the Effective Time, provided no purchase rights granted under the Plan shall be exercised, and no shares of Common Stock shall be issued hereunder, until the Corporation shall have complied with all applicable requirements of the 1933 Act (including the registration of the shares of Common Stock issuable under the Plan on a Form S-8 registration statement filed with the Securities and Exchange Commission), all applicable listing requirements of any Stock Exchange (or the Nasdaq Stock Market, if applicable) on which the Common Stock is listed for trading and all other applicable requirements established by law or regulation.     B.  The Plan shall serve as the successor to the Predecessor Plans, and no further offering periods under either Predecessor Plan shall commence after the Effective Date.     C.  Unless terminated by the Board prior to such time, the Plan shall terminate on the last business day in April 2011. If the Board terminates the Plan prior to a regularly scheduled Purchase Date, any outstanding purchase rights shall be automatically exercised, immediately prior to the effective date of such termination, by applying payroll deductions of each Participant to the purchase of whole shares of Common Stock at a purchase price per share equal to the lower of: (i) the fair market value per share of Common Stock on the Participant's Entry Date into the offering period or (ii) the Fair Market Value per share of Common Stock immediately prior to the effective date of the termination of the Plan. No further purchase rights shall be granted or exercised, and no further payroll deductions shall be collected, under the Plan following such termination. X.  AMENDMENT OF THE PLAN     A.  The Board may alter, amend or suspend the Plan at any time.     B.  In no event may the Board effect any of the following amendments or revisions to the Plan without the approval of the Corporation's stockholders:(i) increase the number of shares of Common Stock issuable under the Plan, except for permissible adjustments in the event of certain changes in the Corporation's capitalization or (ii) modify the eligibility requirements for participation in the Plan. XI  GENERAL PROVISIONS     A.  All costs and expenses incurred in the administration of the Plan shall be paid by the Corporation; however, each Plan Participant shall bear all costs and expenses incurred by such individual in the sale or other disposition of any shares purchased under the Plan.     B.  Nothing in the Plan shall confer upon the Participant any right to continue in the employ of the Corporation or any Corporate Affiliate for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Corporate Affiliate employing such person) or of the Participant, which rights are hereby expressly reserved by each, to terminate such person's employment at any time for any reason, with or without cause.     C.  The provisions of the Plan shall be governed by the laws of the State of Delaware without resort to that State's conflict-of-laws rules. 6 -------------------------------------------------------------------------------- Schedule A Corporations Participating in the United Online, Inc. 2001 Employee Stock Purchase Plan United Online, Inc. Juno Online Services, Inc. NetZero, Inc. -------------------------------------------------------------------------------- APPENDIX     The following definitions shall be in effect under the Plan:     A.  Board shall mean the Corporation's Board of Directors.     B.  Cash Earnings shall mean (i) the regular base salary paid to a Participant by one or more Participating Companies during such individual's period of participation in one or more offering periods under the Plan and (ii) any overtime payments, bonuses, commissions, profit-sharing distributions and other incentive-type payments received during such period. Cash Earnings shall be calculated before deduction of (A) any income or employment tax withholdings or (B) any contributions made by the Participant to any Code Section 401(k) salary deferral plan or Code Section 125 cafeteria benefit program now or hereafter established by the Corporation or any Corporate Affiliate. Cash Earnings shall not include any contributions made on the Participant's behalf by the Corporation or any Corporate Affiliate to any employee benefit or welfare plan now or hereafter established (other than Code Section 401(k) or Code Section 125 contributions deducted from such Cash Earnings).     C.  Change in Control shall mean a change in ownership of the Corporation pursuant to any of the following transactions:      (i) a merger, consolidation or reorganization approved by the Corporation's stockholders, unless securities representing more than fifty percent (50%) of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Corporation's outstanding voting securities immediately prior to such transaction, or     (ii) any stockholder-approved transfer or other disposition of all or substantially all of the Corporation's assets, or     (iii) the acquisition, directly or indirectly, by a person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by or is under common control with the Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders.     D.  Code shall mean the Internal Revenue Code of 1986, as amended.     E.  Common Stock shall mean the Corporation's common stock.     F.  Corporate Affiliate shall mean any parent or subsidiary corporation of the Corporation (as determined in accordance with Code Section 424), whether now existing or subsequently established.     G.  Corporation shall mean United Online, Inc., a Delaware corporation, and any corporate successor to all or substantially all of the assets or voting stock of United Online, Inc., which shall assume the Plan.     H.  Effective Time shall mean November 1, 2001. Any Corporate Affiliate that becomes a Participating Corporation after such Effective Time shall designate a subsequent Effective Time with respect to its employee-Participants.     I.  Eligible Employee shall mean any person who is employed by a Participating Corporation on a basis under which he or she is regularly expected to render more than twenty (20) hours of service per week for more than five (5) months per calendar year for earnings that are considered wages under Code Section 3401 (a). A–1 --------------------------------------------------------------------------------     J.  Entry Date shall mean the date an Eligible Employee first commences participation in the offering period in effect under the Plan. The earliest Entry Date under the Plan shall be the Effective Time.     K.  Fair Market Value per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:      (i) If the Common Stock is at the time traded on the Nasdaq Stock Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq Stock Market. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.     (ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.     L.  1933 Act shall mean the Securities Act of 1933, as amended.     M. Participant shall mean any Eligible Employee of a Participating Corporation who is actively participating in the Plan.     N.  Participating Corporation shall mean the Corporation and such Corporate Affiliate or Affiliates as may be authorized from time to time by the Board to extend the benefits of the Plan to their Eligible Employees. The Participating Corporations in the Plan are listed in attached Schedule A.     O.  Plan shall mean United Online, Inc. 2001 Employee Stock Purchase Plan, as set forth in this document.     P.  Plan Administrator shall mean the committee of two (2) or more Board members appointed by the Board to administer the Plan.     Q.  Predecessor Plans shall mean the Juno Online Services, Inc. 1999 Employee Stock Purchase Plan and the NetZero, Inc. 1999 Employee Stock Purchase Plan.     R.  Purchase Date shall mean the last business day of each Purchase Interval.     S.  Purchase Interval shall mean each successive six (6)-month period within the offering period at the end of which there shall be purchased shares of Common Stock on behalf of each Participant.     T.  Stock Exchange shall mean either the American Stock Exchange or the New York Stock Exchange. A–2 -------------------------------------------------------------------------------- QuickLinks UNITED ONLINE, INC. 2001 EMPLOYEE STOCK PURCHASE PLAN Schedule A Corporations Participating in the United Online, Inc. 2001 Employee Stock Purchase Plan APPENDIX

Exhibit 10.23. Officer Compensation Continuation Agreement REPUBLIC BANCORP, INC REPUBLIC BANK & TRUST COMPANY OFFICER COMPENSATION CONTINUATION AGREEMENT              This Agreement  dated as of the 15th day of June, 2001 (the "Agreement") is made by and between Republic Bancorp, Inc., a Kentucky corporation (the "Company"), and Kevin Sipes (the "Executive"), who is presently Chief Financial Officer of Republic Bank & Trust Company (the "Bank") in consideration of the mutual covenants herein contained and in further consideration of services performed and to be performed by the Executive for the Company and/or its subsidiaries.  As of the date of this Agreement, Bank is a wholly-owned subsidiary of the Company.  The Bank joins in this Agreement to further accomplish the terms and objectives of this Agreement. Recitals              A.         The Company considers the establishment and maintenance of sound and vital management of the Company and its subsidiaries to be essential to protecting and enhancing the best interests of the Company and its shareholders.              B.          The Company recognizes that, as is the case with many bank holding companies, the possibility of a change of control may exist.  Such possibility, and the uncertainty and questions which it may raise among management of the Company and its subsidiaries may result in the departure or distraction of key members of management to the detriment of the Company's shareholders.              C.          The Company's Board of Directors has determined that appropriate steps should be taken to encourage key members of management of the Company and its subsidiaries, such as the Executive, to remain in the employ of the Company and/or its subsidiaries and perform their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change of control of the Company.              NOW, THEREFORE, in consideration of the foregoing and of the covenants herein contained, the parties hereto agree as follows: Section 1 — Definitions For purposes of this Agreement, the following words and terms shall have the following meanings:              1.1        Termination by the Bank of the Executive's employment for "Cause" shall mean termination upon (A) the willful and continued failure by the Executive substantially to perform the Executive's duties with the Bank (other than any such failure resulting from Disability or temporary incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board of Directors of the Bank (the "Bank Board"), which demand specifically identifies the manner in which the Bank Board believes that the Executive has not substantially performed his duties; or (B) the willful engaging by the Executive in gross misconduct materially and demonstrably injurious to the Bank or the Company.  For purposes of this definition, no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's action or omission was in the best interests of the Bank or the Company.              1.2        A "Change in Control" of the Company shall mean (i) an event or series of events which have the effect of any "person" as such term is used in Section 13(d) and 14(d) of the Exchange Act, becoming the "beneficial owner" as defined in Rule 13d-3 under the Exchange Act, directly or indi­rectly, of securities of the Company or the Bank repre­senting a greater percentage of the combined voting power of the Company's or Bank's then outstanding stock, than the Trager Family Members as a group; (ii) an event or series of events which have the effect of decreasing the Trager Family Members' percentage ownership of the combined voting power of the Company's or Bank's then outstanding stock to less than 25%;  (ii) any person (including the Company or the Bank) publicly announces an intention to take or to con­sider taking actions which have consummated would constitute a Change in Con­trol, or (iii) the Company Board adopts a resolu­tion to the effect that a Potential Change in Control for purposes of this Plan has occurred.  For purposes of this paragraph, "Trager Family Member" shall mean Bernard M. Trager, Jean S. Trager and any of their lineal descendants, and any corporation, partnership, limited liability company or trust the majority owners or beneficiaries of which are directly or indirectly through another entity Bernard M. Trager, Jean S. Trager, or one or more of their lineal descendants.              1.3        "Compensation" shall mean the Executive's annual base salary at the greater of (A) the highest rate in effect at any time during the twelve months immediately preceding the applicable Date of Termination, or (B) the rate in effect immediately prior to the applicable Change in Control.              1.4        "Contract Period" shall mean the period defined in Section 2 hereof.              1.5        "Date of Termination" shall mean (A) if the Executive's employment is terminated for Good Reason, as defined below, the date specified in the Notice of Termination, as defined in this Section 1.8 below; and (B) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given; provided that, if within 30 days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding and final arbitration award or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected).              1.6        "Disability" shall mean a physical or mental incapacity of the Executive which entitles the Executive to benefits under any long-term disability plan or wage continuation plan applicable to him and maintained by the Company as in effect immediately prior to the applicable Change in Control.              1.7        "Good Reason" shall mean:                            (a)         Without the Executive's express written consent, the assignment to Executive of any duties inconsistent with, or the reduction of powers or functions associated with, his positions, duties, responsibilities and status with the Company immediately prior to a Change in Control, or any removal of Executive from, or any failure to reelect Executive to, any positions or offices Executive held immediately prior to a Potential Change in Control, except in connection with the termination of Executive's employment at death, for Cause or on account of Retirement or Disability pursuant to the requirements of this Agreement;                            (b)                                         (i) the failure by the Company to continue in effect any employee welfare or pension benefit plans within the meaning of Sections 3(1) and 3(2) of the Employee Retirement Income Security Act of 1974 (the "Plans"), in which Executive was participating immediately prior to a Potential Change in Control (or substitute plans, programs or arrangements providing Executive with substantially similar benefits),                                         (ii) the taking of any action, or the failure to take any action, by the Company which could (A) adversely affect Executive's participation in, or materially reduce Executive's benefits under, any of the Plans, (B) materially adversely affect the basis for computing benefits under any of the Plans, or (C) deprive Executive of any material fringe benefit enjoyed by Executive immediately prior to a Potential Change in Control, or (iii) the failure by the Company to provide Executive with the number of paid vacation days to which Executive was entitled immediately prior to a Potential Change in Control in accordance with the Company's vacation policy applicable to Executive then in effect; except, in each case, in connection with the termination of Executive's employment at death, for Cause or on account of Retirement or Disability pursuant to the requirements of this Agreement;                            (c)         the failure by the Company to obtain an assumption of the obligations of the Company under this Agreement by any successor to the Company;                            (d)        a reduction by the Bank in the Executive's base salary as in effect on the date hereof or as the same may be increased from time to time, except as part of an across-the-board reduction of base salaries applicable to all salaried employees of the Bank, provided the reduction (or series of reductions) does not exceed 5% of the Executive's base salary prior to such change;                            (e)         the relocation of the Bank's principal executive offices to a location outside the metropolitan Louisville area; or the Company's requiring the Executive to be based anywhere other than in the metropolitan Louisville area, except for required travel on the Bank's business to an extent substantially consistent with similarly situated executives' business travel obligations;                            (f)         any purported termination of the Executive's employment during the contract period which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3 below; and for purposes of this Agreement, no such purported termination shall be effective.              1.8        A "Notice of Termination" shall mean a notice, from the Bank or from the Executive, which shall indicate the specific termination provision in 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 the provision so indicated.              1.9        "Plans" shall have the meaning given in Section 1.7(b).              1.10      Any reference to "Subsidiaries" of the Company shall include those subsidiaries owned by the Company directly or owned by the Company indirectly through another company which is wholly-owned by the Company. Section 2 — Application of Agreement              This Agreement shall apply only to termination of employment of the Executive during a period (the "Contract Period") commencing on the date immediately preceding the date of a Change in Control and terminating on the second anniversary of the date of that Change in Control; provided, however, that each such Change in Control occurs during the period commencing as of January 1, 2001 and terminating at midnight on December 31, 2004 or as further extended pursuant to the following sentence.  At midnight on December 31, 2004, and on each annual anniversary of that time and date thereafter, such latter period shall be automatically extended for two additional years, unless on or before such anniversary the Company notifies the Executive in writing that it elects not to extend such period.  There is one Contract Period for each Change in Control and there may be multiple Change(s) in Control.  With respect to a termination pursuant to Section 3.2 only, the Contract Period shall also include the period from and after a Potential Change in Control.  If a Potential Change in Control occurs but a Change in Control does not follow within one year of the Potential Change in Control, the Contract Period shall expire on the one year anniversary of the Potential Change in Control. Section 3 — Termination              3.1        Procedure for Termination.      Any termination by the Bank or by the Executive, pursuant to this Agreement, shall be communicated by Notice of Termination to the other parties hereto.  The Executive shall not be deemed to have been terminated 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 51% of the entire membership of the Board of Directors of the Company (the "Company Board") at a meeting of the Company Board called and held for that purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Company Board), finding that in the good faith opinion of the Company Board, the Executive was guilty of conduct set forth in Section 1.1 and specifying the particulars thereof in detail.              3.2        Termination for Cause or Before Contract Period.  Upon a termination of the Executive's employment for Cause during the Contract Period, the Executive shall have no right to receive any compensation or benefits hereunder.  Upon a termination of the Executive's employment without Cause during the Contract Period, the Executive shall be entitled to receive the benefits provided in Section 3.4 hereof.  This Agreement shall not apply to, and the Executive shall have no right to receive any compensation or benefits hereunder in connection with, any termination of the Executive's employment by the Company other than during a Contract Period, and Executive shall remain an "at will" employee until a Contract Period begins.              3.3        Termination for Good Reason.  During the Contract Period, the Executive shall be entitled to terminate his employment with the Company and, if such termination is for Good Reason, to receive the benefits provided in Section 3.4 hereof.  The Executive shall give the Company Notice of Termination of his employment pursuant to this Section 3.3, and termination of the Executive's employment shall be effective five business days after the Executive gives notice thereof to the Company.  This Agreement shall not apply to, and the Executive shall have no right to receive any compensation or benefits hereunder in connection with, any termination of the Executive's employment by the Executive other than during a Contract Period.  This Agreement shall not apply to, and the Executive shall have no right to receive any compensation or benefits hereunder in connection with, a termination of the Executive's employment on account of the Executive's death, whether or not during the Contract Period.              3.4        Compensation Upon Termination.  If during a Contract Period the Executive's employment shall be terminated by the Bank other than pursuant to death or for Cause, or if the Executive shall terminate his employment for Good Reason, then the Company shall pay, or the Company shall cause the Bank to pay, to the Executive as severance compensation in a lump sum (discounted to present value using the interest rate applicable to a three year certificate of deposit at Republic Bank & Trust Company) on the fifth day following the Date of Termination: (1)         the unpaid balance of the Executive's full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given; and (2)         an amount equal to the Executive's Compensation, divided by 12 and multiplied by the lesser of (i) the number of months remaining in the Contract Period at the Date of Termination, and (ii) 24 (such multiple hereafter referred to as the "Payment Period").              In addition to the severance benefits set forth in (1) and (2) of this Section 3.4, the Company shall, or the Company shall cause the Bank to: (3)         pay all legal fees and expenses incurred by the Executive resulting from termination (including all such fees and expenses, if any, incurred in contesting any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement); (4)         maintain in full force and effect, for the continued benefit of the Executive for the shorter of (1) until the Executive's death (provided that benefits payable to his beneficiaries shall not terminate upon his death), or (2) with respect to any particular Plan, the date he is afforded a comparable benefit at a comparable cost to the Executive by a subsequent employer, or (3) the Payment Period, all Plans in which Executive was entitled to participate immediately prior to the Change of Control (unless Plans generally available to employees of the Bank have been modified since the Change in Control in which case the Plans to be continued shall be those in effect at the Date of Termination, at the level most comparable to that available to the Executive at the Change in Control).  In the event that the Executive's participation in any Plan of the Company is prohibited, the Company shall arrange to provide the Executive with benefits substantially similar to those which the Executive is entitled to receive under Plan, for such period.  At the end of the period of coverage, the Executive shall have the option to have assigned to him at no cost and with no apportionment of prepaid premiums, any assignable insurance policy owned by the Bank or the Company relating specifically to the Executive; and (5)         cause all stock options and stock appreciation rights and/or the rights held by the Executive with respect to stock in the Company, immediately prior to the termination, if not otherwise presently exercisable, to become presently exercisable.              3.5        Disability.                      If during the Contract Period, the Executive's employment shall be terminated, either by the Bank orby the Executive, due to the Executive's Disability, the Company shall pay the Executive as severance compensation the same benefits as set forth in Section 3.4(1)-(5).              3.6        No Mitigation.              The Executive shall not be required to mitigate the amount of any payment provided for in this Section 3 by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Section 3 be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise. Section 4 — Miscellaneous              4.1        Successors Shall Assume.       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 or the Bank, by 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 that the Company or the Bank would be required to perform if no such succession had taken place.  Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitled the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive terminated the Executive's employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination.  As used in this Agreement, "Company" shall mean the Company as defined in the preamble hereto and any successor to its business and/or assets as aforesaid or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.  As used in this Agreement, "Bank" shall mean the Bank as defined in the preamble hereto and any successor to its business and/or assets as aforesaid or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.              4.2        Binding Effect.              This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.  If the Executive should die while any amounts would still be payable to the Executive hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate.              4.3        Reduction of Amounts Payable.          In no event shall any amount payable under any provision of this Agreement equal or exceed an amount which would cause the Company to forfeit, pursuant to Section 280G(a) of the Internal Revenue Code of 1986, as amended, its deduction for any or all such amounts payable.  Pursuant to this Section 4.3, the Company's Compensation Committee has the power to reduce severance benefits payable under this Agreement, if such benefits alone or in conjunction with termination benefits provided under any other Company plan or program, would cause the Company to forfeit otherwise deductible payments; provided, however that no benefits payable under this Agreement shall be reduced pursuant to this Section 4.3 to less than $1.00 below the amount of benefits which the Company can properly deduct under Section 280G(a) of the Internal Revenue Code of 1986, as amended.              4.4        Notice.              Any notice or request required or permitted to be given under this Agreement shall be in writing and shall be deemed sufficiently given for all purposes if mailed by certified mail, postage prepaid and return receipt requested, addressed to the intended recipient at                            (a)         the addresses set forth below:                                         (i)          If to the Company:                                                      Republic Bancorp, Inc.                                                      601 W. Market St.                                                      Louisville, Kentucky 40202 All notices to the Company shall be directed to the attention of the Chief Executive Officer of the Company with a copy to the Secretary of the Company and to the Secretary of the Bank.                                         (ii)         If to the Bank:                                                      Republic Bank & Trust Company                                                      601 W. Market Street                                                      Louisville, Kentucky 40202 All notices to the Bank shall be directed to the attention of the Secretary of the Bank with a copy to the Secretary of the Company.                                         (iii)        If to the Executive:                                                      Kevin Sipes                                                      Republic Bancorp                                                      601 West Market Street                                                      Louisville, KY  40202                            (b)        Such other address as any of the parties shall specify by written notice to the other parties of this Agreement.              4.5        Payment Obligations Absolute.  The Company's obligation to pay the Executive the amounts provided for hereunder shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against him or anyone else, except with respect to tax withholding required pursuant to Section 4.11.  All amounts payable by the Company hereunder shall be paid without notice or demand.  Except as expressly provided herein, the Company waives all rights which it may now have or may hereafter have conferred upon it, by statute or otherwise, to amend, terminate, cancel or rescind this Agreement in whole or in part.  Each and every payment made hereunder by the Company shall be final and the Company shall not seek to recover all or any part of such payment from the Executive or from whomsoever may be entitled thereto, for any reason whatsoever.              4.6        Modifications and Waivers.    No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board of Directors of the Company.  No waiver by either party hereto at any time of any breach by the other party hereto 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.              4.7        Entire Agreement.        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.              4.8        Governing Law.            The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the Commonwealth of Kentucky.              4.9        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.              4.10      Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.              4.11      Payroll and Withholding Taxes.  The Company may withhold from any amounts payable to the Executive hereunder all federal, state, city or other taxes that the Company may reasonably determine are required to be withheld pursuant to any applicable law or regulation.              IN WITNESS WHEREOF the parties hereto have executed this Agreement, as of the day and year first above written.     REPUBLIC BANCORP, INC.       /s/ Kevin Sipes     --------------------------------------------------------------------------------   By /s/ Steve Trager Executive     --------------------------------------------------------------------------------     Title: President       --------------------------------------------------------------------------------     Date: 6/22/01       --------------------------------------------------------------------------------                             REPUBLIC BANK & TRUST COMPANY                 By /s/ Steve Trager       --------------------------------------------------------------------------------     Title: CEO       --------------------------------------------------------------------------------     Date: 6/22/01       --------------------------------------------------------------------------------    

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.21.3 AMENDED EXHIBIT "A" To The GAS PURCHASE CONTRACT As Of: October 1, 1994 Between CASCADE NATURAL GAS CORPORATION ("BUYER") and IGI RESOURCES, INC. ("SELLER") Effective Date of this Exhibit "A":  October 1, 2003 Ending Date of this Exhibit "A":  March 31, 2004 DELIVERY POINT   As defined in Section 1.01(g) of the Contract noted above       MAXIMUM DAILY CONTRACT QUANTITY(MMBtu)   7,446       DELIVERY POINT SELLING PRICE   1/ -------------------------------------------------------------------------------- 1.The Delivery Point Selling Price shall be equal to four dollars and sixty eight cents [*]U.S. dry) per MMBtu at AECO-C Hub plus the actual cost of firm NOVA re-delivery service and firm ANG receipt and re-delivery service plus any applicable allowance for fuel-in-kind associated with such services. [*] = Confidential Information     "BUYER" CASCADE NATURAL GAS CORPORATION               By:   /s/ King Oberg --------------------------------------------------------------------------------     Name:   King Oberg --------------------------------------------------------------------------------     Title:   Vice President, Gas Supply --------------------------------------------------------------------------------                         "SELLER" IGI RESOURCES, INC.               By:   /s/ Randy Schultz --------------------------------------------------------------------------------     Name:   Randy Schultz --------------------------------------------------------------------------------     Title:   President -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- QuickLinks Exhibit 10.21.3 AMENDED EXHIBIT "A" To The GAS PURCHASE CONTRACT As Of: October 1, 1994 Between CASCADE NATURAL GAS CORPORATION ("BUYER") and IGI RESOURCES, INC. ("SELLER")

  EXHIBIT 10.2     WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE     $5,000,000.00 San Jose, California   March 23, 2001    FOR VALUE RECEIVED, the undersigned Fiberstars, Inc.  (“Borrower”) promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”) at its office at Santa Clara Valley RCBO, 121 Park Center Plaza 3rd Flr, San Jose, CA 95113, 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 such 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 $100,000.00; 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 Rated 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 States dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by Bank for the purpose of calculating effective rates of interest for loans making reference thereto, on the fist 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 Marked 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 Rated Term.              (d)        “Prime Rate” means at any time the rate of interest most recently announced within Bank at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Bank’s base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Bank may designate. INTEREST:              (a)         Interest.  The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) either (I) at a fluctuating rate per annum equal to the Prime Rate in effect from time to time, or (ii) at a fixed rate per annum determined by Bank to be 1.75000% 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 hereunder, Bank is hereby authorized to note the date, principal amount, interest rate and Fixed Rate Term applicable thereto and any payments make 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 the 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 for the outstanding principal balance hereof, and at the end of each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the interest rate option selected by Borrower; (ii) the principal amount subject thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed Rate Term.  Any such notice may be given by telephone (or such other electronic method as Bank may permit) so long as, with respect to each LIBOR selection, (A) if requested by Bank, Borrower provides to Bank written confirmation thereof not later than three (3) Business Days after such notice is give, 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 form 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 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 or 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 form compliance by Bank with any request or directive (whether or not having the fore 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 make 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 28th day of each month, commencing March 28, 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-year, actual days elapsed) equal to 4% above the rate of interest from time to time applicable to this Note.              (f)         Commitment Fee.  Prior to the initial extension of credit under this Note, Borrower shall pay to Bank a non-refundable commitment fee of $2,500.00.              (g)        Collection of Payments.  Borrower authorizes Bank to collect all interest and fees due hereunder by charging Borrower’s deposit account number 4496-813031 with Bank, or any other deposit account maintained by any Borrower with Bank, for the full amount thereof.  Should there be insufficient funds in any such deposit account to pay all such sums when due, the full amount of such deficiency shall be immediately due and payable by Borrower. SIGHT COMMERICAL AND STANDBY LETTER OF CREDIT SUBFEATURE:              (a)         Letter of Credit Subfeature.  As a subfeature under this Note, Bank agrees from time to time during the term hereof to issue standby letters of credit for the account of Borrower to finance guarantee lease payments for their German facility and/or sight commercial letters of credit for the account of Borrower to finance Borrower’s inventory purchases (each, a “Letter of Credit” and collectively, “Letters of Credit”); provided however, that the form and substance of each Letter of Credit shall be subject to approval by Bank, in it’s sole discretion; and provided further, that the aggregate undrawn amount of all outstanding Letters of Credit shall not at any time exceed $400,000.00.  Each standby Letter of Credit shall be issued for a term not to exceed 365 days, and each commercial Letter of Credit shall be issued for a term not to exceed 180 days, as designated by Borrower; provided however, that no standby Letter of Credit shall have an expiration date subsequent to the maturity date of this Note, and no commercial Letter of Credit shall have an expiration date more than 90 days beyond the maturity date of this Note.  The undrawn amount of all Letters of Credit shall be reserved under this Note and shall not be available for borrowings hereunder.  Each Letter of Credit shall be subject to the additional terms and conditions of the Letter of Credit Agreement and related documents, if any, required by Bank in connection with the issuance thereof.  Each draft paid by Bank under a Letter of Credit shall be deemed an advance under this Note and shall be repaid by Borrower in accordance with the terms and conditions of this Note; provided however, that if advances hereunder are not available, for any reason, at the time any draft is paid by Bank, then Borrower shall immediately pay to Bank the full amount of such draft, together with interest thereon form the date such amount is paid by Bank to the date such amount is full repaid by Borrower, at the rate of interest applicable to advances hereunder.  In such event Borrower agrees that Bank, in its sole discretion, may debit any deposit account maintained by Borrower with Bank for the amount of any such draft.              (b)        Letter of Credit Fees.  Borrower shall pay to Bank fees upon the issuance of each letter of Credit, upon the payment or negotiation of each draft under any letter of Credit and upon the occurrence of any other activity with respect to any Letter of Credit (including without limitation, the transfer, amendment or cancellation of any Letter of Credit) determined in accordance with Bank'’ standard fees and charges then in effect for such activity. CLEAN ACCEPTANCE SUBFEATURE:              (a)         Acceptance Subfeature.  As a subfeature under this Note, Bank agrees from time to time during the term hereof to create banker’s acceptances (each, an “Acceptance” and collectively, “Acceptances”) for the account of Borrower by accepting drafts drawn on Bank by Borrower for the purpose of financing Borrower’s importation of goods into the United States; provided however, that the form and substance of each Acceptance shall be subject to approval by Bank, in its sole discretion; and provided further, that the aggregate amount of all outstanding Acceptances shall not at any time exceed $400,000.00.  Each Acceptance shall be in the minimum amount of $5,000.00.  Each Acceptance shall be subject to the additional terms and conditions of an Acceptance Agreement in form and substance satisfactory to Bank.  Each Acceptance shall be created for a term not to exceed the lesser of 365 days, as designated by Borrower, or such period of time as may be necessary to comply with the terms of the Acceptance Agreement; provided however, that no Acceptance shall mature more than 90 days beyond the maturity date of this Note.  The outstanding amount of all Acceptances shall be reserved under this Note and shall not be available for borrowings hereunder.  The amount of each Acceptance which matures shall be deemed an advance under this Note and shall be repaid by Borrower in accordance with the terms and conditions of this Note; provided however, that if advances hereunder are not available, for any reason, at the time any Acceptance matures, then Borrower shall immediately pay to Bank the full amount of such matured Acceptance, together with interest thereon from the date such Acceptance matures to the date such amount is fully repaid by Borrower, at the rate of interest applicable to advances hereunder.  In such event Borrower agrees that Bank, in its sole discretion, may debit any deposit account maintained by Borrower with Bank for the amount of any Acceptance.  All Acceptances created hereunder shall be discounted with Bank.              (b)        Acceptance Fees.  For each Acceptance created hereunder, Borrower shall pay to Bank on the date such Acceptance is created an acceptance fee determined in accordance with Bank’s standard fees and charges then in effect for the creation of Acceptances. BORROWING AND REPAYMENT:              (a)         Use of Proceeds.  Advances under this Note shall be available solely to finance working capital requirements.              (b)        Borrowing and Repayment.  Borrower may form time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with, or at any time as a supplement to, this Note; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above; and provided further, that Borrower shall maintain a zero balance on advances under this Note for a period of at least 30 consecutive days during each fiscal year.  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.  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 any 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 August 15, 2001; except with respect to any draft paid by Bank under a commercial Letter of Credit and any Acceptance which matures subsequent to said date, the full amount of which shall be due and payable by Borrower immediately upon payment by Bank or at such maturity as applicable.              (c)         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) David N. Ruckert or Roland Dennis or Bob Connors, any on 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. 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 $100,000.00; provided however, that if the outstanding principal balance of such portion of this Note is less than said amount, the minimum prepayment amount shall be the entire outstanding principal balance thereof.  In consideration of Bank providing this prepayment option to Borrower, or if any such portion of this Note shall become due and payable at any time prior to the last day of the Fixed Rate Term applicable thereto by acceleration or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is the sum of the discounted monthly differences for each month from the month of prepayment through the month in which Fixed Rate Term matures, calculated as follows for each such month:                            (i)           Determine the amount of interest which would have accrued each month on the amount prepaid at the interest rate applicable to such amount had it remained outstanding until the last day of the Fixed Rate Term applicable thereto.                            (ii)          Subtract from the amount determined in (i) above the amount of interest which would have accrued from the same month on the amount repaid for the remaining term of such Fixed Rate Term at LIBOR in effect on the date of prepayment for new loans made for such term and in a principal amount equal to the amount prepaid.                            (iii)         If the result obtained in (ii) for any month is greater than zero, discount that difference by LIBOR used in (ii) above. Each Borrower acknowledges that prepayment of such amount may result in Bank incurring additional costs, expenses and/or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses and/or liabilities.  Each Borrower, therefore, agrees to pay the above-described prepayment fee and agrees that said amount represents a reasonable estimate of the prepayment cots, 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 prate per annum 2.000% above 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. COLLATERAL:    As security for the payment and performance of all obligations of Borrower under this Note, Borrower grants to Bank security interests of first priority (except as agreed otherwise by Bank in writing) in the following property of Borrower, now owned or at any time hereafter acquired: all accounts receivable, other rights to payment and general intangibles; all inventory, together with security interests in all other personal property of Borrower not or at any time hereafter pledged to Bank as collateral for any other commercial credit  accommodation granted by Bank to Borrower.  All of the foregoing shall be evidenced by and subject to the terms of such security agreements, financing statements and other documents as Bank shall reasonably require, all in form and substance satisfactory to Bank.  Borrower shall reimburse Bank immediately upon demand for all costs and expenses incurred by Bank in connection with any of the foregoing security, including without limitation, filing fees and allocated costs of collateral audits. EVENTS OF DEFAULT:    Any default in the payment or performance of any obligation under this Note, or any defined event of default under any loan agreement now or at any time hereafter in effect between Borrower and Bank (whether executed prior to, concurrently with or at any time after this Note), shall constitute an “Event of Default” under this Note. MISCELLANEOUS:              (a)         Remedies.  Upon the occurrence of any Even of Default, the holder of this Note, at the holder’s option, may declare all sums of principal, interest, fees and charges 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 prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity.              (b)        Obligations Joint and Several.  Should more than one person or entity sign this Note as Borrower, the obligations of each such Borrower shall be joint and serveral.              (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. Fiberstars, Inc. By:  /s/ Robert A. Connors      Title: Chief Financial Officer       

-------------------------------------------------------------------------------- EXHIBIT 10.19 EXECUTIVE CHANGE IN CONTROL SEVERANCE BENEFITS AGREEMENT      THIS EXECUTIVE CHANGE IN CONTROL SEVERANCE BENEFITS AGREEMENT (the “AGREEMENT”) is entered into on                                             between                                             (“Executive”) and ELANTEC SEMICONDUCTOR, INC., a Delaware corporation (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 VI.      The Company and Executive hereby agree as follows: ARTICLE 1 EMPLOYMENT BY THE COMPANY      1.1 Executive is currently employed as an executive of the Company.      1.2 This Agreement shall remain in full force and effect so long as Executive is employed by Company; provided, however, that the rights and obligations of the parties hereto contained in Articles II through VII shall survive Two and One Half (2-1/2) years following a Covered Termination (as hereinafter defined).      1.3 The Company and Executive wish to set forth the compensation and benefits which Executive shall be entitled to receive in the event that there is a Change in Control or Executive’s employment with the Company terminates following a Change in Control under the circumstances described in Article II of this Agreement.      1.4 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 Executive’s execution of the general waiver and release described in Section 3.2.      1.5 This Agreement shall not supersede or affect any other agreements relating to Executive’s employment or severance, or a change in control of the Company. ARTICLE II SEVERANCE BENEFITS      2.1 Entitlement To Severance Benefits. If Executive’s employment terminates due to an Involuntary Termination or a Voluntary Termination for Good Reason within twelve (12) months following a Change in Control, the termination of employment will be a Covered Termination and the Company shall pay Executive the compensation and benefits described in this Article II. If Executive’s employment terminates, but not due to an Involuntary Termination or a Voluntary Termination for Good Reason within twelve (12) months following a Change in Control, then the termination of employment will not be a Covered Termination and Executive will not be entitled to receive any payments or benefits under this Article II. 1 --------------------------------------------------------------------------------      Payment of any benefits described in this Article II shall be subject to the restrictions and limitations set forth in Article III.      2.2 Lump Sum Severance Payment. The Company shall pay to the Executive his base pay through Date of Covered Termination at the rate in effect at the time Notice of Termination is given, subject to any applicable withholding of federal, state or local taxes, plus (i) that portion of your targeted cash bonus prorated through the Date of Covered Termination, and (ii) all other amounts to which you are entitled under any compensation plan or practice of the Company at the time such payments are due. Within thirty (30) days following a Covered Termination, Executive shall receive a lump sum payment equal to one hundred percent (100%) of the sum of Annual Base Pay and Annual Bonus at target, subject to any applicable withholding of federal, state or local taxes.      2.3 Stock Options. In accordance with Section 4.3, certain stock options held by the Executive may become fully vested and exercisable upon a Change in Control (regardless of whether a Covered Termination occurs) and the period of time following a Covered Termination may be extended.      2.4 Welfare Benefits. Following a Covered Termination, Executive and his covered dependents will be eligible to continue their Welfare Benefit coverage under any Welfare Benefit plan or program maintained by the Company on the same terms and conditions (including cost to Executive) as in effect immediately prior to the Covered Termination, for the One (1) year following the Covered Termination.      With respect to any Welfare Benefits provided through an insurance policy, the Company’s obligation to provide such Welfare Benefits following a Covered Termination shall be limited by the terms of such a policy; provided that (i) the Company shall make reasonable efforts to amend such policy to provide the continued coverage described in this Section 2.4, and (ii) if a policy providing health benefits is not amended to provide the continued benefits described in this Section 2.4, the Company shall pay for the cost of comparable replacement coverage (or Medigap insurance if Executive qualifies for Medicare) until the end of the One (1) year period following the Covered Termination.      The Company shall reimburse Executive for any income tax liability due as a result of the provision of Welfare Benefits under this Article II (and as a result of any payments due under this paragraph) in order to put Executive in the same after-tax position as if no taxable Welfare Benefits had been provided.      This Section 2.4 is not intended to affect, not does it affect, the rights of Executive, or Executive’s covered dependents, under any applicable law with respect to health insurance continuation coverage.      2.5 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 retirement benefits after the date of the Covered Termination, or otherwise. 2 -------------------------------------------------------------------------------- ARTICLE III LIMITATIONS AND CONDITIONS ON BENEFITS      3.1 Withholding of Taxes. The Company shall withhold appropriate federal, state or local income and employment taxes from any payments hereunder.      3.2 Employee Agreement and Release Prior to receipt of Benefits. Upon the occurrence of a Covered Termination, and prior to the receipt of any benefits under this Agreement on account of the occurrence of a Covered Termination, Executive shall, as of the date of a Covered Termination, execute an employee agreement and release in the form attached hereto as Exhibit A. Such employee agreement and 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 agreement. It is understood such employee release and agreement shall comply with applicable law. In the event Executive does not execute such release and agreement within the period required by applicable law, or if Executive revokes such employee agreement and release within the period permitted by applicable law, no benefits shall be payable under this Agreement and this Agreement shall be null and void. ARTICLE IV OTHER RIGHTS AND BENEFITS      4.1 Nonexclusivity. 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 any stock option or other agreements with the Company. Except as otherwise expressly provided herein, amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan, policy, practice or program of the Company at or subsequent to the date of a Covered Termination shall be payable in accordance with such plan, policy, practice or program.      4.2 Parachute Payments. In the event that any amount or benefit received or to be received by Executive pursuant to this Agreement (other than payment pursuant to this Section 4.2) would constitute an “excess parachute payment” subject to excise tax under Section 4999 of the Code, the Company shall pay to Executive the amount of any such excise tax; provided, however, that no payment shall be made under this Section 4.2 to the extent that it would reduce Executive’s after-tax income.      4.3 Stock Options. Company shall take all actions necessary to amend all stock option agreements evidencing outstanding stock options and restricted stock grant agreements granted to Executive: (i) upon a Change in Control to provide for full accelerated vesting and exercisability of that portion of the Executive’s outstanding options to purchase Elantec Common Stock (or securities of the surviving entity that are issuable upon exercise of stock options following the Change in Control) that would have vested over the subsequent two (2) years, (ii) to permit Executive to exercise any vested options and restricted stock following his termination of service to the Company as an employee or consultant for up to three (3) months (or such longer period as may currently apply) and (iii) to permit Executive to exercise the options and restricted stock for at least the twelve (12) months following a Covered Termination. Notwithstanding the foregoing, the Company shall not amend a stock option agreement to the extent that an amendment would result in a charge to earnings for the Company, would adversely affect Executive’s financial position, or cause Executive to be subject to liability under Section 16(b) of the Securities Exchange Act of 1934, as amended. 3 --------------------------------------------------------------------------------      4.4 Indemnity Agreement. The Indemnity Agreement signed by the Executive upon employment with the Company will remain in full force and effect for 5 years following the Date of Covered Termination. ARTICLE V NON-ALIENATION OF BENEFITS      No benefit hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to so subject a benefit hereunder shall be void. ARTICLE VI DEFINITIONS      For purposes of the Agreement, the following terms shall have the meanings set forth below:      6.1 “Agreement” means this Executive Change in Control Severance Benefits Agreement.      6.2 “Annual Base Pay” means Executive’s annual base pay at the rate in effect during the last regularly scheduled payroll period immediately preceding (i) the Change in Control or (ii) the Covered Termination, whichever is greater.      6.3 “Annual Bonus” means the Executive’s projected or estimated annual cash incentive bonus at target for the fiscal year of the Company in which termination of employment occurs.      6.4 “Change in Control” means the consummation of any of the following transactions:              (a) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 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 stockholders of the Company approve a plan of liquidation or dissolution of the Company or an agreement for the sale, lease, exchange or other transfer or disposition by the Company of all or substantially all (more than fifty percent (50%)) of the Company's assets;              (b) any person (as such term is used in Sections 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), is or becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) directly or indirectly of 25% or more of the Company's outstanding Common Stock; or 4 --------------------------------------------------------------------------------              (c) a change in the composition of the Board of Directors of the Company within a three (3) year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either:                           (A)    are directors of the Company as of the date hereof;                           (B)    are elected, or nominated for election, to the Board of Directors of the Company with the affirmative votes of at least a majority of the directors of the Company who are Incumbent Directors described in (A) above at the time of such election or nomination; or                           (C)    are elected, or nominated for election, to the Board of Directors of the Company with the affirmative votes of at least a majority of the directors of the Company who are Incumbent Directors described in (A) or (B) above at the time of such election or nomination.      Notwithstanding the foregoing, “Incumbent Directors” shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company.      6.5 “Company” means Elantec Semiconductor, Inc., a Delaware corporation, and any successor thereto.      6.6 “Covered Termination” means an Involuntary Termination or a Voluntary Termination for Good Reason within twelve (12) months following a Change in Control. No other event shall be a Covered Termination for purposes of this Agreement.      6.7 “Date of Covered Termination” means the First Date following the last date of the executive’s employment with the Company.      6.8 “Date of Notice of Termination” means the date the executive is given notice, either verbal or written, that his employment with the Company has been or will be terminated.      6.9 “Involuntary Termination” means Executive’s dismissal or discharge by the Company (or, if applicable, by the successor entity) for reasons other than fraud, misappropriation or embezzlement on the part of Executive which resulted in material loss, damage or injury to the Company. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for one of these reasons, unless and until there shall have been delivered to Executive a copy of a resolution, duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Company’s Board of Directors at a meeting of the Board called and held for the purpose (after reasonable notice to Executive and an opportunity for the Executive, together with Executive’s counsel, to be heard before the Board of Directors), finding that in the good faith opinion of the Board of Directors, Executive was guilty of conduct set forth in the immediately preceding sentence and specifying the particulars thereof in detail.      The termination of an Executive’s employment would not be deemed to be an “Involuntary Termination” if such termination occurs as a result of the death or disability of Executive. 5 --------------------------------------------------------------------------------      6.10 “Voluntary Termination for Good Reason” means that the Executive voluntarily terminates his employment after any of the following are undertaken without Executive’s express written consent:              (a)      the assignment to Executive of any duties or responsibilities which result in any diminution or adverse change of Executive's position, status or circumstances of employment as in effect immediately prior to a Change in Control of the Company; any removal of Executive from or any failure to reelect Executive to any of such positions, except in connection with the termination of his employment for death, disability, retirement, fraud, misappropriation, embezzlement or any other voluntary termination of employment by Executive other than Voluntary Termination for Good Reason;              (b)      a reduction by the Company in Executive's Annual Base Pay or targeted annual cash incentive bonus in effect at the time;              (c)      any failure by the Company to continue in effect any benefit plan or arrangement, including incentive plans or plans to receive securities of the Company, in which Executive is participating at the time of a Change in Control of the Company (hereinafter referred to as "Benefit Plans"), or the taking of any action by the Company which would adversely affect Executive's participation in or reduce Executive's benefits under any Benefit Plans or deprive Executive of any fringe benefit enjoyed by Executive at the time of a Change in Control of the Company, provided, however, that Executive may not terminate for Good Reason following a Change in Control of the Company if the Company offers a range of benefit plans and programs which, taken as a whole, are comparable to the Benefit Plans as determined in good faith by Executive;              (d)      a relocation of Executive, or the Company's principal executive offices if Executive's principal office is at such offices, to a location more than fifteen (15) miles from the location at which Executive performed Executive's duties prior to a Change in Control of the Company, except for required travel by Executive on the Company's business to an extent substantially consistent with Executive's business travel obligations at the time of a Change in Control of the Company;              (e)      any breach by the Company of any provision of this agreement; or              (f)      any failure by the Company to obtain the assumption of this agreement by any successor or assign of the Company.      6.11 “Welfare Benefits” means benefits providing for coverage or payment in the event of Executive’s death, disability, illness or injury that were provided to Executive immediately before a Change in Control, whether taxable or non-taxable and whether funded through insurance or otherwise. ARTICLE VII GENERAL PROVISIONS      7.1 Employment Status. This Agreement does not constitute a contract of employment or impose on 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 --------------------------------------------------------------------------------      7.2 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 telex or facsimile) or the third day after mailing by first class mail, to the Company at its primary office location and to Executive at his 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 his address as listed in the Company’s payroll records.      7.3 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.      7.4 Waiver. If either party should waive any breach of any provisions of the 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.      7.5 Complete Agreement. This Agreement, including Exhibit A and other written agreements referred to in this Agreement, constitutes the entire agreement between Executive and the Company and it is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter. It is entered into without reliance on any promise or representation other than those expressly contained herein.      7.6 Amendment or Termination 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 after such change or termination has been approved by the Compensation Committee of the Company’s Board of Directors.      7.7 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.      7.8 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.      7.9 Successors and Assigns.  This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not assign any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of the Company, which consent shall not be withheld unreasonably.      7.10.  Attorney Fees. If Executive brings any action to enforce his rights hereunder, Executive shall be entitled to recover his reasonable attorneys' fees and costs incurred in connection with such action, regardless of the outcome of such action. 7 --------------------------------------------------------------------------------      7.11  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.      7.12  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.      7.13  Construction of Plan. 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 day and year written above. ELANTEC SEMICONDUCTOR, INC. A DELAWARE CORPORATION By: /s/ Richard M. Beyer —————————————— Richard M. Beyer President and Chief Executive Officer By: /s/ Executive's Signature —————————————— Name:           Title:           EXHIBIT A: EMPLOYEE AGREEMENT AND RELEASE -------------------------------------------------------------------------------- Page 1 of 2 EXHIBIT A ELANTEC SEMICONDUCTOR, INC. EMPLOYEE AGREEMENT AND RELEASE      I understand and agree completely to the terms set forth in the foregoing agreement.      I hereby confirm my obligations under the Company’s standard form of proprietary information 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 this 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 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 Effective Date of this Agreement, 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 American 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 you pursuant to the Company’s Indemnification Agreement and to provide you with continued coverage under the Company’s directors and officers liability insurance policy to the same extent that it has provided such coverage to previously departed officers and directors of the Company. -------------------------------------------------------------------------------- Page 2 of 2      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 for the waiver and release in the preceding paragraph hereof is in addition to anything of value 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 after the Effective Date of this Agreement; (b) I have the right to consult with an attorney prior to executing this Agreement; (c) I have twenty-one (21) days to consider this Agreement (although I may choose to voluntarily execute this Agreement earlier); (d) I have seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (e) this Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Agreement is executed by me, provided that the Company has also executed this Agreement by that date (“Effective Date”). By: ______________________________ Date: ______________________________

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.1 MASTER REVOLVING LINE OF CREDIT CONSTRUCTION LOAN AGREEMENT     This Master Revolving Line of Credit Construction Loan Agreement (this "Master Agreement") is dated for reference purposes as of April 18, 2001 between PERMA-BILT, a Nevada corporation ("Borrower") and BANK OF AMERICA, N.A. (the "Bank").     Bank has agreed to make a revolving line of credit construction loan to Borrower in the maximum principal amount of Fifty Million and No/100 Dollars ($50,000,000.00) (the "Revolving Line" or "Loan"). Bank shall make multiple disbursements to Borrower for approved Allocations (as hereafter defined) against the Revolving Line, unless there is an Event of Default (as defined below) or an event that with notice or lapse of time or both, would be an Event of Default and provided that such Allocation has been approved by Bank after receipt and approval by Bank of the information required pursuant to this Master Agreement. The Revolving Line revolves and amounts may be reborrowed hereunder after being repaid, subject to the terms and limits herein. The aggregate of the stated principal amount of the unpaid Allocations shall not exceed the maximum amount of the Revolving Line and the Allocation shall be further subject to sub-limits as provided below in Section 2.22. Unless Borrower's right to obtain Allocations is earlier terminated in accordance with this Master Agreement, or extended as provided in Section 1.17, Borrower may obtain Allocations against the Revolving Line until the date which is one (1) year from the date hereof (the "Revolving Line Maturity Date"), as such date may be extended pursuant to Section 1.17(a) below. Notwithstanding the Revolving Line Maturity Date, Allocations originated under the Revolving Line may have earlier repayment dates as provided in Section 1.16 below. Factual Background     A.  Borrower may use the Revolving Line for the following allocations: 1)"Zoned Land Allocations" to be used to pay certain costs and expenses of acquiring zoned, but not yet subdivided, land ("Zoned Land"); 2)"A&D Allocations" to be used to pay certain costs and expenses of acquiring and developing into finished lots, if necessary, subdivided land (the "Subdivided Land"); 3)"Residential Unit Allocations" (each allocation may be for one or more than one residential unit) to be used to pay certain costs and expenses of constructing single family, residential homes on finished lots within Subdivided Land ("Residential Units" or "Units"); 4)"Model Allocations" (each allocation may be for one or more than one residential unit) to be used to pay certain costs and expenses of constructing Residential Units to be used as model homes ("Models"); and 5)"Recreational Facility Allocations" to be used to pay certain costs and expenses of constructing recreational facilities on Subdivided Land ("Recreational Facilities").     The foregoing allocations are referred to collectively as the "Allocations" and individually as an "Allocation". The Allocations are to be used for acquisition of and construction on real property (the "Land") owned by Borrower within one or more subdivisions approved by Bank from time to time (each a "Subdivision"). Borrower intends to acquire Zoned Land and Subdivided Land and develop same for the purposes of constructing, marketing and selling Residential Units. The Residential Units to be constructed, including the Models, the Recreational Facilities to be constructed, and the site work 1 -------------------------------------------------------------------------------- and engineering work to be performed on the Zoned Land or Subdivided Land, are sometimes referred to collectively as the "Improvements".     B.  Development of each Subdivision will proceed according to all "Subdivision Requirements," which are defined, for purposes of this Master Agreement, as all governmental laws, regulations, ordinances, policies, standards, reports and development agreements that apply or pertain to the Subdivision and the Land, as well as the final subdivision maps or plats (collectively, the "Map") conforming to all of them.     C.  All Improvements that Borrower intends to construct on the Land shall be described in plans and specifications ("Plans and Specifications") prepared by a registered civil engineer (the "Engineer") or a registered architect (the "Architect") under an agreement with Borrower (the "Architecture or Engineering Contract") and submitted to Bank for approval. The Improvements will be constructed by a general residential contractor, which may be Borrower or a third party, who shall be licensed, if such license is required in the jurisdiction in which the Land is located. The term "Contractor" refers either to Borrower acting in the capacity of general contractor, or to a third party general contractor and "Construction Contract" refers to the contract between Borrower and a third party Contractor. At the Bank's request, the Plans and Specifications shall be assigned to Bank as security for the Allocations pursuant to an assignment to be executed by Borrower in connection with each Allocation.     D.  Borrower will act as the Contractor for the construction of the Improvements.     E.  Borrower will execute a promissory note simultaneously with the execution of this Master Agreement, payable to Bank, in the aggregate principal amount of Fifty Million and no/100 Dollars ($50,000,000.00) (the "Note"). The Note is to be secured by one or more Deeds of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing in the form of Exhibit A attached hereto and incorporated herein by this reference (each a "Deed of Trust" and collectively "Deeds of Trust") covering or to cover the Land and certain other real and personal property for which the Bank has agreed or hereafter agrees to make an Allocation pursuant to this Master Agreement. "Property" refers to all or any part of the property now or hereafter affected by the Deed of Trust, or any interest in all or any part of it, as the context may require.     F.  Borrower will execute an indemnity agreement (a "Borrower's Indemnity") in connection with the Revolving Line. In Borrower's Indemnity, Borrower agrees to indemnify Bank and certain other Indemnified Parties (as defined in the Borrower's Indemnity) for, from and against liability arising from certain environmental, construction and other risks which may result from Bank's making this Revolving Line to Borrower. Notwithstanding any provision of any Loan Document, Borrower's obligations under Borrower's Indemnity are to be secured by the Deed of Trust only to the extent and at the times specified in Borrower's Indemnity.     G.  At least 75% of Borrower's outstanding capital stock is, and shall continue to be, owned by Zenith National Insurance Corp. ("Zenith").     H.  This Master Agreement, the Note, the Borrower's Indemnity, and the Deeds of Trust, together with all of their exhibits, and all other documents which evidence, guaranty, secure or otherwise pertain to this Revolving Line or any Allocation (and including any Swap Contracts (as defined in the Deed of Trust) collectively constitute the "Loan Documents".     Therefore, Bank and Borrower agree as follows: Terms and Conditions     I.  Revolving Line Closing; Allocation Approval and Closing; and Disbursement. Borrower may, from time to time, request Bank to approve an Allocation for inclusion and funding under the 2 -------------------------------------------------------------------------------- Revolving Line and this Master Agreement. Approval of a specific Allocation shall be at Bank's sole and absolute discretion and Bank shall have no obligation to approve any Allocation.     1.1 Revolving Line Closing. Bank is not required to consider an Allocation for approval hereunder, or make any individual Allocation disbursements, until all conditions to close the Revolving Line are satisfied. Those conditions include the following: (a)Bank shall have received all Loan Documents duly executed, including those identified on Exhibit B to this Master Agreement. (b)Bank shall have received such financial statements, tax returns and other financial information as it may require regarding the financial condition of Borrower or any of its shareholders, partners, joint venturers, or members, Zenith, any other parties, the Subdivision or the Property. (c)Bank shall have received evidence of the due formation and good standing of Borrower and any other parties, including such organizational documents (including articles of incorporation and bylaws) and certificates of status, as Bank may require. (d)Bank shall have received evidence of the due execution of the Loan Documents by Borrower and any other parties, including appropriate resolutions or certificates of authority. Bank shall also have received evidence of the enforceability of covenants made by Borrower and Zenith, and any other parties, including, if requested by Bank, one or more opinion(s) to be rendered in form and in substance satisfactory to Bank by counsel acceptable to Bank for Borrower and Zenith.     1.2 Closing Requirements—All Allocations. Bank's obligation to approve any specific Allocation and make disbursements for same hereunder are expressly conditioned upon Bank's approval of the specific Allocation, in its sole and absolute discretion, as well as Borrower's satisfaction of the conditions set forth below: (a)Bank shall have received and approved a sources and uses, budget, cost breakdown, or line item budget (collectively, a "Cost Breakdown") for the subject Allocation and Improvements, using the forms attached hereto as Exhibit F. (b)Bank shall have received and approved a release price schedule or paydown amount for the Allocation and associated Improvements. (c)A Deed of Trust shall have been duly recorded in a first-priority lien position in the real property records of the county in Nevada in which the Land which is the subject of the Allocation is located. (d)Bank's security interest in all personal property and fixtures covered by such Deed of Trust shall have been duly perfected in a first-priority lien position. (e)A title insurance company acceptable to Bank shall have issued or committed to issue an ALTA Lender's extended coverage policy of title insurance (or endorsements to same) in a liability amount satisfactory to Bank. The title policy shall insure the Deed of Trust as a first-priority lien on the Property, subject only to exceptions consented to by Bank in writing, and shall contain such endorsements as Bank may require, including without limitation a variable rate endorsement, a pending disbursements endorsement, a creditor's rights endorsement, and a comprehensive endorsement. No title matter may be insured over by any title company without the express written consent of Bank. The title company shall have delivered to Bank legible copies of all documents listed as exceptions to title, which shall have been approved by the Bank. The title policy (or endorsements) shall be issued simultaneously with the recordation of the Deed of Trust. 3 -------------------------------------------------------------------------------- (f)Borrower shall have provided such policy or policies of worker's compensation insurance as may be required by applicable worker's compensation insurance laws (including employer's liability insurance, if required by Bank), covering all employees of Borrower and the Contractor. (g)Borrower shall have provided a policy or policies of builder's "all risk" insurance in nonreporting form, in an amount not less than the full insurable completed value of the Property on a replacement cost basis. The policy or policies shall insure against loss or damage by hazards customarily included within such "all risk" policies and any other risks or hazards which Bank may reasonably specify, and each shall contain a Lender's Loss Payable Endorsement (Form 438 BFU) in favor of Bank. (h)Borrower shall have provided commercial general liability insurance naming Bank as an additional insured, on an "occurrence" basis against claims for "personal injury" liability, including bodily injury, death or property damage liability, with a limit of not less than Five Million Dollars ($5,000,000.00). Such insurance shall be primary and noncontributory with any other insurance carried by Bank. (i)The Plans and Specifications shall have been approved by (and if requested, assigned to) the Bank. (j)Bank shall have received a soils report ("Soils Report") that was prepared within three (3) years prior to the Allocation closing by a qualified registered soils engineer satisfactory to Bank (the "Soils Engineer"). The Soils Report shall be based on adequate due diligence and investigation, shall contain proper recommendations satisfactory to Bank, and shall state that construction of the Improvements as proposed would be feasible under existing soil conditions so long as those recommendations are followed. (k)Bank shall have received evidence, including a statement signed by the Soils Engineer, that the Plans and Specifications, and all other documents and agreements relating to construction of the Improvements conform to the recommendations of the Soils Report. (l)All executed contracts required by Bank shall be acceptable to Bank and be in full force and effect, including an engineering contract, an architecture contract and the contract governing the engagement of the Soils Engineer in connection with the construction of the Improvements. (m)Bank's Allocation fee and all other costs and expenses of Bank in connection with the Allocation (including attorneys' fees) shall have been paid by Borrower out of Borrower's own funds (or shall be payable to Bank from the initial disbursement of the Allocation). (n)Bank shall have received evidence that all utilities shall be provided which are necessary to develop the Land, and to sell and occupy the Residential Units (if applicable), including written assurances from such utility companies as Bank may require. (o)Borrower shall provide evidence of appropriate zoning and existence of all necessary governmental and other third-party approvals including, without limitation, public reports, architectural committee approvals (to the extent Borrower does not control the granting of such approvals) and any other approvals required under any covenant, conditions and restrictions of record; and including evidence of such zoning (including variances) and other land use entitlements as may be necessary to permit any intended or foreseeable use of such land and the construction (and sale if applicable) of the intended Improvements. 4 -------------------------------------------------------------------------------- (p)Other than for (1) Zoned Land Allocations, and (2) Bank approved soft costs for A&D Allocations for Land which has a tentative map, Bank shall have approved the Map in final form as it was recorded. (q)At Borrower's expense, Bank shall have ordered, received, reviewed and approved applicable appraisals for the Land and the Improvements to be constructed with the requested Allocation. (r)Under this Master Agreement or any of the Loan Documents relating to any other Allocation, or any loan made by Bank to Borrower which is not covered by this Master Agreement, no Event of Default (as defined in that document) has occurred and is continuing, or no event has occurred that with notice or the passage of time could become such an Event of Default. (s)Evidence satisfactory to Bank that the Property is not located in an area designated by the Department of Housing and Urban Development or other governmental authority as having special flood hazards (unless same is otherwise approved by Bank and Borrower agrees to maintain flood insurance as required by Bank) and evidence that the U.S. Army Corps of Engineers has not designated any portion of the Property as a wetlands area. (t)At Bank's request, information with respect to off-site improvements and evidence satisfactory to Bank that any obligations of Borrower regarding development in connection with the Property arising under agreements with governmental authorities or providers of utility services which could become a lien against the Property or a restriction against the issuance of building permits or certificates of occupancy have been satisfied. (u)Evidence that the Property is free and clear of any special improvement district assessments, or approval by Bank of same. (v)A tax certificate or tax receipt indicating that taxes and assessments for the subject Land have been paid current, and evidence that all then due and payable water and other charges levied or assessed against the Land have been paid in full for the current year. (w)An ALTA survey of the Land in form acceptable to the Bank, if required by the Bank in its sole discretion. (x)If required by Bank, Bank shall have received an Environmental Questionnaire and Disclosure Statement prepared and certified by Borrower using Bank's prescribed form, and the information set forth in it shall be acceptable to Bank. Bank shall also have received a report prepared by a registered environmental engineer or other qualified party satisfactory to Bank stating that there are no Hazardous Substances, as defined in Borrower's Indemnity, present in, on, under or around the Property, and that there is no condition or circumstance which warrants further investigation or analysis in the opinion of the preparer of the report. (y)A letter from Zenith in the form attached hereto as Exhibit D (the "Zenith Letter"). (z)The Allocation shall not cause the Maximum Allocation Limits of Section 2.22 to be exceeded.     1.3 Zoned Land Allocation and A&D Land Allocation Closing Requirements. Borrower may, from time to time, request Bank to approve Zoned Land or A&D Land for inclusion in the Revolving Line. When requesting such approval, Borrower shall deliver to Bank, or Bank shall have received, in 5 -------------------------------------------------------------------------------- addition to the items set forth in Section 1.2, the following documents and information, in form and content satisfactory to Bank: (a)Borrower shall provide Bank with all CC&R's (as defined in Section 7.23), easements and other rights that exist or are contemplated with respect to the Zoned Land or A&D Land for which Borrower is requesting approval. (b)Bank shall have received a boundary survey in form acceptable to Bank for any unmapped Land.     1.4 Residential Unit Allocation and Model Allocation Closing Requirements. Borrower may, from time to time, request Bank to approve certain property for a Residential Unit Allocation or a Model Allocation for inclusion in the Revolving Line. Approval of certain property for a Zoned Land Allocation or an A&D Allocation shall in no way infer or obligate Bank to approve such property for a Residential Unit Allocation or Model Allocation. When requesting such approval, Borrower shall deliver to Bank, or Bank shall have received, in addition to the items set forth in Section 1.2, the following documents and information, in form and content satisfactory to Bank: (a)Borrower shall provide Bank with a copy of Borrower's form sales agreement for Residential Units.     1.5 Intentionally Omitted.     1.6 Conditions, Subsequent Disbursements. After having approved an Allocation, Bank shall not be required to make any disbursements on such Allocation if, at any time after such approval: (a)Bank fails to receive an inspection report, if required by Bank, from Bank's own inspector or a third party inspector hired by Bank at Borrower's cost and expense in form and substance acceptable to Bank (the parties acknowledge that Bank intends to hire and utilize a third party inspector to inspect all Improvements other than Residential Units, and for Residential Units the Bank shall inspect same at a cost to Borrower of $200.00 per month per Subdivision) or (b)Bank fails to receive a Draw Request or Bank in its reasonable judgment considers any Draw Request to be incomplete or otherwise unacceptable, based on Bank's observations while visiting the construction site or for any other reason; or (c)Any Improvements are materially damaged and not repaired, unless Bank receives funds from Borrower or insurance proceeds sufficient to pay for all repairs in a timely manner; or (d)The Property or any interest in it is affected by eminent domain or condemnation proceedings; or (e)For any reason the title insurer fails or refuses at Bank's request to issue any title policy endorsement that Bank in its reasonable judgment may require; or (f)A notice or claim of lien is recorded against the Property unless such lien is discharged either by the claimant upon payment by Borrower or by Borrower filing a bond in accordance with applicable law; or (g)For any reason Borrower fails or refuses at Bank's request to provide evidence that the Soils Engineer observed the soils work and found it to have been completed in accordance with the recommendations of the Soils Report; (h)Under any of the Loan Documents an Event of Default (as defined in that document) has occurred and is continuing, or an event has occurred that with notice or the passage of time could become such an Event of Default; or 6 -------------------------------------------------------------------------------- (i)For any Land encumbered by or added to the Deed of Trust that is not the subject of a Map at the time same was encumbered or added, the failure of Bank to receive a 116.1 (or equivalent) endorsement to its title policy when such Land becomes the subject of a Map.     1.7 Satisfaction of Conditions. Before Bank becomes obligated to make any disbursement under this Master Agreement, all conditions to the disbursement shall have been satisfied at Borrower's sole cost and expense in a manner acceptable to Bank in the exercise of its reasonable judgment. Borrower acknowledges that delays in disbursements may result from the time necessary for Bank to verify satisfactory fulfillment of any and all conditions to a given disbursement. Borrower consents to all such delays.     1.8 No Waiver of Conditions. No waiver of any condition to disbursement shall be effective unless it is expressly made by Bank in writing. If Bank makes a disbursement before fulfillment of one or more required conditions, that disbursement alone shall not be a waiver of such conditions, and Bank reserves the right to require their fulfillment before making any subsequent disbursements. If all conditions are not satisfied, Bank, acting in its reasonable judgment, may disburse as to certain items or categories of costs and not others.     1.9 Allocation Fee. At the time each Allocation is approved by Bank (such approval herein a "closing", as evidenced by an "Allocation Approval Certificate" in the form attached hereto as Exhibit C, signed by Borrower and Bank), Borrower shall pay Bank an Allocation Fee as follows: (a)Zoned Land Allocation: 0.50% of the Allocation amount, payable at Allocation closing. (b)A&D Allocation: 0.50% of the Allocation amount, payable at Allocation closing. (c)Residential Unit Allocation: 0.25% of the maximum amount allowed/allocated to be funded for each Residential Unit (net of any lot release price) payable at the time of the first draw request for the applicable Residential Unit. (d)Model Allocation: 0.25% of the maximum amount allowed/allocated to be funded for each Residential Unit (net of any lot release price) payable at the time of the first draw request for the applicable Residential Unit. (e)Recreation Facility Allocation: 0.50% of the Allocation amount, payable at Allocation closing.     1.10  Disbursements of Allocations. Disbursements of Allocations shall be made as follows: (a)Disbursements of Zoned Land Allocations shall be made in accordance with the applicable Cost Breakdown approved by Bank. (b)Disbursements of A&D Allocations, Residential Unit Allocations, Model Allocations, and Recreational Facility Allocations shall be made in accordance with the applicable Cost Breakdown and in accordance with (but not to exceed) the percentage of completion of the applicable Improvements, subject to retention as may be shown in the applicable Cost Breakdown approved by Bank.     1.11  Draw Requests. (a)For each disbursement, Borrower shall submit to Bank a written request signed by Borrower or its agent designated pursuant to Section 1.15 below and the Contractor, together with such documentation and information as Bank may require (collectively, a "Draw Request"). Each Draw Request shall be acceptable in form and substance to Bank in the exercise of its reasonable judgment, and shall include such items of information and documentation, including invoices, cancelled checks, lien waivers and other evidence 7 -------------------------------------------------------------------------------- as Bank may require to show that Borrower is in compliance with the Loan Documents. If Bank so requires, any given Draw Request shall also include written certification by the Architect and the Contractor that the Improvements as constructed to date conform to the Plans and Specifications. Borrower may submit a Draw Request to Bank twice each calendar month, unless Bank agrees to make disbursements more frequently than twice in a calendar month. Borrower shall use all Loan funds strictly for the purposes for which they were disbursed by Bank. (b)Unless Borrower has notified Bank in writing to the contrary, each Draw Request shall constitute Borrower's representation and warranty to Bank that (i) the Loan and all Allocations are "in balance," (as hereafter defined) (ii) all prior disbursements, as well as that currently being requested, were and will be used in strict compliance with the Cost Breakdown, and (iii) no Event of Default has occurred, and no event has occurred that with notice or the passage of time could become an Event of Default. (c)At least twice a month (usually in connection with a Draw Request) Bank may "True Up" the Loan by determining whether (1) the value of the Improvements completed to the date of such True Up (as determined by Bank) based on the percentage of completion of such Improvements (herein the "Work in Place") equals or exceeds (2) the outstanding principal balance of the Loan, after assuming any pending Draw Requests that have been submitted will be funded and adding such amount to the outstanding balance for purposes of this calculation (herein the "proposed outstanding balance"). In the event the Work in Place equals or exceeds the proposed outstanding principal balance, the Loan shall be deemed to have "Sufficient Work in Place". In the event the Work in Place is less than the proposed outstanding principal balance of the Loan, the Loan shall be deemed to have "Insufficient Work In Place". At any time that the Loan has "Insufficient Work In Place", Bank may make written demand on Borrower to repay the Loan out of Borrower's own funds in an amount sufficient to cause the Loan to have "Sufficient Work In Place". Borrower shall pay such funds within ten (10) days of Bank's demand. So long as the Loan has "Insufficient Work In Place", Bank reserves the right to collect release prices as provided in Section 3.6(iv)(B) as well as offset against current and future draws of the Borrower amounts sufficient to cause the Loan to be In Construction Base Balance.     1.12  Disbursements to Other Parties. Unless Bank and Borrower have otherwise agreed in writing, Bank if it so chooses may make disbursements directly to the Contractor, subcontractors, laborers or material suppliers.     1.13  Payments. Acting in its reasonable judgment, Bank may use Loan funds to pay fees owing to Bank, interest on the Loan, legal fees and expenses of Bank's attorneys which are payable by Borrower, and such other sums as may be owing from time to time by Borrower to Bank with respect to the Loan, all without further notice to or authorization by Borrower. Bank at its option may make any such payment on Borrower's behalf by debiting the Loan or any Allocations in the amount of the payment and disbursing such amount to itself. Borrower acknowledges that such a use of Loan funds by Bank may cause the Loan or an Allocation to become "out of balance," requiring deposits by Borrower into the Borrower's Funds Account (hereafter defined).     1.14  Interest on Disbursements. Interest on each disbursement, whether initiated by Borrower or Bank, shall be payable from the time Bank debits the Loan funds in the amount of the disbursement. 8 --------------------------------------------------------------------------------     1.15  Authorized Signers. Borrower authorizes the following individuals to sign all Draw Requests and other documents in connection with the administration of the Allocations:           -------------------------------------------------------------------------------- Daniel Schwartz       -------------------------------------------------------------------------------- Signature -------------------------------------------------------------------------------- Craig Hardy       -------------------------------------------------------------------------------- Signature -------------------------------------------------------------------------------- Robert M. Beville       -------------------------------------------------------------------------------- Signature     1.16  Payment of Allocations; Extensions; Curtailments. Each Allocation within the Revolving Line shall be due and payable in full as follows: (a)Each Zoned Land Allocation shall be due and payable in full on the date which is the earlier to occur of: (i) twelve (12) months from the closing of such Allocation (the "Zoned Land Expiration Date"); or (ii) the Revolving Line Maturity Date (as such Revolving Line Maturity Date may be extended per Sections 1.17(a) and 1.17(b)). Each Zoned Land Expiration Date may be extended twice, each time for ninety (90) days (the "First Extension" and "Second Extension", respectively) (but never beyond the Revolving Line Maturity Date) upon notice to Bank of the requested extension at least 30 days before the Zoned Land Expiration Date or the First Extension, as applicable, and payment to Bank on or before the Zoned Land Expiration Date or the First Extension, as applicable, of: (1) an extension fee of 0.125% of the current commitment amount of such Allocation; and (2) a pre-payment of principal on such Allocation in the amount of 5.0% of the original amount of such Allocation. (b)Each A&D Allocation shall be due and payable in full on the date which is the earlier to occur of: (i) twenty-four (24) months from the closing of such Allocation (the "A&D Allocation Expiration Date"); or (ii) the Revolving Line Maturity Date (as such Revolving Line Maturity Date may be extended per Sections 1.17(a) and 1.17(b)). In addition, for each Residential Unit constructed on a Lot that is the subject of an A&D Allocation, a payment to Bank in the amount of the Allocation paydown shown in the applicable Allocation Approval Certificate shall be made from the first disbursement under the applicable Residential Unit Allocation for the Residential Unit on such Lot. 9 -------------------------------------------------------------------------------- Furthermore, on the 1st day of the 15th month and on the 1st day of the 21st month following the closing of each A&D Allocation (each day a "curtailment date"), Borrower shall pay to Bank an amount equal to: (1) the per Lot paydown amount shown in the Allocation Approval Certificate, multiplied by: (2) the "shortfall" in the number of Lots for which a paydown has been made. A "shortfall" is the difference between: (1) the actual number of Lots for which a paydown has been paid to Bank as of the curtailment date; and (2) the number of Lots which equals one half (1/2) of the Bank's appraiser's proposed absorption of Lots commencing on the seventh month after the closing of the applicable A&D Allocation to such curtailment date. For example, assume the paydown amount is $10,000 per Lot, and on the 1st day of the 15th month the Borrower has made payment to the Bank of 10 paydowns (totaling $100,000). If the Bank's appraiser's proposed absorption of Lots for such Allocation is 4 Lots per month, the shortfall would equal 6 Lots, as follows: [((1/2) * 4 Lots per month absorption * 8 months of absorption (months 7 through 14, inclusive)) = 16 Lots to be absorbed]—10 Lots actually absorbed = 6 Lot shortfall. Borrower would be responsible to pay to Bank the sum of $10,000 * 6 = $60,000. (c)For each Residential Unit Allocation, the amount disbursed for each specific Residential Unit within such Allocation shall be due and payable in full on the date which is the earlier to occur of: (i) twelve (12) months from the initial funding of such Residential Unit under such Allocation ("Residential Unit Expiration Date"); or (ii) the Revolving Line Maturity Date (as such Revolving Line Maturity Date may be extended per Sections 1.17(a) and 1.17(b)). Each Residential Unit Expiration Date may be extended for ninety (90) days (but never beyond the Revolving Line Maturity Date) upon notice to Bank of the requested extension at least 30 days before the Residential Unit Expiration Date and payment to Bank on or before the Residential Unit Expiration Date of a pre-payment of the amount disbursed and outstanding for such Residential Unit such that the amount outstanding with respect to such Residential Unit never exceeds the lesser of: (1) 75% of the current appraised retail value of such Residential Unit as determined by Bank in its sole discretion; (2) 75% of the current base sales price of such Residential Unit; or (3) 75% of Bank's internal calculation of such Residential Unit as determined by Bank in its sole discretion. The Bank reserves the right to deduct the amount to be paid by Borrower under this paragraph from any amount then available and that has been approved by Bank for disbursement to Borrower under a pending Draw Request. (d)For each Model Allocation, the amount disbursed for each specific Model within such Allocation shall be due and payable in full on the date which is the earlier to occur of: (i) thirty-six (36) months from the initial funding of such Model under such Allocation ("Residential Model Expiration Date"); and (ii) the Revolving Line Maturity Date (as such Revolving Line Maturity Date may be extended per Sections 1.17(a) and 1.17(b)). (e)Each Recreation Facility Allocation shall be due and payable in full on the date which is the earlier of: (i) six (6) months from the closing of such Allocation (the "Recreational Facility Expiration Date"); or (ii) the Revolving Line Maturity Date (as such Revolving Line Maturity Date may be extended per Sections 1.17(a) and 1.17(b)). Each Recreational Facility Expiration Date will be extended automatically up to the date which is the earlier of (i) the date which is twenty-four (24) months from the Recreational Facility Allocation closing or (ii) the Revolving Line Maturity Date, provided that, commencing on the initial Recreational Facility Expiration Date and every three (3) months thereafter, Borrower pays to Bank, as prepayment of such Recreational Facility Allocation, 14.29% of the original amount of such Allocation. 10 --------------------------------------------------------------------------------     1.17 Revolving Line Maturity Date; Extension. Notwithstanding any term or provision of this Master Agreement to the contrary, the entire Revolving Line and all Allocations shall be due and payable in full on the Revolving Line Maturity Date, and Bank shall have no obligation to advance any funds or to review requests for any new Allocations from and after the Revolving Line Maturity Date, subject to the following: (a)At least ninety (90) but not more than one-hundred and twenty (120) days before the Revolving Line Maturity Date, Borrower shall have the right to submit a request in writing to Bank that Bank extend for one (1) year the Revolving Line Maturity Date. Extension of the Revolving Line Maturity Date is in Bank's sole and absolute discretion. It shall be a condition precedent to Bank extending the Revolving Line Maturity Date (if Bank elects to do so) that each of the following conditions be satisfied at the times indicated: (i)no Event of Default, or event which with the passage of time or the giving of notice or both would constitute an Event of Default, under any of the Loan Documents, shall have occurred on or before the Revolving Line Maturity Date; (ii)no material adverse change in the Property or in the business or financial condition of Borrower shall have occurred; (iii)Borrower and such other parties as required by Bank shall have executed and delivered to Bank, on or before the Revolving Line Maturity Date such documents, instruments and endorsements or commitments for endorsements to Bank's title policy(ies) pertaining to the Revolving Line as Bank may reasonably require, to evidence the extension of the Revolving Line Maturity Date and the continuation of the liens and security interests granted by Borrower to secure the Revolving Line, including, but not limited to, if requested by Bank, a restated promissory note; and (iv)Borrower shall have deposited with Bank prior to the Revolving Line Maturity Date sufficient funds to pay Bank's costs and expenses incurred in connection with providing such extension, such costs and expenses to include charges for title insurance endorsements, filing, recording and escrow charges, legal fees and expenses of Bank's counsel, and any other fees and costs for services, regardless of whether such services are furnished by Bank's employees or agents or independent contractors. (b)If the Revolving Line Maturity Date is not extended, the Borrower shall be provided the following accommodations, subject to the other terms and provisions of this Master Agreement and the other Loan Documents (including the provisions of Section 1.16 which establish the Zoned Land Expiration Date, the A&D Allocation Expiration Date, the Residential Unit Expiration Date, the Residential Model Expiration Date and the Recreational Facility Expiration Date) which terms and provisions shall continue to apply, and subject to, and only so long as, there is no Event of Default and no material adverse change in the financial condition of Borrower: (i)The Revolving Line Maturity Date, being the final date by which Borrower is required to repay in full the Revolving Line and all Allocations, shall be extended by twenty-four (24) months (the "accommodation period"), provided that such extension shall not extend the right of Borrower to request new Allocations, and Bank shall have no obligation to disburse Allocation proceeds, except as specifically set forth below in this Section 1.17 (b); (ii)Borrower shall be entitled to continue to submit draw requests to Bank during the accommodation period for previously approved (closed) A&D Land Allocations for 11 -------------------------------------------------------------------------------- which the applicable Improvements have commenced, to allow Borrower to complete the construction of same. (iii)Borrower shall be entitled to continue to submit draw requests to Bank during the accommodation period for previously approved (closed) Recreational Facility Allocations for which the construction of the applicable Improvements have commenced, to allow Borrower to complete the construction of same. (iv)Borrower shall be entitled to continue to submit draw requests to Bank during the accommodation period for previously approved (closed) Residential Unit Allocations for Residential Units that were under construction as of Revolving Line Maturity Date. (v)Borrower shall be entitled to continue to submit to the Bank for approval new Residential Unit Allocations during the accommodation period for Residential Units that are pre-sold at any time during the period which is eighteen months (18 months) following the Revolving Line Maturity Date. Borrower shall be entitled to submit draw requests to Bank during the accommodation period to complete construction of same (assuming the Residential Unit Allocation was approved by the Bank). (vi)Notwithstanding anything herein or in any other Loan Documents, at the end of the accommodation period, the Revolving Line and all Allocations shall be due and payable in full.     1.18 Speculative Units. For each Residential Unit Allocation, Borrower agrees not to have "Speculative Units"(hereafter defined) per Subdivision in excess of the lesser of: (i) fifteen (15) Residential Units per Subdivision; (ii) the Bank's appraiser's projected six (6) month absorption, or (iii) actual six (6) month absorption, commencing with the first six (6) month period which begins four (4) months after commencement of sales from a given Subdivision. Speculative Units shall mean Residential Units which have not been pre-sold under valid sales agreements. Residential Units for which a sales agreement terminates prior to closing shall become a Speculative Unit and be counted under this limitation. Construction and funding of Speculative Units which exceed this limitation due to termination of sale agreements may continue to completion, however, no additional Speculative Units may be started until the total number of unsold starts is reduced below the limit. Residential Units constructed as Models shall not be counted as Speculative Units. II.  Covenants of the Borrower     Borrower promises to keep each of the covenants set forth below, unless Bank has waived compliance in writing.     2.1 Commencement and Completion of Residential Units. Borrower shall commence construction of the Improvements that are the subject of each Allocation within thirty (30) days after the closing of such Allocation and Borrower shall diligently continue such construction to completion, with completion to occur by the date (if any) set forth in the Allocation Approval Certificate, but in any event no later than twelve (12) months after such closing (the "Completion Date"). In addition, all individual Residential Units shall be completed no later than nine (9) months after the initial disbursement for such Residential Unit. Borrower shall not allow occupancy of any Residential Unit prior to the sale and release of the Residential Unit in accordance with the terms of this Master Agreement.     2.2 Requirements. Borrower shall construct the Improvements in a good and workmanlike manner in accordance with sound building practices as well as the Plans and Specifications, the Subdivision Requirements and the recommendations of any soils report which is satisfactory to Bank. Borrower shall comply with all existing and future Subdivision Requirements and other laws, regulations, orders, 12 -------------------------------------------------------------------------------- building codes, restrictions and requirements of, and all agreements with and commitments to, all governmental, judicial or legal authorities having jurisdiction over the Subdivision or the Property, including those pertaining to the construction, sale or financing of the Improvements, and with all recorded covenants and restrictions affecting the Property (all collectively, the "Requirements").     2.3 Changes. (a)Borrower agrees to provide Bank upon request with copies of all change orders, together with all additional documents that Bank may require. These documents may include the following: (i) Plans and Specifications indicating the proposed change; (ii) a written description of the proposed change and related working drawings; and (iii) a written estimate of the cost of the proposed change and the time necessary to complete it. (b)Borrower shall obtain Bank's prior written approval of any change in the Plans and Specifications, or the Map or any other Requirements which: (i)might adversely affect the value of Bank's security; or (ii)regardless of cost, is a material change in structure, design, function or exterior appearance; or (iii)would alter any of the Subdivision Requirements; or (iv)might delay completion of Improvements beyond the Completion Date. (c)Borrower shall obtain Bank's prior written approval of all material changes in the scope or general conditions of the Construction Contract, if any, the Architecture or Engineering Contract, or any other contracts for the construction of the Improvements. Borrower shall obtain from the appropriate persons or entities all approvals of any changes in the Map or any plans, specifications, work, materials or contracts that are required by any of the Requirements, or under the terms of any loan commitment or other agreement relating to the Subdivision or the Property. (d)Bank may take a reasonable time to evaluate any requests for proposed changes, and may require that all other approvals required from other parties be obtained before it reviews any requested change. Bank may approve or disapprove changes in the exercise of its reasonable judgment. Borrower acknowledges that delays may result, and agrees that so long as the delays are not unreasonable in duration, they shall not affect Borrower's obligation to complete the Improvements on or before the Completion Date.     2.4 Subdivision and Improvement Information and Verification (a)Within fifteen (15) days after receiving notification from Bank, Borrower shall deliver to Bank any and all of the following information and documents that Bank may request, all in forms acceptable to Bank: (i)Current Plans and Specifications for the Improvements certified by the Architect or Engineer as being complete and accurate; (ii)A current, complete and correct list showing the name, address and telephone number of each contractor, subcontractor and material supplier engaged in connection with the construction of the Improvements, and the total dollar amount of each contract and subcontract (including any changes) together with the amounts paid through the date of the list; (iii)True and correct copies of the most current versions of all executed contracts and subcontracts identified in the list described in clause (ii) above, including any changes; 13 -------------------------------------------------------------------------------- (iv)Evidence that the Subdivision Requirements have been fully satisfied, including those pertaining to off-site construction and sale of Improvements to the public; (v)Any update to any item described above, which Borrower may have previously delivered to Bank; and (vi)As-built Plans and Specifications for the Improvements as actually completed, certified by the Architect or Engineer as being complete and accurate. (b)Borrower authorizes Bank to contact the Engineer, Architect (if any), Contractor (if any) or any contractor, subcontractor, material supplier, surety or any governmental authority or agency to verify any information disclosed in accordance with this Section 2.4. If the Contractor and Borrower are not the same person or entity, the Construction Contract shall require the Contractor to disclose such information to Bank. Any defaulting engineer, architect, contractor, subcontractor, material supplier or surety shall be promptly replaced, and Borrower shall promptly deliver all required information and documents to Bank regarding each replacement engineer, architect, contractor, subcontractor, material supplier and surety. Bank may disapprove any engineer, architect, contractor, subcontractor, material supplier, surety or other party whom Bank in its reasonable judgment may deem financially or otherwise unqualified; however, the absence of any such disapproval shall not constitute a representation of qualification. (c)If, based on any Subdivision Requirements or any construction progress schedule or other materials submitted by Borrower, Bank in its reasonable judgment determines that the Improvements will not be completed by the Completion Date, Bank may request Borrower in writing to reschedule the work of construction to permit timely completion. Within fifteen (15) days after receiving such a request from Bank, Borrower shall deliver to Bank a revised construction progress schedule showing completion of the Improvements within the times required by this Master Agreement.     2.5 Map, Permits, Licenses and Approvals. Borrower shall properly obtain, comply with and keep in effect the Map and all permits, licenses and approvals which are required to be obtained from governmental bodies in order to construct, occupy, and operate the Improvements and to market and sell the Residential Units and complete the Subdivision. Borrower shall promptly deliver copies of the Map and all such permits, licenses and approvals to Bank.     2.6 Purchase of Materials; Conditional Sales Contracts. Borrower shall not purchase or contract for any materials, equipment, furnishings, fixtures or articles of personal property to be placed or installed on the Land or in any Residential Units or Recreational Facilities under any security agreement or other agreement where the seller reserves or purports to reserve title or the right of removal or repossession, or the right to consider them personal property after their incorporation in the work of construction, unless Bank in each instance has authorized Borrower to do so in writing. 14 --------------------------------------------------------------------------------     2.7 Site Visits; Right to Stop Work. (a)Bank and its agents and representatives shall have the right at any reasonable time to enter and visit the Property for the purposes of performing an appraisal, observing the work of construction and examining all materials, plans, specifications, working drawings and other matters relating to the construction. For purposes of these site visits, Borrower shall at all times maintain a full set of working drawings at the construction site. Bank shall also have the right to examine, copy and audit the books, records, accounting data and other documents of Borrower and its contractors which relate to the Property or construction of the Subdivision or any Residential Units, and, in connection therewith, Bank may conduct lien waiver audits and sales tax audits. In each instance, Bank shall give Borrower reasonable notice before entering the Property. Bank shall make reasonable efforts to avoid interfering with Borrower's use of the Property when exercising any of the rights granted in this Section 2.7. (b)If Bank in its reasonable judgment determines that any work or materials fail to conform to the Map, any other Subdivision Requirements, the approved Plans and Specifications or sound building practices, or that they otherwise depart from any of the requirements of this Master Agreement, Bank may require the work to be stopped and withhold disbursements until the matter is corrected. If this occurs, Borrower shall promptly correct the work to Bank's satisfaction, and pending completion of such corrective work shall not allow any other work to proceed. No such action by Bank shall affect Borrower's obligation to complete the Improvements within the times required by this Master Agreement. (c)Bank is under no duty to visit the construction site, or to supervise or observe construction or to examine any books or records. Any site visit, observation or examination by Bank shall be solely for the purpose of protecting Bank's rights and interests. No site visit, observation or examination by Bank shall impose any liability on Bank or result in a waiver of any default of Borrower. In no event shall any site visit, observation or examination by Bank be a representation that there has been or shall be compliance with the Plans and Specifications, that the construction is free from defective materials or workmanship, or that the construction complies with the Requirements or any other applicable governmental law. Neither Borrower nor any other party is entitled to rely on any site visit, observation or examination by Bank. Bank owes no duty of care to protect Borrower or any other party against, or to inform Borrower or any other party of, any negligent or defective design or construction of the Subdivision or any Improvements, or any other adverse condition affecting the Property.     2.8 Protection Against Lien Claims. Borrower shall promptly pay or otherwise discharge all claims and liens for labor done and materials and services furnished in connection with the construction of the Subdivision or any Improvements. Borrower shall have the right to contest in good faith any claim or lien, provided that it does so diligently and without prejudice to Bank or delay in completing the Improvements or the Subdivision. Upon Bank's request, Borrower shall promptly provide a bond, cash deposit or other security which Bank in the exercise of its reasonable judgment determines to be satisfactory.     2.9 Signs and Publicity. Bank shall have the right to post signs on the Property (in a location mutually agreeable to Bank and Borrower) identifying itself as the construction lender for the Subdivision or the Land, as applicable, and may refer to the Subdivision in its own promotional and advertising materials. Borrower shall not post signs, or otherwise identify Bank as the construction lender, and shall not refer to Bank in any marketing materials or presentations, except with Bank's prior written consent in each instance. 15 --------------------------------------------------------------------------------     2.10  Insurance. (a)Borrower shall provide, maintain and keep in force at all times during any period of construction the builder's "all risk" insurance required under Section 1.2 above. Also at all such times, Borrower shall provide, maintain and keep in force any and all additional insurance that Bank in its reasonable judgment may from time to time require, including, without limitation, worker's compensation, commercial general liability and flood insurance as required by federal law. At Bank's request, Borrower shall supply Bank with an original or certified copy of any policy. (b)All policies of insurance required under the Loan Documents shall be issued by companies approved by Bank having a minimum A.M. Best's rating of A:IX. The limits, coverage, forms, deductibles, inception and maturity dates and cancellation provisions of all such policies shall be acceptable to Bank. In addition, each required property insurance policy shall contain a Lender's Loss Payable Form (Form 438 BFU or equivalent) in favor of Bank, and shall provide that all proceeds be payable to Bank to the extent of its interest. An approval by Bank is not, and shall not be deemed to be, a representation of the solvency of any insurer or the sufficiency of any amount of insurance. (c)Each policy of insurance required under the Loan Documents shall provide that it may not be modified or cancelled without at least thirty (30) days' prior written notice to Bank. When any required insurance policy expires, Borrower shall furnish Bank with proof acceptable to Bank that the policy has been reinstated or a new policy issued, continuing in force the insurance covered by the policy which expired. Borrower shall also furnish Bank with evidence satisfactory to Bank that all premiums for such policy have been paid within thirty (30) days of renewal or issuance. If Bank fails to receive such proof and evidence, Bank shall have the right, but not the obligation, to obtain current coverage and advance funds to pay the premiums for it. Borrower shall repay Bank immediately on demand for any advance for such premiums, which shall be considered to be an additional loan to Borrower bearing interest at the Default Rate, as defined in the Note, and secured by the Deed of Trust and any other collateral held by Bank in connection with the Revolving Line.     2.11  Cooperation. Borrower shall cooperate at all times with Bank in bringing about the timely completion of each element of the Improvements and the Subdivision, and Borrower shall resolve all disputes arising during the work of construction in a manner which shall allow work to proceed expeditiously.     2.12  Maximum Allocation-to-Value Ratio. Borrower agrees that each Allocation shall at no time exceed the following (collectively, the "Maximum Allocation-to-Value Ratio"): (a)For Zoned Land, the lesser of: (i) fifty percent (50%) of the "as is" appraised value; or (ii) fifty percent (50%) of the purchase price for such Land, provided, however that for Zoned Land purchased more than three (3) years prior to the Allocation closing (or for Zoned Land that was under option to purchase by Borrower more than three (3) years prior to the Allocation closing, but was purchased by Borrower less than three (3) years prior), or for Zoned Land rezoned after its purchase, subsection (ii) above shall not apply and the Maximum Allocation-to-Value Ratio shall be based solely on the "as is" appraised value. (b)For A&D Land, the lesser of: (i) sixty-five percent (65%) of the "prospective market value at completion of lot development" appraised value; or (ii) seventy-five percent 16 -------------------------------------------------------------------------------- (75%) of the acquisition cost for such Land and the costs as approved by Bank of the applicable Improvements. (c)For each Residential Unit under a Residential Unit Allocation, the ratio of the Total Allocation Per Plan to the sum of the retail appraised value for the Lot and associated Residential Unit to be constructed thereon shall not exceed eighty percent (80%). For Residential Unit Allocations, the Cost Breakdown shall show the cost category of a given floor plan for a home to be constructed; advances under the Residential Unit Allocation for construction of individual homes are limited to the total amount shown by plan in the appropriate cost category (the "Total Allocation Per Plan"). Attached hereto as Exhibit E is a sample Cost Breakdown for a Residential Unit showing a Total Allocation Per Plan. (d)For each Model Unit, under a Model Unit Allocation, the ratio of the Total Allocation Per Plan to the sum of the retail appraised value for the Lot and associated Model to be constructed thereon shall not exceed eighty percent (80%). For Model Unit Allocations, the Cost Breakdown shall show the cost category of a given floor plan for a home to be constructed; advances under the Model Unit Allocation for construction of individual homes are limited to the total amount shown by plan in the appropriate cost category. (e)For each Recreational Facility Allocation, the ratio of the Recreational Facility Allocation amount to the sum of the retail appraised value for the Improvements associated with such Recreational Facility Allocation shall not exceed seventy-five percent (75%). In addition, for each Recreational Facility Allocation, the ratio of the Recreational Facility Allocation amount to the cost to construct such Improvements associated with such Recreational Facility Allocation shall not exceed seventy-five percent (75%).     For purposes of this Section 2.12, Bank shall determine the appraised values using methodologies which: (a) conforms to then-current regulatory requirements, (b) is considered by Bank to be reasonable and appropriate under the circumstances, and (c) takes into account current market conditions and a reasonable absorption period, all as determined by Bank. If Bank at any time should determine that any Maximum Allocation-to-Value Ratio has been exceeded, Bank may make written demand on Borrower to repay principal of an Allocation or Allocations in an amount sufficient in Bank's reasonable judgment to cause the Maximum Allocation-to-Value Ratio to be met. Borrower shall make any such payment of principal within fifteen (15) days after Bank's demand.     2.13  Payment of Expenses. Borrower shall pay Bank's costs and expenses incurred in connection with the making, disbursement and administration of the Revolving Line, as well as any revisions, extensions, renewals or "workouts" of the Revolving Line, and in the exercise of any of Bank's rights or remedies under this Master Agreement and the Loan Documents, except to the extent prohibited by law. Such costs and expenses include charges for title insurance (including endorsements), filing, recording and escrow charges, fees for appraisal, architectural and engineering review, construction services and environmental services, mortgage taxes, legal fees and expenses of Bank's counsel and any other reasonable fees and costs for services, regardless of whether such services are furnished by Bank's employees or agents or independent contractors. Borrower acknowledges that amounts payable under this Section 2.13 are not included in any fees for any Allocation or the Revolving Line.     2.14  Financial Information. Borrower shall keep true and correct financial books and records, using generally accepted accounting principles consistently applied, or such other accounting principles as Bank in its reasonable judgment may find acceptable from time to time. Borrower shall provide to Bank the following financial information: (a)within one hundred twenty (120) days after the end of each of Borrower's fiscal years, Borrower shall deliver (1) audited, unqualified financial statements to Bank together with a statement showing all changes in the financial condition of Borrower which occurred 17 -------------------------------------------------------------------------------- during the preceding fiscal year; and (2) a work-in-progress report and land inventory report in the form attached hereto as Exhibit H (collectively "WIP report") (b)within forty-five (45) days after the end of each of Borrower's fiscal quarters, Borrower shall deliver (1) financial statements to Bank together with a statement showing all changes in the financial condition of Borrower which occurred during the preceding fiscal quarter, which statements may be prepared by Borrower, and (2) a WIP report; (c)within one hundred twenty (120) days after the end of each of Borrower's fiscal years, and forty-five (45) days after the end of each of Borrower's fiscal quarters, Borrower shall deliver to Bank a covenant compliance certificate in form attached hereto as Exhibit I, certificated by Borrower's chief financial officer, certifying that Borrower is in compliance with the terms, provisions, covenants and conditions of the Loan Documents, including but not limited to the covenants 2.22, 2.23, 2.24, 2.25, and 2.26 in this Article II, along with a written acknowledgment to Bank from Zenith, signed by its President or Chief Financial Officer, confirming the subordination to Bank of the Zenith Subordinated Debt as identified in Section 2.23, and the minimum ownership required by Section 2.26; (d)within one hundred twenty (120) days after the end of each of Zenith's fiscal years, Borrower shall deliver audited, unqualified financial statements to Bank together with a statement showing all changes in the financial condition of Zenith which occurred during the preceding fiscal year; (e)within thirty (30) days of filing, a copy of Zenith's 10Q; (f)within fifteen (15) days after the end of each of month, the reports as defined in Section 3.4 below; and (g)Borrower shall promptly provide Bank with any additional audited financial information that Borrower may obtain and such other information as Bank may reasonably request concerning the Borrower's and Zenith's affairs and properties.     2.15  Notices. Borrower shall promptly notify Bank in writing of: (a)Any litigation claiming damages or which could result in damages of $50,000.00 or more affecting Borrower; (b)Any communication, whether written or oral, that Borrower may receive from any governmental, judicial or legal authority, giving notice of any claim or assertion that the Land, Subdivision or any Improvements fail in any respect to comply with any of the Requirements or any other applicable governmental law; (c)Any material adverse change in the physical condition of the Property (including any damage suffered as a result of earthquakes or floods) or Borrower's financial condition or operations; and (d)Any default by the Contractor or any subcontractor, material supplier or surety, or any material adverse change in the financial condition or operations of any of them.     2.16  Keeping Zenith Informed. Borrower shall keep Zenith informed of Borrower's financial condition and business operations, the condition and all uses of the Property, including all changes in condition or use, and any and all other circumstances which may affect Borrower's ability to pay or perform its obligations under the Loan Documents. In addition, Borrower shall deliver to Zenith all of the financial information described in Section 2.14 within the times given in that Section. 18 --------------------------------------------------------------------------------     2.17  Performance of Acts. Upon request by Bank, Borrower shall perform all acts which may be necessary or advisable to perfect any lien or security interest provided for in the Loan Documents or to carry out the intent of the Loan Documents.     2.18  Negative Covenants Without Bank's prior written consent, Borrower shall not: (a)engage in any business activities substantially different from Borrower's present business; (b)liquidate or dissolve Borrower's business; (c)lease or dispose of all or a substantial part of Borrower's business or Borrower's assets; (d)allow liens or security interests in or on the Property; (e)acquire or purchase any business or substantially all of the assets of any business; or (f)enter into any consolidation, merger, pool, joint venture, syndicate or other combination.     2.19  Transfer of Assets. Borrower shall not transfer any of its properties or assets to a trust or other entity.     2.20  Appraisal Updates. Each appraisal shall be updated, at the sole cost and expense of Borrower, as Bank may reasonably require. Based on such revised appraisals and any other information provided to Bank, Bank shall be entitled to revise the Allocation amount applicable to any Allocation or remargin the Allocation based on the Maximum Allocation-to-Value Ratio.     2.21  Assignment. As additional security for the indebtedness and obligations of Borrower under the Loan Documents, Borrower hereby transfers and assigns to Bank, and grants a first priority security interest in favor of Bank in, under, and to all of the following described property: (a)All personal property now or hereafter owned by Borrower, and now or at any time hereafter located on or used in connection with the Property and improvements, including, but not limited to, all construction materials, fees, income, issues, profits, earnings, receipts, royalties, accounts, receivables, contract rights, instruments, general intangibles, insurance proceeds, condemnation awards, claims, rights in action, together with all proceeds thereof; and (b)All written agreements that have been or will be entered into by Borrower relating to the Property and Improvements, including, without limitation, all construction contracts, architect's agreements, plans and specifications, drawings, licenses, permits, licenses, franchises, authorizations, approvals, and any other documents, instruments and agreements relating to the construction of the improvements or required for the use of the Property, and upon the occurrence of an Event of Default, Borrower hereby irrevocably constitutes and appoints Bank as its attorney-in-fact, with full power of substitution to enforce Borrower's rights with respect to any such agreements.     2.22  Maximum Allocation Amounts; Sublimits. The Revolving Line and Allocations are subject to the following maximum limits (the "Maximum Allocation Limits"): (a)The total amount committed for all Zoned Land Allocations shall at no time exceed Five Million Dollars ($5,000,000.00); (b)The total amount committed for all Recreational Facility Allocations shall at no time exceed One Million Five Hundred Thousand Dollars ($1,500,000.00); 19 -------------------------------------------------------------------------------- (c)The total amount committed for all Zoned Land Allocations, A&D Allocations, and Recreational Facility Allocations, combined, shall at no time exceed Twenty Million Dollars ($20,000,000.00); and (d)The total amount committed for all Allocations combined, shall at no time exceed Fifty Million Dollars ($50,000,000.00). For purposes of this Section 2.22, committed means: (1) for Zoned Land Allocations, A&D Allocations and Recreational Facility Allocations, the total amount outstanding and the total amount undisbursed for such Allocations; and (2) for Residential Unit Allocations and Model Allocations, the total amount outstanding and the total amount undisbursed only for those Residential Units and Models within such Allocations for which the Bank has made a disbursement. Whenever any of the foregoing Maximum Allocation Limits is exceeded, Bank may make written demand on Borrower to repay such Allocations in an amount sufficient to cause the Maximum Allocation Limits to be satisfied. Borrower shall deposit all funds required within ten (10) days of Bank's demand.     2.23  Leverage Ratio: Borrower covenants that the ratio of: (A) Total Adjusted Liabilities to (B) Total Adjusted Net Worth shall not exceed 3.0 to 1. Total Adjusted Liabilities shall mean total liabilities less debt of the Borrower owed to Zenith which debt has been subordinated to this Revolving Line by an instrument in writing acceptable to the Bank (herein "Zenith Subordinated Debt"). Total Adjusted Net Worth shall mean the Borrower's net worth plus Zenith Subordinated Debt. "Net worth" means the gross book value of the Borrower's assets (excluding goodwill, patents, trademarks, trade names, organization expense, unamortized debt discount and expense, capitalized or deferred research and development costs, deferred marketing expenses, deferred receivables, and other like intangibles), less total liabilities, including but not limited to accrued and deferred income taxes, and any reserves against assets. In the event this ratio is not satisfied, Borrower shall cause Zenith, within fifteen (15) days, to subordinate additional debt owed to it by Borrower such that this ratio is satisfied. Attached hereto as Exhibit G is a formula which may be used to determine the amount of debt owed by Borrower to Zenith that needs to be subordinated to satisfy this ratio. As long as no Event of Default has occurred, Borrower may make payments of principal and interest when due on Subordinated Debt.     2.24  EBITDA: Borrower covenants that the ratio (A) of EBITDA plus annual CEO compensation for the prior four quarters to (B) actual interest paid on all debt of Borrower shall be a minimum of 1.50:1. "EBITDA" means the sum of net income before taxes, plus interest expense, plus depreciation, depletion, amortization and other non-cash charges. This ratio will be calculated at the end of each fiscal quarter, using the results of that quarter and each of the 3 immediately preceding quarters.     2.25  Adjusted Working Capital: Borrower covenants that current assets minus current liabilities plus any debt outstanding under any loans provided by Zenith to Borrower shall be no less than Ten Million Dollars ($10,000,000.00). "Current liabilities" shall include (a) all obligations classified as current liabilities under generally accepted accounting principles, plus (b) all principal amounts outstanding under revolving lines of credit, whether classified as current or long-term, which are not already included under (a) above.     2.26  Zenith Minimum Ownership: Borrower covenants that Zenith shall own at least 75% of Borrower's outstanding capital stock. III. Sales of Property.     3.1 Sales Agreements. Each Residential Unit shall be sold under a written agreement (the "Sales Agreement") conforming to all Subdivision Requirements, including those requiring disclosures to 20 -------------------------------------------------------------------------------- prospective and actual buyers. Each Sales Agreement shall require full payment in cash to Borrower at closing. No Residential Unit may be leased, sold or conveyed under any lease, conditional sales contract or other arrangement where Borrower retains a deferred portion of the purchase price or any residual or contingent interest in the Unit, including any purchase money security interest, without the express prior written consent of Bank in each instance. Borrower shall submit its pro forma Sales Agreement to Bank for approval, and shall not materially deviate from the approved form without Bank's prior written consent.     3.2 Residential Unit Sales. For purposes of this Master Agreement, a sale of a Residential Unit (a "Pre-Sold Unit") is considered to occur only if (a) a Sales Agreement is executed which meets the requirements of the Bank (including producing net sales proceeds of at least any minimum release price), (b) the buyer is financially capable of performing the agreement as determined by Borrower in accordance with its internal pre-qualification requirements, and (c) Borrower receives a cash deposit in the amount of at least $500.00. For purposes, however, of Section 3.6, a sale is considered to close only when title to the Residential Unit passes to the buyer and Borrower receives full payment in cash of all net proceeds of the sale.     3.3 Sales Operations and Seller's Obligations. Borrower shall at all times maintain adequate marketing capability, and shall perform all obligations required to be performed by it under each Sales Agreement. In the event the net sales proceeds from any sale are insufficient to pay Bank the minimum release price for the Unit, Borrower shall fund the shortfall from its own funds.     3.4 Delivery of Sales Information and Documents. Within fifteen(15) days after the end of each month, Borrower shall deliver to Bank a sales report showing all currently pending sales (separated into new sales entered into during the month being reported on and previous sales contracted for in preceding months), all closings which took place during the month being reported on, and all sales previously reported that for any reason will not close in all Subdivisions in which Borrower is involved together with a lot inventory report for all Subdivisions. Borrower shall also promptly deliver to Bank such other sales information and documents as Bank from time to time may request, including operating statements, any one or more Sales Agreements, information regarding prospective buyers (to the extent not prohibited by law), and notice of or information regarding any claimed breach or disavowal of buyer's or seller's obligations under any one or more Sales Agreements.     3.5 Borrower's Acknowledgment Regarding Buyer Financing. Borrower acknowledges that Bank has not in any manner, by this Master Agreement, or otherwise, committed to provide any financing to or for the buyers of any Residential Units.     3.6 Reconveyances. At Borrower's request, Bank shall issue a partial release of Zoned Land, A&D Land (or Lots), a Residential Unit, a Model, or a Recreational Facility encumbered by the Deed of Trust, so long as all of the following conditions are satisfied at the time of, and with respect to, such partial release: (i)No Event of Default has occurred and is continuing, and no event has occurred that with notice or the passage of time could become an Event of Default; (ii)The Allocation(s) pertaining to the Land requested to be released is "in balance"; (iii)Bank has been paid, in immediately available funds, the costs of preparing and delivering the partial release and any other sums then due and payable under the Loan Documents; (iv)Bank has been paid, in immediately available funds, a release price for the Land to be released, to be applied to reduce the outstanding principal balance of the applicable Allocation, which release price shall equal the outstanding principal balance of the 21 -------------------------------------------------------------------------------- Allocation attributable to such Zoned Land, A&D Land (or Lots), Residential Unit, Model, or Recreational Facility to be released; PROVIDED, HOWEVER: (A)so long as (1) the Revolving Line has "Sufficient Work In Place," and (2) the Revolving Line Maturity Date has not occurred, Bank shall release Residential Units from the lien of the Deed of Trust without payment from Borrower; and (B)(1) at any time the Revolving Line has "Insufficient Work In Place", or (2) at all times after the Revolving Line Maturity Date (notwithstanding the accommodation period of Section 1.17(b)), Bank reserves the right to collect a release price upon the release of any Residential Unit in the amount equal to the greater of (Y) the net proceeds received by Borrower from the sale of such Residential Unit, or (z) the outstanding principal balance of the Allocation attributable to such Residential Unit. In the event Bank has the right to collect a release price, Bank may collect same (at its option) by reducing the amount of such release price from any disbursement to be made to Borrower. (v)All escrow, closing and recording costs, as well as the cost of any title insurance endorsement required by Bank, have been paid at no expense to Bank. (vi)For Residential Unit or Models (subject to Section 3.7 below), same is subject to a sale to a third party, (vii)For Zoned Land and A&D Land, Borrower no longer desires to have such Land part of an approved Allocation or improved with Improvements and such Land is not necessary for the ownership and/or development of any other Land or Improvements; and (viii)For Recreational Facilities, Section 3.8 below is satisfied. Bank shall have no obligation to release any Property from a Deed of Trust, or to deposit any instrument or notice in any escrow for any such release, unless Borrower has up to that time fully performed all of its obligations under this Master Agreement and all Loan Documents. If Bank accepts any payment or issues any partial release, that shall not affect Borrower's obligation to repay all amounts which are owing under the Loan Documents. If Bank does not require satisfaction of all of the conditions described above before releasing any Property, that alone shall not be a waiver of such conditions, and Bank reserves the right to require their satisfaction in full before releasing any further Property from the Deed of Trust.     3.7 Sales of Models. All Models shall be used solely as a sales office and model display (including landscaping and walkways) and for parking, all in connection with the marketing and sale of Residential Units. Borrower shall maintain the interiors and exteriors of all Models in good condition, repair and order, except for ordinary wear and tear. Notwithstanding Section 3.6 or any other provision of this Master Agreement, Bank shall not be required to release any Models from the Deed of Trust unless all Allocations relating to the Subdivision to which the Models pertain have been paid in full and Borrower no longer has the right to borrow under the Revolving Line for such Allocations, or Borrower has provided at Borrower's expense, and Bank has accepted, substitute models which Bank in its sole judgment considers to be comparable and suitable for the purposes and uses described above. However, Borrower may sell Models in a sale-lease back transaction and in such event Bank will release the Models from the lien of the Deed of Trust provided that all terms and provision of the Loan Documents relating to the release of property are complied with by Borrower and provided further that: (i) Borrower shall be the lessee of such Models pursuant to a lease agreement in form and content satisfactory to Bank in its sole discretion and with a term expiring no sooner than 90 days after the Revolving Line Maturity Date (as such maturity date may be extended pursuant to Section 1.17(a) above); and (ii) Bank shall be assigned Borrower's leasehold interest in such lease, consented to by the lessor and Borrower, all in form acceptable to Bank in its sole discretion. 22 --------------------------------------------------------------------------------     3.8 Recreational Facilities. Notwithstanding Section 3.6, Bank shall not be required to release any Recreational Facilities from the Deed of Trust unless in connection with such release, Bank is provided evidence to its satisfaction that such Recreational Facilities are being conveyed, lien-free, to a homeowner's association that has been created for the benefit of Residential Unit homeowners. IV.  Representations and Warranties. Borrower promises that each representation and warranty set forth below is true, accurate and correct as of the date of this Master Agreement. Each Draw Request shall be deemed to be a reaffirmation of each and every representation and warranty made by Borrower in this Master Agreement.     4.1 Authority. Borrower has complied with any and all laws and regulations concerning its organization, existence and the transaction of its business. Borrower has the right and power to own the Property and to develop the Land, Subdivision and Improvements as contemplated in the Loan Documents.     4.2 Compliance. Borrower is familiar and has complied with all of the Requirements, as well as all other applicable laws, regulations and ordinances. Borrower has properly obtained all permits, licenses and approvals necessary to construct, subdivide, occupy, operate, market and sell the Land, Subdivision and Improvements in accordance with all Requirements, including those pertaining to zoning, and Borrower has delivered true and correct copies of them to Bank.     4.3 Enforceability. Borrower is authorized to execute, deliver and perform under the Loan Documents. Those documents are valid and binding obligations of Borrower.     4.4 No Violation. Borrower is not in violation of any law, regulation or ordinance, or any order of any court or governmental entity. No provision or obligation of Borrower contained in any of the Loan Documents violates any of the Requirements, any other applicable law, regulation or ordinance, or any order or ruling of any court or governmental entity. No such provision or obligation conflicts with, or constitutes a breach or default under, any agreement binding or regulating the Subdivision or the Property.     4.5 No Claims. There are no claims, actions, proceedings or investigations pending against Borrower, or affecting the Subdivision or the Property, except for those previously disclosed by Borrower to Bank in writing. To the best of Borrower's knowledge, there has been no threat of any such claim, action, proceeding or investigation, except for those previously disclosed by Borrower to Bank in writing.     4.6 Financial Information. All financial information which has been and will be delivered to Bank, including all information relating to the financial condition of Borrower or any of its shareholders, partners, joint venturers or members, Zenith, the Subdivision or the Property, fairly and accurately represents the financial condition being reported on. All such information was prepared in accordance with generally accepted accounting principles consistently applied, unless otherwise noted. There has been no material adverse change in any financial condition reported at any time to Bank.     4.7 Accuracy. All reports, documents, instruments, information and forms of evidence which have been delivered to Bank concerning this Master Agreement or any Allocation or required by the Loan Documents are accurate, correct and sufficiently complete to give Bank true and accurate knowledge of their subject matter. None of them contains any misrepresentation or omission. 23 --------------------------------------------------------------------------------     4.8 "In Balance"; Adequacy of Allocations. The Allocations are "in balance" and the undisbursed Allocation funds are sufficient to construct the Improvements and to accomplish the purposes contemplated by the Loan Documents.   The Allocation is "in balance" as long as the amount of the undisbursed Allocation funds for any Allocation, plus any sums provided or to be provided by Borrower as shown in the applicable Cost Breakdown most recently approved by Bank, are sufficient in the sole judgment of Bank to pay, through completion of the Improvements and maturity of such Allocation, all of the following sums: (i) all costs of construction, marketing, ownership, maintenance and sale of the Improvements pertaining to such Allocations; and (ii) all interest and other sums which may accrue or be payable under the Loan Documents. The Allocation is "out of balance" if and when Bank in its sole judgment determines that there are insufficient funds (including all undisbursed Allocation funds and any sums provided and to be provided by Borrower) to pay for all such costs and sums payable under the Loan Documents. Whenever the Allocation becomes "out of balance", Bank may make written demand on Borrower to deposit Borrower's own funds into an account maintained by Bank (the "Borrower's Funds Account") in an amount sufficient in Bank's sole judgment to cause the Allocation to be "in balance." Borrower shall deposit all funds required within ten (10) days of Bank's demand. If required by Bank, Borrower shall also submit, for Bank's approval, a revised Cost Breakdown within fifteen (15) days after any such demand.     4.9 Taxes. Borrower has filed all required state, federal and local income tax returns and has paid all taxes which are due and payable. Borrower knows of no basis for any additional assessment of taxes.     4.10  Utilities. All utility services, including gas, water, sewage, electrical and telephone, which are necessary to develop and subdivide the Land, and to sell and occupy the Residential Units, are available at or within the boundaries of the Land. In the alternative, Borrower has taken all steps necessary to assure that all utility services will be available upon completion of each individual Unit.     4.11  Borrower Not a "Foreign Person". Borrower is not a "foreign person" within the meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended from time to time.     4.12  Disclosure to Zenith. Before Borrower became obligated in connection with this Master Agreement, Borrower made full disclosure to Zenith regarding (a) Borrower's financial condition and business operations, (b) the present and former condition, uses and ownership of the Property, and (c) all other circumstances bearing upon Borrower's ability to pay and perform its obligations under the Loan Documents. V.  Default and Remedies     5.1 Events of Default. Borrower will be in default under this Master Agreement upon the occurrence of any one or more of the following events ("Events of Default"): (a)Borrower fails to make any payment of principal or interest under the Note when due and such failure continues after the applicable grace period and notice period, if any, specified in the relevant documents; or (b)Borrower fails to deposit any funds demanded by Bank under this Master Agreement or any Loan Document within fifteen (15) days after Bank's demand; or (c)Borrower fails to comply with any other covenant contained in this Master Agreement or any Loan Document which calls for the payment of money, and does not cure that failure within fifteen (15) days after written notice from Bank; or (d)Borrower or Zenith becomes insolvent or the subject of any bankruptcy or other voluntary or involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships ("Insolvency Proceeding"); or 24 -------------------------------------------------------------------------------- (e)Borrower dissolves or liquidates, or any of these events happens to Borrower's majority shareholder; or (f)Borrower's chief executive or president dies or ceases for any reason to act in that capacity (unless such party is replaced within 60 days with a person acceptable to Bank in its reasonable discretion); or (g)An Accelerating Transfer (as defined in the Deed of Trust) occurs; or (h)Any representation or warranty made or given in any of the Loan Documents proves to be false or misleading in any material respect; or (i)Construction of any Improvements is abandoned, or any element of the Improvements is not completed by the Completion Date; or (j)Construction of any Improvements is halted prior to completion for any period of fifteen (15) consecutive days for any cause which is not beyond the reasonable control of Borrower or any of its contractors or subcontractors; or (k)Any governmental, judicial or legal authority having jurisdiction over the Property or the Subdivision orders or requires that construction be stopped in whole or in part, or orders or requires that sales of Residential Units be suspended or halted, or any required approval, license or permit is withdrawn or suspended, and the order, requirement, withdrawal or suspension remains in effect either (i) for a period of thirty (30) consecutive days ("Initial Cure Period"), or (ii) for a total period of ninety (90) days, so long as Borrower begins within the Initial Cure Period and diligently continues to take steps to remove the effect of the order, requirement, withdrawal or suspension, and Bank, exercising reasonable judgment, determines that Borrower is reasonably likely to prevail; or (l)Borrower is in default under the Architecture or Engineering Contract, any other contract for the construction of the Residential Units, either (i) for an Initial Cure Period of thirty (30) consecutive days, or (ii) for a total period of ninety (90) days, so long as Borrower begins within the Initial Cure Period and diligently continues to cure the default, and Bank, exercising reasonable judgment, determines that the cure cannot reasonably be completed at or before expiration of the Initial Cure Period; or (m)Any surety obligated for any Improvements required under the Subdivision Requirements is called upon to perform its obligations; or (n)An event of default occurs under any of the Loan Documents and such default continues after the applicable grace period and notice period, if any, specified in the relevant documents; or (o)Bank fails to have an enforceable first lien on or security interest in any property given as security for this Loan and the Allocations; or (p)A lawsuit or suits are filed against Borrower or a judgment or judgments are entered against Borrower or any government authority takes action that materially adversely affects Borrower's intended use of the Property or Borrower's ability to repay the Loan; or (q)Borrower or any entity affiliated with Borrower fails to perform any material obligation under any other material agreement Borrower has with Bank or any affiliate of Bank and such failure continues after the applicable grace and notice period, if any, specified in the relevant documents. For the purposes of this section, "affiliated with" means in control of, controlled by or under common control with; or 25 -------------------------------------------------------------------------------- (r)Borrower or any entity affiliated with Borrower (i) fails to make any payment in connection with any credit facility having an aggregate principal amount (including undrawn, committed or available amounts and including amounts owed to all creditors under any combined or syndicated credit arrangement) of more than $10,000,000 when due and such failure continues after the applicable grace and notice period, if any, specified in the relevant documents or (ii) fails to perform or observe any other material covenants under such other credit facility and such failure continues after the applicable grace and notice period, if any, specified in the relevant documents if the effect is that such other creditor accelerates repayment of the obligation. For the purposes of this section, "affiliated with" means in control of, controlled by or under common control with; or (s)There is a material adverse change in Borrower's or Zenith's financial condition, or event or condition that materially impairs Borrower's intended use of the Property or Borrower's ability to repay the Loan.     5.2 Remedies (a)If an Event of Default occurs under this Master Agreement, Bank may exercise any right or remedy which it has under any of the Loan Documents, or which is otherwise available at law or in equity or by statute, and all of Bank's rights and remedies shall be cumulative. If any Event of Default occurs, Bank's obligation to approve Allocations or lend under the Loan Documents shall automatically terminate, and Bank in its sole discretion may withhold any one or more disbursements. Bank may also withhold its approval of Allocations and/or withhold any one or more disbursements after an event occurs that with notice or the passage of time could become an Event of Default. No disbursement of funds by Bank shall cure any default of Borrower, unless Bank agrees otherwise in writing in each instance. (b)If Borrower becomes the subject of any Insolvency Proceeding, all of Borrower's obligations under the Loan Documents shall automatically become immediately due and payable upon the filing of the petition commencing such proceeding, all without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands of any kind or character. Upon the occurrence of any other Event of Default, all of Borrower's obligations under the Loan Documents may become immediately due and payable without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands of any kind or character, all at Bank's option, exercisable in its sole discretion. If such acceleration occurs, Bank may apply the undisbursed Allocation funds or any other Revolving Line funds, and any sums in the Borrower's Funds Account to the obligations of Borrower under the Loan Documents, in any order and proportions that Bank in its sole discretion may choose. (c)Also upon any Event of Default, Bank shall have the right in its sole discretion to enter and take possession of the Property, whether in person, by agent or by court-appointed receiver, and to take any and all actions which Bank in its sole discretion may consider necessary to file the Map of record and/or complete construction of the Subdivision and Improvements, including making changes in plans, specifications, work or materials and entering into, modifying or terminating any contractual arrangements, all subject to Bank's right at any time to discontinue any work without liability. If Bank chooses to complete the Subdivision and Improvements, it shall not assume any liability to Borrower or any other person for completing the Subdivision or Improvements, or for the manner or quality of construction of the Subdivision or Improvements, and Borrower expressly 26 -------------------------------------------------------------------------------- waives any such liability. If Bank exercises any of the rights or remedies provided in this clause (c), that exercise shall not make Bank, or cause Bank to be deemed to be, a partner or joint venturer of Borrower. Bank in its sole discretion may choose to complete construction in its own name. All sums which are expended by Bank in completing construction shall be considered to have been disbursed to Borrower and shall be secured by the Deed of Trust and any other collateral held by Bank in connection with the Loan; any sums of principal shall be considered to be an additional disbursement hereunder to Borrower bearing interest at the Default Rate, as defined in the Note, and shall be secured by the Deed of Trust and any other collateral held by Bank in connection with the Loan. For these purposes Bank, in its sole discretion, may reallocate any line item or cost category of any Cost Breakdown. VI.  Reference and Arbitration     6.1 Mandatory Arbitration. Unless expressly prohibited by law, any controversy or claim between or among the parties hereto including but not limited to those arising out of or relating to this Master Agreement or the Loan Documents, including any claim based on or arising from an alleged tort, shall be determined by binding arbitration in accordance with the Federal Arbitration Act (or if not applicable, the applicable state law), the Rules of Practice and Procedure for the Arbitration of Judicial Arbitration and Mediation Services, Inc. and the "Special Rules" set forth below. In the event of any inconsistency, the Special Rules shall control. Judgment upon any arbitration award may be entered in any court having jurisdiction. Any party to this Master Agreement may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim to which this Master Agreement applies in any court having jurisdiction over such action. (a)Special Rules. The arbitration shall be conducted in Las Vegas, Nevada and administered by Judicial Arbitration and Mediation Services, Inc. who will appoint an arbitrator; if Judicial Arbitration and Mediation Services, Inc. is unable or legally precluded from administering the arbitration, then the arbitration proceeding shall be conducted under the Commercial Rules of the American Arbitration Association. All arbitration hearings will be commenced within sixty (60) calendar days of the demand for arbitration; further, the arbitrator shall only, upon a showing of cause, be permitted to extend the commencement of such hearing for up to an additional sixty (60) calendar days. (b)Reservations of Rights. Nothing in this Master Agreement shall be deemed to (i) limit the applicability of any otherwise applicable statutes of limitation or repose and any waivers contained in this Master Agreement; or (ii) be a waiver by Bank of the protection afforded to it by 12 U.S.C. Sec. 91 or any substantially equivalent state law; or (iii) limit the right of Bank (A) to exercise self help remedies such as (but not limited to) setoff, or (B) to foreclose against any real or personal property collateral, or (C) to obtain from a court provisional or ancillary remedies such as (but not limited to) injunctive relief or the appointment of a receiver by ex parte application. Bank may exercise such self help rights, foreclose upon such property, or obtain such provisional or ancillary remedies before, during or after the pendency of any arbitration proceeding brought pursuant to this Master Agreement. At Bank's option, foreclosure under a deed of trust may be accomplished by any of the following: the exercise of a power of sale under the deed of trust, or by judicial sale under the deed of trust or mortgage, or by judicial foreclosure. Neither the exercise of self help remedies nor the institution or maintenance of an action for foreclosure or provisional or ancillary remedies shall constitute a waiver of the right of any party, including the claimant in any such action, to arbitrate the merits of the controversy or claim occasioning resort to such remedies. No provision in the Loan Documents regarding the waiver of a jury trial, or submission to jurisdiction and/or venue 27 -------------------------------------------------------------------------------- in any court is intended or shall be construed to be in derogation of the provisions in any Loan Document for arbitration of any controversy or claim. VII. Miscellaneous Provisions     7.1 No Waiver; Consents. Each waiver by Bank must be in writing, and no waiver shall be construed as a continuing waiver. No waiver shall be implied from Bank's delay in exercising or failure to exercise any right or remedy against Borrower or any security. Consent by Bank to any act or omission by Borrower shall not be construed as a consent to any other or subsequent act or omission or as a waiver of the requirement for Bank's consent to be obtained in any future or other instance. All rights and remedies of Bank are cumulative.     7.2 Purpose and Effect of Bank Approval. Bank's approval of any matter in connection with the Loan shall be for the sole purpose of protecting Bank's security and rights. No such approval shall result in a waiver of any default of Borrower. In no event shall Bank's approval be a representation of any kind with regard to the matter being approved.     7.3 No Commitment to Increase Loan. From time to time, Bank may approve changes to the Plans and Specifications at Borrower's request, and may also require Borrower to make corrections to the work of construction, all on and subject to the terms and conditions of this Master Agreement. Borrower acknowledges that no such action or other action by Bank shall in any manner commit or obligate Bank to increase the amount of the Loan or any Allocation.     7.4 No Third Parties Benefited. This Master Agreement is made and entered into for the sole protection and benefit of Bank and Borrower and their permitted successors and assigns. No trust fund is created by this Master Agreement and no other persons or entities shall have any right of action under this Master Agreement, or any right to the Loan funds.     7.5 Joint and Several Liability. If Borrower consists of more than one person or entity, each shall be jointly and severally liable to Bank for the faithful performance of this Master Agreement.     7.6 Notices. All notices given under this Master Agreement or any Loan Document shall be in writing and shall be given by personal delivery, overnight receipted courier (such as FedEx), or by registered or certified United States mail, postage prepaid, sent to the party at its address appearing below its signature. Notices shall be effective upon receipt or when proper delivery is refused. Addresses for notice may be changed by either party by notice to the other party in accordance with this Section 7.6. Service of any notice on any one Borrower shall be effective service on Borrower for all purposes.     7.7 Authority to File Notices. Borrower irrevocably appoints Bank as its attorney-in-fact, with full power of substitution, to file for record, at Borrower's cost and expense and in Borrower's name, any notices of completion, or any other notices that Bank in its sole discretion may consider necessary or desirable to protect its security, if Borrower fails to do so. The appointment granted in this Section 7.7 shall be deemed to be a power coupled with an interest.     7.8 Actions. Bank shall have the right, but not the obligation, to commence, appear in, and defend any action or proceeding which might affect its security or its rights, duties or liabilities relating to the Loan, the Property, or any of the Loan Documents. Borrower shall pay promptly on demand all of Bank's reasonable out-of-pocket costs, expenses, and legal fees and expenses of Bank's counsel incurred in those actions or proceedings.     7.9 Attorneys' Fees. If any lawsuit or arbitration is commenced which arises out of or relates to this Master Agreement, the Loan Documents or the Loan, the prevailing party shall be entitled to recover from each other party such sums as the court (but not the jury) or arbitrator may adjudge to be reasonable attorneys' fees in the action or arbitration, in addition to costs and expenses otherwise allowed by law. In all other situations, including any matter arising out of or relating to any Insolvency 28 -------------------------------------------------------------------------------- Proceeding, Borrower agrees to pay all of Bank's costs and expenses, including attorneys' fees, which may be incurred in enforcing or protecting Bank's rights or interests. From the time(s) incurred until paid in full to Bank, all such sums shall bear interest at the Default Rate.     7.10   In-House Counsel Fees. Whenever Borrower is obligated to pay or reimburse Bank for any attorneys' fees, those fees shall include the allocated costs for services of in-house counsel.     7.11  Applicable Law. This Master Agreement and each Loan Document are governed by the laws of the State of Nevada, without regard to the choice of law rules of that State.     7.12  Heirs, Successors and Assigns; Participations. The terms of this Master Agreement and each Loan Document shall bind and benefit the heirs, personal representatives, successors and assigns of the parties; provided, however, that Borrower may not assign this Master Agreement or any Loan Document, or any Loan funds, or assign or delegate any of its rights or obligations, without the prior written consent of Bank in each instance. Bank in its sole discretion may sell or assign participations or other interests in all or part of the Loan on the terms and subject to the conditions of the Loan Documents, all without notice to or the consent of Borrower. Also without notice to or the consent of Borrower, Bank may disclose to any actual or prospective purchaser of any securities issued or to be issued by Bank, and to any actual or prospective purchaser or assignee of any participation or other interest in the Loan or any other loans made by Bank to Borrower (whether under this Master Agreement or otherwise), any financial or other information, data or material in Bank's possession relating to Borrower, the Loan, the Subdivision, the Improvements or the Property.     7.13  Relationships With Other Bank Customers. From time to time, Bank may have business relationships with Borrower's customers, suppliers, contractors, tenants, partners, shareholders, members, officers or directors, or with businesses offering products or services similar to those of Borrower, or with persons seeking to invest in, borrow from or lend to Borrower. Borrower agrees that Bank may extend credit to such parties and may take any action it may deem necessary to collect the credit, regardless of the effect that such extension or collection of credit may have on Borrower's financial condition or operations. Borrower further agrees that in no event shall Bank be obligated to disclose to Borrower any information concerning any other Bank customer.     7.14  Disclosure to Title Company. Without notice to or the consent of Borrower, Bank may disclose to any title insurance company which insures any interest of Bank under the Deed of Trust (whether as primary insurer, coinsurer or reinsurer) any information, data or material in Bank's possession relating to Borrower, the Loan, a Subdivision, the Improvements, the Residential Units or the Property.     7.15  Improvement District; Covenants, Conditions and Restrictions. Borrower shall not consent to, vote in favor of, or directly or indirectly advocate or assist in the incorporation of any part of the Subdivision or the Property into any improvement district, special assessment district or other district without Bank's prior written consent in each instance. Also, Borrower shall not, without Bank's prior written consent in each instance, amend or modify any covenants, conditions and restrictions which Bank has approved, affecting any part of the Subdivision or the Property.     7.16  Restriction on Personal Property. Borrower shall not sell, convey, or otherwise transfer or dispose of its interest in any personal property in which Bank has a security interest, or contract to do any of the foregoing, without the prior written consent of Bank in each instance.     7.17  Force Majeure. If the work of construction is directly affected and delayed by fire, earthquake or other acts of God, strike, lockout, acts of public enemy, riot, insurrection, or governmental regulation of the sale or transportation of materials, supplies or labor, Borrower must notify Bank in writing within five (5) calendar days after the event occurs which causes the delay. So long as no Event of Default has occurred and is continuing, Bank shall extend the applicable Completion Date for completing construction if directly affected and delayed by the event. Each such extension shall be for a 29 -------------------------------------------------------------------------------- period of time equal to the period of the delay, but not more than a total of sixty (60) days. Such an extension, however, shall not affect the time for performance of, or otherwise modify, any of Borrower's other obligations under the Loan Documents or the maturity of the Revolving Line or the Allocations.     7.18  Severability. The invalidity or unenforceability of any one or more provisions of this Master Agreement or any Loan Document shall in no way affect any other provision.     7.19  Interpretation. Whenever the context requires, all words used in the singular will be construed to have been used in the plural, and vice versa, and each gender will include any other gender. The captions of the sections of this Master Agreement and the Loan Documents are for convenience only and do not define or limit any terms or provisions. The word "include(s)" means "include(s), without limitation", and the word "including" means "including, but not limited to". No listing of specific instances, items or matters in any way limits the scope or generality of any language of this Master Agreement and the Loan Documents. Time is of the essence in the performance of this Master Agreement and the Loan Document by Borrower. The exhibits to this Master Agreement are hereby incorporated in the Loan Documents.     7.20  Amendments. This Master Agreement and the Loan Documents may not be modified or amended except by a written agreement signed by the parties.     7.21  Counterparts. This Master Agreement and the Loan Documents and any attached consents or exhibits requiring signatures may be executed in counterparts, and all counterparts shall constitute but one and the same document.     7.22  Language of Agreement. The language of this Master Agreement and the Loan Document shall be construed as a whole according to its fair meaning, and not strictly for or against any party.     7.23  Covenants, Conditions and Restrictions. Borrower may submit to Bank a proposed form of declaration of covenants, conditions and restrictions ("CC&R's") affecting all or part of the Property, and may request Bank to approve and to subordinate the Deed of Trust to the CC&R's. Bank shall have no obligation to grant such a request by Borrower. However, Bank shall consider and honor any such request if that would not impair or affect the security of any obligation evidenced by the Loan Documents, all as Bank in its sole discretion may determine. Borrower acknowledges that delays may result from the approval process, and agrees that so long as the delays are not unreasonable in duration, they shall not affect Borrower's obligations to complete the applicable Improvements by the Completion Date.     7.24  Integration and Relation to Loan Commitment. The Loan Documents (a) integrate all the terms and conditions mentioned in or incidental to this Master Agreement or any Loan Document, (b) supersede all oral negotiations and prior writings with respect to their subject matter, including Bank's loan commitment (if any) to Borrower, and (c) are intended by the parties as the final expression of the agreement with respect to the terms and conditions set forth in those documents and as the complete and exclusive statement of the terms agreed to by the parties. No representation, understanding, promise or condition shall be enforceable against any party unless it is contained in the Loan Documents. If there is any conflict between the terms, conditions and provisions of this Master Agreement and those of any other agreement or instrument, including any other Loan Document, the terms, conditions and provisions of this Master Agreement shall prevail. 30 -------------------------------------------------------------------------------- PERMA-BILT, a Nevada corporation       BANK OF AMERICA, N.A. By: /s/ DANIEL SCHWARTZ    -------------------------------------------------------------------------------- Daniel Schwartz, President       By: /s/ GARY PERSICHINO    -------------------------------------------------------------------------------- Gary Persichino, Vice President Address:       Address: 7150 Pollock Drive, Suite 104       REBG Las Vegas, NV 89119       NV1-119-04-01           Home Builder Division, Unit 8957 300 S. Fourth St., 4th Floor Las Vegas, NV 89101 31 -------------------------------------------------------------------------------- EXHIBITS TO THE MASTER REVOLVING LINE OF CREDIT AGREEMENT, AS FOLLOWS, ARE NOT ATTACHED HERETO:       Exhibit A:   Form of Deed of Trust Exhibit B:   Loan Documents        1. The Note        2. The Deed of Trust        3. The Financing Statements        4. The Borrower's Indemnity        5. All other documents required by Bank of evidence or secure the Loan      and any Allocation Exhibit C:   Allocation Approval Certificate Exhibit D:   Zenith Letter Exhibit E:   Sample Cost Breakdown for a Residential Unit with Total Allocation per Plan Exhibit F:   Forms of Cost Breakdown Exhibit G:   Formula to determine necessary amount of Zenith Subordinate Debt Exhibit H:   Form of WIP Report Exhibit I:   Covenant Compliance Certificate 32 -------------------------------------------------------------------------------- QuickLinks MASTER REVOLVING LINE OF CREDIT CONSTRUCTION LOAN AGREEMENT EXHIBITS TO THE MASTER REVOLVING LINE OF CREDIT AGREEMENT, AS FOLLOWS, ARE NOT ATTACHED HERETO

Exhibit 10.1 AMENDMENT NO. 1 TO CREDIT AND GUARANTY AGREEMENT          AMENDMENT NO. 1, dated as of September 11, 2001 (this "Amendment"), to the Credit and Guaranty Agreement (the "Credit Agreement"), dated as of October 31, 2000, (as it may be amended, restated, supplemented or otherwise modified from time to time), by and among GABRIEL COMMUNICATIONS FINANCE COMPANY, a Delaware corporation ("Borrower "), as Borrower and, NUVOX, INC., (formerly known as Gabriel Communications, Inc.) a Delaware corporation ("Parent"), as a Guarantor, GABRIEL COMMUNICATIONS PROPERTIES, INC., a Delaware corporation ("Holding Company"), as a Guarantor, certain Subsidiaries of Borrower, as Guarantors, the Lenders party thereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P., as Sole Lead Arranger, Sole Book Runner, and Syndication Agent, FIRST UNION NATIONAL BANK, as Administrative Agent and Collateral Agent, BARCLAYS BANK PLC, as Documentation Agent, and CIT LENDING SERVICES CORPORATION, as Co-Documentation Agent. RECITALS:          WHEREAS, the terms used herein, including in the preamble and recitals hereto, not otherwise defined herein or otherwise amended hereby shall have the meanings ascribed thereto in the Credit Agreement;          WHEREAS, Parent, Holding Company, Borrower, the Lenders and Agents wish to amend the Credit Agreement on certain terms as described herein;          WHEREAS, the Parent expects to raise aggregate net cash proceeds of no less than $75 million by the issuance of certain preferred stock and warrants as more particularly described in the Confidential Preliminary Private Placement Memorandum dated August 24, 2001, the principal terms of which are set out in Exhibit A hereto (the "Equity Issuance");          WHEREAS, in consideration of the Parent contributing such net cash proceeds to Holding Company as Paid-In Borrower Capital, the Lenders and Agents agree to amend the Credit Agreement as hereinafter described;          NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, each Credit Party, each Lender and each Agent party hereto agrees as follows: SECTION 1.     AMENDMENT          As of the Amendment No. 1 Effective Date (as defined in Section 2 hereof), the Credit Agreement shall be amended as set forth in this Section 1.          1.1         Section 1.1 of the Credit Agreement is hereby amended by inserting each of the following definitions in the appropriate alphabetical order:           ""Access Lines Per New Customer" means, for any Fiscal Quarter, the ratio of (i) the number of Access Lines installed in such Fiscal Quarter which are for New Customers divided by (ii) the number of New Customers added in such Fiscal Quarter."         ""Adjusted Revenues" means, for any Fiscal Quarter, the revenues for such Fiscal Quarter, minus the sum of (i) resale revenues other than revenues generated by services provided by UNE-P lines, (ii) carrier access billing revenues and (iii) reciprocal compensation revenues."         ""Amendment No. 1" means Amendment No. 1 to this Agreement, dated as of September 11, 2001, by and among Borrower, Holding Company, Parent, certain Subsidiaries of the Borrower and the Lenders and Agents party thereto."         ""Amendment No. 1 Effective Date" means the "Amendment No. 1 Effective Date" as such term is defined in Amendment No. 1, Section 2."         ""Available Cash" means the sum as at each calculation date of (i) the unused Commitments and (ii) Cash and Cash Equivalents on hand at Borrower and Holding Company."         ""Days Sales Outstanding" means for any Fiscal Quarter (i) accounts receivable as of the end of such Fiscal Quarter multiplied by (ii) 365 divided by (iii) the product of (a) 4 multiplied by (b) the Revenues for such Fiscal Quarter.         ""Equity Issuance" means the Parent's issuance of certain units of preferred stock and warrants at $1.50 per unit, as more particularly described in the Confidential Preliminary Private Placement Memorandum dated August 24, 2001, to raise aggregate net cash proceeds of no less than $75 million, the principal terms of which are set out in Exhibit A to Amendment No. 1."         ""Gross Profit" means for any Fiscal Quarter the Revenues minus the cost of sales for such Fiscal Quarter as determined in accordance with GAAP."         ""New Customer" means each new billing name activated for customer billing purposes."         ""Total Acquisition Cost Per New Customer" means for any Fiscal Quarter the ratio of (i) Total Acquisition Costs for such Fiscal Quarter divided by (ii) the number of New Customers added in such Fiscal Quarter."                 ""Total Acquisition Costs" means for any Fiscal Quarter all sales and marketing expenses for such Fiscal Quarter plus the actual cost of customer premise equipment installed for New Customers in such Fiscal Quarter."         1.2         The following definitions in Section 1.1 of the Credit Agreement are hereby deleted and replaced with the following:         ""Access Lines" shall mean the total number of DS-O equivalent lines installed and activated, for customer billing purposes, that are being used to provide voice or data telecommunications service to non-residential customers of Borrower and its Subsidiaries, including on-switch lines and UNE-P lines, but excluding any other form of resale lines."         ""Applicable Margin" means 4.50% per annum with respect to Eurodollar Rate Loans and 3.50% per annum with respect to Base Rate Loans provided that at any time (i) when the Borrower has delivered a Compliance Certificate and applicable financial statements confirming that the Borrower EBITDA for the most recent Fiscal Quarter is greater than zero or (ii) after the later of (a) the date on which commercial operation has been commenced in at least twenty-one (21) markets and the Borrower has delivered a Compliance Certificate and applicable financial statements confirming that the annualized quarterly gross revenues of the Borrower and its Subsidiaries exceeds $175,000,000 and (b) twelve months after the Closing Date, the Applicable Margin shall be adjusted in accordance with the following pricing grid, based on the Total Borrower Leverage Ratio: Total Borrower Leverage Ratio Applicable Margin for Eurodollar Rate Loans Applicable Margin for Base Rate Loans >  10.0:1.00 4.25% 3.25% <  10.0:1.00 >   8.0:1.00 4.00% 3.00% <   8.0:1.00 >  6.00:1.00 3.75% 2.75% <  6.00:1.00 >  4.00:1.00 3.50% 2.50% <  4.00:1.00 3.25% 2.25%           No change in the Applicable Margin shall be effective until three Business Days after the date on which Administrative Agent shall have received the applicable financial statements and a Compliance Certificate pursuant to Section 5.1(d) calculating the Total Leverage Ratio. At any time when the Borrower has not submitted to Administrative Agent the applicable information as and when required under Section 5.1(d), the Applicable Margin shall be determined as if the Total Borrower Leverage Ratio were in excess of 10.0:1.00. Within one Business Day of receipt of the applicable information as and when required under Section 5.1(d), Administrative Agent shall give each Lender telefacsimile or telephonic notice (confirmed in writing) of the Applicable Margin in effect from such date."         ""Asset Sale" means a sale, lease or sub-lease (as lessor or sublessor), sale and leaseback, assignment, conveyance, transfer or other disposition to, or any exchange of property with, any Person (other than Borrower or any Guarantor Subsidiary), in one transaction or a series of transactions, of all or any part of (i) Borrower's or any of its Subsidiaries' businesses, assets or properties of any kind, whether real, personal, or mixed and whether tangible or intangible, whether now owned or hereafter acquired, including, without limitation, the Capital Stock of any of Borrower's Subsidiaries and (ii) Holding Company's Telecommunications Assets (other than any Securities or assets of any Unrestricted Subsidiary), in each case other than (x) inventory (or other assets, including surplus capacity on a telecommunications network or dark fiber in the ordinary course of business) sold or leased in the ordinary course of business, (y) disposals of obsolete, worn out or surplus property which Parent deems no longer needed or useful in the conduct of the Telecommunications Business of Holding Company and its Subsidiaries and (z) sales of assets for consideration of less than $1,000,000 in the aggregate in any Fiscal Year."         ""Available Proceeds Amount" means, as of any date of determination, without double counting and in respect of each Investment, after having given effect to all other Investments to be effected on such date, an amount equal to (i) 50% of the aggregate net cash proceeds of equity issuances by Parent after the Amendment No. 1 Effective Date contributed as common equity to Holding Company; plus (ii) the sum of (a) the net cash proceeds received by Holding Company in respect of the sale of any Unrestricted Subsidiary and (b) the proceeds of cash dividends declared and paid to Holding Company by any Unrestricted Subsidiary; minus (iii) the Available Proceeds Usage Amount. Notwithstanding the foregoing, the Available Proceeds Amount shall be deemed to be reset to zero on the Amendment No. 1 Effective Date, and the Equity Issuance shall not be deemed to give rise to any Available Proceeds Amount."         ""Available Proceeds Usage Amount" means, as of any date of determination, without double counting, a cumulative amount equal to the sum of : (i) the cumulative amount of Capital Expenditures made by Holding Company after the Amendment No. 1 Effective Date pursuant to the final proviso of Section 6.6(e); plus (ii) the cumulative amount of Investments made by Holding Company after the Amendment No. 1 Effective Date pursuant to Section 6.5(l); plus (iii) the cumulative amount of Investments made by Holding Company in Unrestricted Subsidiaries after the Amendment No. 1 Effective Date pursuant to Sections 6.5(m), 6.18 and 6.21; plus (iv) the aggregate cash portion of the purchase price paid in connection with Permitted Acquisitions after the Amendment No. 1 Effective Date made in the amounts described in clause (viii)(b) of the definition of Permitted Acquisition."         ""Borrower Net Income" means, for any period, (i) the net income (or loss) of Holding Company and its Subsidiaries (other than GCI Transportation Company L.L.C.) on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP, minus, to the extent included in (i), (ii) (a) the income of any Person (other than a Subsidiary of Borrower) in which any other Person (other than Borrower or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to Borrower or any of its Subsidiaries by such Person during such period, (b) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of Borrower or is merged into or consolidated with Borrower or any of its Subsidiaries or that Person's assets are acquired by Borrower or any of its Subsidiaries, (c) the income of any Subsidiary of Borrower to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (d) any after-tax gains or losses attributable to Asset Sales or returned surplus assets of any Pension Plan, and (e) (to the extent not included in clauses (a) through (d) above) any net extraordinary gains or net non-cash extraordinary losses."         ""Delayed Draw Term Loan Maturity Date" means the earlier of (i) September 30, 2006 and (ii) the date that all Delayed Draw Term Loans shall become due and payable in full hereunder, whether by acceleration or otherwise."         ""Nortel Networks Loans Maturity Date" means the earlier of (i) September 30, 2006 and (ii) the date that all Nortel Networks Loans shall become due and payable in full hereunder, whether by acceleration or otherwise."         ""Permitted Acquisition" means the acquisition of the three acquired entities referred to in the letter from Parent to Lenders dated June 11, 2001, a copy of which is attached as Exhibit B to Amendment No. 1, and any other acquisition by the Borrower or any Wholly Owned Subsidiary, whether by purchase, merger or otherwise, of all or substantially all of the assets of, all of the Capital Stock of, or a business line or unit or a division of, any Person; provided, with respect to such other acquisitions,         (i)         immediately prior to, and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing or would result therefrom;         (ii)        all transactions in connection therewith shall be consummated in accordance with all applicable laws and in conformity with all applicable Governmental Authorizations;            (iii)         in the case of the acquisition of Capital Stock, (A) all of the Capital Stock (except for any such Securities in the nature of directors’ qualifying shares required pursuant to applicable law), acquired or otherwise issued by such Person or any newly formed Subsidiary of Borrower in connection with such acquisition shall be owned 100% by Borrower or a Guarantor Subsidiary thereof, and (B) Parent, Holding Company and Borrower shall have taken, or caused to be taken, as of the date such Person becomes a Subsidiary of Borrower, each of the actions set forth in Section 5.9, as applicable;            (iv)         Parent and its Subsidiaries shall be in compliance with, immediately before and after giving pro forma effect to such acquisition, Sections 6.6, 6.7, 6.8 and 6.22, as applicable;            (v)         Borrower shall have delivered to Administrative Agent (which Administrative Agent shall promptly furnish to the Lenders) (A) at least 10 Business Days prior to such proposed acquisition, a Compliance Certificate evidencing pro forma compliance with Sections 6.6, 6.7, 6.8 and 6.22, as applicable, as required under clause (iv) above, together with all relevant financial information with respect to such acquired assets, including, without limitation, the aggregate consideration for such acquisition and any other information required to demonstrate pro forma compliance with Sections 6.6, 6.7, 6.8 and 6.22, as applicable;            (vi)         any Person or assets or division as acquired in accordance herewith shall be in same business or lines of business in which Borrower and/or its Subsidiaries are engaged as of the Amendment No. 1 Effective Date or such other lines of business as may be consented to by Requisite Lenders;            (vii)         the principal operations of all Persons, assets or divisions acquired shall be located either (I) in the Initial Borrower Markets or (II) in one of the Pre-approved Borrower Markets (other than those located in New Mexico, Texas, Wisconsin or Minnesota) designated in writing by the Borrower to the Administrative Agent or (III) in an Other Market or Pre-approved Borrower Market located in New Mexico, Texas, Wisconsin or Minnesota designated by Borrower in writing to Administrative Agent and approved by Requisite Lenders in their absolute discretion; provided in each case (A) the principal operations, assets or divisions acquired are related to Borrower’s Telecommunications Business, (B) the Borrower shall provide the Syndication Agent and the Administrative Agent with a revised Financial Plan in form and substance reasonably satisfactory to the Syndication Agent and Administrative Agent, which revised Financial Plan demonstrates that (1) the Borrower’s business in all proposed and existing Geographic Markets, as described in such revised Financial Plan, is fully financed and (2) each of the Borrower and the Parent is in pro forma compliance with its financial covenants as required pursuant to clause (iv) and (v) above, and (C) that the acquisition does not reduce Consolidated EBITDA on a pro forma basis as to any future Fiscal Quarter based on actual historical results with such adjustments as are consistent with Regulation S-X; and            (viii)         the aggregate cash portion of the purchase price paid in connection with all such acquisitions since the Amendment No. 1 Effective Date does not exceed an amount equivalent to the sum of (a) 100% of the net proceeds of the Equity Issuance in excess of $75,000,000 up to $80,000,000, plus 50% of the net proceeds of the Equity Issuance in excess of $80,000,000 in aggregate, and (b) the Available Proceeds Amount.”         ""Revolving Loan Commitment Termination Date" means the earliest to occur of (i) September 30, 2006, (ii) the date the Revolving Loan Commitments are permanently reduced to zero pursuant to Sections 2.10, 2.11(b) or 2.12, and (iii) the date of the termination of the Revolving Loan Commitments pursuant to Section 8.1."         ""Revolving Loan Maturity Date" means the earlier of (i) September 30, 2006 and (ii) the date that all Revolving Loans shall become due and payable in full hereunder, whether by acceleration or otherwise."        ""Subject Acquisition" means a Permitted Acquisition or series of related Permitted Acquisitions by Borrower or any of its Subsidiaries for which total consideration, when aggregated with the consideration paid in respect of all other Permitted Acquisitions (A) since the Amendment No. 1 Effective Date, exceeds $5,000,000 in the aggregate or (B) since the date of the last occurrence of a Subject Acquisition, exceeds $5,000,000 in the aggregate."         ""Subject Asset Sale" means an Asset Sale or series of related Asset Sales by Borrower or any of its Subsidiaries for which total consideration, when aggregated with the consideration paid in respect of all other Asset Sales (A) since the Amendment No. 1 Effective Date, exceeds $5,000,000 in the aggregate or (B) since the date of the last occurrence of a Subject Asset Sale, exceeds $5,000,000 in the aggregate."         ""Tranche A Term Loan Maturity Date" means the earlier of (i) September 30, 2006 and (ii) the date that all Tranche A Term Loans shall become due and payable in full hereunder, whether by acceleration or otherwise."          1.3        Section 2.1(a)(v) of the Credit Agreement is hereby amended by inserting the following at the beginning thereof:         "Notwithstanding the following provisions of this Section 2.1(a)(v), such provisions shall terminate and be permanently unavailable to the Borrower after and including the Amendment No. 1 Effective Date."         1.4         Section 2.4 of the Credit Agreement is hereby amended by deleting the last sentence of such Section and replacing such sentence in its entirety with the following:           “The proceeds of Nortel Networks Loans drawn on the Closing Date shall have been used solely to repay amounts owing under item (iii) of the definition of Existing Indebtedness, and the proceeds of Nortel Networks Loans thereafter shall be used solely to provide financing for the purchase of equipment licensed, manufactured or supplied by Nortel Networks and related services (including, without limitation, the installation and construction services in respect of such equipment) from Nortel Networks and related fees, charges and expenses in respect thereof to the extent incurred subsequent to the Closing Date or pursuant to TriVergent’s equipment purchase commitment contained in that certain TriVergent Amendment No. 2 to the Master Purchase Agreement dated March 7, 2000, between TriVergent and Nortel Networks; provided that after the Amendment No. 1 Effective Date the proceeds of Nortel Networks Loans shall be used solely to provide financing for the purchase of equipment licensed, manufactured or supplied by Nortel Networks and related services (including, without limitation, the installation and construction services in respect of such equipment) from Nortel Networks and related fees, charges and expenses in respect thereof to the extent incurred subsequent to the Amendment No. 1 Effective Date. After the Amendment No. 1 Effective Date, the proceeds of Loans other than Nortel Networks Loans shall not be used to purchase or reimburse the purchase cost of equipment licensed, manufactured or supplied by Nortel Networks and related services and related fees, charges and expenses in respect thereof at a time when Nortel Networks Loans are otherwise available to be borrowed for such purpose.”         1.5         Section 2.10 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "2.10     Commitment Reductions/Scheduled Payments.         (a) Scheduled Revolving Commitment Reductions. The Revolving Loan Commitments hereunder shall be permanently reduced in the percentages of the aggregate Revolving Loan Commitments as of December 31, 2003 set forth below in consecutive quarterly installments (each, a "Reduction") on the dates set forth below: Date Revolving Loan Commitment Reductions December 31, 2003 2.50% March 31, 2004 2.50% June 30, 2004 2.50% September 30, 2004 2.50% December 31, 2004 3.75% March 31, 2005 3.75% June 30, 2005 3.75% September 30, 2005 3.75% December 31, 2005 5.00% March 31, 2006 5.00% June 30, 2006 5.00% September 30, 2006 60.00%   Notwithstanding the foregoing, (i) such Reductions shall be reduced in connection with any voluntary or mandatory reductions of the Revolving Loan Commitments in accordance with Sections 2.11, 2.12 or 2.13 and (ii) the Revolving Loans, together with all amounts owing hereunder with respect thereto, shall be permanently repaid in full no later than the Revolving Loan Maturity Date.         (b) Scheduled Tranche A Term Loan Installments, Delayed Draw Term Loan Installments and Nortel Networks Loan Installments. The principal amounts of the Tranche A Term Loan, Delayed Draw Term Loans and Nortel Networks Loans shall be repaid in the percentages of such Loans outstanding as of December 31, 2003 set forth below in consecutive quarterly installments (each, a "Tranche A Term Loan Installment", "Delayed Draw Term Loan Installment", or " Nortel Networks Loan Installment" as applicable) on the dates set forth below: Date Tranche A Term Loan, Delayed Draw Term Loan and Nortel Networks Loan Installments December 31, 2003 2.50% March 31, 2004 2.50% June 30, 2004 2.50% September 30, 2004 2.50% December 31, 2004 3.75% March 31, 2005 3.75% June 30, 2005 3.75% September 30, 2005 3.75% December 31, 2005 5.00% March 31, 2006 5.00% June 30, 2006 5.00% September 30, 2006 60.00%   Notwithstanding the foregoing, (i) such Tranche A Term Loan Installments, Delayed Draw Term Loan Installments and Nortel Networks Loan Installments shall be reduced in connection with any voluntary or mandatory reduction or prepayments of the Tranche A Term Loans, Delayed Draw Term Loans or Nortel Networks Loans, as applicable, in accordance with Sections 2.11, 2.12 or 2.13 and (ii) the Tranche A Term Loans, Delayed Draw Term Loans and Nortel Networks Loans, together with all other amounts owed hereunder with respect thereto, shall be permanently repaid in full no later than the Tranche A Term Loan Maturity Date, or Delayed Draw Term Loan Maturity Date or Nortel Networks Loan Maturity Date, as the case may be.”          1.6        Section 2.12 of the Credit Agreement is hereby amended by the addition of a new subsection (f) as follows:          "(f) Permitted Parent Debt. Borrower shall immediately prepay Loans and permanently reduce Commitments, all as set forth in Section 2.13(b), in an aggregate amount equal to the net proceeds of any issuance of Permitted Parent Debt."          1.7        Section 2.12(a) of the Credit Agreement is hereby deleted and replaced with the following:          "(a) Asset Sales. After the receipt by Borrower or any of its Subsidiaries, Holding Company or Parent of Net Asset Sale Proceeds, Borrower shall (and Parent shall cause Borrower to) prepay Loans and permanently reduce Commitments, all as set forth in Section 2.13(b), (i) within 5 days of receipt, with 100% of any Net Asset Sale Proceeds in excess of $20,000,000 in aggregate from the Amendment No. 1 Effective Date, (ii) within 5 days of receipt, with 50% of any Net Asset Sale Proceeds (not exceeding $20,000,000 in aggregate from the Amendment No. 1 Effective Date) and (iii) within 270 days after receipt and to the extent Borrower has not repaid pursuant to (ii) above or reinvested in Telecommunications Assets (of the general type used in the business of Parent and its Subsidiaries, as certified to Administrative Agent by Parent), with any portion of such Net Asset Sale Proceeds not so repaid or reinvested. Pending a determination whether any Net Asset Sale Proceeds shall be applied to prepay outstanding Loans and/or reduce Commitments pursuant to the preceding sentence, such Net Asset Sale Proceeds shall be applied to prepay outstanding Revolving Loans (without a reduction in the Revolving Loan Commitments pending such determination). Further, to the extent such Net Asset Sale Proceeds are reinvested as provided above, replacement Liens shall be granted to the Collateral Agent pursuant to Section 1.3 of the Pledge and Security Agreement."          1.8        Section 2.13(b) of the Credit Agreement is hereby amended by the insertion in the first sentence thereof, following the phrase "through 2.12(c)," of the following:         "and 2.12(f)"          1.9        Section 3.2(a) of the Credit Agreement is hereby amended by the addition of the following at the end thereof:         "(ix) the Chief Financial Officer of the Parent shall have delivered a certificate demonstrating to the satisfaction of the Administrative Agent that, and further representing and warranting that:            (1)         Parent and Borrower expect, after giving effect to the proposed borrowing, and based upon good faith determinations and projections consistent with the current Financial Plan, to be in compliance with all operating and financial covenants at the end of the current period;            (2)         after giving effect to the proposed borrowing, the sum of aggregate outstanding Loans and the Letters of Credit Usage shall not exceed $175 million prior to April 1, 2002 and $200 million between April 1, 2002 and June 30, 2002 (such availability subject to the delivery of a Compliance Certificate demonstrating compliance with all operating and financial covenants as of the end of the prior period as required by Section 3.2(a)(viii) of this Agreement); and            (3)          proceeds of Loans (other than Nortel Loans) are not being used to fund or reimburse the purchase cost of equipment and services from Nortel Networks, Inc. at a time when Nortel Loans are otherwise available to be borrowed for such purpose.”          1.10        Section 5.1(a) of the Credit Agreement is hereby amended by the addition of a new subsection (v) as follows:          "(v) Additional Quarterly Reports. As soon as practicable, and in any event no later than forty-five (45) days after the end of each Fiscal Quarter, a quarterly operational progress report in form satisfactory to the Administrative Agent setting out the number of New Customers, Access Lines Per New Customer, Days Sales Outstanding, Total Acquisition Cost per New Customer, quantity and cost of customer premise equipment installed and number of "local loops" installed (measured by adding T-1's and "EELs", excluding conversions of existing lines to "EELs")."          1.11        Section 5.1(d) of the Credit Agreement is hereby amended by deleting the ";" on the last line thereof and adding:   “and together with each delivery of monthly reports of Parent and its Subsidiaries pursuant to Section 5.1(a), a duly executed and completed Compliance Certificate demonstrating compliance with Section 6.22;"          1.12        Section 5.1(j) of the Credit Agreement is hereby amended by inserting the following after a "Financial Plan": ", in form and substance reasonably satisfactory to the Syndication Agent and the Administrative Agent,"          1.13        Section 5.12 of the Credit Agreement is hereby amended by the addition of the following at the end thereof:   “Parent shall contribute the aggregate net cash proceeds of all future equity and debt issuances to Holding Company as Paid-In Borrower Capital and Holding Company shall contribute such proceeds of debt issuances to Borrower, which proceeds Borrower shall immediately apply as a mandatory prepayment as required under Section 2.12(f).”          1.14        Section 5.15 of the Credit Agreement is hereby amended by the addition of the following at the end thereof:   “Holding Company shall (i) at all times ensure that all Cash and Cash Equivalents at any time held by it are subject to a valid and perfected first priority Lien in favor of the Lenders, and (ii) ensure that at all times such Cash and Cash Equivalents are in bank accounts subject to the account control agreements or are otherwise subject to the securities control agreements, which agreements exist as of the Amendment No. 1 Effective Date.”          1.15        Section 6.1 of the Credit Agreement is hereby amended by adding the following subsection: "(h) any Interest Rate Agreements required pursuant to Section 5.11."          1.16        Section 6.1(f) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:          "(f) Indebtedness with respect to Capital Leases in an aggregate amount not to exceed at any time $15,000,000, provided that no more than $5,000,000 in aggregate of such amount at any time shall be in respect of Capital Leases of items which are not customer premise equipment."          1.17       Section 6.1B of the Credit Agreement is hereby amended by deleting the last sentence of such Section and replacing such sentence in its entirety with: "Notwithstanding the foregoing, but subject always to Section 6.8, except with the Requisite Lenders' consent, Unrestricted Subsidiaries of Holding Company shall not be able to create, incur, assume or guaranty, or otherwise become or remain liable with respect to any secured or unsecured Indebtedness, except in the case of GCI Transportation Company L.L.C. which shall be permitted to incur secured Indebtedness up to $2,760,000 on or prior to September 30, 2001."          1.18        Section 6.4(a) of the Credit Agreement is hereby amended by deleting subsection (iv) in its entirety and inserting the phrase:           "(reserved); and"          1.19          Sections 6.5(k), (l), and (m) of the Credit Agreement are hereby deleted in their entirety and replaced with the following:         "(k) in the case of Borrower, promissory notes and other Indebtedness received in connection with Asset Sales permitted by Section 6.9 to an aggregate amount not to exceed $3,000,000 at any one time outstanding; provided that any such promissory note (or series of related promissory notes) payable in a principal amount equal to or greater than $250,000 shall have been delivered to the Administrative Agent to be held as Collateral pursuant to the Pledge and Security Agreement; and, in the case of Holding Company, promissory notes and other Indebtedness received in connection with the sale of any Unrestricted Subsidiary;         (l) other cash Investments by Holding Company (other than Investments referred to in Section 6.5(m)) in an amount not to exceed the lesser of the Available Proceeds Amount or $7,500,000; provided that (i) immediately prior to, and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing or would result therefrom, (ii) Parent and its Subsidiaries shall be in compliance with, immediately before and after giving pro forma effect to such Investment, Sections 6.6, 6.7, 6.8 and 6.22, as applicable, (iii) such Investment is subject to a Lien (junior only to Permitted Encumbrances) granted to the Collateral Agent pursuant to Section 1.3 of the Pledge and Security Agreement, and (iv) the sale or transfer of such Investment is not subject to any restrictions other than those imposed by this Agreement or applicable law or regulation; and         (m) in the case of the Holding Company, following the Amendment No. 1 Effective Date, Investments in Unrestricted Subsidiaries established or acquired pursuant to Sections 6.18 or 6.21, respectively, so long as such Investments are for the routine operation and maintenance of the aircraft currently operated by GCI Transportation Company L.L.C. in an aggregate total amount in any Fiscal Year not to exceed $100,000."          1.20         Section 6.6(a) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:         "(a) Minimum Adjusted Revenues. Borrower shall not permit Adjusted Revenues as of the last day of any Fiscal Quarter, beginning with the Fiscal Quarter ending September 30, 2001, to be less than the correlative amount indicated as set forth on Schedule 6.6(a) (in each case as such amount may be adjusted pursuant to Section 6.6(g))."          1.21        Schedules 6.6(a), (b), (c) and (e) of the Credit Agreement are hereby deleted and replaced with the corresponding schedules attached as Annex I hereto. New Schedules 6.6(h) and 6.6(i) attached hereto as Annexes II and III, respectively, are hereby added to the Credit Agreement.          1.22        Section 6.6(d) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:         "(d) Total Borrower Debt to Total Borrower Capitalization. At any time during Stage 1, Borrower shall not permit the ratio of Total Borrower Debt to Total Borrower Capitalization to exceed 0.40:1.00."          1.23        Section 6.6(g) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:         "(g) Certain Calculations.    (i) (1) For purposes of determining compliance with the financial covenants set forth in Sections 6.6(a), (b), (c), and (h), the minimum Adjusted Revenues, minimum Access Lines, minimum EBITDA/maximum EBITDA loss, and minimum Gross Profits specified in such Sections shall be increased for any period in which a Subject Acquisition has occurred and each succeeding period thereafter by 100% of the Adjusted Revenues, Access Lines, Consolidated EBITDA and Gross Profits of the entity or assets being acquired for the then most recently completed Fiscal Quarter prior to the date of such acquisition using the historical financial statements of such entity, and the consolidated financial statements of Borrower and its Subsidiaries shall be restated on a pro forma basis as if such transaction had been consummated at the beginning of such period; and all such pro forma adjustments shall be accompanied by a Financial Officer Certification; (2) for the purposes of determining compliance with the financial covenant set forth in Section 6.6(i), the minimum Available Cash specified in such Section shall be reduced by the aggregate amount of all mandatory prepayments (and resulting Commitment reductions) pursuant to Section 2.12, but in no event shall such specified minimum Available Cash be less than $5,000,000.                 (ii) For purposes of determining compliance with the financial covenants set forth in Sections 6.6(a), (b), (c) and (h), the minimum Adjusted Revenues, Access Lines, Consolidated EBITDA, and minimum Gross Profits specified in such Sections shall be decreased for any period in which a Subject Asset Sale has occurred and each succeeding period thereafter by 100% of the Adjusted Revenues, Access Lines (if any), Consolidated EBITDA and Gross Profits of the entity or assets being sold for the then most recently completed Fiscal Quarter prior to the date of such sale and the consolidated financial statements of Borrower and its Subsidiaries shall be restated on a pro forma basis as if such transaction had been consummated at the beginning of such period; and all such pro forma adjustments shall be accompanied by a Financial Officer Certification.          1.24         Section 6.6 of the Credit Agreement is hereby amended to add the following new sub-sections:         "(h) Minimum Gross Profits. Borrower shall not permit Gross Profits as of the last day of any Fiscal Quarter, beginning with the Fiscal Quarter ending September 30, 2001, to be less than the correlative amount set forth on Schedule 6.6(h) (in each case as such amount may be adjusted pursuant to Section 6.6(g)).          (i) Minimum Available Cash. During Stage 1, the Borrower shall not permit the amount of Available Cash to be less than the correlative amount set forth on Schedule 6.6(i), (A) as of any Credit Date, (B) as of the last day of any Fiscal Quarter and (C) for any period of more than ten consecutive Business Days during any Fiscal Quarter."          1.25        Section 6.18(a) of the Credit Agreement is hereby amended by inserting the following at the beginning thereof before the phrase "Holding Company": "Without the Requisite Lenders' consent, Holding Company may not establish any new Unrestricted Subsidiaries. Subject to the prior sentence,"          1.26        Section 6 of the Credit Agreement is hereby amended by the addition of a new Section 6.22 as follows:         "6.22 Stage 1 Operating Covenant. At any time during Stage 1, the Borrower shall not permit the number of Access Lines at the end of any month to be less than the number of Access Lines as of the end of the prior month.          1.27        Section 10.5(a) of the Credit Agreement is hereby amended by inserting the following phrase immediately after the words "Credit Documents": ", other than Hedge Agreements with any Lender Counterparty pursuant to Section 5.11". SECTION 2.     CONDITIONS PRECEDENT         The provisions set forth in Section 1 hereof shall be effective as of the date (the "Amendment No. 1 Effective Date") on which each of the following conditions shall have been satisfied (or waived in accordance with Section 10.5 of the Credit Agreement):         2.1      Parent shall have received aggregate net cash proceeds of no less than $75 million as a result of the Equity Issuance. The net of all such proceeds shall have been contributed to the Holding Company as Paid-In Borrower Capital, and the Borrower shall have repaid any Loans made after July 31, 2001 with such proceeds.          2.2     All necessary governmental and/or third party approvals shall have been obtained.          2.3     The payment on the Amendment No. 1 Effective Date of:           (i)      the reasonable fees, expenses and disbursements in connection with the negotiation, preparation and execution of this Amendment No.1 and all outstanding fees owing Skadden, Arps, Slate, Meagher & Flom LLP;           (ii)      the fees, expenses and disbursements of PricewaterhouseCoopers LLP in connection with due diligence relating to revised projections provided by the Borrower; and           (iii)      such fees as shall have been agreed by the Borrower, the Syndication Agent and the Administrative Agent including, without limitation, a fee payable to each Lender consenting to and executing this Amendment No. 1 in an amount equal to 0.25% of such Lender’s aggregate Commitments; and          2.4        No Default or Event of Default shall have occurred under the Credit Agreement or result as a consequence of the amendments and transactions contemplated hereby.          2.5        Since December 31, 1999 no event or change shall have occurred that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect.          2.6        The Syndication Agent and the Administrative Agent shall have completed and continue to be satisfied with their due diligence review of the Parent and its Subsidiaries.          2.7        The execution and delivery in form and substance reasonably satisfactory to the Administrative Agent and the Syndication Agent of opinions of counsel to the Parent as may be reasonably requested.          2.8        The execution and delivery of definitive documentation in respect of the Equity Issuance that the Administrative Agent and Syndication Agent shall have acknowledged is substantially on the terms set out in Exhibit A hereto (such acknowledgement not to be unreasonably withheld or delayed). SECTION 3.     REPRESENTATIONS AND WARRANTIES          In order to induce the Agents and Lenders to enter into this Amendment No. 1, each Credit Party represents and warrants to each Agent and each Lender, that:          3.1        As of the Amendment No. 1 Effective Date, each of the representations and warranties contained in each of the Credit Documents is true, correct and complete in all material respects to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true, correct and complete in all material respects on and as of such earlier date.          3.2         As of the Amendment No. 1 Effective Date, each and every Credit Party has all requisite power to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into this Amendment No. 1, and to carry out the transactions contemplated hereby. The execution, delivery and performance of this Amendment No. 1 has been duly authorized by all necessary action on the part of each Credit Party that is a party to this Amendment No. 1.          3.3        The execution, delivery and performance by each of the Credit Parties to this Amendment No. 1 and the consummation of the transactions contemplated by this Amendment No. 1 do not and will not (a) violate any provision of any law or any governmental rule or regulation applicable to any of the Credit Parties, any Governmental Authorization, any of the Organizational Documents of Parent or any of its Subsidiaries, or any order, judgment or decree of any court or other agency of government binding on any of the Credit Parties, (b) 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 any Credit Party, (c) result in or require the creation or imposition of any Lien upon any of the material properties or assets of any Credit Party or any of its Subsidiaries (other than any Liens created under this Amendment No. 1 or any of the other Credit Documents in favor of Collateral Agent on behalf of the Secured Parties) or (d) require any registration with, consent or approval of, or notice to, or other action to, with or by, any Governmental Authority or any Person under any Contractual Obligation; except for such registration, consent or approval obtained by the Amendment No. 1 Effective Date and disclosed in writing to Lenders.          3.4        This Amendment No. 1 has been duly executed and delivered by each Credit Party and is the legally valid and binding obligation of such Credit Party, enforceable against such Credit Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. SECTION 4.      MISCELLANEOUS          4.1        This Amendment No.1 shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of Lenders. No Credit Party rights or obligations hereunder or any interest therein may be assigned or delegated by any Credit Party without the prior written consent of all Lenders.          4.2        Except as expressly amended hereby, the Credit Agreement and all other documents, agreements and instruments relating thereto are and shall remain unmodified and in full force and effect. On and after the Amendment No. 1 Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import, and each reference in the Notes to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended hereby, and this Amendment No. 1 and the Credit Agreement shall be read together and construed as a single instrument. Each Credit Party hereby (a) reaffirms and admits the validity and enforceability of the Credit Agreement and the other Credit Documents (including without limitation all guarantees and grants of security interests contained therein) and all of its obligations thereunder, and (b) agrees and admits that it has no defenses to or offsets against any of its obligations to any Agent or any Lender under the Credit Documents.          4.3        In case any provision in or obligation hereunder or any 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.          4.4        Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.          4.5        THIS AMENDMENT NO. 1 AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 AND SECTION 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK) WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF EXCEPT AS TO MATTERS OF CORPORATE GOVERNANCE, WHICH SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE JURISDICTION OF INCORPORATION OR ORGANIZATION OF THE SUBJECT PERSON.          4.6        To facilitate reference to the provisions of the Credit Agreement, as amended by this Amendment No. 1, each Lender executing this Amendment No. 1 hereby authorizes Administrative Agent, on its behalf, to enter into an amendment and restatement of the Credit Agreement, at the Administrative Agent's option, as amended by this Amendment No. 1; provided that any such amendment and restatement shall be distributed to each Lender.          4.7        This Amendment No. 1 may be executed in any number of 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. As set forth herein, this Amendment No. 1 shall become effective upon the execution of a counterpart hereof by each of the Borrower, each other Credit Party, the Administrative Agent, the Syndication Agent and Requisite Lenders and receipt by Borrower and Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof.          4.8        The Lenders executing this Amendment No. 1 hereby acknowledge that they are not aware of the existence of any Default or Event of Default as of the Amendment No. 1 Effective Date. [The remainder of this page is intentionally left blank.]         IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.   GABRIEL COMMUNICATIONS FINANCE COMPANY, as Borrower   By:   --------------------------------------------------------------------------------     Name: Title:   NUVOX, INC. (formerly known as GABRIEL COMMUNICATIONS, INC.), as Parent   By:   --------------------------------------------------------------------------------     Name: Title:   GABRIEL COMMUNICATIONS PROPERTIES, INC., as Holding Company   By:   --------------------------------------------------------------------------------     Name: Title:   NUVOX COMMUNICATIONS OF ARKANSAS, INC.   By:   --------------------------------------------------------------------------------     Name: Title: S-1   NUVOX COMMUNICATIONS OF ILLINOIS, INC.   By:   --------------------------------------------------------------------------------     Name: Title:   NUVOX COMMUNICATIONS OF INDIANA, INC.   By:   --------------------------------------------------------------------------------     Name: Title:   NUVOX COMMUNICATIONS OF KANSAS, INC.   By:   --------------------------------------------------------------------------------     Name: Title:   NUVOX COMMUNICATIONS OF MISSOURI, INC.   By:   --------------------------------------------------------------------------------     Name: Title:   NUVOX COMMUNICATIONS OF OHIO, INC.   By:   --------------------------------------------------------------------------------     Name: Title: S-2   NUVOX COMMUNICATIONS OF OKLAHOMA, INC.   By:   --------------------------------------------------------------------------------     Name: Title:   NUVOX COMMUNICATIONS OF TENNESSEE, INC.   By:   --------------------------------------------------------------------------------     Name: Title:   NUVOX COMMUNICATIONS OF TEXAS, INC.   By:   --------------------------------------------------------------------------------     Name: Title:   TRIVERGENT CORPORATION   By:   --------------------------------------------------------------------------------     Name: Title:   CAROLINA ONLINE, INC.   By:   --------------------------------------------------------------------------------     Name: Title: S-3   INTERNET/MCR CORPORATION   By:   --------------------------------------------------------------------------------     Name: Title:   ISAAC ACQUISITION CORP.   By:   --------------------------------------------------------------------------------     Name: Title:   TELECO ACQUISITION CORP.   By:   --------------------------------------------------------------------------------     Name: Title:   NUVOX COMMUNICATIONS, INC.   By:   --------------------------------------------------------------------------------     Name: Title:   TRIVERGENT LEASING, LLC Manager: TriVergent Communications, Inc.   By:   --------------------------------------------------------------------------------     Name: Title: S-4   TRIVERGENT LEASING SOUTH, LLC Manager: TriVergent Communications South, Inc.   By:   --------------------------------------------------------------------------------     Name: Title:   AMTEL ACQUISITION CORP.   By:   --------------------------------------------------------------------------------     Name: Title:   CCN ACQUISITION CORP.   By:   --------------------------------------------------------------------------------     Name: Title:   SHARED TELECOM SERVICES, INC.   By:   --------------------------------------------------------------------------------     Name: Title: S-5   GOLDMAN SACHS CREDIT PARTNERS L.P., as Sole Lead Arranger, Syndication Agent, Sole Book Runner and a Lender   By:   --------------------------------------------------------------------------------     Authorized Signatory S-6   FIRST UNION NATIONAL BANK, as Administrative Agent, Issuing Bank and a Lender   By:   --------------------------------------------------------------------------------     Name: Title: S-7   BARCLAYS BANK PLC, as Documentation Agent and a Lender   By:   --------------------------------------------------------------------------------     Name: Title: S-8   CIT LENDING SERVICES CORPORATION, as Co-Documentation Agent and a Lender   By:   --------------------------------------------------------------------------------     Name: Title: S-9   NORTEL NETWORKS INC., as a Lender   By:   --------------------------------------------------------------------------------     Name: Title: S-10   CIBC INC., as a Lender   By:   --------------------------------------------------------------------------------     Name: Title: S-11   GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender   By:   --------------------------------------------------------------------------------     Name: Title: S-12 ANNEX I Schedule 6.6(a) - Stage 1 Minimum Adjusted Revenues Fiscal Quarter Ending Minimum Adjusted Revenues ($) September 30, 2001 15,200,000 December 31, 2001 19,600,000 March 31, 2002 25,700,000 June 30, 2002 31,400,000 September 30, 2002 37,700,000 December 31, 2002 44,400,000 March 31, 2003 51,800,000 June 30, 2003 59,000,000 Schedule 6.6(b) - Stage 1 Minimum Access Lines Fiscal Quarter Ending Minimum Access Lines September 30, 2001 107,000 December 31, 2001 132,000 March 31, 2002 162,000 June 30, 2002 196,000 September 30, 2002 233,000 December 31, 2002 272,000 March 31, 2003 313,000 June 30, 2003 356,000 A-1 Schedule 6.6(c) - Stage 1 Minimum EBITDA/Maximum EBITDA Loss Fiscal Quarter Ending Maximum EBITDA Loss/ Minimum EBITDA ($) September 30, 2001 (21,500,000) December 31, 2001 (18,500,000) March 31, 2002 (14,100,000) June 30, 2002 (9,800,000) September 30, 2002 (5,300,000) December 31, 2002 100,000 March 31, 2003 8,900,000 June 30, 2003 13,000,000 Schedule 6.6(e) - Maximum Borrower Capital Expenditures Fiscal Year Ended Maximum Borrower Capital Expenditures ($) December 31, 2001 55,000,000 December 31, 2002 56,000,000 December 31, 2003 58,000,000 A-2 ANNEX II Schedule 6.6(h) - New Stage 1 Financial Covenant Fiscal Quarter Ending Gross Profit ($) September 30, 2001 3,500,000 December 31, 2001 5,800,000 March 31, 2002 11,500,000 June 30, 2002 14,900,000 September 30, 2002 18,800,000 December 31, 2002 23,200,000 March 31, 2003 30,400,000 June 30, 2003 34,400,000 A-3 ANNEX III Schedule 6.6(i) - Stage 1 Minimum Available Cash Covenant Fiscal Quarter Ending Minimum Available Cash ($) September 30, 2001 125,000,000 December 31, 2001 95,000,000 March 31, 2002 67,000,000 June 30, 2002 43,500,000 September 30, 2002 23,500,000 December 31, 2002 7,000,000 March 31, 2003 5,000,000 June 30, 2003 5,000,000

Exhibit 10.4 Amendment Number 1 to Watson Wyatt & Company Senior Officers Deferred Compensation Plan Section 4 is amended as follows: 4. Requirement to Defer If a Participant's Applicable Employee Remuneration exceeds $1,050,000, the amount in excess of $1,000,000 will be deferred. Amounts deferred under this Paragraph 4 shall be referred to as the "Deferred Amounts." Section 6 is amended as follows: 6. Investment Options and Additions to Deferred Amounts The Plan shall offer a minimum of three Investment Options including an interest factor equal to the prime rate of interest as reported by BankAmerica, or the Company's bank if different. A Participant's Deferred Compensation Account shall be deemed to be invested in the Investment Options the Participant has selected and may thereafter be changed in accordance with policies and procedures developed by the Committee. Executed on behalf of Watson Wyatt & Company pursuant to authorization of its Board of Directors given on December 18, 2000.   /s/ Walter W. Bardenwerper Vice President and Secretary   8/17/01   --------------------------------------------------------------------------------         Walter W. Bardenwerper           Watson Wyatt & Company Senior Officers Deferred Compensation Plan 1. Purpose The purpose of the Watson Wyatt & Company Voluntary Deferred Compensation Plan (the "Plan") is to preserve Watson Wyatt & Company's tax deduction for compensation in excess of $1,000,000 which is otherwise lost under section 162(m) of the Internal Revenue Code. 2. Administration The Plan shall be administered by the Compensation and Stock Committee of the Board of Directors of the Company (the "Committee"). The Committee shall have sole and complete authority to interpret the terms and provisions of the Plan and to delegate various administrative tasks to appropriate officers and employees of the Company. 3. Eligibility The chief executive officer and the other four highest compensated officers as disclosed in the proxy shall participate in the Plan if their Applicable Employee Remuneration (as defined in section 162(m)(4) of the Internal Revenue Code) exceeds $1,000,000. Such persons shall be collectively referred to as the "Participant" or "Participants" as the case may be. 4. Requirement to Defer If a Participant's Applicable Employee Remuneration exceeds $1,000,000, the amount in excess of $1,000,000 will be deferred. Amounts deferred under this Paragraph 4 shall be referred to as the "Deferred Amounts." 5. Establishment of Deferred Compensation Account At the time of the Participant's initial deferral pursuant to Paragraph 4, the Company shall establish a memorandum account (a "Deferred Compensation Account") for such Participant on its books. Deferred Amounts shall be credited to the Deferred Compensation Account at the time the Deferred Amounts would have been paid to the Participant if no deferral were made. Additions as provided in Paragraph 6, below; shall be credited to the Participant's Deferred Compensation Account as of the last day of each month. 6. Additions to Deferred Amounts As of the last day of each month, the balance in the Participant's Deferred Compensation Account at the beginning of that month shall be credited with interest using an interest factor equivalent to the prime rate of interest as reported by NationsBank at the beginning of such month. 7. Payment of Deferred Amounts Except as otherwise provided in subparagraph (b) below, the period of deferral shall be until the earlier of (i) the Participant is not named in the Summary Compensation Table of the Watson Wyatt & Company proxy or (ii) payment of the Deferred Amount will be deductible by Watson Wyatt & Company. Payments made because the Participant is not named in the Summary Compensation Table shall be in a lump sum. In the event of the Participant's death, payment of the balance in the Participant's Deferred Compensation Account shall be made to the beneficiary designated by the Participant in writing and delivered to the Committee, or if none, to the Participant's estate. (b) A Participant shall receive the balance in the Deferred Compensation Account as soon as practical after the occurrence of a Change in Control of the Company. The term "Change in Control" shall mean a Change in Control of a nature that would be required to be reported, by persons or entities subject to the reporting requirements of Section 14(a) of the Securities and Exchange Act of 1934 (the 1934 Act) in response to item 6(e) of Schedule 14A of Regulation 14A, or successor provisions thereto, as in effect on the date hereof; provided that, without limitation, such a Change in Control shall be deemed to have occurred if (1) any "person" or "group" (as those terms are used in Sections 13(d) and 14(d) of the 1934 Act) is or becomes the "beneficial owner" (as defined in Rule 13(d)–3 issued under the 1934 Act), 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; or, if, (2) at any time during any period of two consecutive fiscal years, individuals who at the beginning of such period constitute the board of directors of the Company cease for any reason to constitute at least the majority thereof unless the election, or the nomination for election by the Company's shareholders, of each new director was approved by a vote of at least two-thirds of the directors still in office who were directors at the beginning of such two-year period; or if (3) the Company is merged into or consolidated with another entity, as a result of which the shareholders of the Company immediately prior to such merger or consolidation own less than 75% of the voting interest in the surviving entity or the parent of the surviving entity. 8. Participant Reports The Committee shall provide a statement to the Participant at least annually concerning the status of his/her Deferred Compensation Account. 9. Transferability of Interests All Deferred Compensation Accounts shall be merely bookkeeping entries. Any assets which may be reserved to pay benefits hereunder, shall be considered as general assets of the Company for use as it deems necessary and shall be subject to the claims of the Company's creditors. The rights and interests of a Participant shall be solely those of a general creditor of the Company and such Participant's rights and interests may not be anticipated, assigned, pledged, transferred or otherwise encumbered or disposed of except in the event of the death of the Participant, and then only by will or the laws of descent and distribution. 10. Conditions of Employment Not Affected by the Plans The establishment and maintenance of the Plans will not be construed as conferring any legal rights upon any person to the continuance of his/her employment with the Company or any of its subsidiaries, nor will the Plans interfere with the rights of the Company or any of its subsidiaries to discharge any person from its employ.   11. Amendment, Suspension and Termination The Company by action of its Board of Directors may amend, suspend or terminate the Plan or any portion thereof in such manner and to such extent as it may deem advisable and in the best interests of the Company. No amendment, suspension and termination shall alter or impair any Deferred Compensation Accounts without the consent of the Participant affected thereby. 12. Unfunded Obligation The Plan shall not be funded, and no trust, escrow or other provisions shall be established to secure payments due under the Plan. A Participant shall be treated as a general, unsecured creditor of the Company at all times under the Plan. 13. Applicable Law The Plan will be construed and enforced according to the laws of Maryland and all provisions of the Plan will be administered accordingly. 14. Severability If any provision of this Plan is declared to be invalid or unenforceable, such provision shall be severed from this Plan and the other provisions hereof shall remain in full force and effect. 15. Effective Date The Plan shall be effective immediately upon approval by the Board of Directors of the Company.   Executed on behalf of Watson Wyatt & Company pursuant to authorization of its Board of Directors given on February 21, 1997. /s/ Walter W. Bardenwerper Vice President and Secretary   8/17/01   --------------------------------------------------------------------------------         Walter W. Bardenwerper          

EMPLOYMENT AGREEMENT This Agreement, dated April 24, 2001, is between Wild Oats Markets, Inc., a Delaware corporation (the "Company") and Stephen P. Kaczynski ("Executive"). For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:      1.     Employment.     The Company agrees to employ Executive, and Executive hereby accepts employment with the Company, upon the terms and conditions set forth in this Agreement for a two-year period beginning on the date hereof (the "Initial Employment Period"). The term of this Agreement shall be automatically renewed thereafter on the anniversary of the date Executive commenced employment for successive one year periods unless the Company shall provide notice to the Executive, given within 60 days prior to the anniversary date of the Executive's employment, that the Company has elected not to renew this Agreement.      2.      Position and Duties. During the Employment Period, Executive shall serve as Senior Vice President of Merchandising of the Company at its headquarters in Boulder, Colorado, under the supervision and direction of the Company's Chief Executive Officer. Executive shall carry out the customary functions of his position as determined by the Company, and perform such tasks and responsibilities as requested by the CEO. Executive shall devote his best efforts and full business time and attention (except for permitted vacation periods and periods of illness or other incapacity as provided for herein) 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.      Salary, Bonus, Options and Benefits. (a)     During the Employment Period, Executive's gross base salary (the "Base Salary") shall initially be $230,000.00 per annum, which salary shall be payable in regular installments in accordance with the Company's general payroll practices as in place from time to time. Any adjustment in Executive's compensation shall be determined by the CEO or the Compensation Committee of the Board in their sole discretion. All payments of compensation hereunder shall be subject to federal, state and other withholding taxes as required by applicable law and the Company's general payroll policies as in effect from time to time.            (b)     The Executive shall receive a signing bonus of $50,000 upon commencement of employment to cover moving expenses and relocation costs. The Company shall also reimburse the Executive for a reasonable amount of temporary housing costs, for a reasonable period of time acceptable to the CEO. Executive also shall be entitled to participate in any bonus plan available to the Company's executive officers or agreed upon for the Executive by the Board of Directors.           (c)     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 are generally eligible as in effect from time to time. Executive shall be entitled to a minimum of three weeks' paid vacation per year in accordance with the Company's policies. Any payments of benefits payable to Executive hereunder in respect of any calendar year during which Executive is employed by the Company for less than the entire such year shall, unless otherwise provided in the applicable plan or arrangement or required by applicable law, be prorated in accordance with the number of days in such calendar year during which Executive is employed.           (d)     The Executive shall be granted stock options, pursuant to a separate plan to be established pursuant to certain exemptions promulgated under the NASDAQ Marketplace Guidelines as an incentive to executives for the inducement to enter employment, for 50,000 shares of the Company's common stock. The exercise price shall be the price as set by the Company's Board of Directors at its next regularly scheduled board meeting. The options shall vest 25% after the first year of employment, and 6.25% per quarter thereafter. The options shall have a 10-year term. The options shall be terminable immediately upon termination of the Executive's employment for cause, and 30 days after termination without cause. The options shall have such additional terms as shall be established by the Chief Executive Officer or the Compensation Committee of the Board of Directors.      4.     Term.     (a) The Initial Employment Period shall be subject to earlier termination (1) by reason of Executive's death or disability (as defined below), (2) for Cause (as defined herein), (3) without Cause, or (4) by written resignation of the Executive.           (b)     If the Initial Employment Period is terminated by reason of Executive's termination without Cause during the first 12 months thereof (which shall not be extended by any renewal of this Agreement), Executive shall be entitled to receive his then effective Base Salary for a 12-month period. If the Executive's employment is terminated after the first 12 months thereof by reason of Executive's termination without Cause, Executive shall be entitled to receive his then effective Base Salary for a period of months, not to be less than six nor more than 12 months, which is determined by subtracting from 12 months the number of full months after the end of the first 12 months of the Initial Employment Period during which the Executive remained employed. (For example, if the Executive was terminated three and one-half months following the end of the Initial Employment Period, the Executive would be entitled to (12 - 3) = 9 months of severance.) Such amounts shall be payable in equal biweekly installments, subject to all applicable deductions, in accordance with the Company's normal payroll schedule. Notwithstanding anything to the contrary herein, no renewal of the term of Executive's employment shall increase the number of months of severance to which the Executive may be entitled.      (c)     For purposes of the foregoing, "Cause" shall mean (1) a material breach by the Executive of the Executive's obligations of confidentiality or loyalty; (2) the Executive's willful and repeated failure to comply with the lawful directives of the Chief Executive Officer or Board of Directors of The Company; (3) negligence or willful misconduct by the Executive in the performance of the Executive's duties to the Company; (4) the commission by the Executive of an act (including, but not limited to, a felony or a crime involving moral turpitude) causing material harm to the standing and reputation of the Company, as determined in good faith by the CEO or the Board; (5) misappropriation, breach of trust or fraudulent conduct by the Executive with respect to the assets or operations of the Company or any of its subsidiaries; (6) the continued use by the Executive after notice from the Chief Executive Officer of alcohol or drugs to an extent that, in the good faith determination of the Chief Executive Officer or Board, interferes with the performance by the Executive of the Executive employment responsibilities; (7) the threat by the Executive to cause, or the actual occurrence of, damage to the relations of the Company or any of its subsidiaries with customers, suppliers, lenders, advisors or employees which damage is adverse to the business or operations of the Company or any of its subsidiaries; or (8) continued unauthorized absence from work. Termination without Cause shall not include termination by voluntary resignation, death or disability, and no severance amounts shall be payable upon the occurrence of any of the foregoing.           (d)     Except as expressly set forth in this Section, all compensation and other benefits shall cease to accrue upon termination of Executive's employment. Upon termination of the Executive's employment for any reason, Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the Company or any of its subsidiaries or other affiliates.      5.     Confidential Information; Company Property. 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, its subsidiaries and any predecessor to the business of the Company that are not generally available to the public other than as a result of breach of this Agreement by Executive ("Confidential Information") are the property of the Company and its subsidiaries. Executive agrees that he shall not disclose to any unauthorized person or use for his own account any Confidential Information without the prior written consent of the Company unless, and in such case only to the extent that, such matters become generally known to and available for use by the public other than as a result of Executive's acts or omissions to act. Notwithstanding the foregoing, in the event Executive becomes legally compelled to disclose Confidential Information pursuant to judicial or administrative subpoena or process or other legal obligation, Executive may make such disclosure only to the extent required, in the opinion of counsel for Executive, to comply with such subpoena, process or other obligation. Executive shall, as promptly as possible and in any event prior to the making of such disclosure, notify the Company of any such subpoena, process or obligation and shall cooperate with the Company in seeking a protective order or other means of protecting the confidentiality of the Company Information. Executive shall deliver to the Company at the termination of the Employment Period, or at any time the Company may reasonably request, all memoranda, notes, plans, records, reports, computer tapes and software and other documents and data (and copies thereof) containing, relating to, or derived from the Confidential Information or the business of the Company or its subsidiaries which he may then possess or have under his control. Executive agrees that he will not retain after the termination of the Employment Period any copies of any Confidential Information including, without limitation, any software, documents or other materials originating with and/or belonging to the Company or any Subsidiary of the Company.      6.     Non-Compete; Non-Solicitation.     (a) Executive acknowledges that in the course of his employment with the Company he will become familiar with the Company's trade secrets and with other confidential information concerning the Company and its predecessors and that his services have been and will be of special, unique and extraordinary value to the Company. Executive agrees that, during the period in which Executive is receiving compensation hereunder and for a period of three years following termination of Executive's employment with the Company for any reason (the "Non-Compete Period"), he shall not directly or indirectly own, manage, control, participate in, consult with, render services for, or in any manner engage in the operation of any supermarket, food store or retailer of health and beauty aids with retail locations located within a ten mile radius of any store operated (defined herein as current stores or stores for which leases have been signed as of the date of termination) by the Company or its subsidiaries as of the date of termination of Executive's employment with the Company. In addition, Executive acknowledges that he shall not accept employment in any managerial or consulting capacity with Whole Foods Markets, Inc. or any successor to or subsidiary or affiliate of such company during the Non-Compete Period. Such Non-Compete Period shall terminate immediately at such time as the Company and its subsidiaries no longer operate supermarkets or food stores. Nothing herein shall prohibit Executive from being a passive owner of not more than 1% of the outstanding stock of another corporation, so long as Executive has no active participation in the management or the business of such corporation.           (b)     During the Non-Compete Period, Executive shall not directly or indirectly (1) induce or attempt to induce any employee of the Company or any subsidiary of the Company to leave the employ of the Company or such subsidiary, or in any way interfere with the relationship between the Company or any such subsidiary and any employee thereof; (2) induce or attempt to induce any customer, supplier, licensee or other business relationship of the Company or any subsidiary of the Company to cease doing business with the Company or 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; or (3) make an oral or written disparaging statement, comment or remark about the Company or any of its subsidiaries to any employee, customer, supplier, licensee or other business relationship of the Company or any of its subsidiaries or to or for the intended use of any member of the press.      7.     Employment-At-Will.     It is understood and agreed that this Agreement constitutes employment-at-will and that notwithstanding (i) any general or specific policies (whether written or oral) of the Company relating to the employment or termination of its employees, (ii) any statements made to Executive, whether made orally or contained in any document, pertaining to Employee's relationship with the Company, or (iii) assignment of Cause by the Company, the Company reserves the right to terminate the employment of Executive by the Company in which event Executive's sole remedy shall be to receive certain payments and other benefits upon the terms and subject to the conditions provided for herein.      8.     Enforcement.     It is the express intention of the parties that this Agreement be enforced to the fullest extent permitted by applicable law in order to give full effect to the agreements reached herein. Accordingly, if at the time of enforcement of Sections 5 or 6 a court holds that the restrictions stated herein are unreasonable under the 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 or area. Because Executive's services are unique and because Executive has access to Confidential Information, the parties hereto agree that money damages would be an inadequate remedy for any breach of this Agreement. In the event of a breach or threatened breach of this Agreement, the Company, its subsidiaries and their respective 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 violation of, the provisions hereof (without posting a bond or other security). Sections 5 and 6 shall survive and continue in full force and effect in accordance with their terms notwithstanding any termination of the Employment Period.      9.     Notices.     All notices or other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given when delivered personally, one business day following when sent via a nationally recognized overnight courier, or when sent via facsimile confirmed in writing to the recipient. Such notices and other communications will be sent to the addresses indicated below: To the Company:                         To Executive: Wild Oats Markets, Inc                       Steven Kaczynski 3375 Mitchell Lane                            _________________ Boulder, CO 80301                            _________________ Attention: Chief Executive Officer With a copy to: General Counsel or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party.      10.     Miscellaneous.     Any provision of this Agreement may be amended or waived only with the prior written consent of the Company and Executive.     This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Colorado without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Colorado or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Colorado.      11.     Dispute Resolution Process.     The parties hereby agree that, in order to obtain prompt and expeditious resolution of any disputes under this Agreement, each claim, dispute or controversy of whatever nature, arising out of, in connection with, or in relation to the interpretation, performance or breach of this Agreement (or any other agreement contemplated by or related to this Agreement or any other agreement between the Company and Executive), including without limitation, any claim based on contract, tort or statute, or the arbitrability of any claim hereunder (a "Claim"), shall be settled, at the request of any part of this Agreement, by final and binding arbitration conducted in Denver, Colorado. All such Claims shall be settled by one arbitrator in accordance with the Commercial Arbitration Rules then in effect of the American Arbitration Association. Such arbitrator shall be provided through the CFR Institute for Dispute Resolution ("CFR") by mutual agreement of the parties, provided that, absent such agreement, the arbitrator shall be appointed by CFR. In this event, such arbitrator may not have any pre-existing, direct or indirect relationship with any party to the dispute. Each party hereto expressly consents to, and waives any future objection to, such forum and arbitration rules. Judgment upon any award may be entered by any state or federal court having jurisdiction thereof. Except as required by law (including, without limitation, the rules and regulations of the Securities and Exchange Commission and the Nasdaq Stock Market, if applicable), neither party nor the arbitrator shall disclose the existence, content, or results of any arbitration hereunder without the prior written consent of all parties. Except as provided herein, the Federal Arbitration Act shall govern the interpretation, enforcement and all proceedings pursuant to this Section. Adherence to this dispute resolution process shall not limit the right of the Company or Executive to obtain any provisional remedy, including without limitation, injunctive or similar relief set forth above, from any court of competent jurisdiction as may be necessary to protect their respective rights and interests pending arbitration. Notwithstanding the foregoing sentence, this dispute resolution procedure is intended to be the exclusive method of resolving any Claims arising out of or relating to this Agreement. The arbitration procedures shall follow the substantive law of the State of Colorado, including the provisions of statutory law dealing with arbitration, as it may exist at the time of the demand for arbitration, insofar as said provisions are not in conflict with this Agreement and specifically excepting therefrom sections of any such statute dealing with discovery and sections requiring notice of the hearing date by registered or certified mail.           Executed on the date set forth above. COMPANY: WILD OATS MARKETS, INC. By /s/    Freya Brier, Vice President, Legal     EXECUTIVE: By /s/ Stephen P. Kaczynski    

-------------------------------------------------------------------------------- EXHIBIT 10.11 EMPLOYMENT AGREEMENT      This EMPLOYMENT AGREEMENT (the “Agreement”) is entered into this 6th day of March, 2001, between THE CHEESECAKE FACTORY INCORPORATED (the “Company”) and DAVID M. OVERTON (the “Employee”).      WHEREAS, the Board of Directors of the Company (the “Board”) has approved and authorized the entry into this Agreement with the Employee; and      WHEREAS, the parties desire to enter into this Agreement setting forth the terms and conditions for the employment relationship to the Employee with the Company.      NOW, THEREFORE, in consideration of the promises and mutual covenants and agreements herein contained and intending to be legally bound hereby, the Company and the Employee hereby agree as follows:      1. Employment. The Employee is employed as Chief Executive Officer and Chairman of the Board of the Company. In this capacity, the Employee shall have such duties and responsibilities as may be designated to him by the Board from time to time and as are not inconsistent with the Employee’s position with respect to any subsidiaries of the Company, as may be designated by the Board. Employee shall devote substantially all his time, attention and energies to the business and affairs of the Company and the subsidiaries. The Company acknowledges that the Employee is a member of the Board and that such membership constitutes an integral part of the Employee’s duties hereunder.      2. Term. The “initial term” of this Agreement shall be for the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that on the such anniversary, and on each subsequent anniversary date thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than 90 days prior to such applicable anniversary date, the Company or the Employee shall give notice not to extend this Agreement. The “Term of this Agreement” or “Term” shall mean, for purposes of this Agreement, both the “initial term” and subsequent extensions, if any.      3. Salary and Bonus. Subject to the further provisions of this Agreement, the Company shall pay the Employee during the Term of this Agreement a salary at an annual rate equal to: (a) $450,000 for the first 12 months from the date hereof, (b) $475,000 for the next 12 months thereafter, and (c) $500,000 for the next 12 months thereafter continuing through the Term of this Agreement. Such salary may be increased at such times, if any, and in such amounts as determined by the Board. Any increase in salary shall not serve to limit or reduce any other obligation of the Company hereunder and, after any increase, the Base Salary shall not be reduced. Such salary shall be payable by the Company to the Employee not less frequently than monthly. The Board may at any time grant a discretionary bonus to the Employee. Participation in deferred compensation, discretionary bonus, retirement, stock option and other employee benefit plans and in fringe benefits shall not reduce the Base Salary.      4. Participation in Bonus, Retirement and Employee Benefit Plans. The Employee shall be entitled to participate equitably with other executive officers in any plan of the Company relating to bonuses, stock options, stock purchases, pension, thrift, profit sharing, life insurance, medical coverage, education, or other retirement or employee benefits that the Company has adopted or may adopt for the benefit of its executive officers.      5. Fringe Benefits; Automobile; Health Insurance. The Employee shall be entitled to receive all other fringe benefits which are now or may be provided to the Company’s executive officers. In addition, the Company shall provide the Employee during the Term of this Agreement (a) with a non-accountable car allowance of $2,000 per month, and (b) reimbursement to Employee and his family members for any co-payment or deductible incurred under the Company’s health insurance policies.      6. Vacations. The Employee shall be entitled to an annual paid vacation in accordance with the Company’s general administrative policy. 1 --------------------------------------------------------------------------------      7. Business Expenses. During such time as the Employee is rendering services hereunder, the Employee shall be entitled to incur and be reimbursed for all reasonable business expenses. The Company agrees that it will reimburse the Employee for all such expenses upon the presentation by the Employee, from time to time, of an itemized account of such expenditures setting forth the date, the purposes for which incurred, and the amounts thereof, together with such receipts showing payments in conformity with the Company’s established policies. Reimbursement shall be made within a reasonable period after the Employee’s submission of an itemized account.      8. Insurance.        (a) The Employee shall be entitled to term insurance on the life of the Employee with such beneficiary as the Employee may designate in an amount equal to at least $2,000,000, with all premiums to be paid by the Company.        (b) The Employee shall be entitled to an insurance policy for disability for his benefit, in an amount commercially available, with all premiums to be paid by the Company.      9. Indemnity. The Company shall indemnify and hold the Employee harmless from any cost, expense or liability arising out of or relating to any acts or decisions made by the Employee on behalf of or in the course of performing services for the Company to the same extent the Company indemnifies and holds harmless other executive officers and directors of the Company and in accordance with the Company’s established policies. The Company agrees to seek to maintain Directors and Officers Liability Insurance.      10. Certain Terms Defined. For purposes of this Agreement:        (a) Employee shall be deemed to be “Permanently Disabled” if a physical or mental condition occurs and persists which, in the written opinion of a licensed physician selected by the Board of Directors in good faith, has rendered Employee unable to perform Employee’s duties hereunder for a period of ninety (90) days or more and, in the written opinion of such physician, the condition will continue for an indefinite period of not less than an additional ninety (90) day period, rendering the Employee unable to return to Employee’s duties.        (b) “Affiliate” means any corporation affiliated with any Person whose actions result in a Change of Control (or which, as a result of the completion of the transactions causing a Change of Control shall become affiliated) within the meaning of the Code.        (c) “Base Salary” means, as of any date of termination of employment, the highest annual base salary of Employee in any of the last three fiscal years preceding such date of termination of employment.        (d) “Beneficial Owner” shall have the meaning given to such term in the Exchange Act.        (e) “Cause” means termination upon: (1) the willful failure by the Employee to substantially perform his duties with the Company (other than any such failure resulting from his incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to him by the Board, which demand specifically identifies the manner in which the Board believes that he has not substantially performed his duties; (2) the Employee’s willful misconduct that is demonstrably and materially injurious to the Company, monetarily or otherwise; or (3) the Employee’s commission of such acts of dishonesty, fraud, misrepresentation or other acts of moral turpitude as would prevent the effective performance of his duties. No act, or failure to act, on the Employee’s part shall be deemed “willful” unless done, or omitted to be done, by him not in good faith and without the reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of a majority of the members of the Board at a meeting of such members (after reasonable notice to him and an opportunity for him, together with his counsel, to be heard before such members of the Board), finding that he has engaged in the conduct set forth above in this subsection (e) and specifying the particulars thereof in detail. 2 --------------------------------------------------------------------------------        (f) A “Change of Control” occurs if:        (i) any Person (other than Employee) or that Person’s Affiliate is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 20% of more of the combined voting power of the Company’s then outstanding voting securities (“Voting Securities”); or        (ii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation (or other entity), other than:        I. a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 80% of the combined voting power of the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation;        II. a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person acquires more than 20% of the combined voting power of the Company’s then outstanding Voting Securities; or        III. a merger or consolidation which would result in the directors of the Company (who were directors immediately prior thereto) continuing to constitute at least 50% of all directors of the surviving entity after such merger or consolidation. In this paragraph (iv), “surviving entity“shall mean only an entity in which all the Company’s stockholders immediately before such merger or consolidation (determined without taking into account any stockholders properly exercising appraisal or similar rights) become stockholders by the terms of such merger or consolidation, and the phrase “directors of the Company (who were directors immediately prior thereto)“shall include only individuals who were directors of the Company at the beginning of the 24 consecutive month period preceding the date of such merger or consolidation.        (iii) the stockholders of the Company approve a plan of complete liquidation or an agreement for the sale or disposition of all or substantially all of the Company’s assets; or        (iv) during any period of 24 consecutive months, individuals, who at the beginning of such period constitute the Board of Directors of the Company, and any new director whose election by the Board of Directors, or whose nomination for election by the Company’s stockholders, was approved by a vote of at least one-half (½) of the directors then in office (other than in connection with a contested election), cease for any reason to constitute at least a majority of the Board of Directors;        (g) “Code” means the Internal Revenue Code of 1986, as amended.        (h) “Exchange Act” means the Securities Exchange Act of 1934, as amended.        (i) “Person” is given the meaning as such term is used in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that unless this Agreement provides to the contrary, the term shall not include the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, 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.      11. Termination.        (a) Death or Disability. This Agreement shall terminate automatically upon the Employee’s death or Permanent Disability.        (b) Cause. The Company may terminate Employee for Cause.        (c) Change of Control. Employee may terminate this Agreement at any time within 18 months after a Change of Control. 3 --------------------------------------------------------------------------------        (d) Notice of Termination. Any termination of the Employee’s employment by the Company for Cause or following a Change of Control shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 16. Any termination by the Company due to Permanent Disability shall be communicated by giving written notice of its intention to terminate the Employee’s employment, and his employment shall terminate after receipt of such notice (“Disability Effective Date”). 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) except in the event of a termination following a Change of Control, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee’s employment under the provision so indicated; and (iii) specifies the Date of Termination (defined below).        (e) Date of Termination. “Date of Termination” means the date of actual receipt of the Notice of Termination or any later date specified therein (but not more than fifteen (15) days after the giving of the Notice of Termination), as the case may be; provided that (i) if the Employee’s employment is terminated by the Company for any reason other than Cause or because the Employee becomes Permanently Disabled, the Date of Termination is the date on which the Company notifies the Employee of such termination; (ii) if the Employee’s employment is terminated due to Permanent Disability, the Date of Termination is the Disability Effective Date; and (iii) if the Employee’s employment is terminated due to the Employee’s death, the Date of Termination shall be the date of death.      12. Certain Benefits Upon Termination.        (a) If Employee’s employment by the Company is terminated for any reason (including by reason of death or Permanent Disability), except for a termination for Cause or a voluntary resignation by Employee, and Section 12(b) is inapplicable to such termination, then the Company shall pay Employee a lump sum severance payment (the “Severance Payment”) equal to three times Employee’s Base Salary.        (b) If within 18 months after a Change of Control of the Company, Employee gives notice of termination of employment for any reason, gives notice of nonrenewal, or Employee otherwise terminates employment (other than due to Employee’s death or Permanent Disability) or is terminated by the Company without Cause, (i) the Company shall pay Employee a Severance Payment in cash equal to $2 million, provided, however, that in the event of a Change of Control and Employee dies or becomes Permanently Disabled within 18 months after such Change of Control, then the Severance Payment shall be equal to three times Employee’s Base Salary and, (iii) for 36 months (the “Continuation Period”) the Company shall at its expense continue on behalf of the Employee and his dependents and beneficiaries, the life insurance, disability, medical, dental and hospitalization benefits provided (x) to the Employee at any time during the 90-day period prior to the date of termination or at any time thereafter or (y) to other similarly situated executives who continue in the employ of the Company during the continuation period. The coverage and benefits (including deductibles and costs) provided in this Section 12(b) during the Continuation Period shall be no less favorable to the Employee and his dependents and beneficiaries, than the most favorable of such coverages and benefits during any of the periods referred to in clauses (x) and (y) above. The Company’s obligation hereunder with respect to the foregoing benefits shall be limited to the extent that the Employee obtains any such benefits pursuant to a subsequent employer’s benefit plans, in which case the Company may reduce the coverage of any benefits it is required to provide the Employee hereunder so long as the aggregate coverages and benefits of the combined benefit plans is no less favorable to the Employee than the coverages and benefits required to be provided hereunder. This Section 12(b) shall not be interpreted so as to limit any benefits to which the Employee, his dependents or beneficiaries may be entitled under any of the Company’s employee benefit plans, programs or practices following the Employee’s termination of employment, including without limitation, retiree medical and life insurance benefits.        (c) In the event either (a) or (b) above occurs, (i) in addition to the Severance Payment provided therein, the Company shall pay all accrued but unpaid salary and amounts due under the Company’s Performance Incentive Plan or any other bonus or incentive plan then in effect, and all accrued but unpaid or unused vacation, sick pay and expense reimbursement benefit, and (ii) all other benefits shall vest (unless a plan specifically provides vesting standards in which event the plan’s terms and conditions shall govern vesting). 4 --------------------------------------------------------------------------------        (d) In the event that Employee’s employment terminates by reason of Employee’s death, all benefits provided in this Section 12 shall be paid to Employee’s estate or as Employee’s executor shall direct, but payment may be deferred until Employee’s executor or personal representative has been appointed and qualified pursuant to the laws in effect in Employee’s jurisdiction of residence at the time of Employee’s death.        (e) Company shall make all cash payments to which Employee is entitled hereunder within thirty (30) days following the date of termination of Employee’s employment or earlier, if required by applicable law.        (f) In the event Employee has provided notice to the Company of his intent to terminate or not renew this Agreement pursuant to Section 2 or Company has provided written notice to the Employee of its intent not to renew this Agreement pursuant to Section 2:        (i) Salary and Benefits. The salary and other benefits to which Employee would have otherwise been entitled shall continue through the remainder of the period of notice specified by Section 2, provided that Employee is otherwise in compliance with the terms of this Agreement, unless (x) Employee subsequently terminates his employment or the Company terminates Employee’s employment for Cause, (y) Employee is entitled to the Severance Payment provided in Section 12(a) pursuant to the provisions of Section 12(f)(ii), or (z) Employee is entitled to the Severance Payment provided in Section 12(b).        (ii) Section 12(a) Benefit. Employee shall be entitled to the extraordinary payment provided in Section 12(a) (unless Employee is otherwise entitled to the Severance Payment provided by Section 12(b)) in the event that, subsequent to such notice, (x) Employee is terminated without Cause by the Company, or (y) Employee’s employment terminates due to death or Permanent Disability.        (iii) Section 11(b) Benefit. Employee shall have no rights under Section 12(b); provided, however, that if Company and a third party have executed a commitment letter or agreement under which a Change of Control is to occur and such agreement was entered into prior to the Company having provided notice to Employee of its intent not to renew pursuant to Section 2, then Employee shall be entitled to the extraordinary payment provided in Section 12(b), if that Change of Control in fact occurs.        (g) In the event Employee is entitled hereunder to any payments or benefits set forth in Section 12(a) or (b), Employee shall have no obligation to notify Company of employment subsequent to Employee’s termination or to offset Company’s obligation by payments due to such employment and shall have no duty to mitigate.        (h) The provisions for Severance Payments contained in this Section 12 may be triggered only once during the term of this Agreement, so that, for example, should Employee be terminated because of a Permanent Disability and should there thereafter be a Change of Control, then Employee would be entitled to be paid only under Section 12(a) and not under Section 12(b) as well. In addition, Employee shall not be entitled to receive severance benefits of any kind from any wholly owned subsidiary or other affiliated entity of the Company if in connection with the same event of series of events the Severance Payments provided for in this Section 12 have been triggered.        (i) Excise Tax Payments: 5 --------------------------------------------------------------------------------        (i) In the event that any payment or benefit (within the meaning of Section 280G(b)(2) of the Code, to the Employee or for his benefit paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his employment with the Company or a change in ownership or effective control of the Company or of a substantial portion of its assets (a “Payment“or “Payments”), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Employee 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 Employee will be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by the Employee of all taxes (including any interest or penalties, other than interest and penalties imposed by reason of the Employee’s failure to file timely a tax return or pay taxes shown due on his return, imposed with respect to such taxes and the Excise Tax), including any Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.        (ii) An initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment shall be made at the Company’s expense by an accounting firm selected by the Company and reasonably acceptable to the Employee which is designated as one of the four largest accounting firms in the United States (the “Accounting Firm”). The Accounting Firm shall provide its determination (the “Determination”), together with detailed supporting calculations and documentation to the Company and the Employee within five days of the Termination Date if applicable, or such other time as requested by the Company or by the Employee (provided the Employee reasonably believes that any of the Payments may be subject to the Excise Tax) and if the Accounting Firm determines that no Excise Tax is payable by the Employee with respect to a Payment or Payments, it shall furnish the Employee with an opinion reasonably acceptable to the Employee that no Excise Tax will be imposed with respect to any such Payment or Payments. Within ten days of the delivery of the Determination to the Employee, the Employee shall have the rights to dispute the Determination (the “Dispute”). The Gross-Up Payment, if any, as determined pursuant to this Section 12(i)(ii) shall be paid by the Company to the Employee within five days of the receipt of the Accounting Firm’s determination. The existence of the Dispute shall not in any way affect the Employee’s right to receive the Gross-Up Payment in accordance with the Determination. Upon the final resolution of a Dispute, the Company shall promptly pay to the Employee any additional amount required by such resolution. If there is no Dispute, the Determination shall be binding, final and conclusive upon the Company and the Employee.        (j) Company agrees to take reasonable steps to ensure that in the event Company has an obligation to perform under Section 12(b), Company shall have the financial ability to do so.      13. Fees and Expenses. The Company shall pay all legal fees and related expenses (including the costs of experts, evidence and counsel) incurred by the Employee as they become due as a result of (a) the Employee’s termination of employment (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or employment), or (b) the Employee seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by the Company under which the Employee is or may be entitled to receive benefits.      14. No Set Off, Interest. Except as provided herein, 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 circumstances, including without limitation any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Employee or others. All amounts provided herein shall include, in each case, interest, compounded quarterly, on the total unpaid amount determined to be payable under this Agreement, such interest to be calculated on the basis of the prime commercial lending rate announced by Bank of America National Trust and Savings Association in effect from time to time during the period of such nonpayment.      15. Assignment.        (a) This Agreement is personal to each of the parties hereto. No party may assign or delegate any rights or obligations hereunder without first obtaining the written consent of the other party hereto, except that this Agreement shall be binding upon and inure to the benefit of any successor corporation to the Company. 6 --------------------------------------------------------------------------------        (b) The Company shall 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. 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 this Agreement by operation of law, or otherwise.        (c) This Agreement shall inure to the benefit of and be enforceable by the Employee and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 16.       (a) Confidential Information. During the Term of this Agreement and thereafter, the Employee shall not, except as may be required to perform his duties hereunder or as required by applicable law, disclose to others for use, whether directly or indirectly, any Confidential Information regarding the Company. “Confidential Information”shall mean information about the Company, its subsidiaries and affiliates, and their respective clients and customers that is not available to the general public and that was learned by the Employee in the course of his employment by the Company, including (without limitation) any data, formulae, information, proprietary knowledge, trade secrets and client and customer lists and all papers, resumes, records and the documents containing such Confidential Information. The Employee acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company, and that such information gives the Company a competitive advantage. Upon the termination of his employment, the Employee will promptly deliver to the Company all documents (and all copies thereof) containing any Confidential Information.        (b) Noncompetition. The Employee agrees that during the Term of this Agreement, he will not, directly or indirectly, without the prior written consent of the Company, provide consultative service with or without pay, own, manage, operate, join, control, participate in, or be connected as a stockholder, partner, or otherwise with any business, individual, partner, firm, corporation, or other entity which is then in competition with the Company or any present affiliate of the Company; provided, however, that the “beneficial ownership” by the Employee, either individually or as a member of a “group,” as such terms are used in Rule 13d of the Exchange Act, of not more than 1% of the voting stock of any publicly held corporation shall not be a violation of this Agreement. It is further expressly agreed that the Company will or would suffer irreparable injury if the Employee were to compete with the Company or any subsidiary or affiliate of the Company in violation of this Agreement and that the Company would by reason of such competition be entitled to injunctive relief in a court of appropriate jurisdiction, and the Employee further consents and stipulates to the entry of such injunctive relief in such a court prohibiting the Employee from competing with the Company or any subsidiary or affiliate of the Company in violation of this Agreement.        (c) Right to Company Materials. The Employee agrees that all styles, designs, recipes, lists, materials, books, files, reports, correspondence, records, and other documents (“Company Material”) used, prepared, or made available to the Employee, shall be and shall remain the property of the Company. Upon the termination of his employment or the expiration of this Agreement, all Company Materials shall be returned immediately to the Company, and Employee shall not make or retain any copies thereof.        (d) Antisolicitation. The Employee promises and agrees that during the Term of this Agreement, and for a period of one year thereafter, he will not influence or attempt to influence customers, franchisees, landlords, or suppliers of the Company or any of its present or future subsidiaries or affiliates, either directly or indirectly, to divert their business to any individual, partnership, firm, corporation or other entity then in competition with the business of the Company, or any subsidiary or affiliate of the Company. 7 --------------------------------------------------------------------------------      17. Notice.For the purpose 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 United States certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, or to such other addresses as either party may have furnished to the other in writing in accordance herewith, except that notice of a change of address shall be effective only upon actual receipt: Company: with a copy to: Employee: The Cheesecake Factory Incorporated 26950 Agoura Road Calabasas Hills, California 91301 the Secretary of the Company; David M. Overton ————————      18. Amendments or Additions. No amendment or additions to this Agreement shall be binding unless in writing and signed by both parties hereto.      19. Section Headings. The section headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement.      20. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.      21. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but both of which together will constitute one and the same instrument.      22. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in Los Angeles, California, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction.      23. Miscellaneous.No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Employee and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto 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 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 expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California without regard to its conflicts of law principles. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. 9 --------------------------------------------------------------------------------      Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. Sections 13, 15 and 21 shall survive the expiration of the Term of this Agreement.      IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement on the date first indicated above. COMPANY:   CHEESECAKE FACTORY INCORPORATED     By: /s/ LINDA J. CANDIOTY ————————————————————— Executive Vice President and Secretary     EMPLOYEE:     /s/ DAVID OVERTON ——————————————————————— DAVID OVERTON 9

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.19 XCEL ENERGY SENIOR EXECUTIVE SEVERANCE POLICY Introduction     Northern States Power Company, a Minnesota corporation ("NSP") and New Century Energies, Inc., a Delaware corporation ("NCE") entered into an Agreement and Plan of Merger dated as of March 24, 1999 (the "Merger Agreement"), whereby the NSP and NCE organizations agreed to engage in a merger-of-equals transaction (the "Combination"). In recognition of the pendency of the Combination, and the inevitable adjustments that occur during the transition period following the Combination, NSP and NCE each adopted a senior executive severance policy.     NCE and NSP have combined to form Xcel Energy Inc. (Xcel), and the Board of Directors of Xcel wishes to combine the NSP and NCE senior executive severance policies into a single Xcel Energy Senior Executive Severance Policy (the Plan). The purpose of the Plan is to combine and preserve the rights of all participants under the NSP and NCE policies, standardize the multiple for Xcel corporate officers, and add as participants those Xcel corporate officers who were not included in either the NSP or NCE policies.     Therefore, in order to fulfill the above purposes, the following plan has been developed and is hereby adopted. ARTICLE I ESTABLISHMENT OF PLAN     As of the Effective Time, the Corporation hereby establishes a separation compensation plan known as the Xcel Energy Senior Executive Severance Policy, as set forth in this document which shall replace and supercede the NSP and NCE Senior Executive Severance Policies. ARTICLE II DEFINITIONS     As used herein the following words and phrases shall have the following respective meanings unless the context clearly indicates otherwise. (In addition, certain terms used in Section 4.5 of this Plan are defined in Section 4.5(c).)     (a)  Annual Incentive Award.  The highest amount a Participant received as an annual cash incentive award in any of the three calendar years prior to a termination of employment entitling the Participant to a Separation Benefit.     (b)  Annual Salary.  The Participant's regular annual base salary immediately prior to his or her termination of employment, including compensation converted to other benefits under a flexible pay arrangement maintained by the Corporation or deferred pursuant to a written plan or agreement with the Corporation, but excluding overtime pay, allowances, premium pay, compensation paid or payable under any Corporation long-term or short-term incentive plan or any similar payment.     (c)  Board.  The Board of Directors of Xcel.     (d)  Code.  The Internal Revenue Code of 1986, as amended from time to time.     (e)  Committee.  The Compensation and Nominating Committee of the Board or any successor to such committee.     (f)  Corporation.  Xcel Energy Inc. and any successor thereto.     (g)  Date of the Combination.  The Effective Time, as defined in the Merger Agreement.     (h)  Date of Termination.  The date on which a Participant ceases to be an Employee.     (i)  Effective Date.  The date of the Merger Agreement. --------------------------------------------------------------------------------     (j)  Employee.  Any full-time, regular-benefit, non-bargaining employee of an Employer. The term shall exclude all individuals employed as independent contractors, temporary employees, other benefit employees, non-benefit employees, leased employees, even if it is subsequently determined that such classification is incorrect.     (k)  Employer.  The Corporation or a Subsidiary which has adopted the Plan pursuant to Article V hereof.     (l)  Long-Term Incentive Award.  For Stock Awards, the highest aggregate Value granted (or deemed to have been granted under the definition of Value) to a Participant in the form of Stock Awards during any of the three calendar years prior to a termination of employment entitling the Participant to a Separation Benefit. For Non-Stock Awards, the highest target opportunity for any cycle which begins during the 36-month period prior to a termination of employment entitling the Participant to a Separation Benefit.     (m)  Multiple.  For each Participant, the number set forth opposite the Participant's name on Schedule 1 hereto.     (n)  Non-Stock Award.  The opportunity to receive a cash payment under the "value creation plan" component of the Corporation's long-term incentive program, which long-term incentive program is incorporated into the Corporation's omnibus incentive plan.     (o)  Participant.  An individual who is designated as such pursuant to Section 3.1.     (p)  Plan.  The Xcel Energy Senior Executive Severance Policy.     (q)  Release Agreement.  An agreement substantially in the form set forth in Exhibit A to this Plan, with such amendments as the Committee may determine to be necessary in order for such agreement to constitute a valid release by the Participant in question of all claims described therein.     (r)  Separation Benefits.  The payments and benefits described in Section 4.3 that are provided to qualifying Participants under the Plan.     (s)  Separation Period.  The period beginning on a Participant's Date of Termination and ending upon expiration of a number of years equal to the Participant's Multiple.     (t)  Stock Award.  An award of stock options, stock appreciation rights (other than in conjunction with a stock option) or restricted stock or a performance award, in each case granted pursuant to the Corporation's Long-Term Incentive program incorporated into the Corporation's omnibus incentive plan Award Plan or any predecessor, successor or similar plan of the Corporation.     (u)  Subsidiary.  Any corporation in which the Corporation, directly or indirectly, holds a majority of the voting power of such corporation's outstanding shares of capital stock.     (v)  Target Annual Incentive.  The Annual Incentive Award that the Participant would have received for the year in which his or her Date of Termination occurs, if the target goals had been achieved.     (w)  Value.  The Value of a Stock Award shall be the dollar value of such award at the time of grant, as determined by the Committee in connection with the grant of such Stock Award; it being understood that the Committee's practice, as of the date of adoption of this Plan, is to determine (i) the value of a Stock Award that is a stock option, stock appreciation right or similar right that derives its value from the appreciation of the value of equity securities using a modified version of the Black-Scholes option valuation method; provided, however, that the value of stock options shall be prorated over the period of time the grant was intended to cover and the grant will be deemed to have been made proportionately in each calendar year of such period, and 2 -------------------------------------------------------------------------------- (ii) the value of other Stock Awards based upon the fair market value of the underlying equity securities. ARTICLE III ELIGIBILITY     3.1  Participation.  Each of the individuals named on Schedule 1 hereto shall be a Participant in the Plan. Schedule 1 may be amended by the Board from time to time to add individuals as Participants.     3.2  Duration of Participation.  A Participant shall only cease to be a Participant in the Plan as a result of an amendment or termination of the Plan complying with Article VII of the Plan, or when he or she ceases to be an Employee of any Employer, unless, at the time he or she ceases to be an Employee, such Participant is entitled to payment of a Separation Benefit as provided in the Plan or there has been an event or occurrence described in Section 4.2(a) which would enable the Participant to terminate employment and receive a Separation Benefit. A Participant entitled to payment of a Separation Benefit or any other amounts under the Plan shall remain a Participant in the Plan until the full amount of the Separation Benefit and any other amounts payable under the Plan have been paid to the Participant. ARTICLE IV SEPARATION BENEFITS     4.1  Right to Separation Benefit.  A Participant shall be entitled to receive Separation Benefits in accordance with Section 4.3 if the Participant ceases to be an Employee for any reason specified in Section 4.2(a).     4.2  Termination of Employment.       (a)  Terminations Which Give Rise to Separation Benefits Under This Plan.  Except as set forth in subsection (b) below, a Participant shall be entitled to Separation Benefits if, at any time before the third anniversary of the Date of the Combination:      (i) the Participant ceases to be an Employee by action of the Employer or any of its affiliates (excluding any transfer to another Employer);     (ii) the Participant's Annual Salary is reduced below the higher of (x) the amount in effect on the Effective Date and (y) the highest amount in effect at any time thereafter, and the Participant ceases to be an Employee by his or her own action within 130 days after the occurrence of such reduction;     (iii) the Participant's duties and responsibilities are materially and adversely diminished in comparison to the duties and responsibilities enjoyed by the Participant on the Effective Date, and the Participant ceases to be an Employee by his or her own action within 130 days after the occurrence after such reduction;     (iv) the program of incentive compensation and retirement and welfare benefits offered to the Participant (determined in the aggregate) is materially and adversely diminished in comparison to the program of benefits enjoyed by the Participant on the Effective Date, and the Participant ceases to be an Employee by his or her own action within 130 days after the occurrence after such reduction; or     (v) an Employer or any affiliate of an Employer sells or otherwise distributes or disposes of the subsidiary, branch or other business unit in which the Participant was employed before such sale, distribution or disposition and the requirements of subsection (b)(iv) of this Section 4.2 are not met, and the Participant ceases to be an Employee upon or within 130 days after such sale, distribution or disposition. 3 -------------------------------------------------------------------------------- With respect to a termination by the Participant pursuant to clause (ii), (iii), (iv), or (v) of this Section 4.2(a), such termination shall be effective if and only if the Participant has given written notice to his or her Employer of his or her intent to terminate for such reason (stating the event(s) relied upon for such termination and the provisions of this Section 4.2(a) relied upon) within 90 days of the date on which the event(s) first occurred, and the Employer or an affiliate of the Employer, as the case may be, has failed to remedy such event within the 30 day period following receipt of such notice.     (b)  Terminations Which Do Not Give Rise to Separation Benefits Under This Plan.  If a Participant's employment is terminated for Cause, death, disability, retirement, or a qualified sale of business (as those terms are defined below), or voluntarily by the Participant in the absence of an event described in subsection (a)(ii), (iii) or (iv) of this Section 4.2, the Participant shall not be entitled to Separation Benefits under the Plan.      (i) A termination for disability shall have occurred where a Participant is terminated because of an illness or injury and the Participant has become eligible to receive long-term disability benefits under, or would have become so eligible if such Participant were covered by, the Corporation's long-term disability plan, as it exists at the time of termination of employment.     (ii) A termination by retirement shall have occurred where a Participant's termination is due to his voluntary late, normal or early retirement under a pension plan sponsored by his Employer or its affiliates, as defined in such plan.     (iii) A termination for Cause shall have occurred where a Participant is terminated because of:     (A) the willful and continued failure of the Participant to perform substantially the Participant's duties with the Corporation or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Participant by the Board or an elected officer of the Corporation which specifically identifies the manner in which the Board or the elected officer believes that the Participant has not substantially performed the Participant's duties, or     (B) the willful engaging by the Participant in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Corporation. For purposes of this provision, no act or failure to act, on the part of the Participant, shall be considered "willful" unless it is done, or omitted to be done, by the Participant in bad faith or without reasonable belief that the Participant's action or omission was in the best interests of the Corporation. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board, or upon the advice of counsel for the Corporation, shall be conclusively presumed to be done, or omitted to be done, by the Participant in good faith and in the best interests of the Corporation.     (iv) A termination due to a qualified sale of business shall have occurred where an Employer or an affiliate of an Employer has sold, distributed or otherwise disposed of the subsidiary, branch or other business unit in which the Participant was employed before such sale, distribution or disposition and the Participant has been offered employment with the purchaser of such subsidiary, branch or other business unit or the corporation or other entity which is the owner thereof on substantially the same terms and conditions under which he worked for the Employer (including, without limitation, duties and responsibilities, and the aggregate of the Participant's base salary and program of benefits). Such terms and conditions shall also include, without limitation, a legally binding agreement or plan covering such Participant, providing that upon a qualifying termination of employment with the subsidiary, branch or business unit (or the corporation or other entity which is the owner thereof) or any 4 -------------------------------------------------------------------------------- successor thereto of the kind described in Article VI of this Plan, at any time before the third anniversary of the Date of the Combination, the Participant's employer or any successor will pay to each such former Participant an amount equal to the separation benefit and other benefits that such former Participant would have received under the Plan had he been a Participant at the time of such termination. For purposes of this subsection, the new employer plan or agreement must treat service with any Employer (irrespective of whether the Employer was an affiliate of the Corporation or the Employee was a Participant at the time of such service) and the new employer as continuous service for purposes of calculating separation benefits.     4.3  Separation Benefits.       (a) If a Participant's employment is terminated in circumstances entitling him to a separation benefit as provided in Section 4.2(a), and the Participant executes and does not revoke a Release Agreement, the Participant's Employer shall pay such Participant, within fifteen days of the Date of Termination, or if later, upon the date such Release Agreement becomes irrevocable, a cash lump sum as set forth in subsection (b) below and the continued benefits set forth in subsection (c) below, subject to Section 4.6 below. For purposes of determining the benefits set forth in subsection (b) and (c), if the termination of the Participant's employment is based upon a reduction of the Participant's Annual Salary or benefits as described in subsection (ii) or (iii) of Section 4.2, such reduction shall be ignored.     (b) The cash lump sum referred to in Section 4.3(a) shall equal the aggregate of the following amounts:      (i) the sum of (1) the Participant's Annual Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the Target Annual Incentive plus the Long-Term Incentive Award and (y) a fraction, the numerator of which is the number of days in such year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by the Participant (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid and in full satisfaction of the rights of the Participant thereto;     (ii) an amount equal to the product of (1) the Participant's Multiple and (2) the sum of (x) the Participant's Annual Salary, (y) the higher of the Target Annual Incentive or the Annual Incentive Award and (z) the Long-Term Incentive Award;     (iii) an amount equal to the difference between (a) the actuarial equivalent of the benefit under the Corporation's qualified defined benefit retirement plan (the "Retirement Plan") and any excess or supplemental retirement plans in which the Participant participates and/or other supplemental retirement benefits to which the Participant may be entitled under any contract or agreement (together, the "SERP") which the Participant would receive if his or her employment continued during the Separation Period, assuming that the Participant's compensation during the Separation Period would have been equal to his or her compensation as in effect immediately before the termination or, if higher, on the Effective Date, and (b) the actuarial equivalent of the Participant's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP as of the Date of Termination. The actuarial assumptions used for purposes of determining actuarial equivalence shall be no less favorable to the Participant than the most favorable of those in effect under the Retirement Plan and the SERP on the Date of Termination and the Effective Date; and     (iv) the sum of the additional contributions (other than pre-tax salary deferral contributions by the Participant) that would have been made or credited by the Company to the Participant's accounts under each qualified defined contribution plan and non-qualified 5 -------------------------------------------------------------------------------- supplemental executive savings plan, if any, that covered the Participant on the date the termination of employment occurred, determined by assuming that:     (A) The Participant's employment had continued for the Separation Period;     (B) The Participant's rate of compensation being recognized by each plan immediately prior to the Date of Termination had continued in effect during the Separation Period;     (C) In the case of matching contributions, the Participant's rate of pre-tax salary deferral contributions in effect for the last plan year beginning prior to the Date of Termination had remained in effect throughout the Separation Period; and     (D) In the case of discretionary contributions by the Company, the Company continued to make such contributions during the Separation Period at the rate that applied to the most recent plan year that ended prior to the Date of Termination.     (c) The continued benefits referred to above shall be as follows:      (i) During the Separation Period, the Participant and his family shall be provided with medical, dental and life insurance benefits as if the Participant's employment had not been terminated; provided, however, that if the Participant 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; and for purposes of determining eligibility (but not the time of commencement of benefits) of the Participant for retiree medical, dental and life insurance benefits under the Corporation's plans, practices, programs and policies, the Participant shall be considered to have remained employed during the Separation Period and to have retired on the last day of such period;     (ii) The Corporation shall, at its sole expense as incurred, provide the Participant with outplacement services the scope and provider of which shall be selected by the Participant in his or her sole discretion (but at a cost to the Corporation of not more than $30,000);     (iii) The Corporation shall continue to provide the Participant with financial planning counseling benefits through the second anniversary of the Date of Termination, on the same terms and conditions as were in effect immediately before the termination or, if more favorable, on the Effective Date; and     (iv) The Corporation will continue to provide the Executive with his or her "flexible perquisite allowance" through the Separation Period or at the option of the Participant shall transfer to the Participant, at no cost to the Participant, the title to the company car being used by the Participant as of the Date of Termination. To the extent any benefits described in this Section 4.3(c) cannot be provided pursuant to the appropriate plan or program maintained for Employees, the Employer shall provide such benefits outside such plan or program at no additional cost (including without limitation tax cost) to the Participant. Notwithstanding the foregoing, if a group insurance carrier refuses to provide the coverage described in this Section 4.3(c) under its contract issued to the Company, or if the Company reasonably determines that the coverage required under this Section 4.3(c) would cause a welfare plan sponsored by the Company to violate any provision of the Code prohibiting discrimination in favor of highly compensated employees or key employees, the Company will use its best efforts to obtain for the Participant an individual insurance policy providing comparable coverage. However, if the Company determines in good faith that comparable coverage cannot be obtained for less than two times the premium or premium equivalent for such coverage under the Company welfare plan or plans, the Company's sole obligation under this Section 4.3(c) with respect to that coverage will be limited to paying the Participant a monthly amount equal to two times the monthly premium or premium equivalent for that coverage under the Company's plans. 6 --------------------------------------------------------------------------------     4.4  Other Benefits Payable.  The cash lump sum and continuing benefits described in Section 4.3 above shall be payable in addition to, and not in lieu of, all other accrued or vested or earned but deferred compensation, rights, options or other benefits which may be owed to a Participant upon or following termination, including but not limited to accrued vacation or sick pay, amounts or benefits payable under any bonus or other compensation plans, stock option plan, stock ownership plan, stock purchase plan, life insurance plan, health plan, disability plan or similar or successor plan, except as provided in Section 4.6 below.     4.5  Certain Additional Payments or Reductions in Payments.       (a)  Gross-Up or Reduction.  (i) In the event it shall be determined that any Payment would be subject to the Excise Tax, then except to the extent provided below in this Section 4.5(a), the Participant shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Participant 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 Participant retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.     (ii) Notwithstanding Section 4.5(a)(i), if it shall be determined that the Participant is entitled to a Gross-Up Payment pursuant to Section 4.5(a)(i) (before application of Sections 4.5(a)(ii), (iii) and (iv)), but that the Parachute Value of the Payments does not exceed 110% of the Safe Harbor Amount, then no Gross-Up Payment shall be made to the Participant and the Separation Payments, in the aggregate, shall be reduced (but not below zero) such that the Parachute Value of all Payments equals the Safe Harbor Amount, determined in such a manner as to maximize the Value of all Payments actually made to the Participant.     (iii) If it shall be determined that the Participant is entitled to a Gross-Up Payment pursuant to Section 4.5(a)(i) and the Payments are not reduced pursuant to Section 4.5(a)(ii), but one or more of the Payments that is determined to be subject to the Excise Tax consists of the accelerated vesting of a Stock Award, then the Gross-Up Payment shall be reduced by the portion thereof that is allocable to such accelerated vesting. The allocation of the Gross-Up Payment to the individual Payments shall be made on a pro-rata basis using the methodology set forth in Q&A 38 of Proposed Treasury Regulations Section 1.280G-1 or any comparable provision of any successor proposed or final regulations under Sections 280G and 4999 of the Code.     (iv) If it shall be determined that a Participant is entitled to receive a Gross-Up Payment after application of Sections 4.5(a)(i), (ii) and (iii), then a determination shall be made whether it is possible to reduce the Separation Payments (but not below zero) such that the Net After-Tax Amount of all the Payments (taking into account such reduction) exceeds the Net After-Tax Amount of all the Payments (not taking into account such reduction) plus the Gross-Up Payment. If such a reduction is possible, then no Gross-Up Payment shall be made and the aggregate Separation Payments shall be so reduced (but not below zero); provided, that the reduction shall be made in such a manner as to maximize the Value of all Payments actually made to the Participant.     (b)  Procedures.  (i) All determinations required to be made under Section 4.5(a), including whether and when a Gross-Up Payment or a reduction in Separation Payments is required, the amount of such Gross-Up Payment or reduction, and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized public accounting firm selected by the Corporation (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Corporation and the Participant within 15 business days of the receipt of notice from the Participant that there has been a Payment, or such earlier time as is requested by the Corporation; provided, that if the Accounting Firm determines that a Participant's Separation Payments are required to be reduced pursuant to Section 4.5(a)(ii) or (iv), and there is a choice to be made as 7 -------------------------------------------------------------------------------- to which Separation Payments shall be reduced consistent with maximizing the Value of all Payments to the Participant, the Participant shall be permitted to make such choice, and the Accounting Firm shall supply the Participant with all necessary information to make an informed choice. All fees and expenses of the Accounting Firm shall be borne solely by the Corporation. Any Gross-Up Payment, as determined pursuant to this Section 4.5, shall be paid by the Corporation to the Participant within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Corporation and the Participant.     (ii) 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 amounts will have been paid or distributed by the Corporation to or for the benefit of a Participant pursuant to this Plan which should not have been so paid or distributed ("Overpayment") or that additional amounts which will have not been paid or distributed by the Corporation to or for the benefit of a Participant pursuant to this Plan could have been so paid or distributed ("Underpayment"), in each case, consistent with the requirements of this Section 4.5. In the event that the Accounting Firm, based upon the assertion of a deficiency by the Internal Revenue Service against either the Corporation or the Participant which the Accounting Firm believes has a high probability of success determines that an Overpayment has been made, any such Overpayment paid or distributed by the Corporation to or for the benefit of a Participant shall be treated for all purposes as a loan to the Participant which the Participant shall repay to the Corporation together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that no such loan shall be deemed to have been made and no amount shall be payable by a Participant to the Corporation if and to the extent such deemed loan and payment would not either reduce the amount on which the Participant is subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. In the event that the Accounting Firm, based upon controlling precedent or substantial authority, determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Corporation to or for the benefit of the Participant together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code.     (iii) The Participant shall notify the Corporation in writing of any claim by the Internal Revenue Service that, if successful, could require the payment by the Corporation of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Participant is informed in writing of such claim and shall apprise the Corporation of the nature of such claim and the date on which such claim is requested to be paid. The Participant shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Corporation (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Corporation notifies the Participant in writing prior to the expiration of such period that it desires to contest such claim, the Participant shall:     (A) give the Corporation any information reasonably requested by the Corporation relating to such claim,     (B) take such action in connection with contesting such claim as the Corporation shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Corporation,     (C) cooperate with the Corporation in good faith in order to contest such claim effectively, and     (D) permit the Corporation to participate in any proceedings relating to such claim; 8 -------------------------------------------------------------------------------- provided, however, that the Corporation shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Participant 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 such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 4.5(b), the Corporation shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Participant to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Participant agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Corporation shall determine; provided, however, that if the Corporation directs the Participant to pay such claim and sue for a refund, the Corporation shall advance the amount of such payment to the Participant, on an interest-free basis and shall indemnify and hold the Participant harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Participant with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Corporation's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Participant shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.     (iv) If, after the receipt by the Participant of an amount advanced by the Corporation pursuant to Section 4.5(b)(iii), the Participant becomes entitled to receive any refund with respect to such claim, the Participant shall (subject to the Corporation's complying with the requirements of Section 4.5(b)(iii)) promptly pay to the Corporation the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Participant of an amount advanced by the Corporation pursuant to Section 4.5(b)(iii), a determination is made that the Participant shall not be entitled to any refund with respect to such claim and the Corporation does not notify the Participant in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of the Gross-Up Payment required to be paid.     (c)  Definitions.  The following terms shall have the following meanings for purposes of this Section 4.5.      (i) "Excise Tax" shall mean the excise tax imposed by Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax.     (ii) The "Net After-Tax Amount" of a Payment shall mean the Value of a Payment net of all taxes imposed on a Participant with respect thereto under Sections 1 and 4999 of the Code and applicable state and local law, determined by applying the highest marginal rates that are expected to apply to the Participant's taxable income for the taxable year in which the Payment is made.     (iii) "Parachute Value" of a Payment shall mean the present value as of the date of the Combination of the portion of such Payment that constitutes a "parachute payment" under Section 280G(b)(2), as determined by the Accounting Firm for purposes of determining whether and to what extent the Excise Tax will apply to such Payment.     (iv) A "Payment" shall mean any payment or distribution in the nature of compensation to or for the benefit of a Participant, whether paid or payable pursuant to this Plan or otherwise. 9 --------------------------------------------------------------------------------     (v) The "Safe Harbor Amount" means the maximum Parachute Value of all Payments that a Participant can receive without any Payments being subject to the Excise Tax.     (vi) A "Separation Payment" shall mean a Payment paid or payable pursuant to this Plan (disregarding this Section 4.5).    (vii) "Value" of a Payment shall mean the economic present value of a Payment as of the date of the Combination, as determined by the Accounting Firm using the discount rate required by Section 280G(d)(4) of the Code.     4.6  Conditions to Payment Obligations.       (a) Except as provided in Section 4.6(b) below, the obligations of the Corporation and the Employers to pay the Separation Benefits and the Gross-Up Payment and other payments described in Section 4.5 shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Corporation or any of its Subsidiaries may have against any Participant.     (b) Notwithstanding any other provision of this Plan or any other plan, program, practice or policy of any Employer: (i) any cash Separation Benefits that a Participant becomes entitled to receive under Section 4.3(b) of this Plan shall be reduced (but not below zero) by the aggregate amount of cash severance, separation, or similar benefits that the Participant may be entitled to receive under any other plan, program, policy, contract, agreement or arrangement of any Employer (including without limitation the NSP Senior Executive Severance Policy), except to the extent the Participant waives his or her right thereto, and by the aggregate amount of such cash benefits or pay in lieu of notice that the Participant may be entitled to receive under applicable law; and (ii) any continued benefits that a Participant becomes entitled to receive under Section 4.3(c) of this Plan shall be provided concurrently (not consecutively) with any such benefits that such Participant may be entitled to receive under any other plan, program, policy, contract, agreement or arrangement of any Employer or applicable law (including without limitation the health continuation coverage required by Section 4980B of the Code and Section 601 et seq. of the Employee Retirement Income Security Act of 1974, as amended). In no event shall a Participant be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to a Participant under any of the provisions of this Plan, nor shall the amount of any payment hereunder be reduced by any compensation earned by a Participant as a result of employment by another employer, except as specifically provided in Section 4.3(c)(i). ARTICLE V PARTICIPATING EMPLOYERS     This Plan may be adopted by any Subsidiary of the Corporation. Upon such adoption, the Subsidiary shall become an Employer hereunder and the provisions of the Plan shall be fully applicable to the Employees of that Subsidiary who are Participants pursuant to Section 3.1. ARTICLE VI SUCCESSOR TO CORPORATION     This Plan shall bind any successor of the Corporation, its assets or its businesses (whether direct or indirect, by purchase, merger, consolidation or otherwise), in the same manner and to the same extent that the Corporation would be obligated under this Plan if no succession had taken place.     In the case of any transaction in which a successor would not by the foregoing provision or by operation of law be bound by this Plan, the Corporation shall require such successor expressly and unconditionally to assume and agree to perform the Corporation's obligations under this Plan, in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place. The term "Corporation," as used in this Plan, shall mean the Corporation 10 -------------------------------------------------------------------------------- as hereinbefore defined and any successor or assignee to the business or assets which by reason hereof becomes bound by this Plan. ARTICLE VII DURATION, AMENDMENT AND TERMINATION     7.1  Duration.  This Plan shall continue in full force and effect and shall not terminate or expire until after all Participants who become entitled to any payments hereunder shall have received such payments in full and all payments and adjustments required to be made pursuant to Section 4.5 have been made.     7.2  Amendment.  Except as provided in Section 7.1, the Plan shall not be subject to amendment, change, substitution, deletion, revocation or termination in any respect which adversely affects the rights of Participants; provided, that this Plan may be amended if and to the extent necessary to permit the use of the "pooling of interests" accounting method with respect to the Combination (assuming that such accounting method is otherwise applicable to the Combination).     7.3  Form of Amendment.  The form of any amendment of the Plan shall be a written instrument signed by a duly authorized officer or officers of the Corporation, certifying that the amendment has been approved by the Board. ARTICLE VIII MISCELLANEOUS     8.1  Indemnification.  If a Participant institutes any legal action in seeking to obtain or enforce, or is required to defend in any legal action the validity or enforceability of, any right or benefit provided by this Plan, the Corporation or the Employer will pay for all reasonable legal fees and expenses incurred (as incurred) by such Participant, regardless of the outcome of such action.     8.2  Employment Status.  This Plan does not constitute a contract of employment or impose on the Participant or the Participant's Employer any obligation to retain the Participant as an Employee, to change the status of the Participant's employment, or to change the Corporation's policies or those of its Subsidiaries regarding termination of employment.     8.3  Claim Procedure.  If an Employee or former Employee makes a written request alleging a right to receive benefits under this Plan or alleging a right to receive an adjustment in benefits being paid under the Plan, the Corporation shall treat it as a claim for benefit. All claims for benefit under the Plan shall be sent to the Human Resources Department of the Corporation and must be received within 30 days after termination of employment. If the Corporation determines that any individual who has claimed a right to receive benefits, or different benefits, under the Plan is not entitled to receive all or any part of the benefits claimed, it will inform the claimant in writing of its determination and the reasons therefor in terms calculated to be understood by the claimant. The notice will be sent within 90 days of the claim unless the Corporation determines additional time, not exceeding 90 days, is needed. The notice shall make specific reference to the pertinent Plan provisions on which the denial is based, and describe any additional material or information is necessary. Such notice shall, in addition, inform the claimant what procedure the claimant should follow to take advantage of the review procedures set forth below in the event the claimant desires to contest the denial of the claim. The claimant may within 90 days thereafter submit in writing to the Corporation a notice that the claimant contests the denial of his or her claim by the Corporation and desires a further review. The Corporation shall within 60 days thereafter review the claim and authorize the claimant to appear personally and review pertinent documents and submit issues and comments relating to the claim to the persons responsible for making the determination on behalf of the Corporation. The Corporation will render its final decision with specific reasons therefor in writing and will transmit it to the claimant within 60 days of the written request for review, unless the Corporation determines additional time, not exceeding 60 days, is needed, and so notifies the Participant. If the Corporation fails to respond to a 11 -------------------------------------------------------------------------------- claim filed in accordance with the foregoing within 60 days or any such extended period, the Corporation shall be deemed to have denied the claim.     8.4  Validity and Severability.  The invalidity or unenforceability of any provision of the Plan shall not affect the validity or enforceability of any other provision of the Plan, which shall remain in full force and effect, and any prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.     8.5  Governing Law.  The validity, interpretation, construction and performance of the Plan shall in all respects be governed by the laws of Minnesota, without reference to principles of conflict of law, except to the extent pre-empted by federal law.     8.6  Withholding.  The Corporation may withhold from any and all amounts payable under this Plan all federal, state, local and foreign taxes that may be required to be withheld by applicable laws or regulations.     XCEL ENERGY INC.     --------------------------------------------------------------------------------     By:   Wayne H. Brunetti President and Chief Executive Officer 12 -------------------------------------------------------------------------------- Schedule I Participants Name --------------------------------------------------------------------------------   Multiple -------------------------------------------------------------------------------- Edward J. McIntyre   2.5 Paul E. Anders   2.5 Loren L. Taylor   2.5 Gary R. Johnson   2.5 Michael D. Wadley   2.5 John A. Noer   2.5 Keith H. Wietecki   2.5 Cyndi L. Lesher   2.5 Thomas A. Micheletti   2.5 Roger D. Sandeen   2.5 Jerome L. Larsen   2.5 Grady P. Butts   2.5 Paul E. Pender   2.5 John P. Moore, Jr.   2.5 David M. Sparby   2.5 -------------------------------------------------------------------------------- EXHIBIT A FORM OF RELEASE AGREEMENT     THIS AGREEMENT is entered into this  day of      , 20  by and between Xcel Energy Inc. (the "Company"), a Minnesota corporation, and            (the "Participant").     WHEREAS, the Participant has become entitled to receive Separation Benefits under the Xcel Energy Senior Executive Severance Policy (the "Policy") on the condition that the Participant enter into this Release Agreement; and     NOW, THEREFORE, in consideration of the Covenant Consideration, the Participant, intending to be legally bound, agrees as follows:     1.  Acknowledgment.       (a) The Participant understands and agrees that, in addition to the Participant's below-described exposure to the Company's Confidential Information or Trade Secrets, the Participant may, in his capacity as an employee, at times meet with the Company's customers and suppliers, and that as a consequence of using and associating with the Company's name, goodwill, and professional reputation, the Participant will be in a position to develop personal and professional relationships with the Company's past, current, and prospective customers and suppliers. The Participant further acknowledges that during the course and as a result of employment by the Company, the Participant may be provided certain specialized training or know-how. The Participant understands and agrees that this goodwill and reputation, as well as the Participant's knowledge of Confidential Information or Trade Secrets and specialized training and know-how, could be used unfairly in competition against the Company.     (b) Accordingly, the Participant agrees that during the period of one year after the Date of Termination (the "Covenant Period"), the Participant shall not:      (i) Directly or indirectly solicit, service, contract with, or otherwise engage any past (one (1) year prior), existing or prospective customer, client, or account who then has a relationship with the Company for current or prospective business on behalf of an individual or entity that is engaged in a Competing Business (as defined below), or on the Participant's own behalf for a Competing Business; the term "Competing Business" meaning for purposes of this clause (i) a business or enterprise that is engaged in the business of generation, purchase, transmission, distribution, or sale of electricity, or in the purchase, transmission, distribution, sale or transportation of natural gas within the States of Colorado, Kansas, Minnesota, New Mexico, North Dakota, Oklahoma, South Dakota, Texas, Wisconsin or Wyoming; and the Participant and the Company agree that this provision is reasonably enforced with reference to the foregoing states to the extent applicable to such relationships with the Company;     (ii) Cause or attempt to cause any existing or prospective customer, client, or account, who then has a relationship with the Company for current or prospective business, to divert, terminate, limit or in any manner modify, or fail to enter into any actual or potential business relationship with the Company; and the Participant and the Company agree that this clause (ii) is reasonably enforced with reference to any geographic area applicable to such relationships with the Company; and     (iii) Directly or indirectly solicit, employ or conspire with others to employ any of the Company's employees; the term "employ" for purposes of this clause (iii) meaning to enter into an arrangement for services as a full-time or part-time employee, independent contractor, consultant, agent or otherwise; and the Participant and the Company agree that this clause (iii) is reasonably enforced as to any geographic area.     (c) The Participant further agrees to inform any new employer or other person or entity with whom the Participant enters into a business relationship during the Covenant Period, before accepting such employment or entering into such a business relationship, of the existence of this Agreement and give such employer, person or other entity a copy of this Agreement. --------------------------------------------------------------------------------     2.  Return of Property.  The Participant agrees that upon the Date of Termination, the originals and all copies of any and all documents (including computer data, diskettes, programs, or printouts) that contain any customer information, financial information, product information, or other information that in any way relates to the Company, its products or services, its clients, its suppliers, or other aspects of its business that are in the Participant's possession shall be immediately returned to the Company. The Participant further agrees to not retain any summary of such information.     3.  Confidential Information/Trade Secrets.       (a) The Participant acknowledges that during the course and as a result of his or her employment, the Participant may receive or otherwise have access to, or contribute to the production of, Confidential Information or Trade Secrets. "Confidential Information or Trade Secrets" means information that is proprietary to or in the unique knowledge of the Company (including information discovered or developed in whole or in part by the Participant); the Company's business methods and practices; or information that derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. It includes, among other things, strategies, procedures, manuals, confidential reports, lists of clients, customers, suppliers, past, current or possible future products or services, and information concerning research, development, accounting, marketing, selling or leases and the prices or charges paid by the Company's customers to the Company, or by the Company to its suppliers. The Participant acknowledges his continuing agreement to abide by the terms of the Company's Code of Conduct.     (b) The Participant further acknowledges and appreciates that any Confidential Information or Trade Secret constitutes a valuable asset of the Company and that the Company intends any such information to remain secret and confidential. The Participant therefore specifically agrees that except to the extent required by the Participant's duties to the Company or as permitted by the express written consent of the Board of Directors, the Participant shall never, either during employment with the Company or at any time thereafter, directly or indirectly use, discuss or disclose any Confidential Information or Trade Secrets of the Company or otherwise use such information to his or her own or a third party's benefit.     4.  Consideration.  The Participant and the Company agree that the above provisions of this Agreement are reasonable and necessary for the protection of the Company and its business. In exchange for the Participant's agreement to be bound by the terms of this Agreement, the Company has provided the Participant the Separation Benefits under the Policy. The Participant accepts and acknowledges the adequacy of such consideration for this Agreement.     5.  Remedies for Breach.  The Participant acknowledges that a breach of the above provisions of this Agreement will cause the Company irreparable harm that would not be fully remedied by monetary damages. Accordingly, the Participant agrees that the Company shall, in addition to the requirement to return the Covenant Consideration to the Company and any relief afforded by law, be entitled to injunctive relief. The Participant agrees that both damages at law and injunctive relief shall be proper modes of relief and are not to be considered alternative remedies.     6.  Release.       (a) In consideration of the Separation Benefits, the Participant does hereby fully and completely release and waive any and all claims, complaints, causes of action or demands of whatever kind which the Participant has or may have against the Company and its predecessors, successors, subsidiaries and affiliates and all officers, employees and agents of those persons and companies arising out of any actions, conduct, decisions, behavior or events occurring to the date of his or her execution of this Release of which the Participant is or has been made aware or has been reasonably put on notice.     (b) The Participant understands and accepts that this release specifically covers but is not limited to any and all claims, complaints, causes of action or demands of whatever kind which the Participant 2 -------------------------------------------------------------------------------- has or may have against the above-referenced released parties relating in any way to the terms, conditions and circumstances of his or her employment to date, whether based on statutory, regulatory or common law claims for employment discrimination, including but not limited to race, color, sex, age or reprisal discrimination, arising under the Federal Civil Rights Act of 1964, as amended, Executive Order 11246, the Age Discrimination in Employment Act, as amended, the Colorado Civil Rights Act, Minnesota Human Rights Act, or any other administrative order, federal or state statute or local ordinance, wrongful discharge, breach of contract, breach of any express or implied promise, misrepresentation, fraud, reprisal, retaliation, breach of public policy, infliction of emotional distress, defamation, promissory estoppel, invasion of privacy, negligence, or any other theory, whether legal or equitable; except that this release will not impair any existing rights the Participant may have under any presently existing pension, retirement or employee benefit plan of the Company.     (c) By signing below, the Participant acknowledges that he or she fully understands and accepts the terms of this release, and represents and agrees that his or her signature is freely, voluntarily and knowingly given and that he or she has been provided a full opportunity to review and reflect on the terms of this release for at least 21 days and to seek the advice of legal counsel of his or her choice, which advice the Participant has been encouraged to obtain.     7.  The Participant's Acknowledgment of Review; Right to Revoke.       (a) The Participant represents that the Participant has carefully read and fully understands all provisions of this Agreement and that the Participant has had a full opportunity to review this Agreement before signing and to have all the terms of this Agreement explained to him or her by counsel.     (b) This Agreement may be revoked by the Participant by written notice given to Gary Johnson Vice President and General Counsel Xcel Energy Inc. 800 Nicollet Mall Suite 3000 Minneapolis, MN 55402 within 15 business days after being signed by the Participant.     8.  General Provisions.  The Participant and the Company acknowledge and agree as follows:     (a) This Agreement contains the entire understanding of the parties with regard to all matters contained herein. There are no other agreements, conditions, or representations, oral or written, express or implied, with regard to such matters;     (b) This Agreement may be amended or modified only by a writing signed by both parties;     (c) Waiver by either the Company or the Participant of a breach of any provision, term or condition hereof shall not be deemed or construed as a further or continuing waiver thereof or a waiver of any breach of any other provision, term or condition of this Agreement;     (d) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company shall 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 expressly to 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. As used in this Agreement, "the Company" shall mean the Company and its affiliates or assigns and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise. No assignment of this Agreement shall be made by the Participant, and any purported assignment shall be null and void; 3 --------------------------------------------------------------------------------     (e) If any court finds any provision or part of this Agreement to be unreasonable, in whole or in part, such provision shall be deemed and construed to be reduced to the maximum duration, scope or subject matter allowable under applicable law. Any invalidation of any provision or part of this Agreement will not invalidate any other part of this Agreement;     (f)  This Agreement will be construed and enforced in accordance with the laws and legal principles of the State of Minnesota. The Participant consents to the jurisdiction of the Minnesota courts for the enforcement of this Agreement; and     (g) This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument. THIS AGREEMENT IS INTENDED TO BE A LEGALLY BINDING DOCUMENT FULLY ENFORCEABLE IN ACCORDANCE WITH ITS TERMS. IF IN DOUBT, SEEK COMPETENT LEGAL ADVICE BEFORE SIGNING. -------------------------------------------------------------------------------- (Participant)   -------------------------------------------------------------------------------- Date XCEL ENERGY INC.     By                 --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Date     Its                 --------------------------------------------------------------------------------     The Participant acknowledges that he or she has received a copy of this Agreement. 4 -------------------------------------------------------------------------------- QuickLinks Exhibit 10.19 XCEL ENERGY SENIOR EXECUTIVE SEVERANCE POLICY Introduction ARTICLE I ESTABLISHMENT OF PLAN ARTICLE II DEFINITIONS ARTICLE III ELIGIBILITY ARTICLE IV SEPARATION BENEFITS ARTICLE V PARTICIPATING EMPLOYERS ARTICLE VI SUCCESSOR TO CORPORATION ARTICLE VII DURATION, AMENDMENT AND TERMINATION ARTICLE VIII MISCELLANEOUS Schedule I Participants EXHIBIT A FORM OF RELEASE AGREEMENT

Exhibit 10.54 Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the securities and exchange commission pursuant to rule 406 of the securities act of 1933, as amended. COLLABORATIVE RESEARCH AGREEMENT This Collaborative Research Agreement is entered effective as of June 12, 1995, by and between Sequana Therapeutics, Inc., a California corporation, having its principal place of business at 11099 North Torrey Pines Road, Suite 160, La Jolla, California 92037 ("Sequana"), and Boehringer Ingelheim International GmbH, a German corporation having its principal place of business at D-55216 Ingelheim am Rhein ("BI"). Recitals Whereas , Sequana has generated data regarding the genetic basis of Asthma and Sequana and BI desire to collaborate in the investigation into the genetic basis of Asthma pursuant to the terms of this Agreement; and Whereas , the goal of the collaboration is to identify the gene or genes responsible for Asthma with a view to BI developing products for the prevention or treatment of Asthma; and Whereas , the Parties wish to provide for the allocation of rights to therapeutic compounds, compositions and products and all diagnostic devices, compounds, kits and services as provided herein; and Whereas , of even date herewith Sequana and BI have entered into a Stock Purchase Agreement pursuant to which BI has agreed to purchase, and Sequana has agreed to sell to BI, shares of Sequana Series F Preferred Stock. Now, Therefore, the Parties agree as follows: 1. DEFINITIONS As used herein, the following terms will have the meanings set forth below: "Affiliate" means any entity that directly or indirectly Owns, is Owned by or is under common Ownership, with a Party to this Agreement. "Own," "Owned" or "Ownership" means direct or indirect possession of at least fifty percent (50%) of the outstanding voting securities of a corporation or at least fifty percent (50%) equity interest in any other type of entity or substantial control of a corporation or any other entity. "Agreement" means the present agreement together with the Exhibits attached hereto. "Annual Research Plan" means the annual plan for Research as described in Article 2.6. An outline of the Annual Research Plan for the first year of the Agreement is set forth in Exhibit A. "Asthma" means asthma, including airway hyperreactivity and atopy. "Asthma Database" means any Result(s) that Sequana or BI owns, controls or has a license to, which such Party has the right to sublicense, relating to families or individuals with Asthma which the JRC designates to be the subject of the Research efforts of the Parties or any third party under this Agreement. This includes any Sequana Results existing as of the Effective Date. "Asthma Gene" means a Gene that during the Research Term: (i) is discovered by either Party, or a third party directed by the JRC, through studies with the Asthma Database; and (ii) has been successfully cloned and sequenced by or for either Party; and (iii) has been shown by or for either Party to be altered or deleted in coding, non-coding or control regions in individuals, resulting in or associated with the pathophysiological or functional changes causing, predisposing or suppressing the development of Asthma. "BI Products" means any pharmaceutical composition of a Compound for the treatment or prevention of Asthma in humans or animals which is covered by a BI Patent, Sequana Patent or Joint Patent. BI Products include Type I Products, Type 2a Products, Type 2b Products, Type 3 Products and Type 4 Products, which correspond, in each case, to the applicable Compound. BI Product shall not include any pharmaceutical composition of a compound that BI can demonstrate to the satisfaction of Sequana pursuant to Article 4.11.1 was either already in the structural optimization, pre-clinical or clinical phase of BI drug development for the prevention or treatment of Asthma, prior to the date of any disclosure to BI regarding the target such compound is active against, or was developed totally independently of the information developed through the Research. "BI Know-How" means all tangible and intangible inventions, technology, trade secrets, data, processes, methods, and any physical, chemical or biological material, including any replication or any part of such material, or other information that BI owns, controls or has a license to as of the Effective Date or during the Research Term, that are necessary or useful to conduct the Research, and which BI has the right to sublicense. BI Know-How shall not include BI Patents, Joint Results or Joint Patents. "BI Patents" means all Patent Applications having a priority date prior to four (4) years following the end of the Research Term, and any Patents issuing thereon, in each case, that are owned or controlled by BI, which claim the discovery, development, manufacture, sale or use of any Asthma Gene, Asthma Gene sequence information, Compound or any BI Product or Sequana Product. BI Patents shall not include BI Know-How, Joint Results or Joint Patents. "BI Result" means any Result(s), made, created, developed or reduced to practice solely by employees of BI, its Affiliates, sublicensees, or other persons or entities on behalf of BI. "BI Software" means any software, code or programs developed or owned-solely by BI or licensed exclusively to BI that BI has the right to sublicense. "BI Technology" means, collectively, the BI Patents, BI Know-How, BI Results and BI Software. "Compound", means any active ingredient for use in a BI Product. Compounds shall include Type 1, Type 2a, Type 2b, Type 3 and Type 4 Compounds. "True 1 Compound" means (i) a recombinant protein expressed by an Asthma Gene, or (ii) a peptide which is part of a protein expressed by an Asthma Gene, regardless of how made. "Type 2a Compound" means any Compound, developed based on information identified through the Research, that directly inhibits (in whole or part), directly alters the activity of, directly binds to, directly modulates or functionally replaces an Asthma Gene. By way of example and without limitation, examples of Type 2a Compounds would be (i) an antisense oligomer or a modification thereof or (ii) a polynucleotide used for gene therapy. "Type 2b Compound" means any Compound (other than a Type 1 Compound) developed based on information identified through the Research, that directly inhibits (in whole or part), binds to, modulates or functionally replaces all or part of a protein expressed by an Asthma Gene. By way of example and without limitation, examples of Type 2b Compounds would be (i) an antibody to the protein, (ii) a peptide, other than a part of a protein expressed by an Asthma Gene, or (iii) a small molecule drug. "Type 3 Compound" means any Compound (other than a Type 1, 2a or 2b Compound) developed based on an intervention point or target (other than an Asthma Gene or its Gene product) upstream or downstream in a biochemical pathway elucidated through the Research. "Type 4 Compound" means any Compound directed at a target which BI can demonstrate to the satisfaction of Sequana has been screened by BI for the identification of compounds for the prevention or treatment of Asthma, prior to the target having been validated by the information identified through the Research. "Confidential Information" means, subject to the limitations set forth in Article 8, all BI Technology, Sequana Technology, and all Joint Results. "Dominating Patent" shall mean an unexpired patent that has not been invalidated by a court or a governmental agency which is owned by a third party neither controlled, controlling nor under common control with BI nor its Affiliates or sublicensees covering essential features of BI Products made and sold by BI under circumstances such that BI has no commercially reasonable alternative to obtaining a royalty-bearing license under such patent in order to commercialize BI Products under this Agreement. "Effective Date" means the date set forth in the caption above. "FDA" means the United States Food and Drug Administration, or any successor organization. "Field" means the identification and study through the use of the Asthma Database of human Genes and Gene sequence information responsible for causing, predisposing or suppressing the development of Asthma. "Full Time Equivalent" or "FTE" shall mean 1880 hours of work in the Research per year. "Gene" means a gene including all its regulatory sequences, and any and all variants thereof, including, without limitation, "splice variants," alleles and mutations of the gene. "Investigational New Drug Application" or "IND" means an application to commence Phase I clinical trials in a Major Country. "Joint Patents" means any or all Patents and Patent Applications, both U.S. and foreign, based upon Joint Results, that have a priority date on or before four (4) years after the end of the Research Term. "Joint Research Committee" or "JRC" means a committee of Sequana and BI employees as described in Article 3.1. "Joint Results" means any Result or Results made or discovered jointly by Sequana (including its Affiliates, sublicensees, or other persons or entities on behalf of Sequana) together with BI (including its Affiliates, sublicensees, or other persons or entities on behalf of BI). "Major Country" means any of the United States of America, Canada, Australia, Japan or any country in the European Union. "Net Sales" means the actual billing price received by the Parties or their Affiliates or sublicensees, as appropriate, from sales of BI Products or Sequana Products to third party customers (but not including the sale by BI or Sequana to their respective Affiliates or sublicensees), less the following deductions: (i) Prompt payment or other trade or quantity discounts actually allowed and taken in such amounts as are customary in the trade, including private sector or governmental rebates such as Medicaid rebates or rebates to pharmaceutical benefit organizations or managed health care groups, directly relate to such; (ii) Amounts repaid or credited by reason of timely rejections or returns; (iii) Taxes (other than franchise or income taxes on the income of the selling Party), including any withholding taxes, directly related to such sale and actually paid; and (iv) Transportation and delivery charges, including insurance premiums, actually incurred. "New Drug Application" or "NDA" means a new drug application to the IDA or the equivalent agency of the European Union or Japan to commence commercial sale of a drug. "Party or Parties" means BI or Sequana, or BI and Sequana. "Patent" means an United States or foreign patent or supplementary protection certificate issued on a Patent Application, including, all extensions, reissues, re-examinations, renewals, and inventors' certificates, and all foreign counterparts of the aforementioned. "Patent Application" means a United States or foreign application for a Patent, including all substitutions, divisionals, continuations, and continuations-in-part, and all foreign counterparts of the aforementioned. "Product License Application" or "PLA" means an application to the FDA or the equivalent agency of the European Union or Japan to commence commercial sale of a biological. "Research" means all work by or on behalf of BI and Sequana in the Field during the Research Term. "Research Term" means the period commencing on the Effective Date and ending on the first to occur of: (i) termination of this Agreement according to Article 12; or (ii) the fifth anniversary of the Effective Date, or such later day as the parties may agree pursuant to Article 2.12. "Result(s)" means any and all inventions, discoveries, methods, ideas, know-how, data (including the Asthma Database), software, techniques and information, including any gene, genes, and sequence information whether or not patentable, and all Patents, Patent Applications, and other proprietary rights appurtenant thereto, that are made, created, or reduced to practice in the course of the performance of the Research or existing as of the Effective Date, as well as any and all reports relating to the conduct of the Research during the Research Term. "Sequana Product" means a diagnostic product in the form of a device, compound, kit or service developed based on an Asthma Gene, and that is covered by a claim of a BI Patent, Sequana Patent or Joint Patent. "Sequana Know-How" means all tangible and intangible inventions, technology, trade secrets, data, processes, methods, and any physical, chemical or biological material, including any replication or any part of such material, or other information that Sequana owns, controls or has a license to as of the Effective Date or during the Research Term, that are necessary or useful to conduct the Research, and which Sequana has the right to sublicense. Sequana Know-How shall not include Sequana Patents and Sequana Software. "Sequana Patents" means all Patent Applications having a priority date prior to four (4) years following the end of the Research Term, and any Patents issuing thereon, in each case, that are owned or controlled by Sequana and claim the discovery, development, manufacture, sale or use of any Asthma Gene, Asthma Gene sequence information, Compound, BI Product or Sequana Product. Sequana Patents shall not include Sequana Know-How, Joint Results or Joint Patents. "Sequana Result" means any and all Results made, created, developed or reduced to practice solely by employees of Sequana, its Affiliates, sublicensees, or other persons or entities on behalf of Sequana. "Sequana Software" means any software, code or programs developed or owned solely by Sequana or licensed exclusively to Sequana that Sequana has the right to sublicense. "Sequana Technology" means, collectively, the Sequana Patents, Sequana Know-How, Sequana Software, and Sequana Results. "SLRI" means the Samuel Lunenfeld Research Institute/Mt. Sinai Hospital. "SLRI Agreement" means that certain agreement entered by Sequana and Mount Sinai Hospital Corporation, effective as of July 15, 1994. 2. RESEARCH Research Goals. During the Research Term, BI and Sequana shall conduct Research on a collaborative basis with the goal of discovering Asthma Genes. Specific goals of the Research will be the identification of the Gene or Genes associated with Asthma, including analysis of genetic linkage, physical mapping, sequencing and identification of mutations in any particular Gene resulting in or associated with the pathophysiological or functional changes causing, predisposing or suppressing the development of Asthma. Initial Fee . Within fifteen (15) days after the Effective Date, BI will pay to Sequana an initial fee of $2,000,000, which amount shall be non-refundable and noncreditable against other amounts due Sequana under this Agreement. Research and Funding Obligations . General Obligations . Each party shall use reasonable commercial efforts to carry out their responsibilities in connection with the Research to achieve the objectives of the Research as promptly as practicable. Sequana Research Obligations . During the Research Term, Sequana will commit to the Research a team of ten (10) appropriately qualified full time equivalent ("FTE") researchers (averaged over each calendar year), or such greater number of FTE researchers as the JRC may agree, to conduct the Research. Sequana shall be responsible for the management of its employees and contractors, including compensation and evaluation. BI Research Obligations . BI, at BI's expense, will to the extent available to BI, provide the necessary personnel, resources, expertise and support for the activities necessary to carry out BI's obligations under this Agreement in an effective and timely manner. BI shall be responsible for all of its own expenses incurred in connection with the Research and shall be responsible for the management of its employees and contractors, including compensation and evaluation. BI Funding Obligations . BI will provide Sequana funding for each FTE Sequana researcher involved in the Research at a rate of $280,000 per year per FTE for the first year of the Agreement, which amount shall increase by five percent (5%) per year in each subsequent year of the Research. Such amounts shall be paid to Sequana in equal installments every three (3) months, in advance, with the first payment due within fifteen (15) days after the Effective Date and the second payment due within fifteen (15) days following the approval by the JRC of the initial Research Plan but in no event earlier than three (3) months after the Effective Date. Research Patient Collection and Research Patient Collection Funding . SLRI Agreement . Prior to the Effective Date, Sequana has entered into the SLRI Agreement which provides Sequana exclusive rights to study patient samples provided by SLRI, including samples from Tristan da Cunha. The Tristan da Cunha samples obtained by Sequana from SLRI shall be used in connection with the Research, and Sequana shall be responsible for paying to SLRI any amounts due under the SLRI Agreement for the use of such patient samples in the Research. Further Patent Samples: Third Party Research Activities . Sequana shall be reimbursed for the costs of acquiring patient samples under agreements (other than the Tristan da Cunha samples under the SLRI Agreement) entered by Sequana prior to the Effective Date as outlined in Exhibit B in the sum of $347,000. During the Research Term, Sequana may, with the consent of the JRC, enter into further agreements to acquire additional patient samples for use in the Research. BI will pay to Sequana the costs of acquiring such patient samples within thirty (30) days of Sequana incurring such costs, up to a total of $6,000,000 (which sum includes the $347,000 to be reimbursed to Sequana, which amount shall be paid to Sequana within fifteen (15) days of the Effective Date). Subject to JRC approval, a portion of such $6,000,000 may be paid to third parties for the conduct of Research activities. Research Milestones. Milestone Payments . BI will pay to Sequana the research milestone payments below within thirty (30) days of the date of confirmation by the JRC of the achievement of such milestone. (a) Completion of genotyping and linkage analysis. Linkage for distinct loci determined at a maximal interval size (=flanking markers) of 5 cM, with LOD scores >3 or p values < 0.01 depending on the patient material (i.e., families or sib pairs) for linked markers.   $1,000,000 (b) Completion of physical mapping containing greater than 95% of the minimal region, not to exceed the flanking markers described above.   $1,000,000 (c) Successful identification of any Asthma Gene, up to a total of five (5) Asthma Genes. Successful identification shall be shown by isolation of a cDNA with at least one of the following characteristics: (i) significant sequence re-arrangements in the coding or the promoter region in affected individuals; or (ii) obvious disease-specific re-arrangements detected by SSCP, DGGE or other appropriate mutation detection technologies.     For each of the first two Asthma Genes.   $2,000,000 For each of the third, fourth and fifth Asthma Genes.   $1,000,000 No further milestones shall be due for any additional Asthma Genes, beyond the first five (5) Asthma Genes, subject to Article 2.5.2.     Notwithstanding the above, payments for successful identification shall only be made with respect to Gene sequences which have not previously been patented by a third party or publicly shown to be altered in asthma patients at the time of the identification of such sequences. Creditability . The research milestone payments for Gene identification paid pursuant to Article 2.5.1(c) with respect to a particular Asthma Gene shall be non-refundable but creditable against any further milestone or royalty payments owed by BI to Sequana under this Agreement in the event that any Type 1, Type 2a or Type 2b Compound (but not a Type 3 or Type 4 Compound) based on such Asthma Gene is found following such payment to be within the scope of the claims of a Dominating Patent. In each such event, the applicable Asthma Gene shall be deemed not to be one of the first five Asthma Genes and one further Asthma Gene beyond the first five Asthma Genes identified will be counted as one of the first five Asthma Genes for the purpose of any of the payment of Gene identification milestones in accordance with Article 2.5.1(c). JRC Determination . The JRC shall be responsible for determining when each milestone has been achieved, and shall promptly make such determination in writing. Each milestone shall be deemed to have been achieved when sufficient data is available to proceed to the next stage of research. In the event the JRC cannot agree whether a milestone has been achieved, the decision will be subject to the dispute resolution procedure of Article 3.5. Research Projects . Annual Research Plan . The particular Research projects to be carried out in each year of the Research Term will be described in the Annual Research Plan prepared by the JRC according to this Article 2.6. The Annual Research Plan will delineate the specific studies, number of researchers, timetable and technical goals to be pursued by Sequana and BI during the applicable year. The Annual Research Plan for the first year of the Research Term will be written by the JRC based on the outline in Exhibit A within ninety (90) days of the Effective Date and thereafter by each anniversary of the Effective Date. Responsibilities of the Parties . The Annual Research Plan(s) shall provide that the Parties have the following responsibilities: Sequana shall be responsible for conducting genotype analysis on appropriate patient DNA samples and linkage analysis; Sequana shall be responsible for gene identification studies, although BI may at its discretion participate in such activities; and BI shall be responsible for Gene expression and functional analysis of the Gene product(s) from the Genes identified, although Sequana may at the discretion of the JRC participate in such activities. Access To Technology . BI Technology . BI shall make available and disclose to Sequana during the Research Term the BI Technology necessary or useful to conduct the Research. Sequana Technology . Sequana shall make available and disclose to BI during the Research Term the Sequana Technology necessary or useful to conduct the Research. Availability of Samples . Both Sequana and BI will make available to the other chemical or biological samples relating to the Asthma Database, in their possession, from the Effective Date until the date three (3) years after the end of the Research Term. Such samples may include, but are not limited to, DNA and RNA. No Licenses . No licenses are granted pursuant to this Article 2.7. All license rights granted the Parties are contained in Article 5. Access to Data . During the Research Term, each Party will provide the other with raw data in original or on-line form or a photocopy thereof for any and all Results as reasonably requested by the other Party. Discovered Genes and Sequence Information . Both Sequana and BI shall notify the other as soon as reasonably practicable, of any Asthma Gene and Asthma Gene sequence information discovered during the Research Term from the analysis of the Asthma Database, or any Gene(s) or Gene sequence information discovered during the Research Term by a Party in any way implicated in Asthma. Rights to Gene Sequence Information . Following the identification of any Gene or Gene sequence information from the Asthma Database that is determined not to be an Asthma Gene by the JRC, Sequana shall grant to BI the right of first refusal to acquire an exclusive or non-exclusive license, with the right to grant sublicenses according to Article 5.3, of Sequana's rights in the identified Gene or Gene sequence. BI shall have six (6) months from the date of the determination by the JRC that the pertinent Gene or Gene sequence is not an Asthma Gene to exercise its right of first refusal. Upon written notification by BI to Sequana that it wishes to enter into a license agreement with respect to the Gene or Gene sequence, the Parties shall negotiate such an agreement in good faith. During such six (6) month period BI shall offer in writing the terms pursuant to which BI would enter into a license agreement with Sequana with respect to such Gene or Gene sequence information. If after the expiration of six (6) months from the date of determination by the JRC with respect to any Gene or Gene sequence, BI has not notified Sequana in writing of its interest in entering into a license agreement with respect thereto, or upon earlier notification by BI to Sequana that it is not interested, or, if BI has exercised its right of first refusal but the parties have failed to execute a license agreement within six (6) months from the date that BI provided Sequana notice of its interest in acquiring such a license (the "Negotiation Period"), each Party may immediately use such Gene or Gene sequence for any purpose; provided, if BI has exercised its right of first refusal, Sequana will not grant a third party a license with respect to any such Gene or Gene sequence on terms more favorable to the third party than those offered by BI to Sequana during the Negotiation Period. Final Report . Within ninety (90) days following the end of the Research Term, the Parties shall exchange final written reports detailing the Research. Research Term Extension . Not less than ninety (90) days prior to the fifth anniversary of the Effective Date, each Party shall inform the other whether it wishes to continue the Research Term for an additional one (1) year period to complete on-going projects. If both Parties desire to continue the Research, the Research Term shall be extended until the sixth anniversary of the Effective Date. JOINT RESEARCH COMMITTEE Composition of the JRC. Within ten (10) days of the Effective Date, each Party will assign three (3) of its employees involved in the Research to serve as regular members of the JRC. BI or Sequana may replace any of its appointed representatives to the JRC without the necessity of amending this Agreement upon written notice to the other Party. Other nonvoting representatives of either Party, including employees not directly performing Research, may from time to time, with the consent of the JRC, be asked or permitted to participate in JRC meetings, but shall not be entitled to vote on decisions made by the JRC at such meetings. The Parties hereby agree that a representative of SLRI reasonably acceptable to the Parties shall be permitted to participate in JRC meetings but shall not be entitled to vote on decisions made by the JRC at such meetings. Meetings . The JRC will meet at least quarterly at a venue and time to be agreed by the Parties. Unless otherwise agreed, the location of the meetings shall alternate between BI's facilities at Ingelheim, Germany or Vienna, Austria, and Sequana's facilities at San Diego, California, with the first JRC meeting to take place in Vienna, Austria. The Party hosting the meeting shall prepare a written report within thirty (30) days after the meeting, summarizing in reasonable detail any reports of the Parties during the meeting regarding the Results of the Research of each Party during the immediately preceding period. During the Research Term, the Parties shall exchange written reports not less often than four (4) times per year presenting a meaningful summary of the Research. Decisions . A quorum consisting of at least two (2) representatives of each Party must be present in order for the JRC to conduct an official meeting. All decisions of the JRC will require the unanimous vote of its regular members, whether or not present at the meeting. Votes can be conducted in person or by written consent. Any matters which cannot be resolved by the JRC shall be referred to the Chief Executive Officer of Sequana and Corporate Board Member, Pharmaceuticals of BI for resolution, pursuant to Article 3.5 below. Rights and Duties of the JRC . The JRC shall: (i) facilitate the exchange of Results between the Parties; (ii) coordinate and plan the respective Research efforts of the Parties; (iii) direct the Research, and monitor and assess the progress of such Research in relation to the stated goals and objectives of this Agreement; (iv) advise and assist in the resolution of any scientific or technical difficulties which are experienced by either Party in performing the Research; (v) consider Results, inventions and discoveries arising out of the Research including the determination and acknowledgment of whether or not an identified sequence is an Asthma Gene; (vi) review and attempt to resolve any disputes relating to a proposed publication of material related to the Research; (vii) review and attempt to resolve any other disputes between the Parties; (viii) prepare each Annual Research Plan; (ix) adjust the size and composition of the Research team of Sequana, and advise BI regarding the size and composition of its Research team; (x) stipulate when research milestones have been achieved according to Article 2.5; and (xi) prepare an annual estimate of payments to be made by BI to Sequana under the terms of this Agreement. Dispute Resolution . Any dispute between the Parties which cannot be amicably settled, shall be resolved as set forth below. Technical Disputes . Disputes concerning any matter relating to this Agreement which has a significant technical component, including without limitation, (i) the conduct of the Research; (ii) whether any research milestone subject to Article 2.5 has been achieved; or (iii) whether a particular product developed or distributed by BI or its Affiliates or sublicensees subject to this Agreement falls within the definition of a particular BI Product Type, shall be resolved as follows. Upon written notice of a dispute by either Party to the other, representatives of the Parties shall meet within thirty (30) days, or such other period as the parties may agree, to attempt to resolve the dispute. During the Research Term, such representatives shall be members of the JRC; following the Research Term, such representatives shall be designated by the Chief Executive Officer of Sequana and the Corporate Board Member, Pharmaceuticals of BI for their respective Parties. If such representatives resolve the dispute, they shall set forth in writing the resolution. If the representatives are unable to resolve any such dispute within the specified period, the dispute shall be automatically referred to the Chief Executive Officer of Sequana and the Corporate Board Member, Pharmaceuticals of BI, who will have a reasonable agreed period to resolve the dispute. If the Chief Executive Officer of Sequana and the Corporate Board Member, Pharmaceuticals of BI resolve any such dispute, they shall set forth the resolution in writing. If the Chief Executive Officer of Sequana and the Corporate Board Member, Pharmaceuticals of BI are unable to resolve the dispute within a reasonable agreed time, and either Party wishes to finally resolve the matter the dispute shall be resolved by binding arbitration pursuant to the procedure described in Article 3.5.2 below. Arbitration . Within thirty (30) days following the decision of the Chief Executive Officer of Sequana and the Corporate Board Member, Pharmaceuticals of BI that they cannot resolve a technical dispute subject to Section 3.5.1, either Party may submit such matter to binding arbitration. Such arbitration shall be conducted by three (3) arbitrators in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA"). The Parties shall attempt to agree on individuals who will serve as the arbitrators, selecting persons reasonably qualified to resolve such technical disputes. If the Parties are unable to select arbitrators within the thirty (30) day period, then the arbitrators shall be selected in accordance with AAA Rules. Within seven (7) days after the appointment of the arbitrators, each Party shall submit to the arbitrators and each other a detailed written statement of that Party's proposed resolution of the dispute. The arbitrators shall be entitled to select one or the other of the proposed resolutions and shall not be entitled to modify any proposed resolution or to select a resolution other than one of those that has been submitted by a Party. The arbitrators shall select the proposed resolution that is the closest to the resolution that the arbitrators believe is most consistent with the Parties' obligations and expectations as evidenced by this Agreement and also taking into consideration notions of fairness and what is appropriate under the circumstances. The arbitrators shall inform the Parties in writing of the resolution selected as promptly as possible and in no event later than thirty (30) days after submission of the last written statement by a Party. The decision of the arbitrators may be enforced in any court of competent jurisdiction. The costs of any arbitration shall be divided equally between the Parties, and the Parties shall pay their own expenses (including attorneys fees) incurred in connection with such arbitration. Non-Technical Disputes . With respect to any dispute which is not subject to Articles 3.5.1 and 3.5.2, either Party may seek remedies at law or in equity, subject to Article 16.1 below. DEVELOPMENT MILESTONES AND ROYALTIES Milestones. Milestone Payments . BI shall pay to Sequana the applicable milestone payments set forth below, subject to Article 4.1.2, within thirty (30) days after the achievement of the following development milestones with respect to each BI Product: ("M" = millions of U.S. dollars)   Type 1 Product Type 2a Product Type 2b Product Type 3 Product Type 4 Product IND filing $ 2 M $2M $ 1 M $ 1 M $ 0.5M NDA/PLA filing $ 4 M $ 3 M $2M $2M $ 2 M NDA/PLA approval $ 8 M $4M $2M $2M $ 2 M The milestone payments made pursuant to this Article 4.1 shall be non-refundable but creditable against royalties due Sequana pursuant to Article 4.2 below, beginning in the year following the third full calendar year of commercial sale of any BI Product, up to a maximum of fifty percent (50%) of the royalties due in any year. Milestone Reductions . The milestone payments made pursuant to this Article 4.1 shall be reduced for subsequent Type 1, Type 2a and Type 2b Products as follows: (i) for the second BI Product of a particular BI Product Type based on a different Asthma Gene from the first BI Product, BI shall pay to Sequana seventy percent (70%) of the milestone payments above for such BI Product; and (ii) for the third BI Product of a particular BI Product Type based on a different Asthma Gene from the first two BI Products, BI shall pay to Sequana fifty percent (50%) of the milestone payments above for such BI Product; provided, no milestone payments shall be due for any such subsequent BI Product of a particular BI Product Type. Milestone Payment Exclusions . Notwithstanding the above, no additional milestone payment shall be due by BI under this Article 4.1 for a subsequent IND or NDA (as applicable) for improvements or modifications to a BI Product based on a particular Asthma Gene, if the BI Product is functionally equivalent to a BI Product based on the same Asthma Gene for which the applicable commercialization milestone has been previously paid. As used herein, an improved or modified BI Product shall be deemed functionally equivalent to another BI Product if it works by a similar mechanism and is directed at the same target. Royalties . BI shall pay to Sequana the royalties set forth below on Net Sales of BI Products by BI, and its Affiliates and sublicensees:   Royalty Type I Product 12% Type 2a Product 5% Type 2b Product 3% Type 3 Product 2% Type 4 Product 2% In the event that a commercially significant competitive product that acts on the same intervention point as a Type 3 or Type 4 Product is introduced by a party other than BI or its Affiliates or sublicensees into a geographic market in which BI has Net Sales, the royalties due to Sequana on such Type 3 or Type 4 Product in that market shall be reduced to 1% of Net Sales, from the date the competitive product is introduced into the particular market, as long as such product is sold in that market, and such royalties shall not be subject to any further reductions or offsets. In the event such competitive product that acts on the same intervention point as a Type 1, Type 2a or Type 2b Product is introduced by a party other than BI or its Affiliates or sublicensees into such market, the Parties will meet to discuss whether a reduction should be made in the royalties payable to BI; provided, no such reduction shall occur without the mutual written consent of the Parties. Royalty to BI on Sequana Products . In the event that BI has contributed significantly to the development of a Sequana Product (other than through the support of or performance of the Research), the parties shall negotiate in good faith a royalty to be paid to BI by Sequana on Net Sales of such Sequana Product, which royalty shall reflect BI's contribution to the development of such Sequana Product. Third Party Licenses and Royalties . BI shall be responsible for the payment of any amounts due third parties for Intellectual property necessary for the performance of the Research and the commercialization of the BI Products; provided, BI may offset any amounts due third parties under licenses required to commercialize BI Products, up to a maximum of fifty percent (50%) of the royalties due Sequana in any quarter. Notwithstanding the above, Sequana shall be responsible for payments due SLRI under the SLRI Agreement. Royalty Term . BI's obligation to pay royalties to Sequana shall continue for each BI Product on a country-by-country basis until the earlier of (i) twelve (12) years following the first commercial sale of a BI Product in a country, or (ii) the expiration of the last to expire Patent within the BI Patents, Sequana Patents or Joint Patents covering a particular BI Product in such country. Reports; Payments . BI shall deliver to Sequana written reports (consistent with generally accepted accounting principles and in a format specified by the Parties and consistent with BI internal accounting policy ) within sixty (60) days after the close of each calendar quarter, showing separately for each BI Product: (i) gross sales by BI, its Affiliates and sublicensees, broken down by both units sold and revenue and the calculation of Net Sales pursuant to Article 1.26; (ii) details of the quantifies sold in each country; (iii) royalties due to Sequana pursuant to Articles 4.2; and (iv) details of payments (if any) by BI to third parties pursuant to any third party licenses, as described in Article 4.4 above. Concurrently with the making of each such report, BI shall pay to Sequana all royalties due on account of Net Sales during the preceding calendar quarter. Late Payments . In the event either Party makes a late payment or any amounts due under this Agreement, such Party shall pay interest on such amount from the date such payment was due at a rate equal to the prime rate reported by the Deutsche Bank, Frankfurt am Main, Germany plus two percent. The foregoing shall in no way limit any other remedies available to either Parry. Currency Conversion . All amounts required to be paid pursuant to this Agreement shall be paid in U.S. Dollars. If any currency conversion shall be required in connection with the calculation of royalties hereunder, such conversion shall be made by converting the currency first into German marks and then into U.S. Dollars using in both cases the average monthly exchange rates as published regularly by Deutsche Bank, Frankfurt am Main, Germany, and as customarily used by BI in its accounting system. Audits . BI shall keep complete and accurate records in sufficient detail to properly reflect all gross sales, deductions from Net Sales, and to enable the royalties payable hereunder to be determined. Upon the written request of Sequana not more than once in each calendar year, BI shall permit an independent certified public accounting firm of nationally recognized standing, selected by Sequana and reasonably acceptable to BI, and at Sequana's expense (except as provided below), to have access during normal business hours to such of the records of BI as may be reasonably necessary to verify the accuracy of the royalty reports hereunder for any year ending not more than twenty-four (24) months prior to the date of such request. The accounting firm shall disclose all information gathered or concluded to BI and to Sequana, only whether the records are correct or not and the specific details concerning any discrepancies. No other information shall be shared with Sequana. If the accounting firm concludes that additional royalties were owed during such period, BI shall pay all costs associated with the audit and the unpaid royalties within thirty (30) days of the date the accounting firm delivers the firm's written report to the Parties, with interest thereon at the prime rate reported by the Bank of America on the last calendar day of the quarter in which such payments were due. Should the accounting firm conclude that BI has over paid any royalties, Sequana shall credit any overpayment to BI against amounts later due Sequana. Withholding Taxes . Deduction . BI shall deduct any withholding taxes from the payments due under this Agreement and pay them to the proper tax authorities as required by the laws of Germany applicable at the date of payment. BI shall not deduct any other withholding or any other governmental charges from the payments due under this Agreement, including but not limited to any such taxes or charges incurred as a result of an assignment pursuant to Article 13 or a sublicense pursuant to Article 5 by BI, except as noted above. BI shall annually provide Sequana with official receipts of payment of any withholding taxes and forward these receipts to Sequana. The Parties shall use their best efforts to ensure that any withholding taxes imposed are reduced or eliminated as far as possible under the terms of the current or any future double taxation agreement between the U.S. and Germany. Certificate of Tax Exemption . In accordance with the tax laws of Germany as of the Effective Date, a reduction of withholding tax requires that the German Bundesamt fur Finanzen issue a Certificate of Tax Exemption. In order to achieve such a reduction, Sequana shall provide BI with a completed Application for Tax Exemption and a Certificate of Filing a Tax Return, which forms shall have been provided by BI to Sequana prior to the Effective Date. Payments due to Sequana under the terms of this Agreement are not payable to Sequana until the pertinent Applications for Tax Exemption are provided by Sequana to BI. Notwithstanding the above, BI shall make the payments due to Sequana under the terms of this Agreement, net of any applicable withholding. BI shall notify Sequana as soon as reasonably practicable of any changes regarding the procedure for claiming withholding tax exemptions. Product and Compound Definition Disclosures . BI Product . Within ten (10) days of the Effective Date, and annually thereafter on the anniversary of the Effective Date, BI shall deposit with Wilson, Sonsini, Goodrich & Rosati, P.C., or another agreed party, a sealed list of all compound identification numbers and products for which BI and its Affiliates have initiated structural optimization, pre-clinical or clinical development for the treatment or prevention of Asthma. Unless otherwise agreed by the Parties, such lists shall remain sealed unless a dispute arises with respect to whether a particular product is a BI Product within the scope of Article 1.7. In such event, both Parties shall be entitled to copies of such lists for purposes of resolving such dispute. Sequana shall treat such copies as Confidential Information. Type 4 Compound . Within ten (10) days of the Effective Date, and annually thereafter on the anniversary of the Effective Date, BI shall deposit with Wilson, Sonsini, Goodrich & Rosati, P.C., or another agreed party, a sealed list of targets against which BI has initiated screening for the identification of compounds for the prevention or treatment of Asthma. Unless otherwise agreed to by the Parties, such lists shall remain sealed unless a dispute arises with respect to whether a particular product contains a Type 4 Compound within the scope of Article 1.13.5. In such event, both Parties shall be entitled to copies of such lists for purposes of resolving such dispute. Sequana shall treat such copies as Confidential Information. GRANT OF LICENSES Licenses to BI. Technology License for Research . Subject to the terms and conditions of this Agreement, Sequana grants to BI an exclusive, except as to Sequana, paid-up, worldwide license, with the right to sublicense pursuant to Article 5.3.1, under (i) the Sequana Technology existing as of the Effective Date and developed during the Research Term, and (ii) Sequana's interest in the Joint Results and Joint Patents, to make and use methods and materials to conduct the Research in the Field during the Research Term. Technology License for Commercialization of BI Products . Subject to the terms and conditions of this Agreement, Sequana grants to BI, an exclusive, even as to Sequana, worldwide license, with the right to sublicense pursuant to Article 5.3.1 under (i) the Sequana Technology, and (ii) Sequana's interest in the Joint Results and Joint Patents, to make, have made and use Compounds, and to make, have made, use and sell BI Products, including all activities necessary to discover and develop Compounds and BI Products. Right of First Refusal for Commercialization of Sequana Products . Sequana hereby grants to BI a Right of First Refusal to acquire an exclusive, world wide license with the right to grant sublicenses according to Article 5.3.1 under (i) the Sequana Technology and (ii) Sequana's interest in the Joint Results and the Joint Patents to make, have made, use and sell Sequana Products. In relation to Sequana Products that are necessary for the successful marketing of a BI Product based on the same Asthma Gene, the Right of First Refusal shall commence upon the earlier of (i) notification by Sequana to BI of its decision to sublicense the development of Sequana Products, or (ii) at the time BI enters Phase III testing for the corresponding BI Product, in the event that Sequana has not earlier submitted the pertinent Sequana Product to the FDA for marketing approval or is not capable of providing diagnostic services, and stall terminate six (6) months thereafter or at such other time as the Parties may mutually agree in writing. As used in this Article 5.1.3 and in Article 5.4, "necessary" shall mean required for the identification of the patient population to be treated by a particular BI Product. In relation to any Sequana Products not subject to Section 5.1.3.1. above, the Right of First Refusal shall commence upon notification by Sequana to BI of any decision to sublicense the development of such Sequana Product and shall terminate within six (6) months thereafter or at such other time as the Parties may mutually agree in writing. The Right of First Refusal may be exercised by BI by providing written notice to Sequana of its interest in entering into a license agreement and the parties shall negotiate such an agreement in good faith for a period of six (6) months. After the termination of the Right of First Refusal, or any mutually agreed extension thereof, if BI has failed to exercise the Right of First Refusal, or if BI and Sequana have not entered into a license with respect to the applicable Sequana Product within the specified period, Sequana shall have the right to seek other sublicensees according to Article 5.3.2; provided, however, that Sequana shall not enter into such a license with any third party on terms more favorable than those offered to BI. Licenses to Sequana . Technology License for Research . Subject to the terms and conditions of this Agreement, BI grants to Sequana an exclusive, except as to BI, paid-up, worldwide license, with the right to sublicense pursuant to Article 5.3.2, under (i) the BI Technology existing as of the Effective Date and developed during the Research Term, and (ii) BI's interest in the Joint Results and Joint Patents, to make and use methods and materials to conduct the Research in the Field during the Research Term. Technology License for Commercialization of Sequana Products . Subject to the terms and conditions of this Agreement, BI grants to Sequana, an exclusive, even as to BI, worldwide license, with the right to sublicense pursuant to Article 5.3.2 under (i) the BI Technology, and (ii) BI's interest in the Joint Results and Joint Patents, to make, have made, use and sell Sequana Products including all activities necessary to discover and develop Sequana Products. Technology License for the Commercialization of BI Products . In the event of termination pursuant to Article 7.4, BI grants to Sequana, subject to the terms and conditions of this Agreement, an exclusive, even as to BI, worldwide license, with the right to sublicense pursuant to Article 5.3.2 under (i) the BI Technology, and (ii) BI's interest in the Joint Results and Joint Patents, to make, have made, use and sell BI Products. Sublicensing . Sublicenses Granted by BI . BI shall have the right to grant sublicenses under Article 5.1 to its Affiliates and third parties, including its collaborators and contractors, according to Article 6.2. BI shall promptly notify Sequana in writing of any such sublicenses to third parties. BI shall include in each permitted sublicense a provision requiring the sublicensee to make reports to BI, to keep and maintain records of sales made pursuant to such sublicense and to grant access to such records by Sequana's accounting firm to the same extent required of BI according to Article 4.9. Sublicenses Granted by Sequana . Sequana shall have the right to grant sublicenses under Article 5.2 to its Affiliates, and subject to Article 6.2 or Article 5.1.3 to third parties. Sublicensing Generally . Any sublicenses granted under this Article 5.3 shall be granted according to the following provisions: (i) any such sublicenses shall be subject to the exclusivity provisions of Article 6 and shall be nontransferable; (ii) any such sublicenses shall be fully consistent with the terms of this Agreement; and (iii) no sublicense granted under this Article 5.3 shall convey any rights greater than the rights held by the Party granting the license. Sequana Product Distribution Rights . If BI is developing a BI Product, and it is necessary for the successful marketing of such BI Product to distribute with it a Sequana Product based on the same Asthma Gene, in the event that BI has not exercised its Right of First Refusal in accordance with Article 5.1.3, Sequana will grant to BI solely in conjunction with the commercialization of such BI Product the worldwide, co- exclusive (with Sequana) fight to distribute Sequana Products relating to such BI Products, on terms to be negotiated in good faith. EXCLUSIVITY Research Exclusivity. After the Effective Date and until two (2) years after the end of the Research Term, subject to Sequana's existing agreements with third parties relating to asthma patient samples and such further agreements as the JRC may approve, neither Party will conduct any research in the Field with any other third party except as provided according to Article 6.2; provided, however, BI may collaborate with research and development relating to Asthma with third parties, outside the Field. Notwithstanding the above, either party may conduct research and commercialization activities with respect to diseases other than Asthma, alone or with third parties. Notwithstanding Article 6.1.1, in the event that Sequana materially breaches the Agreement, and BI terminates this Agreement pursuant to Section 12.2, BI may enter into collaborations with third parties to conduct research in the Field. Notwithstanding Article 6.1.1, in the event that BI materially breaches the Agreement or terminates the Research prior to the end of the Research Term pursuant to Article 12.5, or Sequana terminates this Agreement pursuant to Section 12.2, Sequana may enter into collaborations with third parties to conduct research in the Field. Third Party Contractors and Collaborators . During the Research Term, either Party shall be permitted to engage in research collaborations or scientific contract work to conduct Research with third parties provided that each collaboration is approved by the JRC and subject to the confidentiality provisions according to Article 8. Such approval shall include and set forth: (i) the financial terms of the third party collaboration, including the amounts of funding to be provided by each of the Parties to the third party collaborator; (ii) provisions that rights within the Field developed or received by either Party in the course of the third party collaboration will be considered rights of that Party under this Agreement; and (iii) provisions for any grant of intellectual property rights to the third party. DEVELOPMENT BI Development. BI will be responsible, at its option, subject to Article 7.4 and at its expense, for all preclinical and clinical development of the BI Products. BI will use its reasonable commercial efforts to conduct all such preclinical and clinical development as promptly as practicable, to obtain worldwide regulatory approvals for the sale of BI Products and to market the BI Products in all markets where BI receives regulatory approval. BI will, to the extent available to BI, provide the necessary resources, expertise and support activities to carry out development of BI Products in an effective and timely manner and will be responsible for the costs involved. BI is solely responsible for the development of all BI Products, including: discovery, formulation, toxicology, pre-clinical efficacy and clinical trials registration with all governmental authorities, manufacturing, commercialization, sales and support. BI's failure to develop BI Products shall not be a failure by BI to fulfill any provision of this Agreement and shall not be construed to be a material breach of this Agreement according to Article 12.2, but shall be subject to Article 7.4 below. Due Diligence Reports . BI will provide to Sequana quarterly reports within thirty (30) days after the end of each BI calendar quarter describing, in reasonable detail, the progress of BI's development of BI Products. Sequana's Development . Sequana may, at its option and expense, provide the necessary resources, expertise and support activities to carry out development of Sequana Products. Sequana's failure to develop Sequana Products shall not be a failure by Sequana to fulfill any provision of this Agreement and shall not be construed to be a material breach of this Agreement according to Article 12.2. Termination of BI Licenses . If BI fails to use diligent efforts to develop BI Products based on a particular Asthma Gene, in a Major Country, then BI's license and rights to develop and market BI Products based on the particular Asthma Gene in that Major Country shall terminate and Sequana shall acquire such rights and licenses under Article 5.2.3. Under such circumstances BI shall be entitled to receive royalties on any sales of the BI Product, in an amount which reflects BI's contribution to the development of such BI Product, if such contribution was significant and other than through the performance of the Research, and in any event in an amount no greater than that set forth in Article 4.2 for comparable products. As used herein, BI shall be deemed to have used diligent efforts with respect to the development of BI Products based on a particular Asthma Gene if BI devotes a commercially reasonable level of resources, budget and personnel with respect to such development. BI's rights and licenses shall be terminated under the provisions of this Article 7.4 only in the event that Sequana gives BI ninety (90) days notice of its intention to terminate such rights and licenses based on BI's failure to use diligent efforts, and only in the event that BI fails to initiate diligent efforts during such ninety (90) day period. CONFIDENTIALITY Obligation of Non-Disclosure. Any Confidential Information communicated by the Parties under this Agreement shall be maintained in strict confidence for a period of ten (10) years by the receiving Party and shall not be disclosed by either Party to any third party, except as provided in Articles 9.2 or 10 or the following sentence. Such Confidential Information may be disclosed by a Party to an Affiliate, or to a contractor or collaborator according to Article 6.2, or to a consultant retained by a Party or retained by an Affiliate or to any other person or entity permitted to be engaged pursuant to the terms of this Agreement, provided that such Affiliate, consultant, collaborator or other person or entity agrees to be bound substantially in writing to the same extent as the Parties under this Article 8. Exceptions . The provisions of Article 8.1 will apply to all Confidential Information except that which: is known by the receiving Party prior to its disclosure; or, becomes known to the receiving Party from a third party under no obligation of non-disclosure regarding such information; or, is public knowledge or later becomes public knowledge through no act on the part of the receiving Party; or is filed with an IND, NDA or PLA, or contained in a press release or published; as otherwise expressly authorized under this Agreement. In order to be treated as Confidential Information for purposes of this Agreement, each Party shall use its best efforts to summarize in writing and deliver to the other Party within sixty (60) days following disclosure, any Confidential Information that is disclosed orally or visually and which the disclosing Party wishes the receiving Party to maintain under an obligation of non-disclosure under Article 8.1. Nothing in this Article 8 shall prevent a Party from disclosing Confidential Information received hereunder or generated by such Party by itself to government authorities to the extent necessary, in the good faith opinion of such Party, to receive government permission to make, have made, use, or sell, BI Products or Sequana Products, as the case may be, or as required in connection with the exercise of the licenses granted under Article 5. PUBLICATION Manuscripts. Manuscripts intended for publication which relate to Research will require approval in writing by both Parties. Each Party will decide upon such approval within thirty (30) days of receipt by the Party of each manuscript, or sixty (60) days in the case of manuscripts that potentially relate to a Patent or Patent Application of a Party. Authorship . All publications or communications arising from the Research shall be authored pursuant to customary scientific protocol, as determined by the JRC. The order of authorship of all publications will be decided by the JRC. Publicity Review . BI and Sequana will jointly discuss and agree, based on the principles of Article 9.4, on any statement to the public regarding the execution and the subject matter of this Agreement, the Research to be conducted by the Parties under this Agreement, or any other aspect of this Agreement, except with respect to disclosures required by law or regulation. Standards . In the discussion and agreement referred to in Article 9.3, the principles observed by BI and Sequana will be accuracy, and the requirements for confidentiality under Article 8, the advantage a competitor of BI or Sequana may gain from any public or third party statements under Article 9.3, the requirements of disclosure under any securities laws or regulations of the United States, including those associated with public offerings, and the standards and customs in the pharmaceutical industry for such disclosures by companies comparable to BI and Sequana. PROPERTY RIGHTS AND PATENTS Ownership. Sequana Technology is owned by Sequana. BI Technology is owned by BI. Joint Results and Joint Patents shall be owned jointly by BI and Sequana. Inventorship and ownership of Joint Results and Joint Patents shall be determined in accordance with the laws of United States and New York, as applicable. Sequana Patents . Sequana Patents shall be prosecuted and maintained by Sequana in consultation with BI, at Sequana's expense and Sequana shall be responsible for the conduct of any interferences, re-examinations, reissues or oppositions relating thereto. Sequana shall keep BI informed of the Sequana Patent filings, prosecution and maintenance reasonably in advance of any relevant actions and deadlines to allow for review and consultation with BI. In the event that Sequana elects not to pursue prosecution or maintenance of any Patent or Patent Application related to Sequana Technology, Sequana shall give BI not less than sixty (60) days notice before any relevant deadline or any public disclosure and BI shall have the right to pursue, at its expense, prosecution of such Patent or Patent Application. BI Patents . BI Patents shall be prosecuted and maintained by BI, in consultation with Sequana, at BI's expense and BI shall be responsible for the conduct of any interferences, re-examinations, reissues or oppositions relating thereto. BI shall keep Sequana informed of the BI Patent filings, prosecution and maintenance reasonably in advance of any relevant actions and deadlines to allow for review and consultation with Sequana. In the event that BI elects not to pursue prosecution or maintenance of any Patent or Patent Application related to BI Technology, BI shall give Sequana not less than sixty (60) days notice before any relevant deadline or any public disclosure and Sequana shall have the right to pursue, at its expense, prosecution of such Patent or Patent Application. Joint Patents . Joint Patents shall be prosecuted and maintained by BI in consultation with Sequana, at BI's expense and BI shall be responsible for the conduct of any interferences, re-examinations, re-issues or oppositions relating thereto. BI shall keep Sequana informed of the Joint Patent Filings, prosecution and maintenance reasonably in advance of any relevant actions and deadlines to allow for review and consultation with Sequana. In the event that BI elects not to pursue prosecution or maintenance of any Patent or Patent Application within the Joint Patents, BI shall give Sequana not less than sixty (60) days notice before any relevant deadline or any public disclosure and Sequana shall have the right to pursue, at its expend, prosecution or such Patent or Patent Application. Cooperation Among Parties . Each Party shall make available to the other its employees, agents or consultants as is reasonably necessary or appropriate to enable such Party to file, prosecute and maintain Patents and Patent Applications as permitted under this Agreement, including, without limitation, by providing the other the opportunity to fully review and comment on any documents as far in advance of filing dates as feasible which will be filed in any patent office, and providing the other copies of any documents that such party receives from such patent offices promptly after receipt, including notice of all interferences, reissues, re-examinations, oppositions or requests for patent term extensions. Infringement of Patents by Third Parties . Notice . Each party shall promptly notify the other in writing of any alleged or threatened infringement of the Sequana Patents, the BI Patents, or the Joint Patents of which it becomes aware. Sequana Patents . Sequana shall retain the sole right to bring, at Sequana's expense, an appropriate action against any person or entity infringing a Sequana Patent directly or contributorily. Any recovery so obtained shall be paid to Sequana. In the event that an alleged infringer is engaged in the marketing or commercialization of a product that competes with a BI Product or Compound in a country in which BI retains marketing or commercialization rights, and Sequana is unable or unwilling to sue the alleged infringer within one hundred twenty (120) days of the date of notice of such infringement or thirty (30) days before the time limit, if any, set forth in the appropriate laws and regulations for the filing of such actions, whichever comes first, BI may, but shall not be required to, prosecute the alleged infringement or threatened infringement. In such event, BI shall act in its own name and at its own expense, and Sequana shall cooperate fully and completely with BI, at the expense of BI. In the event of such action by BI, any recovery obtained shall be paid to BI. BI Patents . BI shall retain the sole right to bring, at BI's expense, an appropriate action against any person or entity infringing a BI Patent directly or contributorily. Any recovery so obtained shall be paid to BI. In the event that an alleged infringer is engaged in the marketing or commercialization of a product that competes with a Sequana Product or Compound in a country in which Sequana retains marketing or commercialization rights, and BI is unable or unwilling to sue the alleged infringer within one hundred twenty (120) days of the date of notice of such infringement, or thirty (30) days before the time limit, if any, set forth in the appropriate laws and regulations for the filing of such actions, whichever comes first, Sequana may, but shall not be required to, prosecute the alleged infringement or threatened infringement. In such event, Sequana shall act in its own name and at its own expense, and BI shall cooperate fully and completely with Sequana, at the expense of Sequana. In the event of such action by Sequana, any recovery obtained be to Sequana. Joint Patents . In the event that the Parties become aware of any alleged or threatened infringement of the Joint Patents, the Parties shall confer and may agree jointly to prosecute such infringement. If the Parties do not agree on whether or how to proceed with enforcement activity within: ninety (90) days following the notice of alleged infringement or, thirty (30) days before the time limit, if any, set forth in the appropriate laws and regulations for the filing of such actions, whichever comes first, then either Party may act in its own name to commence litigation with respect to the alleged or threatened infringement. In the event a Party brings an infringement action, the other Party shall cooperate fully and completely. Neither Party shall have the right to settle any patent infringement litigation under this Article 10.6.4, in a manner that diminishes the rights or interests of the other Party without the consent of such other Party. The costs of any litigation commenced pursuant to this Article 10.6.4, including attorneys' fees and expenses, shall be borne equally by the Parties if joint prosecution was agreed upon, with such costs to be accounted for in equalizing payments to be made on a quarterly basis, or shall be borne by the single Party who prosecutes the infringement. Only out- of-pocket costs shall be accounted for and reimbursed under this Article 10.6.4, without an allocation for internal resources devoted to litigation. Except as otherwise agreed to by the Parties as part of a cost sharing arrangement, any recovery realized as a result of such litigation shall be shared equally by the Parties if joint prosecution was agreed upon or shall be the sole property of the single Party prosecuting the infringement. INDEMNITY AND INSURANCE BI. BI agrees to indemnify, defend and hold Sequana, its Affiliates and Sublicensees and their respective directors, officers, employees and agents (the "BI Indemnitees") harmless from and against any losses, costs, claims, damages, liabilities or expense (including reasonable attorneys' fees and court and other expenses of litigation) (collectively, "Liabilities") arising out of or in connection with third party claims relating to (i) any BI Products or Sequana Products developed, manufactured, used sold or otherwise distributed by or on behalf of BI, its Affiliates, sublicensees or other designees pursuant to Article 5.1 herein (including, without limitation, product liability claims), (ii) BI and its Affiliate(s) performance of the Research, or (iii) any breach by BI of its representations and warranties made in this Agreement, except, in each case, to the extent such Liabilities resulted from the gross negligence (including grossly negligent acts or omissions) or intentional misconduct of Sequana. Sequana . Sequana agrees to indemnify, defend and hold BI, its Affiliates and Sublicensees and their respective directors, officers, employees and agents (the "BI Indemnitees") harmless from and against any losses, costs, claims, damages, liabilities or expense (including reasonable attorneys' fees and court and other expenses of litigation) (collectively, "Liabilities") arising out of or in connection with third party claims relating to (i) any Sequana Products developed, manufactured, used, sold or otherwise distributed by or on behalf of Sequana, its Affiliates, sublicensees or other designees pursuant to Article 5.2 herein (including, without limitation, product liability claims), (ii) Sequana and its Affiliate(s) performance of the Research, or (iii) any breach by Sequana of its representations and warranties made in this Agreement, except, in each case, to the extent such Liabilities resulted from the gross negligence (including grossly negligent acts or omissions) or intentional misconduct of BI. Procedure . In the event that any Indemnitee intends to claim indemnification under this Article 11 it shall promptly notify the other party in writing of such alleged Liability. The indemnifying party shall have the right to control the defense thereof with counsel of its choice; provided, however, that arty Indemnitee shall have the right to retain its own counsel at its own expense, for any reason, including if representation of any Indemnitee by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnitee and any other party represented by such counsel in such proceeding. The affected Indemnitees shall cooperate with the indemnifying party and its legal representatives in the investigation of any action, claim or liability covered by this Article 11. The indemnified party shall not, except at its own cost, voluntarily make any payment or incur any expense with respect to any claim or suit without the prior written consent of the indemnifying party, which such party shall not be required to give. Insurance . BI will maintain in force at its sole cost and expense a general liability insurance policy adequate to cover its indemnification obligations hereunder. TERMINATION Termination by Mutual Agreement. By mutual agreement, the Parties may terminate this Agreement at any time. Termination for Material Breach . Sequana or BI may terminate this Agreement upon ninety (90) days written notice selling forth in reasonable detail the specifics of the material breach, provided however, that within such ninety (90) day period, the Party in material breach may cure the deficiency or the Parties may agree on a settlement in which case the termination by Sequana or BI shall not occur. Disputes subject to resolution pursuant to Articles 3.5.1 and 3.5.2 shall not be the basis of any material breach under this Article. Notwithstanding the above, except in the case where there is a bona fide dispute over an amount due which the parties are attempting to resolve, in the case of a failure to pay any amount due under this Agreement, the failure to pay any such amount within thirty (30) days after written notice of such failure shall be a material breach hereof. Termination for Bankruptcy . Either Party may immediately terminate this Agreement by giving written notice to the other Party in the event of (i) the liquidation of the other Party, (ii) the appointment of a receiver or similar officer for the other Party, (iii) an assignment by the other Party for the benefit of all or substantially all of its creditors, (iv) entry by the other Party into an agreement for the composition, extension, or readjustment of all or substantially all of its obligations, or (v) the filing of a meritorious petition in bankruptcy by or against the other Party under any bankruptcy or debtors' law for this relief or reorganization which, in the case of such a petition filed against the other Party, is not dismissed within sixty (60) days. Effects of Termination for Breach or Bankruptcy . Termination by Sequana or BI under Article 12.2 or 12.3 shall not affect the rights of the terminating Party to take any other legal action (including any action for damages arising from a material breach). In the event of such termination: any licenses granted to the breaching or bankrupt Party under Article 5 with respect to Sequana Technology, BI Technology or Joint Results and Joint Patents conceived or otherwise developed prior to the effective date of termination will terminate; and any licenses granted to the non-breaching or non-bankrupt Party under Article 5 prior to the effective date of termination will continue in effect at the option of the non-breaching or non-bankrupt Party, as long as the non-breaching or non-bankrupt Party abides by the terms of the license and the surviving provisions of this Agreement, including but not limited to the obligation to pay milestone payments and royalties under Article 4, and subject to later termination under the terms of this Article 12. Any Court awarded damages granted to BI pursuant to this Article 12.4, arising from material breach or bankruptcy of Sequana, may be deducted from milestone and/or royalty payments which may subsequently be due to Sequana. In addition, if BI is the terminating non-breaching or non-bankrupt Party, then BI's surviving licenses shall continue to be subject to reversion to Sequana under Article 7.4. In the case of a bankruptcy, the Parties acknowledge that 11 U.S.C. 365 sets forth certain rights and obligations of the Parties. BI Termination . Following the third anniversary of the Effective Date, BI may, at its discretion, terminate this Agreement including the licenses granted herein with six (6) months notice to Sequana. In the event of any such termination, at Sequana's request, BI shall assign BI's entire interest in the Joint Results and Joint Patents to Sequana, and grant Sequana an exclusive license, with the right to sublicense, under the BI Technology to make, have made, use and sell Compounds and BI Products. If Sequana commercializes products under such a license, Sequana shall pay to BI royalties in an amount which reflects BI's contribution to the development of such BI Product, if such contribution was significant and other than through the performance of the Research, and in any event in an amount no greater than that set forth in Article 4.2 for comparable products. Following the third anniversary of the Effective Date, if Sequana has identified at least one Asthma Gene through the Research, BI may elect to terminate the Research with six (6) months notice to Sequana. In the event of any such termination prior to the fifth anniversary of the Effective Date, BI shall pay to Sequana a "wind-down" payment equal to fifty percent (50%) of the funding budgeted for the Research in the preceding twelve (12) month period. In addition, the licenses in effect on the effective date of such termination shall remain in effect with respect to any Asthma Genes, Compounds or BI Products with respect to which BI is then diligently pursuing development and/or commercialization, subject to the terms and conditions of this Agreement. Change of Control . In the event that a pharmaceutical company succeeds to all or substantially all of the business or assets of Sequana to which this Agreement relates, whether by sale, merger, operation of law or otherwise, prior to the end of the Research Term, BI may terminate the Research with thirty (30) days notice to Sequana. Notwithstanding such termination, BI's other obligations will continue in effect, subject to the terms and conditions of this Agreement. As used in this Article 12.6, "pharmaceutical company" shall mean a company whose primary business is the marketing and sale of human therapeutic products. In addition, the licenses in effect on the effective date of termination shall remain in effect with respect to any Asthma Genes, Compounds or BI Products with respect to which BI is then diligently pursuing development and/or commercialization, subject to the terms and conditions of this Agreement. Survival . Articles 3.5, 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 7.4, 8, 9, 10, 11 and 16 shall survive any termination or expiration of this Agreement (excluding expiration according to Article 12.8). End of Agreement . This Agreement and all obligations of both Parties hereunder, unless earlier terminated according to this Article 12, shall expire concurrently with the expiration of the last- to-expire royalty obligation hereunder. Following such an expiration, BI shall have a non-exclusive, royalty-free, fully-paid license under the Sequana Technology to make, have made, and use Compounds and to make, have made, use and sell BI Products, and Sequana shall have a non-exclusive, royalty-free, fully- paid licensed under the BI Technology to make, have made, use sell Sequana Products. ASSIGNMENT Assignment. Neither Party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement to a third party without the prior written consent of the other Party, which consent will not be unreasonably withheld; provided, however, that each Party may assign this Agreement without such consent to an entity that succeeds to all or substantially all of its business or assets to which this Agreement relates, whether by sale, merger, operation of law or otherwise. Subject to the foregoing, this Agreement shall be binding upon the Parties and their respective successors and assigns. Assignment to Affiliates . Notwithstanding the foregoing, BI will be entitled to exercise any or all of its rights and to perform any or all of its duties under this Agreement through one or more Affiliates on the condition that BI will guarantee due and satisfactory performance by any such Affiliate of any duty delegated to it. REPRESENTATIONS AND WARRANTIES Mutual Representations and Warranties. Each Party hereby represents and warrants: Corporate Power . Such Party is duly organized and validly existing under the laws of the state of its incorporation and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof. Due Authorization . Such Party is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder. Binding Agreement . This Agreement is a legal and valid obligation binding upon it and is enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by such Party does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having authority over it. Sequana Representations and Warranties . Sequana hereby represents and warrants that to the best of its knowledge as of the Effective Date that there are no issued third party patents or pending patent applications which would be infringed by BI's practice of the Sequana Technology existing as of the Effective Date, pursuant to the licenses granted herein. Disclaimer . BI and Sequana specifically disclaim any guarantee that the Research will be successful, in whole or in part. The failure of the Parties to successfully clone Asthma Genes will not constitute a breach of any representation or warranty or other obligation under this Agreement. Neither BI nor Sequana makes any representation or warranty or guaranty that the Research will be successful. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, SEQUANA AND BI AND THEIR RESPECTIVE AFFILIATES MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OR CONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE SEQUANA TECHNOLOGY OR BI TECHNOLOGY, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES. NOTICES Notices. Any notice or other communication required or permitted under this Agreement will be in writing and will be deemed given as of the date it is: (i) delivered by hand; or (ii) mailed, postage prepaid, first class, certified mail, return-receipt requested, to the Party at the address listed below; or at an updated address; or (iii) sent, shipping prepaid, return- receipt requested, by overnight delivery service (e.g., DHL, FedEx), to the Party at the address listed below; or at such other address as the applicable Party may indicate by notice hereunder. To Sequana: Sequana Therapeutics, Inc.   11099 North Torrey Pines Road, Suite 160   La Jolla, California 92037   Attn: Chief Executive Officer To BI: Boehringer Ingelheim International GmbH   D-55216 Ingelheim am Rhein   Attn: Corporate Licensing   cc: Legal Department MISCELLANEOUS Governing Law; Venue. The construction and performance of this Agreement will be governed by the laws of the State of New York, without reference to conflicts of laws principles. The exclusive venue of any disputes arising under this Agreement which are not settled by binding arbitration pursuant to Article 3.5.2 shall be in the U.S. District Court for the Southern District of New York, and the Parties hereby consent to the personal jurisdiction of such court. Non-Use of Name . Neither Party will, without the prior written consent of the other Party use in advertising, publicity or otherwise, the name of any employee or agent, any tradename, trademark or simulation thereof owned by the other Party, or represent, either directly or indirectly, that any product or service of the other Party is a product or service of the representing Party or that it is made in accordance with or utilized the information or documents of the other Party, except as may be required by law. Notwithstanding the above, Sequana may disclose the basic provisions of this Agreement for the purpose of obtaining additional funding or engaging in merger discussions. Any such disclosure shall be subject to the confidentiality provisions as set forth in Article 8. Waiver . The failure of a Party in any instance to insist upon the strict performance of certain terms of this Agreement will not be construed to be a waiver or relinquishment of any of the remaining terms of this Agreement, either at the time of the Party's failure to insist upon strict performance or at any time in the future, and such remaining terms will continue in full force and effect. Severance . Each clause of the Agreement is a distinct and severable clause and if any clause is deemed illegal, void or unenforceable, the validity, legality or enforceability of any other clause or portion of this Agreement will not be affected thereby. Titles . All titles and Article headings contained in this Agreement are inserted only as a matter of convenience and reference. They do not define, limit, extend or describe the scope of this Agreement or the intent of any of its provisions. Compliance with Agreement and Laws . Each Party shall comply in all material respects with the terms of this Agreement and with all laws, rules and regulations applicable to the discovery, development, manufacture, distribution, import and export and sale of pharmaceutical products pursuant to this Agreement. No Other Products . Except as otherwise agreed or specifically provided in the terms of this Agreement, neither BI not its Affiliates nor sublicensees shall commercialize any Compound other than as a BI Product, except in accordance with this Agreement. Limitation of Liability . In no event shall either Party be liable to the other Party for any lost profits, cost of procurement of substitute goods or services, or other indirect, special, incidental or consequential damages, however caused and on any theory of liability, arising out of or related to this Agreement. The foregoing will not affect either Party's liability, if any, with respect to contribution or indemnity for third party claims for personal injury, death, or physical damage to property. [THIS SPACE INTENTIONALLY LEFT BLANK] Entire Agreement . This Agreement together with its Exhibits contain the entire agreement and understanding between the Parties as to its subject matter. It merges all prior discussions between the Parties and neither Party will be bound by conditions, definitions, warranties, understandings, or representations concerning such subject matter except as provided in this Agreement. This Agreement can only be modified by written agreement duly signed by persons authorized to sign agreements on behalf of both BI and Sequana. In Witness Thereof ; the Parties hereto set their hands to this Agreement. Sequana Therapeutics, Inc. By: /s/ Kevin J. Kinsella Name: Kevin J. Kinsella Title: Chief Executive Officer Date:_____________________________   Boehringer Ingelheim International GmbH By: /s/ Muller /s/ D. G. Mitchard Name: Muller Mitchard Title: Authorized figuratives Date:_____________________________     By:________________________________ Name:______________________________ Title:_____________________________ Date:______________________________ -------------------------------------------------------------------------------- Exhibit A Sequana Therapeutics Boehringer Ingelheim Isolation of Asthma & Atopy Susceptibility Genes Research Plan 1995-1996 Outline Research Proposal 1995-1996 Strategic Overview Bronchial hyperresponsiveness and atopic asthma are polygenic conditions resulting from complex interactions of genes and environmental agents. Sequana Therapeutics has undertaken to isolate and characterize genes involved in asthma etiology. The current asthma program is focused on identifying genes contributing to bronchial hyperresponsiveness (BHR) and frank asthma in humans. Several large unique asthmatic patient populations have been ascertained in this effort, and a complete genome scan has lead to identification of at least two novel genetic loci influencing BHR/frank asthma. In late 1995 we will augment this ongoing program using several complementary patient populations selected for allergic asthma, or atopy. The research plan for 1995 and 1996 has three primary foci: 1. Fine genetic mapping and mutation detection in the two BHR loci that have been identified and validated; 2. Additional genome-wide screening for BHR and frank asthma susceptibility loci, followed by verification of linkage and linkage disequilibrium in independent patient samples; 3. Genome-scan and candidate gene evaluation of atopy genes in genetically informative samples of phenotypically and ethnically matched atopic families. Current Progress Patient Collection: Airway Hyperreactivity Tristan da Cunha . To date, Sequana has collected BHR, frank asthma, and atopy-related phenotypes from four independent samples. The cornerstone of these samples is entire population of the island of Tristan da Cunha. Tristan da Cunha, a small South Atlantic island situated between Rio de Janeiro, Brazil and Capetown, South Africa, is inhabited by 282 living descendants of seven British, American, Italian, and Dutch founders. Current inhabitants reflect ten generations of intense inbreeding, which has resulted in kinship resemblances of at least first cousin levels for all individuals. This degree of inbreeding, coupled with at least one recorded case of asthma in the island founders, has led to a population prevalence of 20% -50% for frank asthma, BHR, and allergic response. The founder effect in this population renders it the most unique and powerful asthma patient resource in the world. DNA and asthma and atopy phenotypes have been obtained from nearly all (269/282) living inhabitants of Tristan da Cunha. The primary phenotypes for analysis include lifetime history of asthma, age of asthma onset, methacholine challenge response, smoking history, and skin prick tests for twelve common allergens. Replication Samples: Toronto . A major emphasis of our research strategy for identifying novel genetic loci is to validate suggestive linkages by replication with independent patient samples. Accordingly, Sequana has established two cohorts of sib-pair samples for replication with Tristan da Cunha. The first comprises 110 Caucasian sib pairs drawn from Toronto, Ontario, Canada. Toronto sib-pairs were ascertained based on the following criteria: (i) proband having methacholine PC20 < 4 mg/ml; (ii) availability of at least one sibling of the proband, either affected or unaffected; (iii) at least one living parent from whom DNA could be obtained. Phenotypes obtained from this cohort include: Asthma history questionnaire, methacholine challenge test, total IgE level, skin prick responses to 10 common allergens, and smoking history. QIMR . The second replication sample consists of 221 dizygotic twin pairs, obtained via a collaboration with the Queensland Institute of Medical Research (QIMR) in Brisbane, Australia. This sample was drawn from a registry of over 4000 twin pairs, with ascertainment based on positive history of wheezing followed by physician diagnosis of asthma or atopy. Available phenotypes include histamine challenge responses, physician diagnosis of asthma and atopy, skin prick responses to twelve common allergens, total IgE, smoking history and other respiratory-related environmental exposures, and over 200 additional anthropometric, demographic, and medical variables obtained by questionnaire and physician interview. Chinese Family . BHR, asthma, and atopy phenotypes also have been obtained from a large family of 174 Chinese individuals living in Toronto, Ontario. This family was identified based on a high proportion of asthmatics (> 25%). DNA has been extracted from all individuals. This family is not used as a replication of Tristan da Cunha due to ethnic differences; rather, it is employed to evaluate mutation ages and variability among ethnicities. Linkage Analysts Genome Scan . A 20 cM genome scan of more than 240 microsatellite markers has been completed on the Tristan da Cunha population. Linkage analyses of these data have yielded 11 possible linkages for airway hyperreactivity at a probability level of 51% or less. Many of these are likely to be false positives due to random statistical fluctuation; however, two linkages exceed the 0.5% level, and two others occur with probability less than 0.01%. These latter findings correspond to LOD scores greater than 4.0. These loci are henceforth denoted WHZ1 and WHZ2. WHZ1 Saturation . The chromosomal regions surrounding the initial WHZ1 and WHZ2 markers have been saturated with additional polymorphic genetic markers. Most of the work in this saturation has focused on WHZ1, owing to stronger initial evidence for linkage (probability = .00004) and an attractive candidate gene very near the linked marker. Saturation marker mapping of WHZ2 is ongoing. The resulting genetic map of WHZ1 includes markers spaced in intervals no greater than 5 cM across a possible linked region of approximately 30 cM. Sib-pair and affected pedigree member linkage analyses of the saturation markers yielded confirmatory evidence for linkage and refined the genetic interval to 12 cM. Eight additional markers spanning the 12 cM region have been identified and developed. These are shown below, with genetic distances by the Tristan da Cunha population.               Replication . The saturation markers have been genotyped in the Toronto and QIMR sib-pair samples. Sib-pair analyses of both samples yielded significant evidence for linkage to multiple markers in this region (p <.05). Control markers located in unlinked regions of the genome provided appropriate negative evidence for linkage. In all samples, WHZ1 linkage was obtained with frank asthma and positive airway hyperreactivity, but not for available measures of atopy (skin prick tests in all samples; IgE in Toronto and QIMR). This replication in three independent samples represents the strongest evidence ever compiled for an asthma susceptibility gene. WHZ1a candidate gene . It is noteworthy that the strongest evidence for linkage in the Toronto sib-pair and QIMR samples is not obtained at the initial marker identified in Tristan da Cunha (marker "D" shown above). Rather, the most significant marker is situated approximately 1.3 cM proximal, shown as marker "C" above. Furthermore, the QIMR sample, which is our largest outbred sib-pair sample, yields a further refined interval for linkage, spanning approximately 3.6 cM on the map above (markers "B" to "E"). This interval contains an attractive candidate gene for airway hyperreactivity, which we denote WHZ1a. This candidate gene is less than 0.5 cM from marker "C". Physical Mapping and Sequencing Cloning of Genomic Regions . In the physical mapping core group at Sequana, yeast artificial chromosomes (YACS) containing genetic markers linked to each asthma locus are identified by routine PCR methods. A contig of overlapping clones is then assembled using sequence tagged sites (STSs) to establish overlaps between the clones, fluorescence in situ hybridization (FISH) to assay for chimerism, and pulse field gel electrophoresis (PFGE) to size the clones. A YAC contig for the WHZ1 asthma locus (shown below) has been completed. Seven known genes are in this contig. In specific regions of interest within each YAC contig, for example near a candidate gene, cosmid contigs are also being assembled. A cosmid contig across the WHZ1a candidate gene within the WHZ1 region is 80% complete. Identification of New Genetic Markers . Polymorphic microsatellites (CA)n repeats have been identified from both YACS and cosmids in the WHZ1 region. These markers have contributed to the genetic refinement of the WHZ1 interval. A novel (CA)n repeat polymorphism has been identified in a WHZ1a intron. Mutation Detection . Initial screening of mutations in WHZ1a is presently underway. Mutation screening of patient DNAs is conducted by several complementary methods: 1. Single stranded conformational polymorphism (SSCP) evaluation is used to detect polymorphism in the coding regions of WHZ1a. This method lends itself to large scale, fast analysts of several candidate genes concurrently. 2. PCR and sequencing of exons of patient DNAs and controls. This provides a very detailed analysis of a particular segment of sequence and can be used to reveal the exact nature of a polymorphism. or mutation identified by methods like SSCP. 3. RT-PCR and Northern blotting are underway to verify the size of candidate gene transcripts and level of expression in available tissues. Analysis of splice variants will also be undertaken.                 Future Activities Overview . Four major areas of emphasis are targeted for the asthma program in 1995-1996. These include: (i) Gene verification and mutation detection of WHZ1. Although WHZ1a is an attractive candidate gene, there are at least 6 other genes in the region. Primary effort will be devoted to establishing the asthma susceptibility gene(s) in the WHZ1 region and identifying mutations in this gene. This involves both continued physical mapping of WHZ1a and physically locating and screening other genes in cloned regions. WHZ1a polymorphisms/mutations will be characterized by the end of September 1995. (ii) Marker development, linkage replication, and gene localization of WHZ2. The same approach taken in WHZ1 will be applied to the second strong linkage arising in Tristan da Cunha, WHZ2. This includes construction of a fine genetic map of less than 5 cM, developing additional markers if necessary, replicating linkage and linkage disequilibrium across the markers, determining all known genes and ESTs, and physically mapping the hyperreactivity gene in the region. Marker development and linkage replication will be completed in 1995. Gene localization will begin in 1995 and continue into 1996. (iii) Identification of other airway hyperreactivity loci. As described above, there are a number of additional asthma loci showing suggestive evidence for linkage. These chromosome regions will be evaluated genetically by replication and by marker development for saturation. Furthermore, a genome scan is planned for the QIMR sample in order to complement the inbred Tristan da Cunha population. The follow-up analyses of suggestive linkages and the 20 cM scan of QIMR will continue through 1996. The QIMR sample numbers can easily be expanded. (iv) Development of an atopy program. Characterizing genes predisposing to atopy versus asthma is crucial to the research program and to subsequent development of diagnostic and therapeutic agents. Access to additional patient populations for genome scanning and linkage replication is be established at present. The cornerstone of this effort will be a collaboration with Dr. David Marsh of Johns Hopkins University. Dr. Marsh is a world leader in allergic asthma and has collected a very large number of families for identification of atopy genes. The samples of Dr. Marsh, in combination with our QIMR twin sample, provide a complete atopy program, allowing sufficient resources for linkage replication, fine mapping, and mutation characterization. The programme would follow the route of a genome scan with special emphasis on candidate gene regions. Specific Activities . The Sequana research program is split into five "core" areas, consisting of (1) DNA Collection; (2) Genetic Mapping; (3) Physical Mapping; (4) DNA Sequencing and Mutation Analysis; (5) Gene Characterization and Assay Development. Specific activities in each of these core areas are described below. DNA Collection Acquire additional patient samples for fine mapping BHR genes, including a large (> 2000 individuals) case-control sample for allelic association and epidemiological studies. The Sharp clinic in San Diego is the most likely resource for this sample. Acquire atopy samples from Dr. David Marsh, including 400 Amish sib pairs and 500 patients in inbred families from Barbados. Genetic Mapping Conduct linkage disequilibrium analyses of WHZ1 region in all patient populations. Develop markers for saturating WHZ2 region and all suggestive linkages arising from Tristan da Cunha. Genotype Tristan da Cunha, Toronto sibling pairs, and QIMR twin samples for all saturation markers. Follow-up validated findings with case-control association analyses. Conduct 20 cM genome scan of QIMR sample for additional loci. Replicate these findings in Tristan da Cunha and Toronto sib pairs. Physical Mapping and Sequencing Complete cosmid contig of WHZ1 region (80% complete at present). Identify additional markers in WHZ1 from YACs. Genotype if polymorphic. Identify novel genes in the WHZ1 region by exon trapping and cDNA selection as necessary. Perform large scale sequencing (of very limited regions) and identify genes by sequence features. Sample-wide variant assessment and correlation with genetic and phenotype data. When the exact sequence of polymorphisms or potential mutations of key patients have been determined, we will assay a much wider selection of patient groups by methods such as allele specific oligonucleotide (ASO) hybridization. This allows assessment of every variant as a genetic trait within the group, and will clarify which variants in which candidate genes are associated with disease. Gene Characterization BI will be largely responsible for gene characterisation and functional assay development. Sequana may use the two hybrid system and other yeast genetic techniques to probe the function of any unknown gene, with mutations linked to asthma or associated phenotypes, uncovered by the study. Sequana will use its Bioinformatics capability to annotate and integrate all the information obtained about the genes found. This will include the construction of an asthma candidate gene data base and, as appropriate, access to the public databases including three dimensional protein structure prediction programmes. -------------------------------------------------------------------------------- Exhibit B Asthma Patient Recruitment Sequana has entered into agreements with the following groups prior to the Effective Date to acquire patient samples for the study of asthma. Signed Agreements Families Fixed Cost Variable Cost Total Cost Fudan University, PRC 100 $ 15,000 $ 40,000 $ 55,000 RenJi Hospital, PRC 125 0 25,000 25,000 Shanghai 1st Hospital, PRC 125 0 25,000 25,000 Queensland Inst. Med. Res. 220 121,000 121,000 242,000         $347,000 Amount to be Negotiated and Approved by the JRC SLRI (China, Toronto) 100 100,000 0 $100,000 COLLABORATIVE RESEARCH AGREEMENT between SEQUANA THERAPEUTICS and BOEHRINGER INGELHEIM INTERNATIONAL GmbH Table of Contents Page ARTICLE 1. DEFINITIONS * ARTICLE 2. RESEARCH * ARTICLE 3. JOINT RESEARCH COMMITTEE * ARTICLE 4. DEVELOPMENT MILESTONES AND ROYALTIES * ARTICLE 5. GRANT OF LICENSES * ARTICLE 6. EXCLUSIVITY * ARTICLE 7. DEVELOPMENT * ARTICLE 8. CONFIDENTIALITY * ARTICLE 9. PUBLICATION * ARTICLE 10. PROPERTY RIGHTS AND PATENTS * ARTICLE 11. INDEMNITY AND INSURANCE * ARTICLE 12. TERMINATION * ARTICLE 13. ASSIGNMENT * ARTICLE 14. REPRESENTATIONS AND WARRANTIES * ARTICLE 15. NOTICES * ARTICLE 16. MISCELLANEOUS * --------------------------------------------------------------------------------

            EMPLOYMENT AGREEMENT   BETWEEN   ROBERT L. NARDELLI   AND   THE HOME DEPOT, INC.                 EMPLOYMENT AGREEMENT BETWEEN ROBERT L. NARDELLI AND THE HOME DEPOT, INC.   Table of Contents     1. Employment   2. Period of Employment   3. Duties During the Period of Employment     3.1 Duties.     3.2 Scope.   4. Compensation and Other Payments     4.1 Salary.     4.2 Make Whole Payment.     4.3 Annual Bonus.     4.4 Annual Stock Option Grants.     4.5 Deferred Stock Units.     4.6 Payment of Professional Fees.   5. Other Executive Benefits     5.1 Deferred Compensation     5.2 Regular Reimbursed Business Expenses     5.3 Benefit Plans     5.4 Relocation     5.5 Perquisites   6. Termination     6.1 Death or Disability     6.2 By the Company for Cause     6.3 By Executive for Good Reason     6.4 Other than for Cause or Good Reason     6.5 Notice of Termination     6.6 Date of Termination   7. Obligations of the Company Upon Termination     7.1 Termination by the Company for Cause or Resignation without Good Reason     7.2 Resignation with Good Reason; Change in Control; Termination without Cause; Death; Disability     7.3 Retirement after Age Sixty-Two     7.4 COBRA Rights   8. Change in Control   9. Mitigation   10. Indemnification   11. Confidential Information   12. Remedy for Violation of Section 11   13. Withholding   14. Arbitration   15. Reimbursement of Legal Expenses   16. Taxes   17. Successors   18. Representations   19. Miscellaneous       EMPLOYMENT AGREEMENT                   THIS AGREEMENT (“Agreement”), by and between The Home Depot, Inc., a Delaware corporation (“Company”), and Robert L. Nardelli (“Executive”) is effective as of December 4, 2000 (the “Effective Date”).  In consideration of the mutual covenants set forth herein, the Company and the Executive hereby agree as follows:                   1.             Employment. The Company hereby agrees to employ the Executive, and the Executive agrees to serve the Company, in the capacities described herein during the Period of Employment (as defined in Section 2 of this Agreement), in accordance with the terms and conditions of this Agreement.                   2.             Period of Employment.  The term “Period of Employment” shall mean the period which commences on the Effective Date and, unless earlier terminated pursuant to Section 6, ends on December 31, 2005; provided, however, that the Period of Employment shall automatically be extended on a day by day basis effective on and after January 1, 2003 (so that the remaining term shall always be three (3) years) until such date as either the Company or the Executive shall have terminated such automatic extension provision by giving written notice to the other.                   3.             Duties During the Period of Employment.                                   3.1           Duties.  During the Period of Employment, the Executive shall be employed as the President and Chief Executive Officer of the Company with overall charge and responsibility for the business and affairs of the Company.  The Executive shall report directly to the Company’s Board of Directors (the “Board”) and shall perform such duties as the Executive shall reasonably be directed to perform by the Board.  The Company shall cause the Executive to be elected as follows: (i) to the Board, as of the Effective Date, (ii) to the Executive Committee of the Board, as of the first regularly scheduled Board meeting following the Effective Date, and (iii) as sole Chairman of the Board, on or before December 31, 2001 or as of such date as Executive shall designate upon not less than thirty (30) days’ notice to the Company as provided under Section 19.2 of this Agreement.                                   3.2           Scope.  During the Period of Employment, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive shall devote substantially all of his business time and attention to the business and affairs of the Company.  It shall not be a violation of this Agreement for the Executive to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach occasional courses or seminars at educational institutions, or (iii) manage personal investments, so long as such activities under clauses (i), (ii) and (iii) do not interfere, in any substantial respect, with the Executive’s responsibilities hereunder.                 4.             Compensation and Other Payments.                                   4.1           Salary.  During the Period of Employment, the Company shall pay the Executive an annualized base salary of not less than one million five hundred thousand dollars ($1,500,000) per year (the “Base Salary”).  The Executive’s Base Salary shall be paid in accordance with the Company’s executive payroll policy.  The Base Salary shall be reviewed by the Compensation Committee of the Board of the Company (the “Committee”) as soon as practicable after the end of each fiscal year during the Period of Employment, beginning with the fiscal year ending on February 3, 2002.  Based upon such reviews, the Committee may increase, but shall not decrease, the Base Salary.  Any increase in Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement.                                   4.2           Make Whole Payment.  As of the Effective Date, the Company shall grant the Executive:                   4.2.1        A stock option grant with respect to two million five hundred thousand (2,500,000) shares of the Company’s stock, which shall vest and become exercisable in equal five hundred thousand (500,000) share increments on the Effective Date and each of the next four anniversaries of the Effective Date, provided that each tranche shall vest only if the Executive is employed by the Company on that tranche’s vesting date, except as provided in this Agreement.  Each tranche will have a 10-year exercise period beginning at its vesting date.  The exercise price for this option shall be forty dollars and seventy-five cents ($40.75) per share, which is the closing price of the Company’s stock on the New York Stock Exchange (as reported in The Wall Street Journal) on the Effective Date.                   4.2.2        A fully vested and exercisable 10-year stock option grant under the Company’s 1997 Omnibus Stock Incentive Plan with respect to one million (1,000,000) shares of Company stock, with an exercise price equal to forty dollars and seventy-five cents ($40.75), which is the closing price of the Company’s stock on the New York Stock Exchange (as reported in The Wall Street Journal) on the Effective Date.                   4.2.3        A lump-sum cash payment of fifty thousand four hundred dollars ($50,400).                   4.2.4        A ten million dollar ($10,000,000) loan at the interest rate of five and eighty–seven hundredths percent (5.87%) per annum, compounded annually, to be disbursed within three business days of the Effective Date (the “Executive Loan”).  This loan, and the Executive’s obligation to repay principal and the associated accrued interest thereunder, (the term “Loan” covering both principal and accrued interest) shall be forgiven as follows:  (a) on each of the first five (5) anniversaries of the Effective Date, two million dollars ($2,000,000) of principal and all interest accrued to date shall be forgiven, provided that the Executive is employed by the Company on any such anniversary, or (b) the entire outstanding balance of principal and accrued interest shall be forgiven on the date of a Change in Control of the Company (as defined in Section 7.2.12), if the Executive is employed by the Company on such date, or (c) the entire outstanding balance of principal and accrued interest shall be forgiven upon the date of the termination of the Executive’s employment with the Company prior to December 4, 2005 if such termination is by the Company without Cause (as defined in subsection 6.2), by the Executive for Good Reason (as defined in subsection 6.3) or by reason of the Executive’s death or Disability (as defined in subsection 6.1).  In addition, if the Loan, or any part of the Loan, is forgiven pursuant to the preceding sentence, the Company shall pay the Executive, on or prior to such date as the Executive shall be required to pay federal, state or local taxes with respect to the forgiveness of the Loan or any part of the Loan, an additional payment (the “Gross-Up Payment”) in an amount sufficient to fully reimburse the Executive with respect to all federal, state and local taxes with respect to the forgiveness of the Loan or any part of the Loan and with respect to receipt of the Gross-Up Payment.  If, prior to the fifth anniversary of the Effective Date, the Executive’s employment with the Company is terminated by the Company for Cause or by the Executive other than for Good Reason, then the remaining principal balance (not including accrued interest) of the Executive Loan shall be repaid by the Executive in annual two million dollar ($2,000,000)  installments, which shall be made on the next anniversary or anniversaries, as the case may be, of the Effective Date.                                 4.3           Annual Bonus.  Beginning with the Company’s fiscal year ending on the last Sunday in January 2002, as soon as practicable after the end of each fiscal year, the Committee shall review the Executive’s performance under this Agreement as part of Executive’s participation under the appropriate bonus plan of the Company as in effect from time to time.  The Executive’s annual bonus shall be at a target of no less than three million dollars ($3,000,000) (the “Target Amount”) and a maximum of no less than four million dollars ($4,000,000) (the “Maximum Amount”).  Nothing contained herein shall prevent the Committee from paying an annual bonus in excess of the Maximum Amount.  The Executive shall be paid his annual bonus no later than other senior executives of the Company are paid their annual bonuses.  For each year during the Period of Employment, and for any period during the Period of Employment which is less than one year due to termination of the Executive’s employment for any reason other than Cause, the Executive will receive an annual bonus of no less than the full Target Amount.                                   4.4           Annual Stock Option Grants.  The Committee shall in 2002 and subsequent calendar years grant to the Executive ten-year options with respect to shares of Company stock, with such grants to be made at the same time during the calendar year as grants are generally made to senior executives of the Company.  Such annual grants shall be consistent with competitive pay practices generally and appropriate relative to awards made to other senior executives of the Company; provided, however, that each such annual grant shall be to purchase no less than four hundred fifty thousand (450,000) shares of Company Stock, with such number to be adjusted appropriately in the event of any change in the outstanding shares of Company Stock by reason of a stock dividend or split, recapitalization, merger, consolidation or other similar corporate change or distribution of stock or property by the Company. These option grants shall vest in four equal increments, with one tranche vesting on the second anniversary of the grant date and one tranche vesting on each of the next three anniversaries of the grant date (the “Vesting Scheme”); provided, however that an annual option grant shall instead vest pursuant to normal Company practice at the time of grant, so long as such then-current practice is no slower than the Vesting Scheme.  Any annual option grant may vest subject to a different vesting schedule, so long as such  vesting schedule is no slower than the faster of the Vesting Scheme or the then-current normal Company practice at the time of such stock option grant.                                 4.5           Deferred Stock Units.  As of the Effective Date, the Company shall grant the Executive an award of deferred stock units corresponding to seven hundred fifty thousand (750,000) shares of Company stock.  Such award shall vest in equal one hundred fifty thousand (150,000) share increments on the Effective Date and each of the first four anniversaries of the Effective Date; provided that each tranche shall vest only if the Executive is employed by the Company on that tranche’s vesting date, except as provided in this Agreement.  On the January 1 following the second anniversary of each vesting date (as illustrated in the schedule on Appendix A hereto) one share of stock for each unit shall be distributed to the Executive, unless such distribution is further deferred by the Executive by the second December 31 following the vesting date (as illustrated in the schedule on Appendix A hereto).  The Executive shall receive a dividend equivalent cash payment on all vested deferred stock units when dividends are paid to shareholders. Unless otherwise agreed to by the Executive and the Company, the Company shall, within ten (10) days after termination of the Executive’s employment for any reason, deliver to the Executive one share of Company stock for each vested deferred stock unit for which stock has not yet been distributed to the Executive.                                   4.6           Payment of Professional Fees.  The Company shall pay on the  Executive’s behalf all statements rendered to the Executive by the Executive’s attorneys, accountants and other advisors for reasonable fees and expenses in connection with the negotiation and preparation of this Agreement. The Company shall pay the Executive, on or prior to such date as the Executive shall be required to pay federal, state or local taxes with respect to the Company’s payment of such professional fees, an additional payment (the “Gross-Up Payment”) in an amount sufficient to fully reimburse the Executive with respect to all federal, state and local taxes with respect to the Company’s payment of such professional fees and with respect to receipt of the Gross-Up Payment.                   5.             Other Executive Benefits.                                   5.1           Deferred Compensation.                   5.1.1        Upon termination of the Executive’s employment, the Executive shall be entitled to a cash benefit  (the “Deferred Compensation”) in the form of a single life annuity for the life of Executive, commencing on the later of his 62nd birthday or termination of employment, in an annual amount equal to 50% of the Executive’s Final Earnings.  Final Earnings shall equal the sum of the Executive’s (i) then-current Base Salary as of the date of termination and (ii) most recent annual bonus (or then-current Target Amount, if greater) as of the date of termination; provided, however, that Final Earnings shall not be less than four million five hundred thousand dollars ($4,500,000) (the sum of the original Base Salary and original Target Amount under this Agreement).  The Deferred Compensation shall be subject to offset for all employer-funded qualified and non-qualified defined benefit pension benefits paid or payable to the Executive from the Company or the Executive’s prior employers.  In the event any amount taken into account as an offset is not paid (other than as a result of the death of the Executive, or of any action by Executive), and a final determination is made that such amount will not be paid to Executive, then the Executive shall be entitled to receive an additional amount from the Company equivalent to such unpaid amount.  The Executive and the Company shall cooperate with each other in connection with any proceeding or claim against a prior employer relating to the payment of such an amount to Executive, and all expenses incurred by the Executive in connection therewith shall be paid by the Company promptly upon notice from Executive.                   5.1.2        In the event the Executive’s employment is terminated either (i) by the Company for Cause or (ii) by the Executive without Good Reason, and such termination occurs prior to the Executive’s 62nd birthday, the Deferred Compensation amount at age 62 shall be reduced by 3% for each full year during the period between such termination and the Executive’s 62nd birthday.                   5.1.3        In the event the Executive’s employment is terminated either (i) by the Company for Cause or (ii) by the Executive without Good Reason, and such termination occurs prior to the fifth anniversary of the Effective Date, the Deferred Compensation amount at age 62 (after any applicable reduction under subsection 5.1.2) shall be reduced by 20% for each full year during the period between such termination and the fifth anniversary of the Effective Date.                   5.1.4        Termination of the Executive’s employment for any reason other than (i) by the Company for Cause or (ii) by the Executive without Good Reason shall not cause a reduction in the Deferred Compensation under subsection 5.1.2 or 5.1.3.  In the event of the Executive’s death prior to commencement of the payment of the Deferred Compensation, the Executive’s surviving spouse (or, if there is no surviving spouse, Executive’s estate), shall be entitled to receive a lump sum  payment equal to the lump sum payment to which Executive would have been entitled if his Deferred Compensation was payable (without reduction under subsection 5.1.2 or 5.1.3) as of the date immediately preceding his death and he had elected to receive such amount in a lump sum on that date.                   5.1.5        In the event the Executive commences receipt of (or in the event of his death, was deemed to have elected to receive) his Deferred Compensation prior to age 62, the Deferred Compensation amount (after any applicable reduction(s) under subsections 5.1.2 and/or 5.1.3) shall be subject to a discount of 4% for each full year between the date the Executive receives or begins to receive (or is deemed to have received) the Deferred Compensation and the date of the Executive’s 62nd birthday.  In the event of a Change in Control of the Company, this subsection shall be revised by substituting “age 55” for “age 62” in the immediately preceding sentence.                 5.1.6        With the consent of the Company, or by written election delivered to the Company by the Executive at least twelve (12) months prior to the termination of the Executive’s employment with the Company, the Executive may elect, in lieu of a single life annuity, to receive the Deferred Compensation in a lump sum or deferred lump sum or installment payments, or a life and term certain or joint and survivor annuity, or such other optional form as Executive may elect.  The amount of such lump sum benefit shall be the actuarially equivalent present value of the Deferred Compensation that would otherwise have been payable, commencing immediately as of the date such lump sum payment is made.  Any optional form of payment shall have an actuarially equivalent present value equal to the amount of such lump sum.  For purposes of this Agreement, any actuarially equivalent present value shall not be less than the present value determined on the basis of the applicable mortality table and applicable interest rate prescribed in Internal Revenue Code Section 417(e)(3)(A)(ii), in each case as would be applicable to a distribution made during the second calendar month immediately preceding the calendar month in which such lump sum distribution is made or optional form of payment is commenced.                                   5.2           Regular Reimbursed Business Expenses.  The Company shall promptly reimburse the Executive for all expenses and disbursements reasonably incurred by the Executive in the performance of his duties hereunder during the Period of Employment.                                   5.3           Benefit Plans.  The Executive and his eligible family members shall be entitled to participate immediately (except for the Company’s 401(k) plan, in which the Executive shall be entitled to participate after satisfying the one-year waiting period), on terms no less favorable to the Executive than the terms offered to other senior executives of the Company who perform or have performed in the same capacity as the Executive, in any group and/or executive life, hospitalization or disability insurance plan, health program, vacation policy, pension, profit sharing, ESOP, 401(k) and similar benefit plans (qualified, non-qualified and supplemental) or other fringe benefits (it being understood that items such as stock options are not fringe benefits) of the Company (collectively referred to as the “Benefits”); provided, however, that such Benefits shall be no less, in both scope of coverage and value of coverage, than the benefits provided to the Executive by the Executive’s immediately preceding employer.  The benefit adjustments necessary to meet the requirements of this paragraph are described in the letter from the Company to the Executive of even date herewith.  In the event that any health programs or insurance policies applicable to the Benefits provided hereunder contain a preexisting conditions clause, the Company shall reimburse the Executive for any COBRA  premiums on a tax grossed-up basis.  Anything contained herein to the contrary notwithstanding, the Benefits described herein shall not duplicate benefits made available to the Executive pursuant to any other provision of this Agreement.                                   5.4           Relocation.  The Company shall pay all costs of relocation of the Executive and his family to the Atlanta metropolitan area in accordance with the Company’s relocation policy supplemented as follows:                   5.4.1        The Company shall reimburse the Executive for reasonable temporary living expenses (including reasonable travel expenses between the Executive’s primary residence as of the Effective Date and the Atlanta metropolitan area) for the Executive and his family in the Atlanta metropolitan area for a period not to exceed one year from the Effective Date;                   5.4.2        The Company will make available to the Executive the opportunity to sell his present primary residence at appraised value through a relocation firm mutually acceptable to the Executive and the Company; and                   5.4.3        All relocation payments and benefits will be fully grossed-up for any applicable taxes.                                 5.5           Perquisites.  The Company shall provide the Executive such perquisites of employment as are commonly provided to other senior executives of the Company.                   6.             Termination.                                   6.1           Death or Disability.  This Agreement and the Period of Employment shall terminate automatically upon the Executive’s death.  If the Company determines in good faith that the Disability of the Executive has occurred (pursuant to the definition of “Disability” set forth below), it may give to the Executive written notice of its intention to terminate the Executive’s employment.  In such event, the Executive’s employment with the Company shall terminate effective on the thirtieth day after receipt by the Executive of such notice given at any time after a period of one hundred twenty (120) consecutive days of Disability or a period of one hundred eighty (180) days of Disability within any twelve (12) consecutive months, and, in either case, while such Disability is continuing (“Disability Effective Date”); provided that, within the thirty (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” means the Executive’s inability to substantially perform his duties hereunder, with reasonable accommodation, as evidenced by a certificate signed either by a physician mutually acceptable to the Company and the Executive or, if the Company and the Executive cannot agree upon a physician, by a physician selected by agreement of a physician designated by the Company and a physician designated by the Executive; provided, however, that if such physicians cannot agree upon a third physician within thirty (30) days, such third physician shall be designated by the American Arbitration Association.  Until the Disability Effective Date, the Executive shall be entitled to all compensation provided for under Section 4 hereof.  It is understood that nothing in this Section 6.1 shall serve to limit the Company’s obligations under Section 7.2 hereof.                                   6.2           By the Company for Cause.  During the Period of Employment after the Effective Date, the Company may terminate the Executive’s employment immediately for “Cause.”  For purposes of this Agreement, “Cause” shall mean that (i) the Executive has been convicted of a felony involving theft or moral turpitude, or (ii) engaged in conduct that constitutes willful gross neglect or willful gross misconduct with respect to employment duties which results in material economic harm to the Company; provided, however, that for the purposes of determining whether conduct constitutes willful gross misconduct, no act on Executive’s part shall be considered “willful” unless it is done by the Executive in bad faith and without reasonable belief that the Executive’s action was in the best interests of the Company.  Notwithstanding the foregoing, the Company  may not terminate the Executive’s employment for Cause unless (i) a determination that Cause exists is made and approved by a majority of the Company’s Board of Directors, (ii) the Executive is given at least thirty (30) days written notice of the Board meeting called to make such determination, and (iii) the Executive and his legal counsel are given the opportunity to address such meeting.                                 6.3           By Executive for Good Reason.  During the Period of Employment, the Executive’s employment hereunder may be terminated by the Executive for Good Reason upon fifteen (15) days’ written notice.  For purposes of this Agreement, “Good Reason” shall mean, without the Executive’s consent:                   6.3.1        Assignment to the Executive of any duties inconsistent in any material respect with the Executive’s position (including status, offices, titles and reporting relationships), authority, duties or responsibilities as contemplated by Section 3 of this Agreement, or any other action by the Company which results in a significant diminution in such position, authority, duties or responsibilities, excluding any isolated and inadvertent action not taken in bad faith and which is remedied by the Company within ten (10) days after receipt of notice thereof given by the Executive;                   6.3.2        Any failure by the Company to comply with any of the provisions of Section 4 or 5 of this Agreement other than an isolated and inadvertent failure not committed in bad faith and which is remedied by the Company within ten (10) days after receipt of notice thereof given by the Executive;                   6.3.3        The Executive being required to relocate to a principal place of employment more than twenty-five (25) miles from his principal place of employment with the Company in Atlanta, Georgia as of the Effective Date;                   6.3.4        Delivery by the Company of a notice discontinuing the automatic extension provision of Section 2 of this Agreement;                   6.3.5        Failure by the Company to elect the Executive to the position of sole Chairman of the Board of Directors, in compliance with the terms of Section 3.1; or                   6.3.6        Any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement.                                   6.4           Other than for Cause or Good Reason.  The Executive or the Company may terminate this Agreement for any reason other than for Good Reason or Cause, respectively, upon thirty (30) days written notice to the Company or Executive, as the case may be.  If the Executive terminates the Agreement for any reason, he shall have no liability to the Company or its subsidiaries or affiliates as a result thereof.  If the Company terminates the Agreement, or if the Agreement terminates because of the death of the Executive, the obligations of the Company shall be as set forth in Section 7 hereof.                                   6.5           Notice of Termination.  Any termination by the Company or by the Executive shall be communicated by a Notice of Termination to the other party hereto given in accordance with Section 19.2 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) sets forth in reasonable detail, if necessary, 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.  The failure by the Executive or Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of the basis for termination shall not waive any right of such party hereunder or preclude such party from asserting such fact or circumstance in enforcing his or its rights hereunder.                                   6.6           Date of Termination.  “Date of Termination” means the date specified in the Notice of Termination; provided, however, that if the Executive’s employment is 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.                   7.             Obligations of the Company Upon Termination.  The following provisions describe the obligations of the Company to the Executive under this Agreement upon termination of his employment.  However, except as explicitly provided in this Agreement, nothing in this Agreement shall limit or otherwise adversely affect any rights which the Executive may have under applicable law, under any other agreement with the Company, or under any compensation or benefit plan, program, policy or practice of the Company.                                   7.1           Termination by the Company for Cause or Resignation without Good Reason.  In the event this Agreement terminates by reason of the termination of the Executive’s Employment by the Company for Cause or by reason of the resignation of the Executive other than for Good Reason, the Company shall pay to the Executive all Accrued Obligations (as defined below) in a lump sum in cash within thirty (30) days after the Date of Termination.  “Accrued Obligations” shall mean, as of the Date of Termination, the sum of (A) the Executive’s Base Salary through the Date of Termination to the extent not theretofore paid, (B) except as otherwise previously requested by the Executive, the amount of any bonus, incentive compensation, deferred compensation (not including the amounts described in subsection 5.1 of this Agreement, which will be governed by subsection 5.1) and other cash compensation accrued by the Executive as of the Date of Termination to the extent not theretofore paid and (C) any vacation pay, expense reimbursements and other cash entitlements accrued by the Executive as of the Date of Termination to the extent not theretofore paid.                                   7.2           Resignation with Good Reason; Change in Control; Termination without Cause; Death; Disability.  If (i) the Company shall terminate the Executive’s employment other than for Cause, (ii) the Executive shall terminate his employment at any time for Good Reason or for any reason within twelve (12) months after a Change in Control or (iii) the Executive’s employment shall terminate due to death or Disability, the Executive shall receive in addition to the Accrued Obligations, the following:                   7.2.1        Twenty million dollars ($20,000,000), within thirty (30) days after the Date of Termination;                   7.2.2        Immediate full vesting in (i.e., full exercisability for) any options previously granted and not yet vested as of the Date of Termination, including but not limited to any such options granted under subsection 4.2.1 or subsection 4.4;                   7.2.3        Continued exercisability, through the end of their respective full original terms, for all vested options, whether previously vested or vesting under this subsection 7.2;                 7.2.4        Delivery of one share of Company stock for each deferred stock unit vested to the Executive for which stock has not yet been distributed to the Executive, as provided under subsection 4.5;                   7.2.5        Immediate vesting of any deferred stock units described in subsection 4.5 which have not yet vested to the Executive, and delivery of one share of Company stock for each deferred stock unit subject to accelerated vesting pursuant to this subsection 7.2.5;                   7.2.6        For each year prior to 2006 for which the annual option award required by subsection 4.4 has not yet been granted, immediate grant of a ten-year stock option award having an exercise price equal to the fair market value of a share of Company stock on the Date of Termination and otherwise complying with the requirements of subsection 4.4, with each such award being fully vested immediately upon such grant and remaining exercisable for the full ten-year term;                   7.2.7        Immediate full vesting in all other otherwise unvested shares of restricted stock of the Company, deferred stock units or other equity-based awards (if any) previously awarded to the Executive, with immediate termination of all restrictions on such awards;                   7.2.8        Immediate full vesting in the Deferred Compensation described in Section 5.1 (i.e., no reductions pursuant to subsection 5.1.2 or 5.1.3);                   7.2.9        Immediate full forgiveness of any outstanding balance of principal and accrued interest on the Executive Loan, and payment of the Gross-Up Payment, as provided under subsection 4.2.4;                   7.2.10      Receipt of any other compensation and Benefits accrued or earned and vested (if applicable) by the Executive as of the Date of Termination (but not duplicative of the Accrued Obligations); and                   7.2.11      For the remainder of the Period of Employment (determined without regard to the termination thereof pursuant to Section 6) or for three (3) years (whichever is longer), the Company shall continue health, prescription drug, dental, disability and life insurance benefits to the Executive and/or the Executive’s eligible family members at least equal to those which would have been provided to them in accordance with Section 5.3 of this Agreement if the Executive’s employment had not been terminated.                 7.2.12      For purposes of this Agreement, a “Change in Control” shall be deemed to have occurred if:                   7.2.12.1   Any “person” (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), excluding for this purpose, (i) the Company or any subsidiary of the Company, or (ii) any employee benefit plan of the Company or any subsidiary of the Company, or any person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan which acquires beneficial ownership of voting securities of the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of securities of the Company representing more than 20% of the combined voting power of the Company’s then outstanding securities; provided, however, that no Change in Control will be deemed to have occurred as a result of a change in ownership percentage resulting solely from an acquisition of securities by the Company; or                   7.2.12.2   During any two (2) consecutive years (not including any period beginning prior to December 3, 2000), individuals who at the beginning of such two (2) year period constitute the Board of Directors of the Company and any new director (except for a director designated by a person who has entered into an agreement with the Company to effect a transaction described elsewhere in this definition of Change in Control) whose election by the Board 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 (such individuals and any such new director being referred to as the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; or                   7.2.12.3   Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (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 of outstanding voting securities of the Company immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of 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 company resulting from such Business Combination (including, without limitation, a company which, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the outstanding voting securities of the Company; or                   7.2.12.4   Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.                   7.2.13      Any other provision of this Section 7.2 notwithstanding, termination of the Executive’s employment due to involuntary retirement on or after the Executive reaching age seventy-two (72) will not be a termination of employment covered by this Section 7.2.                                 7.3           Retirement after Age Sixty-Two.  If the Executive’s employment with the Company terminates due to his retirement from the Company after he attains age sixty-two (62), all equity-based awards made to the Executive shall become fully vested and, if applicable, shall remain exercisable through the end of their original term.                                   7.4           COBRA Rights.  It is understood that the Executive’s rights under this Section 7 are in lieu of all other rights which the Executive may otherwise have had upon termination of employment under this Agreement; provided, however, that no provision of this Agreement is intended to adversely affect the Executive’s rights under the Consolidated Omnibus Budget Reconciliation Act of 1985.                   8.             Change in Control.  In the event of a Change in Control of the Company:  (i) all prior grants to the Executive of stock options, restricted stock, deferred stock units or other equity-based awards (including but not limited to grants under subsections 4.2.1, 4.4 and 4.5) shall become fully vested (and, if applicable, shall remain exercisable through the end of their respective full original terms); and (ii) the Executive shall be entitled to receive any other Change-in-Control protection applicable to other senior executives of the Company, except to the extent that the application thereof would reduce the Executive’s rights or benefits under this Agreement.                   9.             Mitigation.  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.  Any severance benefits payable to the Executive shall not be subject to reduction for any compensation received from other employment.                   10.           Indemnification.  The Company shall maintain, for the benefit of the Executive, director and officer liability insurance in form at least as comprehensive as, and in an amount that is at least equal to, that maintained by the Company on the Effective Date.  In addition, the Executive shall be indemnified by the Company against liability as an officer and director of the Company and any subsidiary or affiliate of the Company to the maximum extent permitted by applicable law.  The Executive’s rights under this Section 10 shall continue so long as he may be subject to such liability, whether or not this Agreement may have terminated prior thereto.                   11.           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 subsidiaries, affiliates and businesses, which shall have been obtained by the Executive pursuant to his employment by the Company or any of its subsidiaries and affiliates and which shall not have become public knowledge (other than by acts by the Executive or his representatives 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, 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 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.                 12.           Remedy for Violation of Section 11.  The Executive acknowledges that the Company has no adequate remedy at law and will be irreparably harmed if the Executive breaches or threatens to breach the provisions of Section 11 of this Agreement, and, therefore, agrees that the Company shall be entitled to injunctive relief to prevent any breach or threatened breach of such Section and that the Company shall be entitled to specific performance of the terms of such Section in addition to any other legal or equitable remedy it may have.  Nothing in this Agreement shall be construed as prohibiting the Company from pursuing any other remedies at law or in equity that it may have or any other rights that it may have under any other agreement.                   13.           Withholding.  Anything in this Agreement to the contrary notwithstanding, all payments required to be made by the Company hereunder to the Executive shall be subject to withholding, at the time payments are actually made to the Executive and received by him, of such amounts relating to taxes as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation.  In lieu of withholding such amounts, in whole or in part, the Company may, in its sole discretion, accept other provision for payment of taxes as required by law, provided that it is satisfied that all requirements of law as to its responsibilities to withhold such taxes have been satisfied.                   14.           Arbitration.  Any dispute or controversy between the Company and the Executive, whether arising out of or relating to this Agreement, the breach of this Agreement, or otherwise, shall be settled by arbitration administered by the American Arbitration Association (“AAA”) in accordance with its Commercial Arbitration Rules then in effect, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.  Any arbitration shall be held before a single arbitrator who shall be selected by the mutual agreement of the Company and the Executive, unless the parties are unable to agree to an arbitrator, in which case, the arbitrator will be selected under the procedures of the AAA.  The arbitrator shall have the authority to award any remedy or relief that a court of competent jurisdiction could order or grant, including, without limitation, the issuance of an injunction.  However, either party may, without inconsistency with this arbitration provision, apply to any court having jurisdiction over such dispute or controversy and seek interim provisional, injunctive or other equitable relief until the arbitration award is rendered or the controversy is otherwise resolved.  Except as necessary in court proceedings to enforce this arbitration provision or an award rendered hereunder, or to obtain interim relief, neither a party nor an arbitrator may disclose the existence, content or results of any arbitration hereunder without the prior written consent of the Company and the Executive.  The Company and the Executive acknowledge that this Agreement evidences a transaction involving interstate commerce.  Notwithstanding any choice of law provision included in this Agreement, the United States Federal Arbitration Act shall govern the interpretation and enforcement of this arbitration provision.  The arbitration proceeding shall be conducted in Atlanta, Georgia or such other location to which the parties may agree.  The Company shall pay the costs of any arbitrator appointed hereunder.                 15.           Reimbursement of Legal Expenses.  In the event that the Executive is successful, whether in mediation, arbitration or litigation, in pursuing any claim or dispute involving the Executive’s employment with the Company, including any claim or dispute relating to (a) this Agreement, (b) termination of the Executive’s employment with the Company or (c) the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall promptly reimburse the Executive for all costs and expenses (including, without limitation, attorneys’ fees) relating solely, or allocable, to such successful claim.  In any other case, the Executive and the Company shall each bear all their own respective costs and attorneys’ fees.                   16.           Taxes.  In the event that the aggregate of all payments or benefits made or provided to, or that may be made or provided to, the Executive under this Agreement and under all other plans, programs and arrangements of the Company (the “Aggregate Payment”) is determined to constitute a “parachute payment,” as such term is defined in Section 280G(b)(2) of the Internal Revenue Code, the Company shall pay to the Executive, prior to the time any excise tax imposed by Section 4999 of the Internal Revenue Code (“Excise Tax”) is payable with respect to such Aggregate Payment, an additional amount which, after the imposition of all income and excise taxes thereon, is equal to the Excise Tax on the Aggregate Payment.  The determination of whether the Aggregate Payment constitutes a parachute payment and, if so, the amount to be paid to the Executive and the time of payment pursuant to this Section 16 shall be made by an independent auditor (the “Auditor”) jointly selected by the Company and the Executive and paid by the Company.  The Auditor shall be a nationally recognized United States public accounting firm which has not, during the two (2) years preceding the date of its selection, acted in any way on behalf of the Company or any affiliate thereof.  If the Executive and the Company cannot agree on the firm to serve as the Auditor, then the Executive and the Company shall each select one accounting firm and those two firms shall jointly select the accounting firm to serve as the Auditor.  Notwithstanding the foregoing, in the event that the amount of the Executive’s Excise Tax liability is subsequently determined to be greater than the Excise Tax liability with respect to which an initial payment to the Executive under this Section 16 has been made, the Company shall pay to the Executive an additional amount with respect to such additional Excise Tax (and any interest and penalties thereon) at the time and in the amount determined by the Auditor so as to make the Executive whole, on an after-tax basis, with respect to such Excise Tax (and any interest and penalties thereon) and such additional amount paid by the Company.  In the event the amount of the Executive’s Excise Tax liability is subsequently determined to be less than the Excise Tax liability with respect to which an initial payment to the Executive has been made, the Executive shall, as soon as practical after the determination is made, pay to the Company the amount of the overpayment by the Company, reduced by the amount of any relevant taxes already paid by the Executive and not refundable, all as determined by the Auditor.  The Executive and the Company shall cooperate with each other in connection with any proceeding or claim relating to the existence or amount of liability for Excise Tax, and all expenses incurred by the Executive in connection therewith shall be paid by the Company promptly upon notice of demand from the Executive.                   17.           Successors.                                   17.1         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 heirs and legal representatives.                                 17.2         This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.                                   17.3         The Company shall require any successor (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of property or stock, liquidation, or otherwise) to all or a substantial portion of its assets, by agreement in form and substance reasonably satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform this Agreement if no such succession had taken place.  Regardless of whether such an agreement is executed, this Agreement shall be binding upon any successor of the Company in accordance with the operation of law, and such successor shall be deemed the “Company” for purposes of this Agreement.                                   17.4         As used in this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.                   18.           Representations.                                   18.1         The Company represents and warrants that (i) the execution of this Agreement has been duly authorized by the Company, including action of the Board and Committee, (ii) the execution, delivery and performance of this Agreement by the Company does not and will not violate any law, regulation, order, judgment or decree or any agreement, plan or corporate governance document of the Company and (iii) upon the execution and delivery of this Agreement by the Executive, this Agreement shall be the valid and binding obligation of the Company, enforceable in accordance with its terms, except to the extent enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally and by the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).                                   18.2         The Executive represents and warrants to the Company that (i) the execution, delivery and performance of this Agreement by the Executive does not and will not violate any law, regulation, order, judgment or decree or any agreement to which the Executive is a party or by which he is bound, (ii) although the Executive is bound by certain noncompetition, nonsolicitation and confidentiality covenants in an agreement with his immediately preceding employer, the Executive is not a party to or bound by any employment agreement, noncompetition agreement or confidentiality agreement with any person or entity that would interfere materially with this Agreement or his performance of services hereunder, and (iii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of the Executive, enforceable in accordance with its terms, except to the extent enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally and by the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).                 19.           Miscellaneous.                                   19.1         This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia, without reference to principles of conflicts 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 or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.                                   19.2         All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party, by overnight courier, or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:   If to the Executive:   Robert L. Nardelli 1 Cobble Court Loudonville, NY  12211   with a copy to:   Robert J. Stucker, Esq. Vedder, Price, Kaufman & Kammholz 222 N. LaSalle Street 26th Floor Chicago, IL  60601   If to the Company:   The Home Depot, Inc. 2455 Paces Ferry Road Atlanta, GA  30339 Attn:  General Counsel   or to such other address as either of the parties shall have furnished to the other in writing in accordance herewith.  Notice and communications shall be effective when actually received by the addressee.                                   19.3         None of the provisions of this Agreement shall be deemed to impose a penalty.                                   19.4         The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.                                   19.5         Any party’s failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision hereof.                                 19.6         This Agreement supersedes any prior employment agreement or understandings, written or oral between the Company and the Executive and contains the entire understanding of the Company and the Executive with respect to the subject matter hereof.                                   19.7         This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.                   IN WITNESS WHEREOF, the parties have executed this Agreement as of the dates written below.     THE HOME DEPOT, INC.                     By: /s/  Bernard Marcus     Bernard Marcus     Co-Chairman of the Board         Date:   8/27/01                     By: /s/  John. L. Clendenin     John L. Clendenin     Chairman of the Compensation Committee of the Board         Date:   8/17/01               ROBERT L. NARDELLI               /s/  Robert L. Nardelli               Date:   8/14/01   APPENDIX A     SCHEDULE FOR DEFERRED STOCK UNITS       Vesting Date   Deferral Election Date   Distribution Date 1.   December 4, 2000   December 31, 2001   January 1, 2003 2.   December 4, 2001   December 31, 2002   January 1, 2004 3.   December 4, 2002   December 31, 2003   January 1, 2005 4.   December 4, 2003   December 31, 2004   January 1, 2006 5.   December 4, 2004   December 31, 2005   January 1, 2007     [Home Depot Letterhead]             January 19, 2001   Mr. Robert L. Nardelli 1 Cobble Court Loudonville, New York  12211   Dear Bob:                   This letter is delivered to you as a supplement to your Employment Agreement (the “Agreement”) with The Home Depot, Inc. (the “Company”) of even date herewith, as provided for in Paragraph 5.3 of the Agreement.                   During your Period of Employment with the Company and subject to the terms of the Agreement, the Company will provide you with the following benefits, which shall satisfy the Company’s obligation to provide you with benefits no less than, in both scope and value of coverage, the benefits provided you by General Electric Company:                   1.  Life Insurance.  The Company will assume from General Electric Company, its obligations under the following three insurance policies:   (1)  GE Executive Life Policy number 918490013U; (2)  Executive Life Policy number 955190365UE; and (3)  Leadership Life Policy number 945192518UE.    Alternatively, at your option, the Company shall provide you with term life insurance with a death benefit of $25 million, with a guaranteed minimum term of fifteen (15) years.    The Company will pay you, on or prior to such date as you are required to pay federal, state or local taxes with respect to the provision of the life insurance described in this item 1, an additional payment in an amount sufficient to fully reimburse you with respect to all federal, state and local taxes with respect to this life insurance and with respect to receipt of the additional payment.                    2.  Basic Life Insurance.  In addition to the life insurance described in paragraph 1, the Company will provide you with the life insurance benefits generally provided to executives of the Company, subject the usual terms under which such life insurance is normally offered from time to time.                    3.  Health Insurance.  The Company shall provide you and your eligible family members with full health care insurance under its Cigna Preferred Provider Access plan (or similar plan), in accordance with its terms as in effect from time to time.                  4.  Prescription Drug Program.  You and your family will be entitled to participate in the Company’s prescription drug program, in accordance with its terms as in effect from time to time.                   5.  Dental Insurance.  You and your family will be able to participate in the Company’s dental insurance program, in accordance with its terms as in effect from time to time.                   6.  Salary Continuation and Disability Insurance.  You will be covered by the Company’s salary continuation and long-term disability insurance programs, in accordance with their terms as in effect from time to time.                    7.  Automobile.  The Company shall provide you with the use of an automobile, to be selected by you, such automobile to be similar in class to that of the current Mercedes Benz S600.  It is anticipated that the automobile will be leased by the Company for a period up to three years.  The Company will provide you with a new leased or purchased vehicle every three years.  In addition, the Company shall pay for all maintenance, repairs, insurance and similar cost related to the automobile.    The Company will pay you, on or prior to such date as you are required to pay federal, state or local taxes with respect to the provision of the automobile benefit described in this item 7, an additional payment in an amount sufficient to fully reimburse you with respect to all federal, state and local taxes with respect to this automobile benefit and with respect to receipt of the additional payment.                    8.  Aircraft.  The Company will make available a private aircraft for use by you and your family.  The Company requires, where practicable, that you travel by use of such aircraft, for security purposes.  Your family’s personal use of such aircraft will require the inclusion in your taxable income, an amount equal to the related benefit of such accommodations.  Such inclusion shall be made as required under the Internal Revenue Code and related regulations.    The Company will pay you, on or prior to such date as you are required to pay federal, state or local taxes with respect to the provision of the aircraft benefit described in this item 8, an additional payment in an amount sufficient to fully reimburse you with respect to all federal, state and local taxes with respect to this aircraft benefit and with respect to receipt of the additional payment.                    9.  Professional Services.  The Company shall, in addition to the benefits provided to you under Paragraph 4.6 of the Agreement, reimburse you for financial planning and tax consultation and services up to $150,000 per three-year period.    The Company will pay you, on or prior to such date as you are required to pay federal, state or local taxes with respect to the provision of the professional services benefit described in this item 9, an additional payment in an amount sufficient to fully reimburse you with respect to all federal, state and local taxes with respect to this professional services benefit and with respect to receipt of the additional payment.                    10.  Retirement and 401(k) Plans.  You will be entitled to participate in the Company’s retirement and 401(k) plans, in accordance with the terms of such plans in effect from time to time.                  11.  Employee Stock Purchase Plan.  You will be entitled to participate in the Company’s voluntary stock contribution plan, in accordance with its terms as in effect from time to time.                   12.  Cafeteria Plan.  You will be entitled to participate in the Company’s Cafeteria plan, in accordance with its terms as in effect from time to time.                    13.  Vacation.  You will be entitled to six weeks of paid vacation, to be taken at your discretion.                   14.  Other Benefit Plans.  You and your family will be entitled to participate in any and all of the Company’s other benefits plans applicable to senior executives, in accordance with their respective terms as in effect from time to time.      Very truly yours,               By: /s/ Bernard Marcus     Bernard Marcus     Co-Chairman of the Board               By: /s/ John L. Clendenin     John L. Clendenin     Chairman of the Compensation Committee of the Board  

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.32 AMENDMENT NO. 1 TO CONSULTING AGREEMENT     This Amendment No. 1, dated March 29, 2001, amends a certain Consulting Agreement dated as of March 1, 1999 by and between Silicon Image, Inc., a Delaware corporation (the "Company"), and Deog-Kyoon Jeong ("Consultant") (the "Consulting Agreement").     WHEREAS, the "Period of Consultancy" specified in the Consulting Agreement is scheduled to expire, subject to the terms and conditions of the Consulting Agreement, on October 31, 2002;     WHEREAS, Consultant is eligible, pursuant to the Company's option repricing program, to exchange certain options granted to him for new options to be granted in April 2001 that will be subject to vesting until April 2005 and is also eligible to be awarded additional equity compensation by the Company in the future;     WHEREAS, the Company and Consultant accordingly desires to extend the period of consultancy under the Consulting Agreement and specify the consulting rate during such extension;     NOW, THEREFORE, the parties hereto agree as follows:     1.  The Consulting Agreement is hereby amended to replace the date "October 31, 2002" with the date "October 31, 2005" in Section 1.3 and in Section 2 of Exhibit A.     2.  The Consulting Agreement is hereby amended such that Section 3 of Exhibit A reads in its entirety as follows: Monthly Consulting Rate $8,000 per month for March 1, 1999—December 31, 1999; $9,000 per month for January 1, 2000—December 31, 2000; $10,000 per month for January 1, 2001—December 31, 2001; $11,000 per month for January 1, 2002—December 31, 2002; $12,000 per month for January 1, 2003—December 31, 2003; $13,000 per month for January 1, 2004—December 31, 2004; $14,000 per month for January 1, 2005—October 31, 2005.     3.  Except as amended by this Amendment No. 1, the terms of the Consulting Agreement remain in full force and effect.     IN WITNESS WHEREOF, the undersigned parties have executed this Amendment No. 1 (or have caused this Amendment No. 1 to be executed by their duly authorized representatives) as of March 29, 2001. Silicon Image, Inc.     By:   /s/ DAVID D. LEE    -------------------------------------------------------------------------------- David D. Lee President   /s/ DEOG-KYOON JEONG    -------------------------------------------------------------------------------- Deog-Kyoon Jeong -------------------------------------------------------------------------------- QuickLinks Exhibit 10.32

AMENDED AND RESTATED ASSET PURCHASE AGREEMENT by and between NORSTAN COMMUNICATIONS, INC. as Buyer and ERICSSON INC. as Seller Effective as of December ___, 2000 AMENDED AND RESTATED ASSET PURCHASE AGREEMENT           This AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (the "Agreement") is entered into effective as of December ___, 2000, by and between NORSTAN COMMUNICATIONS, INC., a Minnesota corporation (hereinafter referred to as "Buyer"), and ERICSSON INC., a corporation organized under the laws of the State of Delaware ("Seller"). W I T N E S S E T H:           WHEREAS, Seller operates, among other businesses, a direct distribution channel for Seller's MD110 PBX product line and associated peripheral devices (the "Products") within the United States and Canada (the "Distribution Channel");           WHEREAS, Seller desires to transfer the Distribution Channel to Buyer, and Buyer is willing to accept the Distribution Channel on the terms, and subject to the conditions, set forth in that certain Distribution Agreement executed by and between the parties (the "Distribution Agreement");           WHEREAS, Seller maintains a service business (the "Service Business") to provide maintenance and warranty support, moves, adds, changes and upgrades for Products sold through the Distribution Channel;           WHEREAS, Seller desires to sell certain assets Seller currently utilizes in connection with the Service Business, as conducted as of the date hereof, which assets include contract rights, furniture, fixtures and equipment, and inventories;           WHEREAS, Buyer wishes to:  (i) purchase the assets so used by Seller in its Service Business and (ii) retain certain persons currently employed by Seller in the Service Business; and           WHEREAS, Seller and Buyer have entered into that certain Asset Purchase Agreement, dated as of October ____, 2000 (the "Original Agreement"); and           WHEREAS, the parties were unable to consummate the transactions contemplated by the Original Agreement, and the passage of time and other circumstances mandate that certain modifications be made with respect to the Original Agreement as set forth herein.           NOW, THEREFORE, in consideration of the foregoing and the mutual covenants, agreements and representations and warranties herein contained, and for other good and legal consideration, the receipt and sufficiency of which is hereby acknowledged, Seller and Buyer, intending to be legally bound hereby, agree as follows: ARTICLE 1 DEFINITIONS           1.1     When used in this Agreement, the following terms, in their singular and plural forms, shall have the meanings assigned to them below:           "Accrued Retention Bonus Liability" is defined in Section 2.5(c).           "Accrued Vacation Liability" is defined in Section 2.5(a).           "Agreement" is defined in the initial paragraph hereof.                     "Assets" means all of Seller's right, title and interest in and to all of the following described holdings:           (a)      all of Seller’s interest in (including all rights and benefits) the written and oral commitments, contracts, leases, licenses, agreements and understandings in connection with the Service Business identified in Schedule 1.1(a) hereto (the "Assumed Contracts");           (b)      all operating data and records of Seller, including without limitation, customer lists and records, referral sources, operating guides and manuals, sales literature, correspondence and other similar documents relating to the Service Business;           (c)      all of Seller's interest in all inventories for the Products and other associated applications, subsystems identified in Schedule 1.1(c) hereto (the "Inventories");           (d)      all of Seller's interest in the pagers, cellular telephones, personal computers, printers, tools, test equipment, furniture, copiers, fax machines and fixtures identified in Schedule 1.1(d) hereto (the "Furniture, Fixtures and Equipment"); and           (e)      certain tangible assets previously expensed by Seller and enumerated in Schedule 1.1(e) (the "Other Tangible Assets"). "Assumed Contracts" is defined in Section 1.1(a). "Back to Back Agreement" is defined in Section 2.6. "Buyer" is defined in the initial paragraph hereof. "Claim" means a claim or demand for any and all damages, losses, penalties, costs and expenses, including reasonable attorneys' fees, resulting from, related to or arising out of (i) any misrepresentation, breach of warranty or non-fulfillment of any covenant set forth in this Agreement; (ii) Seller's ownership of the Assets prior to the Closing Date; (iii) Seller's operation of the Service Business prior to the Closing Date; and (iv) any and all Proceedings, demands, assessments, judgments and claims arising out of any of the foregoing.           "Closing" and "Closing Date" are defined in Section 6.1.           "Closing Account Balance" is defined in Section 3.1.           "Compete" is defined in Section 11.1.                     "Contract" means any agreement, contract, obligation, promise, or undertaking (whether written or oral and whether express or implied) that is legally binding.           "Customer Prepayments" is defined in Section 2.3.           "Defective Items" is defined in Section 8.10. "Distribution Agreement" is defined in the recitals to this Agreement.           "Employee Plan" is defined in Section 4.17.           "ERISA" is defined in Section 4.17.                     "Financial Information" means the unaudited financial information provided by Seller to Buyer concerning the Service Business as of, and for the eleven month period ended, November 30, 2000.                     "Former Ericsson Employees" means the persons identified in Exhibit A hereto who will have also accepted Buyer's offer of employment on or before the Closing Date.                     "Governmental Authority" means any foreign, federal, state, regional or local authority, agency, body, court or instrumentality, regulatory or otherwise, which, in whole or in part, was formed by or operates under the auspices of any foreign, federal, state, regional or local government.           "Indemnification Period" is defined in Section 12.1.           "Indemnitee" is defined in Section 12.5.           "Indemnitor" is defined in Section 12.5.           "Inspection Notice" is defined in Section 8.10.           "Inventories" is defined in Section 1.1(c).                     "Knowledge" - an individual will be deemed to have "Knowledge" of a particular fact or other matter if such individual is actually aware of such fact or other matter.  A Person (other than an individual) will be deemed to have "Knowledge" of a particular fact or other matter if any individual who is serving, or who has at any time served, as a director, officer, partner, executor, or trustee of such Person (or in any similar capacity) has, or at any time had, Knowledge of such fact or other matter.  Seller will be deemed to have "Knowledge" of a particular fact or other matter if any director or officer of Seller has, or at any time had, Knowledge of such fact or other matter, or if such director or officer would have had Knowledge of a particular fact or matter if such director or officer had made all reasonable inquiries into the particular fact or matter.                     "Law" means any common law and any federal, state, regional, local or foreign law, rule, statute, ordinance, rule, order or regulation.                     "Liabilities" means liabilities, obligations, or debts of Seller of any type or nature, whether matured, unmatured, contingent or unknown, which are based on acts or omissions occurring before the Closing Date.                     "Lien" means any lien, charge, adverse claim, encumbrance, security interest, option, pledge, or any other title defect or restriction of any kind.                     "Losses" is defined in Section 12.2. "Net Purchase Price" is defined in Section 3.1.           "Non-Assigned Contract" is defined in Section 2.6.           "Notice" is defined in Section 12.5           "Notice of Dispute" is defined in Section 13.7(a).                     "Order" means any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any Governmental Authority or by any arbitrator.                     "Other Assets" is defined in Section 8.10                     "Person" means any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, or other entity or Governmental Authority.                     "Proceeding" means any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Authority or arbitrator.                     "Promissory Note" is defined in Section 3.1.                     "Purchase Price Adjustment" is defined in Section 3.1.                     "Records" means all financial, accounting and personnel records of Seller relating to the Service Business, including without limitation, customer historical profiles and access to information stored in Seller's SAP information systems.                     "Seller" is defined in the initial paragraph of this Agreement.           "Seller's Portion" is defined in Section 2.5(a).           "Service Business" is defined in the recitals to this Agreement.           "Service Business Worker(s)" is defined in Section 8.8.           "Shortfall Positions" is defined in Section 8.8(b).                     "Tax" means any federal, state, local, or foreign income, gross receipt, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, custom duties, capital stock franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative, add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty or addition thereto, whether disputed or not.                     "Threshold Amount" is defined in Section 12.3.                     "Warranty Obligations" is defined in Section 2.4.                     "Year 2000 Compliant" is defined in Section 4.7. ARTICLE 2 SALE AND PURCHASE OF ASSETS           2.1     Agreement to Sell and Purchase Assets.                     (a)      Subject to the terms and conditions hereof and on the basis of and in reliance upon the covenants, agreements and representations and warranties set forth herein, on the Closing Date Seller shall sell and deliver the Assets to Buyer, and Buyer shall purchase the Assets from Seller.  The Assets shall be sold, transferred and conveyed by Seller to Buyer free and clear of any and all Liens.                     (b)      In addition to the foregoing, Seller will, upon request and without additional consideration, at and subsequent to the Closing Date, execute and deliver all such further instruments of conveyance and transfer and confirmation thereof as may be reasonably requested by Buyer in order to make further effective the provisions of this Agreement and to assure the transfers and vesting of title provided for by this Agreement. All such transfers and assignments of title shall vest and be effective on the Closing Date.           2.2     Assumption of Contract Duties and Obligations.  Subject to the following provisions, Buyer shall assume and accept all of Seller's duties and performance obligations that arise on or after the Closing Date in connection with the Assumed Contracts.  Neither the California Polytechnic Institute nor the United Nations contracts appearing on Schedule 1.1(a) shall be transferred to Buyer on the Closing Date.  Seller shall retain the California Polytechnic Institute contract and all rights and obligations associated therewith until such time as Seller has, in the reasonable judgment of both Seller and Buyer, resolved Seller's dispute with the other contracting party, at which time Seller shall provide written notice thereof to Buyer in accordance with the provisions of Section 14.7 hereof, and the California Polytechnic Institute contract shall be deemed transferred to and assumed by Buyer on the first day of the month following the month such notice was delivered to Buyer.  Until such time as the California Polytechnic Institute contract has been transferred, Buyer shall provide Seller with parts and services required by Seller to service the contract at Buyer's usual and ordinary terms and conditions.  That portion of the United Nations contract attributable to work to be performed in the United States and Canada shall be deemed a Non-Assigned Contract within the meaning of Section 2.6 hereof and the benefits and obligations associated therewith shall be conveyed to and assumed by Buyer through the Back to Back Agreement described in such Section 2.6.           2.3     Contracts in Progress.  Pursuant to the provisions of Sections 3.1 and 3.2 hereof, Seller shall remit to Buyer the aggregate amount of prepaid customer maintenance fees as of the Closing Date, together with the aggregate amount of payments received by Seller with respect to other customer contracts in progress at the Closing Date in excess of revenues earned by Seller at such date, all as set forth in Schedule 2.3 (inclusive of prepaid customer maintenance fees, the "Customer Prepayments").  Buyer agrees to remit to Seller, promptly upon Buyer's receipt thereof, customer payments attributable to revenues earned by Seller as of the Closing Date as calculated pursuant to Schedule 2.3.           2.4     Warranty Obligation.  Buyer shall assume and accept Seller's warranty obligations  relating to the Assumed Contracts determined as of the Closing Date (the "Warranty Obligations").  Pursuant to the provisions of Sections 3.1 and 3.2 hereof, Seller shall remit to Buyer the amount of Seller's accrued warranty liabilities determined as of the Closing Date.           2.5     Buyer's Assumption of Certain Obligations to Employees.                     (a)      Buyer shall assume 50 percent of Seller's accrued vacation obligation (the "Accrued Vacation Liability") relating to the Former Ericsson Employees determined as of the Closing Date.  Seller shall retain the remaining 50 percent of the Accrued Vacation Liability ("Seller's Portion").  Former Ericsson Employees will be given the option to (i) receive their Accrued Vacation Liability in a single payment prior to becoming employed by Buyer or (ii) roll over their Accrued Vacation Liability to Buyer.  In the event that any Former Ericsson Employee chooses to receive his or her Accrued Vacation Liability in a single payment, Seller will pay such Former Ericsson Employee, in cash or by company check, an amount equal to each such Former Ericsson Employee’s Accrued Vacation Liability ("Seller Payout") and the Net Purchase Price (as herein defined) shall be increased by an amount equal to 50 percent of such Seller Payout.  In the event that a Former Ericsson Employee chooses to roll over his or her Accrued Vacation Liability to Buyer, all vacations taken by such Former Ericsson Employee during the period from the Closing Date to June 30, 2001 shall be attributed to (i) vacation earned under Buyer’s vacation policy and (ii) the Accrued Vacation Liability assumed by Buyer (the "Buyer’s Portion") pursuant to this Section 2.5(a).  Any vacation taken in excess of the amount earned under Buyer’s vacation policy during such period and the Buyer’s Portion shall be drawn from Seller’s Portion and Seller shall reimburse Buyer for Buyer’s related compensation expense within ten (10) days after receipt of Buyer’s invoice for same.  Seller shall pay to each of the Former Ericsson Employees any remaining Seller’s Portion 10 business days following Seller’s receipt of Buyer’s written notice of termination from Buyer’s employment; provided, however, that if any such Former Ericsson Employee remains in Buyer’s employ on June 30, 2001, Seller shall remit the amount of remaining Seller’s Portion to Buyer on June 30, 2001.                     (b)      During the period from the Closing Date to and including June 30, 2001, Buyer will honor Seller's employee severance program (one week of pay for each year of completed service and minimum four week prior notice of termination) relating to the Former Ericsson Employees and, for purposes thereof, Buyer shall give the Former Ericsson Employees credit for years of service rendered to Seller.  Following the expiration of such period, Buyer shall have no further obligation in connection with Seller's employee severance program.                     (c)      Buyer shall assume 100 percent of Seller's retention bonus liability attributable to the Former Ericsson Employees determined as of the Closing Date (the "Accrued Retention Bonus Liability").  Pursuant to the provisions of Sections 3.1 and 3.2, Seller shall remit to Buyer 75 percent of the Accrued Retention Bonus Liability attributable to the Former Ericsson Employees identified on Schedule 2.5(c)(1) and 100 percent of the Accrued Retention Bonus Liability attributable to the Former Ericsson Employees identified on Schedule 2.5(c)(2) (collectively, "Seller’s Accrued Retention Bonus Liability").                     (d)      Buyer will permit the Former Ericsson Employees to participate in each of Buyer's employee benefit plans and, for purposes thereof, Buyer will provide each Former Ericsson Employee with credit for time served as an employee of Seller.           2.6     Assignment of Contracts, Rights, etc.  Notwithstanding anything to the contrary contained in this Agreement, this Agreement shall not constitute an agreement to assign the right, title or interest of Seller in, to or under any contract, license, lease, commitment, sales order, purchase order or other agreement or any claim or right of any benefit arising thereunder or resulting therefrom if any attempted assignment thereof, without the consent of a third party thereto, would constitute a breach thereof or in any way adversely affect the rights of Seller thereunder.  Seller shall, in good faith, attempt to obtain, and Buyer shall cooperate with Seller to obtain, any required third party consent to the assignment or transfer thereof to Buyer.  If such consent is not obtained, then with regard to any such contract, license, lease, commitment, sales order, purchase order or other agreement or any claim or right of any benefit arising thereunder or resulting therefrom ("Non-Assigned Contract"):                     (a)      To the extent the provisions of the Back to Back Agreement (the "Back to Back Agreement") whereby Buyer assumes and agrees to perform Seller's obligations, liabilities and duties under the Assumed Contracts are applicable to such Non-Assigned Contract, then such provisions shall control, and                     (b)      To the extent the provisions of the Back to Back Agreement are not applicable to such Non-Assigned Contract, Seller and Buyer shall cooperate in any reasonable arrangements designed to provide Buyer with the benefits thereunder, including enforcement for the benefit of Buyer of any and all rights of Seller against such third party arising out of the cancellation by such third party or otherwise.                     (c)      Notwithstanding the foregoing, the obligations of Seller under this Section 2.6 shall not include any obligation to make any payment or to incur any economic burden, except to the extent specified in the Back to Back Agreement.           2.7     Responsibility for Other Liabilities.  Except for the Liabilities identified in Sections 2.2, 2.4, 2.5 and 2.6 of this Agreement, Buyer shall not assume any of Seller's Liabilities by virtue of this Agreement.  Specifically (without limitation), Buyer shall not assume:                     (a)      any obligation or liability related to accounts payable, accrued expenses or taxes arising prior to the Closing Date;                     (b)      liabilities relating to environmental matters;                     (c)      any liability or obligation under contracts, agreements, arrangements and understandings of Seller arising prior to the Closing Date, exclusive of liabilities or obligations arising under the Assumed Contracts;                     (d)      any intercompany debt or other liability between the Seller or any shareholder or affiliate of Seller; and                     (e)      any other liability or obligation of Seller, whether known or unknown, absolute or contingent.           Notwithstanding anything herein to the contrary, except as otherwise expressly provided herein, Buyer is neither assuming nor agreeing to pay or discharge any of the claims against, or Liabilities or obligations of, Seller or of any other party and nothing in this Agreement shall be construed to the contrary.  All claims against, and Liabilities and obligations of Seller, whether known or unknown, suspected or unsuspected, direct or contingent, in litigation, threatened or not yet asserted or existing with respect to any aspect of the Assets or the Service Business, or this Agreement, arising or existing prior to or on the Closing Date or arising after Closing on account of the Service Business prior to Closing are and shall remain the responsibility of Seller. ARTICLE 3 PAYMENT OF THE NET PURCHASE PRICE           3.1     Net Purchase Price.  At the Closing, Buyer shall deliver to Seller the net purchase price determined pursuant to Section 3.2 (the "Net Purchase Price") in the form of Buyer's promissory note drawn in favor of Seller substantially in the form attached hereto as Exhibit B (the "Promissory Note").  At the Closing, Seller and Buyer shall utilize for determining the Net Purchase Price the listing of account balances as of November 30, 2000 included in the Financial Information as the parties' estimate of amounts to be set forth in listing of account balances of the Service Business as of the Closing Date (the "Closing Account Balances").  The Net Purchase Price shall be adjusted when the Closing Account Balances becomes available (not to be later than 30 days from the Closing Date) and the resulting amount due to or from Seller (the "Purchase Price Adjustment") shall be remitted by the appropriate party within three business days thereafter.  In the event that the Purchase Price Adjustment is in Buyer's favor, the amount thereof shall be credited against Buyer's outstanding obligation under the Promissory Note.  If the Purchase Price Adjustment is in Seller's favor, Buyer shall deliver to Seller a promissory note in the amount thereof substantially in the form of Exhibit B attached hereto (the "Supplementary Promissory Note").  The Supplemental Promissory Note shall be payable in full six months from the Closing Date.   The Net Purchase Price may be further adjusted pursuant to Section 8.10(a).           3.2     Determination of Net Purchase Price.  The Net Purchase Price shall be determined as the sum of:  (i) the amount attributable to the Inventories; (ii) the amount attributable to Furniture, Fixtures and Equipment; and (iii) the amount attributable to the Other Tangible Assets, less the sum of: (a) the aggregate amount of Customer Prepayments described in Section 2.3; (b) the Warranty Obligation referred to in Section 2.4; and (c) Seller’s Accrued Retention Bonus Liability referred to in Section 2.5(c), all in accordance with the calculation methodologies contained in Exhibit C hereto and as set forth in Schedule 3.2. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER           Seller represents and warrants to Buyer that except as provided in the disclosure schedules attached hereto as Exhibit D (the "Disclosure Schedules"):           4.1     Organization and Standing of Seller.  Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.  Seller has all requisite corporate power and authority to sell the Assets, free and clear of any and all Liens.           4.2     Due Authorization.  This Agreement has been duly authorized, executed and delivered by Seller and constitutes a valid and binding agreement of Seller, enforceable in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, moratorium, and other similar laws relating to, limiting or affecting the enforcement of creditors rights generally or by the application of equitable principles.  As of the Closing, all corporate action on the part of Seller required under applicable law in order to consummate the transactions contemplated hereby will have occurred.           4.3     No Conflict With Other Agreements.   Neither the execution and delivery of this Agreement nor the carrying out of the transactions contemplated thereby will result in any breach, violation, termination or modification of, or be in conflict with, or require any consent of any party to, any material contract, agreement, indenture, mortgage, note or other instrument to which Seller is a party, or any permit, judgment, decree or other Law applicable to Seller, which would result in the creation of any Lien upon any of the Assets, which would create an obligation to Buyer or which would affect Seller's ability to consummate the transactions contemplated by this Agreement in a timely fashion.           4.4     Title to Assets. At the Closing Date, Seller will transfer to buyer good and marketable title to the Assets, free and clear of any and all Liens.           4.5     Litigation.  Schedule 4.5 sets forth, to Seller's knowledge, a complete and accurate listing of currently pending and threatened litigation, Claims and assessments (collectively, "Litigation") relating to the Service Business, together with all Litigation arising in connection with the Service Business during the previous four years.           4.6     Buyer's Occupation of Facilities.  Upon the Closing of the transactions contemplated by this Agreement, Buyer's employees and other representatives shall be legally entitled to physically occupy each of the facilities identified in Schedule 4.6 and maintain such occupancy for the period indicated in Schedule 4.6, provided that Buyer complies with the reasonable terms and conditions of each underlying lease agreement.  Schedule 4.6 sets forth a true and correct itemization of each facility used in the Service Business on the date hereof, including the square footage to be occupied by Buyer, the amount of monthly rental and other charges to be paid by Buyer in connection therewith and the remaining term of the underlying lease, as applicable.           4.7     Year 2000 Warranty.  Seller's Remedy Ticketing System (including all related hardware and software applications) to be transferred to Buyer pursuant to Section 2.1 currently is Year 2000 Compliant and will remain Year 2000 Compliant at all times through and including the year 2001.  "Year 2000 Compliant" means the system will:                     (a)      Function without interruption or human intervention with four digit year processing on all Calendar Information, including without errors or interruptions from functions which may involve Calendar Information from more than one century or leap years, regardless of the date of processing or date of Calendar Information (the term "Calendar Information" shall mean any data, input, or output which includes an indication of date);                     (b)      Provide results from any operation accurately reflecting any Calendar Information used in the operation performed, with output in any form having four digit years; and                     (c)      Accept two digit year Calendar Information in a manner that resolves any ambiguities as to century in a defined manner.           4.8     Financial Information; Closing Account Balances.  Seller hereby represents and warrants that the Financial Information and the Closing Account Balances fairly, completely and accurately presents the information purported to be set forth therein at the dates and for the periods covered thereby, in all material respects.           4.9     Third Party Consents.  Except with respect to Seller’s Assignment of those Assumed Contracts which, by their terms, do not permit assignment by Seller, there are no authorizations, consents, approvals or notices required to be obtained by Seller or waiting periods required to expire, in order that this Agreement and the transactions provided for herein may be consummated by Seller.           4.10   Labor Matters.  Except with respect to the Agreement Between Ericsson Inc. Business Systems and Communications Workers of America AFL-CIO Local 1109 from February 1, 1999 through December 31, 2002, Seller is not a party to any collective bargaining Agreement relating to the Former Ericsson Employees.  No strike, work stoppage, grievance, unfair labor practice claim, union organizing activity or other labor difficulty or concerted employee action of any kind has occurred during the five year period preceding the Closing Date, or currently is pending or, to the Knowledge of Seller, threatened, which would materially adversely affect any of the Assets, the Service Business or the transactions contemplated by this Agreement.           4.11   Absence of Certain Changes, Events or Conditions.  With respect to the Service Business, since May 31, 2000, there has not been (i) any change in the Service Business' financial position, results of operations, manner of conducting business, assets, Liabilities, net worth or business, other than changes in the ordinary course of business which have been materially adverse, (ii) any material change in the normal operations of the Service Business, including any material reduction in revenues or profit margins other than in the ordinary course, (iii) a pledge of the Assets or other encumbrance thereof, or (iv) any other event or condition experienced by Seller of any character (whether or not covered by insurance) which would create a Lien on any of the Assets, create an obligation to Buyer, or which would materially affect the transactions contemplated this Agreement.           4.12   Taxes.  All Taxes relating to the Assets have been or will be paid in full when due unless protested in good faith by Seller, and there is no Lien or claim of any taxing authority on, or threatened against, any of the Assets, and Seller has withheld and paid all required amounts in connection with amounts paid or owing to any employees employed by Seller, independent contractors, creditors or other third parties with respect to the Service Business.  Seller shall remain responsible for and retain all liability with respect to federal, state and local Tax matters relating to Seller for all periods prior to and including the Closing Date regardless of when such Taxes are assessed.           4.13   Bulk Sales Compliance and Transfer Taxes.  Neither the Sale and transfer of the Assets to be acquired pursuant to this Agreement, will result in or be subject to:  (a) any law which either:  (i) makes such sales or transfers ineffective as to creditors of Seller or (ii) exposes Buyer to liabilities asserted by creditors of Seller; or (b) any federal, state or local sales, use, transfer, excise or license tax, fee or charge applicable to any of the Assets to be acquired.           4.14   Contracts.                     (a)      All Assumed Contracts are in full force and effect as of the date hereof.  To Seller's knowledge, no event has occurred or condition or state of facts exists which, after notice or the passage of time, would constitute a material default under any such Assumed Contract, as to time or manner of performance, or as to warranties thereunder, or otherwise.  All Assumed Contracts will continue to be binding in accordance with their respective terms until their respective expiration dates.  Seller is not subject to any liability or payment resulting from renegotiation of amounts paid it under any Assumed Contract with the government of the United States or any agency, department or other subdivision thereof.                     (b)      Seller is in material compliance with all applicable terms and requirements of each Assumed Contract.                     (c)      Seller has not given to or received from any other Person, at any time since May 31, 2000, any notice or other communication (whether oral or written) regarding any actual, alleged, possible, or potential violation or breach of, or default under, any Assumed Contract.                     (d)      There are no renegotiations of, attempts to renegotiate, or, to the Knowledge of Seller, outstanding rights to renegotiate any material amounts paid or payable to Seller under any Assumed Contracts with any Person and to the Knowledge of Seller, no such Person has made written demand for such renegotiation.           4.15   Customers and Suppliers.  Schedule 4.15 sets forth a true and complete listing all of the customers of the Service Business during the eight month period ended November 30, 2000 and is a true and complete listing of all suppliers and vendors for the Service Business to whom Seller paid in excess of $10,000 during any three month period during the 18 month period preceding the Closing Date.  Seller has no Knowledge of claims or complaints by customers, suppliers or vendors of the Service Business that would have, or may have, a material adverse effect on the Assets, the Service Business or the transactions contemplated hereunder.           4.16   Personnel Matters.  Schedule 4.16 hereto is a true and correct schedule setting forth as of the date hereof, the names, job designations and addresses of each of the Ericsson personnel employed in the Service Business, the current remuneration of each, including fringe benefits, and the basis for determining such remuneration if other than a fixed salary rate.           4.17   Employee Benefit Matters.                     (a)      Except as contemplated by Section 2.5, Buyer will not be subject to any obligations or liability under any of the Employee Plans.  The term "Employee Plans" refers to all employment contracts, employee benefit plans as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), pension plans, bonus, profit sharing, stock option or other agreements or arrangements, including any hospitalization, disability or other insurance plans, vacation and sick pay policies, or any other employee fringe benefit plan providing for employee benefits to which Seller is a party or by which Seller is bound in connection with the Service Business. Except as contemplated by Section 2.5, Buyer is not responsible for any severance pay or other payments on account of termination by Seller of any of the Former Ericsson Employees or other employees of Seller.                     (b)      None of the Employee Plans is a "multi-employer plan" as defined in Section 3(37) of ERISA.                     (c)      In each case where Seller, its parent or any affiliate has terminated a defined benefit pension plan that is subject to Title I of ERISA relating to the employees of the Service Business, assets have been sufficient so that all required benefits in fact have been provided.  As of the Closing, Seller will terminate the Former Ericsson Employees under the current terms and conditions of its Employee Plans.           4.18   Brokers' Fees.  No broker, finder or other person or entity acting in a similar capacity has participated on behalf of Seller in connection with the transactions contemplated by this Agreement.  Seller has not incurred any Liability for brokers' fees, finders' fees, agents' commissions or other similar forms of compensation in connection with this Agreement or the transactions contemplated hereby.           4.19   No Significant Items Excluded.  Other than Seller's relationships relating to Seller's manufacturing operations, there are no assets or properties of Seller or agreements, contracts or commitments to which Seller is a party that are of material importance to the ongoing operation of the Service Business by Buyer that are to being transferred to Buyer under the terms of this Agreement.           4.20   Notice of Customer Cancellations and Non-Renewals.  Seller has not received oral or written notice, or other evidence or indication of any kind or nature, that any one or more of the customer contracts identified in Schedule 1.1(a) will be cancelled prior to its expiration or will not be renewed upon its expiration. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER           Buyer represents and warrants to Seller as follows:           5.1     Organization and Standing of Buyer.  Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota.           5.2     Authorization and Enforceability.  Buyer has all requisite corporate power and authority to enter into this Agreement and to carry out the transactions contemplated hereby and to perform its obligations hereunder.   All necessary and appropriate action has been taken by Buyer with respect to the execution and delivery of this Agreement and the performance of Buyer's obligations hereunder.  The execution and delivery of this Agreement and the consummation of the transactions hereunder by Buyer will not (a) result in the breach of any of the terms or conditions of, or constitute a default under, the Articles of Incorporation or the Bylaws of Buyer or (b) violate any Law or any order, writ, injunction or decree of any Governmental Authority.  This Agreement constitutes the valid and binding obligations of Buyer, enforceable against Buyer in accordance with its terms.           5.3     No Conflict With Other Agreements.  Neither the execution and delivery of this Agreement nor the carrying out of the transactions contemplated thereby will result in any breach, violation, termination or modification of, conflict with or require the consent of any party to any material agreement to which Buyer is a party, which would affect Buyer's ability to consummate the transactions contemplated by this Agreement in a timely fashion.           5.4     Approval.  The Board of Directors of Buyer has approved the execution of this Agreement and the transactions contemplated hereby.           5.5     Third Party Consents.  There are no authorizations, consents, approvals or notices required to be obtained or given by Buyer or waiting periods required to expire, in order that this Agreement and the transactions provided for herein may be consummated by Buyer.           5.6     Brokers' Fees.  Buyer has not incurred any liability for brokers' fees, finders fees, agents' commissions or other similar forms of compensation in connection with this Agreement or the transactions contemplated hereby for which Seller shall have any responsibility. ARTICLE 6 CLOSING           6.1     Closing.  Subject to satisfaction or waiver of all conditions precedent set forth in Articles 9 and 10 of this Agreement, the closing of the transactions contemplated by this Agreement (the "Closing") shall take place on December 29, 2000 or the day on which the last of the conditions precedent set forth in Articles 9 and 10 of this Agreement has been satisfied, subject to the provisions of Section 13.4 (the "Closing Date") or at such other time, date and place as the parties may agree.           6.2     Obligations of Seller.  At or prior to the Closing, Seller shall deliver to Buyer, in each case, in form and substance satisfactory to Buyer:                     (a)      an Assignment and Bill of Sale, in the form attached hereto as Exhibit E, and such other instruments of transfer or assignment as shall be necessary or appropriate to vest in the Buyer good and marketable title to the Assets;                     (b)      copies of all of the Assets which are in the form of documentation, including without limitation, customer contracts, customer lists, employment contracts, personnel records, maintenance contracts and configuration files;                     (c)      a certificate of the Chief Executive Officer, President or other duly authorized officer of Seller, dated as of the Closing Date, to the effect that (i) all of the representations and warranties made by the Seller upon the execution and delivery of this Agreement remain true and correct as of the Closing Date and (ii) Seller has performed and complied with in all material respects all of the covenants, agreements and obligations set forth in this Agreement to be performed or complied with by it on or prior to the Closing Date; and                     (d)      such other documents as may be described in Article 9 of this Agreement.           6.3     Obligations of Norstan.  At the Closing, Norstan shall deliver:                     (a)      the Net Purchase Price in accordance with Article 3 of this Agreement;                     (b)      a certificate of the Chief Executive Officer or President of Buyer, dated as of the Closing Date, to the effect that (1) all of the representations and warranties made by the Buyer upon the execution and delivery of this Agreement remain true and correct as of the Closing Date and (2) Buyer has performed and complied with in all material respects all of the covenants, agreements and obligations set forth in this Agreement to be performed or complied with by it on or prior to the Closing Date;                     (c)      copies of resolutions adopted by the Board of Directors of Buyer duly authorizing and approving the execution of this Agreement and the consummation of the transactions contemplated hereby, certified by an appropriate officer as being true and correct as of the Closing Date; and                     (d)      such other documents as may be described in Article 10 of this Agreement.           6.4     Further Documents or Necessary Action.  Buyer and Seller each agree to take all such further actions on or after the Closing Date as may be reasonably necessary, desirable or appropriate in order to confirm or effectuate the transactions contemplated by this Agreement. ARTICLE 7 POST CLOSING MATTERS           7.1     Payments and Other Property Received.  Seller and Buyer each agree that after the Closing Date they will hold and will promptly transfer and deliver to the other, from time to time as and when received by them, any cash, checks with appropriate endorsements (using all commercially reasonable efforts not to convert such checks into cash), or other property that they may receive on or after the Closing Date which properly belongs to the other party, including without limitation any insurance proceeds, and will account to the other for all such receipts.           7.2     Third Party Consents.  If the transfer of any of the Assets requires any third party consents, Seller shall use all commercially reasonable efforts to obtain such consents and Buyer shall give Seller all reasonable assistance in such efforts.  Until such consent is obtained, or, if such consent cannot be obtained, the parties shall jointly procure that another solution is found which is acceptable to both parties.  Upon Seller’s request, Buyer shall, in the event of an agreement, perform such agreements in the name of Seller to the extent permitted but on Buyer’s account (i.e. all revenues and costs attributable to the agreement shall be allocated to Buyer).  When attempting to obtain the relevant third party consents, Seller shall not agree to any amendments of the agreements included in the Assets, unless Buyer so agrees in writing.           7.3     Actions for the Completion of the Transfer.  After the Closing Date, Buyer and Seller shall execute such other documents or take such other actions to the extent they have not been accomplished on the Closing Date, as shall be required in order to transfer the Assets to Buyer. ARTICLE 8 COVENANTS AND AGREEMENTS           Seller covenants to and agrees with Buyer, and Buyer covenants to and agrees with Seller, as follows:           8.1     Conduct of Business Pending the Closing.  During the period from the date of this Agreement to the Closing Date, Seller shall conduct the operations of the Service Business in the ordinary and usual course and maintain its records and books of account in a manner consistent with prior periods.  Seller shall exercise reasonable efforts to preserve intact the present business organization and personnel of Seller and the present goodwill of Seller with persons having business dealings with it.  Except as otherwise required or contemplated hereby, Seller further covenants and agrees that, from the date of this Agreement to the Closing Date, it shall not, without the written consent of Buyer:                     (a)      enter into any negotiations, discussions or agreements contemplating, affecting or respecting the Assets or Seller's ability to transfer the Assets;                     (b)      enter into any negotiations, discussions or agreements contemplating or respecting the acquisition of the Assets or any other material component of the Service Business, whether through a sale of stock, a merger or consolidation, the sale of all or substantially all of the assets of Seller, any type of recapitalization or otherwise;                     (c)      incur any Liabilities or take any action that would materially diminish the value of the Assets; or                     (d)      take any action which would materially interfere with or prevent performance of this Agreement.           8.2     Access by Buyer.  During the period from the date of this Agreement to the Closing Date, Seller shall cause Buyer, its agents and representatives to be given full access during normal business hours to the premises, buildings, offices, books, records, assets (including the Assets), Liabilities, operations, contracts, files, personnel, financial and tax information and other data and information relating to the Service Business and the Assets, and shall cooperate with Buyer in conducting its due diligence investigation thereof; provided, however, that Buyer will provide Seller with reasonable notice prior to entering Seller’s premises and such access shall not unreasonably interfere with the normal operations and employee relationships of Seller.           8.3     Confidentiality.   Each party and its affiliates will hold, and will use their best efforts to cause their respective partners, officers, directors, employees, and other agents to hold, in confidence, all confidential documents and information concerning the other party furnished to such party or its affiliates in connection with the transactions contemplated by this Agreement, except to the extent that such information can be shown to have been (i) in the public domain through no fault of such party, or (ii) later lawfully acquired by such party on a nonconfidential basis from sources other than the other party or any of its affiliates; provided that such party may disclose such information in connection with the transactions contemplated by this Agreement to the partners, officers, directors, employees and other agents of such party or its affiliates so long as such persons are informed by such party of the confidential nature of such information and are directed by such party to keep such information confidential and not to use it for any purpose other than its intended use; and provided, further that if any person described in the immediately preceding proviso breaches its confidentiality obligations, the party to whom the disclosure is attributable will inform the other parties and will take reasonable steps at the request of such other parties to enforce such obligation.  Notwithstanding the foregoing, each party may disclose such information if (i) required to disclose it by judicial or administrative process or by other requirements of law, or (ii) necessary to establish such party’s position in any litigation or any arbitration or other proceeding based upon or in connection with the subject matter of this Agreement.  Prior to any disclosure pursuant to the preceding sentence, the disclosing party shall give reasonable prior notice to the other party to this Agreement of such intended disclosure and, if requested by such party, shall use all reasonable efforts to obtain a protective order or similar protection for such information or data and shall otherwise disclose such information and data to the extent and only to the extent necessary to comply with any applicable rule, regulation or policy of a governmental entity or securities exchange.  The obligation of a party hereto to hold any such information in confidence shall be satisfied if it exercises the same care with respect to such information as it would take to preserve the confidentiality of its own similar information, but in no event less than a reasonable level of care.           8.4     Notice of Breach or Failure of Condition.  Seller and Buyer agree to give prompt notice to the other of the occurrence of any event or the failure of any event to occur that might preclude or interfere with the timely satisfaction of any condition precedent to the obligations of Seller or Buyer under this Agreement.           8.5     Best Efforts.  Seller and Buyer shall use their respective commercially reasonable best efforts to obtain all consents or approvals necessary to bring about the satisfaction of the conditions required to be performed, fulfilled or complied with by them pursuant to this Agreement and to take or cause to be taken all action, and to do or cause to be done all things, necessary, proper or advisable under applicable Laws to consummate and make effective the transactions contemplated by this Agreement as expeditiously as practicable.           8.6     Records.  During the period commencing as of the Closing Date and ending on the second anniversary of the Closing Date, Seller shall continue to be obligated to deliver any and all Records to Buyer as Buyer may reasonably request in writing within a reasonable period of time following Seller's receipt of each such request unless, due to circumstances beyond Seller's control, it is impracticable for Seller to do so, in which event Seller shall deliver the requested Records to Buyer as soon as practicable.  During the aforementioned period, Seller shall provide Buyer with reasonable access to, and the cooperation of, any and all persons employed by Seller and possessing knowledge regarding the Records or accessing information contained therein.           8.7     Employment Offers.  Buyer agrees to offer employment to each of the Former Ericsson Employees substantially on the term and conditions set forth on Schedule 8.7 attached hereto.  Seller acknowledges and agrees that the preceding provision vests no right in Seller to enforce Buyer's terms and conditions of employment with the Former Ericsson Employees, nor is the preceding provision intended by the parties to vest third-party beneficiary rights in any of the Former Ericsson Employees.           8.8     Transition of Personnel.                     (a)      During the 10-day period commencing with the parties' execution and delivery of this Agreement, Buyer shall extend to each of the persons identified in Exhibit A hereto (each a "Service Business Worker;" collectively, the "Service Business Workers") written offers of employment requiring written acceptance thereof within five days of receipt of the employment offer.  On or before the Closing Date, Buyer shall deliver to Seller a written notice setting forth the identity of each Service Business Worker who has accepted Buyer's employment offer.                     (b)      In the event that less than 80 percent of the Service Business Workers designated in Exhibit A as technicians and/or less than 80 percent of the Service Business Workers designated in Exhibit A as members of the TAC Support Group have accepted Buyer's offer of employment, an "emergency period" of 60 days will commence on the Closing Date, during which:                               (i)       Seller and Buyer shall jointly prepare and implement, as soon as practicable, a plan of reallocation of resources, drawing personnel (if available) from Buyer and its affiliates and, where necessary, from Seller and its affiliates to: (a) perform the functions associated with employment positions not accepted by Service Business Workers (the "Shortfall Positions"); and (b) provide technical training to replacement personnel designated by Buyer.  Seller will bear all compensation, travel, training and related expenses incurred by Seller during the emergency period.                               (ii)      Seller shall provide to Buyer, at no cost to Buyer, the additional on-site service, support and management assistance, together with Seller's regional and global assistance center resources, all as necessary and appropriate to prevent or alleviate customer concerns regarding the operation of the Service Business.                               (iii)     Seller will cooperate with Buyer to recruit replacement personnel for the Shortfall Positions and shall bear 50 percent of expenses incurred by the parties in connection therewith.                     (c)      In the event that less than 60 percent of the Service Business Workers designated in Exhibit A as technicians and/or less than 60 percent of the Service Business Workers designated in Exhibit A as members of the TAC Support Group have accepted Buyer's offer of employment, the emergency period referred to in subsection (b) above shall be extended for an additional 60 days (120 days in the aggregate).           8.9     Non-Solicitation of Employees.    Seller and Buyer agree that during the two-year period commencing on the Closing Date, neither will, without the prior written consent of the other, directly or indirectly, induce, solicit, endeavor to entice or attempt to induce any employee of the other party to leave the employ of the other party, or in any way interfere adversely with the relationship between any such employee and the other party.           8.10   Inspection of Assets.                     (a)      Inventories:  During the period commencing upon the Closing Date and ending 90 days thereafter, Buyer may return for credit or exchange (at Seller's option) any Inventories mutually determined by Buyer and Seller to be defective.  The Net Purchase Price and Buyer's obligation to Seller as evidenced by the Promissory Note referred to in Section 3.1 hereof shall be reduced by the amount of Buyer's replacement cost attributable to Inventories returned for credit.                     (b)      Other Assets:          During the period commencing upon the date the parties hereto execute and deliver this Agreement and ending on the Closing Date, Seller shall provide Buyer and Buyer's representatives and agents with reasonable access to the Furniture, Fixtures and Equipment and the Other Tangible Assets (the "Other Assets") for the purpose of physically inspecting the same.  In the event that Buyer identifies Other Assets not in good operating condition (the "Defective Items"), Buyer shall deliver written notice of same (the "Inspection Notice") to Seller on or before the Closing Date.  Seller shall have a period of 60 days following receipt of the Inspection Notice to repair, or cause to be repaired at Seller's expense, the Defective Items. ARTICLE 9 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER           Buyer’s obligation to participate in the Closing is subject to the satisfaction of all of the following conditions, except to the extent expressly waived in writing by Buyer:           9.1     Representations and Warranties True at Closing.  The representations and warranties of Seller contained in this Agreement shall have been true and correct in all material respects when made and shall be true and correct in all material respects on the Closing Date as though such representations and warranties were made again on the Closing Date.           9.2     Performance.  Seller shall have performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by Seller prior to or at the Closing, including, without limitation, the delivery to Buyer of the documents listed in Section 6.2.           9.3     Litigation.  On the Closing Date, there shall not be any pending or threatened Proceeding in any court or by or before any Governmental Authority with a view to seek, or in which it is sought, to restrain or prohibit the consummation of the transactions contemplated by this Agreement or in which it is sought to obtain divestiture, rescission or damages in connection with the transactions contemplated by this Agreement and no investigation by any Governmental Authority shall be pending which might result in any such Proceeding.           9.4     No Adverse Changes.  Except as contemplated by this Agreement, there shall have been no material adverse change in the condition, prospects, Assets, business or operations, financial or otherwise, of the Service Business from the date of the Financial Information to the Closing Date.           9.5     Certificate.  Seller shall have delivered to Buyer a certificate, dated as of the Closing Date, of the Seller to the effect that the conditions set forth in Sections 9.1, 9.2, 9.3, 9.4 and 9.7 have been satisfied.           9.6     Other Agreements.  Buyer and Seller shall each have executed and delivered the Distribution Agreement, the Back to Back Agreement, the Administrative and Back Office Service Agreement, and the Shared Office Rental Agreement.           9.7     Access to Information Systems.  On the Closing Date, Buyer shall have been granted satisfactory access to the Remedy Ticketing System and Seller's SAP information system as contemplated by Section 8.6. ARTICLE 10 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER           All obligations of Seller under this Agreement are subject to the satisfaction by Buyer at or before the Closing of all of the following conditions, except to the extent expressly waived in writing by Seller:           10.1   Representations and Warranties True at Closing.  The representations and warranties of Buyer contained in this Agreement shall have been true and correct in all material respects when made and shall be true and correct in all material respects on the Closing Date as though such representations and warranties were made again on the Closing Date.           10.2   Performance.  Buyer shall have performed and complied, in all material respects, with all agreements and conditions required by this Agreement to be performed or complied with by Buyer prior to or at the Closing including, without limitation, the delivery to Seller of the documents listed in Section 6.3.           10.3   Certificate.  Buyer shall have delivered to Seller a certificate, dated as of the Closing Date, to the effect that the conditions set forth in Sections 10.1, 10.2 and 10.5 have been satisfied.           10.4   Other Agreements. Buyer and Seller shall each have executed and delivered the Distribution Agreement, the Back to Back Agreement, the Administrative and Back Office Service Agreement, and the Shared Office Rental Agreement.           10.5   Litigation.  On the Closing Date, there shall not be any pending or threatened Proceeding in any court or by or before any Governmental Authority with a view to seek, or in which it is sought, to restrain or prohibit the consummation of the transactions contemplated by this Agreement or in which it is sought to obtain divestiture, rescission or damages in connection with the transactions contemplated by this Agreement and no investigation by any Governmental Authority shall be pending which might result in any such Proceeding. ARTICLE 11 NON-COMPETITION           11.1   Covenant Not to Compete.  During the five-year period commencing on the Closing Date, Seller and Seller's affiliates in which Seller has more than a 20 percent equity interest are prohibited from selling or installing Products to or for end users or providing maintenance services to end users with respect to the Products within the United States and Canada.           11.2   Remedies.  It is recognized that damages in the event of breach of this Article 11 would be difficult, if not impossible, to ascertain, and it is therefore agreed that Buyer, in addition to and without limiting any other remedy or right it may have, shall have the right to an injunction or other equitable relief in any court of competent jurisdiction enjoining any such breach.  The existence of this right shall not preclude any other rights and remedies at law or in equity which buyer or Seller may have.           11.3   Invalidity.  It is the desire and intent of the parties to this Agreement that the provisions of this Article 11 shall be enforced to the fullest extent permissible under the Law.  If any particular provisions or portion of this Article shall be adjudicated to be invalid or unenforceable, this Article shall be deemed amended to delete therefrom or restrict the application of such provision or portion adjudicated to be invalid or unenforceable to the extent (but only to the extent) required to render such provision or portion valid and enforceable, such amendment to apply only with respect to the operation of such Article in the particular jurisdiction in which such adjudication is made. ARTICLE 12 INDEMNIFICATION AND RELATED MATTERS           12.1   Survival.  The several representations, warranties, covenants, and agreements of the parties contained in this Agreement shall survive the Closing Date for a period of 24 months following the Closing Date (the "Indemnification Period").           12.2   Seller’s Indemnity.  During the Indemnification Period (or thereafter solely with respect to any claim for which a claim for indemnification has been made prior to expiration of the Indemnification Period), from and after the Closing Date (subject to the limitations in Sections 12.3 and 12.4) Seller shall indemnify and hold harmless Buyer from and against any and all demands, claims, losses, liabilities, actions, assessments, taxes, penalties, costs and expenses (including reasonable attorney’s fees and expenses), (collectively "Losses") incurred or suffered by Buyer, and its officers, directors, employees, agents and representatives, arising out of, resulting from, or relating to any breach of the representations, warranties, covenants made by Seller, or obligations of Seller, in this Agreement or the Back to Back Agreement, any liability of Seller not expressly assumed by Buyer under the terms of this Agreement and all losses, costs, damages, liabilities obligations and reasonable expenses related to or arising out of the operation of the Service Business prior to the Closing Date (exclusive of liability amounts set forth in Schedule 3.2).  Notwithstanding the foregoing, Seller shall not be liable to indemnify Buyer for Losses which arise out of any acts or omissions of Buyer, Buyer's affiliates or their respective officers, directors, employees, agents and representatives.           12.3   Limitation on Seller’s Indemnity.  Notwithstanding anything else to the contrary contained in this Agreement, Seller shall not be liable to indemnify Buyer for any Losses unless and until the aggregate amount of all such Losses, timely notice of which has been given as provided in this Agreement, exceeds $100,000 (the "Threshold Amount").  At such time and to such extent as the aggregate Losses exceeds the Threshold Amount, Buyer shall be indemnified for such Losses, including the Threshold Amount. Except with respect to Losses arising in any way from third-party claims, Buyer may not recover from Seller pursuant to this Article 12 Losses in excess of the Net Purchase Price, as adjusted pursuant to Section 3.2 hereof.           12.4   Buyer’s Indemnity. During the Indemnification Period (or thereafter solely with respect to any claim for which a claim for indemnification has been made prior to expiration of the Indemnification Period), from and after the Closing Date, Buyer shall indemnify and hold harmless Seller from and against any and all Losses incurred or suffered by Seller, and its officers, directors, employees, agents and representatives, arising out of, resulting from, or relating to (i) any breach of any of the representations, warranties or covenants made by Buyer in this Agreement; (ii) any breach of any of the representations, warranties, covenants or performance obligations made by Buyer in the Back to Back Agreement; and (iii) Buyer's use of the Assets or the operation of the Service Business subsequent to the Closing Date.  Except with respect to Losses arising in any way from third-party claims, Seller may not recover from Buyer pursuant to this Article 12 Losses in excess of the Net Purchase Price, as adjusted pursuant to Section 3.2 hereof.           12.5   Indemnification Procedure.                     (a)      In the event that any party hereto shall sustain or incur any Losses in respect of which indemnification may be sought by such party pursuant to this Article 12, the party seeking such indemnification (the "Indemnitee") shall assert a claim for indemnification by giving prompt written notice thereof (the "Notice") which shall describe in reasonable detail the facts and circumstances upon which the asserted claim for indemnification is based along with a copy of the claim or complaint, to the party providing indemnification (the "Indemnitor"). The failure of the Indemnitee to give the Indemnitor prompt notice as provided herein shall not relieve the Indemnitor of any of its obligations hereunder, except to the extent that the Indemnitor is materially prejudiced by such failure.  For purposes of this Section 12.4, any Notice which is sent within 15 days of the date upon which the Indemnitee learned of such Loss shall be deemed to have been a "prompt notice." The Indemnitor shall have thirty (30) days from the date such notice is received to provide the Indemnitee with written notice of its acceptance of responsibility for the asserted claim (in whole or in part), or its rejection of the same, unless the claim (i) relates to a lawsuit filed by a third party, in which case the Indemnitor shall respond at least ten (10) days prior to the date a responsive pleading is due, or (ii) requires an immediate response, as in the case of a cease and desist demand by a third party or a notice to show cause, in which case the Indemnitor shall respond in a prompt, timely manner.  Failure to respond within such period shall constitute rejection of the claim. If the claim is rejected, the parties shall make good faith efforts to resolve the matter by agreement. If no such agreement can be reached within sixty (60) days of the Indemnitor’s receipt of the Notice, the matter shall be sent to arbitration for resolution in accord with the provisions of Section 13.7 hereof.                     (b)      If the claim is based on a claim by a third party, the Indemnitor will be entitled to participate in the negotiation or administration thereof and, to the extent that such claim relates to the liability of the Indemnitor, to assume the defense thereof with counsel reasonably satisfactory to the Indemnitee.  The Indemnitee shall have the right to employ separate counsel in any such action or claim and to participate in the defense thereto, but the fees and expenses of such counsel shall not be at the expense of the Indemnitor unless (i) the Indemnitor shall have timely failed to assume the defense of such claim, (ii) the employment of such counsel has been specifically authorized in writing by the Indemnitor, or (iii) the Indemnitor’s counsel is prohibited under applicable rules of professional responsibility from representing the interests of both parties in such defense.  If the Indemnitor responds within the time period set forth above by notifying the Indemnitee that the Indemnitor will assume the defense of the claim, no indemnification payment shall be due until the matter giving rise to the claim is resolved.  If the Indemnitor does not assume the defense of the claim, the Indemnitee may assume the defense and seek indemnification from time to time as the amount of the claim for which it is entitled to be indemnified becomes liquidated.  Notwithstanding the foregoing, neither Party shall pay, settle or compromise any such claim without the prior written approval of the other Party, which approval shall not be unreasonably withheld, conditioned or delayed; provided, that the Indemnitor may pay, settle or compromise any such claim or proceeding without the consent of the Indemnitee if such claim requires solely the payment of money and is solely the liability of the Indemnitor. In connection with any claims based on claims by third parties, the Indemnitee shall cooperate fully to make available to the defending party all pertinent information under its control.           12.6   Limitation of Liability. EXCEPT WITH RESPECT TO LOSSES ARISING IN ANY WAY FROM THIRD-PARTY CLAIMS, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTION CONTEMPLATED HEREBY WHETHER BASED ON ACTION OR CLAIM IN CONTRACT, EQUITY, INDEMNITY, TORT (INCLUDING NEGLIGENCE), INTENDED CONDUCT, STRICT LIABILITY OR OTHERWISE, EVEN IF SUCH DAMAGES ARE FORESEEABLE. ARTICLE 13 TERMINATION           13.1   Termination by Mutual Consent.  At any time prior to the Closing, this Agreement may be terminated by the mutual written consent of Seller and Buyer without liability on the part of Seller or Buyer.           13.2   Termination Upon Breach or Default.  If Seller or Buyer shall materially default in the observance or in the due and timely performance of any of the covenants contained in this Agreement, or if there shall have been a material breach by any of the parties of any of the representations or warranties set forth in this Agreement, which breach continues following delivery of written notice to the other party and a reasonable opportunity to cure, the nonbreaching or nondefaulting party may terminate this Agreement, without prejudice to its rights and remedies available at law, including the right to recover expenses, costs and other damages.           13.3   Termination Based Upon Failure of Conditions.  If any of the conditions of this Agreement to be complied with or performed by a party on or before the Closing Date, shall not have been complied with or performed in all material respects by such date and such noncompliance or nonperformance shall not have been waived in writing by the other party, the party to whom the benefit of such condition runs may, upon written notice, terminate this Agreement.           13.4   Failure to Close.  This Agreement may be terminated by Buyer or the Seller if the transactions contemplated hereby have not been consummated by January 31, 2001; provided that, neither party will be entitled to terminate this Agreement pursuant to this Section 13.4 if its willful breach of this Agreement has prevented the consummation of the transactions contemplated hereby.           13.5   Termination Based Upon Order of Governmental Authority.  This Agreement will terminate without liability to either Seller or Buyer in the event that any Governmental Authority shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the consummation of the transactions contemplated hereunder and such order, decree or ruling or other action shall have become final and nonappealable.           13.6   Effect of Termination  In the event of termination of this Agreement by either Buyer or Seller as provided in Sections 13.1, 13.3, 13.4 and 13.5, this Agreement shall become void and there shall be no liability on the part of either Buyer or Seller or their respective shareholders, officers, or directors, except that Sections 14.06 and 14.10 hereof shall survive indefinitely.           13.7   Dispute Resolution  Any dispute among the parties hereto before the Closing, may be resolved by application to any court of competent jurisdiction. Any dispute among the parties hereto arising on or after the Closing Date shall be resolved in accordance with the arbitration provisions of this Section 13.7.                     (a)      The parties shall attempt in good faith to resolve any dispute arising out of or relating to this Agreement, the breach, termination or validity thereof promptly by negotiation between executives who have authority to settle the controversy. Any party may give the other written notice that a dispute exists (a "Notice of Dispute").  The Notice of Dispute shall include a statement of such party's position.  Within twenty (20) business days of the delivery of the Notice of Dispute, executives of both parties shall meet at a mutually acceptable time and place, and thereafter as long as they both reasonably deem necessary, to exchange relevant information and attempt to resolve the dispute.  If the matter has not been resolved within 45 days of the disputing party's Notice of Dispute, or if the parties fail to meet within 20 days, either party may initiate arbitration of the controversy or claim as provided hereinafter.           If a negotiator intends to be accompanied at a meeting by an attorney, the other negotiator shall be given at least three working days' notice of such intention and may also be accompanied by an attorney.  All negotiations pursuant to this clause are confidential and shall be treated as compromise and settlement negotiations for purposes of the Federal Rules of Evidence and state rules of evidence.                     (b)      Any controversy or claim arising out of or relating to this Agreement, the breach, termination or validity thereof, or the transactions contemplated herein, if not settled by negotiation as provided in paragraph (a) of this Section 13.7, shall be settled by arbitration in Minneapolis, Minnesota, in accordance with the CPR Rules for Non-Administered Arbitration of Business Disputes, by three arbitrators.  Each party shall choose one arbitrator and the two arbitrators so chosen shall choose a third arbitrator who must be a retired judge of a state or federal court of the United States. The arbitrators shall be appointed as provided by CPR Rule 5, Selection of Arbitrators by the parties.  The arbitration procedure shall be governed by the United States Arbitration Act, 9 U.S.C. §1–16, and the award rendered by the arbitrators shall be final and binding on the parties and may be entered in any court having jurisdiction thereof.                     (c)      Each party shall have discovery rights as provided by the Federal Rules of Civil Procedure within the limits imposed by the arbitrators; provided, however, that all such discovery shall be commenced and concluded within one hundred twenty (120) days of the selection of the third arbitrator.                     (d)      It is the intent of the parties that any arbitration shall be concluded as quickly as reasonably practicable.  Unless the parties otherwise agree, once commenced, the hearing on the disputed matters shall be held four days a week until concluded, with each hearing date to begin at 9:00 a.m. and to conclude at 5:00 p.m.  The arbitrators shall use all reasonable efforts to issue the final award or awards within a period of thirty (30) days after closure of the proceedings.  Failure of the arbitrators to meet the time limits of this Section 13.7(d) shall not be a basis for challenging the award.                     (e)      The arbitrators shall instruct the non–prevailing parties to pay all costs of the proceedings, including the fees and expenses of the arbitrators and the reasonable attorneys' fees and expenses of the prevailing parties.  If the arbitrators determine that there is not a prevailing party, each party shall be instructed to bear its own costs and to pay one–half of the fees and expenses of the arbitrators.                     (f)       Any award entered by the arbitrators may be enforced by a judgment entered in a court of competent jurisdiction.           13.8   Remedies  It is understood that, in the event of any party's breach of its respective agreements as herein provided or any party's failure to perform the covenants set forth in this Agreement required to be performed by it, the measure of damages at law to the affected party will be difficult to ascertain and the remedy at law may be inadequate. Accordingly, it is specifically agreed that either Buyer or Seller, as the case may be, shall be entitled to the remedy of specific performance to enforce the terms and conditions of this Agreement. ARTICLE 14 GENERAL           14.1   Entire Agreement.  This Agreement, and the exhibits and schedules hereto and the agreements specifically referred to herein set forth the entire agreement and understanding of Seller and Buyer in respect of the transactions contemplated hereby and supersede all prior agreements, arrangements and understandings relating to the subject matter hereof.  No representation, promise, inducement or statement or intention has been made by Seller or Buyer that is not embodied in this Agreement or in the documents specifically referred to herein and neither Seller nor Buyer shall be bound by or liable for an alleged representation, promise, inducement or statement of intention not so set forth.           14.2   Binding Effect; Benefits; Assignments.  The terms of this Agreement shall be binding upon, inure to the benefit of and be enforceable by and against Seller and its successors and authorized assigns, and Buyer and its successors and authorized assigns.  Nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies under or by reason of this Agreement except as expressly indicated herein.  Neither Seller nor Buyer shall assign any of their respective rights or obligations under this Agreement to any other Persons without the prior written consent of the other party, except as provided in this Section 14.2.  The parties may assign their rights and privileges under this Agreement to any “Affiliate” where “Affiliate” means any company or legal entity which controls, is controlled by, or is under common control of Buyer or Seller respectively, but any such company or other legal entity shall be deemed to be an Affiliate only as long as such control exists and for the purposes of this definition, "control" means direct or indirect ownership of at least fifty percent (50%) of the voting power of the shares or other securities for election of directors (or other managing authority) of the controlled or commonly controlled entity.  Without the prior written consent of the other party, for any assignment under this Agreement, the assigning party shall remain fully responsible for all of its obligations under this Agreement.           14.3   Construction.  The headings of the sections and paragraphs of this Agreement have been inserted for convenience of reference only and shall in no way restrict or otherwise modify any of the terms or provisions hereof.  The language used in this Agreement shall be deemed to be the language chosen by the parties to this Agreement to express their mutual intent, and no rule of strict construction shall be applied against any party.           14.4   Amendment and Waiver.  This Agreement may be amended, modified, superseded or canceled and any of the terms, covenants, representations, warranties or conditions hereof may be waived only by a written instrument executed by Seller and Buyer or, in the case of a waiver, by or on behalf of the party waiving compliance.           14.5   Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware as applicable to contracts made and to be performed in Delaware, without regard to conflict of laws principles.           14.6   Public Disclosure.  Except as required by Law, neither Buyer nor Seller shall make any public disclosure of the existence or terms of this Agreement or the transactions contemplated hereby without the prior written consent of the other party, which consent shall not be unreasonably withheld.  In the event that Seller or Buyer determines that the disclosure of the existence or terms of this Agreement is required by Law, such party shall so notify the other parties and shall provide to the other party a copy of any such public disclosure prior to releasing the same.           14.7   Notices.  All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, by facsimile, receipt confirmed, or on the next business day when sent by overnight courier or on the second succeeding business day when sent by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified by like notice):     If to Seller:             Ericsson, Inc.             Attention: Bo Larsson             1555 Adams Drive             Menlo Park, CA 94025             Telephone: 650-210-6848                 with a copy to:             Eileen C. Pruette, Esq.             Associate General Counsel             Ericsson Inc.             7001 Development Drive             Research Triangle Park, NC  27709             Telephone:  919-472-7549             Telecopier:  919-472-7454       If to Buyer:             Norstan Communications, Inc.             Attention: Jerry P. Lehrman, Esq.             5101 Shady Oak Road             Minnetonka, MN 55343-4100             Telephone:  952-352-4075             Telecopier:  952-352-4907                 with a copy to:             Philip J. Tilton, Esq.             Maslon Edelman Borman & Brand, LLP             3300 Wells Fargo Center             90 South 7th Street, Suite 3300             Minneapolis, Minnesota 55402             Telephone:  612- 672-8357             Telecopier:  612-672-8397 Either party may change its address by prior written notice to the other party.           14.8   Counterparts.  This Agreement may be executed in counterparts, each of which when so executed shall be deemed to be an original and such counterparts shall together constitute one and the same instrument.  A facsimile signature on any counterpart shall be deemed to be an original signature.           14.9   Severability.  In the event that any provision in this Agreement shall be held invalid, illegal or unenforceable in a jurisdiction, such provision shall be modified or deleted, as to the jurisdiction involved, only to the extent necessary to render the same valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby nor shall the validity, legality or enforceability of such provision be affected thereby in any other jurisdiction.           14.10 Expenses.  Each party shall pay their own respective expenses, costs and fees incurred in connection with the negotiation, preparation, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, including, without limitation, the fees and expenses of their respective legal counsel, accountants and financial advisors.           IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.   NORSTAN COMMUNICATIONS, INC.     By:     _________________________________   ERICSSON INC.     By:     _________________________________   EXHIBITS   Exhibit A Former Ericsson Employees Exhibit B Promissory Note Exhibit C Purchase Price Calculation Methodologies Exhibit D Disclosure Schedules Exhibit E Assignment and Bill of Sale    

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.2 LOAN AGREEMENT By and Among PDS GAMING CORPORATION, PDS GAMING CORPORATION-NEVADA, PDS FINANCIAL CORPORATION-MISSISSIPPI, PDS GAMING CORPORATION-COLORADO, and BREMER BUSINESS FINANCE CORPORATION DATED AS OF AUGUST 6, 2001 -------------------------------------------------------------------------------- MASTER LOAN AGREEMENT     THIS AGREEMENT is made as of August 6, 2001, by and among PDS GAMING CORPORATION, a Minnesota corporation ("PDS"), PDS GAMING CORPORATION-NEVADA, a Nevada corporation ("PDS-Nevada"), PDS FINANCIAL CORPORATION-MISSISSIPPI, a Mississippi corporation ("PDS-MS"), and PDS GAMING CORPORATION-COLORADO, a Colorado corporation ("PDS-CO") (PDS, PDS-Nevada, PDS-MS and PDS-CO are jointly and severally, the "Borrower") and Bremer Business Finance Corporation, a Minnesota corporation (the "Lead Lender"). RECITALS     A.  Whereas, Borrower has requested that Lead Lender make available to Borrower a multiple advance credit facility in an aggregate principal amount of Five Million One Hundred Fifty Thousand and 00/100 Dollars ($5,150,000.00) (the "Loan") evidenced by a promissory note of Borrower in favor of Lead Lender (the "Note"); and     B.  Whereas, the Loan is secured by a Master Security Agreement dated the date hereof between Borrower and Lender (as such Master Security Agreement may be amended from time to time, the "Security Agreement").     C.  Whereas, pursuant to a Participation Agreement of even date herewith among the Lead Lender and various loan participants in the Loan (the "Participants"), the Participants have appointed the Lead Lender as servicer for the performance of certain duties called for in this Agreement.     D.  Lead Lender is willing to make advances under the Loan to Borrower upon the terms and subject to the conditions set forth herein.     NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:     1.  Definitions.       a.  "Addendum and Assignment" is defined in the Security Agreement.     b.  "Capitalized Cost to Lessee" means the fair market value of the Equipment as of the date of the Contract as reasonably determined by Borrower in accordance with FASB 13, excluding any charges for insurance, maintenance, delivery and sales or use taxes.     c.  "Closing Date" means the date hereof.     d.  "Collateral" is defined in the Security Agreement.     e.  "Contract" means any Contract between the Borrower and an Obligor which is identified in an Addendum and Assignment, and which meets the eligibility criteria set forth in Exhibit A attached hereto.     f.   "Delinquent Contract" means any Contract where payment in full of all installments then due has not been made within 30 days of the due date or where any other default has occurred and such default has continued for a period of at least 30 days.     g.  "Equipment" is defined in the Security Agreement.     h.  "Equipment Value" means, (i) with respect to any Contract which is an installment sales contract or installment note, the sales price of the Equipment subject to such Contract, excluding sales or use tax, delivery charges, installation charges and any security deposit that is or will be applied as a credit against any installment payment in whatever form collected; (ii) with respect to any Contract which is a finance lease, the Capitalized Cost to Lessee, 1 -------------------------------------------------------------------------------- excluding sales or use tax, delivery charges, installation charges and any security deposit that is or will be applied as a credit against any rent payment; and (iii) with respect to any Contract which is an operating lease, the Capitalized Cost to Lessee, excluding sales or use tax, delivery charges, installation charges and any security deposit that is or will be applied as a credit against any rent payment.     i.   "GAAP" means generally accepted accounting principles as in effect from time to time, which shall include the official interpretations thereof by the Financial Accounting Standards Board, consistently applied.     j.   "Loan Documents" means this Agreement, the Note, the Security Agreement, the Addendum and Agreement, the Repossession Agreement, the UCC-1 and UCC-3 Financing Statements, and all other documents, instruments or agreements (excluding the Contracts) necessary to give effect to this Agreement and the transaction contemplated hereby.     k.  "Maturity Date" means August 31, 2004.     l.   "Note" means the promissory note of the Borrower in the amount of $5,150,000 dated of even date herewith substantially in the form of Exhibit "B"hereto.     m.  "Obligor" means, with respect to any Contract, the person identified on a Contract as the lessee or purchaser.     n.  "Repossession Agreement" means that certain Repossession and Remarketing Agreement by and between Borrower and Lead Lender dated the date hereof, as it may be amended from time to time.     o.  "Required Payment Amount" means as of any Installment Payment Date (as defined in Note), that amount equal to the monthly amount necessary to fully amortize the then outstanding principal balance and accrued interest under the Note in equal monthly installments by the Maturity Date, together with payment of the Servicing Fee described in the Note.     2.  The Credit Facility.  Subject to and upon the terms and conditions hereof, and in reliance upon the representations and warranties of the Borrower herein, Lender will make the Loan to Borrower in multiple advances (each an "Advance") from time to time, at such time and in such amount as to each "Advance Request" (as defined in Section 3) as Borrower may request up to but not exceeding an aggregate principal amount of $5,150,000.00 for the purpose of funding Contracts to certain Obligors, and to pay all related transaction costs. The Loan will be advanced based on multiple Advance Requests (as hereafter defined) but will not be a revolving credit facility and Borrower may not borrow, repay and re-borrow amounts advanced. Advances will be made from the "Escrow", as defined in Section 3. The Advance amount of any Advance Request shall not exceed ninety percent (90%) of the Equipment Value of each Contract identified in the respective Advance Request, or of all the Contracts identified in each such Advance Request, and each Advance Request shall support an Advance in an amount not less than five hundred thousand dollars ($500,000). Each Contract shall support an Advance in an amount not less than $500,000; provided, however, that up to eight (8) Contracts identified on all Advance Requests submitted hereunder may support Advances in an amount of $250,000 to $500,000. The Loan shall bear interest at the rate of ten and a half percent (10.5%) per annum. The Loan shall be payable over a thirty-six (36) month term. Commencing September 1, 2001 and continuing on each Installment Payment Date (as defined in the Note) thereafter, Borrower shall pay installments of principal and interest equal to the Required Payment Amount; provided that the unpaid principal balance of the Note, interest accrued thereon and all charges payable pursuant to the terms of the Note shall become due and payable in full on the earlier to occur of the following: (i) the Maturity Date, (ii) the occurrence of an Event of Default and (iii) the Installment Payment Date (as defined in the Note) next following the Installment Payment Date on which the unpaid principal 2 -------------------------------------------------------------------------------- balance of the Note declines below $25,000. Any prepayments made on any Contract shall be used to prepay the Loan to the extent required by the Security Agreement. The Note may be prepaid in whole or in part at any time, provided that any prepayment shall be made on thirty (30) days' advance written notice to Lead Lender and shall be made only on a regularly scheduled Installment Payment Date and any partial prepayment shall be made in denominations of no less than $100,000. After a prepayment, the then outstanding principal balance and accrued interest will be reamortized over the period remaining between the date of prepayment and the Maturity Date. All amounts paid in respect of the Note shall be applied in accordance with the Note and the Security Agreement. All payments and prepayments of the principal of and interest on the Loan shall be made by Borrower to Lead Lender pursuant to the terms of the Note and the other Loan Documents, and shall be made by wire transfer in accordance with Lead Lender's instructions.     3.  Borrowing Procedure and Disbursement of Loan Proceeds.  On the date hereof, Lead Lender has disbursed to Borrower $            for payment of closing costs for the Loan. The balance of the Loan in the amount of $            will be advanced under the Note and deposited in an interest bearing account with or maintained by Lead Lender (the "Escrow"). Each time Borrower desires to obtain a disbursement from the Escrow, Borrower shall submit to Lead Lender a written advance request, duly signed by Borrower, substantially in the form of Exhibit C attached hereto (each an "Advance Request"). Each Advance Request shall be submitted by the Borrower to Lead Lender at least five (5) business days prior to the date of the requested Advance. Each Advance Request shall specify (i) the advance date (which shall be a business day), (ii) the Equipment being acquired or financed therewith and the Equipment Value thereof, (iii) the terms of and parties to the Contract(s) to which such Equipment will be sold or leased, and (iv) the amount of the requested Advance, and shall set forth the information requested therein. Unless Lead Lender reasonably determines any applicable condition specified in this Agreement has not been satisfied, Lead Lender will make the amount of the requested Advance available to Borrower at Lead Lender's principal office in St. Paul, Minnesota, not later than 5:00 p.m., St. Paul time, on the requested advance date. Borrower shall be obligated to repay the Loan notwithstanding the fact that the person requesting any Advance was not in fact authorized to do so. The proceeds of the Loan will be advanced or disbursed to Borrower as described herein upon delivery to Lead Lender of the following documents or other items:     a.  Items Necessary at time this Agreement is Executed:     (i) The Loan Documents, each executed by the Borrower in favor of Lead Lender;     (ii) Resolutions of the Executive Committee of the Board of Directors (together with sufficient documentation of such Committee's appointment and authority) or of the Board of Directors of each of the Borrowers, authorizing the execution, delivery and performance of the Loan Documents and related documents and the transactions contemplated thereby;     (iii) Evidence in form and substance acceptable to Lead Lender that Borrowers have all licenses necessary to carry on business and to enable them to perform their obligations under the Repossession Agreement, including without limitation all licenses required under Nevada, Colorado and Mississippi gaming laws for the operation of Borrowers' businesses;     (iv) Articles of Incorporation of PDS, a copy of the Bylaws of PDS, and an unqualified certificate of good standing for PDS issued by the Minnesota Secretary of State;     (v) Articles of Incorporation of PDS-Nevada, a copy of the Bylaws of PDS-Nevada, and an unqualified certificate of good standing for PDS-Nevada issued by the Nevada Secretary of State; 3 --------------------------------------------------------------------------------     (vi) Articles of Incorporation of PDS-MS, a copy of the Bylaws of PDS-MS, and an unqualified certificate of good standing for PDS-MS issued by the Mississippi Secretary of State;     (vii) Articles of Incorporation of PDS-CO, a copy of the Bylaws of PDS-CO, and an unqualified certificate of good standing for PDS-CO issued by the Colorado Secretary of State;     (viii) UCC searches with respect to each Borrower;     (ix) Certificates of insurance and insurance endorsements required hereby;     (x) The favorable opinion of Borrower's legal counsel as to the due and valid existence of each Borrower; as to the valid and binding nature of and enforceability of all Loan Documents with respect to each Borrower; as to the absence of default and conflicts by each Borrower' and to such other matters incident to the transactions herein contemplated as Lead Lender may require; and     (xi) Such additional certificates and agreements as the Lead Lender reasonably determines are necessary or appropriate.     b.  Borrower Items Necessary Before any Advance:     (i) An Addendum and Assignment and UCC-1 and UCC-3 Financing Statements, each executed by Borrower in favor of Lead Lender with respect to the Contract(s) being financed with the requested Advance, and an assignment of Borrower's interest as secured party with respect to the related Equipment;     (ii) With respect to each of the Contracts in which Borrower is granting a security interest to Lead Lender pursuant to the Addendum and Assignment, the executed original of each such Contract, with all collateral schedules, and copies of such additional instruments, documents, certificates, searches and reports as Borrower has obtained in connection with such Contract;     (iii) A Notice, Consent and Acknowledgment of Assignment with respect to the Contract(s) being financed with the requested Advance, duly executed by Borrower;     (iv) Updated UCC searches with respect to each Borrower who is requesting an Advance;     (v) Except as to financing statements in favor of Lead Lender, UCC-3 (or other applicable) financing statements terminating conflicting security interests filed with respect to the Contracts and the Equipment identified in the applicable Advance Request;     (vi) Certificates of insurance and insurance endorsements required hereby;     (vii) All other items as may be required pursuant to the eligibility criteria set forth in Exhibit A attached hereto.     c.  Obligor Items Necessary Before any Advance:     (i) A Notice, Consent and Acknowledgment of Assignment duly executed by the Obligor under each Contract being financed with the requested Advance;     (ii) UCC-1 Financing Statements, executed by the Obligor in favor of Borrower and assigned to the Lead Lender with respect to the Contract(s) being financed with the requested Advance, and the related Equipment and releases, terminations or other appropriate filings, if any; 4 --------------------------------------------------------------------------------     (iii) Certificates of insurance and insurance endorsements required hereby;     (iv) All other items as may be required pursuant to the eligibility criteria set forth in Exhibit A attached hereto.     4.  Representations and Warranties of Borrower.  In order to induce Lead Lender to advance the proceeds of the Loan, pursuant to Advance Requests, Borrower (and each Borrower, as applicable) hereby represents and warrants to Lead Lender as follows:     a.  PDS is a corporation duly organized and validly existing under the laws of the State of Minnesota. PDS-Nevada is a corporation duly organized and validly existing under the laws of the State of Nevada. PDS-MS is a corporation duly organized and validly existing under the laws of the State of Mississippi. PDS-CO is a corporation duly organized and validly existing under the laws of the State of Colorado. Borrower is duly qualified to do business and is in good standing in every other jurisdiction wherein the nature of its business or the character of its properties makes such qualification necessary and where failure to be so qualified and in good standing, in the aggregate, would not have a material adverse effect on the business, properties, operations, assets, liabilities or condition (financial or otherwise) of such Borrower. Borrower (and each Borrower, as applicable) has all requisite power and authority to carry on its business as now conducted and as presently proposed to be conducted.     b.  Borrower has full power and authority to execute and deliver the Loan Documents and to incur and perform its obligations hereunder and thereunder. The execution, delivery and performance by Borrower of the Loan Documents and any and all other documents and transactions contemplated hereby or thereby, have been duly authorized by all necessary corporate action, will not violate any provision of law or of the Articles of Incorporation or the Bylaws of Borrower or result in the breach of, constitute a default under, or create or give rise to any lien under, any indenture or other agreement or instrument to which Borrower is a party or by which Borrower or its property may be bound or affected, except for that certain agreement with U.S. Bank and the Release(s) issued thereunder. The Loan Documents have been executed and delivered to the Lead Lender by an appropriate officer of Borrower who is authorized by and specified in Borrower's Bylaws to execute and so deliver such agreements. Borrower is not in violation of or subject to any contingent liability on account of any statute, law, rule, ordinance, order, writ, injunction or decree to the extent that such violation or contingent liability would result in a material adverse effect on the condition (financial or otherwise), business, properties, or assets of Borrower. As used herein, material adverse effect means a violation or contingent liability that would result in a cost or loss to Borrower of $500,000.00 or more.     c.  The Loan Documents constitute the legal, valid and binding obligations of Borrower, enforceable in accordance with their respective terms.     d.  There is no action, suit or proceeding pending or, to the knowledge of Borrower, threatened against or affecting Borrower, or any basis therefor, which, if adversely determined, would have a material adverse effect on the condition (financial or otherwise), business, properties or assets of Borrower or which would question the validity of the Loan Documents or any instrument, document or other agreement related hereto or required hereby, or impair the ability of Borrower to perform its obligations under the foregoing agreements.     e.  Borrower possesses adequate licenses, permits, franchises, patents, copyrights, trademarks and trade names, or rights thereto (collectively "Licenses"), to conduct its business substantially as now conducted and as presently proposed to be conducted. Each License is validly issued and in full force and effect. Borrower has fulfilled and performed all of its obligations with respect thereto. No event has occurred which: (1) results in, or after notice or 5 -------------------------------------------------------------------------------- lapse of time or both would result in, suspension, surrender, failure to renew, revocation or termination of any material License; or (2) materially and adversely affects or in the future may (so far as Borrower can now reasonably foresee) materially adversely affect any of the rights of Borrower thereunder. Borrower is not a party to and Borrower does not have any knowledge of any notice of violation, order or complaint issued by or before any court or regulatory body or of any other proceedings which could in any manner result in suspension, surrender, failure to renew, revocation or termination of any material License or otherwise threaten or adversely affect the validity or continued effectiveness of the Licenses of Borrower. Borrower has no reason to believe that any Licenses will not be renewed in the ordinary course. Borrower has fully cooperated with every regulatory body having jurisdiction over any of the Licenses or the activities of Borrower with respect thereto, and Borrower has filed all material reports, applications, documents, instruments, and information required to be filed by it pursuant to applicable laws, rules and regulations. Borrower has posted all required bonds required under its Licenses.     f.   Borrower owns the Contracts constituting part of the Collateral, subject to no prior security interests, assignments, liens or encumbrances at the time of closing. Lead Lender has (or shall have in the context of each Advance Request) a valid first perfected security interest in the Collateral subject to no prior security interests or encumbrances. The security interest of Lead Lender has been recorded with the appropriate recording offices, and the Lead Lender's security interest in the Equipment is a first priority perfected security interest, subject only to the rights of the Obligors and Borrowers under the Collateral.     g.  No director, shareholder, officer, employee of or consultant to Borrower is prohibited by law, regulation, contract or the terms of any license, franchise, permit, certificate, approval or consent from participating in the business of Borrower as director, shareholder, officer, employee of or as consultant to Borrower.     h.  Except with respect to reporting and compliance requirements of the regulatory gaming authorities in the jurisdictions in which either Borrowers or the Obligors conduct business, no consent, approval, order or authorization of, or registration, declaration or filing with, or notice to, any governmental authority or any third party is required in connection with the execution and delivery of the Loan Documents or any of the agreements or instruments contemplated thereby to which Borrower is a party, or in connection with the carrying out or performance of any of the transactions required or contemplated hereby or thereby or, if required, such consent, approval, order or authorization has been obtained or such registration, declaration or filing has been accomplished or such notice has been given prior to the date hereof.     i.   Borrower has filed all local, state, federal and other tax returns required to be filed by it and either paid all taxes shown thereon to be due, including interest and penalties, which are not being contested in good faith and by appropriate proceedings, or provided adequate reserves for payment thereof. Borrower has no information or knowledge of any objections to or claims for additional taxes in respect of local, state and federal or other income or excess profits tax returns of Borrower for prior years.     j.   Borrower does not intend to, or believe that it will, incur debts beyond its ability to pay such debts as they mature.     k.  All financial and other information provided to Lead Lender by or on behalf of Borrower in connection with Borrower's request for the Loan fairly presented the financial condition of Borrower as of the dates thereof and disclosed fully all liabilities of Borrower. Since the date of such financial and other information, there has been no material adverse change in the financial condition of Borrower. 6 --------------------------------------------------------------------------------     l.   Each qualified retirement plan of Borrower, if any, presently conforms to and is administered in a manner consistent with the Employee Retirement Income Security Act of 1974.     m.  As of the date hereof, no Contract is a Delinquent Contract, and each Obligor under each Contract satisfies the Borrower's standard underwriting and credit criteria.     n.  Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of the Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock.     o.  No proceeds of the Loan will be used to acquire any security in any transaction, which is subject to Sections 13 and 14 of the Securities Exchange Act of 1934.     p.  The transaction evidenced by this Agreement does not violate any law pertaining to usury or the payment of interest on loans.     q.  Borrower will use the proceeds of the Loan solely for lawful and proper corporate purposes of Borrower.     5.  Affirmative Covenants. Borrower covenants and agrees as follows:     a.  Borrower will use the proceeds of each Loan solely for the financing of Contracts to certain casino/gaming operators.     b.  Borrower will pay all of its taxes (including payroll and withholding taxes), levies, assessments and governmental charges prior to the time when any penalties or interest accrue, unless contested in good faith with an adequate reserve for payment.     c.  Borrower will continue the conduct of its business, maintain its corporate existence, maintain all rights, licenses and franchises necessary or desirable in the normal conduct of its business, comply with all rules, regulations and orders of any governmental or other authority or agency and all applicable federal and state laws and regulations. Without in any way limiting the generality of the foregoing, the Borrower will maintain all licenses required under Nevada, Colorado and Mississippi gaming laws for the operation of each Borrower's business, and will timely file all reports as any applicable gaming commission, or authority, may from time to time require or request.     d.  Borrower shall use best efforts to cause the Obligors to maintain and service the Equipment so as to keep such Equipment in good operating condition, ordinary wear and tear from normal use excepted.     e.  Borrower will deliver to Lead Lender:     (i) Within one hundred twenty (120) days after the end of each fiscal year, the consolidated audited financial statements of Borrower for such fiscal year, certified (without qualification as to the opinion or scope of examination) by a firm of independent certified public accountants selected by Borrower and acceptable to Lead Lender.     (ii) Within forty-five (45) days after the end of each fiscal quarter, consolidated quarterly financial statements of Borrower, together with a compliance certificate in the form attached hereto as Exhibit D.     (iii) Upon the reasonable request of Lead Lender, all backup data regarding the Contracts and the Equipment. 7 --------------------------------------------------------------------------------     (iv) Copies of any and all reports, filings, financial statements or other information as and when filed with the United States Securities and Exchange Commission and with any gaming authorities (only in connection with the Loan, the Contracts, the Equipment, or Lead Lender), and copies of all information and notices as and when delivered to Borrower's shareholders.     (v) Promptly upon becoming aware thereof, notice of any default with respect to any other indebtedness, whether owed to Lead Lender, or any other creditor.     f.   Upon reasonable notice of not less than 48 hours, Borrower will permit any officer, employee, attorney or accountant for Lead Lender or any Participant to review, make extracts from, or copy any and all corporate and financial books and records of Borrower relating to the Contracts at all times during ordinary business hours, to send and discuss with Obligors requests for verification of amounts owed to Borrower if Lead Lender or any Participant has a reasonable basis for believing such a verification is necessary, and to discuss the affairs of Borrower with any of its officers. After the occurrence of an Event of Default, the rights to review and copy books and records shall not be limited to those relating to the Contracts but will be all of Borrower's books and records, and no prior notice to Borrower shall be required.     g.  Borrower will provide Lead Lender with an insurance certificate, issued by Obligor's insurer, in form and content and from an insurer acceptable to Lead Lender, providing for ten (10) days' written notice to Lead Lender of cancellation or non-renewal (without qualification), and evidencing the following categories and amounts of coverage:     (i) Comprehensive public liability coverage for the Obligor.     (ii) Comprehensive physical damage insurance for the full insurable value of the Equipment, naming the Lead Lender as loss payee, as its interests may appear.     (iii) If circumstances warrant, warehouse and transportation insurance on the Equipment which is being stored or transported, as the case may be, for the full insurable value of the Equipment naming the Lead Lender as loss payee.     (iv) With respect to any Equipment which is located on any ship or which is otherwise subject to any maritime laws, shipwreck, piracy, abandonment and hull insurance in such amounts as Lead Lender may request, with lender's loss payable endorsement provided to Lead Lender.     h.  Borrower will notify Lead Lender promptly of (i) any material disputes or claims by any Obligor; (ii) any Equipment returned to or recovered by Borrower or damaged, destroyed or stolen from Borrower or an Obligor; (iii) any change in the persons constituting the directors or officers of any Borrower; (iv) the occurrence of any breach, default or event of default by or attributable to any Borrower under this Agreement or any of the Loan Documents; (v) the occurrence of any breach, default or event of default by or attributable to any Obligor under the Obligor's Contract; and (vi) any event which may have any effect on the enforceability or priority of any lien in favor of Lead Lender, or on the ability of Borrower or the Obligor to perform its obligations under the Loan Documents or any Contract, as the case may be.     i.   Borrower will notify Lead Lender in writing promptly after the commencement of any lawsuit, legal proceeding or proceedings before any governmental or regulatory agency against Borrower which may have a material adverse effect on the Loan, the Contracts, the Equipment, Lead Lender or any Participant or the business of Borrower. As used herein, material adverse effect means a lawsuit or proceeding involving a potential cost or loss of $500,000.00 or more. 8 --------------------------------------------------------------------------------     j.   With respect to any Delinquent Contract, Borrower shall comply with Section 7 of this Agreement.     k.  Borrower will keep full and complete books of record and accounts for itself and other records reflecting the results of each Borrower's operations, all in accordance with GAAP.     l.   At any time upon request from Lead Lender after the occurrence of an Event of Default, Borrower will cause the Obligors under the Contracts, which constitute a part of the Collateral to be notified to make payment directly to Lead Lender, or Lead Lender may effect such notice, and Lead Lender shall be entitled to take control of any proceeds thereof.     m.  After the occurrence of an Event of Default, all proceeds of Collateral not released from the lien of the Security Agreement pursuant to the Security Agreement, including without limitation, proceeds from the sale or re-leasing of the Equipment, proceeds of insurance and all other unscheduled recoveries, shall be paid by Borrower into a collateral account administered by Lead Lender in the manner described in the Security Agreement.     n.  In the event any Equipment has been repossessed, Borrower shall pay promptly to Lead Lender the proceeds of the sale or other disposition of the Equipment, together with a cash payment equal to any additional amount necessary to fully pay the unamortized amount of the Loan proceeds advanced with respect to Contract(s) relating to such Equipment.     o.  In the event any Equipment is damaged, destroyed, lost or stolen, Borrower shall pay promptly to Lead Lender the proceeds of any insurance on the Equipment, together with a cash payment equal to any additional amount necessary to fully pay the unamortized amount of the Loan proceeds advanced with respect to Contract(s) relating to such Equipment.     p.  Borrower shall service the Contracts, which form a part of the Collateral in accordance with the industry standards applicable to servicers of such contracts, and Borrower shall have ultimate responsibility for such servicing. If Borrower shall fail in any material respect in the performance of its duties hereunder, and such failure shall continue for thirty (30) days, Lead Lender shall appoint a servicer, chosen at the discretion of Lead Lender (which may include, but not be limited to, Lead Lender), to perform such duties, and Borrower shall promptly make available to such servicer all books and records in any and all formats with respect to the Collateral, and shall also make available to the servicer without fee any and all computer software necessary to service the Collateral. Fees of such replacement servicer shall be paid in the manner described in the Security Agreement. 9 --------------------------------------------------------------------------------     q.  Borrower will provide notice to all applicable gaming authorities, to the extent required by the applicable gaming law, of Lead Lender's security interest in the Contracts and the Equipment.     r.  After the occurrence of an Event of Default and not later than two (2) days prior to a date on which a payment is due under the Note, Borrower shall provide Lead Lender with a detailed report with respect to all monies, if any, deposited in the collateral account pursuant to the Security Agreement, including amounts paid in respect of Payments on all Contracts (as due and as a prepayment) and amounts paid in respect of interest. The report shall be prepared in such manner as may be required by Lead Lender for purposes of properly applying funds in accordance with the Security Agreement, if applicable.     s.  With respect to each of the Contracts, Borrower shall: (i) perform all acts necessary to preserve the validity and enforceability of each such Contract; (ii) take all actions reasonably necessary to assist Lead Lender in collecting when due all amounts owing to Borrower with respect to each such Contract; (iii) at all times keep accurate and complete records of performance by Borrower and the Obligor under each such Contract; and (iv) upon request of Lead Lender verify with the Obligor under each Contract the payments due to Borrower under such Contract, except that (A) prior to the occurrence of an Event of Default or an event which with the passage of time or the giving of notice, or both, would be an Event of Default, such requests shall not occur any more frequently than once each year and (B) after the occurrence and during the continuance of an Event of Default or an event which with the passage of time or the giving of notice, or both, would be an Event of Default such requests may occur as often as Lead Lender shall require.     t.   Borrower will store the Equipment (which is not in the possession of an Obligor) only in the Borrower's warehouses or in bonded warehouses.     u.  Borrower shall maintain at all times a tangible net worth ("Tangible Net Worth") in an amount of not less than $6,000,000 plus 15% of positive Net Income earned after May 1, 2001.     v.  Borrower shall have a Cash Flow Ratio of not less than 1.5 to 1.0 as of the end of each calendar quarter measured on a trailing twelve (12) month basis. As used herein, "Cash Flow Ratio" means the ratio of (a) net income plus interest expense, income taxes, depreciation and amortization to (b) interest expense plus dividends.     w.  Borrower shall maintain at all times a Leverage Ratio not to exceed 7:1. Leverage Ratio is defined as: total debt (total liabilities less subordinated debts, non-recourse debt, and deferred funds) divided by Tangible Net Worth.     6.  Negative Covenants. Borrower (and each Borrower, as applicable) covenants and agrees that, except with the prior written approval of Lead Lender:     a.  Borrower will not create, incur or cause to exist any mortgage, security interest, encumbrance, lien or other charge of any kind upon any of the Collateral, whether now owned or hereafter acquired, except for the security interests created by the Loan Documents. Except as permitted by the Security Agreement, Borrower will not sell, dispose of, lease, mortgage, assign, sublet or transfer all or any part of Borrower's right, title or interest in or to all or any portion of the Collateral.     b.  Borrower will not substantially alter the general nature of the business in which it is engaged, or engage in any line of business materially different in relation to the transactions contemplated by this Loan Agreement from its current business. 10 --------------------------------------------------------------------------------     c.  Borrower will not permit any material breach, default or event of default to occur under any note, loan agreement, indenture, lease, mortgage, contract for deed, security agreement or other contractual obligation binding upon Borrower which is not cured within the applicable cure provisions thereof.     d.  Other than negotiating termination value as may be set forth in any Contract "Purchase Options", Borrower will not materially amend, supplement, modify, compromise or waive any of the terms of any Contract, without the prior written consent of Lead Lender, provided that Borrower will have the right to substitute Equipment subject to any Contract with other Equipment that is like-kind in value as long as Borrower files an amended or updated UCC financing statement signed by Lead Lender as to the substituted Equipment within the time period required by the law of the applicable jurisdiction to perfect a purchase money security interest and delivers such filed financing statements to Lead Lender.     e.  Borrower will not make any payments on any of Borrower's indebtedness to any of Borrower's affiliated entities, or to any of Borrower's shareholders, officers, directors or employees, following the occurrence of and during the continuance of an Event of Default or a failure to comply with a covenant contained in Section 5 or this Section 6.     f.   After delivery of the Equipment to Obligor, Borrower will not cause or allow any movement of the Equipment, except as permitted in this Agreement or in connection with any repossession by Borrower of such Equipment.     7.  Delinquent Contracts. So long as no Event of Default or event which with the giving of notice or the passage of time would constitute an Event of Default has occurred under this Agreement, Delinquent Contracts that are in monetary default only may remain part of the Collateral provided that (i) Borrower gives written notice to Lead Lender within thirty (30) days of each monthly monetary default; and (ii) the defaults by the Obligor do not exceed three (3) consecutive monthly payments or a total of six (6) nonconsecutive monthly payments. With respect to Delinquent Contracts that are in monetary default beyond the limitations of the foregoing sentence, Borrower shall within thirty (30) days, either (i) pay to Lead Lender an amount equal to the outstanding balance of the Loan proceeds advanced with respect to such Contract, and such payment shall be applied to the unpaid principal balance of the Note, or (ii) execute and deliver to Lead Lender an Addendum and Assignment (and appropriate UCC financing statements and the other documents described in Section 4 hereof) respecting one or more other Contracts with an aggregate Equipment Value multiplied by 90% that is equal to or greater than the outstanding balance of the Loan proceeds advanced with respect to such Delinquent Contract, and Obligor Acknowledgment(s) relating to such Contract(s) duly executed by each Obligor under such Contract, and all such other documents, instruments and agreements as required under this Agreement or as Lead Lender may request.     8.  Replacement Rights. Borrower may, from time to time, upon ten (10) days prior written notice to Lead Lender, obtain a release of a particular Contract from the Collateral (the "Released Contract") and substitute one or more other Contracts (the "Replacement Contract"), provided that (i) neither the Released Contract or the Replacement Contracts are Delinquent Contracts; and (ii) Borrower executes and delivers to Lead Lender an Addendum and Assignment (and appropriate UCC financing statements) respecting the Replacement Contracts(s) with an aggregate Equipment Value multiplied by 90% that is equal to or greater than the outstanding balance of the Loan proceeds advanced with respect to the Released Contract (the "Unamortized Advance"), and Obligor Acknowledgment(s) relating to the Replacement Contract(s) duly executed by each Obligor under such Contract(s), and all such other documents, instruments and agreements as required under this Agreement or as Lead Lender may request. 11 --------------------------------------------------------------------------------     9.  Returned Equipment. Certain Contracts that may be funded pursuant to the Loan will contain a provision giving the Obligor the right, under certain circumstances, to return and replace some portion of the Equipment that is subject to a particular Contract. In that event, Borrower has agreed with the Obligor to amend the Contract to reduce the obligations of the Obligor thereunder and create a new Contract for replacement Equipment. Borrower agrees that, in such event, in exchange for Lead Lender's release of its security interest in the returned Equipment (the "Returned Equipment"), Borrower will make a prepayment on the Note equal to the outstanding balance of the amount advanced by Lead Lender with respect to the Returned Equipment under the applicable Contract. Borrower agrees to provide Lead Lender with a written certification (i) identifying the Returned Equipment, (ii) the aggregate Equipment Value of the Returned Equipment, (iii) 90% of such aggregate Equipment Value that was advanced by Lead Lender in respect of the Returned Equipment and (iv) the outstanding balance of the amount advanced in respect of the Returned Equipment. Borrower also agrees to provide UCC-3 Releases to be executed by Lead Lender to release such Equipment.     10. Event of Default. Each of the following occurrences shall constitute an Event of Default under this Agreement and under the Loan Documents (herein called an "Event of Default"):     a.  Borrower (and each Borrower, as the case may be) shall fail to pay any or all of the indebtedness arising out of this Agreement or Loan Documents (the "Obligations") when due or, if payable on demand, on demand and such failure shall continue for a period of five (5) days after such payment becomes due; or     b.  Borrower (and each Borrower, as the case may be) shall fail to observe or perform any covenant or agreement binding on Borrower under this Agreement or under any other assignment, conveyance, instrument or agreement now in effect or hereafter made between Borrower and Lead Lender, or under the Loan Documents for a period of thirty (30) days; or     c.  Borrower (and each Borrower, as the case may be) shall make any representations or warranties in this Agreement or in any such other assignment, conveyance, instrument, agreement, financial statements, reports or certificates heretofore or at any time hereafter submitted by or on behalf of Borrower to Lead Lender, and such representations or warranties, shall prove to have been false or materially misleading when made; or     d.  As a result of a default or failure by Borrower, payment of any substantial indebtedness of Borrower (other than the Obligations and other than indebtedness of Borrower to the extent the indebtedness is non-recourse to Borrower) shall be demanded, or the maturity of any substantial indebtedness shall be accelerated, or any precondition or circumstance permitting any creditor of Borrower (acting individually or with the consent of other creditors) to accelerate the maturity of any substantial indebtedness shall have occurred; for this purpose indebtedness shall be deemed substantial if it exceeds $250,000.00; or     e.  Any Borrower shall become insolvent or shall commit an act of bankruptcy under the United States Bankruptcy Act, or shall file or have filed against it, voluntarily or involuntarily, a petition in bankruptcy or for reorganization or for the adoption of an arrangement or plan under the United States Bankruptcy Act or shall procure or suffer the appointment of a receiver for any substantial portion of its properties, or shall initiate or have initiated against it, voluntarily or involuntarily, any act, process or proceeding under any insolvency law or other statute or law providing for the modification or adjustment of the rights of creditors and such petition, receiver, act, process or proceeding shall not be dismissed or discharged within ninety (90) days; or     f.   A garnishment summons or writ of attachment for an amount in excess of $250,000.00 shall have been issued against or served upon Lead Lender or any Participant for 12 -------------------------------------------------------------------------------- the attachment of any property of Borrower in the Lead Lender's or such Participant's possession or any indebtedness owing Borrower; or     g.  Any Borrower shall have been dissolved, whether voluntarily or by operation of law; or     h.  Any of Borrower's gaming licenses, material to this Agreement, are revoked or rescinded, lapse, or otherwise are no longer maintained by or available to Borrower.     11. Rights and Remedies Upon Default. Upon the occurrence of an Event of Default and at any time thereafter, subject to the gaming laws of any jurisdiction in which any of the Collateral is located, the Lead Lender may exercise one or more of the following rights and remedies:     a.  Lead Lender may declare all unmatured Obligations to be immediately due and payable, and the same shall thereupon be immediately due and payable, without presentment or other notice or demand;     b.  Subject to the rights of the Obligors, Lead Lender may exercise and enforce any and all rights and remedies available upon default to a secured party under the Uniform Commercial Code including, without limitation, the right to take possession of the Collateral, or any evidence thereof, proceeding without judicial process or by judicial process (without a prior hearing or notice thereof, which Borrower hereby expressly waives) and the right to sell, lease or otherwise dispose of any or all of the Collateral, and Borrower agrees to make the Collateral available to Lead Lender at a place to be designated by Lead Lender which is reasonably convenient to both parties. If notice to Borrower of any intended disposition of the Collateral or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given at least ten (10) calendar days prior to the date of intended disposition or other action;     c.  Lead Lender may request Borrower to, and upon such request Borrower will, assist Lead Lender in repossessing and selling the Equipment in compliance with all applicable laws and in accordance with the Repossession Agreement (this provision in no way limits Lead Lender's ability to use any other person or entity to repossess and sell the Equipment);     d.  Without notice or demand, Lead Lender may offset any indebtedness Lead Lender or any Participant's, or any of Lead Lender's or such Participant's successors or assigns then owe to Borrower whether or not then due, against any Obligation then owed to Lead Lender or any of its successors or assigns by Borrower, whether or not then due;     e.  Lead Lender may exercise the recourse rights of Borrower against the Obligor on any Contracts; and     f.   Lead Lender may exercise or enforce any and all other rights or remedies available by law or agreement against the Collateral, against Borrower or against any other person or property.     12. Miscellaneous. Borrower (and each Borrower, as the case may be) agrees that:     a.  The performance or observance of any promise or condition set forth in this Agreement may be waived in writing by Lead Lender, but not otherwise. No delay in the exercise of any power, right or remedy of Lead Lender, shall operate as a waiver thereof, nor shall any single or partial exercise thereof or the exercise of any other power, right or remedy operate as a waiver thereof.     b.  This Agreement shall be binding upon Borrower and its successors and assigns and shall inure to the benefit of Lead Lender, each Participant and the successors and assigns of any of them, provided that Borrower may not transfer or assign its rights hereunder without 13 -------------------------------------------------------------------------------- the prior written consent of Lead Lender. This Agreement shall be effective the date written above. All rights and powers specifically conferred upon Lead Lender may be transferred or delegated by Lead Lender to any of its Participants and to Lead Lender's and Participant's successors or assigns. Except to the extent otherwise required by law, this Agreement and the transactions evidenced hereby shall be governed by the substantive laws of the State of Minnesota without regard to principles of conflicts of laws. If any provision or application of this Agreement is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect other provisions or applications which can be given effect, and this Agreement shall be construed as if the unlawful or unenforceable provision or application had never been contained herein or prescribed hereby. All representations and warranties contained in this Agreement or in any other agreement between Borrower and Lead Lender, and each Participant, shall survive the execution, delivery and performance of this Agreement and the creation and payment of any indebtedness to Lead Lender and each Participant. This Agreement may be executed in any number of counterparts, each of which is to be deemed to be an original and all of which constitute one agreement.     13. Notices. All notices, consents, requests, demands and other communications hereunder shall be given to or made upon the respective parties hereto at their respective addresses specified below or, as to any party, at such other address as may be designated by it in a written notice to the other party. All notices, requests, consents and demands hereunder shall be effective when personally delivered or five (5) days after depositing in the United States mail, certified or registered, postage prepaid, or when sent by confirmed facsimile, or when delivered by overnight courier. If to Borrower:   PDS Gaming Corporation PDS Gaming Corporation-Nevada PDS Financial Corporation-Mississippi PDS Gaming Corporation-Colorado 6171 McLeod Drive Las Vegas, NV 89120 Attn:  Peter D. Cleary, President Telephone:  (702) 736-0700 Fax:  (702) 740-8692 If to Lead Lender:   Bremer Business Finance Corporation 445 Minnesota Street, Suite 2000 St. Paul, MN 55101 Attn:  Jennifer Senecal Fax:  (651) 312-3750     14. Jurisdiction. The Borrower hereby submits itself to the jurisdiction of the State of Minnesota and the federal courts of the United States located in such state in respect of all actions arising out of or in connection with the interpretation or enforcement of this Agreement and the documents related thereto.     15. Duties of Lead Lender With Respect to Collateral. Except with respect to the exercise of remedies under this Agreement or the Security Agreement, Lead Lender shall have no duty, responsibility or obligation of any nature whatsoever to service, collect, administer, enforce or account for the Contracts. Borrower shall service, account for, administer, collect all payments and enforce all rights with respect to such Contracts. Upon the occurrence of an Event of Default, Borrower shall deposit such payments promptly upon receipt and in the form received in the collateral account established by Lead Lender pursuant to the Security Agreement. 14 --------------------------------------------------------------------------------     16. Indemnification. Except for losses, claims, damages or liability arising out of the gross negligence or willful misconduct of Lead Lender or any Participant, Borrower agrees to indemnify and hold harmless Lead Lender or any Participant, and such Lead Lender's or Participant's officers, agents (including outside legal counsel) and employees, against any and all losses, claims, damages or liability to which Lead Lender or any Participant, and such Lead Lender's or Participant's officers, agents and employees, may become subject under any law in connection with the carrying out of the transactions contemplated by this Agreement or any other Loan Document, or the conduct of any activity related to the Equipment and to reimburse Lead Lender or any Participant, and such Lead Lender's or Participant's officers, agents and employees, for any out-of-pocket legal and other expenses (including reasonable attorneys' fees, whether incurred at trial, on appeal, in bankruptcy proceedings, or otherwise) incurred by Lead Lender or any Participant, and such Lead Lender's or Participant's officers, agents and employees, in connection with investigating any such losses, claims, damages or liabilities or in connection with defending any actions relating thereto. Lead Lender agrees, at the request and reasonable expense of Borrower, to cooperate in the making of any investigation in defense of any such claim and promptly to assert any or all of the rights and privileges and defenses, which may be available to Lead Lender or such Participant. Borrower further releases and agrees to hold harmless Lead Lender and each Participant, and such Lead Lender's and such Participant's officers, agents and employees, from and against all losses, damages, penalties, liabilities, or expenses (including reasonable legal fees, whether incurred at trial, on appeal, in bankruptcy proceedings, or otherwise) due to or arising out of any misrepresentation of information furnished to Servicer by Borrower or out of a breach of any covenant, representation or undertaking of Borrower contained in this Agreement or any other Loan Document. Borrower's liability hereunder shall not be limited to the extent of such insurance or subject to any exclusions from coverage in any insurance policy. The provisions of this Section shall survive the payment of the Note and the Loan.     17. Attorneys Fees and Taxes. Borrower shall reimburse Lead Lender, upon demand, for all reasonable costs and expenses actually incurred, including without limitation reasonable attorney's fees paid or incurred by Lead Lender in connection with:     a.  The preparation or review of the Loan Documents (provided, however, that Borrower's obligation to pay legal fees to Lead Lender for legal services rendered by counsel for Lead Lender in connection with the initial preparation and review of the Loan Documents shall be limited to $15,000.00), the perfection, protection, enforcement or foreclosure of the security interests created by the Loan Documents, the protection or enforcement of the interests and collateral security of Lead Lender, as agent and servicer on behalf of the Participants, in any litigation or bankruptcy or insolvency proceeding or the prosecution or defense of any action or proceeding relating in any way to the transactions contemplated by this Agreement, travel to and from the offices and place of business of Borrower, the negotiation and preparation of the Loan Documents and all other documents necessary or desirable in connection with the original execution and delivery of Loan Documents;     b.  Subsequent to the initial Closing, Borrower shall pay all fees and expenses of Lead Lender including reasonable attorney's fees in connection with each Advance Request and in connection with the negotiation of any amendments or modifications to any of the Loan Documents requested by or consented to by Borrower or, if an Event of Default has occurred and is continuing, requested by Lead Lender, and any related documents, instruments or agreements and the preparation of any and all documents necessary or desirable to effect such amendments or modifications; and     c.  The enforcement by Lead Lender during the term hereof or thereafter of the rights or remedies of Lead Lender hereunder or under any of the foregoing documents, instruments or agreements, including without limitation reasonable costs and expenses of collection in the 15 -------------------------------------------------------------------------------- Event of Default, whether or not suit is filed with respect thereto and whether such costs are paid or incurred, or to be paid or incurred, prior to or after entry of judgment. Borrower agrees to pay all stamp, document, transfer, recording or filing taxes or fees and similar impositions now or hereafter reasonably determined by Lead Lender to be payable in connection with the Loan Documents, or any other documents, instruments or transactions pursuant to or in connection herewith or therewith, and Borrower agrees to save Lead Lender and any Participant harmless from and against any and all present or future claims, liabilities or losses with respect to or resulting from any omission to pay or delay in paying any such taxes, fees or impositions, unless such omission or delay is due to gross negligence or willful misconduct on the part of Lead Lender. All such expenses, taxes or attorney's fees shall be payable to Lead Lender on demand. The obligations of Borrower under this Section shall survive the repayment of the Note and Loan.     18. Relationship Among Borrowers.     a.  Joint and Several Liability. BY SIGNING THIS AGREEMENT, EACH OF BORROWERS AGREES THAT IT IS LIABLE, JOINTLY AND SEVERALLY WITH THE OTHER BORROWERS, FOR THE PAYMENT OF THE NOTE AND ALL OTHER OBLIGATIONS OF BORROWERS UNDER THIS AGREEMENT, AND THAT LEAD LENDER CAN ENFORCE SUCH OBLIGATIONS AGAINST EITHER BORROWER, IN LEAD LENDER'S SOLE AND UNLIMITED DISCRETION.     b.  Lead Lender's Rights to Administer the Loan. Lead Lender may at any time and from time to time, without the consent of, or notice to, any Borrower, without incurring responsibility to any Borrower, and without affecting, impairing or releasing any of the obligations of any Borrower hereunder:     (i)  Alter, change, modify, extend, release, renew, cancel, supplement or amend in any manner the Loan Documents provided at least one Borrower has consented thereto, and Borrowers' joint and several liability shall continue to apply after giving effect to any such alteration, change, modification, extension, release, renewal, cancellation, supplement or amendment;     (ii) Sell, exchange, surrender, realize upon, release (with or without consideration) or otherwise deal with in any manner and in any order any property of any person or entity mortgaged to Lead Lender or otherwise securing Borrowers' joint and several liability, or otherwise providing recourse to Lead Lender with respect thereto;     (iii) Exercise or refrain from exercising any rights against either Borrower or others with respect to Borrowers' joint and several liability, or otherwise act or refrain from acting;     (iv) Settle or compromise any of Borrowers' joint and several liability, any security therefor or other recourse with respect thereto, or subordinate the payment or performance of all or any part thereof to the payment of any liability (whether due or not) of either Borrower to any creditor of either Borrower, including without limitation, Lead Lender and either Borrower;     (v) Apply any sum received by Lead Lender from any source in respect of any liabilities of either Borrower to Lead Lender to any of such liabilities, regardless of whether the Note remains unpaid;     (vi) Fail to set off and/or release, in whole or in part, any balance of any account or any credit on its books in favor of either Borrower, or of any other person, and extend credit in any manner whatsoever to either Borrower, and generally deal with either 16 -------------------------------------------------------------------------------- Borrower and any security for Borrowers' joint and several liability or any recourse with respect thereto as Lead Lender may see fit; and/or     (vii) Consent to or waive any breach of, or any act, omission or default under, this Agreement or any other Loan Document, including, without limitation, any agreement providing collateral security for the payment of Borrowers' joint and several liability or any other indebtedness of either Borrower.     c.  Primary Obligation. No invalidity, irregularity or unenforceability of all or any part of either Borrower's joint and several liability or of any security therefor or other recourse with respect thereto shall affect, impair or be a defense to the other Borrower's joint and several liability, and all obligations under the Note and this Agreement are primary obligations of each Borrower.     d.  Payments Recovered From Lead Lender. If any payment received by Lead Lender and applied to any obligations is subsequently set aside, recovered, rescinded or required to be returned for any reason (including, without limitation, the bankruptcy, insolvency or reorganization of a Borrower or any other obligor), the obligations to which such payment was applied shall be deemed to have continued in existence, notwithstanding such application, and each Borrower shall be jointly and severally liable for such obligations as fully as if such application had never been made. References in this Agreement to amounts "irrevocably paid" or to "irrevocable payment" refer to payments that cannot be set aside, recovered, rescinded or required to be returned for any reason.     e.  No Release. Until the Note and all other obligations under this Agreement have been paid in full and each and every one of the covenants and agreements of this Agreement are fully performed, the obligations of either Borrower hereunder shall not be released, in whole or in part, by any action or thing (other than irrevocable payment in full) which might, but for this provision of this Agreement, be deemed a legal or equitable discharge of a surety or guarantor, or by reason of any waiver, extension, modification, forbearance or delay or other act or omission of Lead Lender or its failure to proceed promptly or otherwise, or by reason of any action taken or omitted by Lead Lender whether or not such action or failure to act varies or increases the risk of, or affects the rights or remedies of, either Borrower, nor shall any modification of any Note or this Agreement or release of any security therefor by operation of law or by the action of any third party affect in any way the obligations of either Borrower hereunder, and each Borrower hereby expressly waives and surrenders any defense to its liability hereunder based upon any of the foregoing acts, omissions, things, agreements, or waivers of any of them. Neither Borrower shall be exonerated with respect to its liabilities under this Agreement by any act or thing except irrevocable payment and performance of the obligations, it being the purpose and intent of this Agreement that the obligations constitute the direct and primary obligations of each Borrower and that the covenants, agreements and all obligations of each Borrower hereunder be absolute, unconditional and irrevocable.     f.   Actions Not Required. Each Borrower hereby waives any and all right to cause a marshalling of the other Borrower's assets or any other action by any court or other governmental body with respect thereto insofar as the rights of Lead Lender and any Participant hereunder are concerned or to cause Lead Lender or any Participant to proceed against any security for Borrowers' joint and several liability or any other recourse which Lead Lender or any Participant may have with respect thereto, and further waives any and all requirements that Lead Lender or any Participant institute any action or proceeding at law or in equity against the other Borrower or anyone else, or with respect to this Agreement, the Loan Documents, or any collateral security for Borrowers' joint and several liability, as a condition precedent to making demand on, or bringing an action or obtaining and/or enforcing 17 -------------------------------------------------------------------------------- a judgment against, any Borrower. Each Borrower further waives any requirement that Lead Lender or any Participant seek performance by the other Borrower or any other person, of any obligation under this Agreement, the Loan Documents or any collateral security for Borrowers' joint and several liability as a condition precedent to making a demand on, or bringing an action or obtaining and/or enforcing a judgment against, any Borrower. No Borrower shall have any right of setoff against Lead Lender or any Participant with respect to any of its obligations hereunder. Any remedy or right hereby granted which shall be found to be unenforceable as to any person or under any circumstance, for any reason, shall in no way limit or prevent the enforcement of such remedy or right as to any other person or circumstance, nor shall such unenforceability limit or prevent enforcement of any other remedy or right hereby granted.     g.  Deficiencies. Each Borrower specifically agrees that in the event of a foreclosure under the Security Agreement, any other security agreement or other similar agreement held by Lead Lender which secures any part or all of Borrowers' joint and several liability and in the event of a deficiency resulting therefrom, each Borrower shall be, and hereby is expressly made, liable to Lead Lender for the full amount of such deficiency notwithstanding any other provision of this Agreement or provision of such agreement, any document or documents evidencing the indebtedness secured by such agreement or any other document or any provision of applicable laws which might otherwise prevent Lead Lender from enforcing and/or collecting such deficiency. Each Borrower hereby waives any right to notice of a foreclosure under any security agreement or other similar agreement given to Lead Lender by any other Borrower, which secures any part or all of Borrowers' joint and several liability.     h.  Borrowers Bankruptcy. Each Borrower expressly agrees that its liability and obligations under the Note and this Agreement shall not in any way be affected by the institution by or against the other Borrower or any other person or entity of any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or any other similar proceedings for relief under any bankruptcy law or similar law for the relief of debtors, or any action taken or not taken by Lead Lender in connection therewith, and that any discharge of any Borrower's joint and several liability pursuant to any such bankruptcy or similar law or other laws shall not discharge or otherwise affect in any way the obligations of any other Borrower under the Note and this Agreement, and that upon or at any time after the institution of any of the above actions, at Lead Lender's sole discretion, Borrowers' joint and several obligations shall be enforceable against any Borrower that is not itself the subject of such proceedings. Each Borrower expressly waives any right to argue that Lead Lender's enforcement of any remedies against that Borrower is stayed by reason of the pendency of any such proceedings against any other Borrower.     i.   No Subrogation. Notwithstanding any payment or payments made by any Borrower hereunder or any setoff or application of funds of any Borrower by Lead Lender, such Borrower shall not be entitled to be subrogated to any of the rights of Lead Lender against any other Borrower or any other guarantor or any collateral security or guaranty or right of offset held by Lead Lender for the payment of the obligations, nor shall such Borrower seek or be entitled to seek any contribution or reimbursement from any other Borrower or any other guarantor in respect of payments made by such Borrower hereunder, until all amounts owing to Lead Lender by the Borrowers on account of the obligations are irrevocably paid in full. If any amount shall be paid to a Borrower on account of such subrogation rights at any time when all of the obligations shall not have been irrevocably paid in full, such amount shall be held by that Borrower, and shall, forthwith upon receipt by Borrower, be turned over to Lead Lender in the exact form received by Borrower (duly endorsed by Borrower to Lead 18 -------------------------------------------------------------------------------- Lender, if required), to be applied against the obligations, whether matured or unmatured, in such order as Lead Lender may determine.     j.   Relationship of Borrowers. Each Borrower represents that it expects to derive benefits from the extension of credit accommodations to Borrowers by Lead Lender and finds it advantageous, desirable and in its best interests to execute and deliver this Agreement and the Note to Lead Lender.     19. Amendments. No amendment, modification or waiver of any provision of the Loan Documents and no consent to any departure by Borrower therefrom shall in any event be effective unless the same shall be in writing and signed by Lead Lender, and then such amendment, modification, waiver or consent shall be effective only in the specific instance and for the purpose for which given. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought.     20. Marshalling; Payments Set Aside. Lead Lender shall be under no obligation to marshal any assets in favor of Borrower or any other Person or against or in payment of the Loan and other Indebtedness of Borrower to Lead Lender. To the extent that Borrower makes a payment or payments to Lead Lender or Lead Lender exercises its rights of setoff, and such payment or payments or the proceeds of such setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.     21. Invalid Provisions. If fulfillment of any provision hereof, or any transaction related thereto at the time performance of any 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 such clause or provision shall be deemed invalid as though not herein contained, and the remainder of this Agreement shall remain operative in full force and effect.     22. Not Joint Ventures. Lead Lender and each Participant are not, and shall not by reason of any provision of any of the Loan Documents be deemed to be, joint venturers with or partners or agents of Borrower.     23. Estoppel Certificate. At any time and from time to time, within fifteen (15) Business Days after receipt from the other party hereto of a written request therefor, Borrower or Lead Lender, as the case may be, shall prepare, execute and deliver to such party, and/or any other party which Borrower or Lead Lender, as the case may be, may designate, an estoppel certificate stating: (a) the amount of the unpaid principal balance and accrued interest on the date thereof; (b) the date upon which the last payment was made and the date the next payment is due; and (c) that Borrower has no defenses, claims or offsets against full enforcement hereof according to the terms hereof, or listing and describing any such amendments, changes, defaults, events of default, defenses, claims or offsets which do exist.     24. Notice of Change of Location. Borrower shall promptly notify Lead Lender of any change in location of Borrower's principal places of business or the offices where it keeps its records concerning accounts and contract rights.     25. Tax Identification Numbers. The federal tax identification number for PDS Gaming Corporation is 41-1605970. The federal tax identification number for PDS Gaming Corporation-Nevada is 88-0357859. The federal tax identification number for PDS Financial Corporation- 19 -------------------------------------------------------------------------------- Mississippi is 72-1379221. The federal tax identification number for PDS Financial Corporation-Colorado is 88-0433506.     26. Setoffs. If the unpaid principal amount of the Loan, interest accrued thereon or any other amount owing by Borrower under the Loan Documents shall have become due and payable (by demand, acceleration or otherwise), Lead Lender shall have the right, in addition to all other rights and remedies available to it, without notice to Borrower, to set off against, and to appropriate and apply to such due and payable amounts any debt owing to, and any other funds held in any manner by Lead Lender for the account of, Borrower. Such right shall exist whether or not Lead Lender shall have made any demand hereunder or under any other Loan Document, whether or not such debt owing to or funds held for the account of Borrower is or are matured or unmatured, and regardless of the existence or adequacy of any collateral, guaranty or any other security, right or remedy available to Lead Lender.     27. Remedies Cumulative. The rights and remedies herein specified of the parties hereto are cumulative and not exclusive of any rights or remedies, which the parties hereto would otherwise have at law or in equity or by statute.     28. Integration; Conflicting Terms. This Agreement together with the other Loan Documents comprises the entire agreement of the parties on the subject matter hereof, supersedes, and replaces all prior agreements, oral and written, on such subject matter. If any term of any of the other Loan Documents expressly conflicts with the provisions of this Agreement, the provisions of this Agreement shall control; provided, however, that the inclusion of supplemental rights and remedies of Lead Lender in any of the other Loan Documents shall not be deemed a conflict with this Agreement.     29. Governing Law; Construction. The Loan Documents shall be governed by, and construed in accordance with, Minnesota law. Whenever possible, each, provision of the Loan Documents and any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be interpreted in such manner as to be effective and valid under such applicable law, but, if any provision of the Loan Documents or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be held to be prohibited or invalid under such applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of the Loan Documents or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto. The parties shall endeavor in good-faith negotiations to replace any invalid, illegal or unenforceable provisions with a valid provision the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provision. The provisions of this Section are irrevocable and may not be rescinded, revoked or amended without the prior written consent of Lead Lender. Borrower acknowledges that Lead Lender and each Participant has relied upon them in entering into the Loan Documents.     30. Waiver of Jury Trial. Borrower hereby irrevocably waives any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement, the Note or any of the documents executed in connection therewith or the transactions contemplated hereby or thereby.     31. Lead Lender's Acknowledgement of Gaming Requirements and Agreement to Cooperate. Lead Lender acknowledges that Borrower (and each of them, as applicable) holds privileged licenses that are necessary to the operation of its business and is requested from time to time to provide information to government regulatory agencies ("Gaming Authorities), such as the Nevada State Gaming Control Board and Nevada Gaming Commission. Lead Lender agrees to cooperate with Borrower (or any of them, as applicable) in providing information requested by any Gaming Authorities with respect to Lead Lender, any Participant, and/or the transaction contemplated by 20 -------------------------------------------------------------------------------- this Loan Agreement and agrees to notify Borrower upon receipt of any request for information made by Gaming Authorities directly to Lead Lender. Furthermore, Lead Lender agrees that all Participants will enter into an Acknowledgement of Gaming Requirements and Agreement to Cooperate substantially the same as this provision. 21 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the proper officers thereunto duly authorized on the day and year first above written. (Lead Lender)   PDS GAMING CORPORATION By:     By: /s/ JOHAN P. FINLEY   --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Print Name:     Print Name: Johan P. Finley   --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Its:     Its: CEO   --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- PDS GAMING CORPORATION—COLORADO   PDS GAMING CORPORATION—NEVEDA By: /s/ JOHAN P. FINLEY   By: /s/ JOHAN P. FINLEY   --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Print Name: Johan P. Finley   Print Name: Johan P. Finley   --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Its: CEO   Its: CEO   --------------------------------------------------------------------------------     --------------------------------------------------------------------------------       PDS FINANCIAL CORPORATION MISSISSIPPI       By: /s/ JOHAN P. FINLEY         --------------------------------------------------------------------------------       Print Name: Johan P. Finley         --------------------------------------------------------------------------------       Its: CEO -------------------------------------------------------------------------------- 22 -------------------------------------------------------------------------------- QuickLinks Exhibit 10.2 LOAN AGREEMENT By and Among PDS GAMING CORPORATION, PDS GAMING CORPORATION-NEVADA, PDS FINANCIAL CORPORATION-MISSISSIPPI, PDS GAMING CORPORATION-COLORADO, and BREMER BUSINESS FINANCE CORPORATION DATED AS OF AUGUST 6, 2001 MASTER LOAN AGREEMENT RECITALS

Page 120 Exhibit 10(i)A(4) CREDIT AND SECURITY AGREEMENT DATED AS OF MAY 2, 2001 AMONG NSI Funding, Inc., A DELAWARE CORPORATION, AS BORROWER, National Service Industries, Inc., A GEORGIA CORPORATION, AS SERVICER, BLUE RIDGE ASSET FUNDING CORPORATION, THE LIQUIDITY BANKS FROM TIME TO TIME PARTY HERETO AND WACHOVIA BANK, N.A., AS AGENT Page 121 Exhibit 10(i)A(4) TABLE OF CONTENTS Page ---- ARTICLE I. THE ADVANCES.....................................................1 Section 1.1 Credit Facility...........................................1 Section 1.2 Increases.................................................2 Section 1.3 Decreases.................................................2 Section 1.4 Deemed Collections; Borrowing Limit.......................3 Section 1.5 Payment Requirements......................................4 Section 1.6 Ratable Loans; Funding Mechanics; Liquidity Fundings......4 ARTICLE II. PAYMENTS AND COLLECTIONS........................................5 Section 2.1 Payments..................................................5 Section 2.2 Collections Prior to Amortization; Repayment of Certain Demand Advances...........................................5 Section 2.3 Repayment of Demand Advances on the Amortization Date; Collections Following Amortization........................6 Section 2.4 Payment Recission.........................................7 ARTICLE III. BLUE RIDGE FUNDING.............................................7 Section 3.1 CP Costs..................................................7 Section 3.2 Calculation of CP Costs...................................7 Section 3.3 CP Costs Payments.........................................7 Section 3.4 Default Rate..............................................7 ARTICLE IV. LIQUIDITY BANK FUNDING..........................................7 Section 4.1 Liquidity Bank Funding....................................7 Section 4.2 Interest Payments.........................................8 Section 4.3 Selection and Continuation of Interest Periods............8 Section 4.4 Liquidity Bank Interest Rates.............................8 Section 4.5 Suspension of the LIBO Rate...............................8 Section 4.6 Default Rate..............................................9 ARTICLE V. REPRESENTATIONS AND WARRANTIES...................................9 Section 5.1 Representations and Warranties of the Loan Parties........9 Section 5.2 Liquidity Bank Representations and Warranties............12 ARTICLE VI. CONDITIONS OF ADVANCES.........................................13 Section 6.1 Conditions Precedent to Initial Advance..................13 Section 6.2 Conditions Precedent to All Advances.....................13 ARTICLE VII. COVENANTS.....................................................14 Section 7.1 Affirmative Covenants of the Loan Parties................14 Section 7.2 Negative Covenants of the Loan Parties...................23 ARTICLE VIII. ADMINISTRATION AND COLLECTION................................24 Section 8.1 Designation of Servicer..................................24 Section 8.2 Duties of Servicer.......................................25 Section 8.3 Collection Notices.......................................27 Section 8.4 Responsibilities of Borrower.............................27 Section 8.5 Monthly Reports..........................................27 Section 8.6 Servicing Fee............................................27 Page 122 Exhibit 10(i)A(4) ARTICLE IX. AMORTIZATION EVENTS............................................27 Section 9.1 Amortization Events......................................27 Section 9.2 Remedies.................................................29 ARTICLE X. INDEMNIFICATION.................................................30 Section 10.1 Indemnities by the Loan Parties..........................30 Section 10.2 Increased Cost and Reduced Return........................32 Section 10.3 Other Costs and Expenses.................................33 Section 10.4 Allocations..............................................34 ARTICLE XI. THE AGENT......................................................34 Section 11.1 Authorization and Action.................................34 Section 11.2 Delegation of Duties.....................................35 Section 11.3 Exculpatory Provisions...................................35 Section 11.4 Reliance by Agent........................................35 Section 11.5 Non-Reliance on Agent and Other Lenders..................36 Section 11.6 Reimbursement and Indemnification........................36 Section 11.7 Agent in its Individual Capacity.........................36 Section 11.8 Successor Agent..........................................36 ARTICLE XII. ASSIGNMENTS; PARTICIPATIONS...................................37 Section 12.1 Assignments..............................................37 Section 12.2 Participations...........................................38 ARTICLE XIII. SECURITY INTEREST............................................38 Section 13.1 Grant of Security Interest...............................38 Section 13.2 Termination after Final Payout Date......................38 ARTICLE XIV. MISCELLANEOUS.................................................39 Section 14.1 Waivers and Amendments...................................39 Section 14.2 Notices..................................................40 Section 14.3 Ratable Payments.........................................40 Section 14.4 Protection of Agent's Security Interest..................40 Section 14.5 Confidentiality..........................................41 Section 14.6 Bankruptcy Petition......................................42 Section 14.7 Limitation of Liability..................................42 Section 14.8 CHOICE OF LAW............................................42 Section 14.9 CONSENT TO JURISDICTION..................................42 Section 14.10 WAIVER OF JURY TRIAL.....................................43 Section 14.11 Integration; Binding Effect; Survival of Terms...........43 Section 14.12 Counterparts; Severability; Section References...........43 Section 14.13 Wachovia Roles...........................................44 Section 14.14 Interest.................................................44 Section 14.15 Source of Funds -- ERISA.................................45 Page 123 Exhibit 10(i)A(4) EXHIBITS AND SCHEDULES Exhibit I Definitions Exhibit II Form of Borrowing Notice Exhibit III Places of Business of the Loan Parties; Locations of Records; Federal Employer Identification Number(s) Exhibit IV Names of Collection Banks; Collection Accounts Exhibit V Form of Compliance Certificate Exhibit VI Form of Collection Account Agreement Exhibit VII Form of Assignment Agreement Exhibit VIII Form of Monthly Report Exhibit IX Form of Performance Undertaking Schedule A Commitments Schedule B Closing Documents Page 124 Exhibit 10(i)A(4) CREDIT AND SECURITY AGREEMENT This Credit and Security Agreement, dated as of May 2, 2001 is entered into by and among: (a) NSI Funding, Inc., a Delaware corporation ("Borrower"), (b) National Service Industries, Inc., a Georgia corporation ("NSI Georgia"), as initial Servicer (the Servicer together with Borrower, the "Loan Parties" and each, a "Loan Party"), (c) The entities listed on Schedule A to this Agreement (together with any of their respective successors and assigns hereunder, the "Liquidity Banks"), (d) Blue Ridge Asset Funding Corporation, a Delaware corporation ("Blue Ridge"), and (e) Wachovia Bank, N.A., as agent for the Lenders hereunder or any successor agent hereunder (together with its successors and assigns hereunder, the "Agent"). Unless defined elsewhere herein, capitalized terms used in this Agreement shall have the meanings assigned to such terms in Exhibit I. PRELIMINARY STATEMENTS Borrower desires to borrow from the Lenders from time to time. Blue Ridge may, in its absolute and sole discretion, make Advances to Borrower from time to time. In the event that Blue Ridge declines to make any Advance, the Liquidity Banks shall, at the request of Borrower, make Advances from time to time. Wachovia Bank, N.A. has been requested and is willing to act as Agent on behalf of Blue Ridge and the Liquidity Banks in accordance with the terms hereof. ARTICLE I. THE ADVANCES Section 1.1 Credit Facility. (a) Upon the terms and subject to the conditions hereof, from time to time prior to the Facility Termination Date: (i) Borrower may, at its option, request Advances from the Lenders in an aggregate principal amount at any one time outstanding Page 125 Exhibit 10(i)A(4) not to exceed the lesser of the Aggregate Commitment and the Borrowing Base (such lesser amount, the "Borrowing Limit"); and (ii) Blue Ridge may, at its option, make the requested Advance, or if Blue Ridge shall decline to make any Advance, except as otherwise provided in Section 1.2, the Liquidity Banks severally agree to make Loans in an aggregate principal amount equal to the requested Advance. Each of the Advances, and all other Obligations, shall be secured by the Collateral as provided in Article XIII. It is the intent of Blue Ridge to fund all Advances by the issuance of Commercial Paper. (b) Borrower may, upon at least 5 Business Days' notice to the Agent, terminate in whole or reduce in part, ratably among the Liquidity Banks, the unused portion of the Aggregate Commitment; provided that each partial reduction of the Aggregate Commitment shall be in an amount equal to $5,000,000 (or a larger integral multiple of $1,000,000 if in excess thereof) and shall reduce the Commitments of the Liquidity Banks ratably in accordance with their respective Pro Rata Shares. Section 1.2 Increases. Borrower shall provide the Agent with at least two (2) Business Days' prior notice in a form set forth as Exhibit II hereto of each Advance (each, a "Borrowing Notice"). Each Borrowing Notice shall be subject to Section 6.2 hereof and, except as set forth below, shall be irrevocable and shall specify the requested increase in Aggregate Principal (which shall not be less than $1,000,000 or a larger integral multiple of $100,000) and the Borrowing Date (which, in the case of any Advance after the initial Advance hereunder, shall only be on a Settlement Date) and, in the case of an Advance to be funded by the Liquidity Banks, the requested Interest Rate and Interest Period. Following receipt of a Borrowing Notice, the Agent will determine whether Blue Ridge agrees to make the requested Advance. If Blue Ridge declines to make a proposed Advance, Borrower may cancel the Borrowing Notice or, in the absence of such a cancellation, the Advance will be made by the Liquidity Banks. On the date of each Advance, upon satisfaction of the applicable conditions precedent set forth in Article VI, Blue Ridge or the Liquidity Banks, as applicable, shall deposit to the Facility Account, in immediately available funds, no later than 2:00 p.m. (New York time), an amount equal to (i) in the case of Blue Ridge, the principal amount of the requested Advance or (ii) in the case of a Liquidity Bank, such Liquidity Bank's Pro Rata Share of the principal amount of the requested Advance. Section 1.3 Decreases. Except as provided in Section 1.4, Borrower shall provide the Agent with prior written notice in conformity with the Required Notice Period (a "Reduction Notice") of any proposed reduction of Aggregate Principal. Such Reduction Notice shall designate (i) the date (the "Proposed Reduction Date") upon which any such reduction of Aggregate Principal shall occur (which date shall give effect to the applicable Required Notice Period), and (ii) the amount of Aggregate Principal to be reduced which shall be applied ratably to the Loans of Blue Ridge and the Liquidity Banks in accordance with the amount of principal (if any) owing to Blue Ridge, on the one hand, and the amount of principal (if any) owing to the Liquidity Banks (ratably, based on Page 126 Exhibit 10(i)A(4) their respective Pro Rata Shares), on the other hand (the "Aggregate Reduction"). Only one (1) Reduction Notice shall be outstanding at any time. Section 1.4 Deemed Collections; Borrowing Limit. (a) If on any day: (i) the Outstanding Balance of any Receivable is reduced as a result of any defective or rejected goods or services, any cash discount or any other adjustment by any Originator or any Affiliate thereof, or as a result of any tariff or other governmental or regulatory action, or (ii) the Outstanding Balance of any Receivable is reduced or canceled as a result of a setoff in respect of any claim by the Obligor thereof (whether such claim arises out of the same or a related or an unrelated transaction), or (iii) the Outstanding Balance of any Receivable is reduced on account of the obligation of any Originator or any Affiliate thereof to pay to the related Obligor any rebate or refund, or (iv) the Outstanding Balance of any Receivable is less than the amount included in calculating the Net Pool Balance for purposes of any Monthly Report (for any reason other than such Receivable becoming a Defaulted Receivable), or (v) any of the representations or warranties of Borrower set forth in Section 5.1(i), (j), (q), (r), (s) or (t) were not true when made with respect to any Receivable, then, on such day, Borrower shall be deemed to have received a Collection of such Receivable (A) in the case of clauses (i)-(iv) above, in the amount of such reduction or cancellation or the difference between the actual Outstanding Balance and the amount included in calculating such Net Pool Balance, as applicable; and (B) in the case of clause (v) above, in the amount of the Outstanding Balance of such Receivable and, effective as of the date on which the next succeeding Monthly Report is required to be delivered, the Borrowing Base shall be reduced by the amount of such Deemed Collection. (b) Borrower shall ensure that the Aggregate Principal at no time exceeds the Borrowing Limit. If at any time the Aggregate Principal exceeds the Borrowing Limit, Borrower shall pay to the Agent not later than the next succeeding Settlement Date an amount to be applied to reduce the Aggregate Principal (as allocated by the Agent), such that after giving effect to such payment the Aggregate Principal is less than or equal to the Borrowing Limit. Page 127 Exhibit 10(i)A(4) Section 1.5 Payment Requirements. All amounts to be paid or deposited by any Loan Party pursuant to any provision of this Agreement shall be paid or deposited in accordance with the terms hereof no later than 12:00 noon (New York time) on the day when due in immediately available funds, and if not received before 12:00 noon (New York time) shall be deemed to be received on the next succeeding Business Day. If such amounts are payable to a Lender they shall be paid to the Agent's Account, for the account of such Lender, until otherwise notified by the Agent. Upon notice to Borrower, the Agent may debit the Facility Account for all amounts due and payable hereunder. All computations of CP Costs, Interest, per annum fees calculated as part of any CP Costs, per annum fees hereunder and per annum fees under the Fee Letter shall be made on the basis of a year of 360 days for the actual number of days elapsed. If any amount hereunder shall be payable on a day which is not a Business Day, such amount shall be payable on the next succeeding Business Day. Section 1.6 Ratable Loans; Funding Mechanics; Liquidity Fundings. (a) Each Advance hereunder shall consist of one or more Loans made by Blue Ridge and/or the Liquidity Banks. (b) Each Lender funding any Loan shall wire transfer the principal amount of its Loan to the Agent in immediately available funds not later than 12:00 noon (New York City time) on the applicable Borrowing Date and, subject to its receipt of such Loan proceeds, the Agent shall wire transfer such funds to the account specified by Borrower in its Borrowing Request not later than 2:00 p.m. (New York City time) on such Borrowing Date. (c) While it is the intent of Blue Ridge to fund each requested Advance through the issuance of its Commercial Paper, the parties acknowledge that if Blue Ridge is unable, or determines in good faith that it is undesirable, to issue Commercial Paper to fund all or any portion of its Loans, or is unable to repay such Commercial Paper upon the maturity thereof, Blue Ridge may put all or any portion of its Loans to the Liquidity Banks at any time pursuant to the Liquidity Agreement to finance or refinance the necessary portion of its Loans through a Liquidity Funding to the extent available. The Liquidity Fundings may be Alternate Base Rate Loans or LIBO Rate Loans, or a combination thereof, selected by Borrower in accordance with Article IV. Regardless of whether a Liquidity Funding constitutes the direct funding of a Loan, an assignment of a Loan made by Blue Ridge or the sale of one or more participations in a Loan made by Blue Ridge, each Liquidity Bank participating in a Liquidity Funding shall have the rights of a "Lender" hereunder with the same force and effect as if it had directly made a Loan to Borrower in the amount of its Liquidity Funding. (d) Nothing herein shall be deemed to commit Blue Ridge to make Loans. Page 128 Exhibit 10(i)A(4) ARTICLE II. PAYMENTS AND COLLECTIONS Section 2.1 Payments. Borrower hereby promises to pay: (a) the Aggregate Principal on and after the Facility Termination Date as and when Collections are received; (b) the fees set forth in the Fee Letter on the dates specified therein; (c) all accrued and unpaid Interest on the Alternate Base Rate Loans on each Settlement Date applicable thereto; (d) all accrued and unpaid Interest on the LIBO Rate Loans on the last day of each Interest Period applicable thereto; (e) all accrued and unpaid CP Costs on the CP Rate Loans on each Settlement Date; and (f) all Broken Funding Costs and Indemnified Amounts upon demand. Section 2.2 Collections Prior to Amortization; Repayment of Certain Demand Advances. Without limiting recourse to Borrower for the Obligations under Section 2.1: (a) On each Settlement Date prior to the Amortization Date, the Servicer shall deposit to the Agent's Account, for distribution to the Lenders, a portion of the Collections received by it during the preceding Settlement Period (after deduction of its Servicing Fee) equal to the sum of the following amounts for application to the Obligations in the order specified: first, ratably to the payment of all accrued and unpaid CP Costs, Interest and Broken Funding Costs (if any) that are then due and owing, second, ratably to the payment of all accrued and unpaid fees under the Fee Letter (if any) that are then due and owing, third, if required under Section 1.3 or 1.4, to the ratable reduction of Aggregate Principal, fourth, for the ratable payment of all other unpaid Obligations, if any, that are then due and owing, and fifth, the balance, if any, to Borrower or otherwise in accordance with Borrower's instructions. Collections applied to the payment of Obligations shall be distributed in accordance with the aforementioned provisions, and, giving effect to each of the Page 129 Exhibit 10(i)A(4) priorities set forth above in this Section 2.2(a), shall be shared ratably (within each priority) among the Agent and the Lenders in accordance with the amount of such Obligations owing to each of them in respect of each such priority. (b) If the Collections are insufficient to pay the Servicing Fee and the Obligations specified above on any Settlement Date, Borrower shall make demand upon NSI Georgia for repayment of any outstanding Demand Advances in an aggregate amount equal to the lesser of (i) the amount of such shortfall in Collections, and (ii) the aggregate outstanding principal balance of the Demand Advances, together with all accrued and unpaid interest thereon, and NSI Georgia hereby agrees to pay such amount to the Agent's Account on such Settlement Date. Section 2.3 Repayment of Demand Advances on the Amortization Date; Collections Following Amortization. (a) On the Amortization Date, NSI Georgia hereby agrees to repay the aggregate outstanding principal balance of all Demand Advances, together with all accrued and unpaid interest thereon, to the Agent's Account, without demand or notice of any kind, all of which are hereby expressly waived by NSI Georgia. (b) Without limiting recourse to Borrower for the Obligations under Section 2.1, on the Amortization Date and on each day thereafter, the Servicer shall set aside and hold in trust, for the Secured Parties, all Collections received on such day. On and after the Amortization Date, the Servicer shall, on each Settlement Date and on each other Business Day specified by the Agent (after deduction of any accrued and unpaid Servicing Fee as of such date): (i) remit to the Agent's Account the amounts set aside pursuant to the preceding two sentences, and (ii) apply such amounts to reduce the Obligations as follows: first, to the reimbursement of the Agent's actual and reasonable costs of collection and enforcement of this Agreement, second, ratably to the payment of all accrued and unpaid CP Costs, Interest and Broken Funding Costs, third, ratably to the payment of all accrued and unpaid fees under the Fee Letter, fourth, to the ratable reduction of Aggregate Principal, fifth, for the ratable payment of all other unpaid Obligations, and sixth, after the Obligations have been indefeasibly reduced to zero, to Borrower. Collections applied to the payment of Obligations shall be distributed in accordance with the aforementioned provisions, and, giving effect to each of the priorities set forth above in this Section 2.3(b), shall be shared ratably (within each priority) among the Agent and the Lenders in accordance with the amount of such Obligations owing to each of them in respect of each such priority. Page 130 Exhibit 10(i)A(4) Section 2.4 Payment Recission. No payment of any of the Obligations shall be considered paid or applied hereunder to the extent that, at any time, all or any portion of such payment or application is rescinded by application of law or judicial authority, or must otherwise be returned or refunded for any reason. Borrower shall remain obligated for the amount of any payment or application so rescinded, returned or refunded, and shall promptly pay to the Agent (for application to the Person or Persons who suffered such recission, return or refund) the full amount thereof, plus Interest on such amount at the Default Rate from the date of any such recission, return or refunding. ARTICLE III. BLUE RIDGE FUNDING Section 3.1 CP Costs. Borrower shall pay CP Costs with respect to the principal balance of Blue Ridge's Loans from time to time outstanding. Each Loan of Blue Ridge that is funded substantially with Pooled Commercial Paper will accrue CP Costs each day on a pro rata basis, based upon the percentage share that the principal in respect of such Loan represents in relation to all assets held by Blue Ridge and funded substantially with related Pooled Commercial Paper. Section 3.2 Calculation of CP Costs. Not later than the 3rd Business Day immediately preceding each Monthly Reporting Date, Blue Ridge shall calculate the aggregate amount of CP Costs applicable to its CP Rate Loans for the Calculation Period then most recently ended and shall notify Borrower of such aggregate amount. Section 3.3 CP Costs Payments. On each Settlement Date, Borrower shall pay to the Agent (for the benefit of Blue Ridge) an aggregate amount equal to all accrued and unpaid CP Costs in respect of the principal associated with all CP Rate Loans for the Calculation Period then most recently ended in accordance with Article II. Section 3.4 Default Rate. From and after the occurrence and during the continuation of an Amortization Event, all Loans of Blue Ridge shall accrue Interest at the Default Rate and shall cease to be CP Rate Loans. ARTICLE IV. LIQUIDITY BANK FUNDING Section 4.1 Liquidity Bank Funding. Prior to the occurrence of an Amortization Event, the outstanding principal balance of each Liquidity Funding shall accrue interest for each day during its Interest Period at either the LIBO Rate or the Alternate Base Rate in accordance with the terms and conditions hereof. Until Borrower gives notice to the Agent of another Interest Rate in accordance with Section 4.4, the initial Interest Rate for any Loan transferred to the Liquidity Banks by Blue Ridge pursuant to the Liquidity Agreement shall be the Alternate Base Rate (unless the Default Rate is then applicable). If the Liquidity Banks acquire by assignment from Blue Ridge any Loan pursuant to the Page 131 Exhibit 10(i)A(4) Liquidity Agreement, each Loan so assigned shall each be deemed to have an Interest Period commencing on the date of any such assignment. Section 4.2 Interest Payments. On the Settlement Date for each Liquidity Funding, Borrower shall pay to the Agent (for the benefit of the Liquidity Banks) an aggregate amount equal to the accrued and unpaid Interest for the entire Interest Period of each such Liquidity Funding in accordance with Article II. Section 4.3 Selection and Continuation of Interest Periods. (a) With consultation from (and approval by) the Agent (which approval shall not be unreasonably withheld or delayed), Borrower shall from time to time request Interest Periods for the Liquidity Fundings, provided that if at any time any Liquidity Funding is outstanding, Borrower shall always request Interest Periods such that at least one Interest Period shall end on the date specified in clause (A) of the definition of Settlement Date. (b) Borrower or the Agent, upon notice to and consent by the other received at least three (3) Business Days prior to the end of an Interest Period (the "Terminating Tranche") for any Liquidity Funding, may, effective on the last day of the Terminating Tranche: (i) divide any such Liquidity Funding into multiple Liquidity Fundings, (ii) combine any such Liquidity Funding with one or more other Liquidity Fundings that have a Terminating Tranche ending on the same day as such Terminating Tranche or (iii) combine any such Liquidity Funding with a new Liquidity Funding to be made by the Liquidity Banks on the day such Terminating Tranche ends. Section 4.4 Liquidity Bank Interest Rates. Borrower may select the LIBO Rate or the Alternate Base Rate for each Liquidity Funding. Borrower shall by 12:00 noon (New York time): (i) at least three (3) Business Days prior to the expiration of any Terminating Tranche with respect to which the LIBO Rate is being requested as a new Interest Rate and (ii) at least one (1) Business Day prior to the expiration of any Terminating Tranche with respect to which the Alternate Base Rate is being requested as a new Interest Rate, give the Agent irrevocable notice of the new Interest Rate for the Liquidity Funding associated with such Terminating Tranche. Until Borrower gives notice to the Agent of another Interest Rate, the initial Interest Rate for any Loan transferred to the Liquidity Banks pursuant to the Liquidity Agreement shall be the Alternate Base Rate (unless the Default Rate is then applicable). Section 4.5 Suspension of the LIBO Rate (a) If any Liquidity Bank notifies the Agent that it has reasonably determined that funding its Pro Rata Share of the Liquidity Fundings at a LIBO Rate would violate any applicable law, rule, regulation, or directive of any governmental or regulatory authority, whether or not having the force of law, or that (i) deposits of a type and maturity appropriate to match fund its Liquidity Funding at such LIBO Rate are not available or (ii) such LIBO Rate does not accurately reflect the cost of acquiring or maintaining a Liquidity Funding at such LIBO Rate, then the Agent shall suspend the availability of such LIBO Rate and require Borrower to select the Alternate Base Rate for any Liquidity Funding accruing Interest at such LIBO Rate. Page 132 Exhibit 10(i)A(4) (b) If less than all of the Liquidity Banks give a notice to the Agent pursuant to Section 4.5(a), each Liquidity Bank which gave such a notice shall be obliged, at the request of Borrower, Blue Ridge or the Agent, to assign all of its rights and obligations hereunder to (i) another Liquidity Bank or (ii) another funding entity nominated by Borrower or the Agent that is an Eligible Assignee willing to participate in this Agreement through the Liquidity Termination Date in the place of such notifying Liquidity Bank; provided that (i) the notifying Liquidity Bank receives payment in full, pursuant to an Assignment Agreement, of all Obligations owing to it (whether due or accrued), and (ii) the replacement Liquidity Bank otherwise satisfies the requirements of Section 12.1(b). Section 4.6 Default Rate. From and after the occurrence and during the continuation of an Amortization Event, all Liquidity Fundings shall accrue Interest at the Default Rate. ARTICLE V. REPRESENTATIONS AND WARRANTIES Section 5.1 Representations and Warranties of the Loan Parties. Each Loan Party hereby represents and warrants to the Agent and the Lenders, as to itself, as of the date hereof and except for such representations or warranties that are limited to a certain date or period, as of the date of each Advance and as of each Settlement Date that: (a) Existence and Power. Such Loan Party is a corporation duly organized, validly existing and in good standing under the laws of the state indicated in the preamble to this Agreement, is duly qualified to transact business in every jurisdiction where, by the nature of its business, such qualification is necessary, and where the failure to qualify would have or could reasonably be expected to cause a Material Adverse Effect, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. (b) Power and Authority; Due Authorization, Execution and Delivery. The execution, delivery and performance by such Loan Party of the Transaction Documents to which it is a party (i) are within such Loan Party's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) require no action by or in respect of or filing with, any governmental body, agency or official, (iv) do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of such Loan Party or of any agreement, judgment, injunction, order, decree or other instrument binding upon such Loan Party or any of its Subsidiaries, and (v) do not result in the creation or imposition of any Adverse Claim on any asset of such Loan Party (except as created hereunder). This Agreement and each other Transaction Document to which such Loan Party is a party has been duly executed and delivered by such Loan Party. (c) No Bulk Sale. No transaction contemplated hereby requires compliance with any bulk sales act or similar law. Page 133 Exhibit 10(i)A(4) (d) Governmental Authorization. Other than the filing of the financing statements required hereunder, no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution and delivery by such Loan Party of this Agreement and each other Transaction Document to which it is a party and the performance of its obligations hereunder and thereunder. (e) Actions, Suits. There is no action, suit or proceeding pending, or to the knowledge of such Loan Party overtly threatened in writing, against or affecting such Loan Party or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official which has had or is likely to have a Material Adverse Effect. (f) Binding Effect. This Agreement constitutes and, when executed and delivered in accordance with this Agreement, each other Transaction Document to which such Loan Party is a party, will constitute valid and binding obligations of such Loan Party enforceable in accordance with their respective terms, provided that the enforceability hereof and thereof is subject in each case to general principles of equity and to bankruptcy, insolvency and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. (g) Accuracy of Information. All information heretofore furnished by such Loan Party to the Agent or any of the Lenders for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by such Loan Party to the Agent or any of the Lenders will be, true and accurate in every material respect or based on reasonable estimates on the date as of which such information is stated or certified. Such Loan Party has disclosed to the Agent in writing any and all facts known to its Executive Officers which would have or reasonably would be expected to cause a Material Adverse Effect. (h) Use of Proceeds. Borrower is not engaged principally, or as one of its important activities, in the business of purchasing or carrying any Margin Stock, and no part of the proceeds of any Advance will be used to purchase or carry any Margin Stock (except to the extent expressly permitted under the proviso to Section 7.1(i)(L)) or to extend credit to others for the purpose of purchasing or carrying any Margin Stock, or be used for any purpose which violates, or which is inconsistent with, the provisions of Regulation T, U or X. (i) Good Title. Borrower (i) is the legal and beneficial owner of the Receivables and (ii) is the legal and beneficial owner of the Related Security with respect thereto or possesses a valid and perfected security interest therein, in each case, free and clear of any Adverse Claim, except for Permitted Encumbrances. There have been duly filed all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect Borrower's ownership interest in each Receivable, its Collections and the Related Security and the Agent's security interest therein. (j) Perfection. This Agreement, together with the filing of the financing statements contemplated hereby, is effective to create in favor of the Agent, for the benefit of the Lenders, a valid and perfected security interest in all of Borrower's right, title and interest in and to Page 134 Exhibit 10(i)A(4) each Receivable existing and hereafter arising, together with all Collections and Related Security with respect thereto, in each case, free and clear of any Adverse Claim, except for Permitted Encumbrances. (k) Places of Business and Locations of Records. The principal places of business and chief executive office of each Loan Party and the offices where it keeps all of its Records are located at the address(es) listed on Exhibit III or such other locations of which the Agent has been notified in accordance with Section 7.2(a) in jurisdictions where all action required by Section 7.2(a) has been taken and completed. Borrower's Federal Employer Identification Number is correctly set forth on Exhibit III. (l) Collections. The conditions and requirements set forth in Section 7.1(j) have at all times been satisfied and duly performed. The names and addresses of all Collection Banks, together with the account numbers of the Collection Accounts at each Collection Bank and the post office box number of each Lock-Box, are listed on Exhibit IV. Borrower has not granted any Person, other than the Agent under Section 8.3 hereof and the Collection Account Agreements dominion and control of any Lock-Box or Collection Account, or the right to take dominion and control of any such Lock-Box or Collection Account at a future time or upon the occurrence of a future event. (m) Material Adverse Effect. During the period from August 31, 2000 through the Initial Cut-Off Date, in the good faith judgment of the Executive Officers, no event has occurred that has had or could reasonably be expected to have a Material Adverse Effect. (n) Names. The name in which Borrower has executed this Agreement is identical to the name of Borrower as indicated on the public record of its state of organization which shows Borrower to have been organized. In the past five (5) years, Borrower has not used any corporate names, trade names or assumed names other than the name in which it has executed this Agreement and as listed on Exhibit III. (o) Not a Holding Company or an Investment Company. Borrower is not a "holding company" or a "subsidiary holding company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, or any successor statute. Borrower is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or any successor statute. (p) Compliance with Law. Borrower has complied in all respects with all applicable laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. Each Receivable, together with the Contract related thereto, does not contravene any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy), and no part of such Contract is in violation of any such law, rule or regulation, except where such contravention or violation could not reasonably be expected to have a Material Adverse Effect. Page 135 Exhibit 10(i)A(4) (q) Compliance with Credit and Collection Policy. Borrower has complied in all material respects with the Credit and Collection Policy with regard to each Receivable and the related Contract, and has not made any material change to such Credit and Collection Policy, except such material change as to which the Agent has been notified in accordance with Section _7.1(a). (r) Enforceability of Contracts. Each Contract with respect to each Receivable is effective to create, and has created, a legal, valid and binding obligation of the related Obligor to pay the Outstanding Balance of the Receivable created thereunder and any accrued interest thereon, enforceable against the Obligor in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). (s) Accounting. The manner in which Borrower accounts for the transactions contemplated by the Receivables Sale Agreement does not jeopardize the characterization of the transactions contemplated therein as being true sales. (t) Eligible Receivables. Each Receivable reflected in any Monthly Report as an Eligible Receivable was an Eligible Receivable on the date of such Monthly Report. (u) Borrowing Limit. Immediately after giving effect to each Advance and each settlement on any Settlement Date hereunder, the Aggregate Principal is less than or equal to the Borrowing Limit. Section 5.2 Liquidity Bank Representations and Warranties. Each Liquidity Bank hereby represents and warrants to the Agent, Blue Ridge and the Loan Parties that: (a) Existence and Power. Such Liquidity Bank is a banking association duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and has all organizational power to perform its obligations hereunder and under the Liquidity Agreement. (b) No Conflict. The execution and delivery by such Liquidity Bank of this Agreement and the Liquidity Agreement and the performance of its obligations hereunder and thereunder are within its corporate powers, have been duly authorized by all necessary corporate action, do not contravene or violate (i) its certificate or articles of incorporation or association or by-laws, (ii) any law, rule or regulation applicable to it, (iii) any restrictions under any agreement, contract or instrument to which it is a party or any of its property is bound, or (iv) any order, writ, judgment, award, injunction or decree binding on or affecting it or its property, and do not result in the creation or imposition of any Adverse Claim on its assets. This Agreement and the Liquidity Agreement have been duly authorized, executed and delivered by such Liquidity Bank. (c) Governmental Authorization. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution and delivery by such Page 136 Exhibit 10(i)A(4) Liquidity Bank of this Agreement or the Liquidity Agreement and the performance of its obligations hereunder or thereunder. (d) Binding Effect. Each of this Agreement and the Liquidity Agreement constitutes the legal, valid and binding obligation of such Liquidity Bank enforceable against such Liquidity Bank in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors' rights generally and by general principles of equity (regardless of whether such enforcement is sought in a proceeding in equity or at law). ARTICLE VI. CONDITIONS OF ADVANCES Section 6.1 Conditions Precedent to Initial Advance. The initial Advance under this Agreement is subject to the conditions precedent that (a) the Agent shall have received on or before the date of such Advance those documents listed on Schedule A to the Receivables Sale Agreement and those documents listed on Schedule B to this Agreement, (b) the Rating Agency Condition shall have been satisfied, and (c) the Agent shall have received all fees and expenses required to be paid on such date pursuant to the terms of this Agreement and the Fee Letter. Section 6.2 Conditions Precedent to All Advances. Each Advance and each rollover or continuation of any Advance shall be subject to the further conditions precedent that (a) the Servicer shall have delivered to the Agent on or prior to the date thereof, in form and substance satisfactory to the Agent, all Monthly Reports as and when due under Section 8.5; (b) the Facility Termination Date shall not have occurred; (c) the Agent shall have received such other approvals, opinions or documents as it may reasonably request; and (d) on the date thereof, the following statements shall be true (and acceptance of the proceeds of such Advance shall be deemed a representation and warranty by Borrower that such statements are then true): (i) the representations and warranties set forth in Section 5.1 are true and correct in all material respects on and as of the date of such Advance (or such Settlement Date, as the case may be) as though made on and as of such date; (ii) no event has occurred and is continuing, or would result from such Advance (or the continuation thereof), that will constitute an Amortization Event, and no event has occurred and is continuing, or would result from such Advance (or the continuation thereof), that would constitute an Unmatured Amortization Event; and (iii) after giving effect to such Advance (or the continuation thereof), the Aggregate Principal will not exceed the Borrowing Limit. Page 137 Exhibit 10(i)A(4) ARTICLE VII. COVENANTS Section 7.1 Affirmative Covenants of the Loan Parties. Until the Final Payout Date, each Loan Party hereby covenants, as to itself, as set forth below: (a) Financial Reporting. Such Loan Party will maintain, for itself and each of its Subsidiaries, a system of accounting established and administered in accordance with GAAP, and furnish or cause to be furnished to the Agent: (i) Annual Reporting. As soon as available and in any event within 90 days (or such longer period as may be the subject of an extension granted by the Securities and Exchange Commission) after the end of each Fiscal Year, (A) a consolidated balance sheet of the Performance Guarantor and its Consolidated Subsidiaries as of the end of such Fiscal Year and the related consolidated statements of income, stockholders' equity and cash flows for such Fiscal Year, setting forth in each case in comparative form the figures for the previous fiscal year, all certified by Arthur Andersen, LLP or other independent public accountants of nationally recognized standing, with such certification to be free of exceptions and qualifications not acceptable to the Agent, and (B) an unaudited balance sheet and income statement for Borrower for such Fiscal Year, certified in a manner acceptable to the Agent by Borrower's chief financial officer. (ii) Quarterly Reporting. As soon as available and in any event within 45 days (or such longer period as may be the subject of an extension granted by the Securities and Exchange Commission) after the end of each of the first 3 Fiscal Quarters of each Fiscal Year, (A) a consolidated balance sheet of the Performance Guarantor and its Consolidated Subsidiaries as of the end of such Fiscal Quarter and the related statement of income and statement of cash flows for the portion of the Fiscal Year ended at the end of such Fiscal Quarter, setting forth in each case in comparative form the figures for the corresponding Fiscal Quarter and the corresponding portion of the previous Fiscal Year, all certified (subject to normal year-end adjustments) as to fairness of presentation, GAAP and consistency by the chief financial officer or the chief accounting officer of the Performance Guarantor, and (B) an unaudited balance sheet and income statement for Borrower for such Fiscal Quarter, certified in a manner acceptable to the Agent by Borrower's chief financial officer. (iii) Compliance Certificate. Together with the financial statements required hereunder, a compliance certificate in substantially the form of Exhibit V signed by an Authorized Officer of the Performance Guarantor and dated the date of such annual financial statement or such quarterly financial statement, as the case may be. (iv) Shareholders Statements and Reports. Promptly upon the mailing thereof to the shareholders of the Performance Guarantor generally, copies of all financial statements, reports and proxy statements so mailed. Page 138 Exhibit 10(i)A(4) (v) S.E.C. Filings. Promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and annual, quarterly or monthly reports which the Performance Guarantor shall have filed with the Securities and Exchange Commission. (vi) Copies of Notices. Promptly upon its receipt of any notice, request for consent, financial statements, certification, report or other communication under or in connection with any Transaction Document from any Person other than the Agent or Blue Ridge, copies of the same. (vii) Change in Credit and Collection Policy. At least thirty (30) days prior to the effectiveness of any material change in or material amendment to the Credit and Collection Policy, a copy of the Credit and Collection Policy then in effect and a notice (A) indicating such change or amendment, and (B) if such proposed change or amendment would be reasonably likely to adversely affect the collectibility of the Receivables or decrease the credit quality of any newly created Receivables, requesting the Agent's consent thereto. (viii) Other Information. Promptly, from time to time, such other information, documents, records or reports relating to the Receivables or the condition or operations, financial or otherwise, of such Loan Party as the Agent may from time to time reasonably request in order to protect the interests of the Agent, for the benefit of Blue Ridge, under or as contemplated by this Agreement. (b) Notices. Such Loan Party will notify the Agent in writing of any of the following promptly upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken with respect thereto: (i) Amortization Events or Unmatured Amortization Events. Within one (1) Business Day after any Responsible Officer learns thereof, the occurrence of each Amortization Event and each Unmatured Amortization Event, by a statement of an Authorized Officer of such Loan Party. (ii) Termination Events or Unmatured Termination Events. Within one (1) Business Day after any Responsible Officer learns thereof, the occurrence of each Termination Event and each Unmatured Termination Event, by a statement of an Authorized Officer of NSI Georgia. (iii) Defaults Under Other Agreements. Within one (1) Business Day after any Responsible Officer learns thereof, the occurrence of a default or an event of default under any other financing arrangement pursuant to which any Loan Party is a debtor or an obligor which relates to debt in excess of $25,000,000. (iv) ERISA Events. If and when any member of the Controlled Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which could reasonably be expected to constitute grounds for a termination of such Plan Page 139 Exhibit 10(i)A(4) under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA, a copy of such notice; or (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate or appoint a trustee to administer any Plan, a copy of such notice; provided, however, that each of the foregoing notices shall not be required to be given unless the reportable event, withdrawal liability, plan termination or trustee appointment involved could reasonably be expected to give rise to a liability of more than $1,000,000 on the part of the Performance Guarantor or any of its Subsidiaries. (v) Termination Date. Within one (1) Business Day after any Responsible Officer learns thereof, the occurrence of the "Termination Date" under and as defined in the Receivables Sale Agreement or the First-Step Sale Agreement. (vi) Notices under Receivables Sale Agreement or the First-Step Sale Agreement. Copies of all notices delivered under the Receivables Sale Agreement or the First-Step Sale Agreement. (c) Compliance with Laws and Preservation of Corporate Existence. (i) Such Loan Party will comply in all respects with all applicable laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. Such Loan Party will preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where its business is conducted, except (A) where the failure to so preserve and maintain or qualify could not reasonably be expected to have a Material Adverse Effect, and (B) to the extent permitted under Section 7.1(c)(ii) below. (ii) Notwithstanding anything herein or in any of the other Transaction Documents to the contrary: (A) NSI Enterprises, NSI Georgia or the Parent may merge or consolidate with any other Person provided that (1) the surviving corporation is the Parent or a wholly-owned Subsidiary of the Parent, (2) the survivor executes and delivers such Uniform Commercial Code financing statements and other documents as the Administrative Agent may reasonably request in order to maintain the perfection of the interests conveyed under the Transaction Documents and (3) no Amortization Event or Unmatured Amortization Event has occurred and is continued after giving effect to such transaction, (B) NSI Enterprises or NSI Georgia may merge or consolidate with the Parent provided that (1) the Parent is the corporation surviving such merger, (2) the Parent executes and delivers such Uniform Commercial Code financing statements and other documents as the Page 140 Exhibit 10(i)A(4) Administrative Agent may reasonably request in order to maintain the perfection of the interests conveyed under the Transaction Documents and (3) no Amortization Event or Unmatured Amortization Event has occurred and is continued after giving effect to such transaction, and (C) Any or all of NSI Enterprises, NSI Georgia and the Parent may enter into a one or more other transactions (collectively, the "Reorganization") in which such Person or Persons (each, an "Existing NSI Party") merge or consolidate with or transfer all or a substantial portion of their assets to another Person or Persons (each, a "Successor NSI Party"), without any Loan Party's payment of any additional structuring, origination or similar fees (other than fees and costs referenced in Section 10.3), if and only if each and every of the following conditions are fulfilled with respect to such Reorganization: (1) Each Successor NSI Party shall be a corporation, partnership, limited liability company or trust incorporated or organized under the laws of the United States or any state thereof or the District of Columbia; (2) Each Successor NSI Party shall expressly assume all of the obligations of the applicable Existing NSI Party under the Transaction Documents pursuant to a written agreement duly executed by the Successor NSI Party in form and substance reasonably satisfactory to the Administrative Agent; (3) Each Successor NSI Party shall execute or deliver such officer certificates, legal opinions, Uniform Commercial Code financing statements and other documents as the Administrative Agent may reasonably request in order to further evidence or give notice of the Reorganization; (4) After giving effect to the consummation of the Reorganization, no Amortization Event or Unmatured Amortization Event shall be in existence; (5) If, as a result of the Reorganization, NSI Enterprises or NSI Georgia is no longer a Subsidiary of the Parent, then such Loan Party or its new parent company shall satisfy the following additional conditions: (w) such Person shall have the same shareholders immediately after giving effect to the consummation of the Reorganization as the Parent had immediately prior to the consummation of the Reorganization; (x) one or more of the president, the chief executive officer, and the chief financial officer of such Person shall be individuals who were directors or officers of the Parent or one or more of its Subsidiaries or business units prior to the effectiveness of the Reorganization, (y) a majority of the members of the board of directors of such Person shall be individuals who were members of the board of directors of the Parent or one or more of its Subsidiaries prior to the effectiveness of the Reorganization; and (z) such Person's short term unsecured debt ratings from Moody's and S&P shall be Page 141 Exhibit 10(i)A(4) not less than A-3 and P-3, respectively, after giving effect to the consummation of the Reorganization; and (6) The Rating Agency Condition shall have been satisfied with respect to the consummation of the Reorganization. (d) Audits. Such Loan Party will furnish to the Agent from time to time such information with respect to it and the Receivables as the Agent may reasonably request. Such Loan Party will, at the sole cost of such Loan Party from time to time upon prior written request of the Agent given (unless an Amortization Event shall have occurred and be continuing) not less than three (3) Business Days prior to a requested visit, permit the Agent, or its agents or representatives (and shall cause each Originator to permit the Agent or its agents or representatives) during normal business hours: (i) to examine and make copies of and abstracts from all Records in the possession or under the control of such Person relating to the Collateral, including, without limitation, the related Contracts, and (ii) to visit the offices and properties of such Person for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to such Person's financial condition or the Collateral or any Person's performance under any of the Transaction Documents or any Person's performance under the Contracts and, in each case, with any of the officers or employees of Borrower or the Servicer having knowledge of such matters (each of the foregoing examinations and visits, a "Review"); provided, however, that, so long as no Amortization Event has occurred and is continuing, (A) the Loan Parties shall only be responsible for the costs and expenses of one (1) Review in any one calendar year, and (B) the Agent will not request more than four (4) Reviews in any one calendar year. To the extent that Agent, in the course of any Review, obtains possession of any Proprietary Information pertaining to any Loan Party or any of its Affiliates, Agent shall handle such information in accordance with the requirements of Section 14.5 hereof. (e) Keeping and Marking of Records and Books. (i) The Servicer will (and will cause each Originator to) maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the immediate identification of each new Receivable and all Collections of and adjustments to each existing Receivable). The Servicer will (and will cause each Originator to) give the Agent notice of any material change in the administrative and operating procedures referred to in the previous sentence. (ii) Such Loan Party will (and will cause each Originator to): (A) on or prior to the date hereof, mark its master data processing records and other books and records relating to the Receivables with a legend, acceptable to the Agent, describing the Agent's security interest in the Collateral and (B) upon the request of the Agent following the occurrence and during the continuance of an Amortization Event: (x) mark each Contract with a legend describing the Agent's Page 142 Exhibit 10(i)A(4) security interest and (y) deliver to the Agent all Contracts (including, without limitation, all multiple originals of any such Contract constituting an instrument, a certificated security or chattel paper) relating to the Receivables. (f) Compliance with Contracts and Credit and Collection Policy. Such Loan Party will (and will cause each Originator to) timely and fully (i) perform and comply in all material respects with all provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables, and (ii) comply in all material respects with the Credit and Collection Policy in regard to each Receivable and the related Contract. (g) Performance and Enforcement of Receivables Sale Agreement and the First-Step Sale Agreement. Borrower will, and will require each Originator to, perform each of their respective obligations and undertakings under and pursuant to the Receivables Sale Agreement and the First-Step Sale Agreement, will purchase Receivables thereunder in strict compliance with the terms of the Receivables Sale Agreement and will vigorously enforce the rights and remedies accorded to Borrower under the Receivables Sale Agreement. Borrower will take all actions to perfect and enforce its rights and interests (and the rights and interests of the Agent, as Borrower's assignee) under the Receivables Sale Agreement and the First-Step Sale Agreement as the Agent may from time to time reasonably request, including, without limitation, making claims to which it may be entitled under any indemnity, reimbursement or similar provision contained in the Receivables Sale Agreement or the First-Step Sale Agreement. (h) Ownership. Borrower will (or will cause each Originator to) take all necessary action to (i) vest legal and equitable title to the Collateral purchased under the Receivables Sale Agreement irrevocably in Borrower, free and clear of any Adverse Claims (other than Permitted Encumbrances) including, without limitation, the filing of all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect Borrower's interest in such Collateral and such other action to perfect, protect or more fully evidence the interest of Borrower therein as the Agent may reasonably request), and (ii) establish and maintain, in favor of the Agent, for the benefit of the Secured Parties, a valid and perfected first priority security interest in all Collateral, free and clear of any Adverse Claims (other than Permitted Encumbrances), including, without limitation, the filing of all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect the Agent's (for the benefit of the Secured Parties) security interest in the Collateral and such other action to perfect, protect or more fully evidence the interest of the Agent for the benefit of the Secured Parties as the Agent may reasonably request. (i) Reliance. Borrower acknowledges that the Agent and Blue Ridge are entering into the transactions contemplated by this Agreement in reliance upon Borrower's identity as a legal entity that is separate from each Originator. Therefore, from and after the date of execution and delivery of this Agreement, Borrower shall take all reasonable steps, including, without limitation, all steps that the Agent or Blue Ridge may from time to time reasonably request, to maintain Borrower's identity as a separate Page 143 Exhibit 10(i)A(4) legal entity and to make it manifest to third parties that Borrower is an entity with assets and liabilities distinct from those of each Originator and any Affiliates thereof (other than Borrower) and not just a division of any Originator or any such Affiliate. Without limiting the generality of the foregoing and in addition to the other covenants set forth herein, Borrower will: (A) conduct its own business in its own name; (B) compensate all employees, consultants and agents directly, from Borrower's own funds, for services provided to Borrower by such employees, consultants and agents and, to the extent any employee, consultant or agent of Borrower is also an employee, consultant or agent of any Originator or any Affiliate thereof, allocate the compensation of such employee, consultant or agent between Borrower and such Originator or such Affiliate, as applicable, on a basis that reflects the services rendered to Borrower and such Originator or such Affiliate, as applicable; (C) clearly identify its offices (by signage or otherwise) as its offices and, if such office is located in the offices of any Originator, Borrower shall lease such office at a fair market rent; (D) have a separate telephone number, which will be answered only in its name and separate stationery and checks in its own name; (E) conduct all transactions with each Originator and the Servicer (including, without limitation, any delegation of its obligations hereunder as Servicer) strictly on an arm's-length basis, allocate all overhead expenses (including, without limitation, telephone and other utility charges) for items shared between Borrower and such Originator on the basis of actual use to the extent practicable and, to the extent such allocation is not practicable, on a basis reasonably related to actual use; (F) at all times have a Board of Directors consisting of three members, at least one member of which is an Independent Director; (G) observe all corporate formalities as a distinct entity, and ensure that all corporate actions relating to (A) the selection, maintenance or replacement of the Independent Director, (B) the dissolution or liquidation of Borrower or (C) the initiation of, participation in, acquiescence in or consent to any bankruptcy, insolvency, reorganization or similar proceeding involving Borrower, are duly authorized by unanimous vote of its Board of Directors (including the Independent Director); (H) maintain Borrower's books and records separate from those of each Originator and any Affiliate thereof and otherwise readily identifiable as its own assets rather than assets of any Originator or any Affiliate thereof; (I) prepare its financial statements separately from those of each Originator and insure that any consolidated financial statements of any Originator or any Affiliate thereof that include Borrower and that are filed with the Securities and Exchange Commission or any Page 144 Exhibit 10(i)A(4) other governmental agency have notes clearly stating that Borrower is a separate corporate entity and that its assets will be available first and foremost to satisfy the claims of the creditors of Borrower; (J) except as herein specifically otherwise provided, maintain the funds or other assets of Borrower separate from, and not commingled with, those of any Originator or any Affiliate thereof and only maintain bank accounts or other depository accounts to which Borrower alone is the account party, into which Borrower alone makes deposits and from which Borrower alone (or the Agent hereunder) has the power to make withdrawals; (K) pay all of Borrower's operating expenses from Borrower's own assets (except for certain payments by any Originator or other Persons pursuant to allocation arrangements that comply with the requirements of this Section 7.1(i)); (L) operate its business and activities such that: it does not engage in any business or activity of any kind, or enter into any transaction or indenture, mortgage, instrument, agreement, contract, lease or other undertaking, other than the transactions contemplated and authorized by this Agreement and the Receivables Sale Agreement; and does not create, incur, guarantee, assume or suffer to exist any indebtedness or other liabilities, whether direct or contingent, other than (1) as a result of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, (2) the incurrence of obligations under this Agreement, (3) the incurrence of obligations, as expressly contemplated in the Receivables Sale Agreement, to make payment to the applicable Originator thereunder for the purchase of Receivables from such Originator under the Receivables Sale Agreement, and (4) the incurrence of operating expenses in the ordinary course of business of the type otherwise contemplated by this Agreement; provided that Borrower may own non-passive financial assets which have a total cost to Borrower of not more than $1,000; (M) maintain its corporate charter in conformity with this Agreement, such that it does not amend, restate, supplement or otherwise modify its Certificate of Incorporation or By-Laws in any respect that would materially impair its ability to comply with the terms or provisions of any of the Transaction Documents, including, without limitation, Section 7.1(i) of this Agreement; (N) maintain the effectiveness of, and continue to perform under the Receivables Sale Agreement and the First-Step Sale Agreement, such that it does not amend, restate, supplement, cancel, terminate or otherwise modify the Receivables Sale Agreement or the First-Step Sale Agreement, or give any consent, waiver, directive or approval thereunder or waive any default, action, omission or breach under the Receivables Sale Agreement or the First-Step Sale Agreement or otherwise grant any indulgence thereunder, without (in each case) the prior written consent of the Agent; (O) maintain its corporate separateness such that it does not merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions, and except as otherwise contemplated herein) all or substantially all of its assets (whether now owned or hereafter acquired) to, or acquire all or substantially all of the assets of, Page 145 Exhibit 10(i)A(4) any Person, nor at any time create, have, acquire, maintain or hold any interest in any Subsidiary. (P) maintain at all times the Required Capital Amount (as defined in the Receivables Sale Agreement) and refrain from making any dividend, distribution, redemption of capital stock or payment of any subordinated indebtedness which would cause the Required Capital Amount to cease to be so maintained; and (Q) take such other actions as are necessary on its part to ensure that the facts and assumptions set forth in the opinion issued by Kilpatrick Stockton LLP, as counsel for Borrower, in connection with the closing or initial Advance under this Agreement and relating to substantive consolidation issues, and in the certificates accompanying such opinion, remain true and correct in all material respects at all times. (j) Collections. Such Loan Party will cause (1) all proceeds from all Lock-Boxes to be directly deposited by a Collection Bank into a Collection Account and (2) each Lock-Box and Collection Account to be subject at all times to a Collection Account Agreement that is in full force and effect. In the event any payments relating to the Collateral are remitted directly to Borrower or any Affiliate of Borrower, Borrower will remit (or will cause all such payments to be remitted) directly to a Collection Bank and deposited into a Collection Account within two (2) Business Days following receipt thereof, and, at all times prior to such remittance, Borrower will itself hold or, if applicable, will cause such payments to be held in trust for the exclusive benefit of the Agent and Blue Ridge. Borrower will maintain exclusive ownership, dominion and control (subject to the terms of this Agreement) of each Lock-Box and Collection Account and shall not grant the right to take dominion and control of any Lock-Box or Collection Account at a future time or upon the occurrence of a future event to any Person, except to the Agent as contemplated by this Agreement. (k) Taxes. Such Loan Party will file all material tax returns and reports required by law to be filed by it and will promptly pay all material taxes and governmental charges at any time owing, except any such taxes which are not yet delinquent or are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. Borrower will pay when due any taxes payable in connection with the Receivables, exclusive of taxes on or measured by income or gross receipts of the Agent or Blue Ridge. (l) Payment to Applicable Originator. With respect to any Receivable purchased by Borrower from any Originator, such sale shall be effected under, and in strict compliance with the terms of, the Receivables Sale Agreement, including, without limitation, the terms relating to the amount and timing of payments to be made to such Originator in respect of the purchase price for such Receivable. Page 146 Exhibit 10(i)A(4) Section 7.2 Negative Covenants of the Loan Parties. Until the Final Payout Date, each Loan Party hereby covenants, as to itself, that: (a) Name Change, Offices and Records. Such Loan Party will not change its name, identity or structure (within the meaning of any applicable enactment of the UCC), relocate its chief executive office at any time while the location of its chief executive office is relevant to perfection of the Agent's security interest, for the benefit of the Secured Parties, in the Receivables, Related Security and Collections, or change any office where Records are kept unless it shall have: (i) given the Agent at least ten (10) days' prior written notice thereof and (ii) delivered to the Agent all financing statements, instruments and other documents reasonably requested by the Agent in connection with such change or relocation. (b) Change in Payment Instructions to Obligors. Except as may be required by the Agent pursuant to Section 8.2(b), such Loan Party will not add or terminate any bank as a Collection Bank, or make any change in the instructions to Obligors regarding payments to be made to any Lock-Box or Collection Account, unless the Agent shall have received, at least ten (10) days before the proposed effective date therefor, (i) written notice of such addition, termination or change and (ii) with respect to the addition of a Collection Bank or a Collection Account or Lock-Box, an executed Collection Account Agreement with respect to the new Collection Account or Lock-Box; provided, however, that the Servicer may make changes in instructions to Obligors regarding payments if such new instructions require such Obligor to make payments to another existing Collection Account. (c) Modifications to Contracts and Credit and Collection Policy. Such Loan Party will not, and will not permit any Originator to, make any material change to the Credit and Collection Policy that could adversely affect the collectibility of the Receivables or decrease the credit quality of any newly created Receivables. Except as provided in Section 8.2(d), the Servicer will not, and will not permit any Originator to, extend, amend or otherwise modify the terms of any Receivable or any Contract related thereto other than in accordance with the Credit and Collection Policy. (d) Sales, Liens. Borrower will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, or create or suffer to exist any Adverse Claim upon (including, without limitation, the filing of any financing statement) or with respect to, any of the Collateral, or assign any right to receive income with respect thereto (other than Permitted Encumbrances), and Borrower will defend the right, title and interest of the Secured Parties in, to and under any of the foregoing property, against all claims of third parties claiming through or under Borrower or any Originator (other than Permitted Encumbrances). Borrower will not create or suffer to exist any mortgage, pledge, security interest, encumbrance, lien, charge or other similar arrangement on any of its inventory. (e) Use of Proceeds. Borrower will not use the proceeds of the Advances for any purpose other than (i) paying for Receivables and Related Security under and in accordance with the Receivables Sale Agreement, including without limitation, making payments on the Subordinated Notes to the extent permitted thereunder and under the Receivables Sale Agreement, Page 147 Exhibit 10(i)A(4) (ii) making Demand Advances to NSI Georgia at any time prior to the Facility Termination Date while it is acting as Servicer and no Amortization Event or Unmatured Amortization Event exists and is continuing, (iii) paying its ordinary and necessary operating expenses when and as due, (iv) making Restricted Junior Payments to the extent permitted under this Agreement, and (v) purchasing non-passive financial assets to the extent expressly permitted under the proviso to Section 7.1(I)(L). (f) Termination Date Determination. Borrower will not designate the Termination Date (as defined in the Receivables Sale Agreement), or send any written notice to any Originator in respect thereof, without the prior written consent of the Agent, except with respect to the occurrence of such Termination Date arising pursuant to Section 5.1(d) of the Receivables Sale Agreement. (g) Restricted Junior Payments. Borrower will not make any Restricted Junior Payment if after giving effect thereto, Borrower's Net Worth (as defined in the Receivables Sale Agreement) would be less than the Required Capital Amount (as defined in the Receivables Sale Agreement). (h) Borrower Indebtedness. Borrower will not incur or permit to exist any Indebtedness or liability on account of deposits except: (i) the Obligations, (ii) the Subordinated Loans, and (iii) other current accounts payable arising in the ordinary course of business and not overdue. (i) Prohibition on Additional Negative Pledges. No Loan Party will enter into or assume any agreement (other than this Agreement and the other Transaction Documents) prohibiting the creation or assumption of any Adverse Claim upon the Collateral except as contemplated by the Transaction Documents, or otherwise prohibiting or restricting any transaction contemplated hereby or by the other Transaction Documents, and no Loan Party will enter into or assume any agreement creating any Adverse Claim upon the Subordinated Notes. ARTICLE VIII. ADMINISTRATION AND COLLECTION Section 8.1 Designation of Servicer. (a) The servicing, administration and collection of the Receivables shall be conducted by such Person (the "Servicer") so designated from time to time in accordance with this Section 8.1. NSI Georgia is hereby designated as, and hereby agrees to perform the duties and obligations of, the Servicer pursuant to the terms of this Agreement. The Agent may at any time following the occurrence of an Amortization Event designate as Servicer any Person to succeed NSI Georgia or any successor Servicer provided that the Rating Agency Condition is satisfied. (b) NSI Georgia may delegate, and NSI Georgia hereby advises the Lenders and the Agent that it has delegated, to NSI Enterprises, as sub-servicer of the Servicer, certain of its duties and responsibilities as Page 148 Exhibit 10(i)A(4) Servicer hereunder in respect of the Receivables originated by NSI Enterprises. Without the prior written consent of the Agent and the Required Liquidity Banks, NSI Georgia shall not be permitted to delegate any of its duties or responsibilities as Servicer to any Person other than (i) NSI Enterprises, and (ii) with respect to certain Defaulted Receivables, outside collection agencies in accordance with its customary practices. NSI Enterprises shall not be permitted to further delegate to any other Person any of the duties or responsibilities of the Servicer delegated to it by NSI Georgia. If at any time the Agent shall designate as Servicer any Person other than NSI Georgia, all duties and responsibilities theretofore delegated by NSI Georgia to NSI Enterprises may, at the discretion of the Agent, be terminated forthwith on notice given by the Agent to NSI Georgia and to Borrower. (c) Notwithstanding any delegation pursuant to the foregoing subsection (b): (i) NSI Georgia shall be and remain primarily liable to the Agent and the Lenders for the full and prompt performance of all duties and responsibilities of the Servicer hereunder and (ii) the Agent and the Lenders shall be entitled to deal exclusively with NSI Georgia in matters relating to the discharge by the Servicer of its duties and responsibilities hereunder. The Agent and the Lenders shall not be required to give notice, demand or other communication to any Person other than NSI Georgia and Borrower in order for communication to the Servicer and its sub-servicer or other delegate with respect thereto to be accomplished. NSI Georgia, at all times that it is the Servicer, shall be responsible for providing any sub-servicer or other delegate of the Servicer with any notice given to the Servicer under this Agreement. Section 8.2 Duties of Servicer. (a) The Servicer shall take or cause to be taken all such actions as may be necessary or advisable to collect each Receivable from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy. (b) The Servicer will instruct all Obligors to pay all Collections directly to a Lock-Box or Collection Account. The Servicer shall effect a Collection Account Agreement substantially in the form of Exhibit VI with each bank party to a Collection Account at any time. In the case of any remittances received in any Lock-Box or Collection Account that shall have been identified, to the satisfaction of the Servicer, to not constitute Collections or other proceeds of the Receivables or the Related Security, the Servicer shall promptly remit such items to the Person identified to it as being the owner of such remittances. From and after the date the Agent delivers to any Collection Bank a Collection Notice pursuant to Section 8.3, the Agent may request that the Servicer, and the Servicer thereupon promptly shall instruct all Obligors with respect to the Receivables, to remit all payments thereon to a new depositary account specified by the Agent and, at all times thereafter, Borrower and the Servicer shall not deposit or otherwise credit, and shall not permit any other Person to deposit or otherwise credit to such new depositary account any cash or payment item other than Collections. (c) The Servicer shall administer the Collections in accordance with the procedures described herein and in Article II. The Servicer shall set aside and hold in trust for the account of Borrower and the Lenders their Page 149 Exhibit 10(i)A(4) respective shares of the Collections in accordance with Article II. The Servicer shall, upon the request of the Agent, segregate, in a manner acceptable to the Agent, all cash, checks and other instruments received by it from time to time constituting Collections from the general funds of the Servicer or Borrower prior to the remittance thereof in accordance with Article II. If the Servicer shall be required to segregate Collections pursuant to the preceding sentence, the Servicer shall segregate and deposit with a bank designated by the Agent such allocable share of Collections of Receivables set aside for the Lenders on the first Business Day following receipt by the Servicer of such Collections, duly endorsed or with duly executed instruments of transfer. (d) The Servicer may, in accordance with the Credit and Collection Policy, extend the maturity of any Receivable or adjust the Outstanding Balance of any Receivable as the Servicer determines to be appropriate to maximize Collections thereof; provided, however, that such extension or adjustment shall not alter the status of such Receivable as a Delinquent Receivable or Defaulted Receivable or limit the rights of the Agent or the Lenders under this Agreement. Notwithstanding anything to the contrary contained herein, from and after the occurrence of an Amortization Event, the Agent shall have the absolute and unlimited right to direct the Servicer to commence or settle any legal action with respect to any Receivable or to foreclose upon or repossess any Related Security; provided that (i) in lieu of commencing any such action or taking other enforcement action, the Servicer may, at its option, elect to pay to the Agent an amount equal to the Outstanding Balance of such Receivable and (ii) the Servicer shall not, unless indemnified to its satisfaction by the Lenders, be obligated to commence or take any legal action that is in contravention of applicable law or regulation, or to settle any action that would entail an admission by the Servicer, Borrower or any Originator of legal wrongdoing or culpability or require the payment of damages by any Originator or the Servicer to any third party. (e) The Servicer shall hold in trust for Borrower and the Lenders all Records that (i) evidence or relate to the Receivables, the related Contracts and Related Security or (ii) are otherwise necessary or desirable to collect the Receivables and shall, as soon as practicable upon demand of the Agent at any time when an Amortization Event exists, deliver or make available to the Agent all such Records, at a place selected by the Agent. The Servicer shall, as soon as practicable following receipt thereof turn over to Borrower any cash collections or other cash proceeds received with respect to Indebtedness not constituting Receivables. The Servicer shall, from time to time at the request of any Lender, furnish to the Lenders (promptly after any such request) a calculation of the amounts set aside for the Lenders pursuant to Article II. (f) Any payment by an Obligor in respect of any indebtedness owed by it to Originator or Borrower shall, except as otherwise specified by such Obligor or otherwise required by contract or law and unless otherwise instructed by the Agent, be applied as a Collection of any Receivable of such Obligor (starting with the oldest such Receivable) to the extent of any amounts then due and payable thereunder before being applied to any other receivable or other obligation of such Obligor. Page 150 Exhibit 10(i)A(4) Section 8.3 Collection Notices. The Agent is authorized at any time after the occurrence and during the continuance of an Amortization Event to date and to deliver to the Collection Banks the Collection Notices. Borrower hereby transfers to the Agent for the benefit of the Lenders, effective when the Agent delivers such notice, the exclusive ownership and control of each Lock-Box and the Collection Accounts. In case any authorized signatory of Borrower whose signature appears on a Collection Account Agreement shall cease to have such authority before the delivery of such notice, such Collection Notice shall nevertheless be valid as if such authority had remained in force. Borrower hereby authorizes the Agent, and agrees that the Agent shall be entitled (i) at any time after delivery of the Collection Notices, to endorse Borrower's name on checks and other instruments representing Collections, (ii) at any time after the occurrence and during the continuance of an Amortization Event, to enforce the Receivables, the related Contracts and the Related Security, and (iii) at any time after the occurrence and during the continuance of an Amortization Event, to take such action as shall be necessary or desirable to cause all cash, checks and other instruments constituting Collections of Receivables to come into the possession of the Agent rather than Borrower. Section 8.4 Responsibilities of Borrower. Anything herein to the contrary notwithstanding, the exercise by the Agent and the Lenders of their rights hereunder shall not release the Servicer, any Originator or Borrower from any of their duties or obligations with respect to any Receivables or under the related Contracts. The Lenders shall have no obligation or liability with respect to any Receivables or related Contracts, nor shall any of them be obligated to perform the obligations of Borrower. Section 8.5 Monthly Reports. The Servicer shall prepare and forward to the Agent (i) on each Monthly Reporting Date, a Monthly Report and an electronic file of the data contained therein and (ii) at such times as the Agent shall request, a listing by Obligor of all Receivables together with an aging of such Receivables; provided, however, that if an Amortization Event shall exist and be continuing, the Agent may request a Monthly Report be prepared and forwarded to the Agent more frequently than monthly. Section 8.6 Servicing Fee. As compensation for the Servicer's servicing activities on their behalf, Borrower hereby agrees to pay the Servicer the Servicing Fee in arrears on each Settlement Date. Notwithstanding the fact that Sections 2.2 and 2.3 authorize the Servicer to deduct its Servicing Fee from Collections, Borrower is and shall remain the Person who is ultimately responsible for paying the Servicing Fee and other costs of servicing the Receivables. ARTICLE IX. AMORTIZATION EVENTS Section 9.1 Amortization Events. The occurrence of any one or more of the following events shall constitute an Amortization Event: (a) Any Loan Party or Performance Guarantor shall fail to make any payment or deposit required to be made by it under the Transaction Documents when due and, for any such payment or deposit which is not in Page 151 Exhibit 10(i)A(4) respect of principal, such failure continues for two (2) consecutive Business Days. (b) Any representation, warranty, certification or statement made by Performance Guarantor or any Loan Party in any Transaction Document to which it is a party or in any other document delivered pursuant thereto shall prove to have been incorrect in any material respect when made or deemed made (it being understood and agreed that any error or omission which results in the Aggregate Principal exceeding the Borrowing Limit shall per se constitute a material error). (c) Any Loan Party or Performance Guarantor shall fail to perform or observe any covenant contained in Section 7.1(b), 7.1(j), 7.2 or 8.5 when due. (d) Any Loan Party or Performance Guarantor shall fail to perform or observe any other term, covenant or agreement hereunder or any other Transaction Document (other than a term, covenant or agreement covered by another clause of this Section 9.1) to which it is a party and such failure shall continue for and such failure shall not have been cured within 30 days after the earlier to occur of (i) written notice thereof has been given by such Loan Party or Performance Guarantor to Agent or (ii) an Executive Officer of such Loan Party or Performance Guarantor otherwise becomes aware of any such failure; provided, however, that, except in the case of a failure to perform or observe Section 7.1(a)(vii), such cure period shall be extended for a period of time, not to exceed an additional 30 days, reasonably sufficient to permit such Loan Party or Performance Guarantor to cure such failure if such failure cannot be cured within the initial 30-day period but reasonably could be expected to be capable of cure within such additional 30 days, such Loan Party or Performance Guarantor has commenced efforts to cure such failure during the initial 30-day period and such Loan Party or Performance Guarantor is diligently pursuing such cure. (e) Failure of Borrower to pay any Debt (other than the Obligations) when due or the default by Borrower in the performance of any term, provision or condition contained in any agreement under which any such Debt was created or is governed, the effect of which is to cause, or to permit the holder or holders of such Debt to cause, such Debt to become due prior to its stated maturity; or any such Debt of Borrower shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the date of maturity thereof. (f) An Event of Bankruptcy shall occur with respect to Parent or any of its Material Subsidiaries. (g) As at the end of any Calculation Period: (i) the three-month rolling average Delinquency Ratio shall exceed 4.25%, (ii) the three-month rolling average Default Ratio shall exceed 2.55%, or Page 152 Exhibit 10(i)A(4) (iii) the three-month rolling average Dilution Ratio shall exceed 8.00%; provided, however, that the Borrower and the Agent agree to re-negotiate the aforementioned ratios in good faith once the Agent has received an additional 6 months of data regarding the Receivables. (h) A Change of Control shall occur. (i) One or more final judgments for the payment of money in an aggregate amount of $10,700 or more shall be entered against Borrower. (j) The occurrence of any "Termination Event" or of the "Termination Date" (as each of the foregoing is defined in the Receivables Sale Agreement or the First-Step Sale Agreement). (k) This Agreement shall terminate in whole or in part (except in accordance with its terms), or shall cease to be effective or to be the legally valid, binding and enforceable obligation of Borrower, or any Obligor shall directly or indirectly contest in any manner such effectiveness, validity, binding nature or enforceability, or the Agent for the benefit of Blue Ridge shall cease to have a valid and perfected first priority (except for Permitted Encumbrances) security interest in the Collateral. (l) The Internal Revenue Service shall commence enforcement of any federal tax lien under Section 6323 of the Tax Code against any of the Collateral, or the PBGC shall commence enforcement any lien under Section 4068 of ERISA against any of the Collateral. (m) Any event shall occur which materially and adversely impairs (i) the ability of the Originators to originate Receivables of a credit quality that is at least equal to the credit quality of the Receivables sold or contributed to Borrower on the date of this Agreement or (ii) the legality, validity or enforceability of this Agreement or any other Transaction Document, (iii) the Agent's security interest, for the benefit of the Secured Parties, in the Receivables generally or in any significant portion of the Receivables, the Related Security or the Collections with respect thereto. (n) On any Settlement Date, after giving effect to the turnover of Collections by the Servicer on such date and the application thereof to the Obligations in accordance with this Agreement, the Aggregate Principal shall exceed the Borrowing Limit. (o) The Performance Undertaking shall cease to be effective or to be the legally valid, binding and enforceable obligation of Performance Guarantor, or Performance Guarantor shall directly or indirectly contest in any manner such effectiveness, validity, binding nature or enforceability of its obligations thereunder. Section 9.2 Remedies. Upon the occurrence and during the continuation of an Amortization Event, the Agent may, or upon the direction of the Required Liquidity Banks shall, upon notice to Borrower and the Servicer, take any of the Page 153 Exhibit 10(i)A(4) following actions: (i) replace the Person then acting as Servicer (ii) declare the Amortization Date to have occurred, whereupon the Aggregate Commitment shall immediately terminate and the Amortization Date shall forthwith occur, all without demand, protest or further notice of any kind, all of which are hereby expressly waived by each Loan Party; provided, however, that upon the occurrence of an Event of Bankruptcy with respect to any Loan Party, the Amortization Date shall automatically occur, without demand, protest or any notice of any kind, all of which are hereby expressly waived by each Loan Party, (iii) deliver the Collection Notices to the Collection Banks, (iv) exercise all rights and remedies of a secured party upon default under the UCC and other applicable laws, and (v) notify Obligors of the Agent's security interest in the Receivables and other Collateral. The aforementioned rights and remedies shall be without limitation, and shall be in addition to all other rights and remedies of the Agent and the Lenders otherwise available under any other provision of this Agreement, by operation of law, at equity or otherwise, all of which are hereby expressly preserved, including, without limitation, all rights and remedies provided under the UCC, all of which rights shall be cumulative. ARTICLE X. INDEMNIFICATION Section 10.1 Indemnities by the Loan Parties. Without limiting any other rights that the Agent or any Lender may have hereunder or under applicable law, (A) Borrower hereby agrees to indemnify (and pay upon demand to) the Agent, Blue Ridge, each of the Liquidity Banks and each of the respective assigns, officers, directors, agents and employees of the foregoing (each, an "Indemnified Party") from and against any and all damages, losses, claims, taxes, liabilities, costs, expenses and for all other amounts payable, including actual and reasonable attorneys' fees (which attorneys may be employees of the Agent or such Lender) and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") awarded against or actually incurred by any of them arising out of or as a result of this Agreement or the acquisition, either directly or indirectly, by a Lender of an interest in the Receivables, and (B) the Servicer hereby agrees to indemnify (and pay upon demand to) each Indemnified Party for Indemnified Amounts awarded against or incurred by any of them arising out of the Servicer's activities as Servicer hereunder excluding, however, in all of the foregoing instances under the preceding clauses (A) and (B): (a) Indemnified Amounts to the extent a final judgment of a court of competent jurisdiction holds that such Indemnified Amounts resulted from gross negligence or willful misconduct on the part of any Indemnified Party seeking indemnification or by reason of such Indemnified Party's breach of its obligations hereunder or other legal duty; (b) Indemnified Amounts to the extent the same includes losses in respect of Receivables that are uncollectible on account of the insolvency, bankruptcy or lack of creditworthiness of the related Obligor; or Page 154 Exhibit 10(i)A(4) (c) taxes imposed by the jurisdiction in which such Indemnified Party's principal executive office is located (including, without limitation, in the case of the Agent or Blue Ridge, the States of North Carolina and Georgia), on or measured by the overall net income of such Indemnified Party to the extent that the computation of such taxes is consistent with the characterization for income tax purposes of the acquisition by the Lenders of Loans as a loan or loans by the Lenders to Borrower secured by the Receivables, the Related Security, the Collection Accounts and the Collections; provided, however, that nothing contained in this sentence shall limit the liability of any Loan Party or limit the recourse of the Lenders to any Loan Party for amounts otherwise specifically provided to be paid by such Loan Party under the terms of this Agreement. Without limiting the generality of the foregoing indemnification, Borrower shall indemnify the Agent and the Lenders for Indemnified Amounts (including, without limitation, losses in respect of uncollectible receivables, regardless of whether reimbursement therefor would constitute recourse to Borrower or the Servicer) relating to or resulting from: (i) any representation or warranty made by any Loan Party or any Originator (or any officers of any such Person) under or in connection with this Agreement, any other Transaction Document or any other information or report delivered by any such Person pursuant hereto or thereto, which shall have been false or incorrect when made or deemed made; (ii) the failure by Borrower, the Servicer or any Originator to comply with any applicable law, rule or regulation with respect to any Receivable or Contract related thereto, or the nonconformity of any Receivable or Contract included therein with any such applicable law, rule or regulation or any failure of any Originator to keep or perform any of its obligations, express or implied, with respect to any Contract; (iii) any failure of Borrower, the Servicer or any Originator to perform its duties, covenants or other obligations in accordance with the provisions of this Agreement or any other Transaction Document; (iv) any products liability, personal injury or damage suit, or other similar claim arising out of or in connection with merchandise, insurance or services that are the subject of any Contract or any Receivable; (v) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or service related to such Receivable or the furnishing or failure to furnish such merchandise or services; (vi) the commingling of Collections of Receivables at any time with other funds; Page 155 Exhibit 10(i)A(4) (vii) any investigation, litigation or proceeding related to or arising from this Agreement or any other Transaction Document, the transactions contemplated hereby, the use of the proceeds of any Advance, the Collateral or any other investigation, litigation or proceeding relating to Borrower, the Servicer or any Originator in which any Indemnified Party becomes involved as a result of any of the transactions contemplated hereby; (viii) any inability to litigate any claim against any Obligor in respect of any Receivable as a result of such Obligor being immune from civil and commercial law and suit on the grounds of sovereignty or otherwise from any legal action, suit or proceeding; (ix) any Amortization Event; (x) any failure of Borrower to acquire and maintain legal and equitable title to, and ownership of any of the Collateral from the applicable Originator, free and clear of any Adverse Claim (other than as created hereunder); or any failure of Borrower to give reasonably equivalent value to any Originator under the Receivables Sale Agreement in consideration of the transfer by such Originator of any Receivable, or any attempt by any Person to void such transfer under statutory provisions or common law or equitable action; (xi) any failure to vest and maintain vested in the Agent for the benefit of the Lenders, or to transfer to the Agent for the benefit of the Secured Parties, a valid first priority perfected security interests in the Collateral, free and clear of any Adverse Claim (except as created by the Transaction Documents); (xii) the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Collateral, and the proceeds thereof, whether at the time of any Advance or at any subsequent time; (xiii) any action or omission by any Loan Party which reduces or impairs the rights of the Agent or the Lenders with respect to any Collateral or the value of any Collateral (for any reason other than the application of Collections thereto or charge-off of any Receivable as uncollectible); (xiv) any attempt by any Person to void any Advance or the Agent's security interest in the Collateral under statutory provisions or common law or equitable action; and (xv) the failure of any Receivable included in the calculation of the Net Pool Balance as an Eligible Receivable to be an Eligible Receivable at the time so included. Section 10.2 Increased Cost and Reduced Return. (a) If after the date hereof, any Funding Source shall be charged any fee, expense or increased cost on account of the adoption of any applicable law, rule or regulation (including any applicable law, rule or regulation regarding capital adequacy) or any change therein, or any change in the interpretation or Page 156 Exhibit 10(i)A(4) administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency (a "Regulatory Change"): (i) that subjects any Funding Source to any charge or withholding on or with respect to any Funding Agreement or a Funding Source's obligations under a Funding Agreement, or on or with respect to the Receivables, or changes the basis of taxation of payments to any Funding Source of any amounts payable under any Funding Agreement (except for changes in the rate of tax on the overall net income of a Funding Source or taxes excluded by Section 10.1) or (ii) that imposes, modifies or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of a Funding Source, or credit extended by a Funding Source pursuant to a Funding Agreement or (iii) that imposes any other condition the result of which is to increase the cost to a Funding Source of performing its obligations under a Funding Agreement, or to reduce the rate of return on a Funding Source's capital as a consequence of its obligations under a Funding Agreement, or to reduce the amount of any sum received or receivable by a Funding Source under a Funding Agreement or to require any payment calculated by reference to the amount of interests or loans held or interest received by it, then, upon written demand by the Agent no later than ninety (90) days after the adoption of such Regulatory Change, Borrower shall pay to the Agent, for the benefit of the relevant Funding Source, such amounts charged to such Funding Source or such amounts to otherwise compensate such Funding Source for such increased cost or such reduction. In the event that the Agent fails to give Borrower notice within the ninety (90) day time limitation prescribed above, Borrower shall have no obligation to pay such claim for compensation hereunder. Borrower shall have no obligation to pay any amount with respect to claims accruing under this Section 10.2(a) prior to the 90th day preceding written demand therefor from Agent. (b) The Agent and each Funding Source agrees, if requested by Borrower, it will use reasonable efforts (subject to the overall policy considerations of such Funding Source) to designate an alternate lending office with respect to Loans affected by any of the matters or circumstances prescribed in Section 10.2(a) hereof in order to reduce the liability of Borrower or avoid the results provided thereunder, so long as such designation is not disadvantageous to such Funding Source as determined by such Funding Source, which determination, if made in good faith, shall be conclusive and binding on all parties hereto. Nothing in this Section 10.2(b) shall affect or postpone any of the obligation of Borrower hereunder or any right of any Funding Source hereunder Section 10.3 Other Costs and Expenses. Borrower shall pay to the Agent and Blue Ridge on demand all reasonable costs and out-of-pocket expenses actually incurred in connection with the preparation, execution, delivery and administration of this Agreement, the transactions contemplated hereby and the other documents to be delivered hereunder, including without limitation, the cost of Blue Ridge's auditors auditing the books, records and procedures of Borrower, reasonable fees and out-of-pocket expenses of legal counsel for Blue Ridge and the Agent (which such counsel may be employees of Blue Ridge or the Agent) with respect thereto and with respect to advising Blue Ridge and the Agent as to their respective rights and remedies under this Agreement. Borrower shall pay to the Agent on demand any and all reasonable costs and expenses of Page 157 Exhibit 10(i)A(4) the Agent and the Lenders, if any, including reasonable counsel fees and expenses, actually incurred in connection with the amendment, waiver or enforcement of this Agreement and the other documents delivered hereunder and in connection with any restructuring or workout of this Agreement or such documents, or the administration of this Agreement following an Amortization Event. Borrower shall reimburse Blue Ridge on demand for all other reasonable costs and expenses actually incurred by Blue Ridge ("Other Costs"), including, without limitation, the cost of auditing Blue Ridge's books by certified public accountants, the cost of rating the Commercial Paper by independent financial rating agencies, and the reasonable fees and out-of-pocket expenses of counsel for Blue Ridge or any counsel for any shareholder of Blue Ridge with respect to advising Blue Ridge or such shareholder as to matters relating to Blue Ridge's operations. Section 10.4 Allocations. Blue Ridge shall allocate the liability for (a) increased costs covered by Section 10.2 arising under Funding Agreements that are not specifically related solely to this Agreement ("Shared Increased Costs") and (b) Other Costs among Borrower and other Persons with whom Blue Ridge has entered into agreements to purchase interests in or finance receivables and other financial assets ("Other Customers"). If any Other Costs are attributable to Borrower and not attributable to any Other Customer or any Shared Increased Costs are attributable to the facility evidenced by this Agreement and not to any Other Customers' facilities, Borrower shall be solely liable for such Other Costs or Shared Increased Costs. However, if Other Costs or Shared Increased Costs are attributable to Other Customers and their facilities but not attributable to Borrower or the facility evidenced hereby, such Other Customer shall be solely liable for such Other Costs or Shared Increased Costs, as the case may be. All allocations to be made pursuant to the foregoing provisions of this Article X shall be made by Blue Ridge in its sole discretion and shall be binding on Borrower and the Servicer. ARTICLE XI. THE AGENT Section 11.1 Authorization and Action. Each Lender hereby designates and appoints Wachovia to act as its agent under the Transaction Documents and under the Liquidity Agreement, and authorizes the Agent to take such actions as agent on its behalf and to exercise such powers as are delegated to the Agent by the terms of the Liquidity Agreement or the Transaction Documents, together with such powers as are reasonably incidental thereto. The Agent shall not have any duties or responsibilities, except those expressly set forth in the Liquidity Agreement or in any Transaction Document, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of the Agent shall be read into the Liquidity Agreement or any Transaction Document or otherwise exist for the Agent. In performing its functions and duties under the Liquidity Agreement and the Transaction Documents, the Agent shall act solely as agent for the Lenders and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for any Loan Party or any of such Loan Party's successors or assigns. The Agent shall not be required to take any action that exposes the Agent to personal liability or that is contrary to the Liquidity Agreement or any Transaction Document or applicable law. The Page 158 Exhibit 10(i)A(4) appointment and authority of the Agent hereunder shall terminate upon the indefeasible payment in full of all Obligations. Each Lender hereby authorizes the Agent to execute each of the UCC financing statements, each Collection Account Agreement on behalf of such Lender (the terms of which shall be binding on such Lender). Section 11.2 Delegation of Duties. The Agent may execute any of its duties under the Liquidity Agreement and each Transaction Document 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 11.3 Exculpatory Provisions. Neither the Agent nor any of its directors, officers, agents or employees shall be (i) liable for any action lawfully taken or omitted to be taken by it or them under or in connection with the Liquidity Agreement or any Transaction Document (except for its, their or such Person's own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Loan Party contained in the Liquidity Agreement, any Transaction Document or any certificate, report, statement or other document referred to or provided for in, or received under or in connection with, any Transaction Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of the Liquidity Agreement or any Transaction Document or any other document furnished in connection therewith, or for any failure of any Loan Party to perform its obligations under any Transaction Document, or for the satisfaction of any condition specified in Article VI, or for the perfection, priority, condition, value or sufficiency of any collateral pledged in connection herewith. The Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements or covenants contained in, or conditions of, any Transaction Document, or to inspect the properties, books or records of the Loan Parties. The Agent shall not be deemed to have knowledge of any Amortization Event or Unmatured Amortization Event unless the Agent has received notice from a Loan Party or a Lender. Section 11.4 Reliance by Agent. The Agent shall in all cases be entitled to rely, and shall be fully protected in relying, upon any 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 Borrower), independent accountants and other experts selected by the Agent. The Agent shall in all cases be fully justified in failing or refusing to take any action under the Liquidity Agreement or any Transaction Document unless it shall first receive such advice or concurrence of Blue Ridge or the Required Liquidity Banks or all of the Lenders, as applicable, as it deems appropriate and it shall first be indemnified to its satisfaction by the Lenders, provided that unless and until the Agent shall have received such advice, the Agent may take or refrain from taking any action, as the Agent shall deem advisable and in the best interests of the Lenders. The Agent shall in all cases be fully protected in acting, or in refraining from acting, in accordance with a request of Blue Ridge or the Required Liquidity Banks or all of the Lenders, as applicable, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders. Page 159 Exhibit 10(i)A(4) Section 11.5 Non-Reliance on Agent and Other Lenders. Each Lender 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 hereafter taken, including, without limitation, any review of the affairs of any Loan Party, shall be deemed to constitute any representation or warranty by the Agent. Each Lender represents and warrants to the Agent that it has and will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of Borrower and made its own decision to enter into the Liquidity Agreement, the Transaction Documents and all other documents related thereto. Section 11.6 Reimbursement and Indemnification. The Liquidity Banks agree to reimburse and indemnify the Agent and its officers, directors, employees, representatives and agents ratably according to their Pro Rata Shares, to the extent not paid or reimbursed by the Loan Parties (i) for any amounts for which the Agent, acting in its capacity as Agent, is entitled to reimbursement by the Loan Parties hereunder and (ii) for any other expenses incurred by the Agent, in its capacity as Agent and acting on behalf of the Lenders, in connection with the administration and enforcement of the Liquidity Agreement and the Transaction Documents. Section 11.7 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 Borrower or any Affiliate of Borrower as though the Agent were not the Agent hereunder. With respect to the making of Loans pursuant to this Agreement, the Agent shall have the same rights and powers under the Liquidity Agreement and this Agreement in its individual capacity as any Lender and may exercise the same as though it were not the Agent, and the terms "Liquidity Bank," "Lender," "Liquidity Banks" and "Lenders" shall include the Agent in its individual capacity. Section 11.8 Successor Agent. The Agent, upon five (5) days' notice to the Loan Parties and the Lenders, may voluntarily resign and may be removed at any time, with or without cause, by the Required Liquidity Banks; provided, however, that Wachovia shall not voluntarily resign as the Agent so long as any of the Liquidity Commitments remain in effect or Blue Ridge has any outstanding Loans. If the Agent (other than Wachovia) shall voluntarily resign or be removed as Agent under this Agreement, then the Required Liquidity Banks during such five-day period shall appoint, with the consent of Borrower from among the remaining Liquidity Banks, a successor Agent, whereupon 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 its appointment, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement. Upon resignation or replacement of any Agent in accordance with this Section 11.8, the retiring Agent shall execute such UCC-3 assignments and amendments, and assignments and amendments of the Liquidity Agreement and the Transaction Documents, as may be necessary to give effect to its replacement by a successor Agent. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article XI and Article X shall inure Page 160 Exhibit 10(i)A(4) to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. ARTICLE XII. ASSIGNMENTS; PARTICIPATIONS Section 12.1 Assignments. (a) Each of the Agent, the Loan Parties and the Liquidity Banks hereby agrees and consents to the complete or partial assignment by Blue Ridge of all or any portion of its rights under, interest in, title to and obligations under this Agreement to the Liquidity Banks pursuant to the Liquidity Agreement. (b) Any Liquidity Bank may at any time and from time to time assign to one or more Eligible Assignees (each, a "Purchasing Liquidity Bank") all or any part of its rights and obligations under this Agreement pursuant to an assignment agreement substantially in the form set forth in Exhibit VII hereto (an "Assignment Agreement") executed by such Purchasing Liquidity Bank and such selling Liquidity Bank; provided, however, that any assignment of a Liquidity Bank's rights and obligations hereunder shall include a pro rata assignment of its rights and obligations under the Liquidity Agreement. The consent of Blue Ridge (and, if no Amortization Event then exists, Borrower, which consent shall not be unreasonably withheld or delayed) shall be required prior to the effectiveness of any such assignment. Each assignee of a Liquidity Bank must (i) be an Eligible Assignee and (ii) agree to deliver to the Agent, promptly following any request therefor by the Agent or Blue Ridge, an enforceability opinion in form and substance satisfactory to the Agent and Blue Ridge. Upon delivery of an executed Assignment Agreement to the Agent, such selling Liquidity Bank shall be released from its obligations hereunder and under the Liquidity Agreement to the extent of such assignment. Thereafter the Purchasing Liquidity Bank shall for all purposes be a Liquidity Bank party to this Agreement and the Liquidity Agreement and shall have all the rights and obligations of a Liquidity Bank hereunder and thereunder to the same extent as if it were an original party hereto and thereto and no further consent or action by Borrower, the Lenders or the Agent shall be required. Agent shall give Borrower and NSI Georgia prior notice of each assignment made under this Section. (c) Each of the Liquidity Banks agrees that in the event that it shall suffer a Downgrading Event, such Downgraded Liquidity Bank shall be obliged to notify the Agent, Borrower and NSI Georgia thereof and shall be obliged, at the request of Blue Ridge or the Agent, to (i) collateralize its Commitment and its Liquidity Commitment in a manner acceptable to the Agent, or (ii) assign all of its rights and obligations hereunder and under the Liquidity Agreement to an Eligible Assignee nominated by the Agent or a Loan Party and acceptable to Blue Ridge (and, if no Amortization Event then exists, Borrower, which consent shall not be unreasonably withheld or delayed) and willing to participate in this Agreement and the Liquidity Agreement through the Liquidity Termination Date in the place of such Downgraded Liquidity Bank; provided that the Downgraded Liquidity Bank receives payment in full, pursuant to an Assignment Agreement, of an amount Page 161 Exhibit 10(i)A(4) equal to such Liquidity Bank's Pro Rata Share of the Obligations owing to the Liquidity Banks. (d) No Loan Party may assign any of its rights or obligations under this Agreement without the prior written consent of the Agent and each of the Lenders and without satisfying the Rating Agency Condition. Section 12.2 Participations. Any Liquidity Bank may, in the ordinary course of its business at any time sell to one or more Persons (each, a "Participant") participating interests in its Pro Rata Share of the Aggregate Commitment, its Loans, its Liquidity Commitment or any other interest of such Liquidity Bank hereunder or under the Liquidity Agreement. Notwithstanding any such sale by a Liquidity Bank of a participating interest to a Participant, such Liquidity Bank's rights and obligations under this Agreement and the Liquidity Agreement shall remain unchanged, such Liquidity Bank shall remain solely responsible for the performance of its obligations hereunder and under the Liquidity Agreement, and the Loan Parties, Blue Ridge and the Agent shall continue to deal solely and directly with such Liquidity Bank in connection with such Liquidity Bank's rights and obligations under this Agreement and the Liquidity Agreement. Each Liquidity Bank agrees that any agreement between such Liquidity Bank and any such Participant in respect of such participating interest shall not restrict such Liquidity Bank's right to agree to any amendment, supplement, waiver or modification to this Agreement, except for any amendment, supplement, waiver or modification described in Section 14.1(b)(i). ARTICLE XIII. SECURITY INTEREST Section 13.1 Grant of Security Interest. To secure the due and punctual payment of the Obligations, whether now or hereafter existing, due or to become due, direct or indirect, or absolute or contingent, including, without limitation, all Indemnified Amounts, in each case pro rata according to the respective amounts thereof, Borrower hereby grants to the Agent, for the benefit of the Secured Parties, a security interest in, all of Borrower's right, title and interest, whether now owned and existing or hereafter arising in and to all of the Receivables, the Related Security, the Collections and all proceeds of the foregoing (collectively, the "Collateral"). Section 13.2 Termination after Final Payout Date. Each of the Secured Parties hereby authorizes the Agent, and the Agent hereby agrees, promptly after the Final Payout Date to execute and deliver to Borrower such UCC termination statements as may be necessary to terminate the Agent's security interest in and Lien upon the Collateral, all at Borrower's expense. Upon the Final Payout Date, all right, title and interest of the Agent and the other Secured Parties in and to the Collateral shall terminate. Page 162 Exhibit 10(i)A(4) ARTICLE XIV. MISCELLANEOUS Section 14.1 Waivers and Amendments. (a) No failure or delay on the part of the Agent or any Lender in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other further exercise thereof or the exercise of any other power, right or remedy. The rights and remedies herein provided shall be cumulative and nonexclusive of any rights or remedies provided by law. Any waiver of this Agreement shall be effective only in the specific instance and for the specific purpose for which given. (b) No provision of this Agreement may be amended, supplemented, modified or waived except in writing in accordance with the provisions of this Section 14.1(b). Blue Ridge, Borrower and the Agent, at the direction of the Required Liquidity Banks, may enter into written modifications or waivers of any provisions of this Agreement, provided, however, that no such modification or waiver shall: (i) without the consent of each affected Lender, (A) extend the Liquidity Termination Date or the date of any payment or deposit of Collections by Borrower or the Servicer, (B) reduce the rate or extend the time of payment of Interest or any CP Costs (or any component of Interest or CP Costs), (C) reduce any fee payable to the Agent for the benefit of the Lenders, (D) except pursuant to Article XII hereof, change the amount of the principal of any Lender, any Liquidity Bank's Pro Rata Share or any Liquidity Bank's Commitment, (E) amend, modify or waive any provision of the definition of Required Liquidity Banks or this Section 14.1(b), (F) consent to or permit the assignment or transfer by Borrower of any of its rights and obligations under this Agreement, (G) change the definition of "Eligible Receivable," "Loss Reserve," "Dilution Reserve," "Yield Reserve," "Servicing Reserve," "Servicing Fee Rate," "Required Reserve" or "Required Reserve Factor Floor" or (H) amend or modify any defined term (or any defined term used directly or indirectly in such defined term) used in clauses (A) through (G) above in a manner that would circumvent the intention of the restrictions set forth in such clauses; or (ii) without the written consent of the then Agent, amend, modify or waive any provision of this Agreement if the effect thereof is to affect the rights or duties of such Agent, and any material amendment, waiver or other modification of this Agreement shall require satisfaction of the Rating Agency Condition. Notwithstanding the foregoing, (i) without the consent of the Liquidity Banks, but with the consent of Borrower, the Agent may amend this Agreement solely to add additional Persons as Liquidity Banks hereunder and (ii) the Agent, the Required Liquidity Banks and Blue Ridge may enter into amendments to modify any of the terms or provisions of Article XI, Article XII, Section 14.13 or any other provision of this Agreement without the consent of Borrower, provided that such amendment has no negative impact upon Borrower. Any Page 163 Exhibit 10(i)A(4) modification or waiver made in accordance with this Section 14.1 shall apply to each of the Lenders equally and shall be binding upon Borrower, the Lenders and the Agent. Section 14.2 Notices. Except as provided in this Section 14.2, all communications and notices provided for hereunder shall be in writing (including bank wire, telecopy or electronic facsimile transmission or similar writing) and shall be given to the other parties hereto at their respective addresses or telecopy numbers set forth on the signature pages hereof or at such other address or telecopy number as such Person may hereafter specify for the purpose of notice to each of the other parties hereto. Each such notice or other communication shall be effective (i) if given by telecopy, upon the receipt thereof, (ii) if given by mail, three (3) Business Days after the time such communication is deposited in the mail with first class postage prepaid or (iii) if given by any other means, when received at the address specified in this Section 14.2. Borrower hereby authorizes the Agent to effect Advances and Interest Period and Interest Rate selections based on telephonic notices made by any Person whom the Agent in good faith believes to be acting on behalf of Borrower. Borrower agrees to deliver promptly to the Agent a written confirmation of each telephonic notice signed by an authorized officer of Borrower; provided, however, the absence of such confirmation shall not affect the validity of such notice. If the written confirmation differs from the action taken by the Agent, the records of the Agent shall govern absent manifest error. Section 14.3 Ratable Payments. If any Lender, whether by setoff or otherwise, has payment made to it with respect to any portion of the Obligations owing to such Lender (other than payments received pursuant to Section 10.2 or 10.3) in a greater proportion than that received by any other Lender entitled to receive a ratable share of such Obligations, such Lender agrees, promptly upon demand, to purchase for cash without recourse or warranty a portion of such Obligations held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of such Obligations; provided that if all or any portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. Section 14.4 Protection of Agent's Security Interest. (a) Borrower agrees that from time to time, at its expense, it will promptly execute and deliver all instruments and documents, and take all actions, that may be necessary or desirable, or that the Agent may reasonably request, to perfect, protect or more fully evidence the Agent's security interest in the Collateral, or to enable the Agent or the Lenders to exercise and enforce their rights and remedies hereunder. At any time after the occurrence and during the continuation of an Amortization Event, the Agent may, or the Agent may direct Borrower or the Servicer to, notify the Obligors of Receivables, at Borrower's expense, of the ownership or security interests of the Lenders under this Agreement and may also direct that payments of all amounts due or that become due under any or all Receivables be made directly to the Agent or its designee. Borrower or the Servicer (as applicable) shall, at any Lender's request, withhold the identity of such Lender in any such notification. Page 164 Exhibit 10(i)A(4) (b) If any Loan Party fails to perform any of its obligations hereunder, the Agent or any Lender may (but shall not be required to) perform, or cause performance of, such obligations, and the Agent's or such Lender's actual and reasonable costs and expenses incurred in connection therewith shall be payable by Borrower as provided in Section 10.3. Each Loan Party irrevocably authorizes the Agent at any time and from time to time in the sole discretion of the Agent, and appoints the Agent as its attorney-in-fact, to act on behalf of such Loan Party (i) to execute on behalf of Borrower as debtor and to file financing statements necessary or desirable in the Agent's reasonable opinion to perfect and to maintain the perfection and priority of the interest of the Lenders in the Receivables and (ii) to file a carbon, photographic or other reproduction of this Agreement or any financing statement with respect to the Receivables as a financing statement in such offices as the Agent in its reasonable opinion deems necessary or desirable to perfect and to maintain the perfection and priority of the Agent's security interest in the Collateral, for the benefit of the Secured Parties. This appointment is coupled with an interest and is irrevocable. Section 14.5 Confidentiality. (a) Each Loan Party and each Lender shall maintain and shall cause each of its employees, officers and Affiliates to maintain the confidentiality of the Fee Letter and the other confidential or proprietary information with respect to the Agent and Blue Ridge and their respective businesses obtained by it or them in connection with the structuring, negotiating and execution of the transactions contemplated herein, except that such Loan Party and such Lender and its officers and employees may disclose such information to such Loan Party's and such Lender's external consultants, accountants and attorneys and as required by any applicable law, rule or regulation or order of any judicial or administrative proceeding or to enforce its rights under the Transaction Documents. (b) Unless otherwise agreed to in writing by the Parent, each Lender and the Agent hereby agrees to keep all Proprietary Information confidential and not to disclose or reveal any Proprietary Information to any Person other than its (or its Affiliates) directors, officers, employees, agents or representatives who reasonably require such information in connection with their activities concerning this Agreement or the transactions contemplated hereby and to actual or potential Participants or Purchasing Liquidity Banks, and then only upon a confidential basis in any such case; provided, however, that the Agent or any Lender may disclose Proprietary Information: (i) to the Agent or any other Lender, (ii) to the extent reasonably required in connection with any litigation to which the Agent, any Lender or their respective Affiliates may be a party, (iii) to the extent reasonably required in connection with the exercise of any remedy hereunder, (iv) as required by law, rule, regulation, direction, request or order of any judicial, administrative or regulatory authority or proceedings (whether or not having the force or effect of law), (v) to its attorneys, accountants or other consultants (but only on a confidential basis), (vi) to bank regulatory authorities or other governmental authorities and (vii) by Blue Ridge to any rating agency, commercial paper dealer, or provider of a surety, guaranty or credit or liquidity enhancement to Blue Ridge which has agreed in writing to be bound by the provisions of this Section 14.5. Page 165 Exhibit 10(i)A(4) Section 14.6 Bankruptcy Petition. Borrower, the Servicer, the Agent and each Liquidity Bank hereby covenants and agrees that, prior to the date that is one year and one day after the payment in full of all outstanding senior indebtedness of Blue Ridge, it will not institute against, or join any other Person in instituting against, Blue Ridge any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. Section 14.7 Limitation of Liability. Except with respect to any claim arising out of the willful misconduct or gross negligence of Blue Ridge, the Agent or any Liquidity Bank, no claim may be made by any Loan Party or any other Person against Blue Ridge, the Agent or any Liquidity Bank or their respective Affiliates, directors, officers, employees, attorneys or agents for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement, or any act, omission or event occurring in connection therewith; and each Loan Party hereby waives, releases, and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. Section 14.8 CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA, without regard to the principles of conflicts of laws thereof (except in the case of the other Transaction Documents, to the extent otherwise expressly stated therein) AND EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE OWNERSHIP INTEREST OF BORROWER OR THE SECURITY INTEREST OF THE AGENT, FOR THE BENEFIT OF THE SECURED PARTIES, IN ANY OF THE COLLATERAL IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF GEORGIA. Section 14.9 CONSENT TO JURISDICTION. EACH PARTY TO THIS AGREEMENT HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN FULTON COUNTY, GEORGIA, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT EXECUTED BY SUCH PERSON PURSUANT TO THIS AGREEMENT, AND EACH SUCH PARTY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST ANY LOAN PARTY IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY LOAN PARTY AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT Page 166 Exhibit 10(i)A(4) OR ANY DOCUMENT EXECUTED BY SUCH LOAN PARTY PURSUANT TO THIS AGREEMENT SHALL BE BROUGHT ONLY IN A COURT IN FULTON COUNTY, GEORGIA. Section 14.10 WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT, ANY DOCUMENT EXECUTED BY ANY LOAN PARTY PURSUANT TO THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER. Section 14.11 Integration; Binding Effect; Survival of Terms. (a) This Agreement and each other Transaction Document contain the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof superseding all prior oral or written understandings. (b) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns (including any trustee in bankruptcy). This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms and shall remain in full force and effect until terminated in accordance with its terms; provided, however, that the rights and remedies with respect to (i) any breach of any representation and warranty made by any Loan Party pursuant to Article V, (ii) the indemnification and payment provisions of Article X, and Sections 14.5 and 14.6 shall be continuing and shall survive any termination of this Agreement. Section 14.12 Counterparts; Severability; Section References. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of a signature page to this Agreement. Any provisions of this Agreement which are 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. Unless otherwise expressly indicated, all references herein to "Article," "Section," "Schedule" or "Exhibit" shall mean articles and sections of, and schedules and exhibits to, this Agreement. Page 167 Exhibit 10(i)A(4) Section 14.13 Wachovia Roles. Each of the Liquidity Banks acknowledges that Wachovia acts, or may in the future act: (i) as administrative agent for Blue Ridge or any Liquidity Bank, (ii) as an issuing and paying agent for the Commercial Paper, (iii) to provide credit or liquidity enhancement for the timely payment for the Commercial Paper, and/or (iv) to provide other services from time to time for Blue Ridge or any Liquidity Bank (collectively, the "Wachovia Roles"). Without limiting the generality of this Section 14.13, each Liquidity Bank hereby acknowledges and consents to any and all Wachovia Roles and agrees that in connection with any Wachovia Role, Wachovia may take, or refrain from taking, any action that it, in its discretion, deems appropriate, including, without limitation, in its role as administrative agent for Blue Ridge, and the giving of notice of a mandatory purchase pursuant to the Liquidity Agreement. Section 14.14 Interest. In no event shall the amount of interest, and all charges, amounts or fees contracted for, charged or collected pursuant to this Agreement or the other Transaction Documents and deemed to be interest under applicable law (collectively, "Interest Amounts" ) exceed the highest rate of interest allowed by applicable law (the "Maximum Rate"), and in the event any such payment is inadvertently received by Blue Ridge or any Liquidity Bank, then the excess sum (the "Excess") shall be credited as a payment of principal, unless the relevant Borrower shall notify the applicable recipient in writing that it elects to have the Excess returned forthwith. It is the express intent hereof that Borrower not pay and Blue Ridge and the Liquidity Banks not receive, directly or indirectly in any manner whatsoever, interest in excess of that which may legally be paid by such Borrower under applicable law. The right to accelerate maturity of any of the Loans does not include the right to accelerate any interest that has not otherwise accrued on the date of such acceleration, and the Agent and the Liquidity Banks do not intend to collect any unearned interest in the event of any such acceleration. All monies paid to the Agent or the Liquidity Banks hereunder or under any of the other Transaction Documents, whether at maturity or by prepayment, shall be subject to rebate of unearned interest as and to the extent required by applicable law. By the execution of this Agreement, Borrower covenants, to the fullest extent permitted by law, that (i) the credit or return of any Excess shall constitute the acceptance by Borrower of such Excess, and (ii) Borrower shall not seek or pursue any other remedy, legal or equitable, against the Agent or any Liquidity Bank, based in whole or in part upon contracting for charging or receiving any Interest Amounts in excess of the Maximum Rate. For the purpose of determining whether or not any Excess has been contracted for, charged or received by the Agent or any Liquidity Bank, all interest at any time contracted for, charged or received from such Borrower in connection with this Agreement or any of the other Transaction Documents shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread in equal parts throughout the full term of the Commitments. Borrower, the Agent and each Liquidity Bank shall, to the maximum extent permitted under applicable law, (i) characterize any non-principal payment as an expense, fee or premium rather than as Interest Amounts and (ii) exclude voluntary prepayments and the effects thereof. The provisions of this Section shall be deemed to be incorporated into each of the other Transaction Documents (whether or not any provision of this Section is referred to therein). All such Transaction Documents and communications relating to any Interest Amounts owed by Borrower and all figures set forth therein shall, for the sole purpose of computing the extent of obligations hereunder and under the other Transaction Documents be automatically recomputed by Borrower, Page 168 Exhibit 10(i)A(4) and by any court considering the same, to give effect to the adjustments or credits required by this Section. Section 14.15 Source of Funds -- ERISA. Each of Blue Ridge and the Liquidity Banks hereby severally (and not jointly) represents to Borrower that no part of the funds to be used by it to fund the Loans hereunder from time to time constitutes (i) assets allocated to any separate account maintained by it in which any employee benefit plan (or its related trust) has any interest nor (ii) any other assets of any employee benefit plan. As used in this Section, the terms "employee benefit plan" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. {signature pages follow} Page 169 Exhibit 10(i)A(4) IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date hereof. NSI Funding, Inc., A DELAWARE CORPORATION By:_______________________________________ Name: Title: Address: NSI Funding, Inc. NSI Center 1420 Peachtree Street, Suite 832 Atlanta, Georgia 30309 Attention: General Counsel Phone: (404) 853-1440 Fax: (404) 853-1015 National Service Industries, Inc., A GEORGIA CORPORATION, AS SERVICER By:_______________________________________ Name: Title: Address: National Service Industries, Inc. NSI Center 1420 Peachtree Street Atlanta, Georgia 30309 Attention: Treasurer Fax No.: (404) 853-1330 Telephone No.: (404) 853-1368 Page 170 Exhibit 10(i)A(4) BLUE RIDGE ASSET FUNDING CORPORATION BY: WACHOVIA BANK, N.A., ITS ATTORNEY-IN-FACT By: __________________________________ Name: Title: Address: Blue Ridge Asset Funding Corporation 100 North Main Street Winston-Salem, NC 27150 Attention: John Dillon Phone: (336) 732-2690 Fax: (336) 732-5021 With a copy to: Blue Ridge Asset Funding Corporation c/o AMACAR Group, L.L.C. 6525 Morrison Blvd., Suite 318 Charlotte, North Carolina 28211 Attention: Douglas K. Johnson Phone: (704) 365-0569 Fax: (704) 365-1362 Page 171 Exhibit 10(i)A(4) WACHOVIA BANK, N.A., as a Liquidity Bank and as Agent By:__________________________________________________ Name: Title: Address: Wachovia Bank, N.A. 191 Peachtree Street, 26th Floor GA-423 Atlanta, Georgia 30303 Attention: Elizabeth K. Wagner Phone: (404) 332-1398 Fax: (404) 332-5152 Page 172 Exhibit 10(i)A(4) EXHIBIT I DEFINITIONS Capitalized terms used and not otherwise defined herein shall have the meanings attributed thereto in the Receivables Sale Agreement (hereinafter defined) and, if not defined therein, in the First-Step Sale Agreement (hereinafter defined). In addition, as used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Adjusted Dilution Ratio" means, at any time, the rolling average of the Dilution Ratio for the 12 Calculation Periods then most recently ended. "Advance" means a borrowing hereunder consisting of the aggregate amount of the several Loans made on the same Borrowing Date. "Adverse Claim" means a lien, security interest, charge or encumbrance, or other right or claim in, of or on any Person's assets or properties in favor of any other Person. "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person or any Subsidiary of such Person. A Person shall be deemed to control another Person if the controlling Person owns 20% or more of any class of voting securities of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise. "Agent" has the meaning set forth in the preamble to this Agreement. "Agent's Account" means account #8735-098787 at Wachovia Bank, N.A., ABA #053100494. "Aggregate Commitment" means, on any date of determination, the aggregate amount of the Liquidity Banks' Commitments to make Loans hereunder. As of the date hereof, the Aggregate Commitment is $150,000,000. "Aggregate Principal" means, on any date of determination, the aggregate outstanding principal amount of all Advances outstanding on such date. "Aggregate Reduction" has the meaning specified in Section 1.3. "Agreement" means this Credit and Security Agreement, as it may be amended or modified and in effect from time to time. Page 173 Exhibit 10(i)A(4) "Alternate Base Rate" means for any day, the rate per annum equal to the higher as of such day of (i) the Prime Rate, or (ii) one-half of one percent (0.50%) above the Federal Funds Rate. For purposes of determining the Alternate Base Rate for any day, changes in the Prime Rate or the Federal Funds Rate shall be effective on the date of each such change. "Alternate Base Rate Loan" means a Loan which bears interest at the Alternate Base Rate or the Default Rate. "Amortization Date" means the earliest to occur of (i) the Business Day immediately prior to the occurrence of an Event of Bankruptcy with respect to any Loan Party, (ii) the Business Day specified in a written notice from the Agent following the occurrence and during the continuation of any other Amortization Event, (iii) the date which is 10 Business Days after the Agent's receipt of written notice from Borrower that it wishes to terminate the facility evidenced by this Agreement, and (iv) April 23, 2004. "Amortization Event" has the meaning specified in Article IX. "Applicable Margin" means, for each Interest Period applicable to any Loan for which Interest is calculated on the basis of the LIBO Rate, the greater of the following on the first day of such Interest Period: (a) two times the sum of (i) the Usage Fee plus (ii) the Program Fee; or (b) the margin then applicable to borrowings under the NSI Credit Agreement at a London interbank offered rate or Eurodollar rate, as the case may be. "Assignment Agreement" has the meaning set forth in Section 12.1(b). "Authorized Officer" means, with respect to any Person, its president, corporate controller, treasurer or chief financial officer. "Blue Ridge" has the meaning set forth in the preamble to this Agreement. "Borrower" has the meaning set forth in the preamble to this Agreement. "Borrowing Base" means, on any date of determination, the Net Pool Balance as of the last day of the period covered by the most recent Monthly Report, minus the Required Reserve as of the last day of the period covered by the most recent Monthly Report, and minus Deemed Collections that have occurred since the most recent Cut-Off Date to the extent that such Deemed Collections exceed the Dilution Reserve. "Borrowing Date" means a Business Day on which an Advance is made hereunder. "Borrowing Notice" has the meaning set forth in Section 1.2. Page 174 Exhibit 10(i)A(4) "Broken Funding Costs" means for any CP Rate Loan or LIBO Rate Loan which: (a) in the case of a CP Rate Loan, has its principal reduced without compliance by Borrower with the notice requirements hereunder, (b) in the case of a CP Rate Loan or a LIBO Rate Loan, does not become subject to an Aggregate Reduction following the delivery of any Reduction Notice, (c) in the case of a CP Rate Loan, is assigned under the Liquidity Agreement, or (d) in the case of a LIBO Rate Loan, is terminated or reduced prior to the last day of its Interest Period, an amount equal to the excess, if any, of (i) the CP Costs or Interest (as applicable) that would have accrued during the remainder of the Interest Periods or the tranche periods for Commercial Paper determined by the Agent to relate to such Loan (as applicable) subsequent to the date of such reduction, assignment or termination (or in respect of clause (b) above, the date such Aggregate Reduction was designated to occur pursuant to the Reduction Notice) of the principal of such Loan if such reduction, assignment or termination had not occurred or such Reduction Notice had not been delivered, over (ii) the sum of (x) to the extent all or a portion of such principal is allocated to another Loan, the amount of CP Costs or Interest actually accrued during the remainder of such period on such principal for the new Loan, and (y) to the extent such principal is not allocated to another Loan, the income, if any, actually received during the remainder of such period by the holder of such Loan from investing the portion of such principal not so allocated. In the event that the amount referred to in clause (B) exceeds the amount referred to in clause (A), the relevant Lender or Lenders agree to pay to Borrower the amount of such excess. All Broken Funding Costs shall be due and payable hereunder upon demand. "Business Day" means any day on which banks are not authorized or required to close in New York, New York or Atlanta, Georgia, and The Depository Trust Company of New York is open for business, and, if the applicable Business Day relates to any computation or payment to be made with respect to the LIBO Rate, any day on which dealings in dollar deposits are carried on in the London interbank market. "Calculation Period" means a Fiscal Month. "Capital Leases" means leases which are required to be capitalized in accordance with GAAP. "Change of Control" means (a) a "Change of Control" under and as defined in either the First-Step Sale Agreement or the Receivables Sale Agreement shall occur, or (b) NSI Georgia ceases to own 100% of the outstanding shares of voting stock of Borrower. "Collateral" has the meaning set forth in Section 13.1. "Collection Account" means each concentration account, depositary account, lock-box account or similar account in which any Collections are collected or deposited and which is listed on Exhibit IV. "Collection Account Agreement" means an agreement substantially in the form of Exhibit VI among one or both Originators, Borrower, the Agent and a Collection Bank. Page 175 Exhibit 10(i)A(4) "Collection Bank" means, at any time, any of the banks holding one or more Collection Accounts. "Collection Notice" means a notice, in substantially the form of Annex A to Exhibit VI, from the Agent to a Collection Bank. "Collections" means, with respect to any Receivable, all cash collections and other cash proceeds in respect of such Receivable, including, without limitation, all Finance Charges or other related amounts accruing in respect thereof and all cash proceeds of Related Security with respect to such Receivable. "Commercial Paper" means promissory notes of Blue Ridge issued by Blue Ridge in the commercial paper market. "Commitment" means, for each Liquidity Bank, the commitment of such Liquidity Bank to make Loans to Borrower hereunder in the event the Blue Ridge elects not to fund any Advance in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Liquidity Bank's name on Schedule A to this Agreement. "Consolidated Operating Profits" means, for any period, the Operating Profits of the Parent and its Consolidated Subsidiaries. "Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which, in accordance with GAAP, would be consolidated with those of the Parent in its consolidated financial statements as of such date. "Contingent Obligation" of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement, take-or-pay contract or application for a letter of credit. "Contract" means, with respect to any Receivable, any and all instruments, agreements, invoices or other writings pursuant to which such Receivable arises or which evidences such Receivable. "CP Costs" means, for each day, the sum of (i) discount or interest accrued on Pooled Commercial Paper on such day, plus (ii) any and all accrued commissions in respect of placement agents and Commercial Paper dealers, and issuing and paying agent fees incurred, in respect of such Pooled Commercial Paper for such day, plus (iii) other costs associated with funding small or odd-lot amounts with respect to all receivable purchase facilities which are funded by Pooled Commercial Paper for such day, minus (iv) any accrual of income net of expenses received on such day from investment of collections received under all receivable purchase or financing facilities funded substantially with Pooled Commercial Paper, Page 176 Exhibit 10(i)A(4) minus (v) any payment received on such day net of expenses in respect of Broken Funding Costs (or similar costs) related to the prepayment of any investment of Blue Ridge pursuant to the terms of any receivable purchase or financing facilities funded substantially with Pooled Commercial Paper. In addition to the foregoing costs, if Borrower shall request any Advance during any period of time determined by the Agent in its sole discretion to result in incrementally higher CP Costs applicable to such Advance, the principal associated with any such Advance shall, during such period, be deemed to be funded by Blue Ridge in a special pool (which may include capital associated with other receivable purchase or financing facilities) for purposes of determining such additional CP Costs applicable only to such special pool and charged each day during such period against such principal. "CP Rate Loan" means, for each Loan of Blue Ridge prior to the time, if any, when (i) it is refinanced with a Liquidity Funding pursuant to the Liquidity Agreement, or (ii) the occurrence of an Amortization Event and the commencement of the accrual of Interest thereon at the Default Rate. "Credit and Collection Policy" means each Originator's credit and collection policies and practices relating to Contracts and Receivables existing on the date hereof and summarized in the Exhibits to the First-Step Sale Agreement and the Receivables Sale Agreement, as modified from time to time in accordance with this Agreement. "Cut-Off Date" means the last day of a Calculation Period. "Days Sales Outstanding" means, as of any day, an amount equal to the product of (x) 91, multiplied by (y) the amount obtained by dividing (i) the aggregate outstanding balance of Receivables as of the most recent Cut-Off Date, by (ii) the aggregate amount of Receivables created during the three (3) Calculation Periods including and immediately preceding such Cut-Off Date. "Deemed Collections" means Collections deemed received by Borrower under Section 1.4(a). "Default Horizon Ratio" means, as of any Cut-Off Date, the ratio (expressed as a decimal) computed by dividing (i) the aggregate sales generated by the Originators during the 5 Calculation Periods ending on such Cut-Off Date, by (ii) the Net Pool Balance as of such Cut-off Date. "Default Rate" means a rate per annum equal to the sum of (i) the Alternate Base Rate plus (ii) 2.00%, changing when and as the Alternate Base Rate changes. "Default Ratio" means, as of any Cut-Off Date, the ratio (expressed as a percentage) computed by dividing (x) the total amount of Receivables which became Defaulted Receivables during the Calculation Period that includes such Cut-Off Date, by (y) the aggregate amount of Receivables generated by the Originators during the Calculation Period occurring 5 months prior to the Calculation Period ending on such Cut-Off Date. Page 177 Exhibit 10(i)A(4) "Defaulted Receivable" means a Receivable: (i) as to which the Obligor thereof has suffered an Event of Bankruptcy; (ii) which, consistent with the Credit and Collection Policy, would be written off Borrower's books as uncollectible; or (iii) as to which any payment, or part thereof, remains unpaid for 91 days or more from the original due date for such payment. "Delinquency Ratio" means, at any time, a percentage equal to (i) the aggregate Outstanding Balance of all Receivables that were Delinquent Receivables at such time divided by (ii) the aggregate Outstanding Balance of all Receivables at such time. "Delinquent Receivable" means a Receivable as to which any payment, or part thereof, remains unpaid for 61-90 days from the original due date for such payment. "Demand Advance" means any advance made by Borrower to NSI Georgia at any time while it is acting as the Servicer, which advance (a) is payable upon demand, (b) is not evidenced by an instrument, chattel paper or a certificated security, (c) bears interest at a market rate determined by Borrower and the Servicer from time to time, (d) is not subordinated to any other Debt or obligation of the Servicer, and (e) may not be offset by NSI Georgia against amounts due and owing from Borrower to it under its Subordinated Note; provided, however, that no Demand Advance may be made after the Facility Termination Date or on any date prior to the Facility Termination Date on which an Amortization Event or an Unmatured Amortization Event exists and is continuing. "Dilution" means the amount of any reduction or cancellation of the Outstanding Balance of a Receivable as described in Section 1.4(a). "Dilution Horizon Ratio" means, as of any Cut-off Date, a ratio (expressed as a decimal), computed by dividing (i) the aggregate sales generated by the Originators during the Calculation Period ending on such Cut-Off Date, by (ii) the Net Pool Balance as of such Cut-Off Date. "Dilution Ratio" means, as of any Cut-Off Date, a ratio (expressed as a percentage), computed by dividing (i) the total amount of decreases in Outstanding Balances due to Dilutions during the Calculation Period ending on such Cut-Off Date, by (ii) the aggregate dollar amount of Receivables generated by the Originators during the Calculation Period ending 1-month prior to the Calculation Period ending on such Cut-Off Date. "Dilution Reserve" means, for any Calculation Period, the product (expressed as a percentage) of: (a) the sum of (i) two (2) times the Adjusted Dilution Ratio as of the immediately preceding Cut-Off Date, plus (ii) the Dilution Volatility Component as of the immediately preceding Cut-Off Date, times (b) the Dilution Horizon Ratio as of the immediately preceding Cut-Off Date. Page 178 Exhibit 10(i)A(4) "Dilution Volatility Component" means the product (expressed as a percentage) of (i) the difference between (a) the highest three (3)-month rolling average Dilution Ratio over the past 12 Calculation Periods and (b) the Adjusted Dilution Ratio, and (ii) a fraction, the numerator of which is equal to the amount calculated in (i)(a) of this definition and the denominator of which is equal to the amount calculated in (i)(b) of this definition. "Downgraded Liquidity Bank" means a Liquidity Bank which has been the subject of a Downgrading Event. "Downgrading Event" with respect to any Person means the lowering of the rating with regard to the short-term securities of such Person to below (i) A-1 by S&P, or (ii) P-1 by Moody's. "Eligible Assignee" means a commercial bank having a combined capital and surplus of at least $250,000,000 with a rating of its (or its parent holding company's) short-term securities equal to or higher than (i) A-1 by S&P and (ii) P-1 by Moody's. "Eligible Receivable" means, at any time, a Receivable: (i) the Obligor of which (a) if a natural person, is a resident of the United States or, if a corporation or other business organization, is organized under the laws of the United States or any political subdivision thereof and has its chief executive office in the United States; (b) is not an Affiliate of any of the Loan Parties; and (c) is not a government or a governmental subdivision or agency; (ii) which is not a Defaulted Receivable, (iii) which is not owing from an Obligor as to which more than 35% of the aggregate Outstanding Balance of all Receivables owing from such Obligor are Defaulted Receivables, (iv) which was not a Delinquent Receivable on the date on which it was acquired by Borrower from the applicable Originator, (v) which by its terms is due and payable within 60 days of the original billing date therefor and has not had its payment terms extended more than once (except that up to 5% of the aggregate Outstanding Balance of all Receivables may have terms payable within 61-90 days of the original billing date therefor), (vi) which is an "account" within the meaning of Article 9 of the UCC of all applicable jurisdictions, (vii) which is denominated and payable only in United States dollars in the United States, Page 179 Exhibit 10(i)A(4) (viii) which arises under a Contract which, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the related Obligor enforceable against such Obligor in accordance with its terms, (ix) which arises under a Contract which does not contain a confidentiality provision that purports to restrict the ability of Blue Ridge to exercise its rights under this Agreement, including, without limitation, its right to review the Contract, (x) which arises under a Contract that contains an obligation to pay a specified sum of money, contingent only upon the sale of goods or the provision of services by the applicable Originator, (xi) which, together with the Contract related thereto, does not contravene any law, rule or regulation applicable thereto (including, without limitation, any law, rule and regulation relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no part of the Contract related thereto is in violation of any such law, rule or regulation, (xii) which satisfies all applicable requirements of the Credit and Collection Policy, (xiii) which was generated in the ordinary course of the applicable Originator's business, (xiv) which arises solely from the sale of goods or the provision of services to the related Obligor by the applicable Originator, and not by any other Person (in whole or in part), (xv) which is not subject to any dispute, counterclaim, right of rescission, set-off, counterclaim or any other defense (including defenses arising out of violations of usury laws) of the applicable Obligor against the applicable Originator or any other Adverse Claim, and the Obligor thereon holds no right as against such Originator to cause such Originator to repurchase the goods or merchandise the sale of which shall have given rise to such Receivable (except with respect to sale discounts effected pursuant to the Contract, or defective goods returned in accordance with the terms of the Contract); provided, however, that if such dispute, offset, counterclaim or defense affects only a portion of the Outstanding Balance of such Receivable, then such Receivable may be deemed an Eligible Receivable to the extent of the portion of such Outstanding Balance which is not so affected, and provided, further, that Receivables of any Obligor which has any accounts payable by the applicable Originator or by a wholly-owned Subsidiary of such Originator (thus giving rise to a potential offset against such Receivables) may be treated as Eligible Receivables to the extent that the Obligor of such Receivables has agreed pursuant to a written agreement in form and substance satisfactory to the Agent, that such Receivables shall not be subject to such offset, (xvi) as to which the applicable Originator has satisfied and fully performed all obligations on its part with respect to such Receivable required to be fulfilled by it, and no further action is Page 180 Exhibit 10(i)A(4) required to be performed by any Person with respect thereto other than payment thereon by the applicable Obligor (excluding warranty obligations for which no claim exists), (xvii) as to which each of the representations and warranties contained in Sections 5.1(g), (i), (j), (q), (r), (s) and (t) is true and correct, and (xviii) all right, title and interest to and in which has been validly transferred by the applicable Originator directly to Borrower under and in accordance with the Receivables Sale Agreement, and Borrower has good and marketable title thereto free and clear of any Adverse Claim (other than Permitted Encumbrances). "Event of Bankruptcy" shall be deemed to have occurred with respect to a Person if either: (a) a case or other proceeding shall be commenced, without the application or consent of such Person, in any court, seeking the liquidation, reorganization, debt arrangement, dissolution, winding up, or composition or readjustment of debts of such Person, the appointment of a trustee, receiver, custodian, liquidator, assignee, sequestrator or the like for such Person or all or substantially all of its assets, or any similar action with respect to such Person under any law relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debts, and such case or proceeding shall continue undismissed, or unstayed and in effect, for a period of 60 consecutive days; or an order for relief in respect of such Person shall be entered in an involuntary case under the federal bankruptcy laws or other similar laws now or hereafter in effect; or (b) such Person shall commence a voluntary case or other proceeding under any applicable bankruptcy, insolvency, reorganization, debt arrangement, dissolution or other similar law now or hereafter in effect, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee (other than a trustee under a deed of trust, indenture or similar instrument), custodian, sequestrator (or other similar official) for, such Person or for any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall be adjudicated insolvent, or admit in writing its inability to pay its debts generally as they become due, or, if a corporation or similar entity, its board of directors shall vote to implement any of the foregoing. "Executive Officer" means any of the chief executive officer, president, executive vice president or senior vice president of the Parent. "Facility Account" means Borrower's account no. 13690450 at Wachovia. "Facility Termination Date" means the earlier of (i) the Liquidity Termination Date and (ii) the Amortization Date. Page 181 Exhibit 10(i)A(4) "Federal Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy," as amended and any successor statute thereto. "Federal Funds Effective Rate" means, for any period, a fluctuating interest rate per annum for each day during such period equal to (a) 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 preceding Business Day) by the Federal Reserve Bank of New York in the Composite Closing Quotations for U.S. Government Securities; or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 11:30 a.m. (New York time) for such day on such transactions received by the Agent from three federal funds brokers of recognized standing selected by it. "Fee Letter" means that certain letter agreement dated as of May 2, 2001 among Borrower, NSI Georgia and the Agent, as it may be amended, restated or otherwise modified and in effect from time to time. "Final Payout Date" means the date on which all Obligations have been paid in full and the Aggregate Commitment has been terminated. "First-Step Sale Agreement" means that certain Receivables Sale Agreement, dated as of May 2, 2001, between NSI Enterprises and Borrower, as the same may be amended, restated or otherwise modified from time to time. "Finance Charges" means, with respect to a Contract, any finance, interest, late payment charges or similar charges owing by an Obligor pursuant to such Contract. "Fiscal Month" means any fiscal month of the Performance Guarantor. "Fiscal Quarter" means any fiscal quarter of the Performance Guarantor. "Fiscal Year" means any fiscal year of the Performance Guarantor. "Funding Agreement" means (i) this Agreement, (ii) the Liquidity Agreement and (iii) any other agreement or instrument executed by any Funding Source with or for the benefit of Blue Ridge. "Funding Source" means (i) any Liquidity Bank or (ii) any insurance company, bank or other funding entity providing liquidity, credit enhancement or back-up purchase support or facilities to Blue Ridge. "GAAP" means generally accepted accounting principles in effect in the United States of America as of the date of this Agreement. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, Page 182 Exhibit 10(i)A(4) contingent or otherwise, of such Person (i) to secure, purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to provide collateral security, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Indebtedness" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee under Capital Leases, (v) all obligations of such Person to reimburse any bank or other Person in respect of amounts payable under a banker's acceptance, (vi) all Redeemable Preferred Stock of such Person (in the event such Person is a corporation), (vii) all obligations of such Person to reimburse any bank or other Person in respect of amounts paid or to be paid under a letter of credit or similar instrument, (viii) all Indebtedness of others secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person, and (ix) all Indebtedness of others Guaranteed by such Person. "Independent Director" shall mean a member of the Board of Directors of Borrower who is not at such time, and has not been at any time during the preceding five (5) years: (A) a director, officer, employee or affiliate of Performance Guarantor, any Originator or any of their respective Subsidiaries or Affiliates (other than Borrower), or (B) the beneficial owner (at the time of such individual's appointment as an Independent Director or at any time thereafter while serving as an Independent Director) of any of the outstanding common shares of Borrower, any Originator, or any of their respective Subsidiaries or Affiliates, having general voting rights (excepting immaterial beneficial interests in mutual funds or similar managed investment accounts which in no case shall exceed 5% of any class of such shares). "Initial Cutoff Date" means the Business Day immediately prior to the date hereof. "Interest" means for each respective Interest Period relating to Loans of the Liquidity Banks, an amount equal to the product of the applicable Interest Rate for each Loan multiplied by the principal of such Loan for each day elapsed during such Interest Period, annualized on a 360 day basis. "Interest Period" means, with respect to any Loan held by a Liquidity Bank: (a) if Interest for such Loan is calculated on the basis of the LIBO Rate, a period of one, two, three or six months, or such other period as may be mutually agreeable to the Agent and Borrower, commencing on a Business Day selected by Borrower or the Agent Page 183 Exhibit 10(i)A(4) pursuant to this Agreement. Such Interest Period shall end on the day in the applicable succeeding calendar month which corresponds numerically to the beginning day of such Interest Period, provided, however, that if there is no such numerically corresponding day in such succeeding month, such Interest Period shall end on the last Business Day of such succeeding month; or (b) if Interest for such Loan is calculated on the basis of the Alternate Base Rate, a period commencing on a Business Day selected by Borrower and agreed to by the Agent, provided that no such period shall exceed one month. If any Interest Period would end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day, provided, however, that in the case of Interest Periods corresponding to the LIBO Rate, if such next succeeding Business Day falls in a new month, such Interest Period shall end on the immediately preceding Business Day. In the case of any Interest Period for any Loan which commences before the Amortization Date and would otherwise end on a date occurring after the Amortization Date, such Interest Period shall end on the Amortization Date. The duration of each Interest Period which commences after the Amortization Date shall be of such duration as selected by the Agent. "Interest Rate" means, with respect to each Loan of the Liquidity Banks, the LIBO Rate, the Alternate Base Rate or the Default Rate, as applicable. "Interest Reserve" means, for any Calculation Period, the product (expressed as a percentage) of (i) 1.5 times (ii) the Alternate Base Rate as of the immediately preceding Cut-Off Date times (iii) a fraction the numerator of which is the highest Days Sales Outstanding for the most recent 12 Calculation Periods and the denominator of which is 360. "Lender" means Blue Ridge and each Liquidity Bank. "LIBO Rate" means, for any Interest Period, the rate per annum determined on the basis of the offered rate for deposits in U.S. dollars of amounts equal or comparable to the principal amount of the related Loan offered for a term comparable to such Interest Period, which rates appear on a Bloomberg L.P. terminal, displayed under the address "US0001M Index Q Go" effective as of 11:00 A.M., London time, two Business Days prior to the first day of such Interest Period, provided that if no such offered rates appear on such page, the LIBO Rate for such Interest Period will be the arithmetic average (rounded upwards, if necessary, to the next higher 1/100th of 1%) of rates quoted by not less than two major banks in New York, New York, selected by the Agent, at approximately 10:00 a.m.(New York time), two Business Days prior to the first day of such Interest Period, for deposits in U.S. dollars offered by leading European banks for a period comparable to such Interest Period in an amount comparable to the principal amount of such Loan, divided by (b) one minus the maximum aggregate reserve requirement (including all basic, supplemental, marginal or other reserves) which is imposed against the Agent in respect of Eurocurrency liabilities, as defined in Regulation D of the Board of Governors of the Federal Reserve System as in effect from time to time (expressed as a decimal), applicable to such Interest Period plus (ii) the Applicable Margin per annum. The LIBO Rate shall be rounded, if necessary, to the next higher 1/16 of 1%. Page 184 Exhibit 10(i)A(4) "LIBO Rate Loan" means a Loan which bears interest at the LIBO Rate. "Lien" shall mean any lien, charge, claim, security interest, mortgage or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever. "Liquidity Agreement" means that certain Liquidity Asset Purchase Agreement, dated as of May 2, 2001 by and among Blue Ridge, the Agent and the banks from time to time party thereto, as the same may be amended, restated and/or otherwise modified from time to time in accordance with the terms thereof. "Liquidity Banks" has the meaning set forth in the preamble in this Agreement. "Liquidity Commitment" means, as to each Liquidity Bank, its commitment under the Liquidity Agreement (which shall equal 102% of its Commitment hereunder). "Liquidity Funding" means (a) a purchase made by any Liquidity Bank pursuant to its Liquidity Commitment of all or any portion of, or any undivided interest in, a Blue Ridge Loan, or (b) any Loan made by a Liquidity Bank in lieu of Blue Ridge pursuant to Section 1.1. "Liquidity Termination Date" means the earlier to occur of the following: (a) the date on which the Liquidity Banks' Liquidity Commitments expire, cease to be available to Blue Ridge or otherwise cease to be in full force and effect; or (b) the date on which a Downgrading Event with respect to a Liquidity Bank shall have occurred and been continuing for not less than 30 days, and either (i) the Downgraded Liquidity Bank shall not have been replaced by an Eligible Assignee pursuant to the Liquidity Agreement, or (ii) the Liquidity Commitment of such Downgraded Liquidity Bank shall not have been funded or collateralized in such a manner that will avoid a reduction in or withdrawal of the credit rating applied to the Commercial Paper to which such Liquidity Agreement applies by any of the rating agencies then rating such Commercial Paper. "Loan" means any loan made by a Lender to Borrower pursuant to this Agreement (including, without limitation, any Liquidity Funding). Each Loan shall either be a CP Rate Loan, an Alternate Base Rate Loan or a Eurodollar Rate Loan, selected in accordance with the terms of this Agreement. "Loan Parties" has the meaning set forth in the preamble to this Agreement. "Lock-Box" means each locked postal box with respect to which a bank who has executed a Collection Account Agreement has been granted exclusive access for the purpose of retrieving and processing payments made on the Receivables and which is listed on Exhibit IV. "Loss Reserve" means, for any Calculation Period, the product (expressed as a percentage) of (a) 2.25, times (b) the highest three-month rolling average Default Ratio during the 12 Calculation Periods ending on Page 185 Exhibit 10(i)A(4) the immediately preceding Cut-Off Date, times (c) the Default Horizon Ratio as of the immediately preceding Cut-Off Date. "Margin Stock" means "margin stock" as defined in Regulations T, U or X. "Material Adverse Effect" means a material adverse effect on (i) the financial condition or operations of the Parent and its Subsidiaries taken as a whole, (ii) the ability of any Loan Party to perform its obligations under this Agreement or the Performance Guarantor to perform its obligations under the Performance Undertaking, (iii) the legality, validity or enforceability of this Agreement or any other Transaction Document, (iv) the Agent's security interest, for the benefit of the Secured Parties, in the Receivables generally or in any significant portion of the Receivables, the Related Security or the Collections with respect thereto, or (v) the collectibility of the Receivables generally or of any significant portion of the Receivables. "Material Subsidiary" means (i) Borrower and NSI Georgia and (ii) each other Consolidated Subsidiary, now existing or hereinafter established or acquired, that at any time prior to the payment in full of all Aggregate Unpaids under the Credit and Security Agreement either (x) has or acquires total assets in excess of 10% of Consolidated Total Assets at the end of the most recent Fiscal Quarter, or (y) contributed more than 10% of Consolidated Operating Profits for the 4 most recent Fiscal Quarters then ended (or, with respect to any Subsidiary which existed during the entire 4 Fiscal Quarter period but was acquired by the Parent during such period, which would have contributed more than 10% of Consolidated Operating Profits for such period had it been a Subsidiary for the entire period, as determined on a pro forma basis in accordance with GAAP). "Monthly Report" means a report, in substantially the form of Exhibit VIII hereto (appropriately completed), furnished by the Servicer to the Agent pursuant to Section 8.5. "Monthly Reporting Date" means the 15th day of each month after the date of this Agreement (or if any such day is not a Business Day, the next succeeding Business Day thereafter) or such other days of each month as the Agent shall request in connection with Section 8.5 hereof. "Moody's" means Moody's Investors Service, Inc. "Net Pool Balance" means, at any time, the aggregate Outstanding Balance of all Eligible Receivables at such time reduced by the aggregate amount by which the Outstanding Balance of all Eligible Receivables of each Obligor and its Affiliates exceeds the Obligor Concentration Limit for such Obligor. "NSI Credit Agreement" means that certain Credit Agreement as of July 15, 1999 among Performance Guarantor, the other borrowers parties thereto, the banks from time to time party thereto, Wachovia Bank, N.A., as administrative agent and Bank One, NA (f/k/a The First National Bank of Chicago), as Syndication Agent, as the same may be amended, restated or replaced from time to time. Page 186 Exhibit 10(i)A(4) "NSI Enterprises" means NSI Enterprises, Inc., a California corporation, and its successors and permitted assigns. "NSI Georgia" has the meaning set forth in the preamble to the Agreement, and such term shall include such Person's successors and permitted assigns. "Obligations" means, at any time, any and all obligations of either of the Loan Parties to any of the Secured Parties arising under or in connection with the Transaction Documents, whether now existing or hereafter arising, due or accrued, absolute or contingent, including, without limitation, obligations in respect of Aggregate Principal, CP Costs, Interest, fees under the Fee Letter, Broken Funding Costs and Indemnified Amounts. "Obligor" means a Person obligated to make payments pursuant to a Contract. "Obligor Concentration Limit" means, at any time, in relation to the aggregate Outstanding Balance of Receivables owed by any single Obligor and its Affiliates (if any), the applicable concentration limit shall be determined as follows for Obligors who have short term unsecured debt ratings currently assigned to them by S&P and Moody's (or in the absence thereof, the equivalent long term unsecured senior debt ratings), the applicable concentration limit shall be determined according to the following table: Allowable % of Eligible S&P Rating Moody's Rating Receivables --------------------- ----------------------------- ---------------------------- A-1+ P-1 10% A-1 P-1 8% A-2 P-2 6% A-3 P-3 4% Below A-3 or Not Rated Below P-3 or Not Rated by either S&P or Moody's by either S&P or Moody's 4% ; provided, however, that (a) if any Obligor has a split rating, the applicable rating will be the lower of the two, (b) if any Obligor is not rated by either S&P or Moody's, the applicable Obligor Concentration Limit shall be the one set forth in the last line of the table above, and (c) subject to satisfaction of the Rating Agency Condition and/or an increase in the percentage set forth in clause (a)(i) of the definition of "Required Reserve," upon Borrower's request from time to time, the Agent may agree to a higher percentage of Eligible Receivables for a particular Obligor and its Affiliates (each such higher percentage, a "Special Concentration Limit"), it being understood that any Special Concentration Limit may be cancelled by the Agent upon not less than five (5) Business Days' written notice to the Loan Parties. "Operating Profits" means, as applied to any Person for any period, the sum of (i) net revenues, less (ii) cost of goods and services sold, less (iii) operating expenses (including depreciation and amortization) of such Person for such period, as determined in accordance with GAAP. Page 187 Exhibit 10(i)A(4) "Originator" means each of (a) NSI Enterprises, in its capacity as seller under the First-Step Sale Agreement and (b) NSI Georgia, in its capacity as seller under the Receivables Sale Agreement. "Outstanding Balance" of any Receivable at any time means the then outstanding principal balance thereof. "Participant" has the meaning set forth in Section 12.2. "Performance Guarantor" means National Service Industries, Inc., a Delaware corporation, and its successors and permitted assigns. "Performance Undertaking" means that certain Performance Undertaking, dated as of May 2, 2001, by Performance Guarantor in favor of Borrower, substantially in the form of Exhibit IX, as the same may be amended, restated or otherwise modified from time to time. "Permitted Encumbrances" shall mean the following: (a) Liens for taxes or assessments or other governmental charges not yet due and payable; and (b) Liens created by the Transaction Documents. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Pooled Commercial Paper" means Commercial Paper notes of Blue Ridge subject to any particular pooling arrangement by Blue Ridge, but excluding Commercial Paper issued by Blue Ridge for a tenor and in an amount specifically requested by any Person in connection with any agreement effected by Blue Ridge. "Prime Rate" means a rate per annum equal to the prime rate of interest announced from time to time by Wachovia (which is not necessarily the lowest rate charged to any customer), changing when and as said prime rate changes. "Pro Rata Share" means, for each Liquidity Bank, a percentage equal to the Commitment of such Liquidity Bank, divided by the Aggregate Commitment. "Program Fee" has the meaning set forth in the Fee Letter. "Proposed Reduction Date" has the meaning set forth in Section 1.3. "Proprietary Information" means all information about the Performance Guarantor or any of its Subsidiaries which has been furnished to the Agent or any Lender by or on behalf of the Performance Guarantor or any of its Subsidiaries before or after the date hereof or which is obtained by any Lender or the Agent in the course of any Review made pursuant to Section 7.1(d) of the Agreement; provided, however, that the term "Proprietary Information" does not include information which (x) is or becomes publicly available (other than as a result of a breach of Section 14.5 of the Agreement), (y) is possessed by or available to the Agent or any Lender on Page 188 Exhibit 10(i)A(4) a non-confidential basis prior to its disclosure to the Agent or such Lender by Borrower or Subsidiary or (z) becomes available to the Agent or any Lender on a non-confidential basis from a Person which, to the knowledge of the Agent or such Lender, as the case may be, is not bound by a confidentiality agreement with the Performance Guarantor or any of its Subsidiaries and is not otherwise prohibited from transmitting such information to the Agent or such Lender. In the event the Agent or any Lender is required to disclose any Proprietary Information by virtue of clause (ii) (but only if and to the extent such disclosure has not been sought by the Agent or any Lender, and if neither the Performance Guarantor nor Borrower is a party to such litigation), (iv) or (v) above, to the extent such Lender or the Agent (as the case may be) determines in good faith that it is permissible by law so to do, it shall promptly notify the Performance Guarantor of same so as to allow the Performance Guarantor or its Subsidiaries to seek a protective order or to take other appropriate action; provided, however, neither any Lender nor the Agent shall be required to delay compliance with any directive to disclose any such information so as to allow the Performance Guarantor or any of Subsidiaries to effect any such action. "Purchasing Liquidity Bank" has the meaning set forth in Section 12.1(b). "Rating Agency Condition" means that Blue Ridge has received written notice from S&P and Moody's that an amendment, a change or a waiver to the Liquidity Agreement, this Agreement, the Receivables Sale Agreement, or the First-Step Sale Agreement will not result in a withdrawal or downgrade of the then current ratings on Blue Ridge's Commercial Paper. "Receivable" means each "Receivable" under and as defined in the Receivables Sale Agreement in which Borrower now has or hereafter acquires any interest. Debt and other rights and obligations arising from any one transaction, including, without limitation, indebtedness and other rights and obligations represented by an individual invoice, shall constitute a Receivable separate from a Receivable consisting of the indebtedness and other rights and obligations arising from any other transaction; provided further, that any indebtedness, rights or obligations referred to in the immediately preceding sentence shall be a Receivable regardless of whether the account debtor or Borrower treats such indebtedness, rights or obligations as a separate payment obligation. "Receivables Sale Agreement" means that certain Receivables Sale and Contribution Agreement, dated as of May 2, 2001, between NSI Georgia and Borrower, as the same may be amended, restated or otherwise modified from time to time. "Records" means, with respect to any Receivable, all Contracts and other documents, books, records and other information (including, without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights) relating to such Receivable, any Related Security therefor and the related Obligor. "Redeemable Preferred Stock" of any Person means any preferred stock issued by such Person which is at any time prior to the Amortization Date Page 189 Exhibit 10(i)A(4) either (i) mandatorily redeemable (by required sinking fund or similar payments or otherwise) or (ii) redeemable at the option of the holder thereof. "Reduction Notice" has the meaning set forth in Section 1.3. "Regulation T" means Regulation T of the Board of Governors of the Federal Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. "Regulation X" means Regulation X of the Board of Governors of the Federal Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. "Regulatory Change" has the meaning set forth in Section 10.2(a). "Related Security" means (i) all "Related Security" under and as defined in the Receivables Sale Agreement, (ii) all of Borrower's right, title and interest in, to and under the Receivables Sale Agreement in respect of such Receivable, (iii) all of Borrower's right, title and interest in and to the Demand Advances, and (iv) all proceeds of any of the foregoing. "Required Liquidity Banks" means, at any time, Liquidity Banks with Commitments in excess of 66-2/3% of the Aggregate Commitment. "Required Notice Period" means the number of days required notice set forth below applicable to the Aggregate Reduction indicated below: Aggregate Reduction Required Notice Period ------------------- ---------------------- less than 25% of the then-current 2 Business Days Aggregate Commitment greater than or equal to 5 Business Days 25% but less than 50% of the then-current Aggregate Commitment greater than or equal to 50% of 10 Business Days the then-current Aggregate Commitment Page 190 Exhibit 10(i)A(4) "Required Reserve" means, on any day during a Calculation Period, the product of (a) the greater of (i) the Required Reserve Factor Floor and (ii) the sum of the Loss Reserve, the Interest Reserve, the Dilution Reserve and the Servicing Reserve, times (b) the Net Pool Balance as of the Cut-Off Date immediately preceding such Calculation Period. "Required Reserve Factor Floor" means, for any Calculation Period, the sum (expressed as a percentage) of (a) 16% plus (b) the product of the Adjusted Dilution Ratio and the Dilution Horizon Ratio, in each case, as of the immediately preceding Cut-Off Date. "Responsible Officer" means any Executive Officer as well as any other officer of the Parent who is primarily responsible for the administration of the transactions contemplated by the Transaction Documents. "Restricted Junior Payment" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of capital stock of Borrower now or hereafter outstanding, except a dividend payable solely in shares of that class of stock or in any junior class of stock of Borrower, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of capital stock of Borrower now or hereafter outstanding, (iii) any payment or prepayment of principal of, premium, if any, or interest, fees or other charges on or with respect to, and any redemption, purchase, retirement, defeasance, sinking fund or similar payment and any claim for rescission with respect to the Subordinated Loans (as defined in the Receivables Sale Agreement), (iv) any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of capital stock of Borrower now or hereafter outstanding, and (v) any payment of management fees by Borrower (except for reasonable management fees to any Originator or its Affiliates in reimbursement of actual management services performed). "S&P" means Standard and Poor's Ratings Services, a division of The McGraw Hill Companies, Inc. "Secured Parties" means the Indemnified Parties. "Servicer" means at any time the Person (which may be the Agent) then authorized pursuant to Article VIII to service, administer and collect Receivables. "Servicing Fee" means, for each day in a Calculation Period: (a) an amount equal to (i) the Servicing Fee Rate (or, at any time while NSI Georgia or one of its Affiliates is the Servicer, such lesser percentage as may be agreed between Borrower and the Servicer on an arms' length basis based on then prevailing market terms for similar services), times (ii) the aggregate Outstanding Balance of all Receivables at the close of business on the Cut-Off Date immediately preceding such Calculation Period, times (iii) 1/360; or Page 191 Exhibit 10(i)A(4) (b) on and after the Servicer's reasonable request made at any time when NSI Georgia or one of its Affiliates is no longer acting as Servicer hereunder, an alternative amount specified by the successor Servicer not exceeding (i) 110% of such Servicer's reasonable costs and expenses of performing its obligations under this Agreement during the preceding Calculation Period, divided by (ii) the number of days in the current Calculation Period. "Servicing Fee Rate" means 0.25% per annum (or such higher percentage as the Agent and Borrower may from time to time agree upon based upon then prevailing market conditions). "Servicing Reserve" means, for any Calculation Period, the product (expressed as a percentage) of (a) 1.00%, times (b) a fraction, the numerator of which is the highest Days Sales Outstanding for the most recent 12 Calculation Periods and the denominator of which is 360. "Settlement Date" means (A) the 2nd Business Day after each Monthly Reporting Date, and (B) the last day of the relevant Interest Period in respect of each Loan of the Liquidity Banks. "Settlement Period" means (A) in respect of each Loan of Blue Ridge, the immediately preceding Calculation Period, and (B) in respect of each Loan of the Liquidity Banks, the entire Interest Period of such Loan. "Subsidiary" means, with respect to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person. "Tax Code" means the Internal Revenue Code of 1986, as the same may be amended from time to time. "Termination Date" has the meaning set forth in Section 2.2. "Termination Percentage" has the meaning set forth in Section 2.2. "Terminating Tranche" has the meaning set forth in Section 4.3(b). "Transaction Documents" means, collectively, this Agreement, each Borrowing Notice, the Receivables Sale Agreement, the First-Step Sale Agreement, each Collection Account Agreement, the Performance Undertaking, the Fee Letter, the Subordinated Note (as defined in the Receivables Sale Agreement) and all other instruments, documents and agreements executed and delivered in connection herewith. "UCC" means the Uniform Commercial Code as from time to time in effect in the specified jurisdiction. Page 192 Exhibit 10(i)A(4) "Unmatured Amortization Event" means an event which, with the passage of time or the giving of notice, or both, would constitute an Amortization Event. "Usage Fee" has the meaning set forth in the Fee Letter. "Wachovia" means Wachovia Bank, N.A. in its individual capacity and its capacity as agent. Unless otherwise specified herein, all terms of an accounting character used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent (except for changes concurred in by the Parent's independent public accountants or otherwise required by a change in GAAP) with the most recent audited consolidated financial statements of the Parent and its Consolidated Subsidiaries delivered to the Agent unless with respect to any such change concurred in by the Parent's independent public accountants or required by GAAP, in determining compliance with any of the provisions of this Agreement or any of the other Transaction Documents: (i) the Parent shall have objected to determining such compliance on such basis at the time of delivery of such financial statements, or (ii) the Agent shall so object in writing within 30 days after the delivery of such financial statements, in either of which events such calculations shall be made on a basis consistent with those used in the preparation of the latest financial statements as to which such objection shall not have been made. All terms used in Article 9 of the UCC in the State of Georgia, and not specifically defined herein, are used herein as defined in such Article 9. Page 193 Exhibit 10(i)A(4) EXHIBIT II FORM OF BORROWING NOTICE --- NSI Funding, Inc. BORROWING NOTICE dated ______________, 20__ for Borrowing on ________________, 20__ Wachovia Bank, N.A., as Agent 191 Peachtree Street, N.E., GA-423 Atlanta, Georgia 30303 Attention: Elizabeth R. Wagner, Fax No. (404) 332-5152 Ladies and Gentlemen: Reference is made to the Credit and Security Agreement dated as of May 2, 2001 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement") among NSI Funding, Inc., a Delaware corporation (the "Borrower"), National Service Industries, Inc., a Georgia corporation, as initial Servicer, Blue Ridge Asset Funding Corporation, and Wachovia Bank N.A., individually and as Agent. Capitalized terms defined in the Credit Agreement are used herein with the same meanings. 1. The [Servicer, on behalf of the] Borrower hereby certifies, represents and warrants to the Agent and the Lenders that on and as of the Borrowing Date (as hereinafter defined): (a) all applicable conditions precedent set forth in Article VI of the Credit Agreement have been satisfied; (b) each of its representations and warranties contained in Section 5.1 of the Credit Agreement will be true and correct, in all material respects, as if made on and as of the Borrowing Date; (c) no event will have occurred and is continuing, or would result from the requested Advance, that constitutes an Amortization Event or Unmatured Amortization Event; (d) the Facility Termination Date has not occurred; and Page 194 Exhibit 10(i)A(4) (e) after giving effect to the Loans comprising the Advance requested below, the Aggregate Principal will not exceed the Borrowing Limit. 2. The [Servicer, on behalf of the] Borrower hereby requests that Blue Ridge (or their respective Liquidity Banks) make an Advance on ___________, 20__ (the "Borrowing Date") as follows: (a) Aggregate Amount of Advance: $_____________ (b) If the Advance is not funded by Blue Ridge, [Servicer on behalf of the] Borrower requests that the Liquidity Banks make an Alternate Base Rate Loan that converts into LIBO Rate Loan with an Interest Period of _____ months on the third Business Day after the Borrowing Date). 3. Please disburse the proceeds of the Loans as follows: [Apply $________ to payment of principal and interest of existing Loans due on the Borrowing Date]. [Apply $______ to payment of fees due on the Borrowing Date]. [Wire transfer $________ to account no. ________ at ___________ Bank, in [city, state], ABA No. __________, Reference: ________]. IN WITNESS WHEREOF, the [Servicer, on behalf of the] Borrower has caused this Borrowing Request to be executed and delivered as of this ____ day of ___________, _____. [National Service Industries, Inc., A GEORGIA CORPORATION, AS SERVICER, on behalf of] NSI FUNDING, INC., AS BORROWER By: _________________________________ Name: Title: Page 195 Exhibit 10(i)A(4) EXHIBIT III PLACES OF BUSINESS OF THE LOAN PARTIES; LOCATIONS OF RECORDS; FEDERAL EMPLOYER IDENTIFICATION NUMBER(S) Places of Business: 1420 Peachtree Street Atlanta, Georgia 30309 Locations of Records: 1420 Peachtree Street Atlanta, Georgia 30309 One Lithonia Way Conyers, Georgia 30012 Highway 41 North Emerson, Georgia 30137 1310 Seaboard Industrial Blvd. Atlanta, Georgia 30318 Federal Employer Identification Number: NSI Georgia: 58-2227507 NSI Enterprises: 77-0319365 Borrower: 58-2616706 Prior Borrower Legal Names, Borrower Trade and Assumed Names: None Page 196 Exhibit 10(i)A(4) EXHIBIT IV NAMES OF COLLECTION BANKS; LOCK-BOXES & COLLECTION ACCOUNTS LOCK-BOX RELATED COLLECTION ACCOUNT -------- -------------------------- Name of Current Account Holder: Enforcer Products, a division of NSI GA P.O. Box 945786 Account Number: Lockbox #945786, DDA #13245324 Atlanta, GA Bank Name: Wachovia Bank of Georgia 30392-5786 ABA Number: 061000010 Contact Person: Shari Hall Contact's Tel: 404-332-5319 Contact's Fax: 404-332-5016 ----------------------------------------------- ------------------------------------------------------- Name of Current Account Holder: Zep Chemicals, a division of NSI GA Account Number: 13021386 n/a Bank Name: Wachovia Bank of Georgia ABA Number: 061000010 Contact Person: Shari Hall Contact's Tel: 404-332-5319 Contact's Fax: 404-332-5016 ----------------------------------------------- ------------------------------------------------------- Name of Current Account Holder: Zep Chemicals, a division of NSI GA Account Number: 18646071 Bank Name: Wachovia Bank of Georgia n/a ABA Number: 061000010 Contact Person: Shari Hall Contact's Tel: 404-332-5319 Contact's Fax: 404-332-5016 ----------------------------------------------- ------------------------------------------------------- Name of Current Account Holder: Lithonia Lighting, a division of NSI GA P.O. Box 100863 Account Number: Lockbox #100863, DDA#3750249781 Atlanta, GA 30384 Bank Name: Bank of America ABA Number: 111000012 Contact Person: Debbie Hembree Contact's Tel: 404-607-2851 Contact's Fax: 404-532-2943 ----------------------------------------------- ------------------------------------------------------- Name of Current Account Holder: Lithonia Lighting, a division of NSI P.O. Box 360305 Account Number: DDA#1911121 Pittsburgh, PA 15251 Bank Name: Mellon Bank, Pittsburgh PA ABA Number: 043000261 Dept. LA 21025 Contact Person: Patti Sostaric Pasadena, CA 91185-1025 Contact's Tel: 412-234-6626 Contact's Fax: 412-209-6082 Page 197 Exhibit 10(i)A(4) ----------------------------------------------- ------------------------------------------------------- P.O. Box 530737 Name of Current Account Holder: NSI Chemicals (Zep), a division of NSI, GA Atlanta, GA 30353-0737 Account Number: 0373309 Bank Name: Mellon Bank, Pittsburgh PA Dept. CH10697 ABA Number: 043000261 Palatine, IL 60055-0697 Contact Person: Patti Sostaric Contact's Tel: 412-234-6626 Dept. LA21294 Contact's Fax: 412-209-6082 Pasadena, CA 91185-1294 Dept. 0905 P.O. Box 120001 Dallas, TX 75312-0905 Box 382012 Pittsburgh, PA 15250-8012 Box 382156 Pittsburgh, PA 15250-8156 Page 198 Exhibit 10(i)A(4) EXHIBIT V FORM OF COMPLIANCE CERTIFICATE To: Wachovia Bank, N.A., as Agent This Compliance Certificate is furnished pursuant to that certain Credit and Security Agreement dated as of May 2, 2001 among NSI Funding, Inc., a Delaware corporation (the "Borrower"), National Service Industries, Inc., a Georgia corporation (the "Servicer"), the Lenders party thereto and Wachovia Bank, N.A., as agent for such Lenders (the "Agreement"). THE UNDERSIGNED HEREBY CERTIFIES IN HIS OR HER REPRESENTATIVE CAPACITY ON BEHALF OF PERFORMANCE GUARANTOR THAT: 1. I am the duly elected _________________ of Borrower. 2. I have reviewed the terms of the Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of Performance Guarantor and its Subsidiaries during the accounting period covered by the attached financial statements. 3. The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes an Amortization Event or Unmatured Amortization Event, as each such term is defined under the Agreement, during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate[, except as set forth in paragraph 5 below]. 4. Schedule I attached hereto sets forth financial data and computations evidencing the compliance with certain covenants of the Agreement, all of which data and computations are true, complete and correct. [5. Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which Performance Guarantor has taken, is taking, or proposes to take with respect to each such condition or event: --------------------] Page 199 Exhibit 10(i)A(4) The foregoing certifications, together with the computations set forth in Schedule I hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered by the undersigned in his or her representative capacity on behalf of the Performance Guarantor, all as of ______________, 20__. By:___________________________ Name: Title: Page 200 Exhibit 10(i)A(4) SCHEDULE I TO COMPLIANCE CERTIFICATE A. Schedule of Compliance as of __________, 200_ with Section ___ of the Agreement. Unless otherwise defined herein, the terms used in this Compliance Certificate have the meanings ascribed thereto in the Agreement. This schedule relates to the month ended: _______________ Page 201 Exhibit 10(i)A(4) EXHIBIT VI FORM OF COLLECTION ACCOUNT AGREEMENT COLLECTION ACCOUNT AGREEMENT _____________, 2001 [Collection Bank Name] [Collection Bank Address] Attn: ____________________ Fax No. (___) ______________ Re: NSI Enterprises, Inc./National Service Industries, Inc./NSI Funding, Inc. Ladies and Gentlemen: Reference is hereby made to each of the [departmental] post office boxes listed on Schedule 1 hereto (each, a "Lock-Box") of which [Collection Bank Name], a _________ banking association (hereinafter "you"), -------- --- has exclusive control for the purpose of receiving mail and processing payments therefrom pursuant to the [Lock-Box Service Agreement] dated _______________, originally by and between NSI Enterprises, Inc., a California corporation (the "Company") and you (the "Service Agreement"). 1. You hereby confirm your agreement to perform the services described therein. Among the services you have agreed to perform therein, is to endorse all checks and other evidences of payment received in each of the Lock-Boxes, and credit such payments to account no. _____________ (the "Lock-Box Account"). 2. The Company hereby informs you that it has transferred to its affiliate, National Service Industries, Inc., a Georgia corporation ("NSI Georgia"), and NSI Georgia has transferred to itsn and to the items from time to time received in the Lock-Boxes and/or deposited in the Lock-Box Account, but that NSI Georgia and the Company have agreed to continue to service the receivables giving rise to such items. Accordingly, the Company, NSI Georgia and Borrower hereby request that the name of the Lock-Box Account be changed to "NSI Funding, Inc." Borrower hereby further advises you that it has pledged the receivables giving rise to such items to a group of lenders for whom Wachovia Bank, N.A. acts as agent (in such capacity, the "Agent") and has granted a security interest to the Agent in all of Borrower's right, title and interest in and to the Lock-Box Account and the funds therein. Page 202 Exhibit 10(i)A(4) 3. Each of the Company, NSI Georgia and Borrower hereby irrevocably instructs you, and you hereby agree, that upon receiving notice from the Agent in the form attached hereto as Annex A: (i) the name of the Lock-Box Account will be changed to "Wachovia Bank, N.A., as Agent" (or any designee of the Agent), and the Agent will have exclusive ownership of and access to the Lock-Boxes and the Lock-Box Account, and none of the Company, NSI Georgia, Borrower, nor any of their respective affiliates will have any control of the Lock-Boxes or the Lock-Box Account or any access thereto, (ii) you will either continue to send the funds from the Lock-Boxes to the Lock-Box Account, or will redirect the funds as the Agent may otherwise request, (iii) you will transfer monies on deposit in the Lock-Box Account to the following account: Bank Name: Wachovia Bank, N.A. Location: Winston-Salem, SC ABA Routing No.: ABA # 053100494 Credit Account No.: For credit to Blue Ridge Asset Funding Account #8735-098787. Reference: Blue Ridge/NSI Funding, Inc. Attention: John Dillon, tel. (336) 732-2690 or to such other account as the Agent may specify, (iv) all services to be performed by you under the Service Agreement will be performed on behalf of the Agent, and (v) all correspondence or other mail which you have agreed to send to the Company, NSI Georgia or Borrower will be sent to the Agent at the following address: Wachovia Bank, N.A., as Agent 191 Peachtree Street Mail Stop GA-423 Atlanta, GA 30303 Attn: Elizabeth K. Wagner, Asset-Backed Finance FAX: (404) 332- 5152 Moreover, upon such notice, the Agent will have all rights and remedies given to the Company (and Borrower, as the Company's and NSI Georgia's ultimate assignee) under the Service Agreement. The Company agrees, however, to continue to pay all fees and other assessments due thereunder at any time. 4. You hereby acknowledge that monies deposited in the Lock-Box Account or any other account established with you by the Agent for the purpose of receiving funds from the Lock-Boxes are subject to the liens of the Agent, and will not be subject to deduction, set-off, banker's lien or any other right you or any other party may have against the Company, NSI Georgia or Borrower except that you may debit the Lock-Box Account for any items deposited therein that are returned or Page 203 Exhibit 10(i)A(4) otherwise not collected and for all charges, fees, commissions and expenses incurred by you in providing services hereunder, all in accordance with your customary practices for the charge back of returned items and expenses. 5. You will be liable only for direct damages in the event you fail to exercise ordinary care. You shall be deemed to have exercised ordinary care if your action or failure to act is in conformity with general banking usages or is otherwise a commercially reasonable practice of the banking industry. You shall not be liable for any special, indirect or consequential damages, even if you have been advised of the possibility of these damages. 6. The parties acknowledge that you may assign or transfer your rights and obligations hereunder solely to a wholly-owned subsidiary of [insert name of Collection Bank's holding company]. 7. Borrower agrees to indemnify you for, and hold you harmless from, all claims, damages, losses, liabilities and expenses, including legal fees and expenses, resulting from or with respect to this letter agreement and the administration and maintenance of the Lock-Box Account and the services provided hereunder, including, without limitation: (a) any action taken, or not taken, by you in regard thereto in accordance with the terms of this letter agreement, (b) the breach of any representation or warranty made by Borrower pursuant to this letter agreement, (c) any item, including, without limitation, any automated clearinghouse transaction, which is returned for any reason, and (d) any failure of Borrower to pay any invoice or charge to you for services in respect to this letter agreement and the Lock-Box Account or any amount owing to you from Borrower with respect thereto or to the service provided hereunder. 8. THIS LETTER AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER WILL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF _________, WHICH STATE SHALL BE YOUR "LOCATION" FOR PURPOSES OF THE UNIFORM COMMERCIAL CODE FROM AND AFTER JULY 1, 2001. This letter agreement may be executed in any number of counterparts and all of such counterparts taken together will be deemed to constitute one and the same instrument. 9. This letter agreement contains the entire agreement between the parties, and may not be altered, modified, terminated or amended in any respect, nor may any right, power or privilege of any party hereunder be waived or released or discharged, except upon execution by all parties hereto of a written instrument so providing. In the event that any provision in this letter agreement is in conflict with, or is inconsistent with, any provision of the Service Agreement, this letter agreement will exclusively govern and control. Each party agrees to take all actions reasonably requested by any other party to carry out the purposes of this letter agreement or to preserve and protect the rights of each party hereunder. Page 204 Exhibit 10(i)A(4) Please indicate your agreement to the terms of this letter agreement by signing in the space provided below. This letter agreement will become effective immediately upon execution of a counterpart of this letter agreement by all parties hereto. Very truly yours, NSI ENTERPRISES, INC., A CALIFORNIA CORPORATION By: ------------------------------------------------- Name: Title: NATIONAL SERVICE INDUSTRIES, INC., A GEORGIA CORPORATION By: ------------------------------------------------- Name: Title: NSI FUNDING, INC., A DELAWARE CORPORATION By: ------------------------------------------------- Name: Title: Page 205 Exhibit 10(i)A(4) Acknowledged and agreed to as of the date first above written: [COLLECTION BANK] By: ------------------------------------------------ Name: Title: WACHOVIA BANK, N.A., AS AGENT By: ------------------------------------------------ Name: Title: Page 206 Exhibit 10(i)A(4) ANNEX A FORM OF NOTICE [On letterhead of the Agent] [Date] [Collection Bank Name] [Collection Bank Address] Attn: ____________________ Fax No. (___) ______________ Re: NSI Enterprises, Inc./National Service Industries, Inc./NSI Funding, Inc. Ladies and Gentlemen: We hereby notify you that we are exercising our rights pursuant to that certain letter agreement dated ____________, 2001 (the "Letter Agreement") among NSI Enterprises, Inc., National Service Industries, Inc., NSI Funding, Inc., you and us, to have the name of, and to have exclusive ownership and control of, account no. __________ identified in the Letter Agreement (the "Lock-Box Account") maintained with you, transferred to us. The Lock-Box Account will henceforth be a zero-balance account, and funds deposited in the Lock-Box Account should be sent at the end of each day to the account specified in Section 3(i) of the Letter Agreement, or as otherwise directed by the undersigned. You have further agreed to perform all other services you are performing under the "Service Agreement" (as defined in the Letter Agreement) on our behalf. We appreciate your cooperation in this matter. Very truly yours, WACHOVIA BANK, N.A., AS AGENT By:__________________________ Title: Page 207 Exhibit 10(i)A(4)> SCHEDULE 1 ------------------------------------------------------------------------------ LOCK-BOX POST OFFICE ADDRESS ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ Page 208 Exhibit 10(i)A(4) EXHIBIT VII FORM OF ASSIGNMENT AGREEMENT THIS ASSIGNMENT AGREEMENT (this "Assignment Agreement") is entered into as of the ___ day of ____________, ____, by and between _____________________ ("Assignor") and __________________ ("Assignee"). PRELIMINARY STATEMENTS A. This Assignment Agreement is being executed and delivered in accordance with Section 12.1(b) of that certain Credit and Security Agreement dated as of May 2, 2001 by and among NSI Funding, Inc., as Borrower, National Service Industries, Inc., as Servicer, Blue Ridge Asset Funding Corporation, Wachovia Bank, N.A., as Agent, and the Liquidity Banks party thereto (as amended, modified or restated from time to time, the "Credit and Security Agreement") and that certain Liquidity Asset Purchase Agreement dated as of May 2, 2001 by and among Blue Ridge, the Liquidity Banks from time to time party thereto and Wachovia Bank, N.A., as Agent (as amended, modified or restated from time to time, the "Liquidity Agreement"). Capitalized terms used and not otherwise defined herein are used with the meanings set forth or incorporated by reference in the Credit and Security Agreement. B. Assignor is a Liquidity Bank party to the Credit and Security Agreement and the Liquidity Agreement, and Assignee wishes to become a Liquidity Bank thereunder; and C. Assignor is selling and assigning to Assignee an undivided ____________% (the "Transferred Percentage") interest in all of Assignor's rights and obligations under the Transaction Documents and the Liquidity Agreement, including, without limitation, Assignor's Commitment, Assignor's Liquidity Commitment and (if applicable) Assignor's Loans as set forth herein. AGREEMENT The parties hereto hereby agree as follows: 1. The sale, transfer and assignment effected by this Assignment Agreement shall become effective (the "Effective Date") two (2) Business Days (or such other date selected by the Agent in its sole discretion) following the date on which a notice substantially in the form of Schedule II to this Assignment Agreement ("Effective Notice") is delivered by the Agent to Blue Ridge, Borrower, Servicer, Assignor and Assignee. From and after the Effective Date, Assignee shall be a Liquidity Bank party to the Credit and Security Agreement for all purposes thereof as if Assignee were an original party thereto and Assignee agrees to be bound by all of the terms and provisions contained therein. 2. If Assignor has no outstanding principal under the Credit and Security Agreement or the Liquidity Agreement, on the Effective Date, Assignor shall be deemed to have hereby transferred and assigned to Assignee, without recourse, Page 209 Exhibit 10(i)A(4) representation or warranty (except as provided in paragraph 6 below), and the Assignee shall be deemed to have hereby irrevocably taken, received and assumed from Assignor, the Transferred Percentage of Assignor's Commitment and Liquidity Commitment and all rights and obligations associated therewith under the terms of the Credit and Security Agreement and the Liquidity Agreement, including, without limitation, the Transferred Percentage of Assignor's future funding obligations under the Credit and Security Agreement and the Liquidity Agreement. 3. If Assignor has any outstanding principal under the Credit and Security Agreement and Liquidity Agreement, at or before 12:00 noon, local time of Assignor, on the Effective Date Assignee shall pay to Assignor, in immediately available funds, an amount equal to the sum of (i) the Transferred Percentage of the outstanding principal of Assignor's Loans and, without duplication, Assignor's Percentage Interests (as defined in the Liquidity Agreement) (such amount, being hereinafter referred to as the "Assignee's Principal"); (ii) all accrued but unpaid (whether or not then due) Interest attributable to Assignee's Principal; and (iii) accruing but unpaid fees and other costs and expenses payable in respect of Assignee's Principal for the period commencing upon each date such unpaid amounts commence accruing, to and including the Effective Date (the "Assignee's Acquisition Cost"); whereupon, Assignor shall be deemed to have sold, transferred and assigned to Assignee, without recourse, representation or warranty (except as provided in paragraph 6 below), and Assignee shall be deemed to have hereby irrevocably taken, received and assumed from Assignor, the Transferred Percentage of Assignor's Commitment, Liquidity Commitment, Loans (if applicable) and Percentage Interests (if applicable) and all related rights and obligations under the Transaction Documents and the Liquidity Agreement, including, without limitation, the Transferred Percentage of Assignor's future funding obligations under the Credit and Security Agreement and the Liquidity Agreement. 4. Concurrently with the execution and delivery hereof, Assignor will provide to Assignee copies of all documents requested by Assignee which were delivered to Assignor pursuant to the Credit and Security Agreement or the Liquidity Agreement. 5. Each of the parties to this Assignment Agreement agrees that at any time and from time to time upon the written request of any other party, it will execute and deliver such further documents and do such further acts and things as such other party may reasonably request in order to effect the purposes of this Assignment Agreement. 6. By executing and delivering this Assignment Agreement, Assignor and Assignee confirm to and agree with each other, the Agent and the Liquidity Banks as follows: (a) other than the representation and warranty that it has not created any Adverse Claim upon any interest being transferred hereunder, Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made by any other Person in or in connection with any of the Transaction Documents or the Liquidity Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of Assignee, the Credit and Security Agreement, the Liquidity Agreement or any other instrument or document furnished pursuant thereto or the perfection, priority, condition, value or sufficiency of Page 210 Exhibit 10(i)A(4) any Collateral; (b) Assignor makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower, any Obligor, any Affiliate of Borrower or the performance or observance by Borrower, any Obligor, any Affiliate of Borrower of any of their respective obligations under the Transaction Documents or any other instrument or document furnished pursuant thereto or in connection therewith; (c) Assignee confirms that it has received a copy of each of the Transaction Documents and the Liquidity Agreement, and other documents and information as it has requested and deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement; (d) Assignee will, independently and without reliance upon the Agent, Blue Ridge, Borrower or any other Liquidity Bank or Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Transaction Documents and the Liquidity Agreement; (e) Assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Transaction Documents and the Liquidity Agreement as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; and (f) Assignee agrees that it will perform in accordance with their terms all of the obligations which, by the terms of the Liquidity Agreement, the Credit and Security Agreement and the other Transaction Documents, are required to be performed by it as a Liquidity Bank or, when applicable, as a Lender. 7. Each party hereto represents and warrants to and agrees with the Agent that it is aware of and will comply with the provisions of the Credit and Security Agreement, including, without limitation, Sections 14.5 and 14.6 thereof. 8. Schedule I hereto sets forth the revised Commitment and Liquidity Commitment of Assignor and the Commitment and Liquidity Commitment of Assignee, as well as administrative information with respect to Assignee. 9. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 10. Assignee hereby covenants and agrees that, prior to the date which is one year and one day after the payment in full of all senior indebtedness for borrowed money of Blue Ridge, it will not institute against, or join any other Person in instituting against, Blue Ridge any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. IN WITNESS WHEREOF, the parties hereto have caused this Assignment Agreement to be executed by their respective duly authorized officers of the date hereof. [ASSIGNOR] By: _________________________ Title: Page 211 Exhibit 10(i)A(4) [ASSIGNEE] By: __________________________ Title: Page 212 Exhibit 10(i)A(4) SCHEDULE I TO ASSIGNMENT AGREEMENT LIST OF LENDING OFFICES, ADDRESSES FOR NOTICES AND COMMITMENT AMOUNTS Date: _____________, ______ Transferred Percentage: ____________% ---------------- --------------- ----------------- --------------- ----------------- ----------------- ---------------- A-1 A-2 B-1 B-2 C-1 C-2 ---------------- --------------- ----------------- --------------- ----------------- ----------------- ---------------- Assignor Commitment Commitment Outstanding Ratable Share Liquidity Liquidity (prior to (after giving principal (if of Outstanding Commitment Commitment giving effect effect to the any) principal (prior to (after giving to the Assignment giving effect effect to the Assignment Agreement) to the Assignment Agreement) Assignment Agreement) Agreement) ---------------- --------------- ----------------- --------------- ----------------- ----------------- ---------------- ---------------- --------------- ----------------- --------------- ----------------- ----------------- ---------------- A-1 A-2 B-1 B-2 C-1 C-2 ---------------- --------------- ----------------- --------------- ----------------- ----------------- ---------------- Assignee Commitment Commitment Outstanding Ratable Share Liquidity Liquidity (prior to (after giving principal (if of Outstanding Commitment Commitment giving effect effect to the any) principal (prior to (after giving to the Assignment giving effect effect to the Assignment Agreement) to the Assignment Agreement) Assignment Agreement) Agreement) ---------------- --------------- ----------------- --------------- ----------------- ----------------- ---------------- Address for Notices ------------------- Attention: Phone: Fax: Page 213 Exhibit 10(i)A(4) SCHEDULE II TO ASSIGNMENT AGREEMENT EFFECTIVE NOTICE TO: ________________________, Assignor TO: ________________________, Assignee The undersigned, as Agent under the Credit and Security Agreement dated as of May 2, 2001 by and among NSI Funding, Inc., as Borrower, National Service Industries, Inc., as Servicer, Blue Ridge Asset Funding Corporation, Wachovia Bank, N.A., as Agent, and the Liquidity Banks party thereto, hereby acknowledges receipt of executed counterparts of a completed Assignment Agreement dated as of ____________, 2001 between __________________, as Assignor, and __________________, as Assignee. Terms defined in such Assignment Agreement are used herein as therein defined. 1. Pursuant to such Assignment Agreement, you are advised that the Effective Date will be 2. Each of the undersigned hereby consents to the Assignment Agreement as required by Section 12.1(b) of the Credit and Security Agreement. [3. Pursuant to such Assignment Agreement, the Assignee is required to pay $____________ to Assignor at or before 12:00 noon (local time of Assignor) on the Effective Date in immediately available funds.] Very truly yours, WACHOVIA BANK, N.A., as Agent By: __________________________ Title:_______________________ Page 214 Exhibit 10(i)A(4) BLUE RIDGE ASSET FUNDING CORPORATION BY: WACHOVIA BANK, N.A., ITS ATTORNEY-IN-FACT By: ____________________________ Name: Title: ***[Borrower hereby consents to the foregoing assignment: NSI Funding, Inc. By: ______________________________ Name: Title:]**** Page 215 Exhibit 10(i)A(4) EXHIBIT VIII FORM OF MONTHLY REPORT ----------------------------------------------------------------------------------------------------------------- Monthly Receivables Report For the Month Ended: _____________, 20__ (Page 1) ----------------------------------------------------------------------------------------------------------------- ($) ----------------------------------------------------------------------------------------------------------------- I . Portfolio Information ----------------------------------------------------------------------------------------------------------------- 1. Beginning of Month Balance: (Total A/R Outstanding) ----------------------------------------------------------------------------------------------------------------- 2. Gross Sales (Domestic & Foreign): ----------------------------------------------------------------------------------------------------------------- 3. Deduct: ----------------------------------------------------------------------------------------------------------------- a. Total Collections: ----------------------------------------------------------------------------------------------------------------- b. Dilution ----------------------------------------------------------------------------------------------------------------- c. Write Offs ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- 4. ----------------------------------------------------------------------------------------------------------------- a. Calculated Ending A/R Balance [(1) + (2) - (3 a,b,c)+(3d)]: ----------------------------------------------------------------------------------------------------------------- b. Reported Ending A/R Balance ----------------------------------------------------------------------------------------------------------------- c. Difference (If any) ----------------------------------------------------------------------------------------------------------------- 5. Deduct: ----------------------------------------------------------------------------------------------------------------- a. Defaulted Receivables ----------------------------------------------------------------------------------------------------------------- b. Government ----------------------------------------------------------------------------------------------------------------- c. Foreign ----------------------------------------------------------------------------------------------------------------- d. Contra ----------------------------------------------------------------------------------------------------------------- e. Bankrupt ----------------------------------------------------------------------------------------------------------------- f. Ineligible Terms > 90 days (5% carve-out) ----------------------------------------------------------------------------------------------------------------- g. Installment Contracts ----------------------------------------------------------------------------------------------------------------- H. Total Ineligibles ----------------------------------------------------------------------------------------------------------------- 6. Eligible Receivables [(4 b) - (5.h.)]: ----------------------------------------------------------------------------------------------------------------- 7. Deduct: Excess Concentration: ----------------------------------------------------------------------------------------------------------------- 8. Net Pool Balance [(6) -(7)]: ----------------------------------------------------------------------------------------------------------------- 9. Aging Current One Month ----------------------------------------------------------------------------------------------------------------- Schedule: Month % Prior ----------------------------------------------------------------------------------------------------------------- a. #REF! ----------------------------------------------------------------------------------------------------------------- b. #REF! ----------------------------------------------------------------------------------------------------------------- c. #REF! ----------------------------------------------------------------------------------------------------------------- d. #REF! ----------------------------------------------------------------------------------------------------------------- e. #REF! ----------------------------------------------------------------------------------------------------------------- f. #REF! ----------------------------------------------------------------------------------------------------------------- h. Total: ----------------------------------------------------------------------------------------------------------------- Page 216 Exhibit 10(i)A(4) Monthly Receivables Report For the Month Ended: _____________, 20__ (Page 2) $ II. Calculations Reflecting Current Activity ----------------------------------------------------------------------------------------------------------------- 10. Face Value CP Outstanding ----------------------------------------------------------------------------------------------------------------- 11. Required Reserve % ----------------------------------------------------------------------------------------------------------------- 12. Required Reserve [(8) x (11)]: ----------------------------------------------------------------------------------------------------------------- III. Compliance ----------------------------------------------------------------------------------------------------------------- 13. Asset Interest [(10) + (12) / (8)] ‹ 100% : ----------------------------------------------------------------------------------------------------------------- 14. 3M Avg. Delinquency Ratio ----------------------------------------------------------------------------------------------------------------- 15. 3M Avg. Default Ratio ----------------------------------------------------------------------------------------------------------------- 16. 3M Avg. Dilution Ratio ----------------------------------------------------------------------------------------------------------------- 17. Facility Limit [(12)‹= $xxxx ----------------------------------------------------------------------------------------------------------------- Page 217 Exhibit 10(i)A(4) Monthly Receivables Report For the Month Ended: _____________, 20__ (Page 3) $ IV. Excess Concentration: (Calculation) ----------------------------------------------------------------------------------------------------------------- Eligible Receivables ----------------------------------------------------------------------------------------------------------------- Allowable Max. Credit ---------- ----- ------- Percentage Allowable Rating ---------- ---------- ------ Balance) -------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Largest Short-Term Allowable Total Allowable Excess Obligors Debt Rating Percentage Receivables Receivables Receivables ----------------------------------------------------------------------------------------------------------------- 1 ----------------------------------------------------------------------------------------------------------------- 2 ----------------------------------------------------------------------------------------------------------------- 3 ----------------------------------------------------------------------------------------------------------------- 4 ----------------------------------------------------------------------------------------------------------------- 5 ----------------------------------------------------------------------------------------------------------------- 6 ----------------------------------------------------------------------------------------------------------------- 7 ----------------------------------------------------------------------------------------------------------------- 8 ----------------------------------------------------------------------------------------------------------------- 9 ----------------------------------------------------------------------------------------------------------------- 10 ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Total $0 $0 $0 ----------------------------------------------------------------------------------------------------------------- The undersigned hereby represents and warrants that the foregoing is a true and accurate accounting in all material respects with respect to outstanding Receivables as of ______________ (the "Report Date") in accordance with the Credit and Security Agreement dated as of May 2, 2001 (it being understood that any error, inaccuracy or omission in the foregoing that, when corrected, reveals that the Aggregate Principal exceeded the Borrowing Limit as of the Report Date shall constitute a material error or inaccuracy herein) and that all representations and warranties related to such Agreement are restated and reaffirmed. Signed: ____________________________ Date: ______________________________ Name: Title: ----------------------------------------------------------------------------------------------------------------- Page 218 Exhibit 10(i)A(4) EXHIBIT IX [FORM OF] PERFORMANCE UNDERTAKING This Performance Undertaking (this "Undertaking"), dated as of May 2, 2001, is executed by National Service Industries, Inc., a Delaware corporation (the "Performance Guarantor") in favor of NSI Funding, Inc., a Delaware corporation (together with its successors and assigns, "Recipient"). RECITALS 1. NSI Enterprises, Inc., a California corporation ("NSI Enterprises"), and National Service Industries, Inc., a Georgia corporation ("NSI Georgia" and, together with NSI Enterprises, the "Originators") are parties to a Receivables Sale Agreement, dated as of May 2, 2001 (as amended, restated or otherwise modified from time to time, the "First-Step Sale Agreement"), pursuant to which NSI Enterprises, subject to the terms and conditions contained therein, plans to sell its right, title and interest in its accounts receivable and certain related assets to NSI Georgia. 2. NSI Georgia and Recipient are parties to a Receivables Sale and Contribution Agreement, dated as of May 2, 2001 (as amended, restated or otherwise modified from time to time, the "Sale and Contribution Agreement" and, together with the First-Step Sale Agreement, the "Sale Agreements"), pursuant to which NSI Georgia, subject to the terms and conditions contained therein, plans to sell or contribute its right, title and interest in certain of its accounts receivable and certain related assets (including NSI Georgia's rights under the First-Step Sale Agreement) to Recipient. 3. Recipient intends to finance its purchases under the Sale and Contribution Agreement in part by borrowing under a Credit and Security Agreement dated as of May 2, 2001 (as the same may from time to time hereafter be amended, supplemented, restated or otherwise modified, the "Credit and Security Agreement" and, together with the Sale Agreements, the "Agreements") among Recipient, as Borrower, NSI Georgia, as initial Servicer, Blue Ridge Asset Funding Corporation ("Blue Ridge"), the banks and other financial institutions from time to time party thereto as "Liquidity Banks" (together with Blue Ridge, the "Lenders") and Wachovia Bank, N.A. or any successor agent appointed pursuant to the terms of the Credit and Security Agreement, as agent for the Lenders (in such capacity, the "Agent"). 4. Performance Guarantor owns, directly or indirectly, one hundred percent (100%) of the capital stock of each of the Originators and Recipient, and each of the Originators (and accordingly, Performance Guarantor) is expected to receive substantial direct and indirect benefits from their sales and/or contributions of receivables pursuant to the Sale Agreements (which benefits are hereby acknowledged). 5. As an inducement for Recipient to acquire Originators' accounts receivable pursuant to the Sale Agreements, Performance Guarantor has agreed to guaranty (a) the due and punctual performance by NSI Enterprises of its Page 219 Exhibit 10(i)A(4) obligations under the First-Step Sale Agreement, (b) the due and punctual performance by NSI Georgia of its obligations under the Sale and Contribution Agreement, and (c) the due and punctual performance by NSI Georgia of its servicing duties, and NSI Enterprises of its sub-servicing duties, under the Credit and Security Agreement. 6. Performance Guarantor wishes to guaranty the due and punctual performance by NSI Enterprises and NSI Georgia of the aforesaid obligations as provided herein. AGREEMENT NOW, THEREFORE, Performance Guarantor hereby agrees as follows: Section 1. Definitions. Capitalized terms used herein and not defined herein shall the respective meanings assigned thereto in the Agreements. In addition: "Guaranteed Obligations" means, collectively, (a) all covenants, agreements, terms, conditions and indemnities to be performed and observed by (i) NSI Enterprises as seller under the First-Step Sale Agreement or (ii) NSI Georgia as seller and contributor under the Sale and Contribution Agreement, including, without limitation, in each of the foregoing cases, the due and punctual payment of all sums which are or may become due and owing by either such Originator in its capacity as a seller or seller and contributor under the Sale Agreements, whether for fees, expenses (including actual and reasonable counsel fees), indemnified amounts or otherwise, whether upon any termination or for any other reason, and (b) all Servicing-Related Obligations. "Servicing Related Obligations" means all covenants, agreements, terms, conditions and indemnities to be performed and observed by (i) NSI Georgia in its capacity as Servicer under the Credit and Security Agreement, and/or (ii) NSI Enterprises in its capacity as a sub-servicing delegate of the Servicer under the Credit and Security Agreement. Section 2. Guaranty of Performance of Guaranteed Obligations. Performance Guarantor hereby guarantees to Recipient, the full and punctual payment and performance by each Originator of its respective Guaranteed Obligations. This Undertaking is an absolute, unconditional and continuing guaranty of the full and punctual performance of all Guaranteed Obligations of each Originator under the Agreements and each other document executed and delivered by either Originator pursuant to the Agreements and is in no way conditioned upon any requirement that Recipient first attempt to collect any amounts owing by either Originator to Recipient, the Agent or Blue Ridge from any other Person or resort to any collateral security, any balance of any deposit account or credit on the books of Recipient, the Agent or Blue Ridge in favor of either Originator or any other Person or other means of obtaining payment. Should either Originator default in the payment or performance of any of its Guaranteed Obligations, Recipient (or its assigns) may cause the immediate performance by Performance Guarantor of the Guaranteed Obligations and cause any payment Guaranteed Obligations to become forthwith due and payable to Recipient (or its assigns), without demand or notice of any nature (other than as expressly provided Page 220 Exhibit 10(i)A(4) herein), all of which are hereby expressly waived by Performance Guarantor. Notwithstanding the foregoing, this Undertaking is not a guarantee of the payment or collection of any of the Receivables or the Loans, and Performance Guarantor shall not be responsible for any Guaranteed Obligations to the extent the failure to perform such Guaranteed Obligations by either Originator results from Receivables being uncollectible on account of the insolvency, bankruptcy or lack of creditworthiness of the related Obligor; provided that nothing herein shall relieve either Originator from performing in full its Guaranteed Obligations under the Agreements or Performance Guarantor of its undertaking hereunder with respect to the full performance of such duties. Section 3. Performance Guarantor's Further Agreements to Pay. Performance Guarantor further agrees, as the principal obligor and not as a guarantor only, to pay to Recipient (and its assigns), forthwith upon demand in funds immediately available to Recipient, all reasonable costs and expenses (including court costs and reasonable legal expenses) actually incurred or expended by Recipient in connection with enforcement of the Guaranteed Obligations and/or this Undertaking, together with interest on amounts not paid by Performance Guarantor under this Undertaking within two Business Days after such amounts become due until payment, at a rate of interest (computed for the actual number of days elapsed based on a 360 day year) equal to the Prime Rate plus 2% per annum, such rate of interest changing when and as the Prime Rate changes. Section 4. Waivers by Performance Guarantor. Performance Guarantor waives notice of acceptance of this Undertaking, notice of any action taken or omitted by Recipient (or its assigns) in reliance on this Undertaking, and any requirement that Recipient (or its assigns) be diligent or prompt in making demands under this Undertaking, giving notice of any Termination Event, Amortization Event, other default or omission by either Originator or asserting any other rights of Recipient under this Undertaking. Performance Guarantor warrants that it has adequate means to obtain from each Originator, on a continuing basis, information concerning the financial condition of such Originator, and that it is not relying on Recipient to provide such information, now or in the future. Performance Guarantor also irrevocably waives all defenses (i) that at any time may be available in respect of the Guaranteed Obligations by virtue of any statute of limitations, valuation, stay, moratorium law or other similar law now or hereafter in effect or (ii) that arise under the law of suretyship, including impairment of collateral. Recipient (and its assigns) shall be at liberty, without giving notice to or obtaining the assent of Performance Guarantor and without relieving Performance Guarantor of any liability under this Undertaking, to deal with each Originator and with each other party who now is or after the date hereof becomes liable in any manner for any of the Guaranteed Obligations, in such manner as Recipient in its sole discretion deems fit, and to this end Performance Guarantor agrees that the validity and enforceability of this Undertaking, including without limitation, the provisions of Section 7 hereof, shall not be impaired or affected by any of the following: (a) any extension, modification or renewal of, or indulgence with respect to, or substitutions for, the Guaranteed Obligations or any part thereof or any agreement relating thereto at any time; (b) any failure or omission to enforce any right, power or remedy with respect to the Guaranteed Obligations or any part thereof or any agreement relating thereto, or any collateral securing the Guaranteed Obligations or any part thereof; (c) any waiver of any right, power or remedy or of any Termination Event, Amortization Event, or default with Page 221 Exhibit 10(i)A(4) respect to the Guaranteed Obligations or any part thereof or any agreement relating thereto; (d) any release, surrender, compromise, settlement, waiver, subordination or modification, with or without consideration, of any other obligation of any person or entity with respect to the Guaranteed Obligations or any part thereof; (e) the enforceability or validity of the Guaranteed Obligations or any part thereof or the genuineness, enforceability or validity of any agreement relating thereto or with respect to the Guaranteed Obligations or any part thereof; (f) the application of payments received from any source to the payment of any payment obligations of either Originator or any part thereof or amounts which are not covered by this Undertaking even though Recipient (or its assigns) might lawfully have elected to apply such payments to any part or all of the payment obligations of such Originator or to amounts which are not covered by this Undertaking; (g) the existence of any claim, setoff or other rights which Performance Guarantor may have at any time against either Originator in connection herewith or any unrelated transaction; (h) any assignment or transfer of the Guaranteed Obligations or any part thereof; or (i) any failure on the part of either Originator to perform or comply with any term of the Agreements or any other document executed in connection therewith or delivered thereunder, all whether or not Performance Guarantor shall have had notice or knowledge of any act or omission referred to in the foregoing clauses (a) through (i) of this Section 4. Section 5. Unenforceability of Guaranteed Obligations Against Originators. Notwithstanding (a) any change of ownership of Performance Guarantor or either Originator or the insolvency, bankruptcy or any other change in the legal status of either Originator; (b) the change in or the imposition of any law, decree, regulation or other governmental act which does or might impair, delay or in any way affect the validity, enforceability or the payment when due of the Guaranteed Obligations (unless the same shall be applicable to the Performance Guarantor); (c) the failure of either Originator or Performance Guarantor to maintain in full force, validity or effect or to obtain or renew when required all governmental and other approvals, licenses or consents required in connection with the Guaranteed Obligations or this Undertaking, or to take any other action required in connection with the performance of all obligations pursuant to the Guaranteed Obligations or this Undertaking; or (d) if any of the moneys included in the Guaranteed Obligations have become irrecoverable from either Originator for any other reason other than final payment in full of the payment obligations in accordance with their terms or lawful setoff of claims against the Purchasers, this Undertaking shall nevertheless be binding on Performance Guarantor. This Undertaking shall be in addition to any other guaranty or other security for the Guaranteed Obligations, and it shall not be rendered unenforceable by the invalidity of any such other guaranty or security. In the event that acceleration of the time for payment of any of the Guaranteed Obligations is stayed upon the insolvency, bankruptcy or reorganization of either Originator or for any other reason with respect to either Originator, all such amounts then due and owing with respect to the Guaranteed Obligations under the terms of the Agreements, or any other agreement evidencing, securing or otherwise executed in connection with the Guaranteed Obligations, shall be immediately due and payable by Performance Guarantor. Section 6. Representations and Warranties. Performance Guarantor hereby represents and warrants to Recipient and its assigns that (a) Performance Page 222 Exhibit 10(i)A(4) Guarantor is a corporation duly organized, validly existing and in good standing under the laws of Delaware and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, and (b) this Undertaking has been duly executed and delivered by Performance Guarantor and constitutes its legally valid and binding obligation, enforceable against Performance Guarantor in accordance with its terms, provided that the enforceability hereof is subject to general principles of equity and to bankruptcy, insolvency and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. Section 7. Subrogation. Notwithstanding anything to the contrary contained herein, until the Guaranteed Obligations are paid in full Performance Guarantor: (a) will not enforce or otherwise exercise any right of subrogation to any of the rights of Recipient, the Agent or Blue Ridge against either Originator, (b) hereby waives all rights of subrogation (whether contractual, under Section 509 of the United States Bankruptcy Code, at law or in equity or otherwise) to the claims of Recipient, the Agent and Blue Ridge against either Originator and all contractual, statutory or legal or equitable rights of contribution, reimbursement, indemnification and similar rights and "claims" (as that term is defined in the United States Bankruptcy Code) which Performance Guarantor might now have or hereafter acquire against either Originator that arise from the existence or performance of Performance Guarantor's obligations hereunder, (c) will not claim any setoff, recoupment or counterclaim against either Originator in respect of any liability of Performance Guarantor to such Originator and (d) waives any benefit of and any right to participate in any collateral security which may be held by Beneficiaries, the Agent or Blue Ridge. Section 8. Termination of Performance Undertaking. Performance Guarantor's obligations hereunder shall continue in full force and effect until all Obligations are finally paid and satisfied in full and the Credit and Security Agreement is terminated, provided that this Undertaking shall continue to be effective or shall be reinstated, as the case may be, if at any time payment or other satisfaction of any of the Guaranteed Obligations is rescinded or must otherwise be restored or returned upon the bankruptcy, insolvency, or reorganization of either Originator or otherwise, as though such payment had not been made or other satisfaction occurred, whether or not Recipient (or its assigns) is in possession of this Undertaking. No invalidity, irregularity or unenforceability by reason of the federal bankruptcy code or any insolvency or other similar law, or any law or order of any government or agency thereof purporting to reduce, amend or otherwise affect the Guaranteed Obligations shall impair, affect, be a defense to or claim against the obligations of Performance Guarantor under this Undertaking. Section 9. Effect of Bankruptcy. This Performance Undertaking shall survive the insolvency of either Originator and the commencement of any case or proceeding by or against either Originator under the federal bankruptcy code or other federal, state or other applicable bankruptcy, insolvency or reorganization statutes. No automatic stay under the federal bankruptcy code with respect to either Originator or other federal, state or other applicable bankruptcy, insolvency or reorganization statutes to which either Originator is subject shall postpone the obligations of Performance Guarantor under this Undertaking. Page 223 Exhibit 10(i)A(4) Section 10. Setoff. Regardless of the other means of obtaining payment of any of the Guaranteed Obligations, Recipient (and its assigns) is hereby authorized at any time and from time to time during the existence of any Amortization Event, without notice to Performance Guarantor (any such notice being expressly waived by Performance Guarantor) and to the fullest extent permitted by law, to set off and apply any deposits and other sums against the obligations of Performance Guarantor under this Undertaking then past due for more than two Business Days. Section 11. Taxes. All payments to be made by Performance Guarantor hereunder shall be made free and clear of any deduction or withholding (except for taxes excluded under Section 10.1 of the Credit and Security Agreement). If Performance Guarantor is required by law to make any deduction or withholding on account of any Taxes or otherwise from any such payment (except for taxes excluded under Section 10.1 of the Credit and Security Agreement), the sum due from it in respect of such payment shall be increased to the extent necessary to ensure that, after the making of such deduction or withholding, Recipient receive a net sum equal to the sum which they would have received had no deduction or withholding been made. Section 12. Further Assurances. Performance Guarantor agrees that it will from time to time, at the request of Recipient (or its assigns), provide information relating to the business and affairs of Performance Guarantor as Recipient may reasonably request. Section 13. Successors and Assigns. This Performance Undertaking shall be binding upon Performance Guarantor, its successors and permitted assigns, and shall inure to the benefit of and be enforceable by Recipient and its successors and assigns. Without limiting the generality of the foregoing sentence, Recipient may pledge or assign, and hereby notifies Performance Guarantor that it has pledged and assigned, this Performance Undertaking to the Agent, for the benefit of the Lenders, as security for the Obligations, and Performance Guarantor hereby acknowledges that the Agent may enforce this Performance Undertaking, on behalf of Recipient and the Lenders, with the same force and effect as though the Agent were the Recipient hereunder. Subject to Section 7.1(c)(ii) of the Credit and Security Agreement, Performance Guarantor may not assign or transfer any of its obligations hereunder without the prior written consent of each of Recipient and the Agent. Section 14. Amendments and Waivers. No amendment or waiver of any provision of this Undertaking nor consent to any departure by Performance Guarantor therefrom shall be effective unless the same shall be in writing and signed by Recipient, the Agent and Performance Guarantor. No failure on the part of Recipient to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. Section 15. Notices. All notices and other communications provided for hereunder shall be made in writing and shall be addressed as follows: if to Performance Guarantor, at the address set forth beneath its signature hereto, Page 224 Exhibit 10(i)A(4) and if to Recipient, at the addresses set forth beneath its signature to the Credit and Security Agreement, or at such other addresses as each of Performance Guarantor or any Recipient may designate in writing to the other. Each such notice or other communication shall be effective (a) if given by telecopy, upon the receipt thereof, (b) if given by mail, five (5) Business Days after the time such communication is deposited in the mail with first class postage prepaid or (c) if given by any other means, when received at the address specified in this Section 15. Section 16. GOVERNING LAW. THIS UNDERTAKING SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF GEORGIA. Section 17. CONSENT TO JURISDICTION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW: (A) EACH OF PERFORMANCE GUARANTOR AND RECIPIENT HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR GEORGIA STATE COURT SITTING IN FULTON COUNTY, GEORGIA IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS UNDERTAKING, THE AGREEMENTS OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION THEREWITH OR DELIVERED THEREUNDER AND (B) EACH OF PERFORMANCE GUARANTOR AND RECIPIENT HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. Section 18. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH OF PERFORMANCE GUARANTOR AND RECIPIENT HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS UNDERTAKING, THE AGREEMENTS OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION THEREWITH OR DELIVERED THEREUNDER OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER Section 19. Bankruptcy Petition. Performance Guarantor hereby covenants and agrees that, prior to the date that is one year and one day after the payment in full of all outstanding senior indebtedness owed by Blue Ridge, it will not institute against, or join any other Person in instituting against, Blue Ridge any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. Section 20. Miscellaneous. This Undertaking constitutes the entire agreement of Performance Guarantor with respect to the matters set forth herein. The rights and remedies herein provided are cumulative and not exclusive of any Page 225 Exhibit 10(i)A(4) remedies provided by law or any other agreement, and this Undertaking shall be in addition to any other guaranty of or collateral security for any of the Guaranteed Obligations. The provisions of this Undertaking are severable, and in any action or proceeding involving any state corporate law, or any state or federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of Performance Guarantor hereunder would otherwise be held or determined to be avoidable, invalid or unenforceable on account of the amount of Performance Guarantor's liability under this Undertaking, then, notwithstanding any other provision of this Undertaking to the contrary, the amount of such liability shall, without any further action by Performance Guarantor or Recipient, be automatically limited and reduced to the highest amount that is valid and enforceable as determined in such action or proceeding. Any provisions of this Undertaking which are 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. Unless otherwise specified, references herein to "Section" shall mean a reference to sections of this Undertaking. {signature page follows} Page 226 Exhibit 10(i)A(4) IN WITNESS WHEREOF, Performance Guarantor has caused this Undertaking to be executed and delivered as of the date first above written. National Service Industries, Inc., A DELAWARE CORPORATION By: ______________________________ Name: ____________________________ Title: _____________________________ Address for Notices: NSI Center 1420 Peachtree Street, N.E. Atlanta, Georgia 30309 Attention: Treasurer Telecopier: 404-853-1330 Telephone: 404-853-1368 Page 227 Exhibit 10(i)A(4) SCHEDULE A COMMITMENTS OF LIQUIDITY BANKS -------------------------------------------------------------------------------- LIQUIDITY BANK COMMITMENT -------------- ---------- Wachovia Bank, N.A. $150,000,000 Page 228 Exhibit 10(i)A(4) SCHEDULE B DOCUMENTS TO BE DELIVERED TO THE AGENT ON OR PRIOR TO THE INITIAL PURCHASE 1. Executed copies of the First-Step Sale Agreement, duly executed by NSI Enterprises and NSI Georgia, together with all closing documents required thereunder. 2. Executed copies of the Receivables Sale Agreement, duly executed by NSI Georgia and Borrower, together with all closing documents required thereunder. 3. Executed copies of the Credit and Security Agreement, duly executed by the parties thereto. 4. Copy of the Resolutions of the Board of Directors of each Loan Party and Performance Guarantor certified by its Secretary authorizing such Person's execution, delivery and performance of this Agreement and the other documents to be delivered by it hereunder. 5. Articles or Certificate of Incorporation of each Loan Party and Performance Guarantor certified by the Secretary of State of its jurisdiction of incorporation on or within thirty (30) days prior to the initial Advance. 6. Good Standing Certificate for each Loan Party and Performance Guarantor issued by the Secretaries of State of its state of incorporation and each jurisdiction where it has material operations, each of which is listed below: a. Borrower: Delaware and Georgia b. Servicer: Georgia c. Performance Guarantor: Delaware and Georgia d. NSI Enterprises: California and Georgia 7. A certificate of the Secretary of each Loan Party and Performance Guarantor certifying (i) the names and signatures of the officers authorized on its behalf to execute this Agreement and any other documents to be delivered by it hereunder and (ii) a copy of such Person's By-Laws. 8. Pre-filing state and federal tax lien, judgment lien and UCC lien searches against each Loan Party from the following jurisdictions: a. Borrower: Fulton County, GA and Georgia Superior Court Cooperative Authority Page 229 Exhibit 10(i)A(4) b. Servicer: Fulton County, GA and Georgia Superior Court Cooperative Authority 9. Proper financing statements, duly filed under the UCC on or before the date of the initial Advance in all jurisdictions as may be necessary or, in the opinion of the Agent, desirable, under the UCC of all appropriate jurisdictions or any comparable law in order to perfect the ownership interests contemplated by this Agreement. 10. Copies of proper UCC termination statements, if any, necessary to release all security interests and other rights of any Person in the Receivables, Contracts or Related Security previously granted by Borrower. 11. Executed copies of Collection Account Agreements for each Lock-Box and Collection Account. 12. A favorable opinion of legal counsel for the Loan Parties and Performance Guarantor reasonably acceptable to the Agent which addresses the following matters and such other matters as the Agent may reasonably request: (a) Each of the Loan Parties and Performance Guarantor is a corporation duly organized, validly existing, and in good standing under the laws of the state of ______________. (b) Each of the Loan Parties and Performance Guarantor has all requisite authority to conduct its business in each jurisdiction where failure to be so qualified would have a material adverse effect on such entity's business. (c) The execution and delivery by each of the Loan Parties and Performance Guarantor of the Transaction Document to which it is a party and its performance of its obligations thereunder have been duly authorized by all necessary organizational action and proceedings on the part of such entity and will not: (i) require any action by or in respect of, or filing with, any governmental body, agency or official (other than the filing of UCC financing statements); (ii) contravene, or constitute a default under, any provision of applicable law or regulation or of its articles or certificate of incorporation or bylaws or of any agreement, judgment, injunction, order, decree or other instrument binding upon such entity; or (iii) result in the creation or imposition of any Adverse Claim on assets of such entity or any of its Subsidiaries (except as contemplated by the Transaction Documents). (d) Each of the Transaction Documents to which each of the Loan Parties and Performance Guarantor is a party has been duly executed and delivered by such entity and constitutes the legally valid, and binding obligation of such entity enforceable in accordance with its terms, except to the extent the enforcement thereof may be limited by bankruptcy, insolvency or similar laws affecting the Page 230 Exhibit 10(i)A(4) enforcement of creditors' rights generally and subject also to the availability of equitable remedies if equitable remedies are sought. (e) The provisions of the Credit and Security Agreement are effective to create valid security interests in favor of the Agent, for the benefit of the Secured Parties, in all of Borrower's right, title and interest in and to the Receivables and Related Security described therein which constitute "accounts," "chattel paper" or "general intangibles" (each as defined in the UCC) (collectively, the "Opinion Collateral"), as security for the payment of the Obligations. (f) Each of the UCC-1 Financing Statements naming Borrower as debtor, and Agent, as secured party, to be filed in the [describe filing offices], is in appropriate form for filing therein. Upon filing of such UCC-1 Financing Statements in such filing offices and payment of the required filing fees, the security interest in favor of the Agent, for the benefit of the Secured Parties, in the Opinion Collateral will be perfected. (g) Based solely on our review of the [describe UCC Search Reports], and assuming (i) the filing of the Financing Statements and payment of the required filing fees in accordance with paragraph (f) and (ii) the absence of any intervening filings between the date and time of the Search Reports and the date and time of the filing of the Financing Statements, the security interest of the Agent in the Opinion Collateral is prior to any security interest granted in the Opinion Collateral by Borrower, the priority of which is determined solely by the filing of a financing statement in the [describe filing offices]. (h) Neither of the Loan Parties is a "holding company" or a "subsidiary holding company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, or an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 13. A Compliance Certificate. 14. The Fee Letter. 15. A Monthly Report as at _____________, 2001. 16. Executed copies of (i) all consents from and authorizations by any Persons and (ii) all waivers and amendments to existing credit facilities, that are necessary in connection with this Agreement. 17. If applicable, a direction letter executed by each of the Loan Parties authorizing the Agent and Blue Ridge, and directing warehousemen to allow the Agent and Blue Ridge to inspect and make copies from such Loan Party's books and records maintained at off-site data processing or storage facilities. 18. The Liquidity Agreement, duly executed by each of the parties thereto. Page 231 Exhibit 10(i)A(4) 19. Performance Undertaking, duly executed by the Performance Guarantor. 20. If applicable, for each Lender that is not incorporated under the laws of the United States of America, or a state thereof, two duly completed copies of United States Internal Revenue Service Form W-8BEN or W-8ECI, as applicable, certifying in either case that such Lender is entitled to receive payments under the Agreement without deduction or withholding of any United States federal income taxes.

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.2 CENTERPOINT PROPERTIES TRUST STOCK OPTION AGREEMENT     THIS STOCK OPTION AGREEMENT (the "Agreement") is dated as of May 16, 2001 between CenterPoint Properties Trust, a Maryland real estate investment trust (the "Company"), and Norman Bobins (the "Optionee").     This Agreement is made pursuant to, and is governed by, the CenterPoint Properties Trust 2000 Omnibus Employee Retention and Incentive Plan (the "2000 Plan"). Capitalized terms not otherwise defined herein shall have the meanings set forth in the Plan. The purpose of this Agreement is to establish a written agreement evidencing an option granted in accordance with the terms of the Plan. In this Agreement, "shares" means shares of the Company's Common Stock or other securities resulting from an adjustment under Article 8 of the Plan.     The parties agree as follows: 1.Grant of Option.  The Company hereby grants to the Optionee an option (the "Option") to purchase 5,000 shares under the terms and conditions hereof. 2.Term.  The Option becomes exercisable and terminates in accordance with the schedule set forth in Section 5 hereof; provided, however, that in the event employment of the Optionee with the Company or a Subsidiary terminates for any reason, the Option shall terminate in accordance with the provisions of Section 7.2 of the Plan. 3.Price.  The price of each share purchased by exercise of the Option is $46.51. 4.Partial Exercise.  The Option, to the extent exercisable under Section 5 hereof, may be exercised in whole or in part provided that the Option may not be exercised for less than 100 shares in any single transaction unless such exercise pertains tot he entire number of shares then covered by the Option. 5.Exercise Period. (a)Except as otherwise provided in the Plan or in this Agreement, the Option shall become exercisable as follows: Time Period --------------------------------------------------------------------------------   Exercisable -------------------------------------------------------------------------------- Prior to the first anniversary of the date of this Agreement   None After the first anniversary of the date of this Agreement   One-fifth After the second anniversary of the date of this Agreement   Two-fifths After the third anniversary of the date of this Agreement   Three-fifths After the fourth anniversary of the date of this Agreement   Four-fifths After the fifth anniversary of the date of this Agreement   All (b)If it has not previously terminated pursuant to the terms of the Plan or this Agreement, the Option shall terminate at the close of business on the day before the tenth anniversary of the date of this Agreement. 6.Method of Exercise.  The Option shall be exercised by written notice by Optionee to the Company specifying the number of shares that such person elects to purchase, accompanied by full payment, in cash or current funds, for such shares. 7.ISO Treatment.  It is intended that the Option shall qualify as an "incentive stock option" as described in Section 422 of the Internal Revenue Code of 1986, as amended. 8.Rights of Stockholder.  No person, estate, or other entity will have the rights of a stockholder with respect to shares subject to the Options until a certificate or certificates for these shares have been delivered to the person exercising the option. -------------------------------------------------------------------------------- 9.Rights of the Company.  This Agreement does not affect the Company's right to take any corporate action, including other changes in its right to recapitalize, reorganize or consolidate, issue bonds, notes or stock, including preferred stock or options therefor, to dissolve or liquidate, or to sell or transfer any part of its assets or business. 10.Changes in Capitalization.  Upon the occurrence of an event described in Section 8.1(a) of the Plan, the Committee shall make the adjustments specified in Section 8.1(b) of the Plan. 11.Taxes.  The company, if necessary or desirable, may pay or withhold the amount of any tax attributable to any shares deliverable under this Agreement, and the company may defer making delivery until it is indemnified to its satisfaction for that tax. 12.Compliance with Laws.  Options are exercisable, and shares can be delivered under this Agreement, only in compliance with all applicable federal and state laws and regulations, including without limitation state and federal securities laws, and the rules of all stock exchanges on which the Common Stock is listed at any time. Options may not be exercised and shares may not be issued under this Agreement until the Company has obtained the consent or approval of every regulatory body, federal or state, having jurisdiction over such matters as the Committee deems advisable. Each person or estate that acquired the right to exercise an Option by bequest or inheritance may be required by the Committee to furnish reasonable evidence of ownership of the Option as a condition to the exercise of the Option. In addition, the Committee may require such consents and releases of taxing authorities as the Committee deems advisable. 13.Stock Legends.  Any certificate issued to evidence shares issued under the Option shall bear such legends and statements as the committee deems advisable to assure compliance with all federal and state laws and regulations. 14.Assignability.  The Option shall not be transferable other than by will or the laws of descent and distribution. G the Optionee's lifetime, the Option shall be exercisable only by the Optionee, except as otherwise provided herein. The Option shall be transferable, on the Optionee's death, to the Optionee's estate and shall be exercisable, during the Optionee's lifetime, by the Optionee's guardian or legal representative. 15.No Right of Employment.  Nothing in this Agreement shall confer any right on an employee to continue in the employ of the Company or shall interfere in any way with the right of the Company to terminate such employee's employment at any time. 16.Amendment of Option.  The Company may alter, amend, or terminate the Option only with the Optionee's consent, except for adjustments expressly provided by this Agreement. 17.Choice of Law.  The provisions of Section 9.6 of the Plan, concerning choice of law, shall govern this Agreement. 18.Miscellaneous.  This Agreement is subject to and controlled by the Plan. Any inconsistency between this Agreement and said Plan shall be controlled by the Plan. This Agreement is the final, complete, and exclusive expression of the understanding between the parties and supersedes any prior or contemporaneous agreement or representation, oral or written, between them. Modification of this Agreement or waiver of a condition herein must be written and signed by the party to be bound. In the event that any paragraph or provision of this Agreement shall be held to be illegal or unenforceable, such paragraph or provision shall be severed from the Agreement and the entire Agreement shall not fail on account thereof, but shall otherwise remain in full force and effect. 19.Notices.  All notices and other communications required or permitted under this Agreement shall be written, and shall be either delivered personally or sent by registered or certified first-class mail, postage prepaid and return receipt requested, or by telex or telecopier, addressed as 2 -------------------------------------------------------------------------------- follows: if to the Company, to the Company's principal office, and if to the Optionee or his successor, to the address last furnished by such person to the Company. Each such notice and communication delivered personally shall be deemed to have been given when delivered. Each such notice and communication given by mail shall be deemed to have been given when it is deposited in the United States mail in the manner specified herein, and each such notice and communication given by telex or telecopier shall be deemed to have been given when it is so transmitted and the appropriate answer back is received. A party may change its address for the purpose hereof by giving notice in accordance with the provisions of this Section 19.     IN WITNESS WHEREOF, the Optionee and the Company have executed this Agreement as of the date first written above.   CENTERPOINT PROPERTIES TRUST   By:   -------------------------------------------------------------------------------- Rockford O. Kottka   Its:   Executive Vice President and Treasurer   GRANTEE   -------------------------------------------------------------------------------- Printed Name: Norman Bobins 3 -------------------------------------------------------------------------------- QuickLinks EXHIBIT 10.2 CENTERPOINT PROPERTIES TRUST STOCK OPTION AGREEMENT

Exhibit 10.2 AMENDMENT NO. 6 to LOAN AND SECURITY AGREEMENT dated as of April 16, 1997              THIS AMENDMENT NO. 6 dated as of August 13, 2001 (this “Amendment”) is made by SYRATECH CORPORATION, a Delaware corporation, TOWLE MANUFACTURING COMPANY, a Delaware corporation, LEONARD FLORENCE ASSOCIATES, INC., a Massachusetts corporation, WALLACE INTERNATIONAL SILVERSMITHS, INC., a Delaware corporation, RAUCH INDUSTRIES, INC., a North Carolina corporation, ROCHARD, INC., a New York corporation, HOLIDAY PRODUCTS, INC., a North Carolina corporation, FARBERWARE INC., a Delaware corporation, SILVESTRI, INC., a Delaware corporation, the financial institutions parties hereto from time to time as “Lenders,” and BANK OF AMERICA, N.A., a national banking association, as administrative agent for the Lenders (the “Administrative Agent”). Preliminary Statements              The Borrowers, the Lenders and the Administrative Agent are parties to a Loan and Security Agreement dated as of April 16, 1997, as amended by Amendment No. 1 dated as of July 31, 1997, Amendment No. 2 dated as of December 31, 1997, Amendment No. 3 dated as of March 30, 1998, Amendment No. 4 and Consent dated as of March 26, 1999 and Amendment No. 5 dated as of March 26, 2001 (the “Loan Agreement”; terms defined in the Loan Agreement and not otherwise defined herein being used herein as therein defined).              The Borrowers have requested that the Administrative Agent and the Lenders amend certain financial covenants and certain other provisions of the Loan Agreement as hereinafter set forth and the Lenders and the Administrative Agent have agreed so to amend the Loan Agreement, upon and subject to all of the terms, conditions and provisions hereof.              NOW, THEREFORE, in consideration of the Loan Agreement, the Loans made by the Lenders and outstanding thereunder, the mutual promises hereinafter set forth and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:              Section 1.         Amendment to Loan Agreement.  The Loan Agreement is hereby amended, effective as provided in Section 2, by:              (a)         amending Section 1.1 Definitions by:                            (i)          amending the definition “Applicable Margin” appearing therein in its entirety to read as follows:              Applicable Margin means (i) prior to August 16, 2001, (a) as to Prime Rate Loans, 0.50%, and (b) as to Eurodollar Rate Loans, 2.25% and (ii) from August 16, 2001 through the Termination Date, (a) as to Prime Rate Loans, 1.00%, and (b) as to Eurodollar Rate Loans, 3.75%.                (ii)           amending clause (b) of the definition “Borrowing Base” appearing therein by (x) deleting the word “minus” appearing at the end of subpart (ii) thereof and substituting therefor the word “and” and (y) adding a new subpart (iii) at the end thereof to read as follows:                              (iii)     the Inventory Base, minus              (iii)          amending clause (d) of the definition “Borrowing Base” appearing therein by inserting after the phrase “Interest Rate Protection Reserve” the following phrase “, the Adjustment Reserve (which shall take effect beginning September 15, 2001)”;              (b)        further amending Section 1.1 Definitions by adding thereto in appropriate alphabetical order the following definitions:              Adjustment Reserve means an amount equal to (i) in the first week of any Fiscal Month, 10% of an amount equal to 60% or 70% (or such lesser or greater percentage as may then constitute the applicable advance rate against Eligible Inventory) of the remainder derived by subtracting the Inventory valuation reflected on the forecasted monthly balance sheet prepared as of the last day of the following Fiscal Month and delivered to the Administrative Agent and the Lenders pursuant to Section 10.1(c) (or any revised forecasted balance sheet delivered to and accepted by the Administrative Agent and the Lenders) from the greater of (x) the Cost of Inventory reflected on the Borrowing Base Certificate most recently delivered to the Administrative Agent pursuant to Section 8.14(c) and (y) the Inventory valuation reflected on the forecasted monthly balance sheet prepared as of the last day of such Fiscal Month and delivered to the Administrative Agent and the Lenders pursuant to Section 10.1(c) (or any revised forecasted balance sheet delivered to and accepted by the Administrative Agent and the Lenders) (such amount, hereinafter referred to as the “Reserve Amount”), (ii) in the second week of any Fiscal Month, 20% of the Reserve Amount, (iii) in the third week of any Fiscal Month, 30% of the Reserve Amount, and (iv) in the fourth week of any Fiscal Month, 40% of the Reserve Amount.  At no time shall the Adjustment Reserve be less than zero.              Inventory Base means, at any time, an amount equal to 80% (or such lesser percentage as the Administrative Agent may in its reasonable credit judgment, applying standards customary to institutional asset-based lenders, determine from time to time following any adverse change in quality, composition, salability or other measure of value of the Inventory) of the orderly liquidation value (net of liquidation expenses) of Eligible Inventory at such time, as determined by the Administrative Agent from time to time in its reasonable discretion.              (c)         amending Section 4.2(c) Letter of Credit and Acceptance Fees by amending subpart (i) thereof by:                         (i)            deleting the phrase “the Applicable Margin applicable from time to time to Eurodollar Rate Loans” appearing therein and substituting therefor the figure “3.75%”; and                         (ii)           inserting immediately before the phrase “1/4 of 1%” appearing therein, the phrase “the greater of $125 or”;              (d)        amending Section 8.14(a) Schedule of Receivables in its entirety to read as follows:              (a)         Schedule of Receivables.              (i)          Weekly Schedule of Receivables.  Commencing August 31, 2001, the Borrowers shall deliver to the Administrative Agent not later than Wednesday of each week a Schedule of Receivables which:              (A)       shall be prepared as of the last Business Day of the immediately preceding week, and              (B)        shall set forth a summary aged trial balance of all its then existing Receivables, specifying the names and balance due for each Account Debtor obligated on a Receivable so listed.              (ii)         Monthly Schedule of Receivables.  The Borrowers shall deliver to the Administrative Agent not later than the 15th day (or, if such month is the last month of a Fiscal Quarter, the 20th day) of each calendar month a Schedule of Receivables which:              (A)       shall be prepared as of the last day of the immediately preceding Fiscal Month,                           (B)        shall be reconciled to the Borrowing Base Certificate as of such last day,              (C)        shall set forth a summary aged trial balance of all its then existing Receivables, specifying the names and balance due for each Account Debtor obligated on a Receivable so listed, and              (D) shall include on such schedule delivered for the months of March and September of each year an Account Debtor address list including all Account Debtors on Receivables reflected on such schedule.              (e)         amending Section 11.1 Financial Ratios by:              (i)          deleting subsections (b) and (c) thereof in their entireties, and (ii)        adding a new subsection (b) to the end thereof to read as follows:             (b)      Minimum EBITDA.  EBITDA (i) for the period of four consecutive Fiscal Quarters ending on September 30, 2001, to be less than $18,000,000 and (ii) for any period of four consecutive Fiscal Quarters ending after September 30, 2001, to be less than $15,000,000. (f)         amending Section 11.5 Capital Expenditures in its entirety to read as follows:              Section 11.5     Capital Expenditures.  Make or incur any Capital Expenditures; provided, however, that the Borrowers may make or incur Capital Expenditures (i) during Fiscal Year 2001 in an amount not greater than $6,500,000 and (ii) from January 1, 2002 through April 15, 2002 in an amount not greater than $3,000,000.              (g)        amending Section 11.14 Minimum Availability in its entirety to read as follows:              Section 11.14   Minimum Availability.  Permit Revolving Credit Availability at any time to be less than $10,000,000, except that (i) during the period August 16 through September 30 of 2001, Revolving Credit Availability shall not be less than $15,000,000 and (ii) during the period February 1 through March 31 of any year, Revolving Credit Availability shall not be less than $25,000,000.              (h)        amending Section 15.2 Expenses by amending subsection (d) thereof by deleting the parenthetical phrase at the end thereof in its entirety; and              (i)          further amending the Loan Agreement by deleting Annex B - Pricing Matrix in its entirety.              Section 2.         Effectiveness of Amendment.  Section 1 of this Amendment shall become effective as of the date hereof on the date (the “Amendment Effective Date”) on which the Administrative Agent shall have received (1) an amendment fee in the amount of $307,500 to be shared Ratably among the Lenders in accordance with their respective Commitments, which fee shall not be subject to refund or rebate of any kind whatsoever, and (2) each of the following documents (in sufficient copies for each Lender):              (a)         this Amendment duly executed and delivered by each Borrower and the Lenders,              (b)        a certificate of the Secretary of each Borrower having attached thereto the articles or certificate of incorporation and bylaws of such Borrower as in effect on the Amendment Effective Date (or containing the certification of such Secretary that no amendment or modification of such articles or certificate or bylaws has become effective since the last date on which such documents were delivered to the Administrative Agent pursuant to the Loan Agreement), and to the further effect that the incumbency certificate and corporate action delivered in connection with the occurrence of the date hereof remain in effect, unchanged,              (c)         a certificate of the President or Financial Officer of Syratech to the effect that              (i)          the representations and warranties of the Borrowers contained in the Loan Documents are true and correct in all material respects on and as of the date hereof as if made on and as of the Amendment Effective Date, and              (ii)         no Default or Event of Default has occurred and is continuing and such statements shall be true; and              (d)        such other documents, certificates and instruments in connection with the effectiveness of this Amendment as the Administrative Agent or any Lender may reasonably request.              Section 3.         Additional Covenant.  The Borrowers agree to engage, not later than August 31, 2001 and at their own expense, a qualified independent appraiser acceptable to the Lenders to (i) perform an appraisal of the Borrowers’ Inventory, which appraisal shall be of a scope satisfactory to the Lenders, and (ii) prepare and deliver to the Lenders not later than October 1, 2001 a written appraisal report in form and substance satisfactory to the Lenders.  The failure of the Borrowers to comply timely with the provisions of the Section 3 shall, at the option of the Required Lenders, constitute an Event of Default under the Loan Agreement.              Section 4.         Effect of Amendment .  From and after the effectiveness of this Amendment, all references in the Loan Agreement and in any other Loan Document to “this Agreement,” “the Loan Agreement,” “hereunder,” “hereof” and words of like import referring to the Loan Agreement, shall mean and be references to the Loan Agreement as amended by this Amendment.  Except as expressly amended hereby, the Loan Agreement and all terms, conditions and provisions thereof remain in full force and effect and are hereby ratified and confirmed.  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 any Lender or the Administrative Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents.              Section 5.         Counterpart Execution; Governing Law.              (a)         Execution in Counterparts.  This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement.  Delivery of an executed signature page of any party hereto by facsimile transmission shall be effective as delivery of a manually delivered counterpart thereof.              (b)        Governing Law.  This Amendment shall be governed by and construed in accordance with the laws of the State of Georgia without giving effect to the conflict of laws principles thereof. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the date first above written. BORROWERS:   SYRATECH CORPORATION By:  /s/ Gregory W. Hunt --------------------------------------------------------------------------------   Name:   Gregory W. Hunt   Title   Senior Vice President, Chief Financial Officer and Treasurer   TOWLE MANUFACTURING COMPANY By:  /s/ Gregory W. Hunt --------------------------------------------------------------------------------   Name:   Gregory W. Hunt   Title   Senior Vice President, Chief Financial Officer and Treasurer       LEONARD FLORENCE ASSOCIATES, INC. By:  /s/ Gregory W. Hunt --------------------------------------------------------------------------------   Name:   Gregory W. Hunt   Title   Senior Vice President, Chief Financial Officer and Treasurer       WALLACE INTERNATIONAL SILVERSMITHS, By:  /s/ Gregory W. Hunt --------------------------------------------------------------------------------   Name:   Gregory W. Hunt   Title   Senior Vice President, Chief Financial Officer and Treasurer       RAUCH INDUSTRIES, INC. By:  /s/ Leonard Florence --------------------------------------------------------------------------------   Name:   Leonard Florence   Title   Chairman of the Board and Chief Executive Officer       ROCHARD, INC. By:  /s/ Leonard Florence --------------------------------------------------------------------------------   Name:   Leonard Florence   Title   Chairman of the Board and Chief Executive Officer       HOLIDAY PRODUCTS, INC. By:  /s/ Leonard Florence --------------------------------------------------------------------------------   Name:   Leonard Florence   Title   Chairman of the Board and Chief Executive Officer       FARBERWARE INC. By:  /s/ Gregory W. Hunt --------------------------------------------------------------------------------   Name:   Gregory W. Hunt   Title   Senior Vice President, Chief Financial Officer and Treasurer       SILVESTRI, INC. By:  /s/ Gregory W. Hunt --------------------------------------------------------------------------------   Name:   Gregory W. Hunt   Title   Senior Vice President, Chief Financial Officer and Treasurer       ADMINISTRATIVE AGENT:   BANK OF AMERICA, N.A.   By:  /s/ Andrew A. Doherty   --------------------------------------------------------------------------------     Name:   Andrew A. Doherty     Title   Vice President           LENDERS:   BANK OF AMERICA, N.A.   By:  /s/ Andrew A. Doherty   --------------------------------------------------------------------------------     Name:   Andrew A. Doherty     Title   Vice President             AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO   By:  /s/ Jay S. Lewis   --------------------------------------------------------------------------------     Name:   Jay S. Lewis     Title   Commercial Banking Officer             FLEET CAPITAL CORPORATION   By:  /s/ Matthew T. O'Keefe   --------------------------------------------------------------------------------     Name:   Matthew T. O'Keefe     Title   Senior Vice President             UNION BANK OF CALIFORNIA, N.A.   By:  /s/ Greg F. Ennis   --------------------------------------------------------------------------------     Name:   Greg F. Ennis     Title   Vice President    

SAKS INCORPORATED AMENDED AND RESTATED 1997 STOCK-BASED INCENTIVE PLAN 1.     Purpose.         The purpose of the SAKS INCORPORATED AMENDED AND RESTATED 1997 STOCK-BASED INCENTIVE PLAN (the "Plan") is to further the earnings of SAKS INCORPORATED, a Tennessee corporation, and its affiliated companies (collectively, the "Company") by assisting the Company in attracting, retaining and motivating employees and directors of high caliber and potential. The Plan provides for the award of stock-based incentives to certain employees and directors who make substantial contributions to the Company by their loyalty, industry and invention. 2.    Administration.         The Plan shall be administered by a committee (the "Committee") selected by the Board of Directors of the Company (the "Board of Directors") consisting solely of two or more non-employee directors. The Committee shall have full and final authority in its discretion to interpret the provisions of the Plan and to decide all questions of fact arising in its application. Subject to the provisions hereof, the Committee shall have full and final authority in its discretion to determine the employees and directors to whom awards shall be made under the Plan; to determine the type of awards to be made and the amount, size and terms and conditions of each such award; to determine the time when awards shall be granted; to determine the provisions of each agreement evidencing an award; and to make all other determinations necessary or advisable for the administration of the plan. 3.    Stock Subject to the Plan.         The Company may grant awards under the Plan with respect to not more than a total of 20,600,000 shares of $.10 par value common stock of the Company (the "Shares") (subject, however, to adjustment as provided in paragraph 21, below). Such shares may be authorized and unissued Shares or treasury Shares and may be purchased on the open market or otherwise. Except as otherwise provided herein, any Shares subject to an option or right which for any reason is surrendered before exercise, or expires or is terminated unexercised as to such Shares, shall again be available for the granting of awards under the Plan. Similarly, if any Shares granted pursuant to restricted stock awards are forfeited, such forfeited Shares shall again be available for the granting of awards under the Plan. 4.    Eligibility to Receive Awards.         All employees and directors of the Company are eligible to receive awards under the Plan. 5.    Form of Awards.         Awards may be made from time to time by the Committee in the form of stock options to purchase Shares, stock appreciation rights, performance units, restricted stock, bonus shares or any combination of the above. Stock options granted under the Plan are nonqualified stock options, which are not intended to qualify as incentive stock options within the meaning of Section 422(b) of the Internal Revenue Code. 6.    Stock Options.         Stock options for the purchase of Shares shall be evidenced by written agreements in such form not inconsistent with the Plan as the Committee shall approve from time to time; provided that the maximum number of options which may be granted to any one grantee during any twelve-month period is 1,000,000 (as adjusted pursuant to paragraph 21, below). Such agreement shall contain the terms and conditions applicable to the options, including in substance the following terms and conditions: > (a) Number of Option. Each option agreement shall set forth the number of > Shares subject to the options. > > (b) Option Price. The option exercise price to be paid by the optionee to the > Company for each Share purchased upon the exercise of an option shall be > determined by the Committee, but shall in no event be less than the fair > market value of a Share on the date the option is granted. > > (c) Exercise Term. Each option agreement shall state the period or periods of > time within which the option may be exercised, in whole or in part, as > determined by the Committee, and subject to such terms and conditions as are > prescribed for such purpose by the Committee, provided that no option shall be > exercisable after ten years from the date of grant thereof. The Committee, in > its discretion, may provide in the option agreement circumstances under which > the option shall become immediately exercisable, in whole or in part, and, > notwithstanding the foregoing, may accelerate the exercisability of any > option, in whole or in part, at any time. > > (d) Payment for Shares. The purchase price of the Shares with respect to which > an option is exercised shall be payable in full at the time of exercise in > cash, shares at fair market value, or a combination thereof, as the Committee > may determine and subject to such terms and conditions as may be prescribed by > the Committee for such purpose. If the purchase price is paid by tendering > Shares, the Committee in its discretion may grant the optionee a new stock > option for the number of Shares used to pay the purchase price. > > (e) Rights Upon Termination. In the event of Termination (as defined below) of > an optionee's status as an employee or director of the Company for any cause > other than Retirement (as defined below), death or Disability, (as defined > below), the optionee shall have the right to exercise the option during its > term within a period of three months after such Termination to the extent that > the option was exercisable at the time of Termination, or within such other > period, and subject to such terms and conditions, as may be specified by the > Committee. (As used herein, "Termination" means the cessation of the grantee's > employment or service by the Company for any reason, and "Terminates" has the > corresponding meaning. As used herein, "Retirement" means retirement from > active employment or service with the Company on or after age 65, or such > earlier age with the express written consent for purposes of the Plan of the > Company at or before the time of such retirement, and "Retires" has the > corresponding meaning. As used herein, "Disability" means a condition that, in > the judgment of the Committee, has rendered a grantee completely and > presumably permanently unable to perform any and every duty of his regular > occupation, and "Disabled" has the corresponding meaning.) In the event that > an optionee Retires, dies or becomes Disabled prior to the expiration of his > option and without having fully exercised his option, the optionee or his > Beneficiary (as defined below) shall have the right to exercise the option > during its term within a period of (i) one year after Termination due to > Retirement, death or Disability, or (ii) one year after death if death occurs > either within one year after Termination due to Retirement or Disability or > within three months after Termination for other reasons, to the extent that > the option was exercisable at the time of death or Termination, or within such > other period, and subject to such terms and conditions, as may be specified by > the Committee. (As used herein, "Beneficiary" means the person or persons > designated in writing by the grantee as his beneficiary with respect to an > award under the Plan; or, in the absence of an effective designation or if the > designated person or persons predeceases the grantee, the grantee's > Beneficiary shall be the person or persons who acquire by bequest or > inheritance the grantee's rights in respect of an award). In order to be > effective, a grantee's designation of a Beneficiary must be on file with the > Committee before the grantee's death, but any such designation may be revoked > and a new designation substituted therefor at any time before the grantee's > death. > > (f) Transferability. Except as provided in paragraph 12, options granted under > the Plan shall not be sold, assigned, transferred, exchanged, pledged, > hypothecated, or otherwise encumbered, other than by will or by the laws of > descent and distribution until such options become vested. 7.    Stock Appreciation Rights.         Stock appreciation rights ("SARs") shall be evidenced by written SAR agreements in such form not inconsistent with the Plan as the Committee shall approve from time to time; provided that the maximum number of SARs which may be granted to any one grantee during any twelve-month period is 125,000, (as adjusted pursuant to paragraph 21, below). Such SAR agreements shall contain the terms and conditions applicable to the SARs, including in substance the following terms and conditions: > (a) Award. SARs may be granted in connection with a previously or > contemporaneously granted stock option, or independently of a stock option. > SARs shall entitle the grantee, subject to such terms and conditions as may be > determined by the Committee, to receive upon exercise portion of the excess of > (i) the fair market value at the time of exercise, as determined by the > Committee, of a specified number of Shares with respect to which the SAR is > exercised, over (ii) a specified price which shall not be less than 100% of > the fair market value of the Shares at the time the SAR is granted, or, if the > SAR is granted in connection with a previously issued stock option, not less > than 100% of the fair market value of the Shares at the time such option was > granted. Upon exercise of an SAR, the number of Shares reserved for issuance > hereunder shall be reduced by the number of Shares covered by the SAR. Shares > covered by an SAR shall not be used more than once to calculate the amount to > be received pursuant to the exercise of the SAR. > > (b) SARs Related to Stock Options. If an SAR is granted in relation to a stock > option, (i) the SAR shall be exercisable only at such times, and by such > persons as the related option is exercisable; (ii) the grantee's right to > exercise the related option shall be canceled if and to the extent that the > Shares subject to the option are used to calculate the amount to be received > upon the exercise of the related SAR; (iii) the grantee's right to exercise > the related SAR shall be canceled if and to the extent that the Shares subject > to the SAR are purchased upon the exercise of the related option; and (iv) the > SAR shall not be transferable other than by will or by the laws of descent and > distribution until the SAR vests, at which time the vested portion of the SAR > will become transferable as provided in paragraph 12, below. > > (c) Term. Each SAR agreement shall state the period or periods of time within > which the SAR may be exercised, in whole or in part, as determined by the > Committee and subject to such terms and conditions as are prescribed for such > purpose by the Committee, provided that no SAR shall be exercisable earlier > than six months after the date of grant or later than ten years after the date > of grant. The Committee may, in its discretion, provide in the SAR agreement > circumstances under which the SARs shall become immediately exercisable, in > whole or in part, and may, notwithstanding the foregoing, accelerate the > exercisability of any SAR, in whole or in, Part, at any time. > > (d) Termination. SARs shall be exercisable only during the grantee's tenure as > an employee or director of the Company, except that, in the discretion of the > Committee, an SAR may be made exercisable for up to three months after the > grantee is Terminated for any reason other than Retirement, death or > Disability, and for up to one year after the grantee is Terminated because of > Retirement, death or Disability. > > (e) Payment. Upon exercise of an SAR, payment shall be made in cash, in Shares > valued at fair market value on the date of exercise, or in a combination > thereof, as the Committee may determine at the time of exercise. > > (f) Other Terms. SARs shall be granted in such manner and such form, and > subject to such additional terms and conditions, as the Committee in its sole > discretion deems necessary or desirable, including without limitation, in > order to avoid any insider-trading liability in connection with an SAR under > Section 16(b) of the 1934 Act. 8.    Restricted Stock Awards.         Restricted stock awards under the Plan shall consist of Shares free of any purchase price, or for such purchase price as may be established by the Committee, restricted against transfer, subject to forfeiture, and subject to such other terms and conditions (including attainment of performance objectives) as may be determined by the Committee. Restricted stock shall be evidenced by written restricted stock agreements in such form not inconsistent with the Plan as the Committee shall approve from time to time, which agreement shall contain the terms and conditions applicable to such awards, including in substance the following terms and conditions: > (a) Restriction Period. Restrictions shall be imposed for such period or > periods as may be determined by the Committee. The Committee, in its > discretion, may provide in the agreement circumstances under which the > restricted stock shall become immediately transferable and nonforfeitable, or > under which the restricted stock shall be forfeited, and, notwithstanding the > foregoing, may accelerate the expiration of the restriction period imposed on > any Shares at any time. > > (b) Restrictions Upon Transfer. Restricted stock and the right to vote such > Shares and to receive dividends thereon, may not be sold, assigned, > transferred, exchanged, pledged, hypothecated, or otherwise encumbered, except > as herein provided, during the restriction period applicable to such Shares. > Notwithstanding the foregoing, and except as otherwise provided in the Plan, > the grantee shall have all of the other rights of a stockholder, including, > but not limited to, the right to receive dividends and the right to vote such > Shares. > > (c) Certificates. A certificate or certificates representing the number of > restricted Shares granted shall be registered in the name of the grantee. The > Committee, in its sole discretion, shall determine when the certificate or > certificates shall be delivered to the grantee (or, in the event of the > grantee's death, to his Beneficiary), may provide for the holding of such > certificate or certificates in escrow or in custody by the Company or its > designee pending their delivery to the grantee or Beneficiary, and may provide > for any appropriate legend to be borne by the certificate or certificates. > > (d) Lapse of Restrictions. The restricted stock agreement shall specify the > terms and conditions upon which any restriction upon restricted stock awarded > under the Plan shall expire, lapse, or be removed, as determined by the > Committee. 9.    Performance Units.         Performance unit awards under the Plan shall entitle grantees to future payments based upon the achievements of preestablished long-term performance objectives and shall be evidenced by written performance unit agreements in such form not inconsistent with this Plan as the Committee shall approve from time to time. Such agreements shall contain the terms and conditions applicable to the performance unit awards, including in substance the following terms and conditions: > (a) Performance Period. The Committee shall establish with respect to each > unit award a performance period. > > (b) Unit Value. The Committee shall establish with respect to each unit award > value for each unit which shall not thereafter change, or which may vary > thereafter pursuant to criteria specified by the Committee. > > (c) Performance Targets. The Committee shall establish with respect to each > unit award maximum and minimum performance targets to be achieved during the > applicable performance period. Achievement of maximum targets shall entitle > grantees to payment with respect to the full value of a unit award. Grantees > shall be entitled to payment with respect to a portion of a unit award > according to the level of achievement of targets as specified by the Committee > for performance which achieves or exceeds the minimum target but fails to > achieve the maximum target. > > (d) Performance Measures. Performance targets established by the Committee > shall relate to corporate, subsidiary, division, unit or individual > performance and may be established in terms of growth in gross revenue, > earnings per share, stock price, ratios of earnings to equity or assets, > individual sales, or such other measures or standards as may be determined by > the Committee in its discretion. Multiple targets may be used and may have the > same or different weighing, and they may relate to absolute performance or > relative performance measured against other companies or businesses. > > (e) Adjustments. At any time prior to the payment of a unit award, the > Committee may adjust previously established performance targets or other terms > and conditions, including the Company's financial performance for Plan > purposes, to reflect major unforeseen events such as changes in laws, > regulations or accounting practices, mergers, acquisitions or divestitures or > other extraordinary, unusual or non-recurring items or events. > > (f) Payment of Unit Awards. Following the conclusion of a performance period, > the Committee shall determine the extent to which performance targets have > been attained and any other terms and conditions satisfied for such period. > The Committee shall determine what, if any, payment is due on the unit award > and whether such payment shall be made in cash, Shares, or a combination > thereof. Payment shall be made in a lump sum or installments, as determined by > the Committee, commencing as promptly as practicable following the end of the > performance period unless deferred subject to such terms and conditions and in > such form as may be prescribed by the Committee. > > (g) Termination. In the event that a grantee is Terminated as an employee by > the Company prior to the end of the performance period by reason of death, > Disability, or Retirement with the consent of the Company, any unit award, to > the extent earned under the applicable performance targets may, in the > Committee's sole discretion, be payable at the end of the performance period > according to the portion of the performance period during which the grantee > was employed by or provided services to the Company, provided that the > Committee shall have the power to provide for an appropriate settlement of a > unit award before the end of the performance period. Upon any other > Termination, participation shall terminate forthwith and all outstanding unit > awards shall be canceled. 10.    Loans and Supplemental Cash.         The Committee, in its sole discretion to further the purpose of the Plan, may provide for supplemental cash payments or loans to employees or directors in connection with all or any part of an award under the Plan. Supplemental cash payments shall be subject to such terms and conditions as shall be prescribed by the Committee at the time of grant, provided that in no event shall the amount of payment exceed: > (a) In the case of an option, the excess fair market value of a Share on the > date of exercise over the option price multiplied by the number of Shares for > which such option is exercised, or > > (b) In the case of an SAR, performance unit, or restricted stock award, the > value of the Shares and other consideration issued in payment of such award.         Any loan shall be evidenced by a written loan agreement or other instrument in such form and containing such terms and conditions (including, without limitation, provisions for interest, payment schedules, collateral, forgiveness or acceleration) as the Committee may prescribe from time to time. 11.    Stock Bonuses         The Committee may, in its sole discretion, award a bonus to any employee or director in the form of Company Shares in addition to, or in lieu of a cash bonus. In addition, the Company may, in its sole discretion, permit an employee to elect to receive a cash bonus in the form of Company Shares. 12.    Restrictions on Transfer of Awards.         Except as permitted by this paragraph 12, no awardholder may sell, transfer, assign, convey or otherwise dispose of or alienate any of his awards or any right or interest therein (whether voluntarily, by operation of law, by gift or otherwise) or enter into any contract or agreement or grant any option with respect to the sale, transfer, assignment, conveyance or other disposition of his awards or any right or interest therein. Any purported transfer of awards in violation of this paragraph shall be void and ineffective and shall not operate to transfer any interest in or title to such awards to the purported Award Transferee and the Company shall not record any such purported transfer in its transfer records. > (a) Permitted Transfers of Awards by Participants. Upon ten (10) days prior > written notice to the Company (or such lesser number of days as the Company > may agree to in writing) an awardholder may sell, transfer or assign all or > any number of his awards to an Award Transferee who (or which) is an Award > Transferee (defined below) only if, prior to such transfer, such Award > Transferee has agreed in writing, in form and substance satisfactory to the > Company, in its sole discretion, that such Award Transferee and the award > transferred to him shall be bound by the provisions of this Plan including, > without limitation, those of this paragraph 12. Such notice shall specify the > name and address of the proposed Award Transferee, the relationship between > the Participant and the proposed transferee which establishes the proposed > transferee as an Award Transferee of the Participant and the number and prices > (if any) of the awards to be transferred to such proposed Award Transferee. > Notwithstanding the foregoing provisions of this paragraph, if awards are > transferred to an Award Transferee which is a Qualified Trust and the written > document pursuant to which such Qualified Trust was established is later > amended without the prior written approval of the Company then, on the > effective date of such amendment, ownership of all awards then owned by such > Qualified Trust shall revert to its Transferor. > > (b) Permitted Transfers of Awards By Other Awardholders. Upon ten (10) days > prior written notice to the Company (or such lesser number of days as the > Company may agree to in writing), an awardholder other than a Participant may > sell, transfer or assign all or any number of his awards to his Transferor if, > prior to such transfer, such Transferor has agreed in writing, in form and > substance satisfactory to the Company, that such Transferor and the awards > transferred to him shall be bound by the provisions of this Plan including, > without limitation, those of this paragraph 12. Such notice shall specify the > number and prices (if any) of the awards to be transferred to such Transferor. > > (c) Effect of Transfer of Awards. The provisions of this subparagraph (c) > shall apply in the event a participant transfers awards to an Award Transferee > pursuant to subparagraph (a). > > > (i) Forfeitures of Awards. All of an Award Transferee's awards shall be > > forfeited on the date any awards owned by his Transferor are or would be > > forfeited pursuant to paragraph 20. On the date an Award Transferee's awards > > are forfeited pursuant to this paragraph 12, the rights of such Award > > Transferee shall be terminated. > > > > (ii) Exercise of Awards. An Award Transferee shall be entitled to exercise > > his awards at such times, in such manner, upon such terms and subject to > > such conditions, limitations and restrictions as his Transferor is or would > > be entitled to exercise any awards owned by such Transferor. > > > > (iii) Beneficiaries. Upon an Award Transferee's receipt of any awards, the > > provisions of the Plan governing the determination of a participant's > > Beneficiary shall apply to such Award Transferee as if such Award Transferee > > were a participant. > > > > (iv) Deemed Ownership of Awards. Each Participant shall be deemed to own all > > of the awards actually owned by his Award Transferees for the purpose of > > determining the number of awards to be granted to a Participant pursuant to > > paragraph 12. > > (d) Rights of Award Transferees. Notwithstanding anything to the contrary > contained in this Plan, the rights of an Award Transferee with respect to all > awards owned by such Award Transferee shall be the same as those of the > individual who first owned such award determined as if such individual then > owned such award. > > (e) Definitions. Unless otherwise provided, for purposes of the Plan, the > following terms have the following meaning: > > > (i) Award Transferee. With respect to a participant, his spouse and lineal > > descendants who have attained age 21 and a Qualified Trust, the sole > > beneficiaries of which may not include anyone other than the participant, > > his spouse and lineal descendants. > > > > (ii) Qualified Trust. A trust established pursuant to a written document > > which has been approved in writing by the Company in its sole discretion and > > which, by its terms: > > > > > (1) authorizes the trustee of such trust to: acquire, own and dispose of > > > shares of stock and other securities and awards under which shares of > > > stock and other securities may be issued; exercise any award; grant > > > proxies to vote any securities owned by such trust; and enter into > > > agreements with respect to such securities, the term of which may extend > > > beyond the term of the trust; > > > > > > (2) provides that awards and Shares held by the trustee of such trust > > > shall only be distributed to a beneficiary of such trust if such > > > beneficiary is an Award Transferee of the grantor of such trust, and prior > > > to such distribution, has agreed in writing, in form and substance > > > satisfactory to the Company, in its sole discretion, that such beneficiary > > > and the awards and Shares distributed to him shall be bound by the > > > provisions of this Plan including, without limitation, those of this > > > paragraph 12; > > > > > > (3) cannot be amended without the prior written approval of the Company > > > which approval may be withheld by the Company in its sole discretion; > > > > > > (4) provides that any such amendment which is not so approved by the > > > Company shall be invalid; and > > > > > > (5) contains such other terms and provisions as the Company, it its sole > > > discretion, shall determine to be appropriate. > > > > (iii) Transferor. With respect to an Award Transferee, the participant to > > whom the awards owned by such Award Transferee were originally granted. 13.    General Restrictions.         Each award under the Plan shall be subject to the requirement that if at any time the Company shall determine that (i) the listing, registration or qualification of the Shares subject or related thereto upon any securities exchange or under any state or federal law, or (ii) the consent or approval of any regulatory body, or (iii) an agreement by the recipient of an award with respect to the disposition of Shares, or (iv) the satisfaction of withholding tax or other withholding liabilities is necessary or desirable as a condition of or in connection with such award or the issuance or purchase of Shares thereunder, such award shall not be consummated in whole or in part unless such listing, registration, qualification, consent, approval, agreement, or withholding shall have been effected or obtained free of any conditions not acceptable to the Company. Any restriction affecting an award shall not extend the time within which the award may be exercised; and neither the Company nor its directors or officers nor the Committee shall have any obligation or liability to the grantee or to a Beneficiary or Award Transferee with respect to any Shares with respect to which an award shall lapse or with respect to which the grant, issuance or purchase of Shares shall not be effected, because of any such restriction. 14.    Single or Multiple Agreements.         Multiple awards, multiple forms of awards, or combinations thereof may be evidenced by a single agreement or multiple agreements, as determined by the Committee. 15.    Rights of the Stockholder.         The recipient of any award under the Plan, shall have no rights as a stockholder with respect thereto unless and until certificates for Shares are issued to him, and the issuance of shares shall confer no retroactive right to dividends. 16.    Rights to Terminate.         Nothing in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any person the right to continue in the employment or service of the Company or affect any right which the Company may have to terminate the employment or service of such person. 17.    Withholding. > (a) Prior to the issuance or transfer of Shares under the Plan, the recipient > shall remit to the Company an amount sufficient to satisfy any federal, state > or local withholding tax requirements. The recipient may satisfy the > withholding requirement in whole or in part by electing to have the Company > withhold Shares having a value equal to the minimum amount required to be > withheld. No additional amount may be withheld. The value of the Shares to be > withheld shall be the fair market value, as determined by the Committee, of > the stock on the date that the amount of tax to be withheld is determined (the > "Tax Date"). Such election must be made prior to the Tax Date, must comply > with all applicable securities law and other legal requirements, as > interpreted by the Committee, and may not be made unless approved by the > Committee, in its discretion. > > (b) Whenever payments to a grantee in respect of an award under the Plan are > paid in cash, such payments shall be net of the amount necessary to satisfy > any federal, state or local withholding tax requirements. 18.    Non-Uniform Determinations.         The Committee's determinations under the Plan (including without limitation determinations of the persons to receive awards, the form, amount and timing of such awards, the terms and provisions of such awards and the agreements evidencing same, and the establishment of values and performance targets) need not be uniform and may be made selectively among persons who receive, or are eligible to receive, awards under the Plan, whether or not such persons are similarly situated. 19.    Change In Control Provisions. > (a) In the event of (1) a Change in Control (as defined) or (2) a Potential > Change in Control (as defined), but only if and to the extent so determined by > the Board of Directors at or after grant (subject to any right of approval > expressly reserved by the Board of Directors at the time of such > determination), the following acceleration and valuation provisions shall > apply: > > > (i) Any SARs outstanding for at least six months and any stock awards > > awarded under the Plan not previously exercisable and vested shall become > > fully exercisable and vested. > > > > (ii) Any restrictions and deferral limitations applicable to any restricted > > stock, performance units or other stock-based awards, in each case to the > > extent not already vested under the Plan, shall lapse and such shares, > > performance units or other stock-based awards shall be deemed fully vested. > > > > (iii) The value of all outstanding stock awards, SARs, restricted stock, > > performance units and other stock-based awards, in each case to the extent > > vested, shall, unless otherwise determined by the Committee in its sole > > discretion at or after grant but prior to any Change in Control, be cashed > > out on the basis of the Change in Control Price (as defined) as of the date > > such Change in Control or such Potential Change in Control is determined to > > have occurred or such other date as the Committee may determine prior to the > > Change in Control. > > (b) As used herein, the term "Change in Control" means the happening of any of > the following: > > > (i) Any person or entity, including a "group" as defined in Section 13(d)(3) > > of the 1934 Act, other than the Company, a subsidiary of the Company, or any > > employee benefit plan of the Company or its subsidiaries, becomes the > > beneficial owner of the Company's securities having 25% or more of the > > combined voting power of the then outstanding securities of the Company that > > may be cast for the election for directors of the Company (other than as a > > result of an issuance of securities initiated by the Company in the ordinary > > course of business), or > > > > (ii) As the result of, or in connection with, any cash tender or exchange > > offer, merger or other business combination, sale of assets or contested > > election, or any combination of the foregoing transactions, less than a > > majority of the combined voting power of the then outstanding securities of > > the Company or any successor corporation or entity entitled to vote > > generally in the election of directors of the Company or such other > > corporation or entity after such transaction, are held in the aggregate by > > holders of the Company's securities entitled to vote generally in the > > election of directors of the Company immediately prior to such transactions; > > or > > > > (iii) During any period of two consecutive years, individuals who at the > > beginning of any such period constitute the Board of Directors cease for any > > reason to constitute at least a majority thereof, unless the election, or > > the nomination for election by the Company's stockholders, of each director > > of the Company first elected during such period was approved by a vote of at > > least two-thirds of the directors of the Company then still in office who > > were directors of the Company at the beginning of any such period. > > (c) As used herein, the term "Potential Change in Control" means the happening > of any of the following: > > > (i) The approval by stockholders of an agreement by the Company, the > > consummation of which would result in a Change in Control of the Company; or > > > > (ii) The acquisition of beneficial ownership, directly or indirectly, by any > > entity, person or group (other than the Company, a wholly-owned subsidiary > > thereof or any employee benefit plan of the Company or its subsidiaries > > (including any trustee of such plan acting as such trustee)) of securities > > of the Company representing five % or more of the combined voting power of > > the Company's outstanding securities and the award by the Board of Directors > > of a resolution to the effect that a Potential Change in Control of the > > Company has occurred for purposes of this Plan. > > (d) As used herein, the term "Change in Control Price" means the highest price > per share paid in any transaction reported on the New York Stock Exchange, or > paid or offered in any bona fide transaction related to a Potential or actual > Change in Control of the Company at any time during the 60 day period > immediately preceding the occurrence of the Change in Control (or, where > applicable, the occurrence of the Potential Change in Control event), in each > case determined by the Committee. 20.    Non-Competition Provision. > (a) Unless the award agreement relating to an option, SAR, a restricted stock, > stock bonus or performance unit expressly specifies otherwise, a grantee shall > forfeit all unexercised, unearned and/or unpaid awards, including, but not by > way of limitation, awards earned but not yet paid, all unpaid dividends and > dividend equivalents, and all interest, if any, accrued on the foregoing if, > (i) in the opinion of the Committee, the grantee without the written consent > of the Company, engages directly or indirectly in any manner or capacity as > principal, agent, partner, officer, director, employee or otherwise, in any > business or activity competitive with the business conducted by the Company or > any of its subsidiaries; or (ii) the grantee performs any act or engages in > any activity which in the opinion of the Chief Executive Officer of the > Company is inimical to the best interests of the Company. > > (b) This subsection (b) shall be void and of no legal effect in the event of a > Change of Control. Notwithstanding anything in any other section or subsection > herein to the contrary, the following provisions shall apply to all options, > exercises and optionees: if an optionee: > > > > (i)    Terminates for any reason; and > > > > > > (ii)    within six months following such Termination, engages, directly or > > > indirectly, in any activity determined by the Committee to be competitive > > > with any activity of the Company or any of its subsidiaries, then , the optionee shall pay to the Company an aggregate amount of cash equal to the spread realized on each option exercise effected during the six-month period immediately preceding the date of Termination. The spread on each option exercise shall be the difference between (x) the exercise price paid by the optionee and (y) the fair market value of the Shares purchased upon exercise, determined as of such date of exercise 21.    Adjustments.         In the event of any change in the outstanding common stock of the Company, by reason of a stock dividend or distribution, recapitalization, merger, consolidation, reorganization, split-up, combination, exchange of Shares or the like, the Board of Directors, in its discretion, may adjust proportionately the number of Shares which may be issued under the Plan, the number of Shares subject to outstanding awards, and the option exercise price of each outstanding option, and may make such other changes in outstanding options, SARs, performance units and restricted stock awards, as it deems equitable in its absolute discretion to prevent dilution or enlargement of the rights of grantees, provided that any fractional Shares resulting from such adjustments shall be eliminated. 22.    Amendment and Termination.         The Board of Directors may terminate, amend, modify or suspend the Plan at any time. No termination, modification, amendment or suspension of the Plan shall adversely affect the rights of any grantee, Beneficiary or Award Transferee under an award previously granted unless the grantee or Beneficiary shall consent; but it shall be conclusively presumed that any adjustment pursuant to paragraph 21 hereof does not adversely affect any such right. 23.    Effect on Other Plans.         Participation in this Plan shall not affect a grantee's eligibility to participate in any other benefit or incentive plan of the Company. Any awards made pursuant to this Plan shall not be used in determining the benefits provided under any other plan of the Company unless specifically provided therein. 24.    Effective Date and Duration of the Plan.         The Plan shall become effective when adopted by the Board of Directors. Unless it is sooner terminated in accordance with paragraph 22 hereof, the Plan shall remain in effect until all awards under the Plan have been satisfied by the issuance of Shares or payment of cash or have expired or otherwise terminated, but no award shall be granted more than ten years after the date the Plan is adopted by the Board of Directors. 25.    Unfunded Plan.         The Plan shall be unfunded. Neither the Company nor any affiliate shall be required to segregate any assets that may be represented by stock options, SARs, stock bonuses or performance units, and neither the Company nor any affiliate shall be deemed to be a trustee of any amounts to be paid under any stock option, SAR, stock bonus or performance unit. Any liability of the Company or any affiliate to pay any grantee, Beneficiary or Award Transferee with respect to an option, SAR or performance unit shall be based solely upon any contractual obligations created pursuant to the provisions of the Plan; no such obligations will be deemed to be secured by a pledge or encumbrance on any property of the Company or an affiliate. 26.    Governing Law.         The Plan shall be construed and its provisions enforced and administered in accordance with the laws of the State of Tennessee except to the extent that such laws may be superseded by any federal law.         Adopted by the Board of Directors of Saks Incorporated on the 28th day of November, 2000.                                                                                    By: _                                                                                                                                            Brian J. Martin                                                                                           Executive Vice President and                                                                                           General Counsel

Exhibit 10.10           September 26, 2001 Mr. Lawrence W. Kellner President Continental Airlines, Inc. 1600 Smith, Dept. HQSEO Houston, TX 77002 Dear Larry: The purpose of this letter is to set forth your agreement to forego voluntarily your salary and cash bonuses which may otherwise be earned by you as an employee of Continental Airlines, Inc. (the "Company") with respect to the period between September 26, 2001 and December 31, 2001 (the "Voluntary Period"). You agree that (i) the Company will not pay you any salary or cash bonuses otherwise earned by you, as an employee of the Company, with respect to your service during the Voluntary Period, (ii) as a result of this letter agreement you have no right to receive such salary or cash bonuses, and (iii) such non-payment shall not constitute a breach of your employment agreement with the Company, or a breach of any obligation that the Company has to you under the Company's Executive Bonus Performance Award Program or otherwise. This agreement shall not reduce or otherwise adversely affect your annual base rate of pay or any other amount earned or payable to you under your employment agreement or otherwise (including under your supplemental executive retirement plan or upon termination of employment), such that any salary or bonus foregone will be deemed to have been in effect and earned or paid to you for purposes thereof, or under any other incentive or other compensation earned by or payable to you as an employee of the Company (whether or not with respect to, in whole or in part, the Voluntary Period), including any long term incentive or equity based compensation, and shall not affect payment or earning of any salary or cash bonuses or any other compensation payable to or earned by you, as an employee of the Company, with respect to your service prior to or after the expiration of the Voluntary Period. If you are in agreement with the foregoing, please sign the enclosed copy of this letter and return it to me. Sincerely, CONTINENTAL AIRLINES, INC. Accepted and Agreed: _____________________ By:___________________________ Lawrence W. Kellner Jeffery A. Smisek Executive Vice President - Corporate

Exhibit 10(a) Agreement and Plan of Reorganization by and between United Trust Group, Inc. and First Commonwealth Corporation Dated as of June 5, 2001 AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and entered into as of June 5, 2001 by and between United Trust Group, Inc., an Illinois corporation ("UTG"), and FIRST COMMONWEALTH CORPORATION, a Virginia corporation ("FCC") (UTG and FCC shall sometimes be referred to herein individually as a "Party" and collectively as the "Parties"). RECITALS WHEREAS, as of the date of this Agreement, UTG owns more than 80% of the outstanding shares of common stock of FCC, and the Boards of Directors of each of UTG and FCC believe it is in the best interests of each company and its respective shareholders for FCC to merge with and into UTG (the "Merger"), pursuant to which each share of common stock of FCC ("FCC Common Stock") issued and outstanding immediately prior to the Effective Time (as defined below) will be converted into the right to receive the Merger Consideration (as defined below), subject to certain exceptions described in this Agreement. NOW, THEREFORE, in consideration of the mutual agreements, covenants and other promises set forth herein, the mutual benefits to be gained by the performance thereof, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted, the Parties hereby agree as follows: ARTICLE I THE REORGANIZATION Section 1.01 The Merger. At the Effective Time and subject to and upon the terms and conditions of this Agreement (including the Plan of Merger contemplated by Section 1.02) and the applicable provisions of the Illinois Business Corporation Act ("IBCA") and the Virginia Stock Corporation Act ("VSCA"), FCC shall be merged with and into UTG, the separate corporate existence of FCC shall cease and UTG shall continue as the surviving corporation. The corporation surviving the Merger is sometimes referred to hereinafter as the "Surviving Corporation." Section 1.02 Effective Time. Unless this Agreement is earlier terminated pursuant to Section 6.01, the closing of the Merger (the "Closing") will take place no later than five (5) business days following satisfaction or waiver of the conditions set forth in Article V hereof, at the offices of Wyatt, Tarrant & Combs, LLP, 2800 PNC Plaza, Louisville, Kentucky, unless another time and/or place is mutually agreed upon in writing by FCC and UTG. The date upon which the Closing actually occurs shall be referred to herein as the "Closing Date." On the Closing Date, the Parties shall cause the Merger to be consummated by filing the Plan of Merger, in the form attached hereto as Exhibit A and being executed by the Parties simultaneously with the execution hereof, together with articles of merger, with the Virginia State Corporation Commission and the Illinois Secretary of State (the "Plan of Merger"), in accordance with the applicable provisions of the VSCA and the IBCA (the time at which the Merger has become effective under both the VSCA and the IBCA after the filing of the Plan of Merger and articles of merger with the Virginia State Corporation Commission and the Illinois Secretary of State shall be referred to herein as the "Effective Time"). Section 1.03 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of the IBCA, the VSCA, the Plan of Merger and this Agreement. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of FCC shall vest in the Surviving Corporation, and all debts, liabilities and duties of FCC shall become the debts, liabilities and duties of the Surviving Corporation. At the Effective Time, the separate corporate existence of FCC shall cease. Section 1.04 Certificate of Incorporation and Bylaws. (a) The articles of incorporation of UTG, as in effect immediately prior to the Effective Time, shall be the articles of incorporation of the Surviving Corporation at the Effective Time until thereafter amended in accordance with applicable law and as provided in such articles of incorporation. (b) The bylaws of UTG, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation at the Effective Time until thereafter amended in accordance with applicable law and as provided in the articles of incorporation of the Surviving Corporation and such bylaws. Section 1.05 Directors and Officers. The directors of UTG immediately prior to the Effective Time shall be the directors of the Surviving Corporation immediately after the Effective Time, each to hold the office of a director of the Surviving Corporation in accordance with the provisions of applicable law, and the articles of incorporation and bylaws of the Surviving Corporation, as applicable, until their successors are duly elected and qualified. The officers of UTG immediately prior to the Effective Time shall be the officers of the Surviving Corporation immediately after the Effective Time, each to hold office in accordance with the provisions of the bylaws of the Surviving Corporation, until their successors are duly appointed. Section 1.06 Effect of Merger on the Capital Stock of the Constituent Corporations. (a) Effect on FCC Capital Stock. (i) At the Effective Time, by virtue of the Merger and without any action on the part of UTG, FCC or any of the holders of shares of FCC Common Stock (the "Shareholders"), each share of FCC Common Stock issued and outstanding immediately prior to the Effective Time shall cease to be outstanding and, other than any shares of FCC Common Stock to be canceled pursuant to Section 1.06(a)(ii) or Section 1.06(a)(iii), shall be converted into and become the right to receive an amount equal to $250, payable by check or cash (the "Merger Consideration"). (ii) At the Effective Time, by virtue of the Merger and without any action on the part of UTG, FCC or any of the Shareholders, each share of FCC Common Stock issued and outstanding immediately prior to the Effective Time and held in the treasury of FCC or by any subsidiary thereof shall be cancelled and retired and cease to exist and no payment shall be made with respect thereto. (iii)At the Effective Time, by virtue of the Merger and without any action on the part of UTG, FCC or any of the Shareholders, each share of FCC Common Stock issued and outstanding immediately prior to the Effective Time and held by UTG shall be cancelled and retired and cease to exist and no payment shall be made with respect thereto. (b) Capital Stock of UTG. At the Effective Time, by virtue of the Merger and without any action on the part of UTG or FCC, each share of UTG common stock, no par value per share, issued and outstanding immediately prior to the Effective Time, shall remain outstanding as one validly issued, fully paid and nonassessable share of Common Stock of the Surviving Corporation and shall not be converted into any other securities or cash in the Merger. The certificates for such shares shall not be surrendered or in any way modified by reason of the Merger. (c) Withholding Taxes. Any cash amounts payable to any Shareholder pursuant to this Article I shall be subject to, and an amount may be withheld therefrom equal to, the amount of any requisite state, local, federal and foreign withholding taxes. Section 1.07 Preparation of Proxy Statement; Shareholders' Meeting. (a) As promptly as reasonably practicable following the date hereof, FCC shall prepare and shall cause to be filed with the Securities and Exchange Commission ("SEC") proxy materials mutually acceptable to FCC and UTG which shall constitute the proxy statement relating to the matters to be submitted to the Shareholders at the Shareholders' Meeting (as defined in (b) below) (the "Proxy Statement"). FCC and UTG shall also prepare, and file with the SEC, a statement on Schedule 13E-3 (together with any supplements or amendments thereto, the "Schedule 13E-3"). Each of FCC and UTG shall use reasonable best efforts to have the Proxy Statement and, if applicable, the Schedule 13E-3, cleared by the SEC as necessary to consummate the Merger and the transactions contemplated hereby. UTG and FCC shall, as promptly as practicable after receipt thereof, provide the other Party copies of any written comments and advise the other Party of any oral comments, with respect to the Proxy Statement or the Schedule 13E-3 received from the SEC. The Parties shall cooperate and provide the other with a reasonable opportunity to review and comment on any amendment or supplement to the Proxy Statement or the Schedule 13E-3 prior to filing such with the SEC, and will provide each other with a copy of all such filings made with the SEC. Notwithstanding any other provision herein to the contrary, no amendment or supplement (including by incorporation by reference) to the Proxy Statement or the Schedule 13E-3 shall be made without the approval of both Parties, which approval shall not be unreasonably withheld or delayed; provided that with respect to documents filed by a Party which are incorporated by reference in the Schedule 13E-3 or the Proxy Statement, this right of approval shall apply only with respect to information relating to the other Party or its business, financial condition or results of operations. FCC will use reasonable best efforts to cause the Proxy Statement and the Schedule 13E-3 to be mailed to the Shareholders, as promptly as practicable after the same is cleared by the SEC. Each Party will advise the other, promptly after it receives notice thereof, of any request by the SEC for amendment of the Proxy Statement or the Schedule 13E-3. If at any time prior to the Effective Time any information relating to UTG or FCC, or any of their respective affiliates, officers or directors, should be discovered by UTG or FCC, which information should be set forth in an amendment or supplement to either the Schedule 13E-3 or the Proxy Statement so that any of such documents would not include any misstatement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the Party which discovers such information shall promptly notify the other Party and, to the extent required by law, rules or regulations, an appropriate amendment or supplement describing such information shall be promptly filed with the SEC and disseminated to the Shareholders. (b) FCC shall duly take all lawful action to call, give notice of, convene and hold a meeting of the Shareholders on a date determined in accordance with the mutual agreement of FCC and UTG (the "Shareholders' Meeting") for the purpose of obtaining the approval of this Agreement and the transactions contemplated hereby (including the Merger) by the Shareholders (the "FCC Shareholder Approval") and shall its use reasonable best efforts to solicit the vote of the Shareholders. Subject to their fiduciary duties, the Board of Directors of FCC shall recommend adoption of this Agreement by the Shareholders. Section 1.08 Exchange Procedures (a) Promptly after the Effective Time, the Surviving Corporation shall mail (or shall cause an exchange agent appointed by the Surviving Corporation to mail) to each record holder, as of the Effective Time, of any outstanding certificate or certificates which immediately prior to the Effective Time represented shares of FCC Common Stock (the "FCC Certificates") a (i) notice of the effectiveness of the Merger and (ii) form letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the FCC Certificates shall pass only upon proper delivery of the FCC Certificates to the Surviving Corporation) and instructions for use in effecting the surrender of the FCC Certificates for payment therefor. Upon surrender to the Surviving Corporation of an FCC Certificate, together with the appropriate and duly executed transmittal materials described in the foregoing sentence and any other required documents, the holder of such FCC Certificate shall receive in exchange therefore the applicable Merger Consideration determined pursuant to Section 1.06 hereof, and such Certificate shall forthwith be cancelled. No interest will be paid or accrued on any consideration payable upon the surrender of the FCC Certificates. If payment is to be remitted to a name other than that in which the FCC Certificate surrendered for exchange is registered, it shall be a condition of such exchange that the FCC Certificate so surrendered shall be properly endorsed, with signature guaranteed, or otherwise in proper form for transfer and that the person requesting such exchange shall pay to UTG or its transfer agent any transfer or other taxes required by reason of the payment of the applicable Merger Consideration to a person other than the registered holder of the FCC Certificate surrendered, or establish to the satisfaction of UTG or its transfer agent that such tax has been paid or is not applicable. Until surrendered in accordance with the provisions of this Section 1.08, each FCC Certificate (other than FCC Certificates representing shares to be cancelled pursuant to Sections 1.06(a)(ii) or 1.06(a)(iii)) shall represent for all purposes only the right to receive the applicable Merger Consideration set forth in Section 1.06, without any interest thereon, subject to any required withholding taxes. (b) From and after the Effective Time, the holders of FCC Certificates evidencing shares of FCC Common Stock issued and outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such shares, except as otherwise provided herein, the Plan of Merger or by applicable law. (c) Any holders of shares of FCC Common Stock prior to the Merger who have not complied with this Article I and surrendered their FCC Certificates to the Surviving Corporation in accordance with this Section 1.08 within six (6) months after the Effective Time shall thereafter look only to the Surviving Corporation as general creditors thereof for payment of their claim for the applicable Merger Consideration to which such holders may be entitled hereunder by virtue of the Merger. (d) Neither FCC nor the Surviving Corporation (nor any exchange agent appointed by the Surviving Corporation pursuant to this Section 1.08) shall be liable to any Shareholder in respect of any Merger Consideration to which such Shareholder was otherwise entitled pursuant to this Agreement delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any FCC Certificates shall not have been surrendered prior to one (1) year after the Effective Time (or immediately prior to such earlier date on which any Merger Consideration, if any, in respect of such certificate would otherwise escheat to or become the property of any governmental entity), any such Merger Consideration in respect of such certificate shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interest of any Person previously entitled thereto. (e) From and after the Effective Time, there shall be no transfers of the shares of FCC Common Stock on the stock transfer books of the Surviving Corporation which were outstanding immediately prior to the Effective Time. (f) In the event any FCC Certificate shall have been lost, stolen or destroyed, the Surviving Corporation shall issue in exchange for such lost, stolen or destroyed certificate, upon the making of an affidavit of that fact by the holder thereof, such amount of the Merger Consideration, if any, as may be required pursuant to Section 1.06 hereof; provided, however, that the Surviving Corporation may, in its discretion and as a condition precedent to the issuance thereof, require the Shareholder who is the owner of such lost, stolen or destroyed certificate to deliver a bond in such amount as it may reasonably direct against any claim that may be made against the Surviving Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 1.09 Taking of Necessary Action; Further Action. If at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of FCC, UTG and the officers and directors of the UTG are fully authorized in the name of UTG or otherwise to take, and will take, all such lawful and necessary action. Article II. REPRESENTATIONS AND WARRANTIES OF FCC FCC hereby represents and warrants to UTG that, except as disclosed in the FCC Filed SEC Reports (as defined below): Section 2.01 Organization, Standing and Power; Subsidiaries. (a) FCC is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Virginia and has the corporate power to own its properties and to carry on its business as now being conducted. Each subsidiary of FCC is a corporation or other organization duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, has the requisite corporate or other power and authority to own, lease and operate its properties and to carry on its business as is now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not reasonably be expected to have a Material Adverse Effect on FCC. For purposes of this Agreement, the term "Material Adverse Effect" on a Party shall mean an event, change or occurrence which, individually or together with any other event, change or occurrence, has a material impact on (a) the financial position, business, or results of operations of such Party and its subsidiaries (though with respect to UTG, excluding FCC and its subsidiaries), taken as a whole, or (b) the ability of such Party to perform its obligations under this Agreement or to consummate the Merger, other than any event, change or occurrence relating to (i) the United States economy, the regional economy in which such Party conducts business or the securities markets in general or (ii) this Agreement or the transactions contemplated hereby or announcement hereof. (b) Each of FCC and its subsidiaries is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties make such qualification necessary other than in such jurisdictions where the failure so to qualify or to be in good standing would not reasonably be expected to have a Material Adverse Effect on FCC. FCC has made available to UTG a true and correct copy of its articles of incorporation and bylaws, each as amended to date and in full force and effect on the date hereof. Section 2.02 Capital Structure. (a) The authorized capital stock of FCC consists of 62,500 shares of FCC Common Stock, of which 54,385 shares are issued and outstanding as of the date hereof (reflecting the 1 for 400 reverse stock split approved by FCC's Board of Directors on March 27, 1997, but for which FCC did not obtain shareholder approval or file an amendment to its articles of incorporation). All outstanding shares of FCC Common Stock are duly authorized, validly issued, fully paid and nonassessable and free of any preemptive rights. (b) (i) FCC does not have any stock option plan or other stock-related plan providing for equity compensation of any person, (ii) there are no options, warrants, calls, rights, commitments or agreements of any character, written or oral, to which FCC is a party or by which it is bound obligating it to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of FCC Common Stock, (iii) FCC is not obligated to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any option, warrant, call, right, commitment or agreement upon the closing of the transactions contemplated hereby or upon the occurrence of any other event, and (iv) no bonds, debentures, notes or other indebtedness of FCC exists having the right to vote on any matters on which holders of capital stock of FCC may vote. Section 2.03 Authority; No Conflicts. (a) Subject, in the case of the consummation of the Merger, to the FCC Shareholder Approval, any approvals or clearances required under the applicable insurance laws of any state, the filings contemplated by Section 1.07 and the filing of the Plan of Merger, and related articles of merger, with the Virginia State Corporation Commission and the Illinois Secretary of State, (i) FCC has all requisite power and authority to enter into this Agreement and to consummate the transactions contemplated hereby, (ii) the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of FCC and no further action is required on the part of FCC to authorize this Agreement and the transactions contemplated hereby, (iii) this Agreement, the Plan of Merger and the Merger have been unanimously approved and adopted by the Board of Directors of FCC in accordance with Virginia law, and the articles of incorporation and bylaws of FCC, and (iv) this Agreement has been duly executed and delivered by FCC, and assuming the due authorization, execution and delivery by the other Party hereto, constitutes the valid and binding obligation of FCC, enforceable against it in accordance with its terms, except as such enforceability may be subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. (b) The execution and delivery by FCC of this Agreement and the consummation of the transactions contemplated hereby will not conflict with or result in any violation of or default under (with or without notice or lapse of time, or both) or give rise to a right of termination, cancellation, modification or acceleration of any obligation or loss of any benefit under (any such event, a "Conflict") (i) any provision of the articles of incorporation or bylaws of FCC, (ii) except as would not reasonably be expected to have a Material Adverse Effect on FCC, any mortgage, indenture, lease, contract, covenant or other agreement, instrument or commitment, permit, concession, franchise or license (individually a "Contract") to which FCC or any of its subsidiaries or any of their respective properties or assets (including intangible assets), is subject, or (iii) except as would not reasonably be expected to have a Material Adverse Effect on FCC, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to FCC or any of its subsidiaries or any of their respective properties or assets (tangible and intangible). Section 2.04 Reports and Financial Statements. (a) FCC has filed all required registration statements, prospectuses, reports, schedules, forms, statements and other documents required to be filed by it with the SEC since December 31, 1998 (collectively, the "FCC SEC Reports"). No subsidiary of FCC is required to file any form, report, registration statement, prospectus or other document with the SEC. None of the FCC SEC Reports, as of their respective dates (and, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing), contained or will contain any untrue statement of a material fact or omitted or will 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. All of such FCC SEC Reports, as of their respective dates (and as of the date of any amendment to the respective FCC SEC Report), complied (and with respect to FCC SEC Reports filed after the date hereof, will comply) as to form in all material respects with the applicable requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the rules and regulations promulgated thereunder. (b) Each of the financial statements (including the related notes) included or incorporated by reference in the FCC SEC Reports presents fairly, in all material respects, the consolidated financial position and consolidated results of operations and cash flows of FCC and its consolidated subsidiaries as of the respective dates or for the respective periods set forth therein, all in conformity with United States generally accepted accounting principles ("GAAP") consistently applied during the periods involved except as otherwise noted therein, and subject, in the case of the unaudited interim financial statements of FCC, to the absence of notes and normal year-end adjustments that have not been and are not expected to be material in amount. Except as disclosed in the FCC SEC Reports filed and publicly available prior to the date hereof (the "FCC Filed SEC Reports"), FCC and its subsidiaries have not incurred any liabilities that are of a nature that would be required to be disclosed on a balance sheet of FCC and its subsidiaries or the footnotes thereto prepared in conformity with GAAP, other than (A) liabilities incurred in the ordinary course of business, (B) liabilities incurred in accordance with Section 4.01, or (C) liabilities that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on FCC. Section 2.05 Information Supplied. The information supplied by FCC for inclusion or incorporated by reference in (A) the Schedule 13E-3 or any amendment or supplement thereto will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and (B) the Proxy Statement or any amendment or supplement thereto to be sent to the Shareholders in connection with the Shareholders' Meeting will not, on the date the Proxy Statement is first mailed to the Shareholders or at the time of the Shareholders' Meeting or at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Proxy Statement and the Schedule 13E-3 will comply as to form in all material respects with the requirements of the 1934 Act and the 1933 Act and the regulations promulgated thereunder. Notwithstanding the foregoing, no representation or warranty is made with respect to statements made or incorporated by reference in the Schedule 13E-3 or the Proxy Statement based on information supplied by or on behalf of UTG for inclusion or incorporation by reference. Section 2.06 Absence of Changes or Events. Except for liabilities permitted to be incurred in accordance with this Agreement or the transactions contemplated hereby, since December 31, 2000, FCC and its subsidiaries have conducted their business only in the ordinary course and in a manner consistent with past practice and, since December 31, 2000, there have not been any changes, circumstances or events which, individually or in the aggregate, have had, or would reasonably be expected to have, a Material Adverse Effect on FCC Section 2.07 Litigation; Compliance with Laws. (a) There are no actions pending or, to the knowledge of FCC, threatened, against or affecting FCC or any subsidiary of FCC or any property or asset of FCC or any subsidiary of FCC which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on FCC, nor are there any judgments, decrees, injunctions, rules or orders of any Governmental Entity (as defined below) or arbitrator outstanding against FCC or any subsidiary of FCC which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on FCC. As used in this Agreement, the term "Governmental Entity" shall include any supranational, national, state, municipal, local or foreign government, any instrumentality, subdivision, court, administrative agency or commission or other authority thereof, or any quasi-governmental or private body exercising any regulatory, taxing, importing or other governmental or quasi-governmental authority. (b) Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on FCC, FCC and its subsidiaries hold all permits, licenses, franchises, variances, exemptions, orders and approvals of all Governmental Entities which are necessary for the operation of the businesses as now being conducted of FCC and its subsidiaries, taken as a whole (the "FCC Permits"), and no suspension or cancellation of any of the FCC Permits is pending or, to the knowledge of FCC, threatened. FCC and its subsidiaries are in compliance with the terms of the FCC Permits, except where the failure to so comply, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on FCC. Neither FCC nor its subsidiaries is in violation of, and FCC and its subsidiaries have not received any notices of violations with respect to, any laws, statutes, ordinances, rules or regulations of any Governmental Entity, except for violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on FCC. Section 2.08 Brokers' and Finders' Fees. FCC has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby, except for compensation payable to the Financial Advisor (as defined in Section 5.03(c)). Section 2.09 Representations Complete. Neither any of the representations or warranties made by FCC (as modified by the FCC SEC Reports) in this Agreement, nor any statements made in any exhibit, schedule or certificate furnished by FCC pursuant to this Agreement, contains or will contain at the Effective Time, any untrue statement of a material fact, or omits or will omit at the Effective Time to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading. Article III. REPRESENTATIONS AND WARRANTIES OF UTG UTG hereby represents and warrants to FCC that, except as disclosed in all registration statements, prospectuses, reports, schedules, forms and other documents filed by UTG with the SEC since December 31, 1998 and prior to the date hereof (the "UTG Filed SEC Reports"): Section 3.01 Organization, Standing and Power; Subsidiaries. (a) UTG is a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois and has the corporate power to own its properties and to carry on its business as now being conducted. Each subsidiary of UTG (other than FCC or any subsidiary of FCC) is a corporation or other organization duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, has the requisite corporate or other power and authority to own, lease and operate its properties and to carry on its business as is now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not reasonably be expected to have a Material Adverse Effect on UTG. (b) Each of UTG and its subsidiaries (other than FCC and FCC's subsidiaries) is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties make such qualification necessary other than in such jurisdictions where the failure so to qualify or to be in good standing would not reasonably be expected to have a Material Adverse Effect on UTG. Section 3.02 Authority; No Conflicts. (a) Subject, in the case of the consummation of the Merger, to any approvals or clearances required under the applicable insurance laws of any state, the filings contemplated by Section 1.07 and the filing of the Plan of Merger, and related articles of merger, with the Virginia State Corporation Commission and the Illinois Secretary of State, (i) UTG has all requisite power and authority to enter into this Agreement and to consummate the transactions contemplated hereby, (ii) the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of UTG and no further action is required on the part of UTG to authorize the Agreement and the transactions contemplated hereby, (iii) this Agreement, the Plan of Merger and the Merger have been unanimously approved and adopted by the Board of Directors of UTG in accordance with Illinois law, and the articles of incorporation and bylaws of UTG, and (iv) this Agreement has been duly executed and delivered by UTG, and assuming the due authorization, execution and delivery by the other Party hereto, constitutes the valid and binding obligation of UTG, enforceable against it in accordance with its terms, except as such enforceability may be subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. (b) The execution and delivery by UTG of this Agreement and the consummation of the transactions contemplated hereby will not result in a Conflict under (i) any provision of the articles of incorporation or bylaws of UTG, (ii) except as would not reasonably be expected to have a Material Adverse Effect on UTG, any Contract to which UTG or any of its subsidiaries or any of their respective properties or assets (including intangible assets), is subject, or (iii) except as would not reasonably be expected to have a Material Adverse Effect on UTG, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to UTG or any of its subsidiaries (other than FCC or any FCC subsidiary) or any of their respective properties or assets (tangible and intangible). Section 3.03 Information Supplied. The information supplied by UTG for inclusion or incorporated by reference in (A) the Schedule 13E-3 or any amendment or supplement thereto will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and (B) the Proxy Statement or any amendment or supplement thereto to be sent to the Shareholders in connection with the Shareholders' Meeting will not, on the date the Proxy Statement is first mailed to the Shareholders or at the time of the Shareholders' Meeting or at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Schedule 13E-3 will comply as to form in all material respects with the requirements of the 1934 Act and the regulations promulgated thereunder. Notwithstanding the foregoing, no representation or warranty is made with respect to statements made or incorporated by reference in the Schedule 13E-3 or the Proxy Statement based on information supplied by or on behalf of FCC for inclusion or incorporation by reference. Section 3.04 Capital Resources. UTG has sufficient capital resources to pay the total Merger Consideration and to consummate all of the transactions contemplated by this Agreement and the Plan of Merger. Section 3.05 Brokers' and Finders' Fees. UTG has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with the Agreement or any transaction contemplated hereby. Section 3.06 Representations Complete. Neither any of the representations or warranties made by UTG (as modified by the UTG Filed SEC Reports) in this Agreement, nor any statements made in any exhibit, schedule or certificate furnished by UTG pursuant to this Agreement, contains or will contain at the Effective Time, any untrue statement of a material fact, or omits or will omit at the Effective Time to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading. Article IV. COVENANTS Section 4.01 Conduct of Business of FCC Prior to the Effective Time. During the period from the date of this Agreement and continuing until the Effective Time, FCC agrees as to itself and its subsidiaries that (except as expressly contemplated or permitted by this Agreement or to the extent that UTG shall otherwise consent in writing, such consent not to be unreasonably withheld) FCC and its subsidiaries shall carry on their respective businesses in the usual, regular and ordinary course in all material respects, in substantially the same manner as heretofore conducted, and shall use their reasonable best efforts to preserve intact their present lines of business and preserve their relationships with customers and others having business dealings with them. Section 4.02 Governmental Filings. Each Party shall file all reports required to be filed by it with the SEC (and all other Governmental Entities) between the date of this Agreement and the Effective Time and shall, if requested by the other Party and to the extent permitted by law or regulation or any applicable confidentiality agreement, deliver to the other Party copies of all such reports promptly after such request. Section 4.03 Access to Information. FCC shall afford UTG and its accountants, counsel and other representatives, reasonable access during the period prior to the Effective Time to (i) all of FCC's properties, books, contracts, commitments and records, (ii) all other information concerning the business, properties and personnel (subject to restrictions imposed by applicable law) of FCC as UTG may reasonably request, and (iii) all employees of FCC as identified by UTG. FCC agrees to provide to UTG and its accountants, counsel and other representatives copies of internal financial statements (including tax returns and supporting documentation) promptly upon request. No information or knowledge obtained in any investigation pursuant to this Section 4.03 shall affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the parties to consummate the Merger in accordance with the terms and provisions hereof. Section 4.04 Fees and Expenses. Regardless whether the Merger is consummated, FCC and UTG will be responsible for and bear all of their own costs and expenses incurred at any time in connection with pursuing or consummating the Merger, except expenses incurred in connection with the filing, printing and mailing of the Proxy Statement and the Schedule 13E-3, which shall be shared equally by FCC and UTG. Section 4.05 Public Disclosure. The initial press release pertaining to the transactions contemplated by this Agreement shall be a joint press release and thereafter each Party shall consult with the other before issuing communications to employees regarding the transactions contemplated by this Agreement or any press release or otherwise making any public statements with respect to this Agreement or the Merger and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by law or any listing agreement with Nasdaq. FCC and UTG shall each provide to the other a copy of each press release or other public statement relating to its business reasonably in advance of making such release or statement. Section 4.06 Consents. FCC shall use commercially reasonable efforts to obtain the consents, waivers and approvals under any of the contracts to which FCC or its subsidiaries are parties to the extent deemed appropriate or necessary by any Party in connection with the Merger so as to preserve all rights of, and benefits to, the Surviving Corporation thereunder from and after the Effective Time. Section 4.07 Indemnification. If the Merger is consummated, UTG agrees to assume and be responsible for all obligations of FCC as of the Effective Time to provide indemnification from liabilities for acts or omissions occurring at or prior to the Effective Time in favor of the current or former directors or officers of FCC as provided in FCC's articles of incorporation or bylaws, as in effect on the date of this Agreement, for a period of six (6) years after the Effective Time. Article V. CONDITIONS TO THE MERGER Section 5.01 Conditions to Obligations of Each Party to Effect the Merger. The respective obligations of FCC and UTG to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions: (a) FCC Shareholder Approval. FCC shall have received the FCC Shareholder Approval. (b) No Order. No Governmental Entity shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and which has the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger. (c) No Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect, nor shall any proceeding brought by an administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, seeking any of the foregoing be pending. Section 5.02 Conditions to the Obligations of UTG. The obligation of UTG to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of each of the following conditions, any of which may be waived, in writing, exclusively by UTG: (a) Representations, Warranties and Covenants. (i) The representations and warranties of FCC in this Agreement shall have been true and correct in all material respects on the date they were made and shall be true and correct in all material respects on and as of the Closing Date as though such representations and warranties were made on and as of such time (other than the representations and warranties of FCC as of a specified date, which will be true and correct in all material respects as of such date), and (ii) FCC shall have performed and complied in all material respects with all covenants and obligations under this Agreement required to be performed and complied with by FCC as of the Closing. (b) Governmental Approval. Approvals from any court, administrative agency or commission or other federal, state, county, local or other foreign governmental authority, instrumentality, agency or commission (if any) deemed appropriate or necessary by UTG shall have been timely obtained. (c) Litigation. There shall be no action, suit, claim or proceeding of any nature pending, or overtly threatened, against FCC or its subsidiaries, their respective properties or any of their respective officers or directors, arising out of, or in any way connected with, the Merger or the other transactions contemplated by the terms of this Agreement. (d) Third Party Consents. UTG shall have received copies of all consents or approvals of third parties it deems necessary or appropriate. (e) Certificate of FCC. UTG shall have received a certificate, validly executed by or on behalf of FCC to the effect that, as of the Closing: (i) all representations and warranties made by FCC in this Agreement are true and correct in all material respects on and as of the Closing Date as though such representations and warranties were made on and as of such time (other than the representations and warranties of FCC as of a specified date, which will be true and correct in all material respects as of such date); and (ii) all covenants and obligations under this Agreement to be performed by FCC on or before the Closing have been so performed in all material respects. (f) Certificate of Secretary of FCC. UTG shall have received a certificate, validly executed by the Secretary of FCC, certifying as to (i) the terms and effectiveness the articles of incorporation and the bylaws of FCC, (ii) the valid adoption of resolutions of the Board of Directors of FCC and the Shareholders approving this Agreement and the approval of the transactions contemplated hereby and that such approvals are in full force and effect without modification, (iii) the incumbency of the officers of FCC executing this Agreement and any agreements contemplated hereby or other instruments or certificates relating hereto or thereto. (g) No Material Adverse Effect - No event, condition or circumstances shall have occurred or be discovered after the date of this Agreement which has had, or is reasonably likely to have, a Material Adverse Effect on FCC. Section 5.03 Conditions to Obligations of FCC. The obligations of FCC to consummate and effect this Agreement and the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Effective Time of each of the following conditions, any of which may be waived, in writing, exclusively by FCC: (a) Representations, Warranties and Covenants. (i) The representations and warranties of UTG in this Agreement (other than the representations and warranties of UTG as of a specified date, which will be true and correct in all material respects as of such date) shall be true and correct in all material respects on the date they were made and shall be true and correct in all material respects on and as of the Closing Date as though such representations and warranties were made on and as of such time, and (ii) UTG shall have performed and complied in all material respects with all covenants and obligations of this Agreement required to be performed and complied with by such parties as of the Closing. (b) Certificate of UTG. FCC shall have received a certificate executed on behalf of UTG by a corporate officer to the effect that, as of the Closing: (i) all representations and warranties made by UTG in this Agreement (other than the representations and warranties of UTG as of a specified date, which will be true and correct as of such date) are true and correct in all material respects on and as of the Closing Date as though such representations and warranties were made on and as of such time; and (ii) all covenants and obligations under this Agreement to be performed by UTG on or before the Closing have been so performed in all material respects. (c) Fairness Opinion - The Board of Directors of FCC shall have received an opinion from Morgan Keegan and Company, Inc. (the "Financial Advisor") that the transactions contemplated hereby, including the Merger Consideration to be paid on consummation of the Merger, is fair from a financial standpoint as to FCC and the Shareholders. (d) Governmental Approval. Approvals from any court, administrative agency or commission or other federal, state, county, local or other foreign governmental authority, instrumentality, agency or commission (if any) deemed appropriate or necessary by FCC shall have been timely obtained. Article VI. TERMINATION, AMENDMENT AND WAIVER Section 6.01 Termination. This Agreement may be terminated and the Merger abandoned at any time prior to the Closing (including after receipt of the FCC Shareholder Approval): (a) by mutual, written agreement of FCC and UTG; (b) by FCC or by UTG, if the Closing Date shall not have occurred by December 31, 2001; (c) by FCC or by UTG upon the failure of any condition set out in Section 5.01; (d) by UTG if there shall be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any Governmental Entity, which would (i) prohibit UTG's ownership or operation of any portion of the business of FCC or its subsidiaries, or (ii) compel UTG to dispose of or hold separate all or a material portion of the business or assets of the FCC, its subsidiaries or UTG as a result of the Merger; or (e) by UTG if UTG is not in material breach of its obligations under this Agreement and there has been any event, condition or circumstances occur or that is discovered after the date of this Agreement which has had, or is reasonably likely to have, a Material Adverse Effect on FCC. Section 6.02 Effect of Termination. In the event of termination of this Agreement as provided in Section 6.01, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of UTG, FCC or the Shareholders, or their respective officers, directors or shareholders, if applicable; provided, however, that, the provisions of Section 4.04 and 4.05, Article VII and this Section 6.02 shall remain in full force and effect and survive any termination of this Agreement pursuant to the terms of this Article VI. Section 6.03 Amendment. This Agreement may be amended by the Parties at any time by execution of an instrument in writing signed on behalf of both Parties. Section 6.04 Extension; Waiver. At any time prior to the Closing, UTG, on the one hand, and FCC, on the other hand, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations of the other Party, (ii) waive any inaccuracies in the representations and warranties made to such Party contained herein or in any document delivered pursuant hereto, and (iii) waive compliance with any of the agreements or conditions for the benefit of such Party contained herein. Any agreement on the part of a Party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such Party. Article VII. GENERAL PROVISIONS Section 7.01 Non-Survival of Representations, Warranties and Agreements. None of the representations, warranties, covenants and other agreements in this Agreement or in any instrument delivered pursuant to this Agreement, including any rights arising out of any breach of such representations, warranties, covenants, agreements and other provisions, shall survive the Effective Time, except for those covenants, agreements and other provisions contained herein that by their terms apply or are to be performed in whole or in part after the Effective Time, Section 4.04 and this Article VII. Section 7.02 Notices. All notices and other communications hereunder shall be in writing, shall be effective when received, and shall in any event be deemed received and effectively given (i) upon delivery, if delivered personally or by commercial messenger or courier service, (ii) three days after deposit in the U.S. mail, if delivered by registered or certified mail (postage prepaid, return receipt requested), (iii) one business day after the day of facsimile transmission, if sent by facsimile with confirming copy by U.S. mail (first class, postage prepaid), or (iv) one business day after the business day of deposit with Federal Express or similar carrier for overnight delivery, freight prepaid, in each case to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to UTG, to: United Trust Group, Inc. 5250 South Sixth Street Springfield, Illinois 62703 Attention: Chief Executive Officer Telephone No.: 217/241-6300 Facsimile No.: 217/241-6578 (b) if to FCC, to: First Commonwealth Corporation 5250 South Sixth Street Springfield, Illinois 62703 Attention: Chief Executive Officer Telephone No.: 217/241-6300 Facsimile No.: 217/241-6578 Section 7.03 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be deemed originals, shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party, it being understood that both Parties need not sign the same counterpart. Section 7.04 Entire Agreement; Assignment. This Agreement, the exhibits hereto, and the documents and instruments and other agreements among the Parties referenced herein: (i) constitute the entire agreement among the Parties with respect to the subject matter hereof and supersede all prior agreements and understandings both written and oral, among the Parties with respect to the subject matter hereof, (ii) are not intended to confer upon any other person any rights or remedies hereunder, and (iii) shall not be assigned by operation of law or otherwise, except that UTG may assign its rights and delegate its obligations hereunder to any entity or entities that are wholly-owned by UTG, directly or indirectly. Section 7.05 Severability. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as to reasonably effect the intent of the Parties. The Parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. Section 7.06 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, as applied to contracts entered into and wholly to be performed within such state by residents thereof. Each of the Parties irrevocably consents to the exclusive jurisdiction and venue of the federal district courts located within the State of Illinois, in connection with any matter based upon or arising out of this Agreement or the matters contemplated herein unless otherwise provided herein, agrees that process may be served upon them in any manner authorized by the laws of the State of Illinois for such persons and waives and covenants not to assert or plead any objection which they might otherwise have to such jurisdiction, venue and such process. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, UTG and FCC have caused this Agreement to be signed, all as of the date first written above. UNITED TRUST GROUP, INC. By: /s/ Randall L. Attkisson Title: President FIRST COMMONWEALTH CORPORATION By: /s/ Theodore C. Miller Title: Secretary [Signature Page to the Agreement and Plan of Reorganization between United Trust Group, Inc. and First Commonwealth Corporation] Exhibit A Plan of Merger PLAN OF MERGER OF FIRST COMMONWEALTH CORPORATION WITH AND INTO UNITED TRUST GROUP, INC. Pursuant to this Plan of Merger ("Plan of Merger"), First Commonwealth Corporation, a corporation organized and existing under the laws of the State of Virginia ("FCC"), shall be merged with and into United Trust Group, Inc., a corporation organized and existing under the laws of the State of Illinois ("UTG"). Article I. DEFINITIONS Except as otherwise provided herein, the capitalized terms set forth below shall have the meanings set forth in the Agreement and Plan of Reorganization dated as of June 5, 2001 by and between FCC and UTG (the "Reorganization Agreement"). Article II. TRANSACTIONS AND TERMS OF MERGER Section 2.01 The Merger. At the Effective Time and subject to and upon the terms and conditions of the Reorganization Agreement, this Plan of Merger and the applicable provisions of the Illinois Business Corporation Act (the "IBCA") and the Virginia Stock Corporations Act (the "VSCA"), FCC shall be merged with and into UTG, the separate corporate existence of FCC shall cease and UTG shall continue as the Surviving Corporation. Section 2.02 Effective Time. Unless the Reorganization Agreement is earlier terminated pursuant to Section 6.01 thereof, the Closing will take place no later than five (5) business days following satisfaction or waiver of the conditions set forth in Article V of the Reorganization Agreement, at the offices of Wyatt, Tarrant & Combs, LLP, 2800 PNC Plaza, Louisville, Kentucky, unless another time and/or place is mutually agreed upon in writing by FCC and UTG. On the Closing Date, the Parties shall cause the Merger to be consummated by filing this Plan of Merger, together with related articles of merger, with the Virginia State Corporation Commission and the Illinois Secretary of State, in accordance with the applicable provisions of the VSCA and the IBCA (the time at which the Merger has become effective under both the VSCA and the IBCA after the filing of this the Plan of Merger and articles of merger with the Virginia State Corporation Commission and the Illinois Secretary of State shall be referred to herein as the "Effective Time"). Section 2.03 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of the IBCA, the VSCA, this Plan of Merger and the Reorganization Agreement. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of FCC shall vest in the Surviving Corporation, and all debts, liabilities and duties of FCC shall become the debts, liabilities and duties of the Surviving Corporation. At the Effective Time, the separate corporate existence of FCC shall cease. Section 2.04 Certificate of Incorporation and Bylaws. (a) The articles of incorporation of UTG, as in effect immediately prior to the Effective Time, shall be the articles of incorporation of the Surviving Corporation at the Effective Time until thereafter amended in accordance with applicable law and as provided in such articles of incorporation. (b) The bylaws of UTG, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation at the Effective Time until thereafter amended in accordance with applicable law and as provided in the articles of incorporation of the Surviving Corporation and such bylaws. Section 2.05 Directors and Officers. The directors of UTG immediately prior to the Effective Time shall be the directors of the Surviving Corporation immediately after the Effective Time, each to hold the office of a director of the Surviving Corporation in accordance with the provisions of applicable law, and the articles of incorporation and bylaws of the Surviving Corporation, as applicable, until their successors are duly elected and qualified. The officers of UTG immediately prior to the Effective Time shall be the officers of the Surviving Corporation immediately after the Effective Time, each to hold office in accordance with the provisions of the bylaws of the Surviving Corporation, until their successors are duly appointed. Article III. MANNER OF CONVERTING SHARES Section 3.01 Effect on FCC Capital Stock. (a) At the Effective Time, by virtue of the Merger and without any action on the part of UTG, FCC or the Shareholders, each share of FCC Common Stock issued and outstanding immediately prior to the Effective Time shall cease to be outstanding and, other than any shares of FCC Common Stock to be canceled pursuant to Section 3.01(b) or Section 3.01(c) hereof, shall be converted into and become the right to receive an amount equal to $250, payable by check or cash (the "Merger Consideration"). (b) At the Effective Time, by virtue of the Merger and without any action on the part of UTG, FCC or any of the Shareholders, each share of FCC Common Stock issued and outstanding immediately prior to the Effective Time and held in the treasury of FCC or by any subsidiary thereof shall be cancelled and retired and cease to exist and no payment shall be made with respect thereto. (c) At the Effective Time, by virtue of the Merger and without any action on the part of UTG, FCC or any of the Shareholders, each share of FCC Common Stock issued and outstanding immediately prior to the Effective Time and held by UTG shall be cancelled and retired and cease to exist and no payment shall be made with respect thereto. Section 3.02 Capital Stock of UTG. At the Effective Time, by virtue of the Merger and without any action on the part of UTG or FCC, each share of UTG common stock, no par value per share, issued and outstanding immediately prior to the Effective Time, shall remain outstanding as one validly issued, fully paid and nonassessable share of Common Stock of the Surviving Corporation and shall not be converted into any other securities or cash in the Merger. The certificates for such shares shall not be surrendered or in any way modified by reason of the Merger. Section 3.03 Withholding Taxes. Any cash amounts payable to any Shareholder pursuant to this Article III shall be subject to, and an amount may be withheld therefrom equal to, the amount of any requisite state, local, federal and foreign withholding taxes. Article IV. EXCHANGE OF SHARES Section 4.01 Exchange Procedures. Promptly after the Effective Time, the Surviving Corporation shall mail (or shall cause an exchange agent appointed by the Surviving Corporation to mail) to each record holder, as of the Effective Time, of any outstanding certificate or certificates which immediately prior to the Effective Time represented shares of FCC Common Stock (the "FCC Certificates") a (i) notice of the effectiveness of the Merger and (ii) form letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the FCC Certificates shall pass, only upon delivery of the FCC Certificates to the Surviving Corporation) and instructions for use in effecting the surrender of the FCC Certificates for payment therefore. Upon surrender to the Surviving Corporation of an FCC Certificate, together with the appropriate and duly executed transmittal materials described in the foregoing sentence and any other required documents, the holder of such FCC Certificate shall receive in exchange therefore the applicable Merger Consideration determined pursuant to Section 3.01 hereof, and such certificate shall forthwith be cancelled. No interest will be paid or accrued on any consideration payable upon the surrender of the FCC Certificates. If cash is to be remitted to a name other than that in which the FCC Certificate surrendered for exchange is registered, it shall be a condition of such exchange that the FCC Certificate so surrendered shall be properly endorsed, with signature guaranteed, or otherwise in proper form for transfer and that the person requesting such exchange shall pay to UTG or its transfer agent any transfer or other taxes required by reason of payment of the applicable Merger Consideration to a person other than the registered holder of the FCC Certificate surrendered, or establish to the satisfaction of UTG or its transfer agent that such tax has been paid or is not applicable. Until surrendered in accordance with the provisions of this Article IV, each FCC Certificate (other than FCC Certificates representing shares to be cancelled pursuant to Sections 3.01(b) or 3.01(c) hereof) shall represent for all purposes only the right to receive the applicable Merger Consideration set forth in Section 3.01 hereof, without any interest thereon, subject to any required withholding taxes. Section 4.02 Rights of Former FCC Shareholders. (a) From and after the Effective Time, the holders of FCC Certificates evidencing shares of FCC Common Stock issued and outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such shares, except as otherwise provided herein, in the Reorganization Agreement or by applicable law. (b) Any holders of shares of FCC Common Stock prior to the Merger who have not complied with this Plan of Merger and surrendered their FCC Certificates to the Surviving Corporation in accordance with this Article IV within six (6) months after the Effective Time shall thereafter look only to the Surviving Corporation as general creditors thereof for payment of their claim for the applicable Merger Consideration to which such holders may be entitled hereunder by virtue of the Merger. (c) Neither FCC nor the Surviving Corporation (nor any exchange agent appointed by the Surviving Corporation) shall be liable to any Shareholder in respect of any Merger Consideration to which such Shareholder was otherwise entitled pursuant to this Plan of Merger that was delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any FCC Certificates shall not have been surrendered prior to one (1) year after the Effective Time (or immediately prior to such earlier date on which the Merger Consideration, if any, in respect of such certificate would otherwise escheat to or become the property of any governmental entity), any such Merger Consideration shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interest of any person previously entitled thereto. (d) From and after the Effective Time, there shall be no transfers of the shares of FCC Common Stock on the stock transfer books of the Surviving Corporation which were outstanding immediately prior to the Effective Time. (e) In the event any FCC Certificate shall have been lost, stolen or destroyed, the Surviving Corporation shall issue in exchange for such lost, stolen or destroyed certificate, upon the making of an affidavit of that fact by the holder thereof, such amount of the applicable Merger Consideration, if any, as may be required pursuant to Section 3.01 hereof; provided, however, that the Surviving Corporation may, in its discretion and as a condition precedent to the issuance thereof, require the Shareholder who is the owner of such lost, stolen or destroyed certificate to deliver a bond in such amount as it may reasonably direct against any claim that may be made against the Surviving Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Article V. MISCELLANEOUS Section 5.01 Conditions Precedent. Consummation of the Merger shall be conditioned on the satisfaction of, or waiver by the applicable Party of, the conditions precedent to the Merger set forth in Article V of the Reorganization Agreement. Section 5.02 Termination. This Plan of Merger may be terminated at any time prior to the Effective Time as provided in Section 6.01 of the Reorganization Agreement. Section 5.03 Counterparts. This Plan of Merger may be executed in counterparts, each of which shall be an original; but all of such counterparts together shall constitute one and the same instrument. Section 5.04 Reorganization Agreement. This Plan of Merger is being entered into and delivered pursuant to the terms and conditions of the Reorganization Agreement and shall be governed by the terms and conditions thereof. In the event of any conflict between the terms and conditions of this Plan of Merger and the terms and conditions of the Reorganization Agreement, the terms and conditions of the Reorganization Agreement shall control. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties have caused their duly authorized officers to execute this Plan of Merger as of the 5th day of June, 2001. UNITED TRUST GROUP, INC. By: /s/ Randall L. Attkisson Title: President FIRST COMMONWEALTH CORPORATION By: /s/ Theodore C. Miller Title: Secretary [Signature Page to the Plan of Merger by and between United Trust Group, Inc. and First Commonwealth Corporation]

CREDIT AGREEMENT among MONACO COACH CORPORATION ROYALE COACH BY MONACO, INC. and MCC ACQUISITION CORPORATION as Borrowers THE LENDERS NAMED HEREIN, as Lenders U.S. BANK NATIONAL ASSOCIATION, as Administrative Lender, Swingline Lender, and L/C Bank   TOTAL COMMITMENT — $50,000,000 JANUARY  12, 2001 CONTENTS ARTICLE I.      DEFINITIONS 1.1        DEFINED TERMS 1.2        ACCOUNTING AND FINANCIAL DETERMINATIONS 1.3        HEADINGS 1.4        ADDITIONAL DEFINITION PROVISIONS ARTICLE II.     APPOINTMENT OF BORROWERS' AGENT; JOINT AND SEVERAL LIABILITY 2.1        APPOINTMENT OF AGENT 2.2        AUTHORIZED REPRESENTATIVES 2.3        JOINT AND SEVERAL LIABILITY; RIGHTS OF CONTRIBUTION ARTICLE III.   THE CREDITS 3.1        REVOLVING LOANS 3.2        SWING LOANS 3.3        LETTER OF CREDIT FACILITY 3.4        INTEREST/FEES 3.5        INTEREST OPTIONS 3.6        OTHER PAYMENT TERMS 3.7        FUNDING 3.8        PRO RATA TREATMENT 3.9        CHANGE OF CIRCUMSTANCES 3.10      TAXES ON PAYMENTS 3.11      FUNDING LOSS INDEMNIFICATION ARTICLE IV.   ADMINISTRATION 4.1        STATEMENTS 4.2        PAYMENTS ARTICLE V.     SECURITY 5.1        GRANT OF SECURITY INTEREST 5.2        PERFECTION; DUTY OF CARE ARTICLE VI.   REPRESENTATIONS AND WARRANTIES 6.1        LEGAL STATUS; SUBSIDIARIES 6.2        DUE AUTHORIZATION; NO VIOLATION 6.3        GOVERNMENT APPROVAL, REGULATION 6.4        VALIDITY; ENFORCEABILITY 6.5        CORRECTNESS OF FINANCIAL STATEMENTS 6.6        TAXES 6.7        LITIGATION, LABOR CONTROVERSIES 6.8        TITLE TO PROPERTY, LIENS 6.9        ERISA 6.10      OTHER OBLIGATIONS 6.11      ENVIRONMENTAL MATTERS 6.12      NO BURDENSOME RESTRICTIONS; NO DEFAULTS 6.13      NO OTHER VENTURES 6.14      INSURANCE 6.15      FORCE MAJEURE 6.16      INTELLECTUAL PROPERTY 6.17      CERTAIN INDEBTEDNESS 6.18      SOLVENCY 6.19      CHIEF EXECUTIVE OFFICE AND OTHER LOCATIONS 6.20      FISCAL YEAR 6.21      COMPLIANCE WITH LAW 6.22      NO SUBORDINATION 6.23      TRUTH, ACCURACY OF INFORMATION ARTICLE VII.  CONDITIONS 7.1        CONDITIONS OF INITIAL EXTENSION OF CREDIT 7.2        CONDITIONS OF EACH EXTENSION OF CREDIT ARTICLE VIII. AFFIRMATIVE COVENANTS 8.1        PAYMENTS 8.2        ACCOUNTING RECORDS 8.3        INFORMATION AND REPORTS 8.4        COMPLIANCE 8.5        INSURANCE 8.6        FACILITIES 8.7        TAXES AND OTHER LIABILITIES 8.8        LITIGATION 8.9        NOTICE TO ADMINISTRATIVE LENDER 8.10      CONDUCT OF BUSINESS 8.11      PRESERVATION OF CORPORATE EXISTENCE, ETC. 8.12      ACCESS 8.13      PERFORMANCE AND COMPLIANCE WITH OTHER COVENANTS 8.14      FISCAL YEAR; ACCOUNTING PRACTICES 8.15      ENVIRONMENTAL 8.16      LIENS 8.17      FUTURE SUBSIDIARIES 8.18      USE OF PROCEEDS 8.19      FURTHER ASSURANCES ARTICLE IX.   NEGATIVE COVENANTS 9.1        LIENS 9.2        INDEBTEDNESS 9.3        RESTRICTED PAYMENTS, REDEMPTIONS 9.4        MERGERS, STOCK ISSUANCES, SALE OF ASSETS, ETC. 9.5        INVESTMENTS 9.6        CHANGE IN NATURE OF BUSINESS 9.7        PLANS 9.8        CANCELLATION OF INDEBTEDNESS OWED TO IT 9.9        MARGIN REGULATIONS 9.10      ENVIRONMENTAL 9.11      TRANSACTIONS WITH AFFILIATES 9.12      NEW COLLATERAL LOCATION; NAME CHANGE 9.13      NO SPECULATIVE TRANSACTIONS ARTICLE X.    FINANCIAL COVENANTS 10.1      LEVERAGE RATIO 10.2      CURRENT RATIO 10.3      FIXED CHARGE COVERAGE RATIO 10.4      TANGIBLE NET WORTH ARTICLE XI.   EVENTS OF DEFAULT 11.1      EVENTS OF DEFAULT 11.2      REMEDIES 11.3      ADMINISTRATIVE LENDER AS BORROWERS' ATTORNEY ARTICLE XII.  ADMINISTRATIVE LENDER 12.1      ACTIONS 12.2      RELIANCE BY ADMINISTRATIVE LENDER 12.3      EXCULPATION 12.4      SUCCESSOR 12.5      LOANS BY U.S. BANK 12.6      CREDIT DECISIONS ARTICLE XIII. MISCELLANEOUS 13.1      NOTICES 13.2      COSTS, EXPENSES, ATTORNEYS' FEES 13.3      INDEMNIFICATION 13.4      WAIVERS, AMENDMENTS 13.5      SUCCESSORS AND ASSIGNS 13.6      SETOFF 13.7      NO WAIVER; CUMULATIVE REMEDIES 13.8      ENTIRE AGREEMENT 13.9      NO THIRD PARTY BENEFICIARIES 13.10    CONFIDENTIALITY 13.11    TIME 13.12    SEVERABILITY OF PROVISIONS 13.13    GOVERNING LAW 13.14    SUBMISSION TO JURISDICTION 13.15    WAIVER OF JURY TRIAL 13.16    COUNTERPARTS 13.17    OREGON STATUTORY NOTICE   SCHEDULES I            Lenders II           Pricing Schedule III         Existing Letters of Credit EXHIBITS A          Borrowing Base Certificate B           Note Forms C           Notice of Authorized Representatives D          Notice of Borrowing E           Notice of Conversion or Continuation F           Form of Chief Financial Officer's Certificate G           Assignment Agreement CREDIT AGREEMENT              THIS CREDIT AGREEMENT is entered into as of January 12, 2001 by and among MONACO COACH CORPORATION, a Delaware corporation ("Parent"), ROYALE COACH BY MONACO, INC., an Indiana corporation, and MCC ACQUISITION CORPORATION, a Delaware corporation (each of the foregoing parties individually referred to as "Borrower" and all collectively referred to as "Borrowers"), each of the financial institutions from time to time listed on Schedule I attached hereto, as amended from time to time, and U.S. BANK NATIONAL ASSOCIATION ("US Bank"), as the administrator for the Lenders (in such capacity, "Administrative Lender"). RECITALS              Borrowers have requested from Lenders the credit facilities described herein, and Lenders and Administrative Lender have agreed to provide said credit facilities to Borrowers on the terms and conditions contained herein.              NOW, THEREFORE, in consideration of the mutual covenants and promises of the parties contained herein, Administrative Lender, Lenders and Borrowers hereby agree as follows: ARTICLE I.     DEFINITIONS              1.1        DEFINED TERMS              All terms defined above shall have the meanings set forth above.  The following terms shall have the meanings set forth below (with all such meanings to be equally applicable to both the singular and plural forms of the terms defined):              "Accounts" means (i) all "accounts" as defined in the Code and (ii) all presently existing and hereafter arising rights to payment of a monetary obligation, whether or not earned by performance.              "Administrative Lender's Office" means (i) initially, Administrative Lender's office designated as such in Schedule I hereto, and (ii) subsequently, such other office designated as such, from time to time, in writing by Administrative Lender to Lenders and Borrower.              "Agreement" means this Credit Agreement as amended, modified or supplemented from time to time.              "Applicable Lending Office" means, with respect to each Lender, (i) initially, its office designated as such in Schedule I hereto, and (ii) subsequently, such other office designated as such from time to time in writing by such Lender to Administrative Lender.              "Applicable Rate" means, at any date, the lesser of (a) the Highest Lawful Rate or (b) the following:  (i) with respect to each Prime Rate Loan (other than a Swing Loan), a per annum rate equal to the Prime Rate in effect on such date less 75 basis points; (ii) with respect to each Swing Loan, a per annum rate equal to Prime Rate in effect on such date less 75 basis points; and (iii) with respect to each LIBOR Loan, a per annum rate equal to the sum of LIBOR plus the applicable LIBOR Margin, both as determined on the second Business Day before the first day of the applicable Fixed Rate Term.              "Approved Dealer Financing Agreement" means (i) agreements entered into by a Borrower in the ordinary course of business with financial institutions providing floor-plan financing to customers who purchase finished goods inventory of Borrowers, which institutions have credit ratings of BBB or better from Standard & Poor's Corporation, and the terms of which agreements (including repurchase obligations) are both customary in the recreational vehicle industry and are no less favorable in all material respects to Borrowers that those in effect as of the Closing Date.              "Approved Sale" means a sale by Borrower to a customer evidenced by an account which has been approved for payment by a lender in accordance with an Approved Dealer Financing Agreement.              "Authorized Representative" means a person designated as such by Borrower's Borrowers' Agent in a Notice of Authorized Representatives delivered to Administrative Lender.              "Available Credit" means, at any time, the amount by which (a) the lesser of (i) the total of the Revolving Loan Commitments or (ii) the Borrowing Base is greater than (b) the total of the outstanding principal amount of the Revolving Loans, the Letter of Credit Obligations and Swing Loans.              "BT Liens" means the Liens granted by one or more Borrowers to Bankers Trust to secure certain obligations of one or more Borrowers, all of which obligations have been fully paid and satisfied.              "Bankruptcy Code" means the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time, including (unless the context otherwise requires) any rules or regulations promulgated thereunder.              "Borrowers' Agent" means Parent in its capacity as agent for the Borrowers.              "Borrowing Base" means, as of any date of determination, an amount equal to the following amount:              (a)         85% of the outstanding Eligible Accounts; and              (b)        plus the total of 50% of Eligible Inventory consisting of raw materials and 90% of Eligible Inventory consisting of finished goods, in each instance valued at the lower of cost (determined on a "first in, first out" basis) or market value, less the outstanding balance of all chassis accounts payable.              "Borrowing Base Certificate" means a certificate substantially in the form of Exhibit A attached hereto.              "Business Day" means (a) for all purposes other than as covered by clause (b) below, any day other than a Saturday, Sunday or other day on which commercial banks are authorized or required to be closed in Portland, Oregon, Minneapolis, Minnesota or New York, New York, and (b) with respect to all notices, determinations, fundings and payments in connection with any LIBOR interest selection or LIBOR Loan, any day that is a Business Day described in clause (a) above and that also is a day for trading by and between banks in U.S. Dollar deposits in the London interbank eurocurrency market.              "Capitalized Lease" means, as to any Person, any lease of property by such Person as lessee that would be capitalized on a balance sheet of such Person prepared in accordance with GAAP.              "Capitalized Lease Obligations" means, as to any Person, the capitalized amount of all obligations of such Person and its subsidiaries under Capitalized Leases, as determined on a consolidated basis in accordance with GAAP.              "Cash Equivalent Investment" means, at any time: (a) any evidence of indebtedness, maturing not more than one year after such time, issued or guaranteed by the United States government; (b) commercial paper, maturing not more than nine months from the date of issue, which is issued by (i) a corporation (other than an affiliate of any Obligor) organized under the laws of any state of the United States or of the District of Columbia and rated at least A-1 by Standard & Poor's Corporation or P-1 by Moody's Investors Service, Inc., or (ii) any Lender (or its holding company); (c) any certificate of deposit or bankers acceptance, maturing not more than one year after such time, which is issued by either (i) a commercial banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000, or (ii) any Lender; (d) any repurchase agreement entered into with any Lender (or other commercial banking institution of the stature referred to in clause (c)(i)) which (i) is secured by a fully perfected security interest in any obligation of the type described in any of clauses (a) through (c), and (ii) has a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such Lender (or other commercial banking institution) thereunder; (e) investments permitted under any investment policy adopted by Borrower and approved by Administrative Lender; or (f) any mutual fund holding investments consisting of at least 95% of the foregoing.              "Change in Control" means the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 35% or more of the outstanding shares of voting stock of Borrower.              "Change of Law" means the adoption of any Governmental Rule, any change in any Governmental Rule or the application or requirements thereof (whether such change occurs in accordance with the terms of such Governmental Rule as enacted, as a result of amendment or otherwise), any change in the interpretation or administration of any Governmental Rule by any Governmental Authority, or compliance by any Lender (or any entity controlling a Lender) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority.              "Closing Date" means the date of this Agreement.              "Code" means the Uniform Commercial Code of the State of Oregon, as amended from time to time (including, without limitation, amendments to defined terms).              "Collateral" means all of Borrowers' assets, including, without limitation, (a) all Accounts, Rights to Payment, General Intangibles, Records, goods, fixtures, inventory, equipment, money, letter of credit rights, supporting obligations, instruments, chattel paper, deposit accounts, documents, investment property, and commercial tort claims; (b) all products, proceeds, rents and profits of the foregoing; and (c) all of the foregoing, whether now owned or existing or hereafter acquired or arising or in which Borrower now has or hereafter acquires any rights.              "Commitment" means any obligation of a Lender to extend credit or any other financial accommodation under any of the Loan Documents.              "Commodity Contracts" means commodity options, futures, swaps, and other similar agreements and arrangements designed to provide protection against fluctuations in commodity prices.              "Contaminant" means any pollutant, hazardous substance, toxic substance, hazardous waste or other substance regulated or forming the basis of liability under any Environmental Law.              "Contingent Obligation" means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of such Person with respect to any Indebtedness or Contractual Obligation of another Person, if the purpose or intent of such Person in incurring the Contingent Obligation is to provide assurance to the obligee of such Indebtedness or Contractual Obligation that such Indebtedness or Contractual Obligation will be paid or discharged, or that any agreement entered into by such other Person relating to such Indebtedness or Contractual Obligation will be complied with, or that any holder of such Indebtedness or Contractual Obligation will be protected against loss in respect thereof.  Contingent Obligations of a Person include, without limitation, (a) the direct or indirect guarantee, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of an obligation of another Person, and (b) any liability of such Person for an obligation of another Person through any agreement (contingent or otherwise) (i) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of a loan, advance, stock purchase, capital contribution or otherwise), (ii) to maintain the solvency or any balance sheet item, level of income or financial condition of another Person, (iii) to make take-or-pay or similar payments, if required, regardless of nonperformance by any other party or parties to an agreement, (iv) to purchase, sell or lease (as lessor or lessee) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such obligation or to assure the holder of such obligation against loss, or (v) to supply funds to or in any other manner invest in such other Person (including, without limitation, to pay for property or services irrespective of whether such property is received or such services are rendered), if in the case of any agreement or liability described under subclauses (i) through (v) of this sentence the primary purpose or intent thereof is as described in the preceding sentence.  The amount of any Contingent Obligation shall be equal to the lesser of (A) the amount payable under such Contingent Obligation (if quantifiable) or (B) the portion of the obligation so guaranteed or otherwise supported.              "Contractual Obligation" of any Person means any obligation, agreement, undertaking or similar provision of any security issued by such Person or of any agreement, undertaking, contract, lease, indenture, mortgage, deed of trust or other instrument to which such Person is a party or by which it or any of its property is bound or to which any of its property is subject.              "Current Ratio" means, as of the end of a fiscal quarter, the ratio of (a) Parent's consolidated current assets (exclusive of notes and receivables from a Subsidiary or any affiliate, shareholder, officer, director or employee of any Borrower or Subsidiary) to (b) the total of Parent's consolidated current liabilities and, without duplication, the outstanding principal balance of the Revolving Loans.              "Debt" of any Person means, without duplication, (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, bills or other similar instruments; (b) all obligations, contingent or otherwise, relative to the face amount of all letters of credit, whether or not drawn, and banker's acceptances issued for such Person's account; (c) all Capitalized Lease Obligations and Other Lease obligations of such Person; (d) whether or not so included as liabilities in accordance with GAAP, all obligations of such Person to pay the deferred purchase price of property or services, and indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; and (e) all Contingent Liabilities of such Person in respect of any of the foregoing, other than Contingent Liabilities in connection with an Approved Dealer Financing Agreement.  For purposes of determining the amount of Debt in a circumstance when the creditor has recourse only to specified assets, the amount shall be the lesser of (i) the amount of such obligation or (ii) the fair market value of such assets.              "Default" means (i) an Event of Default, (ii) an event or condition that with the giving of notice or the passage of time, or both, would constitute an Event of Default, or (iii) the filing against Borrower of a petition commencing an involuntary case under the Bankruptcy Code.              "Disclosure Letter" means the Disclosure Letter from Borrowers' Agent to Administrative Lender dated the Closing Date.              "EBITDA" means, as of the end of a fiscal quarter, Parent's consolidated net income after taxes for the twelve months ending with such quarter plus (A) the sum of the amounts for such twelve month period included in determining such net income of (i) interest expense, (ii) income tax expense, (iii) depreciation expense, (iv) amortization expense, and (v) extraordinary non-cash losses and charges and other non-recurring non-cash losses and charges; less (B) gains on sales of assets (excluding sales of inventory in the ordinary course of business) and other extraordinary non-cash gains for such twelve month period.              "ERISA" means the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time, including (unless the context otherwise requires) any rules or regulations promulgated thereunder.              "Eligible Accounts" means those Accounts that Administrative Lender determines in the Good Faith exercise of its discretion to be eligible for inclusion in the Borrowing Base.  General criteria for Eligible Accounts may be established and revised from time to time by Administrative Lender in Good Faith.  Without limiting such discretion as to other Accounts, the following Accounts shall not be Eligible Accounts:              (i)          Accounts that do not consist of ordinary trade accounts receivable owned by Borrower, payable in cash in United States Dollars and arising out of the final sale of recreational vehicles in the ordinary course of Borrower's business as presently conducted by it;              (ii)         Accounts with respect to which Borrower failed to issue an original invoice at the agreed-upon purchase price to the account debtor promptly after delivering such goods to the account debtor;              (iii)        Accounts with respect to which more than 60 days have elapsed since the date of the original invoice applicable thereto;              (iv)       Accounts with respect to which the account debtor is an affiliate of Borrower or any officer, employee, or agent of the account debtor is an officer, employee or agent of or affiliated with Borrower directly or indirectly by virtue of family membership, ownership, control, management or otherwise;              (v)        Accounts with respect to which the account debtor is a Governmental Authority, except for those Accounts as to which Borrower has assigned its right to payment thereof to Administrative Lender, and the assignment has been acknowledged, pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C. § 3727);              (vi)       the chief executive office of the account debtor with respect to such Account is not located in the United States of America, unless (A) the account debtor has delivered to Borrower an irrevocable letter of credit issued or confirmed by a bank satisfactory to Administrative Lender, sufficient to cover such Account, in form and substance satisfactory to Administrative Lender, and, if required by Administrative Lender, the original of such letter of credit has been delivered to Administrative Lender or Administrative Lender's agent and the issuer thereof notified of the assignment of the proceeds of such letter of credit to Administrative Lender, (B) such Account is subject to credit insurance payable to Administrative Lender issued by an insurer and on terms and in an amount acceptable to Administrative Lender, (C) the account debtor resides in a province of Canada that recognizes Administrative Lender's perfection and enforcement rights as to Accounts by reason of the filing of a UCC financing statement in Oregon or by reason of other methods of perfection that have been completed, or (D) such Account is otherwise acceptable in all respects to Administrative Lender;              (vii)      Accounts with respect to which Administrative Lender does not have a valid and prior, fully perfected Lien or which are not free of all Liens or other claims (including, without limitation, claims for rebates, credits, allowances or adjustments, but "other claims" shall not include Approved Sales) of all other Persons;              (viii)     Accounts with respect to which the account debtor is the subject of bankruptcy or a similar insolvency proceeding, or has made an assignment for the benefit of creditors, or whose assets have been conveyed to a receiver or trustee, or who has failed or suspended or gone out of business;              (ix)        Accounts with respect to which the account debtor's obligation to pay the Accounts is conditional upon the account debtor's approval to the extent such Accounts exceed $300,000 in the aggregate;              (x)         Accounts from an account debtor to the extent that the account debtor's indebtedness to Borrowers (whether evidenced by such Accounts or otherwise) exceeds an amount which is greater than 25% of the face amount (less maximum discounts, credits and allowances which may be taken by or granted to account debtors in connection therewith) of all then outstanding Eligible Accounts, but only to the extent of the excess over 25%;              (xi)        Accounts owed by a particular account debtor if 25% or more of the aggregate Accounts then owed to Borrowers by that account debtor and its affiliates are not Eligible Accounts;              (xii)       Accounts that represent a prepayment or progress payment or a partial payment under an installment contract;              (xiii)      Accounts that are evidenced by a promissory note or other instrument; and              (xiv)      Accounts with respect to which the account debtor is located in any jurisdiction requiring the timely filing by Borrower of a report or document before such Account is created in order to bring suit or otherwise enforce its remedies against such account debtor in the courts or through any judicial process of such jurisdiction, unless Borrower has filed, or is exempt from filing, such a report.              Administrative Lender shall have the right, but not the duty, to declare particular accounts ineligible.  The fact that Administrative Lender has not declared a particular account ineligible shall not be deemed to be a determination or representation by Administrative Lender or any Lender as to the creditworthiness or financial condition of any account debtor.  Because of banking relationships between account debtors of Borrower and Administrative Lender or a Lender, Administrative Lender or a Lender may have information about the creditworthiness of such account debtors; however, neither Administrative Lender nor any Lender shall have any duty to Borrowers to disclose information it may have about any of Borrowers' account debtors and Borrowers shall have no right to rely upon any action or inaction of Administrative Lender or any Lender concerning the creditworthiness or financial condition of Borrowers' account debtors.  BORROWERS HEREBY COVENANT NOT TO SUE AND TO HOLD HARMLESS LENDERS AND ADMINISTRATIVE LENDER AND THEIR OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, SUCCESSORS AND ASSIGNS FOR AND FROM ANY AND ALL DAMAGES, LIABILITY, OR CLAIMS OF LIABILITY, WHETHER KNOWN OR UNKNOWN, OF ANY NATURE ARISING OUT OF OR BASED IN WHOLE OR IN PART UPON ADMINISTRATIVE LENDER'S OR ANY LENDER'S FAILURE TO DISCLOSE UNFAVORABLE INFORMATION ABOUT AN ACCOUNT DEBTOR OF BORROWER TO BORROWERS, OR ADMINISTRATIVE LENDER'S FAILURE TO TREAT AS INELIGIBLE THE ACCOUNT OF AN ACCOUNT DEBTOR OF BORROWER ABOUT WHOM ADMINISTRATIVE LENDER OR ANY LENDER HAS UNFAVORABLE INFORMATION.              "Eligible Inventory" means inventory that Administrative Lender determines in the Good Faith exercise of its discretion to be eligible for inclusion in the Borrowing Base.  General criteria for Eligible Inventory may be established and revised from time to time by Administrative Lender in Good Faith.  Without limiting such discretion as to other inventory, the following inventory shall in any event not constitute Eligible Inventory:              (i)          finished goods that are not held by Borrower for sale as inventory in the ordinary course of Borrower's business as presently conducted by it or that are obsolete, not in good condition, not of merchantable quality or not salable in the ordinary course of Borrower's business or that are subject to defects that would affect their market value;              (ii)         inventory that Administrative Lender, in the Good Faith exercise of its discretion  determines to be unacceptable due to age, type, category or quantity;              (iii)        work in process;              (iv)       inventory in the possession of any Person other than Borrower, except (subject to any additional requirements imposed by Administrative Lender, in the Good Faith exercise of its discretion to protect Borrower's title thereto or Administrative Lender's Lien therein) goods held in storage solely for the account of Borrower, if the Person in possession has acknowledged in writing Administrative Lender's Lien thereon and has not issued a negotiable document of title as to the goods; provided, that notwithstanding the foregoing, (A) up to $500,000 of inventory located on premises of subcontractors and (B) up to $5,000,000 of finished goods inventory located at trade shows or rallies (or in transit for such purposes) shall not be excluded from Eligible Inventory by virtue of this item (iv);              (v)        inventory with respect to which Administrative Lender does not have a valid and prior, fully perfected Lien and that is not free of all other Liens, other than Permitted Liens not described in items (a) and (g) of the definition of "Permitted Liens;"              (vi)       inventory in the possession of a warehouseman or other bailee if Administrative Lender has not received a bailee letter acceptable to Administrative Lender from such warehouseman or bailee; and              (vii)      except as provided in item (iv), inventory located on premises leased by Borrower if Administrative Lender has not received a landlord's waiver acceptable to Administrative Lender with respect to such premises to the extent the aggregate value of all such inventory exceeds $5,000,000.              "Environmental Law" means all applicable federal, state and local laws, statutes, ordinances and regulations, and any applicable judicial or administrative interpretation, order, consent decree or judgment, relating to the regulation and protection of the environment.  Environmental Laws include but are not limited to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. § 9601 et seq.); the Hazardous Material Transportation Act, as amended (49 U.S.C. § 180 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. § 136 et seq.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. § 6901 et seq.); the Toxic Substance Control Act, as amended (42 U.S.C. § 7401 et seq.); the Clean Air Act, as amended (42 U.S.C. § 740 et seq.); the Federal Water Pollution Control Act, as amended (33 U.S.C. § 1251 et seq.); and the Safe Drinking Water Act, as amended (42 U.S.C. § 300f et seq.), and their state and local counterparts or equivalents and any applicable transfer of ownership notification or approval statutes.              "Environmental Liabilities and Costs" means, as to any Person, all liabilities, obligations, responsibilities, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including, without limitation, all fees, disbursements and expenses of counsel, experts and consultants and costs of investigation and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim or demand by any other Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, including, without limitation, any thereof arising under any Environmental Law, Permit, order or agreement with any Governmental Authority or other Person, and which relate to any violation or alleged violation of an Environmental Law or a Permit, or a Release or threatened Release.              "Event of Default" has the meaning set forth in Section 11.1 hereof.              "Federal Funds Rate" means, for any day, the weighted average of the per annum rates on overnight Federal funds transactions with member banks of the Federal Reserve System arranged by Federal funds brokers as published by the Federal Reserve Bank of New York for such day (or, if such rate is not so published for any day, the average rate quoted to Administrative Lender on such day by three Federal funds brokers of recognized standing selected by Administrative Lender).              "Fee Percentage" means the number of basis points determined in accordance with Schedule II.              "Fixed Charge Coverage Ratio" means, as of the end of a fiscal quarter, the ratio of (A) EBITDA, less the sum of the following for the twelve month period ending with such quarter: (i) Parent's consolidated income tax expense; (ii) cash dividends and distributions paid in respect of Parent's Stock; and (iii) capital expenditures to the extent not financed with either long-term debt or proceeds of Revolving Loans to (B) the sum of the following for the twelve month period ending with such quarter: (i) Parent's consolidated interest expense; and (ii) scheduled principal payments of Debt of Parent and the Subsidiaries.              "Fixed Rate Term" means a period of one, two, three or six months, as designated by Borrowers' Agent, during which a Loan bears interest determined in relation to LIBOR; provided, however, that no Fixed Rate Term may extend beyond the Maturity Date, and if the last day of a Fixed Rate Term is not a Business Day, such term shall be extended to the next succeeding Business Day, or if the next succeeding Business Day falls in another calendar month, such term shall end on the next preceding Business Day.              "Foreign Subsidiary" means any Subsidiary that is a "controlled foreign corporation" as that term is used in the Internal Revenue Code.              "GAAP" means generally accepted accounting principles as in effect in the United States from time to time, consistently applied.              "General Intangibles" means (i) all "general intangibles" as defined in the Code and (ii) all tax and duty refunds, registered and unregistered patents, trademarks, service marks, copyrights, trade names, applications for the foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer lists, licenses, whether as licensor or licensee, choses in action, causes of action and other claims, judgments in favor of Borrower, leasehold interests in equipment, software and payment intangibles.              "Good Faith" means honesty in fact in the conduct or transaction concerned, without regard to whether standards that might be deemed commercially reasonable have been observed.              "Governmental Authority" means any domestic or foreign national, state or local government, any political subdivision thereof, any department, agency, authority or bureau of any of the foregoing, or any other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including the Federal Deposit Insurance Corporation, the Federal Reserve Board, the Comptroller of the Currency, any central bank or any comparable authority.              "Governmental Rule" means any applicable law, rule, regulation, ordinance, order, code interpretation, judgment, decree, directive, guidelines, policy or similar form of decision of any Governmental Authority.              "Highest Lawful Rate" means, at the particular time in question, the maximum rate of interest which, under applicable law, Lenders are then permitted to charge Borrowers on the applicable Loan, and if the maximum rate changes at any time, the Highest Lawful Rate shall increase or decrease, as the case may be, as of the effective time of each such change, without notice to Borrowers.              "Indebtedness" of any Person means, without duplication, (a) all liabilities of such Person as determined in accordance with GAAP, (b) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (c) all lease obligations of such Person (including, without limitation, operating leases, Capitalized Leases and Other Leases), (d) all Contingent Obligations of such Person, (e) all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any Stock or Stock Equivalents of such Person with a mandatory repurchase or redemption date of less than ten years from the date of issuance thereof, (f) all obligations secured by (or for which the holder of such obligations has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations, (g) all liabilities of such Person in connection with the failure to make when due any contribution or payment pursuant to or under any Plan and (h) net liabilities of such Person under all Commodity Contracts and Interest Rate Contracts.  For purposes of determining the amount of Indebtedness in a circumstance when the creditor has recourse only to specified assets, the amount shall be the lesser of (i) the amount of such obligation or (ii) the fair market value of such assets.              "Indemnitees" has the meaning set forth in Section 13.3 hereof.              "Indemnified Liabilities" has the meaning set forth in Section 13.3.              "Interest Rate Contracts" means interest rate swap agreements, interest rate cap agreements, interest rate collar agreements, interest rate insurance, and other agreements or arrangements designed to provide protection against fluctuations in interest rates.              "Investment" means, relative to any Person, (a) any loan or advance made by such Person to any other Person (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business) and (b) any ownership or similar interest held by such Person in any other Person.  The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property.              "L/C Bank" means U.S. Bank.              "Lenders" means, collectively, each of the financial institutions from time to time listed on Schedule I, L/C Bank and Swingline Lender, and "Lender" means any one of the Lenders.              "Letter of Credit" means a letter of credit listed on Schedule III or a letter of credit issued by L/C Bank pursuant to Section 3.3 hereof.              "Letter of Credit Agreement" means L/C Bank's standard letter of credit application and documentation modified to such extent, if any, as L/C Bank deems necessary.              "Letter of Credit Obligations" means, at any time, all liabilities at such time of Borrowers to L/C Bank with respect to Letters of Credit, whether or not any such liability is contingent.              "Leverage Ratio" means, as of the end of a fiscal quarter, the ratio of (i) Debt (exclusive of any Contingent Liabilities) as of the end of such quarter to (ii) EBITDA.              "LIBOR" means, for each Fixed Rate Term, the rate per annum (rounded upward if necessary to the nearest whole 1/100 of 1%) and determined pursuant to the following formula: LIBOR = Base LIBOR --------------------------------------------------------------------------------   100% - LIBOR Reserve Percentage As used herein, (a) "Base LIBOR" means the rate per annum determined by Administrative Lender to be the offered rate for deposits in U.S. Dollars with a term comparable to such Fixed Rate Term that appears on Dow Jones Markets Service, Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. Dollars at approximately 11:00 AM (London time) two Business Days prior to the beginning of such Fixed Rate Term, and (b) "LIBOR Reserve Percentage" means, for any day, the aggregate (without duplication) of the maximum rates (expressed as a decimal) of reserve requirements in effect on such day (including basic, supplemental, marginal and emergency reserves under any regulations of the Federal Reserve 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 Federal Reserve Board) maintained by a member bank of the Federal Reserve System.              "LIBOR Loan" means any Loan that bears interest with reference to LIBOR.              "LIBOR Margin" means the number of basis points determined in accordance with Schedule II.              "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), security interest, priority or other security agreement or preferential arrangement of any kind or nature whatsoever, including, without limitation, any conditional sale or other title retention agreement or the interest of a lessor under a Capitalized Lease Obligation or any Other Lease.              "Loan" means an advance made by a Lender to Borrowers pursuant to Section 3.1 or Section 3.2.              "Loan Documents" means this Agreement, the Notes, each Letter of Credit Agreement and each other agreement, note, notice, document, contract or instrument to which Borrower now or hereafter is a party and that is required by Lender in connection with the Obligations.              "Material Adverse Effect" means a material adverse effect on (a) the condition (financial or otherwise), business, performance, operations or properties of Borrowers, (b) the ability of Borrowers to perform their obligations under the Loan Documents, or (c) the rights and remedies of any Lender or Administrative Lender under the Loan Documents.              "Maturity Date" means the earlier of April 30, 2003 or the due date determined pursuant to Section 11.2.              "Note" means either a master promissory note executed by Borrowers in favor of Administrative Lender for the ratable benefit of Lenders evidencing Revolving Loans or a promissory note executed by Borrowers in favor of Swingline Lender evidencing the Swing Loans, each substantially in the form attached as Exhibit B.              "Notice of Authorized Representatives" has the meaning set forth in Section 2.2 hereof.              "Notice of Borrowing" has the meaning set forth in Section 3.1(c) hereof.              "Notice of Conversion or Continuation" has the meaning set forth in Section 3.5(c) hereof.              "Obligations" means all of Borrowers' obligations under the Loan Documents, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising.              "Obligor" means any Borrower or other Person (other than Administrative Lender or any Lender) obligated under, or otherwise a party to, any Loan Document              "Organic Documents" means, relative to any Obligor, as applicable, its certificate or articles of incorporation, its by-laws, its partnership agreement, its certificate of partnership, certificate of organization, operating agreement and other limited liability company organizational documents and all shareholder agreements, voting trusts and similar arrangements applicable to any of its Stock or Stock Equivalents.              "Other Lease" means any synthetic lease, tax retention operating lease, financing lease or any other lease having substantially the same economic effect as a conditional sale, title retention agreement or similar arrangement.              "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Title IV of ERISA.              "Permit" means any permit, approval, authorization, license, variance or permission required from a Governmental Authority under an applicable Governmental Rule.              "Permitted Liens" means (a) Liens arising by operation of law for taxes, assessments or governmental charges not yet due; (b) statutory Liens of mechanics, materialmen, shippers, warehousemen, carriers, and other similar persons for services or materials arising in the ordinary course of business for which payment is not more than 30 days past due; (c) nonconsensual Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (d) Liens for taxes or statutory Liens of mechanics, materialmen, shippers, warehousemen, carriers and other similar persons for services or materials that are due but are being contested in good faith and by appropriate and lawful proceedings promptly initiated and diligently conducted and for which reserves have been established to the extent required by GAAP; (e) Liens listed on the Disclosure Letter; (f) Liens granted in the Loan Documents; (g) purchase money Liens upon or in any property of Borrower and used by Borrower in the ordinary course of business and Liens to secure Capitalized Lease Obligations and Other Leases and any related payment and performance obligations if, in each case, the incurrence of such Indebtedness is permitted by Section 9.2; provided, however, that: (A) any such Lien is created solely for the purpose of securing Indebtedness representing, or incurred to finance, refinance or refund, the cost (including, without limitation, the cost of construction and the reasonable fees and expenses relating to such Indebtedness) of the property subject thereto, (B) the principal amount of the Indebtedness secured by such Lien does not exceed such cost, and (C) such Lien does not extend to or cover any other property other than such item of property, any improvements on or replacements for such item, and the proceeds from the disposition of such items; (h) zoning restrictions, easements, rights of way, survey exceptions, encroachments, covenants, licenses, reservations, leasehold interests, restrictions on the use of real property or minor irregularities incident thereto which do not in the aggregate materially detract from the value or use of the property or assets of Borrower or impair, in any material manner, the use of such property for the purposes for which such property is held by Borrower; (i) the interests of lessors or lessees of property leased pursuant to leases permitted hereunder; (j) Liens of a depository institution 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 such institution, provided that (A) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by Borrower in excess of those set forth by regulations promulgated by any Government Authority, and (B) such deposit account is not intended by Borrower to provide collateral to the depository institution; (k) judgment Liens to the extent the existence of such Liens is not an Event of Default under Section 11.1(g); (l) any of the following arising in the ordinary course of business: deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature; (m) Liens on chassis purchased by Borrower in the ordinary course of business, provided that no such Lien shall encumber any asset reported by Borrower as Eligible Inventory; and (n) Liens not otherwise included in items (a) through (m) that do not secure amounts in excess of $5,000,000 at any time and none of which have priority over the Liens granted by Borrowers to Administrative Lender.              "Person" means an individual, partnership, corporation (including, without limitation, a business trust), joint stock company, limited liability company, trust, unincorporated association, joint venture or other entity, or a Governmental Authority.              "Plan" means an employee benefit plan, as defined in Section 3(3) of ERISA, which Borrower maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them.              "Prime Rate" means, for any day, an interest rate per annum equal to the rate of interest most recently announced within U.S. Bank at its principal office as its prime rate, with any change in the prime rate to be effective as of the day such change is announced within U.S. Bank and with the understanding that the prime rate is one of U.S. Bank's base rates used to price some loans and may not be the lowest rate at which U.S. Bank makes any loan, and is evidenced by the recording thereof in such internal publication or publications as U.S. Bank may designate.              "Prime Rate Loan" means any Loan that bears interest at the Prime Rate.              "Ratable Portion" or "ratably" means, with respect to any Lender, the quotient obtained by dividing (i) the total of such Lender's Revolving Loan Commitment by (ii) the Total Commitments, and at all times when the Total Commitments are zero, means, with respect to any Lender, the quotient obtained by dividing item (i) by item (ii) immediately before the Total Commitments became zero.              "Records" means all of Borrowers' present and future records and books of account of every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files, electronically stored data and other data, together with the tapes, disks, diskettes, drives and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of Borrower with respect to the foregoing maintained with or by any other Person).              "Release" means, as to any Person, any unpermitted spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration of a Contaminant into the environment, and any "release" as defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. § 9601 et seq.).              "Remedial Action" means all actions required to clean up, remove, prevent or minimize a Release or threat of Release or to perform pre-remedial studies and investigations and post-remedial monitoring and care.              "Required Lenders" means any non-defaulting Lender or Lenders having more than two-thirds of the Total Commitments.              "Repurchase Obligations" all obligations of Parent to its dealers incurred in the ordinary course of Parent's business to repurchase recreational vehicles.              "Responsible Officer" means any executive officer of Borrower, including, without limitation, president, chief executive officer, chief financial officer, treasurer, controller, general counsel, chief risk management officer, chief environmental officer or any other person performing responsibilities customarily performed by such officers.              "Revolving Loan" means a Loan made by a Lender to Borrowers pursuant to Section 3.1.              "Revolving Loan Commitment" means, as to any Lender, the amount set opposite such Lender's name on Schedule I as its "Revolving Loan Commitment," as such amount may be reduced from time to time pursuant to this Agreement or as such amount may be adjusted pursuant to Section 13.5(c).              "Rights to Payment" means all Accounts, General Intangibles, contract rights, chattel paper, documents, instruments, letters of credit, bankers acceptances and guaranties, and all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of Accounts and other Collateral, and shall include without limitation, (a) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (b) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, (c) goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, Accounts or other Collateral, including without limitation, returned, repossessed and reclaimed goods, and (d) deposits by and property of account debtors or other persons securing the obligations of account debtors, moneys, securities, credit balances, deposits, deposit accounts and other property of Borrower now or hereafter held or received by or in transit to Administrative Lender, any Lender or any of their affiliates or at any other depository or other institution from or for the account of Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise.              "Stock" means shares of capital stock, membership interests, beneficial or partnership interests, participations or other equivalents (regardless of how designated) of or in a corporation, limited liability company, partnership or other entity, whether voting or nonvoting, and includes, without limitation, common stock and preferred stock.              "Stock Equivalents" means all securities convertible into or exchangeable for Stock and all warrants, options or other rights to purchase or subscribe for any Stock, whether or not presently convertible, exchangeable or exercisable.              "Subsidiary" means any Person required by GAAP to be included in the consolidated financial reporting of Borrower.              "Swing Loan" means a Loan made by the Swingline Lender to Borrowers pursuant to Section 3.2.              "Swing Loan Available Credit" means, at any time, the amount by which the outstanding balance of the Swing Loans is less than the lesser of (i) while US Bank is the sole Lender, $50,000,000 and thereafter, $5,000,000 or (ii) the Available Credit.              "Swingline Lender" means U.S. Bank.              "Tangible Net Worth" means the total of Parent's shareholders' equity, plus Debt subordinated in writing to the Obligations on terms acceptable to Administrative Lender in favor of the prior payment in full in cash of the Obligations, less consolidated intangible assets.              "Total Commitments" means the total of all Revolving Loan Commitments.              "Tranche" means a collective reference to all LIBOR Loans having a Fixed Rate Term ending on the same day. 1.2        ACCOUNTING AND FINANCIAL DETERMINATIONS              Any accounting term used in this Agreement that is not specifically defined herein shall have the meaning customarily given to it under GAAP, and all accounting determinations and computations under any Loan Document shall be made, and all financial statements required to be delivered under any Loan Document shall be prepared, in accordance with GAAP applied in the preparation of the financial statements referred to in Section 6.5. 1.3        HEADINGS              Headings in this Agreement and each of the other Loan Documents are for convenience of reference only and are not part of the substance hereof or thereof. 1.4        ADDITIONAL DEFINITION PROVISIONS              Whenever the terms "herein," "hereof," "hereto," "hereunder," "therein," "thereof," "thereto," "thereunder," and similar terms contained in this Agreement or any Loan Document refer to this Agreement or other Loan Document, such terms refer to the whole of this Agreement or other Loan Document and not to any particular section, paragraph or provision.  All other terms contained in this Agreement that are not defined herein shall, unless the context indicates otherwise, have the meanings provided in the Code to the extent such terms are defined therein. ARTICLE II.    APPOINTMENT OF BORROWERS' AGENT; JOINT AND SEVERAL LIABILITY 2.1        APPOINTMENT OF AGENT              In order to facilitate and insure prompt and accurate communication among Borrowers and Lenders and to insure the efficient and effective distribution of proceeds of the Loans, each Borrower hereby appoints Parent as its agent to perform the functions of Borrowers' Agent under the Loan Documents, to take such actions and make such elections on such Borrower's behalf as are delegated to the Borrowers' Agent in the Loan Documents and for the following purposes: (i) communicating to and receiving communications from Administrative Lender and Lenders; (ii) receiving all proceeds of the Loans and making all decisions regarding the distribution of such proceeds among the Borrowers as Borrowers' Agent, in the sole exercise of its discretion, deems fair and appropriate; and (iii) making all decisions and elections with respect to requests for advances of credit, issuance of Letters of Credit and election of interest options. 2.2        AUTHORIZED REPRESENTATIVES              On the Closing Date, and from time to time subsequent thereto at Borrowers' Agent's option, Borrowers' Agent shall deliver to Administrative Lender a written notice in the form of Exhibit C attached hereto, which designates by name one or more Authorized Representatives and includes each of their respective specimen signatures (each, a "Notice of Authorized Representatives").  Administrative Lender shall be entitled to rely conclusively on the authority of each person designated as an Authorized Representative in the most current Notice of Authorized Representatives delivered by Borrowers' Agent to Administrative Lender, to request borrowings, to select interest rate options hereunder, and to give to Administrative Lender such other notices as are specified herein as being made through an Authorized Representative, until such time as Borrowers' Agent has delivered to Administrative Lender, and Administrative Lender has actual receipt of, a new written Notice of Authorized Representatives.  Administrative Lender shall have no duty or obligation to Borrowers to verify the authenticity of any signature appearing on any Notice of Borrowing, Notice of Conversion or Continuation or any other notice from an Authorized Representative or to verify the authenticity of any person purporting to be an Authorized Representative giving any telephonic notice permitted hereby. 2.3        JOINT AND SEVERAL LIABILITY; RIGHTS OF CONTRIBUTION              (a)         Each Borrower states and acknowledges that:  (i) pursuant to this Agreement, Borrowers desire to utilize their borrowing potential on a consolidated basis to the same extent possible if they were merged into a single corporate entity; (ii) it has determined that it will benefit specifically and materially from the advances of credit contemplated by this Agreement; (iii) it is both a condition precedent to the obligations of Lenders hereunder and a desire of Borrowers that each Borrower execute and deliver to Lenders this Agreement; and (iv) Borrowers have requested and bargained for the structure and terms of the credit contemplated by this Agreement.              (b)        Each Borrower hereby irrevocably and unconditionally:  (i) agrees that it is jointly and severally liable to Lenders for the full and prompt payment of the Obligations and the performance by each Borrower of its obligations hereunder in accordance with the terms of the Loan Documents; (ii) agrees to fully and promptly perform all of its obligations under the Loan Documents with respect to each advance of credit hereunder as if such advance had been made directly to it; and (iii) agrees as a primary obligation to indemnify Lenders on demand for and against any loss incurred by Lenders (other than a loss arising any Lender's willful misconduct or gross negligence) as a result of any of the obligations of any one or more of Borrowers under the Loan Documents being or becoming void, voidable, unenforceable or ineffective for any reason whatsoever, whether or not known to Lenders or any other Person, the amount of such loss being the amount which Lenders would otherwise have been entitled to recover from any one or more of Borrowers.  Each Borrower hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with each other Borrower with respect to the payment and performance of all of the Obligations.  If and to the extent that any Borrower fails to make any payment with respect to the Obligations as and when due or to perform any of its obligations in accordance with the terms of the Loan Documents, then in each such event the other Borrowers will make such payment with respect to, or perform, such obligations.              (c)         The joint and several liability of each Borrower for the Obligations shall be absolute and unconditional irrespective of and shall not be subject to any reduction, limitation, impairment or termination for any reason, including, without limitation, any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of any of the Obligations.  Without limiting the generality of the foregoing, the obligations of each Borrower shall not be discharged or impaired or otherwise affected by:              (i)          any change in the manner, place or terms of payment or performance and/or any change or extension of the time of payment or performance of, renewal or alteration of, any Obligation, any security therefor, or any liability incurred directly or indirectly in respect thereof, or any rescission of, or amendment, waiver or other modification of, or any consent to departure from any Loan Document, including any increase in the Obligations resulting from the extension of additional credit to any Borrower;              (ii)         any sale, exchange, release, surrender, realization upon any property at any time pledged or mortgaged to secure any of the Obligations, and/or any offset against, or failure to perfect, or continue the perfection of, any lien in any such property, or delay in the perfection of any such lien, or any amendment or waiver of or consent to departure from any other guaranty for any of the Obligations;              (iii)        the failure of Lenders to assert any claim or demand or to enforce any right or remedy against any Borrower or other Person under the provisions of any Loan Document;              (iv)       any settlement or compromise of any Obligation, any security therefor or any liability incurred directly or indirectly in respect thereof, and any subordination of the payment of any part thereof to the payment of any obligation (whether due or not) of any other Borrower to creditors of such other Borrower other than any other Borrower;              (v)        any manner of application of any collateral for the Obligations or proceeds thereof, to any of the Obligations, or any manner of sale or other disposition of any such collateral for all or any of the Obligations or any other assets of any Borrower;              (vi)       any change, restructuring or termination of the existence of any Borrower; or              (vii)      any other agreement or circumstance of any nature whatsoever that might in any manner or to any extent vary the risk of any Borrower, or that might otherwise at law or in equity constitute a defense available to, or a discharge of, the obligations of any Borrower, or a defense to, or discharge of, any Borrower or other Person relating to any of the Obligations.              (d)        The joint and several liability of Borrowers shall continue in full force and effect notwithstanding any absorption, merger, amalgamation or any other change whatsoever in the name, membership, constitution or place of formation of any Borrower.              (e)         It is the intent of each Borrower that the indebtedness, obligations and liability hereunder of no one of them be subject to challenge on any basis.  Accordingly, as of the date hereof, the liability of each Borrower under the Loan Documents, together with all of its other liabilities to all Persons as of the date hereof and as of any other date on which a transfer is deemed to occur by virtue of this Agreement, calculated in an amount sufficient to pay its probable net liabilities (including contingent liabilities) as the same become absolute and matured ("Dated Liabilities") is, and is to be, less than the amount of the aggregate of a fair valuation of its property as of such corresponding date ("Dated Assets").  To this end each Borrower hereby (i) grants to and recognizes in each other Borrower, ratably, rights of subrogation and contribution in the amount, if any, by which the Dated Assets of such Borrower, but for the aggregate of subrogation and contribution in its favor recognized herein, would exceed the Dated Liabilities of such Borrower or, as the case may be (ii) acknowledges receipt of and recognizes its right to subrogation and contribution ratably from each of the other Borrowers in the amount, if any, by which the Dated Liabilities of such Borrower, but for the aggregate of subrogation and contribution in its favor recognized herein, would exceed the Dated Assets of such Borrower.  In recognizing the value of the Dated Assets and the Dated Liabilities, it is understood that Borrowers will recognize, to at least the same extent of their aggregate recognition of liabilities hereunder, their rights to subrogation and contribution hereunder.  It is a material objective of this Section that each Borrower recognizes rights to subrogation and contribution rather than be deemed to be insolvent (or in contemplation thereof) by reason of its joint and several obligations hereunder. ARTICLE III.   THE CREDITS 3.1        REVOLVING LOANS              (a)         On the terms and subject to the conditions contained in this Agreement, each Lender severally agrees to make loans (each a "Revolving Loan") to Borrowers from time to time until the Maturity Date in an aggregate amount not to exceed at any time outstanding such Lender's Revolving Loan Commitment; provided, however, that at no time shall any Lender be obligated to make a Revolving Loan in excess of such Lender's Ratable Portion of the Available Credit.  Borrowers may from time to time borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all the limitations, terms and conditions contained herein.  The Revolving Loans shall be evidenced by a Note.              (b)        If at any time the Available Credit is negative, Borrowers, without demand or notice, shall immediately repay that portion of the Revolving Loans necessary to cause the Available Credit to be zero.  Borrowers shall repay the outstanding principal balance of the Revolving Loans, together with all accrued and unpaid interest and related fees on the Maturity Date.              (c)         Borrowers' Agent, through an Authorized Representative, shall request each advance of a Revolving Loan by giving Administrative Lender irrevocable written notice or telephonic notice (confirmed promptly by fax or email), in the form of Exhibit D attached hereto (each, a "Notice of Borrowing"), which specifies, among other things:              (i)          the aggregate principal amount of the requested advances (which amount must be a minimum of $1,000,000 and in integral multiples of $100,000 if a LIBOR Loan);              (ii)         the proposed date of borrowing, which shall be a Business Day;              (iii)        whether such advance is to be a Prime Rate Loan or a LIBOR Loan; and              (iv)       if such advance is to be a LIBOR Loan, the length of the Fixed Rate Term applicable thereto. Each such Notice of Borrowing must be received by Administrative Lender not later than 9:00 AM (Portland time) (x) at least one Business Day prior to the date of borrowing if a Prime Rate Loan or (y) at least three Business Days prior to the date of borrowing if a LIBOR Loan.  Administrative Lender shall promptly notify each Lender of the contents of each Notice of Borrowing and of the amount of the advance to be made by such Lender no later than 1:00 PM (Portland time) on the Business Day of receipt for Prime Rate Loans and 1:00 PM (Portland time) the Business Day after receipt with respect to LIBOR Loans.              (d)        From time to time on any Business Day, Borrowers may make a voluntary prepayment, in whole or in part, of the outstanding principal amount of any Revolving Loan(s); provided, however, that each voluntary partial prepayment of LIBOR Loan(s) must be in a minimum of $1,000,000 and in integral multiples of $100,000; provided, further, that any prepayment of a LIBOR Loan shall be subject to the provisions of Section 3.11 hereof. 3.2        SWING LOANS              (a)         In lieu of making Revolving Loans, the Swingline Lender, in its sole discretion, on the terms and subject to the conditions contained in this Agreement, may make loans (each a "Swing Loan") to Borrowers from time to time until the Maturity Date as provided herein in an aggregate amount not to exceed at any time outstanding the Swing Loan Available Credit.  Each Swing Loan shall be made and prepaid upon such notice as the Swingline Lender and Borrowers' Agent shall agree, except that Swing Loans may be made automatically (A) pursuant to certain cash management arrangements made from time to time by Borrowers with Administrative Lender and/or (B) for the purposes described in item (c) below.  All Swing Loans shall be Prime Rate Loans and shall be evidenced by a Note payable to the order of the Swingline Lender.  Borrower shall repay the outstanding principal balance of the Swing Loans, together with all accrued and unpaid interest and related fees on the Maturity Date.              (b)        If at any time after US Bank is not the sole Lender the aggregate outstanding balance of the Swing Loans exceeds $4,000,000 for ten consecutive Business Days or at any time upon the request of the Swingline Lender to Administrative Lender that some or all of the Swing Loans be converted to Revolving Loans, then, on the next Business Day, Administrative Lender shall notify each Lender of the principal amount of Swing Loans outstanding as of 9:00 AM (Portland time) on such Business Day (or of the principal amount of the Swing Loans which Swingline Lender desires to be converted) and each Lender's Ratable Portion thereof.  Each Lender shall, before 9:00 AM (Portland time) on the next Business Day, make available to Administrative Lender, in immediately available funds, the amount of its Ratable Portion of such principal amount of such Swing Loans.  Upon such payment by a Lender, such Lender shall be deemed to have made a Revolving Loan as a Prime Rate Loan to Borrowers, notwithstanding any failure by Borrowers to satisfy the conditions contained in Section 7.2 (without regard to the minimum amount of Prime Rate Loans).  Administrative Lender shall use such funds to repay the principal amount of Swing Loans to the Swingline Lender.  All interest due on the Swing Loans shall be payable to the Swingline Lender.  With respect to the Swing Loans, after receipt of payment of principal or interest thereon, Administrative Lender will promptly distribute the same to the Swingline Lender at its Applicable Lending Office.              (c)         Lenders and Borrowers agree that Swing Loans may be made to allow Administrative Lender to pay each Lender its share of fees, interest and other amounts due hereunder to the extent such fees, interest and other amounts are then due and payable. 3.3        LETTER OF CREDIT FACILITY              (a)         On the terms and subject to the conditions contained in this Agreement, L/C Bank agrees promptly to issue one or more Letters of Credit at the request of Borrowers' Agent for the account of Borrowers from time to time until ten days before the Maturity Date; provided, however, that L/C Bank shall not issue any Letter of Credit if:              (i)          any order, judgment or decree of any Governmental Authority or arbitrator of which L/C Bank is aware shall purport by its terms to enjoin or restrain L/C Bank from issuing such Letter of Credit or any Governmental Rule applicable to L/C Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over L/C Bank shall prohibit, or request that L/C Bank refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon L/C Bank with respect to such Letter of Credit any restriction or reserve or capital requirement (for which L/C Bank is not otherwise compensated) not in effect on the date hereof or result in any loss, cost or expense which (A) was not applicable, in effect or known to L/C Bank on the Closing Date and which L/C Bank in Good Faith deems material to it, and (B) the reimbursement of which is not provided for hereunder;              (ii)         L/C Bank shall have received written notice from Administrative Lender or Borrowers' Agent, on or before the Business Day prior to the requested date of issuance of such Letter of Credit, that one or more of the applicable conditions contained in Article VII is not then satisfied;              (iii)        after giving effect to the issuance of such Letter of Credit, the Letter of Credit Obligations exceed $5,000,000;              (iv)       the amount of the Letter of Credit requested exceeds the Available Credit; or              (v)        fees due in connection with a requested issuance have not been paid. None of the Lenders (other than the Lender that is L/C Bank) shall have any obligation to issue any Letters of Credit.              (b)        In no event shall the expiry date of any Letter of Credit be more than one year for a standby Letter of Credit or fall after ten days before the Maturity Date.              (c)         Prior to the issuance of each Letter of Credit, Borrowers' Agent shall have delivered to L/C Bank, if requested by L/C Bank, a Letter of Credit Agreement, signed by Borrowers, and such other documents or items as L/C Bank may require pursuant to the terms thereof.              (d)        In connection with the issuance of each Letter of Credit, Borrowers' Agent shall give L/C Bank and Administrative Lender at least three Business Days prior written notice of the requested issuance of such Letter of Credit.  Such notice shall be irrevocable and binding on Borrowers and shall specify (i) whether the Letter of Credit is to be a standby or commercial (documentary) Letter of Credit, (ii) the stated amount of the Letter of Credit requested, (iii) the date of issuance of such requested Letter of Credit (which day shall be a Business Day), (iv) the date on which such Letter of Credit is to expire (which date shall be a Business Day), (v) the Person for whose benefit the requested Letter of Credit is to be issued, and (vi) such other terms and conditions of the proposed Letter of Credit as are requested by Borrowers' Agent and acceptable to L/C Bank.  Such notice, to be effective, must be received by L/C Bank and Administrative Lender not later than 10:00 AM (Portland time) on the last Business Day on which notice can be given under the immediately preceding sentence.              (e)         Subject to the terms and conditions of this Section 3.3 and provided that the applicable conditions set forth in Article VII have been satisfied, L/C Bank shall, on the requested date, issue a Letter of Credit on behalf of Borrowers in accordance with the applicable request and L/C Bank's usual and customary business practices and in a final form reasonably satisfactory to Borrowers' Agent.              (f)         Immediately upon L/C Bank's issuance of a Letter of Credit, L/C Bank shall be deemed to have sold and transferred to each Lender, and each Lender shall be deemed irrevocably and unconditionally to have purchased and received from L/C Bank, without recourse or warranty, an undivided interest and participation, to the extent of such Lender's Ratable Portion, in such Letter of Credit and the obligations of Borrowers with respect thereto (including, without limitation, all Letter of Credit Obligations with respect thereto) and any security therefor and guaranty pertaining thereto and each Lender's Revolving Loan Commitment shall be deemed used to the extent of such Lender's Ratable Portion of such Letter of Credit Obligations.              (g)        In determining whether to pay under any Letter of Credit, L/C Bank shall not have any obligation relative to Lenders other than to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to comply on their face with the requirements of such Letter of Credit.  Any action taken or omitted to be taken by L/C Bank under or in connection with any Letter of Credit, if taken or omitted in the absence of gross negligence or willful misconduct, shall not put L/C Bank under any resulting liability to any other Lender.              (h)        If L/C Bank makes any payment under any Letter of Credit, L/C Bank shall promptly notify Administrative Lender, who shall promptly notify each Lender, and each Lender shall promptly and unconditionally pay to Administrative Lender for the account of L/C Bank the amount of such Lender's Ratable Portion of such payment in same day funds (and upon receipt, Administrative Lender shall promptly pay the same to L/C Bank), which payment shall be deemed to be and shall constitute a Revolving Loan that is a Prime Rate Loan made by such Lender to Borrowers; provided, however, that if the Swingline Lender so elects, and if a Swing Loan can be made in such amount, Administrative Lender shall promptly notify the Swingline Lender of such payment by L/C Bank, and the Swingline Lender shall, and Borrowers hereby authorize the Swingline Lender to, pay to Administrative Lender for the account of L/C Bank the amount of such payment in same day funds, which payment shall be deemed to be and shall constitute a Swing Loan made by the Swingline Lender to Borrowers.  The Revolving Loans shall be made, or the Swing Loan may be made, as contemplated in the preceding sentence notwithstanding Borrowers' failure to satisfy the conditions set forth in Section 7.2.  If Administrative Lender so notifies such Lender prior to 10:00 AM (Portland time) on any Business Day, such Lender shall make available to Administrative Lender for the account of L/C Bank its Ratable Portion of the amount of such payment by 1:00 PM (Portland time) on such Business Day in same day funds.  If and to the extent such Lender does not make its Ratable Portion available to Administrative Lender for the account of L/C Bank, such Lender agrees to repay to Administrative Lender for the account of L/C Bank on demand such amount together with interest thereon at the Federal Funds Rate for each day from such date until the date paid.  The failure of any Lender to make available to Administrative Lender for the account of L/C Bank its Ratable Portion of any such payment shall not relieve any other Lender of its obligations hereunder.              (i)          The obligations of Lenders to make payments to Administrative Lender for the account of L/C Bank with respect to Letters of Credit shall be irrevocable and not subject to any qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under all circumstances (except as expressly provided in Section 3.4(g)), including, without limitation, any of the following circumstances:              (i)          any lack of validity or enforceability of any of the other Loan Documents;              (ii)         the existence of any claim, setoff, defense or other right which Borrowers may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), Administrative Lender, any Lender or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including, without limitation, any underlying transaction between Borrower and the beneficiary named in any Letter of Credit);              (iii)        any draft, certificate or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or              (iv)       the occurrence of any Default. 3.4        INTEREST/FEES                      (a)         Interest.  The outstanding principal balance of each Loan shall bear interest at the Applicable Rate.  The foregoing notwithstanding, the rate of interest applicable at all times during the continuation of an Event of Default shall be a fluctuating rate per annum equal to the Prime Rate in effect from time to time, plus 200 basis points.  All fees, expenses and other amounts not paid when due shall bear interest (from the date due until paid) at the rate set forth in the preceding sentence.              (b)        Letter of Credit Fees.  With respect to each Letter of Credit, upon the issuance, renewal and/or amendment thereof, Borrowers shall pay to Administrative Lender, for the ratable benefit of Lenders, the following fees, each of which shall be nonrefundable even if any Letter of Credit is terminated or canceled before its stated expiration date:              (i)          with respect to each Letter of Credit that is a standby letter of credit, a fee equal to the face amount thereof (or, with respect to an amendment increasing the face amount, the increase in the face amount only) multiplied by a rate per annum equal to the then applicable LIBOR Margin for a period equal to the term of such Letter of Credit (or, with respect to an amendment increasing the term, the increase in the term only); and              (ii)         with respect to each Letter of Credit that is a commercial (documentary) Letter of Credit, a fee equal to the greater of $350 or a percentage of the face amount thereof equal to the then applicable LIBOR Margin for the period it is outstanding. In addition, upon the occurrence of any other activity with respect to any Letter of Credit, Borrowers shall pay to L/C Bank a fee determined in accordance with L/C Bank's standard fees and charges then in effect for such activity.              (c)         Administrative Lender's Fees.  Borrowers shall pay to Administrative Lender, for Administrative Lender's own account, the fees set forth in that certain fee letter from U.S. Bank to Borrowers' Agent dated January 12, 2001.              (d)        Unused Line Fee.  Borrowers shall pay to Administrative Lender, for the ratable benefit of Lenders, an unused line fee equal to (i) the amount by which the Revolving Loan Commitments are greater than the average daily outstanding balance of the Revolving Loans plus the face amount of outstanding Letters of Credit multiplied by (ii) a per annum rate equal to the Fee Percentage.  Borrowers shall pay the unused line fee in arrears on the last day of each calendar quarter beginning March 31, 2001 and on the Maturity Date.              (e)         Computation and Payment.  All interest and per annum fees shall be computed on the basis of a 360-day year, actual days elapsed, except interest on Prime Rate Loans shall be computed on the basis of a 365/366-day year, actual days elapsed.  Interest on Prime Rate Loans shall be payable monthly, in arrears, on the first day of each month and on the Maturity Date.  Interest on LIBOR Loans shall be paid on the last day of each Fixed Rate Term, at the end of the third month with respect to each Fixed Rate Term of six months and on the Maturity Date. 3.5        INTEREST OPTIONS              (a)         Election.  Subject to the requirement that each LIBOR Loan be in a minimum amount of $1,000,000 and in integral multiples of $100,000 and the limitation in Section 3.5(b) regarding the number of Tranches outstanding at any time, (i) except as otherwise provided herein, at any time when a Default is not continuing Borrowers' Agent may convert all or any portion of a Prime Rate Loan to a LIBOR Loan for a Fixed Rate Term designated by Borrowers' Agent, and (ii) at any time Borrowers' Agent may convert all or a portion of a LIBOR Loan at the end of the Fixed Rate Term applicable thereto to a Prime Rate Loan or, if no Default is continuing, to a LIBOR Loan for a new Fixed Rate Term designated by Borrowers' Agent.  If Borrowers' Agent has not made the required interest rate conversion or continuation election prior to the last day of any Fixed Rate Term, Borrowers shall be deemed to have elected to convert such LIBOR Loan to a Prime Rate Loan.              (b)        Maximum Number of Tranches.  At no time shall there be more than five Tranches outstanding at any time.              (c)         Notice to Administrative Lender.  Borrowers' Agent shall request each interest rate conversion or continuation by giving Administrative Lender irrevocable written notice or telephonic notice (confirmed promptly in writing), in the form of Exhibit E attached hereto (a "Notice of Conversion or Continuation"), that specifies, among other things:  (i) the Loan to which such Notice of Conversion or Continuation applies; (ii) the principal amount that is the subject of such conversion or continuation; (iii) the proposed date of such conversion or continuation, which shall be a Business Day; and (iv) if such Notice pertains to a LIBOR Loan, the length of the applicable Fixed Rate Term.  Any such Notice of Conversion or Continuation must be received by Administrative Lender not later than 9:00 AM (Portland time) (i) at least one Business Day prior to the effective date of any Prime Rate interest selection, and (ii) at least three Business Days prior to the effective date of any LIBOR interest selection.  Administrative Lender shall promptly notify each Lender of the contents of each such Notice of Conversion or Continuation, or if timely notice is not received from Borrowers' Agent prior to the last day of any Fixed Rate Term, of the automatic conversion of such LIBOR Loan to a Prime Rate Loan. 3.6        OTHER PAYMENT TERMS              (a)         Automatic Debit.  Administrative Lender may, and Borrowers hereby authorize Administrative Lender to, debit any deposit account of Borrower with Administrative Lender for all payments of principal, interest, fees and other amounts due under the Loan Documents as they become due, provided that Administrative Lender shall first debit Borrowers' Agent's account no. 1-536-9121-3752 with Administrative Lender, before debiting any other account.              (b)        Place and Manner.  Borrowers shall make all payments due to each Lender under the Loan Documents by payment to Administrative Lender at Administrative Lender's Office, for the account of such Lender, in lawful money of the United States and in same day or immediately available funds not later than 11:00 AM (Portland time) on the date due.  Administrative Lender shall promptly disburse to each Lender at such Lender's Applicable Lending Office each such payment received by Administrative Lender for such Lender no later than 2:00 PM (Portland time) on the Business Day received if received before 11:00 AM (Portland time), or if received later, by 2:00 PM (Portland time) on the next Business Day.              (c)         Date.  Whenever any payment due hereunder shall fall 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 be included in the computation of interest or fees, as the case may be.              (d)        Application of Payments.  All payments under the Loan Documents (including prepayments) shall be applied first to unpaid fees, costs and expenses then due and payable under the Loan Documents, second to accrued interest then due and payable under the Loan Documents (applied first to interest due and payable on the Swing Loans and then to the other Loans), third to the outstanding principal of the Swing Loans and finally to reduce the principal amount of the other outstanding Loans.              (e)         Failure to Pay Administrative Lender.  Unless Administrative Lender shall have received notice from Borrowers' Agent at least one Business Day prior to the date on which any payment is due to Lenders hereunder that Borrowers will not make such payment in full, Administrative Lender may assume that Borrowers have made such payment in full to Administrative Lender on such date and Administrative Lender may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender.  If and to the extent Borrowers shall not have made such payment in full to Administrative Lender, such Lender shall repay to Administrative Lender on demand the amount distributed to such Lender together with interest thereon at the Federal Funds Rate for each day from the date distributed until the date repaid.  A certificate of Administrative Lender submitted to any Lender with respect to any amounts owing by such Lender under this Section shall be presumptive evidence of such amounts. 3.7        FUNDING              (a)         Lender Funding and Disbursement.  Each Lender shall, by 11:00 AM (Portland time) on the date of each borrowing under Section 3.1 or Section 3.3, make available to Administrative Lender at Administrative Lender's Office, in same day or immediately available funds, such Lender's Ratable Portion thereof.  After Administrative Lender's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article VII hereof, Administrative Lender will promptly disburse such funds in same day or immediately available funds to Borrowers.  Unless otherwise directed by Borrowers' Agent in writing, Administrative Lender shall disburse the proceeds of each borrowing to Parent by deposit to any demand deposit account maintained by Parent with Administrative Lender designated by Borrowers' Agent in a notice to Administrative Lender.              (b)        Lender Failure to Fund.  Unless Administrative Lender receives notice from a Lender on or before the date of any borrowing hereunder that such Lender will not make available to Administrative Lender such Lender's Ratable Portion thereof, Administrative Lender may assume that such Lender has made such portion available to Administrative Lender on the date of such borrowing in accordance with Section 3.7(a) hereof, and Administrative Lender may, in reliance upon such assumption, make available to Borrowers (or otherwise disburse) on such date a corresponding amount.  If any Lender does not make the amount of its Ratable Portion of any borrowing available to Administrative Lender on the date of such borrowing, such Lender shall pay to Administrative Lender, on demand, interest which shall accrue on such amount until made available to Administrative Lender at a rate equal to the daily Federal Funds Rate.  A certificate of Administrative Lender submitted to any Lender with respect to any amounts owing under this Section shall be presumptive evidence of such amounts.  If any Lender's Ratable Portion of any borrowing is not in fact made available to Administrative Lender by such Lender within three Business Days after the date of such borrowing, Borrowers shall pay to Administrative Lender, on demand, an amount equal to such Ratable Portion together with interest thereon, for each day from the date such amount was made available to Borrowers until the date such amount is repaid to Administrative Lender, at the rate of interest then applicable thereto.              (c)         Lenders' Obligations Several.  The obligation of each Lender hereunder is several.  The failure of any Lender to make available its Ratable Portion of any borrowing shall not relieve any other Lender of its obligation hereunder to do so on the date requested, but no Lender shall be responsible for the failure of any other Lender to make available the Ratable Portion to be funded by such other Lender. 3.8        PRO RATA TREATMENT              (a)         Borrowings.  Each Loan, except a Swing Loan, shall be made or shared among Lenders ratably.              (b)        Sharing of Payments, Etc.  Except as otherwise provided herein, each payment of principal, interest or fees shall be made or shared among Lenders ratably.  If any Lender obtains any payment (whether voluntary, involuntary, through the exercise of any right of setoff or otherwise) on account of a Loan in excess of its Ratable Portion of payments on the Loans obtained by all Lenders, such Lender ("Purchasing Lender") shall forthwith purchase from the other Lenders sufficient participations to cause the Purchasing Lender's interest in the Loans to be in the same proportionate relationship with all Loans as before such payment was received; provided, however, that if all or any portion of such excess payment is thereafter recovered from the Purchasing Lender, the purchased participation shall be rescinded and each other Lender shall repay to the Purchasing Lender (i) the purchase price to the extent of such recovery together with (ii) an amount equal to such other Lender's ratable share (according to the proportion of (A) the amount of such other Lender's required repayment to (B) the total amount so recovered from the Purchasing Lender) of any interest or other amount paid or payable by the Purchasing Lender in respect of the total amount so recovered.  Borrowers agree that any Purchasing Lender may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of setoff) with respect to such participation as fully as if the Purchasing Lender were the direct creditor of Borrowers in the amount of such participation. 3.9        CHANGE OF CIRCUMSTANCES              (a)         Inability to Determine Rate.  If Administrative Lender at any time determines that adequate and reasonable means do not exist for ascertaining LIBOR, or the Required Lenders determine at any time that LIBOR does not accurately reflect the cost to Lenders of making or maintaining LIBOR interest rates hereunder, then Administrative Lender shall give telephonic notice (promptly confirmed in writing) to Borrowers' Agent and each Lender of such determination.  If such notice is given and until such notice has been withdrawn in writing by Administrative Lender, no LIBOR interest option may be selected by Borrowers' Agent and each LIBOR Loan, subsequent to the end of the Fixed Rate Term applicable thereto, shall become a Prime Rate Loan.              (b)        Illegality:  Termination of Commitment.  Notwithstanding any other provisions herein, if any Change of Law shall make it unlawful for any Lender (i) to make a LIBOR interest rate available, or (ii) to maintain LIBOR interest rates hereunder, then, in the former event, any obligation of such Lender to make available such unlawful LIBOR interest rate shall be suspended until such time as it is once again lawful to make such rate available, and in the latter event, any such unlawful LIBOR interest rate then outstanding shall be converted so that interest is determined in relation to the Prime Rate pursuant to the terms of this Agreement; provided, however, if any such Change in Law shall permit a LIBOR interest rate until the expiration of the Fixed Rate Term relating thereto, then such permitted LIBOR interest rate shall continue as such until the end of such Fixed Rate Term.  If as a result of this Section a LIBOR interest rate is converted to a lower interest rate, Borrowers shall pay to each Lender immediately upon demand such amount or amounts as may be necessary to compensate such Lender for any loss in connection therewith.              (c)         Charges:  Illegality.  Upon the occurrence of any event described in Section 3.9(b) hereof, Borrowers shall pay to each Lender, on demand, such amount or amounts as may be necessary to compensate such Lender for any fines, fees, charges, penalties or other amounts payable by such Lender as a result thereof and that are attributable to LIBOR interest rates made available to Borrowers hereunder.  In determining which amounts payable by any Lender and/or losses incurred by any Lender are attributable to LIBOR interest rates made available to Borrowers hereunder, any reasonable allocation made by any Lender among its operations shall, in the absence of manifest error, be conclusive and binding upon Borrowers.              (d)        Increased LIBOR Loan Costs, etc.  Borrowers shall reimburse each Lender for any increase in the cost to such Lender of, or any reduction in the amount of any sum receivable by such Lender in respect of, making, continuing or maintaining (or of its obligation to make, continue or maintain) any Loans as, or of converting (or of its obligation to convert) any Loans into, LIBOR Loans which results from any Change of Law announced after the Closing Date.  Such Lender shall promptly notify Administrative Lender and Borrowers' Agent in writing of the occurrence of any such event, such notice to state, in reasonable detail, the reasons therefor, that substantially all similarly situated borrowers are being treated similarly and the calculation of the additional amount required fully to compensate such Lender for such increased cost or reduced amount.  Such additional amounts shall be payable by Borrowers directly to such Lender within five days of Borrowers' Agent's receipt of such notice, and such notice shall, in the absence of manifest error, be conclusive and binding on Borrowers.              (e)         Capital Requirements.  If any Lender determines that any Change of Law regarding capital adequacy which is announced after the Closing Date has or shall have the effect of reducing the rate of return on the capital of such Lender (or any entity controlling such Lender) as a consequence of such Lender's obligations hereunder to a level below that which such Lender or such entity would have achieved but for such Change of Law (taking into consideration such Lender's or such entity's policies with respect to capital adequacy), by an amount deemed by such Lender to be material, then from time to time, within fifteen days after demand by such Lender (with a copy to Administrative Lender) to Borrowers' Agent, Borrowers shall pay to such Lender or such entity such additional amounts as shall compensate such Lender or such entity for such reduction.  Any request by a Lender under this Section shall set forth in reasonable detail the basis of the calculation of such additional amounts, shall state that substantially all similarly situated borrowers are being treated similarly and shall, in the absence of manifest error, be conclusive and binding on Borrowers for all purposes. 3.10     TAXES ON PAYMENTS              (a)         Payments Free of Taxes.  All payments made by Borrowers under the Loan Documents shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority (except taxes based on overall net income imposed on Administrative Lender or any Lender) (with all such non-excluded taxes, levies, imposts, duties, charges, fees, deductions and withholdings being hereinafter referred to herein as "Taxes").  Except to the extent that withholding results from a failure of a  Lender to comply with Section 3.10(b), if any Taxes are required to be withheld from any amounts payable to Administrative Lender or any Lender under the Loan Documents, the amounts so payable to Administrative Lender or such Lender shall be increased to the extent necessary to yield to Administrative Lender or such Lender (after payment of all Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in the Loan Documents.  Whenever any Taxes are payable by Borrowers, as promptly as possible thereafter, Borrowers' Agent shall send to Administrative Lender for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by Borrowers showing payment thereof.  If Borrowers fail to pay any Taxes when due to the appropriate taxing authority or Borrowers' Agent fails to remit to Administrative Lender the required receipts or other required documentary evidence, Borrowers shall indemnify Administrative Lender and Lenders for any incremental taxes, interest or penalties that may become payable by Administrative Lender or any Lender as a result of any such failure.  This Section shall survive the payment in full and performance of all of Borrowers' other Obligations.              (b)        Withholding Exemption Certificates.  Each Lender agrees that it will deliver to Borrowers' Agent and Administrative Lender, upon the reasonable request of Borrowers' Agent or Administrative Lender, either (i) a statement that it is incorporated under the laws of the United States of America or a state thereof, or (ii) if it is not so incorporated, two duly completed copies of the applicable United States Internal Revenue Service form(s) certifying that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes. 3.11     FUNDING LOSS INDEMNIFICATION              Borrowers will indemnify Lenders upon demand against any loss or expense which Lenders may sustain or incur as a consequence of (a) any payment of any portion of the principal of a LIBOR Loan before the last day of the Fixed Rate Term applicable thereto (whether through voluntary prepayment, acceleration or otherwise), or (b)  any failure to borrow the full amount of a requested LIBOR Loan set forth in any Notice of Borrowing or to convert or continue at the LIBOR interest option any portion of a Loan in accordance with a Notice of Conversion or Continuation (in either event, whether as a result of the failure to satisfy any applicable conditions or otherwise).  The determination by Administrative Lender of the amount payable under this Section shall, in the absence of manifest error, be conclusive and binding on Borrowers for all purposes.  In determining such amount, Administrative Lender may use any reasonable averaging and attribution methods and each Lender shall be deemed to have actually funded and maintained all LIBOR Loans during the applicable Fixed Rate Term through the purchase of deposits having a term corresponding to such Fixed Rate Term and bearing interest at a rate equal to LIBOR for such Fixed Rate Term.  This Section shall survive the payment in full and performance of all of Borrowers' other Obligations. ARTICLE IV.  ADMINISTRATION 4.1        STATEMENTS              From time to time, Administrative Lender may render to Borrowers' Agent a statement setting forth the balance in the loan account(s) maintained by Administrative Lender for Borrowers pursuant to this Agreement, including principal, interest, fees, costs and expenses.  Each such statement shall be subject to subsequent adjustment by Administrative Lender but shall, absent manifest errors or omissions, be considered correct and deemed accepted by Borrowers and conclusively binding upon Borrowers as an account stated except to the extent that Administrative Lender receives notice from Borrowers' Agent of any specific exceptions thereto within thirty days after the date such statement has been mailed by Administrative Lender.  Until such time as Administrative Lender shall have rendered to Borrowers' Agent a written statement as provided above, the balance in the loan account(s) shall be presumptive evidence of the amounts due and owing to Lenders by Borrowers. 4.2        PAYMENTS              All amounts due under any of the Loan Documents shall be payable to such account as Administrative Lender may designate from time to time.  Borrowers shall make all payments due hereunder free and clear of, and without deduction or withholding for or on account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions, withholding, restrictions or conditions of any kind.  If after receipt of any payment of, or proceeds of Collateral applied to the payment of, any of the Obligations any Lender is required to surrender or return such payment or proceeds to any person or entity for any reason, then the Obligations intended to be satisfied by such payment or proceeds shall be reinstated and continue and this Agreement shall continue in full force and effect as if such payment or proceeds had not been received by such Lender.  Borrowers hereby indemnify and hold Lenders harmless for the amount of any payments or proceeds surrendered or returned.  This Section shall remain effective notwithstanding any contrary action which may be taken by any Lender in reliance upon such payment or proceeds.  This Section shall survive the payment in full and performance of all of Borrowers' other Obligations. ARTICLE V.    SECURITY 5.1        GRANT OF SECURITY INTEREST              Borrowers hereby grant to Administrative Lender, for the benefit of and on behalf of Lenders, a security interest in all of the Collateral as security for the full and prompt payment in cash and performance of the Obligations. 5.2        PERFECTION; DUTY OF CARE              (a)         Until all the Obligations have been fully satisfied and paid in cash and the Commitments terminated, Borrowers shall perform all steps requested by Administrative Lender to perfect, maintain and protect Administrative Lender's security interest in the Collateral, including, without limitation, (i) executing and filing financing and continuation statements in form and substance satisfactory to Administrative Lender, and (ii) delivering all Collateral in which Administrative Lender's security interest may be perfected by possession together with such indorsements as Administrative Lender may request.  Borrowers hereby authorize Administrative Lender to execute and file UCC financing statements signed only by Administrative Lender, except to the extent prohibited by law.              (b)        Administrative Lender shall have the right at all times, and from time to time, to contact Borrowers' account debtors to verify Rights to Payment; provided that at all times when a Default is not continuing, verifications shall be made under reasonable procedures directly with the obligors thereon.              (c)         Borrowers shall pay or cause to be paid all taxes, assessments and governmental charges levied or assessed or imposed upon or with respect to the Collateral or any part thereof; provided, however, Borrowers shall not be required to pay any tax if the validity and/or amount thereof is being contested in good faith and by appropriate and lawful proceedings promptly initiated and diligently conducted and for which appropriate reserves have been established and so long as levy and execution have been and continue to be stayed.  If Borrowers fail to pay or so contest and reserve for such taxes, assessments and governmental charges, Administrative Lender may (but shall not be required to) pay the same and add the amount of such payment to the principal of the Revolving Loans.              (d)        In order to protect or perfect the security interest granted under the Loan Documents, Administrative Lender may discharge any Lien that is not a Permitted Lien or bond the same, pay for any insurance that Borrowers have failed to maintain as required by this Agreement, maintain guards, pay any service bureau, or obtain any record and add the same to the principal of the Revolving Loans.              (e)         Administrative Lender shall have no duty of care with respect to the Collateral, except to exercise reasonable care with respect to the Collateral in its custody, but shall be deemed to have exercised reasonable care if such property is accorded treatment either (i) substantially equal to that which it accords its own property or (ii) as Borrowers' Agent requests in writing, provided that no failure to comply with any such request nor any omission to do any such act requested by Borrowers' Agent shall be deemed a failure to exercise reasonable care.  Administrative Lender's failure to take steps to preserve rights against any parties or property shall not be deemed to be a failure to exercise reasonable care with respect to the Collateral in its custody. ARTICLE VI.  REPRESENTATIONS AND WARRANTIES              Borrower makes the following representations and warranties to Administrative Lender and Lenders, subject to the exceptions set forth on the Disclosure Letter, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the performance and payment in full, in cash, of all Obligations: 6.1        LEGAL STATUS; SUBSIDIARIES              Each Borrower and Subsidiary is a corporation validly organized and existing and in good standing under the laws of the jurisdiction of its incorporation, is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the nature of its business requires such qualification, and has full power and authority and holds all Permits and other approvals to enter into and perform the Obligations and to own and hold under lease its property and to conduct its business substantially as currently conducted by it, except where the failure to have so qualified or have such power and authority could not reasonably be expected to have a Material Adverse Effect.  Except as otherwise disclosed in Section 6.1 of the Disclosure Letter, Borrower has no Subsidiaries other than those which it is permitted to acquire in accordance with Section 9.4 and does not otherwise own or hold, directly or indirectly, any Stock or Stock Equivalents. 6.2        DUE AUTHORIZATION; NO VIOLATION              The execution, delivery and performance by each Obligor of the Loan Documents executed or to be executed by it are within such Obligor's powers, have been duly authorized by all necessary action, and do not (a) contravene such Obligor's Organic Documents; (b) contravene any contractual restriction or Governmental Rule binding on or affecting such Obligor; or (c) result in, or require the creation or imposition of, any Lien on any Obligor's or Subsidiary's property, except Liens for the benefit of Lenders. 6.3        GOVERNMENT APPROVAL, REGULATION              No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or other Person is required for the due execution, delivery or performance by any Obligor of the Loan Documents to which it is a party.  No Borrower or Subsidiary is an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended.  No Borrower or Subsidiary is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of any Loans will be used for a purpose which violates, or would be inconsistent with, Regulation U or X of the Board of Governors of the Federal Reserve System 6.4        VALIDITY; ENFORCEABILITY              The Loan Documents executed by each Obligor constitute, the legal, valid and binding obligations of such Obligor enforceable in accordance with their respective terms. 6.5        CORRECTNESS OF FINANCIAL STATEMENTS              The consolidated financial statements of Parent and each Subsidiary dated as of September 30, 2000 heretofore delivered by Borrowers' Agent to Administrative Lender, (a) present fairly in all material respects the financial condition and results of operations of Parent and the Subsidiaries; (b) disclose all liabilities of Parent and the Subsidiaries that are required to be reflected or reserved against under GAAP, whether liquidated or unliquidated, fixed or contingent; and (c) have been prepared in accordance with GAAP consistently applied.  Except as disclosed to Administrative Lender pursuant to Section 8.3, since the date of such financial statements there has been no change or changes that have resulted in a Material Adverse Effect. 6.6        TAXES              Each Borrower and Subsidiary has filed, or caused to be filed, all federal, state, local and foreign tax returns required to be filed by it, and has paid, or caused to be paid, all taxes as are shown on such returns, or on any assessment received by it, to the extent that such taxes have become due, except as otherwise contested in good faith.  Borrower has set aside proper amounts on its books, determined in accordance with GAAP, for the payment of all taxes for the years that have not been audited by the respective tax authorities and for taxes being contested by it. 6.7         LITIGATION, LABOR CONTROVERSIES              There is no pending or, to the knowledge of Borrower, threatened litigation, action, proceeding, or labor controversy affecting any Borrower or Subsidiary, or any of their respective properties, businesses, assets or revenues, which could reasonably be expected to have a Material Adverse Effect.  As of the Closing Date, no Borrower or Subsidiary is a party to, and has no obligations under, any collective bargaining agreement. 6.8        TITLE TO PROPERTY, LIENS              Each Borrower and Subsidiary has good, indefeasible, and merchantable title to and ownership of the Collateral and its real property, free and clear of all Liens, except Permitted Liens and the BT Liens (so long as the BT Liens do not secure any outstanding obligations). 6.9        ERISA              Each Borrower and Subsidiary is in compliance in all material respects with the applicable provisions of ERISA.  No Borrower or Subsidiary has violated any provision of any Plan maintained or contributed to by it in a manner that could reasonably be expected to result in a Material Adverse Effect.  No "reportable event" (as defined in Title IV of ERISA) has occurred and is continuing with respect to any Plan initiated by it. 6.10     OTHER OBLIGATIONS              No Borrower or Subsidiary is in default with respect to (i) any of its Contractual Obligations default of which could reasonably be expected to result in a Material Adverse Effect or (ii) any Debt in excess of $1,000,000. 6.11     ENVIRONMENTAL MATTERS              Each Borrower and Subsidiary is in compliance in all material respects with all Environmental Laws applicable to it, other than such noncompliance as in the aggregate could not reasonably be expected to have a Material Adverse Effect.  No Borrower or Subsidiary has received notice that it is the subject of any federal or state investigation evaluating whether any Remedial Action is needed, except for such notices received that in the aggregate do not refer to Remedial Actions that could reasonably be expected to result in a Material Adverse Effect.  There have been no Releases by any Borrower or Subsidiary that could result in a Material Adverse Effect. 6.12     NO BURDENSOME RESTRICTIONS; NO DEFAULTS              (a)         No Borrower or Subsidiary is a party to any Contractual Obligation the compliance with which could reasonably be expected to have a Material Adverse Effect or the performance of which, either unconditionally or upon the happening of an event, will result in the creation of a Lien (other than Permitted Liens) on its property or assets.              (b)        No facts or circumstances exist which would constitute a breach of any obligation, representation or warranty of Borrower hereunder if this Agreement were in effect immediately prior to Borrower's execution hereof.              (c)         There is no Governmental Rule the compliance with which by any Borrower or Subsidiary could reasonably be expected to have a Material Adverse Effect. 6.13     NO OTHER VENTURES              No Borrower or Subsidiary is engaged in any joint purchasing arrangement, joint venture, partnership or other joint enterprise with any other Person. 6.14     INSURANCE              All current policies of insurance of any kind or nature owned by or issued to Borrower and the Subsidiaries, including, without limitation, policies of fire, theft, product liability, public liability, property damage, other casualty, employee fidelity, workers' compensation and employee health and welfare insurance, are in full force and effect and are of a nature and provide such coverage as is sufficient and as is customarily carried by companies of its size and character.  No Borrower or Subsidiary has any reason to believe that it will be unable to comply with Section 8.5. 6.15     FORCE MAJEURE              No Borrower's or Subsidiary's business or properties is currently suffering from the effects of any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance), other than those the consequences of which in the aggregate could not reasonably be expected to have a Material Adverse Effect. 6.16     INTELLECTUAL PROPERTY              Each Borrower and Subsidiary owns or licenses or otherwise has the right to use all material licenses, Permits, patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, copyright applications, franchises, authorizations and other intellectual property rights and General Intangibles that are necessary for the operation of its businesses, without infringement upon or conflict with the rights of any other Person with respect thereto, including, without limitation, all trade names, which infringement or conflict could reasonably be expected to have a Material Adverse Effect.  No slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by any Borrower or Subsidiary infringes upon or conflicts with any rights owned by any other Person, which infringement or conflict could reasonably be expected to have a Material Adverse Effect, and no claim or litigation regarding any of the foregoing is pending or, to its knowledge, threatened, the existence of which could reasonably be expected to have a Material Adverse Effect.  No patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or, to its knowledge, proposed, other than those the consequences of which in the aggregate could not have a Material Adverse Effect. 6.17     CERTAIN INDEBTEDNESS              The Disclosure Letter identifies as of the Closing Date all Indebtedness of Parent and the Subsidiaries which is either (a) Debt or (b) which is material to the condition (financial or otherwise), business, performance, operations or properties of Borrowers and which was incurred outside of the ordinary course of the business. 6.18     SOLVENCY              Each Obligor has received consideration that is the reasonably equivalent value of the obligations and liabilities that it has incurred to Lenders.  Each Obligor is not insolvent as defined in any applicable state or federal statute, nor will it be rendered insolvent by the execution and delivery of this Agreement or the other Loan Documents.  No Obligor intends to, nor does it believe that it will, incur debts beyond its ability to pay them as they mature.  Each Obligor has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage. 6.19     CHIEF EXECUTIVE OFFICE AND OTHER LOCATIONS              Borrower's chief executive office and principal place of business is set forth in Section 6.19 of the Disclosure Letter.  Borrower's books and records are located at its chief executive office, and the only other offices and/or locations where it keeps the Collateral (except for inventory which is in transit) or conducts any of its business are set forth in Section 6.19 of the Disclosure Letter. 6.20     FISCAL YEAR              Parent's fiscal year ends on the Saturday closest to December 31. 6.21     COMPLIANCE WITH LAW              Each Borrower and Subsidiary is in compliance with all Governmental Rules and law, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.22     NO SUBORDINATION              There is no agreement, indenture, contract or instrument to which any Borrower or Subsidiary is a party or by which it may be bound that requires the subordination in right of payment of any of the Obligations to any other obligation of it. 6.23     TRUTH, ACCURACY OF INFORMATION              All factual information furnished by each Borrower and Subsidiary to Administrative Lender or any Lender in connection with the Loan Documents is accurate in all material respects and does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the information furnished, in light of the circumstances under which furnished, not misleading (it being recognized that the projections and forecasts provided by Borrowers are not to be viewed as facts and that actual results during the period covered by any such projections and forecasts may differ from the projected or forecasted results). ARTICLE VII.  CONDITIONS 7.1        CONDITIONS OF INITIAL EXTENSION OF CREDIT              The obligation of Lenders to extend any credit contemplated by this Agreement is subject to the fulfillment to Administrative Lender's satisfaction of all of the following conditions:              (a)         Documentation. Administrative Lender shall have received, in form and substance satisfactory to it, each of the following duly executed:              (i)          this Agreement, the Notes and such mortgages, deeds of trust and other security instruments as Administrative Lender may require;              (ii)         from each Obligor, a certificate of its secretary or assistant secretary dated as of the Closing Date as to:  (A) resolutions of its board of directors or other governing body then in full force and effect authorizing the execution, delivery and performance of each of the Loan Documents to be executed by it; (B) its Organic Documents, a copy of each of which is attached; and (C) the incumbency and signatures of those of its officers authorized to act with respect to the Loan Documents to be executed by it;              (iii)        with respect to each Obligor:  (A) from the Secretary of State (or other appropriate governmental official) of its jurisdiction of incorporation or organization, a good standing certificate or certificate of existence, as applicable, and a certified copy of its filed Organic Documents; and (B) a certificate of good standing as a foreign corporation in each jurisdiction described in Section 6.1;              (iv)       a Notice of Authorized Representatives, the initial Notice of Borrowing and a disbursement direction letter;              (v)        the opinion of Wilson Sonsini Goodrich & Rosati, P.C., counsel to Borrowers, and of Richard Bond, Parent's general counsel, as to such matters as Administrative Lender and each Lender shall reasonably require; and              (vi)       such other documents as Administrative Lender and each Lender may require.              (b)        Financial Condition.  There is no event or circumstance that can reasonably be expected to have a Material Adverse Effect.              (c)         Fees and Expenses.  Borrowers shall have paid all fees and invoiced costs and expenses then due pursuant to the terms of this Agreement.              (d)        Insurance.  Borrowers' Agent shall have delivered to Administrative Lender evidence of the insurance coverage, including loss payable endorsements, required pursuant to Section 8.5. 7.2        CONDITIONS OF EACH EXTENSION OF CREDIT              The obligation of each Lender to make any credit available under the Loan Documents (including any Loan being made by such Lender on the Closing Date) shall be subject to the further conditions precedent that:              (a)         the following statements shall be true on the date such credit is advanced, both before and after giving effect thereto and to the application of the proceeds therefrom, and the acceptance by Borrowers' Agent of the proceeds of such credit shall constitute a representation and warranty by Borrowers that on the date such credit is advanced such statements are true:              (i)          the representations and warranties of Borrowers contained in the Loan Documents are correct in all material respects on and as of such date as though made on and as of such date or, as to those representations and warranties limited by their terms to a specified date, were correct in all material respects on and as of such date; and              (ii)         no Default is continuing or would result from the credit being advanced;              (b)        advancing such credit on such date does not violate any Governmental Rule and is not enjoined, temporarily, preliminarily or permanently;              (c)         Administrative Lender shall have received such additional documents, information and materials as any Lender, through Administrative Lender, may reasonably request; and              (d)        no event or circumstance exists that could reasonably be expected to have a Material Adverse Effect. ARTICLE VIII.  AFFIRMATIVE COVENANTS              Borrowers covenant that so long as Lenders remain committed to extend credit to Borrowers pursuant to the terms hereof and until performance and payment in full, in cash, of all Obligations and termination of the Commitments, Borrowers shall: 8.1        PAYMENTS              Pay all principal, interest, fees and other liabilities due under any of the Loan Documents at the times and place and in the manner specified therein. 8.2        ACCOUNTING RECORDS              Keep, and cause each Subsidiary to keep, accurate books and records of its financial affairs sufficient to permit the preparation of financial statements therefrom in accordance with GAAP. 8.3        INFORMATION AND REPORTS              Provide to Administrative Lender all of the following, in form and detail reasonably satisfactory to Administrative Lender and with sufficient copies for distribution to all Lenders:              (i)          as soon as available but not later than 100 days after and as of the end of each fiscal year of Parent, a copy of the annual unqualified audit report for such fiscal year for Parent and the Subsidiaries, including therein consolidated balance sheets of Parent and the Subsidiaries as of the end of such fiscal year and consolidated statements of earnings and cash flow of Parent and the Subsidiaries for such fiscal year, in each case certified in a manner acceptable to Administrative Lender by independent public accountants acceptable to Administrative Lender, together with a report from such accountants to the effect that, in making the examination necessary for the signing of such annual report by such accountants, they have not become aware of any Default that has occurred and is continuing, or, if they have become aware of such Default, describing such Default and the steps, if any, of which they are aware being taken to cure it;              (ii)         as soon as available but not later than 50 days after and as of the end of each of Parent's first three fiscal quarters, nor later than 100 days after and as of the end of each of Parent's fourth fiscal quarters, consolidated and consolidating balance sheets of Parent and the Subsidiaries as of the end of such fiscal quarter and consolidated and consolidating statements of earnings and cash flow of Parent and the Subsidiaries for such fiscal quarter and for fiscal year-to-date, together with a comparison of Parent's financial condition for such quarter and year-to-date with the corresponding quarter and year-to-date in Parent's immediately preceding fiscal year;              (iii)        contemporaneously with the delivery of each financial statement required hereby, a certificate of Parent's principal financial officer substantially in the form of Exhibit F attached hereto (A) certifying that such financial statements fairly present in accordance with GAAP such balance sheet as of the end of such quarter/year and income and cash flow for such quarter/year and year-to-date (subject to normal year-end adjustments and the absence of footnotes in the case of quarterly financial statements), (B) stating that no Default existed at any time during the period covered by such statement, except for those events or conditions, if any, described in such certificate in reasonable detail together with a statement of any action taken or proposed to be taken with respect thereto, and (C) setting forth the calculations required to establish compliance by Borrowers with the covenants set forth in Article X;              (iv)       not later than the end of each of Parent's fiscal years beginning with the fiscal year ending in 2001, or sooner if available, Borrowers' Agent shall furnish to Administrative Lender detailed projections setting forth Parent's projected consolidated income and cash flow for Parent's next fiscal year and for each of Parent's fiscal years through the Maturity Date and Parent's projected consolidated balance sheet as of the end of each such fiscal year, together with a certificate of Parent's principal financial officer setting forth the assumptions on which such projections are based;              (v)        promptly after the sending or filing thereof, copies of all reports which Borrower sends to any of its securityholders, and all reports and registration statements which any Borrower or Subsidiary files with the Securities and Exchange Commission or any national securities exchange;              (vi)       not later than 30 days after and as of the end of each month (except a month in which the outstanding principal balance of the Revolving Loans never exceeds 50% of the Borrowing Base), a Borrowing Base Certificate; and              (vii)      from time to time such other information as Administrative Lender may reasonably request. 8.4        COMPLIANCE              Comply in all material respects, and cause each Subsidiary to comply in all material respects, with all Governmental Rules, Contractual Obligations, commitments, instruments, licenses, Permits and franchises, other than such noncompliance the consequences of which in the aggregate could not reasonably be expected to have a Material Adverse Effect. 8.5        INSURANCE              (a)         Maintain, and cause each Subsidiary to maintain, insurance with insurance companies reasonably acceptable to Administrative Lender with respect to its properties and business (including business interruption and extra expense endorsements) against such casualties and contingencies and of such types, with such deductibles and in such amounts as is customary in the case of similar businesses.  With respect to the insurance maintained by Borrower:  (i) such insurance shall contain a lender's loss payable endorsement acceptable to Administrative Lender and shall name Administrative Lender as an additional named insured; (ii) the policies or a certificate thereof signed by the insurer shall be delivered to Administrative Lender within ten Business Days after the issuance or renewal of the policies to Borrower; (iii) each such policy shall provide that such policy may not be amended (except to increase coverage) or canceled without thirty days prior notice to Administrative Lender; and (iv) at least five days before the expiration of a policy, Borrowers' Agent shall deliver to Administrative Lender a binder (or other evidence reasonably acceptable to Administrative Lender) indicating that such policy has been renewed or that a substitute for such policy will be issued effective upon the expiration of such policy.  If Borrowers' Agent fails to comply with the foregoing, Administrative Lender may (but shall not be required to) procure such insurance and add the cost thereof to the Revolving Loans.              (b)        Maintain, and cause each Subsidiary to maintain, in full force and effect such liability and other insurance with respect to its activities as is customary in the case of similar businesses or as may be reasonably required by Administrative Lender.  Such liability insurance maintained by Borrower shall name Administrative Lender as an additional insured with respect to the activities of Borrower and shall be provided by insurer(s) reasonably acceptable to Administrative Lender.              (c)         The following is inserted pursuant to ORS 746.201: WARNING              Unless Borrowers provide Administrative Lender with evidence of the insurance coverage as required by this Agreement, Administrative Lender may purchase insurance at Borrowers' expense to protect Administrative Lender's interest.  This insurance may, but need not, also protect Borrowers' interest.  If the collateral becomes damaged, the coverage Administrative Lender purchases may not pay any claim Borrowers make or any claim made against Borrowers.  Borrowers may later cancel this coverage by providing evidence that Borrowers have obtained property coverage elsewhere.              Borrowers are responsible for the cost of any insurance purchased by Administrative Lender.  The cost of this insurance may be added to Borrowers' contract or loan balance.  If the cost is added to Borrowers' contract or loan balance, the interest rate on the underlying contract or loan will apply to this added amount.  The effective date of coverage may be the date Borrowers' prior coverage lapsed or the date Borrowers failed to provide proof of coverage.              The coverage Administrative Lender purchases may be considerably more expensive than insurance Borrowers can obtain on its own and may not satisfy any need for property damage coverage or any mandatory liability insurance requirements imposed by applicable law. 8.6        FACILITIES              Keep, and cause each Subsidiary to keep, all properties useful or necessary to its business in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that such property shall be fully and efficiently preserved and maintained, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. 8.7        TAXES AND OTHER LIABILITIES              Pay and discharge, and cause each Subsidiary to pay and discharge, when due any and all indebtedness, obligations, assessments and taxes, both real or personal, including without limitation Federal and state income taxes and state and local property taxes and assessments, except such as Borrower may in good faith contest or as to which a bona fide dispute may arise, and for which Borrowers have made provision for adequate reserves in accordance with GAAP, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. 8.8        LITIGATION              Promptly give notice in writing to Administrative Lender of any litigation pending or threatened in writing against any Borrower or Subsidiary with a claim in excess of $5,000,000 in the aggregate for Parent and all Subsidiaries. 8.9        NOTICE TO ADMINISTRATIVE LENDER              (a)         Promptly (but in no event more than two Business Days after a Responsible Officer has knowledge of the occurrence of each such event or matter) cause Borrowers' Agent to give notice to Administrative Lender in reasonable detail of:  (i) the occurrence of any Default; (ii) any termination or cancellation of any insurance policy which any Borrower or Subsidiary is required to maintain, unless such policy is replaced without any break in coverage with an equivalent or better policy; (iii) any uninsured or partially uninsured loss or losses through liability or property damage, or through fire, theft or any other cause affecting the property of any Borrower or Subsidiary in excess of an aggregate of $10,000,000 during any twelve month period; (iv) any change in the Organic Documents of any Borrower or Subsidiary; (v) the occurrence of any adverse development with respect to any litigation, action, proceeding, or labor controversy described in Section 6.7 or the commencement of any labor controversy, litigation, action, proceeding of the type described in Section 6.7 together with copies of all documentation relating thereto; or (vi) the occurrence of any event that could have a Material Adverse Effect.              (b)        As soon as possible and in any event within ten days after Borrower knows or has reason to know that any "reportable event" (as defined in Title IV of ERISA) that triggers an obligation to file a notice with the PBGC with respect to any Plan has occurred, cause Borrowers' Agent to deliver to Administrative Lender a statement of the President or principal financial officer of Parent setting forth details as to such reportable event and the action which Borrowers propose to take with respect thereto, together with a copy of the notice of such reportable event to the PBGC.              (c)         Promptly, upon receipt (but in no event more than ten Business Days after receipt) of a notice by Borrower, any affiliate of any Borrower or any administrator of any Plan that the PBGC has instituted proceedings to terminate a Plan or to appoint a trustee to administer a Plan, cause Borrowers' Agent to provide to Administrative Lender a copy of such notice. 8.10     CONDUCT OF BUSINESS              Except as otherwise permitted by this Agreement, (a) conduct, and cause each Subsidiary to conduct, its business in the ordinary course and (b) use, and cause each Subsidiary to use, its reasonable efforts in the ordinary course and consistent with past practice to (i) preserve its business and the goodwill and business of the customers, advertisers, suppliers and others with whom it has business relations and (ii) keep available the services and goodwill of its present employees.  Notwithstanding the foregoing, any Borrower may liquidate or merge with and into Parent. 8.11     PRESERVATION OF CORPORATE EXISTENCE, ETC.              Except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect, preserve and maintain, and cause each Subsidiary to preserve and maintain, all licenses, Permits, governmental approvals, rights, privileges, franchises and General Intangibles necessary for the conduct of its business, and its corporate existence and rights (charter and statutory). 8.12     ACCESS              (a)         At any reasonable time and from time to time upon at least two Business Days prior notice from Lender (unless a Default shall have occurred and be continuing, in which case no prior notice is necessary), permit Lender and/or any of Lender's agents or representatives, to (i) examine and make copies of and abstracts from each Borrower's and Subsidiary's records and books of account, (ii) visit each Borrower's and Subsidiary's properties, (iii) discuss each Borrower's and Subsidiary's affairs, finances and accounts with any of its officers or directors who may then be reasonably available, (iv) communicate directly with each Borrower's and Subsidiary's independent certified public accountants, (v) arrange for verification of Borrower's Rights to Payment under reasonable procedures directly with the obligors thereon or by other methods, and (vi) examine and inspect each Borrower's and Subsidiary's assets.  Each Borrower and Subsidiary shall authorize its independent certified public accountants to disclose to Lender any and all financial statements and other information of any kind, including, without limitation, copies of any management letter, work papers or the substance of any oral information that such accountants may have with respect to the business, financial condition, results of operations or other affairs of each Borrower and Subsidiary.              (b)        Borrower shall execute and deliver at the request of Administrative Lender such instruments as may be necessary for Administrative Lender or any Lender to obtain such information concerning the business of each Borrower and Subsidiary as Administrative Lender or any Lender may reasonably require from accountants, service bureaus or others having custody of or maintaining records or assets of any Borrower or Subsidiary, provided that the foregoing shall not (and is not intended to) require any Borrower or Subsidiary to take any action that would constitute a waiver of any Borrower's or Subsidiary's attorney/client privilege. 8.13     PERFORMANCE AND COMPLIANCE WITH OTHER COVENANTS              Perform and observe, and cause each Subsidiary to perform and observe, all the terms, covenants and conditions required to be performed and observed by it under its Contractual Obligations, and do all things necessary to preserve and to keep unimpaired its rights under such Contractual Obligations, other than such failures the consequences of which in the aggregate could not reasonably be expected to have a Material Adverse Effect. 8.14     FISCAL YEAR; ACCOUNTING PRACTICES              Notify Administrative Lender at least 30 days in advance of any action any Borrower or Subsidiary intends to take to change (i) its fiscal year or (ii) its method of accounting, or any accounting practice used by it, or the application of GAAP in a manner inconsistent with the financial statements previously delivered by it to Administrative Lender. 8.15     ENVIRONMENTAL              (a)         Promptly give notice to Administrative Lender upon a Responsible Officer obtaining knowledge of (i) any claim, injury, proceeding, investigation or other action, including a request for information or a notice of potential environmental liability, by or from any Governmental Authority or any third-party claimant that could result in any Borrower or Subsidiary incurring Environmental Liabilities and Costs that could reasonably be expected to have a Material Adverse Effect or (ii) the discovery of any Release at, on, under or from any real property, facility or equipment owned or leased by any Borrower or Subsidiary in excess of reportable or allowable standards or levels under any applicable Environmental Law, or in any manner or amount that could result in any Borrower or Subsidiary incurring Environmental Liabilities and Costs that could reasonably be expected to have a Material Adverse Effect.              (b)        Upon discovery of the presence on any property owned or leased by any Borrower or Subsidiary of any Contaminant that reasonably could be expected to result in Environmental Liabilities and Costs that could reasonably be expected to have a Material Adverse Effect, take all Remedial Action required by applicable Environmental Law. 8.16     LIENS              Keep the Collateral and all of its real property free and clear of all Liens, except Permitted Liens and the BT Liens (so long as the BT Liens do not secure any outstanding obligations), and use reasonable efforts to promptly cause the BT Liens to be terminated and removed of record. 8.17     FUTURE SUBSIDIARIES              Upon any Person becoming a Subsidiary after the Closing Date, notify Administrative Lender of such event, and execute and deliver, and cause such Subsidiary to execute and deliver, such additional Loan Documents as Administrative Lender may reasonably require, including such as are necessary to cause any such Subsidiary which is not a Foreign Subsidiary to become a "Borrower." 8.18     USE OF PROCEEDS              Use the proceeds of the Loans solely for Borrowers' general working capital and corporate purposes. 8.19     FURTHER ASSURANCES              At Administrative Lender's request at any time and from time to time, duly execute and deliver, and cause each Subsidiary to execute and deliver, such further agreements, documents and instruments, and do or cause to be done such further acts as may reasonably be necessary or proper to evidence, perfect, maintain and enforce the security interests and the priority thereof in the Collateral and to otherwise effectuate the provisions or purposes of the Loan Documents, at Borrowers' expense.  Administrative Lender may at any time and from time to time request a certificate from Borrowers' Agent representing that all conditions precedent to the advancement of credit contained herein are satisfied.  In the event of such request by Administrative Lender, each Lender may cease to make any further advancements of credit until Administrative Lender has received such certificate and Administrative Lender has determined that such conditions are satisfied. ARTICLE IX.  NEGATIVE COVENANTS              Borrowers covenant that so long as Lenders remain committed to extend credit to Borrowers pursuant to the terms hereof and until performance and payment in full, in cash, of all Obligations and termination of the Commitments, Borrowers will not: 9.1        LIENS              Create or suffer to exist, or permit any Subsidiary to create or suffer to exist, any Lien upon or with respect to any of its properties (including, without limitation any real property), whether now owned or hereafter acquired, or assign any right to receive income, except Permitted Liens and the  BT Liens (so long as the BT Liens do not secure any outstanding obligations). 9.2        INDEBTEDNESS              Create or suffer to exist, or permit any Subsidiary to create or suffer to exist, any Debt or other Indebtedness that is not Debt (except such other Indebtedness that does not, in the aggregate, exceed $1,000,000), except:              (a)         the Obligations;              (b)        current liabilities in respect of taxes, assessments and governmental charges or levies incurred, or liabilities for labor, materials, inventory, services, supplies and rentals incurred, or for goods or services purchased, in the ordinary course of business consistent with past practice and industry practice in respect of arm's length transactions;              (c)         Debt outstanding on the Closing Date and referenced on Section 6.17 of the Disclosure Letter and all renewals, extensions, refinancing or refunding of such Indebtedness in a principal amount which does not exceed the principal amount outstanding immediately before such refinancing, together with all prepayment fees, penalties and expenses in respect of the Indebtedness being renewed, extended, refinanced or refunded, provided each such renewal, extension, refinancing or refunding is on terms and conditions no less favorable to the creditors than the Indebtedness being renewed, extended, refinanced or refunded;              (d)        Debt subordinated in writing to the Obligations on terms acceptable to Administrative Lender in favor of the prior payment in full in cash of the Obligations;              (e)         purchase money Debt (including Capitalized Leases and Other Leases) to finance the purchase of fixed assets (including equipment); provided that (i) the total of all such Indebtedness (exclusive of such Indebtedness for the purchase of chassis and the Indebtedness referred to in clause (c) above) shall not exceed an aggregate principal amount of $5,000,000 at any one time outstanding; (ii) such Indebtedness when incurred shall not exceed the purchase price of the assets financed; (iii) no such Indebtedness shall be refinanced for a principal amount in excess of the principal balance outstanding thereon at the time of such refinancing; and (iv) no Default exists at the time such Indebtedness is incurred;              (f)         Indebtedness under Interest Rate Contracts permitted under Section 9.13;              (g)        Repurchase Obligations;              (h)        Debt of any Borrower to another Borrower to the extent such Debt is permitted under Section 9.5;              (i)          Indebtedness incurred in the ordinary course of business for the purchase of chassis;              (j)          other Indebtedness not to exceed 20% of Tangible Net Worth at any time, provided that no Default exists or is created by incurrence of such Indebtedness; and              (k)         Contingent Liabilities in connection with Approved Dealer Financing Agreements. 9.3        RESTRICTED PAYMENTS, REDEMPTIONS              Do any of the following at any time a Default is continuing or if after giving effect to any such action a Default would be caused by such action:              (a)         declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account or in respect of any of its Stock or Stock Equivalents except (i) dividends paid to Borrower or (ii) dividends paid by Parent solely in Stock or Stock Equivalents of Parent; or              (b)        purchase, redeem or otherwise acquire for value any of Parent's Stock or Stock Equivalents, except that (i) Parent may convert any of its convertible securities of the type in existence on the Closing Date into other securities pursuant to the terms of such convertible securities or otherwise in exchange therefor and (ii) for so long as a Default is not continuing and would not be caused by such action, Parent may repurchase stock from employees or former employees of Borrowers in accordance with the terms of repurchase agreements between Borrowers and their employees or former employees. 9.4        MERGERS, STOCK ISSUANCES, SALE OF ASSETS, ETC.              Except as permitted in Section 9.5(h) and (i):              (a)         Merge or consolidate with, or permit any Subsidiary to merge or consolidate with, any Person or acquire all or substantially all of the Stock or Stock Equivalents of any Person; provided any Borrower may liquidate or dissolve voluntarily into, and may merge with and into, or have its stock otherwise acquired by Parent and any Subsidiary other than a Borrower may liquidate or dissolve voluntarily into, and may merge with and into, or have its stock otherwise acquired by Parent or any other Subsidiary that is not a Foreign Subsidiary;              (b)        Acquire all or substantially all, or permit any Subsidiary to acquire all or substantially all of (i) the assets of any Person or (ii) the assets constituting the business of a division, branch or other unit operation of any Person; provided any Subsidiary may acquire all or substantially all of the assets of (or the assets constituting the business of a division, branch or other unit operation of) any other Subsidiary that is not a Foreign Subsidiary; or              (c)         Sell, convey, transfer, lease or otherwise dispose of, or permit any Subsidiary to sell, convey, transfer, lease or otherwise dispose of, any of its assets or any interest therein to any Person, or permit or suffer any other Person to acquire any interest in any of its assets, except (i) Permitted Liens, (ii) as otherwise permitted under item (a) or (b) above, or (iii) the sale or disposition of inventory in the ordinary course of business and/or assets which have become obsolete, unneeded or are replaced in the ordinary course of business. 9.5        INVESTMENTS              Make, incur, assume or suffer to exist any Investment in any other Person, except, without duplication:              (a)         Investments existing on the Closing Date and identified in Section 9.5 of the Disclosure Letter;              (b)        Cash Equivalent Investments (provided that any Investment which when made complies with the requirements of the definition of the term "Cash Equivalent Investment" may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements);              (c)         Investments permitted as Indebtedness pursuant to Section 9.2;              (d)        Investments consisting of employee relocation loans and other loans to employees, officers or directors for the purchase of equity securities of Parent;              (e)         in the ordinary course of business, Investments by Borrower or any Subsidiary in any Subsidiary that is not a Foreign Subsidiary (or, with the prior written consent of Administrative Lender (which consent will not be unreasonably withheld), any Subsidiary that is a Foreign Subsidiary), by way of contributions to capital or loans or advances, provided that immediately before and after giving effect thereto no Default is continuing;              (f)         Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers in settlement of obligations of, or disputes with, such Persons arising in the ordinary course of business;              (g)        Investments arising under Interest Rate Contracts permitted hereunder;              (h)        subject to the dollar limitations set forth below, any acquisition of (1) all or substantially all of the Stock or Stock Equivalents of any Person, (2) all or substantially all of the assets of any Person or (3) all or substantially all of the assets constituting the business of a division, branch or other unit operation of any Person; provided that immediately before and after giving effect thereto no Default is continuing and provided further, that (A) after combining Parent's consolidated actual and projected financial performance with the actual and projected financial performance of the "Entity" (as defined below) on a pro forma, consolidated basis in a manner acceptable to Administrative Lender, Administrative Lender is satisfied that no Default would have occurred or will occur as a result of such acquisition, (B) the Entity is located in and organized under the laws of Canada, a jurisdiction in Canada, the United States or a jurisdiction in the United States, (C) the Entity is not a Foreign Subsidiary or, if it is or would be a Foreign Subsidiary, not without first obtaining the written consent of Administrative Lender, which consent will not be unreasonably withheld and (D) such acquisition is a consensual acquisition and not a hostile take-over or other non-negotiated acquisition.  "Entity" means the entity which is the subject of such acquisition or which is the seller of assets in connection with such acquisition; and              (i)          subject to the dollar limitations set forth below, other Investments provided that immediately before and after giving effect thereto no Default is continuing. The aggregate purchase price paid in cash or property (other than common Stock and common Stock Equivalents of Parent) for all acquisitions and other Investments permitted under clauses (h) and (i) above shall not (after taking into account any losses incurred on Investments made under clause (i)) at any time exceed 10% of the book value of Parent's consolidated tangible assets. 9.6        CHANGE IN NATURE OF BUSINESS              Directly or indirectly engage, or permit any Subsidiary to directly or indirectly engage, in any business activity other than the type of business activities in which Borrowers are currently engaged and activities reasonably related thereto. 9.7        PLANS              (a)         Adopt or become obligated to contribute to, or permit any Subsidiary to adopt or become obligated to contribute to, any Plan subject to Title IV or any multi-employer Plan or any other Plan subject to Section 412 of the Internal Revenue Code (except for any such Plan listed on the Disclosure Letter on the Closing Date), (b) establish or become obligated with respect to, or permit any Subsidiary to establish or become obligated to contribute to, any new welfare benefit Plan, or modify any existing welfare benefit Plan, which is reasonably likely to result in an increase of the present value of future liabilities for post-retirement life insurance and medical benefits, or (c) establish or become obligated to contribute to, or permit any Subsidiary to establish or become obligated to contribute to, any new unfunded pension Plan, or modify any existing unfunded pension Plan, which is reasonably likely to result in an increase in the present value of future unfunded liabilities under all such plans. 9.8        CANCELLATION OF INDEBTEDNESS OWED TO IT              Cancel, or permit any Subsidiary to cancel, any claim or Indebtedness owed to it except for legitimate business purposes in the reasonable judgment of Borrowers and in the ordinary course of business. 9.9        MARGIN REGULATIONS              Use, or permit any Subsidiary to use, the proceeds of any Loan to purchase or carry any margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System). 9.10     ENVIRONMENTAL              Permit any lessee or any other Person to dispose of any Contaminant by placing it in or on the ground or waters of any property owned or leased by any Borrower or Subsidiary, except in material compliance with Environmental Law or the terms of any Permit or other than those that in the aggregate could not reasonably be expected to have a Material Adverse Effect. 9.11     TRANSACTIONS WITH AFFILIATES              Enter, or permit any Subsidiary to enter, into any transaction directly or indirectly with or for any affiliate of Borrower (other than another Borrower or any Subsidiary that is not a Foreign Subsidiary) except (a) in the ordinary course of business on a basis no less favorable to such affiliate than would be obtained in a comparable arm's length transaction with a Person not an affiliate of Borrower or (b) any transaction involving assets that are not material to the business and operations of Borrowers or the Subsidiaries. 9.12     NEW COLLATERAL LOCATION; NAME CHANGE              Open any new location or change its name, or permit any Subsidiary to do so, unless (a) Borrowers' Agent gives Administrative Lender (i) 30 days prior notice of the intended name change, (ii) 30 days prior notice of the intended opening of such new location, and (b) Borrowers execute and Borrowers' Agent delivers to Administrative Lender such agreements, documents and instruments as Administrative Lender deems reasonably necessary or desirable to protect its interests in the Collateral, including, without limitation, UCC-1 financing statements. 9.13     NO SPECULATIVE TRANSACTIONS              Engage in, or permit any Subsidiary to engage in, any Commodity Contract or Interest Rate Contract, except for hedging purposes with respect to transactions engaged in by Borrowers in the ordinary course of business and not for speculative purposes. ARTICLE X.    FINANCIAL COVENANTS 10.1     LEVERAGE RATIO              As of the end of each fiscal quarter, Parent shall maintain a Leverage Ratio not greater than 1.5:1. 10.2     CURRENT RATIO              As of the end of each fiscal quarter, Parent shall maintain a Current Ratio not less than 1.1:1. 10.3     FIXED CHARGE COVERAGE RATIO              As of the end of each fiscal quarter, Parent shall maintain a Fixed Charge Coverage Ratio not less than 1.5:1. 10.4     TANGIBLE NET WORTH              Parent will not permit its Tangible Net Worth as of the end of any fiscal quarter to be less than the total of (i) 90% of Tangible Net Worth as of December 30, 2000 plus (ii) 50% of the sum of Parent's consolidated net income for each fiscal quarter since December 30, 2000 (exclusive of any fiscal quarter in which Parent's consolidated net income is less than zero). ARTICLE XI.  EVENTS OF DEFAULT 11.1     EVENTS OF DEFAULT              The occurrence of any of the following shall constitute an "Event of Default" under this Agreement:              (a)         any Obligor shall fail to pay when due any principal amount payable under the Loan Documents, shall fail to pay any interest payable under the Loan Documents within 10 days of the due date therefor, or shall fail to pay any other amount payable under the Loan Documents within 3 days of the due date therefor;              (b)        any financial statement or certificate furnished to Administrative Lender or any Lender in connection with, or any representation or warranty made by any Obligor under any of the Loan Documents shall prove to be false or misleading in any material respect when furnished or made;              (c)         Borrowers or Borrowers' Agent shall fail to provide any certificate, report or other information which it is required to provide pursuant to Section 8.3 or Section 8.9 on the date specified in Section 8.3 or Section 8.9; provided that unless Borrowers and Borrowers' Agent have previously failed to provide any required certificate, report or other information by the required date on two prior occasions within the preceding 12 months such failure shall be considered an Event of Default only if Borrowers and Borrowers' Agent fail to provide such certificate, report or other information within five Business Days (two Business Days with respect to Section 8.9(a)) of the earlier of (i) the date an officer of Borrower has knowledge of the failure to so provide such certificate, report or other information, or (ii) the date Administrative Lender, at the request of a Lender, notifies Borrowers' Agent of such failure;              (d)        any default by Borrowers in the performance of or compliance with any obligation, agreement or other provision contained in Sections 5.2(a), 8.5, 8.10, 8.11, 8.12, 8.14, 8.16, 8.17, 9.1, 9.2, 9.3, 9.4, 9.5, 9.6 and 9.12 and contained in Article X;              (e)         any default by any Obligor in the performance of or compliance with any obligation, agreement or other provision contained in any Loan Document (other than those referred to in subsections (a) through (d) above) for 30 days after notice thereof has been given to Borrowers' Agent by Administrative Lender;              (f)         any breach(es) by any Obligor in the payment or performance of any other obligation(s) under the terms of any contract(s) or instrument(s) (other than any of the Loan Documents) evidencing Indebtedness in excess of $5,000,000 in the aggregate if such breach(es) has/have not been cured to the satisfaction of the affected creditor(s) or waived by such creditor(s) within any applicable cure period provided under the contract(s) or instrument(s);              (g)        any judgment(s) or order(s) for the payment of money in excess of $5,000,000 in the aggregate shall be rendered against one or more Obligors and Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon any such judgment or order; or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of any such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect;              (h)        any Obligor becomes insolvent, or suffers or consents to or applies for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or is generally unable to or fails to pay its debts as they become due, or makes a general assignment for the benefit of creditors; any Obligor files a voluntary petition in bankruptcy, or seeks to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Code or under any state or other Federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or Federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against any Obligor and is not dismissed, stayed or vacated within 60 days thereafter or any Obligor files an answer admitting the jurisdiction of the court and the material allegations of any such involuntary petition; any Obligor is adjudicated a bankrupt, or an order for relief is entered by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or Federal law relating to bankruptcy, reorganization or other relief for debtors; or any Obligor takes any corporate, partnership or company action authorizing, or in furtherance of, any of the foregoing;              (i)          if any of the following events occur:  (1) any Plan incurs any "accumulated funding deficiency" (as defined in ERISA) whether waived or not, (2) Parent or any affiliate of Parent engages in any "prohibited transaction" (as defined in ERISA), (3) any Plan is terminated, (4) a trustee is appointed by an appropriate United States district court to administer any Plan, or (5) the PBGC institutes proceedings to terminate any Plan or to appoint a trustee to administer any Plan;              (j)          the dissolution or liquidation of any Obligor, or any Obligor or its directors or stockholders shall take action seeking to effect the dissolution or liquidation of any Obligor;              (k)         any Change in Control; or              (l)          any Loan Document, or any Lien granted thereunder, shall (except in accordance with its terms), in whole or in part, terminate, cease to be effective or cease to be the legally valid, binding and enforceable obligation of any Obligor party thereto; any Obligor shall, directly or indirectly, contest in any manner such effectiveness, validity, binding nature or enforceability; or any Lien securing any Obligation shall, in whole or in part, cease to be a perfected first priority Lien, subject only to those exceptions expressly permitted by such Loan Document. 11.2     REMEDIES              (a)         During the continuance of any Event of Default (other than an Event of Default referred to in Section 11.1(h)), Administrative Lender may, with the consent of the Required Lenders, or shall, upon instructions from the Required Lenders, by notice to Borrowers' Agent, (i) terminate the obligations of Lenders to extend any further credit under any of the Loan Documents, and (ii) declare all or any part of the Obligations to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by Borrowers, and/or take such enforcement action as is permitted under this Section.  Upon the occurrence or existence of any Event of Default described in Section 11.1(h), immediately and without notice, (A) the obligations, if any, of Lenders to extend any further credit under any of the Loan Documents shall automatically cease and terminate, and (B) all indebtedness of Borrowers under the Loan Documents shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by Borrowers.  Immediately after taking any action under this Section, Administrative Lender shall notify each Lender of such action.              (b)        During the continuance of an Event of Default, Administrative Lender, in addition to any other rights and remedies contained in the Loan Documents, shall have all of the rights and remedies of a secured party under the Code and all other applicable law, all of which rights and remedies shall be cumulative and nonexclusive to the extent permitted by law.  Administrative Lender may cause the Collateral to remain on Borrower's premises, at Borrowers' expense, pending sale or other disposition thereof.  Administrative Lender shall have the right to conduct such sales on Borrower's premises or elsewhere, at Borrowers' expense, on such occasion(s) as Administrative Lender may see fit, and Borrowers, at Administrative Lender's request, will, at Borrowers' expense, assemble the Collateral and make it available to Administrative Lender at such place(s) as Administrative Lender may reasonably designate from time to time.  Any sale, lease or other disposition by Administrative Lender of the Collateral, or any part thereof, may be for cash or other value.  Borrowers shall execute and deliver, or cause to be executed and delivered, such instruments, documents, assignments, deeds, waivers, certificates and affidavits and take such further action as Administrative Lender shall reasonably require in connection with such sale, and Borrower hereby constitutes Administrative Lender as its attorney-in-fact to execute any such instrument, document, assignment, deed, waiver, certificate or affidavit on behalf of Borrower and in its name.  At any sale of the Collateral, the Collateral to be sold may be sold in one lot as an entirety or in separate lots as Administrative Lender may determine.  Administrative Lender shall not be obligated to make any sale of any Collateral if it determines not to do so, regardless of the fact that notice of sale was given.  Administrative Lender may, without notice or publication, adjourn any public or private sale or cause the sale 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 it is so adjourned.  In case any sale of Collateral is made on credit or for future delivery, the Collateral so sold may be retained by Administrative Lender until the sale price is paid, but Administrative Lender shall not incur any liability if any purchaser fails to pay for any Collateral so sold and, in case of any such failure, such Collateral may be sold again.  At any public sale, any Lender (i) may bid for or purchase the Collateral offered for sale free (to the extent permitted by law) from any rights of redemption, stay or appraisal on the part of Borrower with respect to the Collateral, (ii) make payment on account thereof by using any claim then due and payable to such Lender from Borrower as a credit against the purchase price, and (iii) upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to Borrower therefor.  Borrowers acknowledge that portions of the Collateral may be difficult to preserve and dispose of and may be subject to complex maintenance and management; accordingly, Administrative Lender shall have the widest possible latitude in the exercise of its rights and remedies hereunder.              (c)         Administrative Lender is hereby granted a license and right to use, without charge upon the occurrence and during the continuance of an Event of Default and until the Obligations are fully and finally paid in cash and the Commitments terminated, Borrowers' labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, advertising material, General Intangibles and any other property of a similar nature in completing the production, advertising for sale and sale of any Collateral.              (d)        Any notice required to be given by Administrative Lender with respect to any of the Collateral, which notice is given pursuant to Section 13.1 and deemed received pursuant to Section 13.1 at least five Business Days before a sale, lease, disposition or other intended action by Administrative Lender with respect to any of the Collateral, shall constitute fair and reasonable notice to Borrowers of any such action.  A public sale in the following fashion shall be conclusively presumed to be reasonable:  (i) the sale is held in a county where any part of the Collateral is located or in which Borrower has a place of business; (ii) the sale is conducted by auction, but it need not be by a professional auctioneer; (iii) any Collateral is sold as is and without any preparation for sale; and (iv) Borrowers' Agent is given notice of such public sale pursuant to the preceding sentence.              (e)         Upon the occurrence and during the continuance of an Event of Default, Administrative Lender shall have, with respect to Rights to Payment, all rights and powers to:  (i) direct any and all account debtors to make all payments in respect of the Rights to Payment directly to Administrative Lender or otherwise demand payment of any or all of the Rights to Payment; (ii) enforce payment of any or all of the Rights to Payment by legal proceedings or otherwise; (iii) exercise Borrower's rights and remedies with respect to any actions or proceedings brought to collect a Right to Payment; (iv) sell or assign any Right to Payment upon such terms, for such amount and at such time or times as Administrative Lender deems advisable; (v) settle, adjust, compromise, extend or renew a Right to Payment; (vi) discharge or release any Right to Payment; and (vii) prepare, file and sign Borrower's name on any proof of claim in bankruptcy or any similar document against an account debtor, and to otherwise exercise the rights granted herein.              (f)         Administrative Lender shall have no obligation (i) to preserve any rights to the Collateral against any Person, (ii) to make any demand upon or pursue or exhaust any rights or remedies against Borrowers or others with respect to payment of the Obligations, (iii) to pursue or exhaust any rights or remedies with respect to any of the Collateral or any other security for the Obligations, or (iv) to marshal any assets in favor of Borrower or any other Person against or in payment of any or all of the Obligations.              (g)        Borrowers recognize that federal and/or state securities and other laws may limit the flexibility desired to achieve an otherwise commercially reasonable disposition of Collateral, and in the event of potential conflict between such laws and what in other circumstances might constitute commercial reasonableness, it is intended that consideration of such laws will prevail over attempts to achieve such commercial reasonableness.  In connection with any sale or other disposition of Collateral, compliance by Administrative Lender with the written advice of its counsel concerning the potential effect of any such law will not be cause for Borrower, or any other Person, to claim that such sale or other disposition was not commercially reasonable.              (h)        Borrowers shall pay to Administrative Lender (for distribution to Lenders, as appropriate), on demand and as part of the Obligations, all costs and expenses, including court costs and costs of sale, incurred by Administrative Lender or any Lender in exercising any of its rights or remedies hereunder, and all costs and expenses incurred in connection with any review of any part of the Collateral. 11.3     ADMINISTRATIVE LENDER AS BORROWERS' ATTORNEY              Borrower hereby appoints Administrative Lender or any other Person whom Administrative Lender may designate, as Borrower's attorney, with power during the continuation of an Event of Default:  to indorse Borrower's name on any checks, notes, acceptances, money orders, drafts or other forms of payment or security that may come into Administrative Lender's possession; to sign Borrower's name on any invoice or bill of lading relating to any Right to Payment, on drafts against customers, on schedules and assignments of Rights to Payment, on notices of assignment, financing statements and other public records, and on notices to customers; to notify the post office authorities to change the address for delivery of Borrower's mail to an address designated by Administrative Lender; to receive, open and process all mail addressed to Borrower; to ask for, demand, sue for, collect, receive, receipt and give aquittance for any and all moneys due or to become due with respect to any Collateral; to settle, compromise, prosecute or defend any action, claim or proceeding with respect to Collateral; to sell, assign, pledge, transfer and make any agreement with respect to or otherwise deal with the Collateral; and to do all things necessary to perfect Administrative Lender's security interest in the Collateral, to preserve and protect the Collateral and to otherwise carry out this Agreement; provided, however, that nothing contained in this Section will be construed as requiring or obligating Administrative Lender to take any action.  Provided Administrative Lender acts in a reasonable manner, Borrower ratifies and approves all acts of such attorney, and neither Administrative Lender nor the attorney will be liable for any acts or omissions nor for any error of judgment or mistake of fact or law.  This power being coupled with an interest is irrevocable until the Obligations have been fully satisfied and indefeasibly paid in cash and the Commitments terminated. ARTICLE XII.  ADMINISTRATIVE LENDER 12.1     ACTIONS              Each Lender hereby appoints U.S. Bank as Administrative Lender and authorizes U.S. Bank to perform the functions of Administrative Lender under the Loan Documents.  Each Lender authorizes Administrative Lender to act on behalf of such Lender under the Loan Documents and, in the absence of other written instructions from the Required Lenders received from time to time by Administrative Lender (with respect to which Administrative Lender agrees that it will comply, except as otherwise provided in this Section or as otherwise advised by counsel), to exercise such powers thereunder as are specifically delegated to or required of Administrative Lender by the terms thereof, together with such powers as may be reasonably incidental thereto.  Each Lender hereby indemnifies (which indemnity shall survive any termination of this Agreement) Administrative Lender ratably from and against any and all liabilities, obligations, losses, damages, claims, costs or expenses of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against Administrative Lender in any way relating to or arising out of the Loan Documents, including reasonable attorneys' fees (whether incurred at the trial or appellate level, in an arbitration or administrative proceeding, in bankruptcy, (including, without limitation, any adversary proceeding, contested matter or motion) or otherwise), and as to which Administrative Lender is not reimbursed by Borrowers; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, claims, costs or expenses which are determined by a court of competent jurisdiction in a final proceeding to have resulted solely from Administrative Lender's gross negligence or willful misconduct.  Administrative Lender shall not be required to take any action under any Loan Document, or to prosecute or defend any suit in respect of any Loan Document, unless it is indemnified hereunder to its satisfaction.  If any indemnity in favor of Administrative Lender shall be or become, in Administrative Lender's determination, inadequate, Administrative Lender may call for additional indemnification from Lenders and cease to do the acts indemnified against hereunder until such additional indemnity is given. 12.2     RELIANCE BY ADMINISTRATIVE LENDER              Administrative Lender shall be entitled to rely upon any certificate, notice or other document (including any cable, telegram, fax, or telex) or telephonic notice believed by it in Good Faith to be genuine and correct and to have been signed, sent or made by or on behalf of the proper person or persons, and upon advice and statements of legal counsel (including Borrower's counsel), independent accountants and other experts selected by Administrative Lender with reasonable care.  As to any matters not expressly provided for by this Agreement, Administrative Lender shall not be required to take any action or exercise any discretion, but shall be required to act or to refrain from acting upon instructions of the Required Lenders and shall in all cases be fully protected by Lenders in acting, or in refraining from acting, under any Loan Document in accordance with the instructions of the Required Lenders, and such instructions of the Required Lenders and any action taken or failure to act pursuant thereto shall be binding on all Lenders. 12.3     EXCULPATION              Neither Administrative Lender nor any of its directors, officers, employees or agents shall be liable to any Lender for any action taken or omitted to be taken by it under any Loan Document, or in connection herewith or therewith, except for its own willful misconduct or gross negligence, nor responsible for any recitals or warranties therein, nor for the effectiveness, enforceability, validity or due execution of any Loan Document, nor for the creation, perfection or priority of any Liens purported to be created by any Loan Document, or the validity, genuineness, enforceability, existence, value or sufficiency of any collateral security, nor to make any inquiry respecting the performance by Obligors of their obligations under any Loan Document.  Any such inquiry which may be made by Administrative Lender shall not obligate it to make any further inquiry or to take any action.  Administrative Lender shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement or writing which Administrative Lender believes to be genuine and to have been presented by a proper Person. 12.4     SUCCESSOR              Administrative Lender may resign as such at any time upon at least 30 days prior notice to Borrowers' Agent and all Lenders.  If Administrative Lender at any time shall resign, the Required Lenders may appoint another Lender as a successor Administrative Lender which shall thereupon become Administrative Lender hereunder.  If no successor Administrative Lender shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Lender's giving notice of resignation, then the retiring Administrative Lender may, on behalf of Lenders, appoint a successor Administrative Lender, which shall be one of the Lenders or a commercial banking institution organized under the laws of the United States (or any State thereof) or a U.S. branch or agency of a commercial banking institution, and having a combined capital and surplus of at least $500,000,000.  Upon the acceptance of any appointment as Administrative Lender hereunder by a successor Administrative Lender, such successor Administrative Lender shall give Borrowers' Agent notice of such acceptance, shall be entitled to receive from the retiring Administrative Lender such documents of transfer and assignment as such successor Administrative Lender may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Administrative Lender, and the retiring Administrative Lender shall be discharged from its duties and obligations under the Loan Documents.  After any retiring Administrative Lender's resignation hereunder as Administrative Lender, the provisions of (a) this Article XII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Lender under this Agreement; and (b) Section 13.2 and Section 13.3 shall continue to inure to its benefit. 12.5     LOANS BY U.S. BANK              U.S. Bank shall have the same rights and powers with respect to the Loans made by it or any of its affiliates as any other Lender and may exercise such rights and powers as if it were not Administrative Lender.  U.S. Bank and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with any Borrower or Subsidiary or affiliate of Borrower as if U.S. Bank were not the Administrative Lender. 12.6     CREDIT DECISIONS              Each Lender acknowledges that it has made its own credit decision to extend its commitments hereunder independently of Administrative Lender and each other Lender, and based on such Lender's review of the financial information of Borrowers, this Agreement, the other Loan Documents (the terms and provisions of which being satisfactory to such Lender) and such other documents, information and investigations as such Lender has deemed appropriate.  Each Lender also acknowledges that it will continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under the Loan Document independently of Administrative Lender and each other Lender and based on such other documents, information and investigations as it shall deem appropriate at any time. ARTICLE XIII.  MISCELLANEOUS 13.1     NOTICES              Except as specified otherwise herein, all notices, requests and demands which any party is required or may desire to give to any other party under this Agreement must be in writing.  Each notice to be given to Administrative Lender or any Lender shall be addressed to Administrative Lender and each Lender at its address or fax number set forth as the "Address for Notices" for Administrative Lender or such Lender in Schedule I hereto, or to such other address or fax number as Administrative Lender or any Lender may designate for itself by notice to all other parties.  Each notice to be given to Borrowers' Agent or Borrower shall be addressed to Borrowers' Agent at the following address or fax number: To Borrowers' Agent: Monaco Coach Corporation   91320 Industrial Way   Coburg, Oregon  97408   Attn:  Chief Financial Officer   Fax:  (541) 302-3835 or to such other address or fax number as Borrowers' Agent may designate for itself by notice to all other parties.  Each such notice, request and demand shall be deemed given or made as follows:  (a) three Business Days following deposit in the United States mails, with first class postage prepaid, (b) the next Business Day after such notice was delivered to a regularly scheduled overnight delivery, or (c) upon receipt of notice given by fax, mailgram, telegram, telex, or personal delivery. 13.2     COSTS, EXPENSES, ATTORNEYS' FEES              Borrowers shall pay immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (whether incurred at the trial or appellate level, in an arbitration or administrative proceeding, in bankruptcy (including, without limitation, any adversary proceeding, contested matter or motion) or otherwise), incurred by Administrative Lender and/or any Lender in connection with (a) the negotiation and preparation of the Loan Documents, (b) the enforcement, preservation or protection (or attempted enforcement, preservation or protection) of Administrative Lender's and/or any Lender's rights (except in a dispute solely between Lenders), including, without limitation, periodic collateral examinations, and/or the collection of any amounts which become due under any of the Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation, any action for declaratory relief, and including any of the foregoing incurred in connection with any bankruptcy proceeding relating to Borrower. 13.3     INDEMNIFICATION              (a)         To the fullest extent permitted by law, Borrowers hereby agree to protect, indemnify, defend and hold harmless each of Administrative Lender and Lenders and each of their respective officers, directors, shareholders, employees, agents, attorneys and affiliates (collectively, "Indemnitees") from and against any liabilities, losses, damages or expenses of any kind or nature and from any suits, claims or demands (including in respect of or for reasonable attorneys' fees (whether incurred at the trial or appellate level, in an arbitration or administrative proceeding, in bankruptcy (including, without limitation, any adversary proceeding, contested matter or motion) or otherwise) and other expenses, including the allocated costs and expenses of internal counsel) arising on account of or in connection with any matter or thing or action or failure to act by Indemnitees, or any of them, arising out of or relating to any Loan Document, including without limitation any use by Borrower of any proceeds of credit advanced, except to the extent such liability arises from the willful misconduct or gross negligence of the Indemnitees (collectively, the "Indemnified Liabilities").              (b)        Upon receiving knowledge of any suit, claim or demand asserted by a third party that Administrative Lender and/or any Lender believes is covered by this indemnity, such Indemnitee shall give Borrowers' Agent notice of the matter and an opportunity to defend it, at Borrowers' sole cost and expense, with legal counsel satisfactory to such Lender.  Such Lender may also require Borrowers to defend the matter.  Any failure or delay of such Lender to notify Borrowers' Agent of any such suit, claim or demand shall not relieve Borrowers of their obligations under this Section, but shall reduce such obligations to the extent of any increase in those obligations caused solely by an unreasonable failure or delay in providing such notice.  Borrowers may not settle or otherwise compromise any claim with respect to any Indemnified Liability unless the settlement includes an unconditional release of the Indemnitee from all liability on claims that are the subject of such settlement and may not settle or otherwise compromise any claim with respect to any Indemnified Liability, other than a claim for money damages, without the prior written consent of the Indemnitee, which consent shall not be unreasonably withheld.              (c)         If and to the extent that the foregoing undertaking may be unenforceable for any reason Borrowers shall make the maximum contribution permissible under applicable law to the payment and satisfaction of each of the Indemnified Liabilities.              (d)        This Section shall survive the payment in full and performance of all of Borrowers' other Obligations. 13.4     WAIVERS, AMENDMENTS              Any term, covenant, agreement or condition of any Loan Document may be amended or waived if such amendment or waiver is in writing and is signed by the Required Lenders (or by Administrative Lender with written consent of the Required Lenders), Borrowers' Agent and any other party thereto; provided, however, that any amendment, waiver or consent which affects the rights or duties of Administrative Lender, L/C Bank or Swingline Lender must be in writing and be signed also by the affected Administrative Lender, L/C Bank or Swingline Lender; and provided further, that any amendment, waiver or consent which effects any of the following changes must be in writing and signed by all Lenders (or by Administrative Lender with the written consent of all Lenders): (a) increases the maximum amount of credit available hereunder; (b) extends the maturity date of any Loan; (c) reduces the principal of, or interest (including default rate interest) on, any Loan or any fees or other amounts payable for the account of Lenders hereunder; (d) postpones or conditions any date fixed for any payment of the principal of, or interest on, any Loan or any fees or other amounts payable for the account of Lenders hereunder; (e) waives or amends this Section; (f) amends the definition of Required Lenders or any provision of this Agreement requiring approval of the Required Lenders or some other specified amount of Lenders; (g) increases or decreases the commitment or the Ratable Portion of any Lender (other than through an assignment under Section 13.5); (h) waives any of the conditions set forth in Article VII; (i) releases any material Collateral; or (j) amends any guaranty of the Obligations (or releases any guarantor of is obligations thereunder.  Unless otherwise specified in such waiver or consent, a waiver or consent given hereunder shall be effective only in the specific instance and for the specific purpose for which given. 13.5     SUCCESSORS AND ASSIGNS              (a)         Binding Effect.  The Loan Documents shall be binding upon and inure to the benefit of Borrowers, Administrative Lender, Lenders and their respective successors and permitted assigns, except that Borrower may not assign or transfer any of its rights or obligations under any Loan Document without the prior written consent of Administrative Lender and each Lender.  All references in this Agreement to any Person shall be deemed to include all successors and assigns of such Person.              (b)        Participations.  Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other financial institutions ("Participants") participating interests in any obligations owing to such Lender under the Loan Documents.  In the event of any such sale, (i) such Lender's obligations under the Loan Documents to the other parties to the Loan Documents shall remain unchanged, (ii) such Lender shall remain solely responsible for the performance thereof and (iii) Borrowers, Borrowers' Agent and Administrative Lender shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents.  Participants shall have no rights under the Loan Documents except as provided below.  No Lender shall sell any participating interest under which the Participant shall have any right to vote on any amendment, consent or waiver of this Agreement or any other Loan Document; provided, however, that any agreement under which any Lender sells a participating interest to a Participant may require the selling Lender to obtain the consent of such Participant in order for such Lender to agree or consent to any amendment of a type specified in items (a)-(i) of Section 13.4.  No agreement under which any Lender sells a participating interest to a Participant may permit the Participant to transfer, pledge, assign, sell participations in or otherwise encumber its participating interest.  If any amount outstanding under the Loan Documents is due and unpaid, each Participant shall have all the rights of a "Lender" under Section 13.6 in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents; provided, however, that such rights of setoff shall be subject to the obligation of such Participant to share with Lenders, and Lenders agree to share with such Participant, as provided in Section 3.8(b) hereof.  Borrowers also agree that any Lender that has transferred all or part of its interests in the Obligations to one or more Participants shall, notwithstanding any such transfer, be entitled to the full benefits accorded such Lender under Sections 3.9 and 3.11 hereof, as if such Lender had not made such transfer.  Without limiting the foregoing, no Participant shall be entitled to costs, expenses or attorneys' fees under Section 13.2 or Section 13.3.              (c)         Assignments.  Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time, sell and assign to any Lender, any affiliate of a Lender or any other bank or financial institution (individually, an "Assignee") all or any portion of its rights and obligations under the Loan Documents (such a sale and assignment to be referred to herein as an "Assignment") pursuant to an Assignment and Assumption Agreement in the form of Exhibit G attached hereto (an "Assignment Agreement") executed by each Assignee and such assignor Lender (an "Assignor") and delivered to Administrative Lender for its acceptance and recording in the Register (as defined below); provided, however, that:  (i) each Assignment shall be in a minimum amount of $5,000,000; (ii) if the Assignment is not an assignment of Assignor's entire commitment, Assignor maintains a minimum commitment of $5,000,000; and (iii) each Assignment which is not to a Lender or an affiliate thereof, shall be made only with the written consent of Administrative Lender (and, in the absence of a Default, Borrowers' Agent), which consent(s) shall not be unreasonably withheld.  Upon the execution, delivery, acceptance and recording of each Assignment Agreement, from and after the effective date set forth therein, (A) each Assignee shall be a Lender with a commitment as set forth in Section 1 of such Assignment Agreement and shall have the rights, duties and obligations of a Lender under the Loan Documents, and (B) the Assignor shall be a Lender with a commitment as set forth in Section 1 of such Assignment Agreement, or, if the commitment of the Assignor has been reduced to zero, the Assignor shall cease to be a Lender; provided, however, that each Assignor shall nevertheless be entitled to the indemnification rights contained in Section 13.3 hereof for any events, acts or omissions occurring before the effective date of its Assignment.  Each Assignment Agreement shall be deemed to amend Schedule I hereto to the extent necessary to reflect the addition of each Assignee and the resulting adjustment of commitments arising from the purchase by each Assignee of all or a portion of the rights and obligations of an Assignor under this Agreement and the other Loan Documents.              (d)        Register.  Administrative Lender shall maintain at Administrative Lender's Office a copy of each Assignment Agreement delivered to and accepted by Administrative Lender and a register ("Register") for the recordation of the names and addresses of Lenders and the commitment of each Lender from time to time.  The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and Borrowers, Administrative Lender and Lenders may treat each entity whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement.  The Register shall be available for inspection by Borrowers' Agent or any Lender at any reasonable time and from time to time upon reasonable prior notice.              (e)         Registration.  Upon its receipt of an Assignment Agreement executed by an Assignor and an Assignee (and, in the case of an Assignee that is not then a Lender or an affiliate of a Lender, by Borrowers' Agent and Administrative Lender) together with payment by such Assignee to Administrative Lender of a registration and processing fee of $3,500, Administrative Lender shall (i) promptly accept such Assignment Agreement and (ii) on the effective date of such Assignment record the information contained therein in the Register and give notice of such acceptance and recordation to Lenders and Borrowers' Agent.  Administrative Lender may, from time to time at its election, prepare and deliver to Lenders and Borrowers' Agent a revised Schedule I reflecting the names, addresses and respective commitments of all Lenders then parties hereto.              (f)         Federal Reserve Bank.  Notwithstanding the foregoing provisions of this Section, any Lender may at any time pledge or assign all or any portion of such Lender's rights under this Agreement and the other Loan Documents to a Federal Reserve Bank; provided, however, that no such pledge or assignment will release such Lender from such Lender's obligations hereunder or under any other Loan Document. 13.6     SETOFF              In addition to any rights and remedies of Lenders provided by law, each Lender shall have the right, with the prior consent of Administrative Lender (which consent will not be unreasonably withheld) but without prior notice to Borrower, any such notice being expressly waived by Borrower to the extent permitted by applicable law, during the continuance of an Event of Default to setoff and apply against any indebtedness, whether matured or unmatured, of Borrower to such Lender any amount owing from such Lender or any affiliate thereof to Borrower at any time during the continuation of an Event of Default.  This right of setoff may be exercised by such Lender against Borrower or against any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver or execution, judgment or attachment creditor of Borrower or against anyone else claiming through or against Borrower or such trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver, or execution, judgment or attachment creditor, notwithstanding the fact that such right of setoff shall not have been exercised by such Lender prior to the occurrence of an Event of Default.  Each Lender agrees promptly to notify Borrower after any such setoff and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such setoff and application. 13.7     NO WAIVER; CUMULATIVE REMEDIES              No failure on the part of Administrative Lender or any Lender to exercise, and no delay in exercising, any right, power, privilege or remedy under any Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power, privilege or remedy preclude any other or further exercise thereof or the exercise of any other right, power, privilege or remedy.  The rights and remedies under the Loan Documents are cumulative and not exclusive of any rights, powers, privileges and remedies that may otherwise be available to Administrative Lender or any Lender. 13.8     ENTIRE AGREEMENT              The Loan Documents constitute the entire agreement among Borrowers, Administrative Lender and Lenders with respect to the Loans and the Letters of Credit and supersede all prior negotiations, communications, discussions, correspondence and agreements concerning the subject matter hereof, except that the US Bank commitment letter addressed to Parent dated December 13, 2000 remains effective with respect to the term loan referenced therein and with respect to pricing changes to be made regarding the credit provided herein if the term loan contemplated by the commitment letter is made.  This Agreement cannot be changed orally or by the conduct of the parties and may be amended or modified only in writing signed by the party against him enforcement is sought. 13.9     NO THIRD PARTY BENEFICIARIES              This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party. 13.10   CONFIDENTIALITY              Lenders shall hold all non-public information (which has been identified as such by Borrowers' Agent) obtained pursuant to the requirements of this Agreement in accordance with their customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure to any of their examiners, affiliates, outside auditors, counsel and other professional advisors in connection with this Agreement or as reasonably required by any bona fide transferee, participant or assignee or as required or requested by any Governmental Authority or pursuant to legal process; provided, however, that (a) unless specifically prohibited by applicable law or court order, each Lender shall notify Borrowers' Agent of any request by any Governmental Authority (other than any such request in connection with an examination of the financial condition of such Lender by such Governmental Authority) for disclosure of any such non-public information prior to disclosure of such information, (b) prior to any such disclosure pursuant to this Section, each Lender shall require any such bona fide transferee, participant and assignee receiving a disclosure of non-public information to agree in writing (i) to be bound by this Section and (ii) to require such Person to require any other Person to whom such Person discloses such non-public information to be similarly bound by this Section, and (c) except as may be required by an order of a court of competent jurisdiction and to the extent set forth therein, no Lender shall be obligated or required to return any materials furnished by any Borrower or Subsidiary. 13.11   TIME              Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents. 13.12   SEVERABILITY OF PROVISIONS              If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement. 13.13   GOVERNING LAW              This Agreement shall be governed by and construed in accordance with the laws of the State of Oregon. 13.14   SUBMISSION TO JURISDICTION              EACH OF BORROWER, ADMINISTRATIVE LENDER AND LENDERS HEREBY:  (A) SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF OREGON AND THE FEDERAL COURTS OF THE UNITED STATES FOR THE DISTRICT OF OREGON FOR THE PURPOSE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS; (B) AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH COURTS; (C) IRREVOCABLY WAIVES (TO THE FULL EXTENT PERMITTED BY APPLICABLE LAW) ANY OBJECTION WHICH IT NOW OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY OF THE FOREGOING COURTS, AND ANY OBJECTION ON THE GROUND THAT ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM; AND (D) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PERMITTED BY LAW. 13.15   WAIVER OF JURY TRIAL              EACH OF BORROWER, ADMINISTRATIVE LENDER AND LENDERS, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, COUNTERCLAIM OR OTHER LITIGATION IN ANY WAY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS OR EVENTS REFERENCED HEREIN OR THEREIN OR CONTEMPLATED HEREBY OR THEREBY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR OTHERWISE.  THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND/OR ANY OTHER OF THE LOAN DOCUMENTS.  A COPY OF THIS SECTION MAY BE FILED WITH ANY COURT AS WRITTEN EVIDENCE OF THE WAIVER OF THE RIGHT TO TRIAL BY JURY AND THE CONSENT TO TRIAL BY COURT. 13.16   COUNTERPARTS              This Agreement 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.  Delivery of an executed signature page of this Agreement by fax shall be effective as delivery of a manually executed counterpart hereof. 13.17   OREGON STATUTORY NOTICE              UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY LENDER AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDER TO BE ENFORCEABLE.                IN WITNESS WHEREOF, this Amended and Restated Credit Agreement has been duly executed as of the date first written above.   MONACO COACH CORPORATION           By: --------------------------------------------------------------------------------     Title: --------------------------------------------------------------------------------                 ROYALE COACH BY MONACO, INC.           By: --------------------------------------------------------------------------------     Title: --------------------------------------------------------------------------------                        MCC ACQUISITION CORPORATION           By: --------------------------------------------------------------------------------     Title: --------------------------------------------------------------------------------                 U.S. BANK NATIONAL ASSOCIATION           By: --------------------------------------------------------------------------------     Title: --------------------------------------------------------------------------------           SCHEDULE I 1.  LENDERS: U.S. BANK NATIONAL ASSOCIATION       REVOLVING LOAN COMMITMENT: $50,000,000 (100%)   Applicable Lending Office:   U.S. Bank National Association Oregon Commercial Banking 800 Willamette Street, 3rd Floor PO Box 10553 Eugene, Oregon  97440 Attn:  Ken Carson Telephone:  (541) 465-4127 Fax:  (541) 342-6712       Address for Notices:   U.S. Bank National Association Oregon Commercial Banking 800 Willamette Street, 3rd Floor PO Box 10553 Eugene, Oregon  97440 Attn:  Ken Carson Telephone:  (541) 465-4127 Fax:  (541) 342-6712       Wiring Instructions:   SCHEDULE II Pricing Schedule   Level I -------------------------------------------------------------------------------- Level II -------------------------------------------------------------------------------- Level III -------------------------------------------------------------------------------- Level IV -------------------------------------------------------------------------------- LIBOR Margin 175 150 125 100 Fee Percentage 30 25 20 15              For purposes of this Pricing Schedule, the following terms have the following meanings:              "Level I" applies on any day if, on such day, the applicable Leverage Ratio is 1.25:1 or greater.              "Level II" applies on any day if, on such day, the applicable Leverage Ratio is equal to or greater than 1.0:1 and less than 1.25:1.              "Level III" applies on any day if, on such day, the applicable Leverage Ratio is equal to or greater than 0.75:1 and less than 1.0:1.              "Level IV" applies on any day if, on such day, the applicable Leverage Ratio is less than 0.75:1.              For purposes of this Pricing Schedule, the Leverage Ratio shall be calculated once every quarter based on the financial information most recently reported by Borrowers' Agent pursuant to Section 8.3 of the Agreement; provided, however, that the Leverage Ratio shall not be computed on the financial information most recently reported by Borrowers' Agent until the later of the first day of the month after receipt of such information or five Business Days after the receipt thereof, and if the most recent report required pursuant to Section 8.3 has not been delivered, or if Administrative Lender reasonably objects to the accuracy of such report within five Business Days after the receipt thereof, the next higher Level from the Level then in effect shall apply until such time as the delinquent report is delivered or Administrative Lender's objections are resolved to Administrative Lender's reasonable satisfaction. SCHEDULE III Existing Letters of Credit   L/C Number: SLCPPDX00806 Type: Irrevocable Standby Letter of Credit Beneficiary: Hartford Fire Insurance Company, Hartford CT Amount: $500,000.00 Expiry: 8/28/01 L/C Number: SLCPPDX00807 Type: Irrevocable Standby Letter of Credit Beneficiary: Connecticut Surety Insurance Agency, Inc., Hartford CT Amount: $149,975.00 Expiry: 8/28/01   EXHIBIT A TO CREDIT AGREEMENT Borrowing Base Certificate of Monaco Coach Corporation et al. As of: ___________________ Aggregate RV A/R balance           Ineligible RV A/R:               Over 60 days (  )             Excess concentration (  )             Cross-Ineligibles (  )             Affiliates (  )             International (  )             Other (  )   Eligible A/R     85% of Eligible A/R                 50% of Eligible Raw Materials     90% of Eligible Finished Goods     Chassis Accounts Payable (  )   Inventory Availability           Borrowing Base     Outstanding Revolving Loans   (  ) Outstanding Swing Loans   (  ) Outstanding Letters of Credit   (  ) Available Credit     CERTIFICATE                          The undersigned Chief Financial Officer of Monaco Coach Corporation hereby certifies to Administrative Lender that:  (i) the foregoing information is true, accurate and complete as of the close of business on ________, _____; (ii) the undersigned is familiar with Borrowers' businesses and financial affairs and has access to all of Borrowers' business records material to the compilation and determination of the information set forth above; and (iii) this Certificate is being delivered to Administrative Lender pursuant to the Credit Agreement among Borrowers, U.S. Bank, National Association as Administrative Lender, and the lenders named therein for the purpose of inducing Lenders to extend credit to Borrowers. DATED:  __________, ______.   By: --------------------------------------------------------------------------------           Chief Financial Officer     EXHIBIT B TO CREDIT AGREEMENT   FORM OF PROMISSORY NOTES   Revolving Loans Promissory Note $50,000,000 January 12, 2001                FOR VALUE RECEIVED, the undersigned, MONACO COACH CORPORATION, a Delaware corporation, ROYALE COACH BY MONACO, INC., an Indiana corporation, and MCC ACQUISITION CORPORATION, a Delaware corporation, (each individually referred to as "Borrower" and all collectively referred to as "Borrowers") hereby jointly and severally promise to pay to the order of U.S. BANK NATIONAL ASSOCIATION as Administrative Lender for the ratable benefit of the Lenders ("Administrative Lender") on the Maturity Date, or at such earlier time as is provided in that certain Credit Agreement among Borrowers, U.S. Bank National Association (as Administrative Lender) and the lenders named therein dated as of January 12, 2001, (as amended, modified or supplemented from time to time, the "Credit Agreement"), the principal sum of Fifty Million Dollars ($50,000,000), or such lesser amount as shall equal the aggregate outstanding principal balance of all Revolving Loans made by Lenders to Borrowers pursuant to the Credit Agreement.              This promissory note is one of the promissory notes referred to in, and subject to the terms of, the Credit Agreement.  Capitalized terms used herein shall have the respective meanings assigned to them in the Credit Agreement.              Borrower further promises to pay interest on the outstanding principal balance hereof at the interest rates, and payable on the dates, set forth in the Credit Agreement.  All payments of principal and interest hereunder shall be made to Administrative Lender in lawful money of the United States and in same day or immediately available funds.              Administrative Lender is authorized but not required to record the date and amount of each advance made hereunder, the date and amount of each payment of principal and interest hereunder, and the resulting unpaid principal balance hereof, in Administrative Lender's internal records, and any such recordation shall be prima facie evidence of the accuracy of the information so recorded; provided however, that Administrative Lender's failure to so record such amounts shall not limit or otherwise affect Borrower's obligations hereunder and under the Credit Agreement to repay the principal hereof and interest hereon.              Borrowers shall pay all costs of collection, including reasonable attorneys' fees (whether incurred at the trial or appellate level, in an arbitration or administrative proceeding, in bankruptcy (including, without limitation, any adversary proceeding, contested matter or motion) or otherwise).  No delay or failure on the part of Administrative Lender to exercise any of its rights hereunder shall be deemed a waiver of such rights or any other right of Administrative Lender nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of such rights or any other right on any future occasion.  Borrowers and every surety, indorser and guarantor of this Note waive presentment, demand, protest, notice of intention to accelerate, notice of acceleration, notice of nonpayment and all other notices of every kind, and agree that their liability under this Note shall not be affected by any renewal, postponement or extension in the time of payment hereof, by any indulgence granted by any holder hereof with respect hereto, or by any release or change in any security for the payment of this Note, and they hereby consent to any and all renewals, extensions, indulgences, releases or changes, regardless of the number of such renewals, extensions, indulgences, releases or changes.              The Credit Agreement provides, among other things, for acceleration (which in certain cases shall be automatic) of the maturity hereof upon the occurrence of certain stated events, in each case without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by Borrowers.              Borrowers' obligations evidenced by this promissory note are secured by the collateral described in the Loan Documents.  The Loan Documents describe the rights of Administrative Lender with respect to the collateral.              In the event of any conflict between the terms of this promissory note and the terms of the Credit Agreement, the terms of the Credit Agreement shall control.              This promissory note shall be governed by and construed in accordance with the laws of the State of Oregon.              UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY ANY LENDER OR ADMINISTRATIVE LENDER AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY SUCH LENDER OR ADMINISTRATIVE LENDER TO BE ENFORCEABLE.       MONACO COACH CORPORATION   By: --------------------------------------------------------------------------------   Title: --------------------------------------------------------------------------------     ROYALE COACH BY MONACO, INC. MCC ACQUISITION CORPORATION By: -------------------------------------------------------------------------------- By: -------------------------------------------------------------------------------- Title: -------------------------------------------------------------------------------- Title: --------------------------------------------------------------------------------   Swing Loans Promissory Note $50,000,000 January 12, 2001                FOR VALUE RECEIVED, MONACO COACH CORPORATION, a Delaware corporation, ROYALE COACH BY MONACO, INC., an Indiana corporation, and MCC ACQUISITION CORPORATION, a Delaware corporation, (each individually referred to as "Borrower" and all collectively referred to as "Borrowers") hereby jointly and severally promise to pay to the order of U.S. BANK NATIONAL ASSOCIATION ("Lender") on the Maturity Date, or at such earlier time as is provided in that certain Credit Agreement among Borrowers, U.S. Bank National Association (as Administrative Lender and as Swingline Lender) and the lenders named therein dated as of January 12, 2001, (as amended, modified or supplemented from time to time, the "Credit Agreement"), the principal sum of Fifty Million Dollars ($50,000,000), or such lesser amount as shall equal the aggregate outstanding principal balance of all Swing Loans made by Lender to Borrowers pursuant to the Credit Agreement.              This promissory note is one of the promissory notes referred to in, and subject to the terms of, the Credit Agreement.  Capitalized terms used herein shall have the respective meanings assigned to them in the Credit Agreement.              Borrower further promises to pay interest on the outstanding principal balance hereof at the interest rates, and payable on the dates, set forth in the Credit Agreement.  All payments of principal and interest hereunder shall be made to Administrative Lender in lawful money of the United States and in same day or immediately available funds.              Lender is authorized but not required to record the date and amount of each advance made hereunder, the date and amount of each payment of principal and interest hereunder, and the resulting unpaid principal balance hereof, in Lender's internal records, and any such recordation shall be prima facie evidence of the accuracy of the information so recorded; provided however, that Lender's failure to so record such amounts shall not limit or otherwise affect Borrower's obligations hereunder and under the Credit Agreement to repay the principal hereof and interest hereon.              Borrowers shall pay all costs of collection, including reasonable attorneys' fees (whether incurred at the trial or appellate level, in an arbitration or administrative proceeding, in bankruptcy (including, without limitation, any adversary proceeding, contested matter or motion) or otherwise).  No delay or failure on the part of Lender to exercise any of its rights hereunder shall be deemed a waiver of such rights or any other right of Lender nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of such rights or any other right on any future occasion.  Borrowers and every surety, indorser and guarantor of this Note waive presentment, demand, protest, notice of intention to accelerate, notice of acceleration, notice of nonpayment and all other notices of every kind, and agree that their liability under this Note shall not be affected by any renewal, postponement or extension in the time of payment hereof, by any indulgence granted by any holder hereof with respect hereto, or by any release or change in any security for the payment of this Note, and they hereby consent to any and all renewals, extensions, indulgences, releases or changes, regardless of the number of such renewals, extensions, indulgences, releases or changes.              The Credit Agreement provides, among other things, for acceleration (which in certain cases shall be automatic) of the maturity hereof upon the occurrence of certain stated events, in each case without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by Borrowers.              Borrowers' obligations evidenced by this promissory note are secured by the collateral described in the Loan Documents.  The Loan Documents describe the rights of Administrative Lender, Lender and any other holder hereof with respect to the collateral.              In the event of any conflict between the terms of this promissory note and the terms of the Credit Agreement, the terms of the Credit Agreement shall control.              This promissory note shall be governed by and construed in accordance with the laws of the State of Oregon.           UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY LENDER AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDER TO BE ENFORCEABLE.   MONACO COACH CORPORATION   By: --------------------------------------------------------------------------------   Title: --------------------------------------------------------------------------------     ROYALE COACH BY MONACO, INC. MCC ACQUISITION CORPORATION By: -------------------------------------------------------------------------------- By: -------------------------------------------------------------------------------- Title: -------------------------------------------------------------------------------- Title: --------------------------------------------------------------------------------   EXHIBIT C TO CREDIT AGREEMENT Notice of Authorized Representatives U.S. Bank National Association Oregon Commercial Banking 800 Willamette Street, 3rd Floor PO Box 10553 Eugene, Oregon  97440 Attn:  Ken Carson              Reference is made to that certain Credit Agreement among Monaco Coach Corporation, a Delaware corporation, Royale Coach By Monaco, Inc., an Indiana corporation, and MCC Acquisition Corporation, a Delaware corporation, (each individually referred to as a "Borrower" and all collectively referred to as "Borrowers"), U.S. Bank National Association (as Administrative Lender) and the lenders named therein dated as of January 12, 2001, (as amended, modified or supplemented from time to time, the "Credit Agreement").  Capitalized terms used herein shall have the respective meanings assigned to them in the Credit Agreement.              Borrowers' Agent hereby represents to Administrative Lender that the following persons are the Authorized Representatives, as defined in the Credit Agreement, and that the signatures opposite their names are their true signatures: Name and Office -------------------------------------------------------------------------------- Signature --------------------------------------------------------------------------------                                                                                                                                                                                                                                                                                                                                                                                                                                                            Administrative Lender is authorized to rely on this Notice of Authorized Representatives until such time, if any, as Borrowers' Agent has delivered to Administrative Lender, and Administrative Lender has received, a duly executed Notice of Authorized Representatives in substitution hereof.  This Notice of Authorized Representatives cancels and supersedes any Notice of Authorized Representatives at any time prior to the date hereof delivered by Borrowers' Agent to Administrative Lender.              IN WITNESS WHEREOF, Borrowers' Agent hereby confirms that it has caused this Notice of Authorized Representatives to be duly executed as of ______________.   MONACO COACH CORPORATION                 By: --------------------------------------------------------------------------------     Title: --------------------------------------------------------------------------------     EXHIBIT D TO CREDIT AGREEMENT Notice of Borrowing U.S. Bank National Association Oregon Commercial Banking 800 Willamette Street, 3rd Floor PO Box 10553 Eugene, Oregon  97440 Attn:  Ken Carson              Reference is made to that certain Credit Agreement among Monaco Coach Corporation, a Delaware corporation, Royale Coach By Monaco, Inc., an Indiana corporation, and MCC Acquisition Corporation, a Delaware corporation, (each individually referred to as a "Borrower" and all collectively referred to as "Borrowers"), U.S. Bank National Association (as Administrative Lender) and the lenders named therein dated as of January 12, 2001, (as amended, modified or supplemented from time to time, the "Credit Agreement").  Capitalized terms used herein shall have the respective meanings assigned to them in the Credit Agreement.              1.          Pursuant to Section 3.1 of the Credit Agreement, Borrowers' Agent, on behalf of Borrowers, hereby requests Revolving Loans upon the following terms:              (a)         The aggregate principal amount is to be $___________.              (b)        The date of borrowing is to be _________.              (c)         $________ of the Loans are to be Prime Rate Loans, and $________ of the Loans are to be LIBOR Loans with a Fixed Rate Term of _______________months.              2.          Borrowers' Agent, on behalf of Borrowers, hereby certifies to Administrative Lender and Lenders that, on the date of this Notice of Borrowing and after giving effect to the requested disbursement (including the use of the proceeds thereof):              (a)         Borrowers' representations and warranties in the Loan Documents are correct in all material respects as if made on the date hereof;              (b)        no Default is continuing or would result from the requested Loans being made; and              (c)         no event or circumstance exists that can reasonably be expected to have a Material Adverse Effect.              The party signing below on behalf of Borrowers' Agent is an Authorized Representative and has caused this Notice of Borrowing to be duly executed on behalf of Borrowers as of ______________.   MONACO COACH CORPORATION                 By: --------------------------------------------------------------------------------     Title: --------------------------------------------------------------------------------   EXHIBIT E TO CREDIT AGREEMENT Notice of Conversion or Continuation   U.S. Bank National Association Oregon Commercial Banking 800 Willamette Street, 3rd Floor PO Box 10553 Eugene, Oregon  97440 Attn:  Ken Carson              Reference is made to that certain Credit Agreement among Monaco Coach Corporation, a Delaware corporation, Royale Coach By Monaco, Inc., an Indiana corporation, and MCC Acquisition Corporation, a Delaware corporation, (each individually referred to as a "Borrower" and all collectively referred to as "Borrowers"), U.S. Bank National Association (as Administrative Lender) and the lenders named therein dated as of January 12, 2001, (as amended, modified or supplemented from time to time, the "Credit Agreement").  Capitalized terms used herein shall have the respective meanings assigned to them in the Credit Agreement.              1.          Pursuant to Section 3.5 of the Credit Agreement, Borrowers' Agent, on behalf of Borrowers, hereby requests [the continuation of all or part of outstanding LIBOR Loans with Fixed Rate Terms ending on ___________] [the conversion of all or part of its outstanding Prime Rate Loans], as follows:              (a)         The Loans to which this Notice applies are $_______ of Revolving Loans.              (b)        The effective date of continuation and/or conversion is to be ___________.              (c)         The aggregate amount of [said outstanding LIBOR Loans that are Revolving Loans to be continued as] [said outstanding Prime Rate Loans that are Revolving Loans to be converted to] LIBOR Loans, and each requested Fixed Rate Term, are: Amount -------------------------------------------------------------------------------- Fixed Rate Term -------------------------------------------------------------------------------- $                      months $                      months              (d)        The aggregate amount of said outstanding LIBOR Loans that are Revolving Loans to be continued as Prime Rate Loans is $___________.              2.          Borrowers' Agent, on behalf of Borrowers, hereby certifies to Administrative Lender and Lenders that, on the date of this Notice of Conversion or Continuation, no Default has occurred and is continuing.              The party signing below on behalf of Borrowers' Agent is an Authorized Representative and has caused this Notice of Conversion or Continuation to be duly executed on behalf of Borrowers as of _____________.   MONACO COACH CORPORATION                 By: --------------------------------------------------------------------------------     Title: --------------------------------------------------------------------------------     EXHIBIT F TO CREDIT AGREEMENT Certificate of Chief Financial Officer U.S. Bank National Association Oregon Commercial Banking 800 Willamette Street, 3rd Floor PO Box 10553 Eugene, Oregon  97440 Attn:  Ken Carson and each Lender              This certificate is furnished pursuant to Section 8.3 of that certain Credit Agreement among Monaco Coach Corporation, a Delaware corporation, Royale Coach By Monaco, Inc., an Indiana corporation, and MCC Acquisition Corporation, a Delaware corporation, (each individually referred to as a "Borrower" and all collectively referred to as "Borrowers"), U.S. Bank National Association (as Administrative Lender) and the lenders named therein dated as of January 12, 2001, (as amended, modified or supplemented from time to time, the "Credit Agreement").  Capitalized terms used herein shall have the respective meanings assigned to them in the Credit Agreement.              The undersigned hereby certifies that:              (1)         the financial statements of Borrowers attached hereto for the [quarter] [year] ending _________________, ____ were prepared in accordance with GAAP and fairly present in all material respects Borrowers' balance sheet as of the end of such [quarter] [year] and income and cash flow for such [quarter] [year] and year-to-date (subject to normal year end adjustments and without notes);              (2)         [no Default existed at any time during such [quarter] [year]] [no Default existed at any time during such [quarter] [year] except for the events described below and a detailed statement of the action which Borrowers [have taken] [propose to take] with respect to each such event is set forth the description of such event below]; and              (3)         the calculation demonstrating Borrowers' compliance with the covenants set forth in Article X is attached hereto.              Dated:__________, ____.   Name: --------------------------------------------------------------------------------     Chief Financial Officer   EXHIBIT G TO CREDIT AGREEMENT Assignment and Assumption Agreement              THIS ASSIGNMENT AND ASSUMPTION AGREEMENT ("Agreement") is entered into as of ____________, between ___________________ ______________________ ("Assignor") and ________________________ ("Assignee").              WHEREAS, Assignor is a Lender under that certain Credit Agreement among Monaco Coach Corporation, a Delaware corporation, Royale Coach By Monaco Corporation, an Indiana corporation, and MCC Acquisition Corporation, a Delaware corporation, (each individually referred to as "Borrower" and all collectively referred to as "Borrowers"), U.S. Bank National Association (as Administrative Lender) and the lenders named therein dated as of January 12, 2001, (as amended, modified or supplemented from time to time, the "Credit Agreement").  Capitalized terms used but not defined in this Agreement shall have the meanings set forth in the Credit Agreement.              WHEREAS, it is the intention of Assignor and Assignee that (a) Assignor assign to Assignee [all] [a portion] of Assignor's rights and obligations under the Credit Agreement, (b) Assignee assume all such assignment obligations of Assignor, and (c) Assignor be released from such assigned obligations.              NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree as follows:              1.          Assignment.  Effective on the Assignment Effective Date (as defined in Section 3 hereof), Assignor, without recourse and without representation or warranty (except as expressly provided in Section 6 hereof), hereby assigns to Assignee the Assigned Rights and Obligations (as defined below).              [The "Assigned Rights and Obligations" means all of Assignor's rights and obligations under the Credit Agreement on the Assignment Effective Date.]              [The "Assigned Rights and Obligations" means:  [a $__________ portion] [_________%] of Assignor's share of the Loans, Letter of Credit Obligations and Total Commitments on the Assignment Effective Date; and all of Assignor's other rights and obligations under the Credit Agreement that are attributable to such share.]              2.          Assumption.  Effective on the Assignment Effective Date, Assignee hereby accepts the foregoing assignment of, and hereby assumes from Assignor all of, the Assigned Rights and Obligations.              3.          Effectiveness.  This Agreement shall become effective on such date as shall be selected by Assignor (the "Assignment Effective Date"), which date shall be on or as soon as practicable after the execution and delivery of counterparts of this Agreement by Assignor, Assignee, Administrative Lender and Borrowers' Agent on behalf of Borrowers.  Assignor shall promptly notify Assignee, Administrative Lender and Borrowers' Agent in writing of the Assignment Effective Date.              4.          Payments on Assignment Effective Date.  In consideration of the assignment by Assignor to, and the assumption by Assignee of, the Assigned Rights and Obligations, on the Assignment Effective Date:  (a) Assignee shall pay to Assignor the principal amount of all Loans made by Assignor pursuant to the Credit Agreement that are attributable to the Assigned Rights and Obligations and outstanding on the Assignment Effective Date; (b) each of Assignor and Assignee shall pay to the other such amounts (if any) as are specified in any written agreement or exchange of letters between them; and (c) Assignee shall pay to Administrative Lender an assignment processing and recordation fee of $_________.              5.          Allocation and Payment of Interest and Fees.              (a)         Administrative Lender shall pay to Assignee all interest, commitment fees and other amounts not constituting principal that are paid by or on behalf of Borrowers pursuant to the Loan Documents and are attributable to the Assigned Rights and Obligations ("Borrower Amounts") which accrue on and after the Assignment Effective Date.  If Assignor receives or collects any such Borrower Amounts, Assignor shall promptly pay them to Assignee.              (b)        Administrative Lender shall pay to Assignor all Borrower Amounts that accrue before the Assignment Effective Date.  If Assignee receives or collects any such Borrower Amounts, Assignee shall promptly pay them to Assignor.              6.          Representations and Warranties.              (a)         Each of Assignor and Assignee represents and warrants to the other party as follows:              (i)          it has full power and authority, and has taken all action necessary, to execute and deliver this Agreement and to fulfill its obligations under, and to consummate the transactions contemplated by, this Agreement;              (ii)         the making and performance of this Agreement and all documents required to be executed and delivered by it pursuant hereto do not and will not violate any law or regulation applicable to it;              (iii)        this Agreement has been duly executed and delivered by, and constitutes a legal, valid and binding obligation of, it, enforceable in accordance with its terms; and              (iv)       all approvals, authorizations or other actions by, or filings with, any governmental authority necessary for the validity or enforceability of its obligations under this Agreement have been made or obtained.              (b)        Assignor represents and warrants to Assignee that Assignor owns the Assigned Rights and Obligations, free and clear of all liens or other encumbrances.              (c)         Assignee represents and warrants to Assignor as follows:              (i)          Assignee has made and shall continue to make its own independent investigation of the financial condition, affairs and creditworthiness of Borrowers, and the value of any Collateral now or hereafter securing any of the obligations, indebtedness, liabilities or undertakings under the Loan Documents, in connection with Assignee's assumption of the Assigned Rights and Obligations; and              (ii)         Assignee has received a copy of the Loan Documents and such other documents, financial statements and information as Assignee deems appropriate to make its own credit analysis and decision to enter into this Agreement.              7.          No Assignor Responsibility.  Assignor makes no representation or warranty and assumes no responsibility to Assignee for:              (a)         the execution by any party other than Assignor, or the effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of the Loan Documents;              (b)        any representations, warranties, recitals or statements made in the Loan Documents or in any financial statement or other statement, instrument, report, certificate or any other document made or furnished or made available by or on behalf of Borrowers to Assignor or Assignee in connection with the Loan Documents and the transactions contemplated thereby;              (c)         the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Loan Documents or the existence or possible existence of any default or event of default under the Loan Documents; or              (d)        the accuracy or completeness of any information provided to Assignee, whether by Assignor or by or on behalf of Borrowers. Assignor shall have no initial or continuing duty or responsibility to make any investigation of the financial condition, affairs or creditworthiness of Borrowers, or the value of any Collateral, in connection with the assignment of the Assigned Rights and Obligations hereunder, or to provide Assignee with any credit or other information with respect thereto, whether coming into Assignor's possession before the date hereof or at any time or times thereafter.              8.          Assignee Bound By Credit Agreement.  Effective on the Assignment Effective Date, Assignee:  (a) shall be deemed to be a party to and "Lender" under the Credit Agreement; (b) agrees to be bound by the Credit Agreement to the same extent as it would have been if it had been an original Lender party thereto; and (c) agrees to perform in accordance with their respective terms all obligations which are required under the Loan Documents to be performed by it as a Lender.  Assignee appoints and authorizes Administrative Lender to take such actions as Administrative Lender on Assignee's behalf and to exercise such powers under the Loan Documents as are delegated to Administrative Lender by the terms thereof, together with such powers as are reasonably incidental thereto.              9.          Assignor Released From Credit Agreement.  Effective on the Assignment Effective Date, Assignor shall be released from the Assigned Rights and Obligations; provided, however, that Assignor shall retain all of its rights to indemnification under the Loan Documents for any events, acts or omissions occurring before the Assignment Effective Date.              [10.       Foreign Withholding.              (a)         Assignee represents and warrants to Administrative Lender, Borrowers and Assignor that, under applicable law and treaties, Assignee is entitled to receive all payments under the Loan Documents and this Agreement payable to it, without deduction or withholding of any taxes imposed by the United States or any political subdivision thereof.              (b)        On or before the Assignment Effective Date, Assignee shall deliver to each of Borrowers' Agent and Administrative Lender two executed copies of valid and properly completed:  (i) United States Internal Revenue Service Form 1001 or 4224 certifying that Assignee is entitled to receive payments under the Credit Agreement and the Loan Documents payable to it, without deduction or withholding of any United States federal income taxes; or (ii) Internal Revenue Service Form W-8 or W-9 establishing an exemption from United States backup withholding tax.  If any such form is found to be incomplete or incorrect, or must be replaced (on the same or a successor form) in order to maintain its effectiveness, Assignee shall execute and deliver to each of Borrowers' Agent and Administrative Lender two executed copies of a valid, complete and correct replacement form.]              [11.]      General.              (a)         This Agreement constitutes the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior and current understandings and agreements, whether written or oral (other than with respect to any fees payable as provided in Section 4 hereof).              (b)        No term or provision of this Agreement may be amended, waived or terminated orally, but only by an instrument signed by the parties hereto.              (c)         This Agreement may be executed in one or more counterparts.  Each set of executed counterparts shall be an original.  Executed counterparts may be delivered by facsimile transmission.              (d)        Assignor may at any time and from time to time grant to others pursuant to the Loan Documents assignments of or participations in all or part of Assignor's share of the Loans, Letter of Credit Obligations and Total Commitments, but not with respect to the Assigned Rights and Obligations.              (e)         This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.  Neither Assignor nor Assignee may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the other.  The preceding sentence shall not limit the right of Assignee to grant to others assignments of or participations in all or part of the Assigned Rights and Obligations to the extent permitted by the terms of the Loan Documents.              (f)         All payments to Assignor or Assignee hereunder shall, unless otherwise specified by the party entitled thereto, be made in United States Dollars, in immediately available funds, and to the address or account specified on the signature pages of this Agreement.  The address of Assignee for notice purposes under the Credit Agreement shall be as specified on the signature pages of this Agreement.              (g)        If any provision of this Agreement is held invalid, illegal or unenforceable, the remaining provisions hereof will not be affected or impaired in any way.              (h)        Each party shall bear its own expenses in connection with the preparation and execution of this Agreement.              (i)          This Agreement shall be governed by and construed in accordance with the laws of the State of Oregon.              IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.   ASSIGNOR:         --------------------------------------------------------------------------------     By: --------------------------------------------------------------------------------     Name: --------------------------------------------------------------------------------     Title: --------------------------------------------------------------------------------           Assignor's Notice Instructions:         --------------------------------------------------------------------------------         --------------------------------------------------------------------------------        --------------------------------------------------------------------------------     Attn: --------------------------------------------------------------------------------     Ref: --------------------------------------------------------------------------------     Telephone: --------------------------------------------------------------------------------     Facsimile: --------------------------------------------------------------------------------           Assignor's Payment Instructions:         --------------------------------------------------------------------------------         --------------------------------------------------------------------------------         --------------------------------------------------------------------------------     ABA No. --------------------------------------------------------------------------------     Account No. --------------------------------------------------------------------------------     Attn: --------------------------------------------------------------------------------     Ref: --------------------------------------------------------------------------------           ASSIGNEE:         --------------------------------------------------------------------------------     By: --------------------------------------------------------------------------------     Name: --------------------------------------------------------------------------------     Title: --------------------------------------------------------------------------------           Assignee's Notice Instructions:         --------------------------------------------------------------------------------         --------------------------------------------------------------------------------         --------------------------------------------------------------------------------     Attn: --------------------------------------------------------------------------------     Ref: --------------------------------------------------------------------------------     Telephone: --------------------------------------------------------------------------------     Facsimile: --------------------------------------------------------------------------------           Assignee's Payment Instructions:         --------------------------------------------------------------------------------         --------------------------------------------------------------------------------         --------------------------------------------------------------------------------     ABA No. --------------------------------------------------------------------------------     Account No. --------------------------------------------------------------------------------     Attn: --------------------------------------------------------------------------------     Ref: --------------------------------------------------------------------------------           ACKNOWLEDGED AND AGREED:           ADMINISTRATIVE LENDER:         --------------------------------------------------------------------------------     By: --------------------------------------------------------------------------------     Name: --------------------------------------------------------------------------------     Title: --------------------------------------------------------------------------------          

<DOCUMENT> <TYPE> EX-10.28 <TEXT> <HTML> Exhibit 10.28             UAL CORPORATION SUPPLEMENTAL ESOP TRUST AGREEMENT         Effective July 12, 1994                                             TRUST AGREEMENT INDEX       Section   Page       RECITALS:   1   Section 1. Trust Fund 1   Section 2. Payments to Trust Beneficiaries 3   Section 3. Trustee Responsibility Regarding Payments to a Trust Beneficiary When the Company is Insolvent 4   Section 4 Term and Payments to the Company 5   Section 5 Powers of the Trustee 5   Section 6. Accounting by the Trustee 9   Section 7 Responsibilities and Powers of Trustee 10   Section 8 Compensation and Expenses of the Trustee; Taxes 11   Section 9. Replacement of the Trustee 12   Section 10. Amendment 12   Section 11. Severability and Alienation 13   Section 12 Governing Law 13   Section 13 Notices 13   Section 14 Signature in Counterparts 14   Section 15 Defined Terms 14     i TRUST AGREEMENT             This Trust Agreement made as of July 12, 1994 by and between UAL Corporation, a Delaware corporation (the "Company") and State Street Bank and Trust Company, a Massachusetts trust company (the "Trustee").                          RECITALS:               WHEREAS, certain employees of the Company and its Affiliates are eligible to receive certain benefits pursuant to the UAL Corporation Supplemental ESOP (the "Plan"), a copy of which is attached hereto as Exhibit A and made a part hereof; and               WHEREAS, the Company wishes to establish five trusts, as set forth in Section 1(g), (individually and collectively referred to as the "Trust") and to contribute Voting Shares, to the Trust to be held therein, subject to the Company's power to revoke the Trust to the extent provided below, in whole or in part, at any time or from time to time, and subject to the claims of the Company's creditors in the event of the Company's Insolvency, as hereinafter defined, until distributed to the Participants and their beneficiaries ("Trust Beneficiaries") as benefits in such manner and at such times as specified in the Plan;               WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as constituting both (i) an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the ERISA and (ii) an excess plan under Section 3(36) of ERISA.               NOW, THEREFORE, the parties do hereby agree that the Trust shall be composed, held and disposed of as follows:   Section 1.     Trust Fund.                                 (a)     The Company from time-to-time shall contribute Voting Shares to Trust-1, Trust-2 and Trust-3 in accordance with the Plan.                                     (b)     Subject to the provisions of Sections 3 and 4, the Company may not revoke the Trust.                                   (c)     The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of Sections 671-677 of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly.                                   (d)     The principal of the Trust, and any earnings thereon, shall be held separate and apart from other funds of Company and shall be used exclusively for the uses and purposes of Trust Beneficiaries and general creditors as herein set forth. Notwithstanding any other provision of this Trust Agreement to the contrary, no Trust Beneficiary shall have any preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of Trust Beneficiaries against the Company and his Employer in accordance with the Plan. Any assets held by the Trust will be subject to the claims of Company's general creditors in the event of Insolvency, as defined in Section 3(a) herein. No rights to a distribution under the Plan shall be created under this Trust Agreement independently of any Trust Beneficiary's right to a distribution or payment under the Plan. Neither the Company nor the Trustee shall have any power to create a security interest in the assets of the Trust in favor of any Trust Beneficiary, any person entitled to a Plan benefit by reason of the death of any Trust Beneficiary or any creditor of the Company. Nothing contained herein or in any provision of the Plan shall operate to create a security interest in any part of the assets of the Trust on behalf of any Trust Beneficiary or any person entitled to benefits upon the death of any Trust Beneficiary.                               (e)     In accordance with the Plan, as directed by the Company, the Trustee shall transfer certain Shares from the Trust to the ESOP Trust.                               (f)     This Trust consists of five trusts, each of which are set forth in this Trust Agreement. The trusts are: (i) a trust holding the Class P Voting Shares allocated to the Accounts of Participants under the Plan ("Trust 1 "); (ii) a trust holding the Class S Voting Shares allocated to the Accounts of Participants under the Plan ("Trust-2"); (iii) a trust holding the Class M Voting Shares, if any, allocated to the Accounts of Participants under the Plan ("Trust-3"); (iv) a trust which holds the Convertible Shares sold or contributed to such Trust, if any, as described in Section 1(h) ("Trust-4"); and (v) a trust holding the Convertible Shares sold or contributed to the Trust, if any, that have been allocated to the Accounts of Participants under the Plan ("Trust-5"). For ease of reference, all of such trusts shall be referred to as the "Trust;" such a reference shall constitute a reference to each of the appropriate trusts. At such times that any Participant receives an allocation of Convertible Shares under the Plan, the Trustee shall transfer the appropriate number of Convertible Shares from Trust-4 to Trust-5.                               (g) Section 1.5 of the Plan is incorporated by reference (excluding Section 1.5(a), (b), and (f)), but with such modifications as are necessary in light of the fact that this document creates a trust.                                 (h)     As provided in Sections 6.1 (e) and 6.9 of the Plan, at the written election of ALPA, the Company shall sell or contribute Convertible Shares to the Trustee of Trust-4 and Trust-5. Such Convertible Shares shall become the principal of Trust-4 and Trust 5 to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. In the case of a sale of such Convertible Shares to the Trust, the Company shall contribute to the Trust an amount of cash and/or accept the Trustee's promissory note (to be immediately forgiven or repaid with additional cash contributed by the Company to the Trust) sufficient to permit the Trustee to consummate such purchase. The Company shall also cause to be delivered to the Trust an appropriate number of shares of Common Stock to satisfy the requirements of Sections 6.1(e) or 6.9 of the Plan.     Section 2.      Payments to Trust Beneficiaries.                             (a)     Subject to Section 3 hereof, the Trustee shall distribute the Plan benefits in accordance with the Plan as directed by the Committee, as hereinafter set forth, if and to the extent that Shares are available for such distribution. Alternatively, if directed by the Company, the Trustee shall return distributable Voting Shares (of the applicable series) to the Company for prompt distribution as Plan benefits in accordance with the Plan. Subject to the provisions of Section 3, a Trust Beneficiary shall be entitled to a distribution from the Trust in accordance with the preceding sentence and the terms of the Plan, provided that the obligation of the Participant's Employer and the Company under the Plan has not been satisfied otherwise. The Committee will instruct the Trustee as to the eligibility of any Trust Beneficiary for such distribution, the correct amount of each distribution and when to make the distribution to the Trust Beneficiary (or return such amounts to the Company for distribution as provided above). The Committee or its designee shall keep accurate records with respect to the benefits payable from the Trust and the Trustee may rely upon such records without a duty of further inquiry in performing its duties under this Trust Agreement. To the extent benefits have been paid from the Trust hereunder, the Company shall be relieved of its obligation to pay such benefits. To the extent benefits are returned to the Company from the Trust, the Trust shall be relieved of its obligations to pay such benefits.                               (b)     If at any time the number of Shares held in the Trust is not sufficient to make any directed distribution of benefits, in accordance with the Plan, to any Trust Beneficiary then entitled to a distribution, the Trustee shall distribute the balance of the Shares (and any other assets) held in the Trust (or return them to the Company for distribution as provided above) to or on behalf of all the Trust Beneficiaries then entitled to distributions in the following manner: the benefits to be distributed to any Trust Beneficiary shall be equal to the balance of Trust assets multiplied by a fraction the numerator of which is the amount of benefits such Trust Beneficiary is entitled to distribution of at that time and the denominator of which is the amount of benefits all Trust Beneficiaries are entitled to distribution of at that time (the foregoing calculations to be made on an Employee Group-by-Employee Group basis, for example, assets held in Trust 1 shall be available for distribution only to members of the ALPA Employee Group). No provision of this Trust Agreement shall relieve the Company of its liabilities to pay benefits except to the extent that the same have been paid from the Trust hereunder.                               (c)     The Trustee shall make provision for withholding of any federal, state or local taxes that may be required in accordance with Section 6.5 of the Plan.                               (d)     The Trustee shall provide the Company with written confirmation of the fact and time of any commencement of payments directly to a Trust Beneficiary hereunder within 30 business days after any payments commence to a Trust Beneficiary. The Company shall notify Trustee in the same manner of any payments an Employer commences to make to a Trust Beneficiary pursuant to the Plan.     Section 3.     Trustee Responsibility Regarding Payments to a Trust Beneficiary When the Company is Insolvent.                               (a)     Trustee shall cease payment of benefits to Trust Beneficiaries if the Company is Insolvent. The Company shall be considered "Insolvent" for purposes of this Trust Agreement if (i) the Company is unable to pay its debts as they become due, or (ii) the Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code.                               (b)     At all times during the continuance of this Trust, as provided in Section 1(d) hereof, the principal and income of the Trust shall be subject to claims of general creditors of the Company, but only as set forth below:   (i)  The Board of Directors and the Chief Executive Officer of the Company shall have the duty to inform the Trustee in writing of the Company's Insolvency. If a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to Trust Beneficiaries.   (ii)  Unless the Trustee has actual knowledge of the Company's Insolvency, or has received notice from the Company or a person claiming to be a creditor alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency. (iii)  If at any time the Trustee has determined that the Company is Insolvent, the Trustee shall discontinue payments to Trust Beneficiaries and shall hold the assets of the Trust for the benefit of the Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Trust Beneficiaries to pursue their rights as general creditors of the Company with respect to benefits due under the Plan or otherwise.   (iv)  The Trustee shall resume the payment of benefits to Trust Beneficiaries in accordance with Section 2 of this Trust Agreement only after the Trustee has determined that the Company is not Insolvent (or is no longer Insolvent).                             (c)     Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Trust Beneficiaries under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to Trust Beneficiaries by the Company in lieu of the payments provided for hereunder during any such period of discontinuance.   Section 4.     Term and Payments to the Company.                     Unless sooner terminated by a written instrument executed by the Company (with the approval of ALPA (and the IAM, only if the Trust Agreement is amended to provide for an additional trust to hold Class M Voting Shares)), this Trust shall terminate upon the earlier of (a) the satisfaction of all of each Employer's obligations under the Plan with respect to Voting Shares (and any other Shares held in the Trust) to the Trust Beneficiaries (including the transfer of all such Shares to ESOP (Part B)), (b) if required to comply with applicable law regarding the maximum length for which trusts may be established, the twenty-first anniversary of the death of the last to survive of the Employees who are Trust Beneficiaries as of the date of execution of this Trust Agreement, (c) the exhaustion of all appeals of a final determination of a court of competent jurisdiction that the interests in the Trust of Trust Beneficiaries are includable for federal income tax purposes in the gross income of such Trust Beneficiaries, without such determination having been reversed (or the earlier expiration of the time of appeal), (d) a determination by the Board of Directors of the Company to terminate the Trust because applicable law requires it to be amended in a way that could make it taxable and failure to so amend the Trust Agreement would subject the Company to material penalties or liabilities, (e) a determination by the Board of Directors of the Company to terminate the Trust because the Company concludes, after consulting with legal counsel reasonably satisfactory to ALPA, that there is a significant possibility that the Trust will not be considered a grantor trust under the Code or an unfunded plan for purposes of Title I of ERISA and either ALPA concurs or the Board has determined that failure to terminate will subject the Company to material penalties or liabilities, or (f) the dissolution or liquidation of the Company. The Company shall provide reasonable notice to ALPA prior to any such termination. Upon any termination of the Trust, all remaining Shares and other assets, if any, held in the Trust shall be delivered to the Company.   Section 5.      Powers of the Trustee.                             (a)     The Trustee shall maintain books of account and records with respect to the Fund. The Fund shall be held by the Trustee in trust and dealt with in accordance with the provisions of this Trust Agreement. The Trustee shall take all action necessary to implement any written directions received from the Committee or the Company and shall conform to procedures established by the Committee for disbursement of funds in accordance with the terms of the Plan.                               (b)     It shall be the duty of the Trustee (i) to hold, invest and reinvest the Fund in accordance with the provisions of this Trust Agreement, and (ii) to pay moneys therefrom in accordance with the written directions of the Committee.                               (c)     To the extent that Company contributions are made in Company Stock, the Trustee shall retain such Company Stock. The Trustee shall invest any other assets of the Trust exclusively in Company Stock (except for de minimis investments of cash pending investment in Company Stock or pending distribution to Participants). The Trustee shall, at the direction of Committee, acquire Company Stock either from other shareholders or directly from the Company. If at the time Company Stock is to be purchased, the Company has outstanding more than one class of Company Stock, the Committee shall direct the Trustee as to which class of Company Stock shall be purchased. The Trustee may rely in good faith without liability upon the valuation of Company Stock as determined by the Committee. Subject to the preceding sentences of this Section 5(c), the Trustee may also, at the direction of the Committee, invest the Fund in temporary investments other than Company Stock, may hold such portion of the Fund in such investments as may be required under the Plan, may hold such portion of the Fund uninvested as the Committee deems advisable for making distributions under the Plan, may invest assets of the Trust in short-term investments bearing a reasonable rate of interest, including, without limitation, deposits in, or short-term instruments of, the Trustee.                               (d)      The Trustee shall have no duty hereunder to determine or inquire into whether any directions received from the Committee in accordance with the terms of this Trust Agreement represent proper and lawful decisions. The Trustee shall have no duty to review any investment to be acquired, held or disposed of pursuant to such instructions from the Committee. If the Trustee does not receive written directions with respect to any part of the Fund subject to the Committee's direction (including, without limitation, income, sale proceeds or contributions), the Trustee shall, pending receipt of such directions, hold and invest such amount in short-term securities as provided in subsection (c) hereof.                               (e)     In addition to, and not in limitation of, the powers now, or which may later become, vested in it, the Trustee shall have the following powers; provided, however, that the Trustee's exercise of such powers shall be consistent with and subject to all other provisions of this Trust Agreement, and provided further that, subject to the provisions of Section 7(g), the powers set forth in clauses (i)-(v) shall be exercised by the Trustee only to the extent and in the manner directed by the Committee in accordance with the terms of this Trust Agreement, except as otherwise required by applicable law:                   (i)  To hold, invest and reinvest the principal or income of the Trust in bonds, common or preferred stock, other securities, or other personal, real or mixed tangible or intangible property, including any securities issued by the Company or its Affiliates (including investment in deposits with Trustee which bear a reasonable interest rate, including without limitation investments in trust savings accounts, certificates of deposit, time certificates or similar investments or deposits maintained by the Trustee);                   (ii)  To exercise voting rights either in person or by proxy, with respect to any securities or other property, and generally to exercise with respect to the Fund all rights, powers and privileges as may be lawfully exercised by any person owning similar property in his own right;                   (iii)  To exercise any options, conversion rights, put rights, or rights to subscribe for additional stock, bonds or other securities appurtenant to any securities or other property held by it, and to make any necessary payments in connection with such exercise, and to join in, dissent from, and oppose the reorganization, consolidation, recapitalization, liquidation, merger or sale of corporate property with respect to any corporations or property in which it may be interested as Trustee;                   (iv)  To compromise, compound, and settle any debt or obligation owing to or from it as Trustee, and to reduce or increase the rate of interest on, extend or otherwise modify, foreclose upon default, or otherwise enforce any such obligation;                   (v)  To sue or defend suits or legal proceedings to enforce or protect any interest of the Trust, and to represent the Trust in all suits or legal proceedings in any court or before any other administrative agency, body or tribunal, provided that the Trustee is indemnified to the Trustee's satisfaction against liability and expenses;                   (vi)  To hold any property at any place;                   (vii)  To make, execute, acknowledge and deliver assignments, agreements and other instruments;                   (viii)  To register any securities held by it hereunder in its own name or in the name of a nominee with or without the addition of words indicating that such securities are held in. a fiduciary capacity, to permit securities or other property to be held by or in the name of others, to hold any securities in bearer form and to deposit any securities or other property in a depository, clearing corporation or similar corporation, either domestic or foreign; provided, however, that the records of the Trustee shall at all times show that any such property held or registered in the name of another is part of the Fund;                   (ix)  To employ legal counsel, brokers and other advisors, agents or employees to perform services for the Fund or to advise it with respect to its duties and obligations under this Trust Agreement and in connection with the Trust, and to pay them reasonable compensation from the Fund, to the extent not paid directly by the Company or its Affiliates; and                   (x)  To open and make use of banking accounts including checking accounts, which accounts, if bearing a reasonable rate of interest or if checking accounts, may be with the Trustee.                               (f)      If the Committee directs the Trustee to dispose of any investment or security or any part thereof under circumstances which in the opinion of the counsel for the Trustee require registration under the Securities Act of 1933 or qualification under state "Blue Sky" laws, then the Company, at its own expense, shall take or cause to be taken all such action necessary or appropriate to effect such registration and qualification. The Trustee shall not be required to dispose of such investment until such registration and qualification are complete and effective, and shall not be liable for any loss or depreciation of the Fund resulting from any delay attributable thereto. The Company shall indemnify and hold the Trustee and its officers and directors harmless with respect to any liability, reasonable legal counsel fees, and other costs and expenses incurred as a result of such registration or qualification or as a result of any information in connection therewith furnished by the Company or any failure by the Company to furnish any information.                               (g)      In addition to, and not in limitation of, the powers vested and to be vested in it by law or enumerated in this Section 5, the Trustee shall have the power to take any action with respect to the Fund as is appropriate and helpful in carrying out the purposes of this Trust Agreement, subject to any directions of the Committee as provided herein.                               (h)      Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Code.   Section 6.      Accounting by the Trustee.                             (a)      The Trustee shall keep accurate and detailed accounts of all its transactions (including investments, receipts and disbursements) under this Trust Agreement. These records shall be open to inspection and audit during regular business hours of the Trustee by the Committee or any person or persons designated by the Committee or the Company in a written instrument filed with the Trustee. If mutually agreed upon in a separate writing by the Committee and the Trustee, the Trustee shall establish and maintain accounts for Participants which shall show their respective interests, determined in accordance with the terms of the Plan, in the Fund; provided, however, that to the extent that such accounts are kept by the Trustee on the basis of information furnished or caused to be furnished to it by the Committee, the Trustee shall have no responsibility for the accuracy of any information so furnished. All such accounts and records shall be preserved (in original form, or on microfilm, magnetic tape or any other similar process) for such period as the Trustee may determine, but the Trustee may destroy such accounts and records only after first notifying the Comnuttee and the Company in writing at least ninety (90) days in advance of its intention to do so and transferring to the Committee or the Company any such accounts and records requested.                               (b)      Within sixty (60) days after the close of each Plan Year, the Trustee's removal or resignation as Trustee hereunder, or the termination of the Plan or this Trust Agreement, the Trustee shall file with the Committee an account setting forth all its transactions (including all investments, receipts and disbursements) under this Trust Agreement during such year, or during the period from the close of the last preceding Plan Year to the effective date of its removal or resignation or the termination of the Plan or this Trust Agreement, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be; provided, however, that in the event shares of Company Stock are then held in the Trust and final valuation, if necessary, with respect to such Company Stock for any such accounting period is not received by the Trustee within thirty (30) days of the date the Trustee is required to render an accounting under the foregoing provision, then the Trustee shall not be required to render such account until thirty (30) days from the date such valuation report is received by the Trustee. The Committee and the Trustee may agree in writing that similar accounts will be prepared by the Trustee and filed with the Committee at more frequent intervals. No person or persons (including, without limitation, the Company and the Committee) shall be entitled to any further or different accounting by the Trustee, except as may be required by law.                               (c)      Twenty-four (24) months after the filing with the Committee of the annual accounts for the 1994 and 1995 fiscal years of the Trust and twelve (12) months after the filing of any other account with the Committee under subsection (b), the Trustee shall be forever released and discharged from any liability or accountability to the Company and the Committee with respect to the transactions shown or reflected on the account, except with respect to any acts or transactions as to which the Committee, within the applicable period, files written objections with the Trustee. The written approval of the Committee of any account filed by the Trustee, or the Committee's failure to file written objections within the applicable period, shall be a settlement of such accounts as against the Company and the Committee, and shall forever release and discharge the Trustee from any liability or accountability to the Company and the Committee with respect to the transaction shown or reflected on such account. If a statement of objection is filed by the Committee and the Committee is satisfied that its objections should be withdrawn or if the account is adjusted to its satisfaction, the Committee shall indicate its approval of the account in a written statement filed with the Trustee and the Trustee shall be forever released and discharged from all liability and accountability to the Company and the Committee in accordance with the immediately preceding sentence. If an objection is not settled by the Committee and the Trustee, the Trustee may commence a proceeding for a judicial settlement of the account in any court of competent jurisdiction; the only parties that need be joined in such a proceeding are the Trustee, the Committee, the Company and such other parties whose participation is required by law.   Section 7.      Responsibilities and Powers of Trustee.                             (a)     The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of alike character and with like aims. The Trustee shall incur no liability hereunder except as provided by applicable law.                               (b)     Subject to the provisions of Section 3(b), the Trustee shall have no duty to make an independent investigation as to the occurrence of any event giving rise to a distribution hereunder or under the Plan, and shall be entitled to rely conclusively on the determinations of the Company, the Board of Directors, the Company's Chief Executive Officer, or the Committee, as the case may be, as to the occurrence of any such event, which determinations shall be binding upon the Trustee, the Company and the Trust Beneficiaries. To the extent permitted by applicable law, the Trustee shall be indemnified by the Company against any and all liabilities, settlements, judgments, losses, costs, and expenses (including reasonable legal fees and expenses) of whatever kind and nature which may be imposed on, incurred by or asserted against the Trustee by reason of the performance or nonperformance of its trustee function under this Trust Agreement, except to the extent such action or inaction constituted negligence, willful misconduct or failure to act in good faith on the part of the Trustee.                               (c)     The Trustee may hire agents, accountants and attorneys (including the Company's attorneys) to assist with its responsibilities under this Trust Agreement subject to the consent of the Company.                               (d)     The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law unless expressly provided otherwise herein.                               (e)     The Committee or the Company shall direct the Trustee in administering the Trust, as provided in this Trust Agreement.                               (f)     Any corporation into which the Trustee (or any other corporation acting as Trustee) shall be merged or with which it shall be consolidated, or any corporation resulting from any merger, reorganization or consolidation to which it shall be a party, or any corporation to which all or substantially all of its trust business shall be transferred, shall be the successor of the Trustee (or of any other corporation acting as Trustee) as Trustee under this Trust Agreement, without the execution or filing of any instrument or the performance of any further act or the order or judgment of any court and with the same powers, authorities and discretions.                               (g)     Section 6.9 of the Plan is hereby incorporated by reference.                               (h)     The Company shall provide the Trustee with such information and assistance as the Trustee may reasonably request in connection with any communication or distributions to Trust Beneficiaries.     Section 8.      Compensation and Expenses of the Trustee; Taxes.                             (a)     The Trustee shall be entitled to receive such reasonable compensation for its services and reimbursement for reasonable expenses incurred with respect to the administration of the Trust, including fees incurred by the Trustee pursuant to Section 7(c) of this Trust Agreement, in either case as shall be agreed upon between the Trustee and the Company. Such compensation and expenses shall be paid by the Company.                                 (b)     The Trustee shall not be personally liable for any real and personal property taxes, transfer taxes, any income taxes (imposed on the Trust) and other similar taxes of any kind levied or assessed under the existing or future laws against the Fund. Such taxes shall be paid by the Company.     Section 9.      Replacement of the Trustee.                             (a)     The Trustee may resign at any time, subject to the appointment and qualification of a successor trustee, by giving 60 days prior notice of such resignation in writing to the Company. The Trustee may be removed by the Company (with the consent of ALPA) upon 60 days prior notice. In the event of the resignation or removal of the Trustee, a successor corporate trustee shall be appointed by the Company (with the consent of ALPA). The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets.                               (b)     In the event of the appointment of a successor trustee, such successor trustee will succeed to all the right, title and estate of, and will be, the Trustee; and the retiring trustee will deliver the Trust to the successor trustee together with all such instruments of transfer, conveyance, assignment and further assurance as the successor trustee may reasonably require.   Section 10.      Amendment.                             (a)     Subject to ALPA approval, this Trust Agreement may be amended by a written instrument executed by the Company at any time and to any extent except that, subject to the limitation below, in no event shall the rights of the creditors of the Company be diminished and no amendment may be made which would permit the Company to revoke the Trust in violation of Section 1(b). In addition, no amendment may be made without the Trustee's consent which would increase the Trustee's duties or responsibilities under this Trust Agreement.                               (b)     The Plan may be amended from time to time by the Company in accordance with its terms without the consent or concurrence of the Trustee and the Company will provide the Trustee with such amendments in a timely manner. The Company shall provide the Trustee with a copy of any amendment, certified by the Company's Secretary, Assistant Secretary or such person's designee, within 90 days after its adoption. In the event of any conflict between the Plan and this Agreement concerning the Trustee's responsibilities, this Trust Agreement shall govern.                               (c)     If Shares allocable to members of the IAM Employee Group are contributed to the Trust, the parties agree to amend the Trust Agreement to provide for the holding of such Shares, to provide for notice to, consent and approval of the IAM with respect to such Shares consistent with the provisions in this Trust Agreement requiring notice to, or the consent or approval of, ALPA. The amendment in this Section 10(c) does not require the approval of ALPA.     Section 11.      Severability and Alienation.                             (a)     Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition without invalidating the remaining provisions hereof and the Trust Agreement shall reconstituted and enforceable as if such illegal provision were never included.                               (b)     Subject to the provisions of Section 3 and Section 6.3 of the Plan (which is hereby incorporated by reference), benefits under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process.     Section 12.      Governing Law.                     This Trust Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts.     Section 13.      Notices.                             (a)     Communications to the Company shall be addressed to the Company at P.O. Box #66919, Chicago, IL 60666, Attention: Corporate Secretary (if by mail) and at 1200 Algonquin Road, Elk Grove Township, Illinois 60006, Attention: Corporate Secretary, if by courier; provided, however, that upon the Company's written request, such communications shall be sent to such other addresses as the Company may specify.                               (b)     Communications to the Trustee shall be addressed to it at 225 Franklin Street, Boston, Massachusetts 02110, Attention: UAL ESOP Administration; provided, however, that upon the Trustee's written request, such communications shall be sent to such other address as the Trustee may specify.                               (c)     Communications to the Committee shall be addressed to the Committee at such address as the Committee may specify.                               (d)     Communications to ALPA shall be addressed to UAL MEC/ALPA at 6400 Shafer Court, Suite 700, Rosemont, Illinois 60018; provided, however, that upon ALPA's written request, such communications shall be sent to such other address as ALPA may specify.                                 (e)     No communication shall be binding on the addressee thereof prior to receipt thereof.     Section 14.      Signature in Counterparts.                     This Trust Agreement may be signed in counterparts, each of which shall be an original but all of which together will constitute one and the same instrument.   Section 15.      Defined Terms.                     Capitalized terms not otherwise defined herein shall be defined in accordance with the Plan.                       "Fund" means the contributions of cash or property reasonably acceptable to the Trustee, including, but not limited to, Company Stock deposited with or purchased by the Trustee and held under this Trust by the Trustee, any property into which the same or any part thereof may from time to time be converted, and any appreciation therein or income thereon less any depreciation therein, any losses thereon and any distributions or payments therefrom.                         "Shares" shall mean Voting Shares and, to the extent applicable, Convertible Shares and/or Common Stock, as the context requires.     "Trust" shall mean the five trusts described in Section 1(f).         IN WITNESS WHEREOF, the Company and the Trustee have executed this Trust Agreement as of the date first above written.   UAL CORPORATION     By:  /s/      J. R. O'Gorman Title:  Executive Vice President         STATE STREET BANK AND TRUST COMPANY     By: Title: IN WITNESS WHEREOF, the Company and the Trustee have executed this Trust Agreement as of the date first above written.   UAL CORPORATION     By: Title:       STATE STREET BANK AND TRUST COMPANY     By:  /s/     Kelly Q. Driscoll Title: Vice President   </HTML> </TEXT> </DOCUMENT>

Exhibit 10.123 November 16, 2000 Mr. Armando Anido c/o MedImmune, Inc. 35 W. Watkins Mill Road Gaithersburg, MD 20878 Dear Armando: Reference is made to your Employment Agreement, dated as of November 1, 1998 (the "Employment Agreement"), with MedImmune, Inc. (the "Company"). The Employment Agreement is hereby amended so that the Employment Period referred to in Section 2 thereof is extended to November 1, 2002. All other provisions of the Employment Agreement remain unchanged. Very truly yours, MEDIMMUNE, INC. By: /s/ David M. Mott David M. Mott Chief Executive Officer Accepted and agreed to by: /s/ Armando Anido Armando Anido Date: 12/4/00

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.1 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT     This Second Amendment to Employment Agreement ("Amendment"), effective as of July 1, 2001, is made by and between NANOGEN, INC., a Delaware corporation (the "Company"), and MICHAEL D. MOORE (the "Executive"). RECITALS     WHEREAS, the Company and Executive have entered into an Employment Agreement dated December 6, 1999, superceded by an Employment Agreement dated June 15, 2000 and a First Amendment to Employment Agreement dated July 28, 2000 (collectively the "Employment Agreement"); and     WHEREAS, the Company and Executive wish to amend the Employment Agreement as described herein.     NOW, THEREFORE, the Company and Executive, in consideration of the Executive's continued employment with the Company, agree as follows: TERMS 1. Title/Responsibilities.  In Article II, Section A (Title/Responsibilities) of the Employment Agreement, Executive's title is stated to be "Senior Vice President and General Manager". The title and position of "Senior Vice President and General Manager" is hereby deleted from the Employment Agreement, and the title and position of "Senior Vice President, Operations" is substituted. 2.Full Time Attention.  Article II, Section B (Full Time Attention) of the Employment Agreement requires Executive to "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". This language is hereby deleted, and the following language is substituted: "Executive shall devote his best efforts and his 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 while working three full (3) days per week at the Nanogen San Diego office and one full (1) day per week from his Bay Area residence". 3.Base Salary.  Article III, Section A (Base Salary) of the Employment Agreement sets Executive's base salary at $250,000 per year. This language is hereby deleted, and the annual Base Salary is hereby set at the rate of one hundred fifty thousand dollars ($150,000). 4.Stock Options.  Article IV, Section E (Stock Options) of the Employment Agreement provides for certain vesting schedules for stock options granted to Executive at various times. Effective July 1, 2001, Executive's stock options will vest at eighty percent (80%) of his current vesting schedule, as set forth in Exhibit A attached hereto and incorporated herein. Should additional stock options be granted to Executive in the future, they also will vest at eighty percent (80%) of the vesting schedule provided to full time employees at Executive's level. 5.No Constructive Termination.  Executive acknowledges that the foregoing amendments to the Employment Agreement do not constitute Constructive Termination of Executive's employment as that term is defined in Article VI, Section E (Constructive Termination) of the Employment Agreement. -------------------------------------------------------------------------------- 6.Remainder of Agreement.  The other terms and conditions contained in the Employment Agreement shall remain in effect pursuant to the Employment Agreement and such terms and conditions, where applicable, shall also govern this Amendment. 7.Governing Law.  This Amendment shall be construed in accordance with the laws of the State of California, notwithstanding its conflicts of law provisions. 8.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 Amendment, and has been advised to do so by the Company, and (b) that he has read and understands this Amendment, is fully aware of its legal effect, and has entered into it freely based on his own judgment. 9.Counterparts.  This Amendment may be executed in one or more counterparts, all of which taken together constituted one and the same agreement.     NANOGEN, INC.     By:   /s/ V. RANDY WHITE    6/21/01         --------------------------------------------------------------------------------         V. Randy White Chief Executive Officer Date     EXECUTIVE     By:   /s/ MICHAEL D. MOORE    7/01/01         --------------------------------------------------------------------------------         Michael D. Moore Date -------------------------------------------------------------------------------- QuickLinks Exhibit 10.1 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT